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Industry's Learning Curve

Don't rely on the government to rescue corporate America. Only companies that know their customers' needs will thrive.

January 15, 2003

State and federal tax and regulatory breaks are intended to free up corporations to spend more money on their businesses. But they won't revive big, troubled companies that are failing because they have fallen badly out of sync with their customers.

Consider AOL Time Warner, whose share price has plummeted to less than $15 from more than $50 since the heady days at the end of the dot-com boom. Its top executives have jumped ship or been pushed out, and survivors are scrambling to cut costs, praying that the stalled Internet advertising industry soon rebounds.

McDonald's wrote the book on fast food restaurants, but it is poised to report its first quarterly loss in 37 years. Nimbler competitors with menus in tune with the country's increasingly diverse taste buds are eating the burger chain's lunch. McDonald's is tinkering with its secret burger recipe, dramatically discounting its products and hoping to generate added revenue by installing DVD rental machines outside some restaurants.

Boeing also learned the importance of listening to customers. The aerospace giant recently grounded plans for the Sonic Cruiser, a sleek, upscale bird that would have been a prestigious feather in the aerospace giant's hat. But airlines that can't fill existing seats instead want planes that are cheaper to operate than their current ones -- like the aircraft that archrival Airbus is promising to deliver.

The list of troubled companies is long. Profits at Levi Strauss have faded like a pair of stone-washed blue jeans. Two years ago Ford was poised to overtake General Motors in vehicle sales. Management fumbled the golden opportunity, and Ford now is struggling to eliminate 35,000 jobs and cut $10 billion in costs.

Contrast those troubled companies with Northrop Grumman, which not so long ago was a second-tier competitor in danger of disappearing into highflying Lockheed Martin's contrail. The Los Angeles-based company stabilized its troubled B-2 bomber program and then made more than a dozen smart acquisitions -- including the company that manufactures unmanned aircraft that have played a crucial role in the Middle East. It is now the nation's second-largest defense contractor.

That is the kind of success story the country needs to set the stock market rolling again.

As long as customers have the luxury of choice, corporate profits will remain linked to satisfying them. AOL Time Warner learned the hard way that the new economy is the old economy, albeit digitized.

Uncle Sam can do only so much. The heavy lifting must be done by corporate leaders.

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