Gene Kim - The Phoenix Project: A Novel About IT, DevOps, and Helping Your Business Win

Bob Strauss, Lead Director, former Chairman, former CEO

Erik Reid, Board Candidate

Nancy Mailer, Chief Audit Executive

Friday, August 29

Company: Parts Unlimited (PAUD)

Rating: SELL

Price Target: $8 (current $13)

Effective immediately, Parts Unlimited CEO, Steve Masters, is stepping down from his role as chairman after eight years of holding that position. Board Director Bob Strauss, who served as company chairman and CEO two decades ago, is returning from retirement to assume the role of chairman.

Parts Unlimited stock has tumbled 19 percent in the last 30 days under heavy trading, down 52 percent from its peak three years ago. The company continues to be outmaneuvered by its arch rival, famous for its ability to anticipate and instantly react to customer needs. Parts Unlimited now trails the competition in sales growth, inventory turns and profitability.

The company has long promised that its Phoenix program will restore profitability and close the gap by tightly integrating its retailing and e-commerce channels. Already years late, many expect the company to announce another program delay in its analyst earnings call next month.

We believe that institutional investors such as Wayne-Yokohama pressured Bob to reconfigure the board as the first of many actions to right the ship in Elkhart Grove. A growing number of investors are pushing for more significant leadership changes and strategic options, such as splitting up the company.

Despite Masters past achievements that transformed Parts Unlimited into one of the top automotive parts manufacturers and retailers, we believe splitting up the chairman and CEO roles is long overdue. Parts Unlimited needs fresh leadership, either from the outside or from within. We believe Sarah Moulton, SVP of Retail Operations, and a rising star at the company, could just be what the company needs.

According to our sources, the board has given Strauss and Masters six months to make dramatic improvements. If they cant pull this off, expect more changes and turbulent times.

Kelly Lawrence, Chief Industry Analyst, Nestor Meyers

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Bill Palmer here, I say, answering my cell phone on the first ring.

Im late, so Im driving ten miles per hour over the speed limit, instead of my usual five. I spent the morning at the doctors office with my three-year-old son, trying to keep the other toddlers from coughing on us, constantly being interrupted by my vibrating phone.

The problem of the day is intermittent network outages. As the Director of Midrange Technology Operations, Im responsible for the availability and smooth functioning of a relatively small IT group at Parts Unlimited, a $4 billion per year manufacturing and retail company based in Elkhart Grove.

Even in the technology backwaters Ive chosen to make my turf, I need to track network issues closely. Because these issues disrupt the services my group provides, people will blame the outages on me.

Hi, Bill. This is Laura Beck, from Human Resources. Shes not the person I usually deal with from HR , but her name and voice sound familiar

Holy crap. I try not to swear out loud when I remember who she is. From the monthly company meetings. Shes the VP in charge of HR .

Good morning, Laura, I say with forced cheer. What can I do for you?

She responds, When will you be in the office? Id like to meet as soon as possible.

I hate vague requests to meet. I only do that when Im trying to schedule a time to chew someone out. Or fire them.

Wait. Is Laura calling because someone wants to fire me? Was there an outage I didnt respond to quickly enough? As an IT Operations guy, the career-ending outage is the joke my peers and I tell one another daily.

We agree to meet at her desk in a half hour, but when she doesnt share any more details, I say in my most cajoling voice, Laura, whats this all about? Is there a problem in my group? Or am I the one in trouble? I laugh extra loudly, so she hears it over the phone.

No, its nothing like that, she says breezily. You could even say this is good news. Thanks, Bill.

When she hangs up, I try to think of what good news would even look like these days. When I cant, I turn the radio back on and immediately hear a commercial from our largest retailing competitor. Theyre talking about their unparalleled customer service and a breathtaking new offering that allows people to customize their cars with their friends online.

The ad is brilliant. Id use the service in a second, if I werent such a loyal company man. How do they keep bringing such incredible new capabilities to market while we remain stuck in the mud?

I turn the radio off. Despite all our hard work and late nights, the competition keeps leapfrogging us. When our Marketing people hear this ad, theyll go ballistic. Because theyre likely art or music majors, not people with a technology background, theyll publicly promise the impossible and IT will have to figure out how to deliver.

Each year, it gets harder. We have to do more with less, to simultaneously maintain competitiveness and reduce costs.

Some days, I think that it cant be done. Maybe I spent too much time as a sergeant in the Marines. You learn that you argue your case as best as you can with your officer, but sometimes you have to say, Yes, sir, and then go take that hill.

I pull into the parking lot. Three years ago, finding an empty parking spot was impossible. Now, after all the layoffs, parking is rarely a problem.

When I walk into Building 5 where Laura and her staff reside, I immediately notice how nicely furnished it is. I can smell the new carpeting and theres even classy wood paneling on the walls. Suddenly, the paint and carpet in my building seem decades overdue for replacement.

Thats IT s lot in life. At least were not in a dingy, dimly lit dank basement, like in the British TV show, The IT Crowd.

When I get to Lauras office, she looks up and smiles. Good seeing you again, Bill. She extends her hand, which I shake. Have a seat while I see whether Steve Masters is available to meet.

Steve Masters? Our CEO ?

She picks up and dials her phone while I sit down, looking around. The last time I was here was a couple of years ago when HR notified us that we needed to dedicate a room for nursing mothers. We were critically short of office and meeting space, and we had big project deadlines looming.

We merely wanted to use a conference room in a different building. However, Wes made it sound like we were a bunch of 1950s Mad Men Neanderthals. Shortly afterward, we were both summoned here for a half day of political rehabilitation and sensitivity training. Thanks, Wes.

Among other things, Wes is in charge of the networks, which is why I track network outages so closely.

Laura thanks the person on the other end of the phone and turns back to me. