By Bryan J. Kaus
“There is surely nothing quite so useless as doing with great efficiency what should not be done at all.”
Peter F. Drucker, “Managing for Business Effectiveness,” Harvard Business Review, May 1963
In 2009, Avon began a global Service Model Transformation intended to improve order management and the way its independent sales representatives interacted with the company. Andrea Jung was chairman and chief executive. By late 2013, a Canadian pilot had caused significant business disruption and had not demonstrated a clear return. Under Sheri McCoy, who had succeeded Jung as CEO in April 2012, Avon halted further rollout. Avon subsequently reported a $117 million pretax noncash impairment associated with the project.
What interests me about Avon is that the case contains two decisions. The original objective was understandable: improving how a business receives orders and supports its sellers can create value. The pilot then produced evidence that the intervention was disrupting the commercial system it was meant to serve, and management stopped the broader rollout. We can examine what went wrong while also recognizing the discipline involved in limiting further exposure.
I have been studying Paul Singer’s Elliott Management, including the motivations behind its campaigns and how its approach has evolved. That work keeps bringing me back to a question about the companies themselves: when management announces a transformation, what has it actually committed the enterprise to, and why?
I have written before about the discipline required to govern an investment and the organizational capacity needed to deliver it. Here I want to examine the decision that comes before the program, and the obligation that outlasts its announcement: why this change, what is it meant to improve, and what happens to leadership’s credibility when the promised value does not arrive?
Markets change. Customer expectations move, competitive advantages weaken, and the economics of a business can shift across a cycle. Leadership has a responsibility to recognize those changes and respond. Adaptability protects enterprise value, and a company that remains competitive has a better chance of sustaining employment and creating opportunities for its people.
A new CEO may want to establish a direction. Investors may expect a response to a popular theme. AI may appear to demand an immediate, visible commitment. A fresh perspective can be valuable, and a company can miss an opportunity by responding too slowly. The difficulty is recognizing when those pressures sharpen our understanding of the business and when they begin to define the problem for us. We can end up inventing something to fix, or treating visible activity as evidence of progress. A persuasive narrative helps secure support. I am more interested in the strategic insight underneath it.
That leaves a question worth spending time with. How do we distinguish necessary adaptation from change that consumes the organization without strengthening it? And how early can we realistically know the difference?
What are we asking change to do?
I find it useful to begin with the business itself: the customer it serves, the economics it depends on, and the market it is trying to navigate. Where is it losing ground, or leaving a meaningful opportunity unexplored? Then comes a separate question: can the proposed change actually address what we have identified?
Nothing has to be broken for change to be justified. A company may need to invest before a threat becomes visible in its results. Waiting can destroy value too. But an opportunity still needs an explanation: why this opportunity, why this company, and why this commitment now?
A convincing reason to change still leaves the choice of intervention open. A declining business may have a structural problem that a reorganization cannot resolve. A customer problem may require a different proposition rather than a new system. Some problems call for a targeted repair; others may call for partnership, divestment, or exit. The diagnosis may be right even when the chosen response is wrong.
J.C. Penney’s 2012 transformation was led by Ron Johnson, whom the board had recruited from Apple’s retail business the year before. It set out to change pricing, promotion, product, branding, and store presentation. In that fiscal year, selling, general, and administrative expenses fell by $603 million, while total sales declined 24.8% and gross margin deteriorated. Johnson was gone by April 2013.
The company already faced commercial challenges, and these results do not prove that its previous strategy was sustainable. What gives me pause is the distance between an improvement in the cost structure and the performance of the commercial system. Customers were responding to a proposition that had changed in several ways at once, making it harder to isolate which assumptions needed correction.
Some benefits take time to emerge, and early disruption can accompany a necessary transition. That is part of what makes this difficult. How will we distinguish transitional strain from evidence that the underlying thesis is failing? Making assumptions visible, testing where practical, and scaling commitments as evidence develops gives others something substantive to examine. The narrative becomes useful when it helps people participate in that judgment.
What the project budget misses
Transformation uses money, management attention, and operating capacity. People must learn new systems, adjust responsibilities, resolve exceptions, and keep serving customers while the organization changes around them. Those demands are part of the investment.
Consider a hypothetical middle-market manufacturer that centralizes purchasing and reduces inventory. Lower unit prices appear in the purchasing report. Supplier delays then create downtime and expedited freight elsewhere in the business. Purchasing and operations could each give an accurate account of their results and leave us with different impressions of the same initiative. The purchasing improvement may be real, while its value to the enterprise is disappointing.
Culture belongs in that accounting as well. Employees carry knowledge about customers, processes, and the exceptions that keep a business functioning. A reorganization can remove unnecessary duplication, but it can also remove useful judgment or relationships that were poorly understood. That loss is part of the cost of change, whether or not it was intended. Some cultural disruption is unavoidable, and some established practices deserve to change. Distinguishing an inherited habit from a useful adaptation to the market can be harder than an organization chart suggests.
Trust affects the quality of execution. Employees who believe that difficult information is unwelcome may become less willing to surface problems. People who have absorbed repeated changes without seeing the promised improvement may be harder to enlist in the next one. These effects resist precise valuation, but their consequences can still be material. A business case that cannot assign them a reliable dollar value still needs a way to recognize them.
This is particularly relevant in smaller and mid-sized companies, where a few experienced people may hold a substantial share of the firm’s operating knowledge. A transformation can draw heavily on the same people the business depends on to perform today. Their capacity is finite, even when it does not appear as a separate line in the budget.
Following the promise into the business
Suppose a company announces that its transformation will produce $1.2 billion in savings. That is a hypothetical promise, but the question it invites is concrete: show me the money.
