Ariel Investments Case Study Part 4: Hope is Not a Plan

Mellody Hobson

Lesson time 04:29 min

In this last portion of the lesson, Mellody discusses the various outcomes that improved Ariel Investment’s operations and portfolio management decisions. She concludes the case by providing students with her key takeaways and thoughts regarding the accumulation of knowledge and how it leads to better decision-making outcomes.

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Topics include: Rebuilding the Foundation


[MUSIC PLAYING] - I find it fascinating that in really difficult situations-- and I see this time and time again-- the natural response is everything's going to be okay. Sometimes it's not. You can't have magical thinking in difficult periods. You have to be extremely levelheaded and extremely pragmatic. And you have to plan for the worst not hope for the best, which is why I keep saying hope is not a plan. [MUSIC PLAYING] A lot of what we did during 2008 and 2009 actually put the firm on firmer footing. We ended up despite the setback that we had, which was significant-- we ended up rebuilding a stronger foundation. I remember Howard Schultz once telling me you can't build a skyscraper on a poor foundation. We rebuilt the foundation of the company. We built it around some core principles in our investment strategy of improving and getting better, providing more rigor around some things. As we looked at debt, as we looked at our moats, we assigned devil's advocate to all of those things. We re-looked at how the business was organized. Where was their excess? Where could we be more streamlined? Where could we have a simpler way of running the business that would lead to less people? We also looked at the business as it related to diversification, diversified portfolio managers, more than one, diversified product beyond US domestic equities. We went to international and global with another team. So there were a number of just foundational things we did that ultimately we have leveraged over time. That has stood us in very good well during other moments of market difficulty where it doesn't feel like gale force winds. We feel like we're really strong because that foundation is so strong. That period in the financial crisis was a very, very humbling moment. And it was a very important moment for me because it really allowed me to understand growth and how you're supposed to grow and how you have to think of all scenarios at all times. And so in planning for the worst, it forces you to be grounded and to be thoughtful. You're doing a risk-based analysis. If this happens, then what? If this happens, then what? But it really is to try to get at the crux of what do you need to do to sustain yourself through the bad time and to hopefully propel yourself out of it? At the end of the day, as the firm has grown, we've now been able to really flourish. And I think we flourished around the crazy amount of alignment and camaraderie that was built during that period. The one thing about tough periods is that you grow closer to people. We were so aligned there was no argument, there was no dissension in terms of undermining. It was just this focused effort. And so the relationships and the bonds that ultimately came out of that horrible time have gotten us through a lot. And that's great information to have as you encounter whatever other storm you're going to inevitably encounter. The thing about the investm...

About the Instructor

Mellody Hobson knows how to make tough calls in trying times. As one of the most influential leaders in business today, she’s led companies through junctions of financial crisis, acquisitions, and restructuring. Become a more dynamic, confident business leader by diving into real-life case studies from Mellody’s career. Get an inside understanding of the pivotal decisions she’s made from the top, and build a strategic decision-making framework for your next step as a business leader.

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Mellody Hobson

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