Estimates help a company plan and give people a basis for evaluating the commitment. Their usefulness depends on understanding what they mean. A recurring expense reduction, an annualized estimate, avoided future spending, and released capacity can all have value, but they are different benefits. Time saved creates a financial return through what the business can do with that time. An expense removed from one department may reappear in another. Following the promise into the business means looking at what was realized, over what period, and after which costs.
Kraft Heinz provides an extreme example of why the substance matters. In its 2021 enforcement action, the SEC described procurement accounting misconduct involving unearned supplier discounts and misleading contracts. A restatement corrected $208 million of improperly recognized savings. The SEC also alleged pressure to achieve unrealistic savings targets. The company settled for a $62 million civil penalty without admitting or denying the findings.
This sits at the extreme end of the problem. More ordinary disagreements may involve which costs count, when a benefit should emerge, or how much improvement came from the program rather than the market. Those distinctions can change our assessment considerably. Once reputations and incentives depend on an announced number, the ability to examine its substance becomes more consequential.
Once a transformation has a name, budget, timetable, and executive sponsor, it can acquire a momentum of its own. Careers and reputations become attached to delivering it. Completion can gradually displace the business objective, and an adjustment can feel like a retreat even when the evidence warrants it. I wonder how often the hardest part of adapting is making it possible to revise something the organization has already been asked to believe in. The resources already consumed do not justify consuming the next round, but knowing that intellectually does not make the decision easy.
Richard Feynman, in his appendix to the Rogers Commission report on the Challenger accident, wrote that “reality must take precedence over public relations, for nature cannot be fooled.” Markets are not physics. They do eventually return a verdict of their own.
Parliament’s review of the BBC’s canceled Digital Media Initiative found that no single individual had overall responsibility for both delivering the program and achieving its benefits. The chief technology officer owned the system, but not the projected benefits across divisions. That finding raises a useful question about any transformation: who is in a position to reconcile the progress reported by the program with the experience of the people expected to use it?
The same distinction applies to AI. Klarna reported approximately $39 million in savings from its AI customer service assistant in 2024. In September 2025, chief executive Sebastian Siemiatkowski told Reuters the company had “over indexed” on cost reduction and was correcting its priorities toward products, productivity, and service.
I find that combination more instructive than a simple verdict about whether AI worked. Reported savings can coexist with a need to improve the operating model. Different measures may point in different directions, and the priorities themselves may need adjustment. A continuing willingness to revise the approach is part of the adaptability that justified the investment in the first place.
Change that strengthens the business
LEGO provides a constructive counterweight. Its 2004 action plan was already being implemented under Kjeld Kirk Kristiansen when Jørgen Vig Knudstorp became chief executive that October. The plan connected substantial change to a specific diagnosis: financial risk, weak competitiveness, and a need to refocus on its construction system. The company planned to divest the capital-intensive LEGOLAND parks. Its 2005 report described fewer components, improved customer and product profitability calculations, and closer relationships with retailers. LEGO returned to profitability, while explicitly explaining that asset disposals contributed nearly half of pretax profit.
The distinction between operating improvement and disposal gains is especially useful. Both can serve a recovery, but they tell us different things about its durability. Separating them gives owners and the board a better basis for forming their own judgment about whether the business is becoming stronger and whether further commitments are warranted.
Substantial restructuring can be justified. It may require difficult decisions about activities, assets, costs, and employment. Preserving everything is no more a strategy than changing everything. The question I take from LEGO is whether the intervention helps a company recover the capability it needs to compete. Reasonable people may disagree about the scope, pace, or sequence. A clear diagnosis gives that disagreement somewhere productive to go.
Avon’s halted rollout and LEGO’s recovery leave us with different forms of adaptation to consider. One limited further exposure when the intervention failed its test. The other reported progress against a defined direction and distinguished the sources of its financial result. Neither offers a formula we can simply transfer to the next company. They do help make the judgments more concrete.
Credibility is part of the return
A transformation creates expectations among employees, customers, lenders, directors, and shareholders. When management claims benefits that remain difficult to demonstrate, it can spend credibility along with capital. Repeated disappointment may weaken confidence in its ability to allocate resources and execute the next commitment.
That is where the connection to activism becomes relevant. A missed transformation promise does not, by itself, make a company an activist target. But a widening gap between management’s claims and the enterprise’s performance can give an outside investor a stronger basis for questioning stewardship. Management’s own commitments become part of the evidence for an alternative direction.
An activist’s proposal deserves the same examination. Its estimates also rest on assumptions about execution, transition costs, customers, and capabilities. Influence over governance and capital allocation does not remove the operating consequences of the changes being proposed. At J.C. Penney, Bill Ackman, whose Pershing Square was then the largest shareholder, had championed Johnson’s hiring and served on the board. Activist judgment was part of the commitment too. The consequences landed in the same stores, with the same employees and customers.
In the middle market, that challenge may come from an owner, lender, board member, or prospective buyer. The underlying question remains the same: what value is the change creating, and can leadership explain the result?
The Point Taken
I believe in the importance of adaptability. Protecting a company through changing markets requires judgment and, at times, decisive intervention. My concern is what happens when the transformation itself becomes difficult to question. The organization may have committed to change while losing some of its ability to respond to what it is learning.
The standard I come back to is a clear strategic reason, an honest account of what the enterprise must absorb, and evidence that the intervention is creating the value claimed. Meeting that standard requires both conviction and a willingness to let the business challenge our interpretation. Culture, capability, trust, and credibility belong in that judgment, even when they make the calculation less tidy.
For those who have led, funded, or worked through a transformation, I suspect the most useful lessons sit in the moments when the plan met the business. What told you the change was strengthening the enterprise, or that the enterprise was simply getting better at sustaining the program? And what made it possible to act on that distinction?
A program can report progress while the business tells a different story.
© 2026 23.5 Strategies; The Point Taken™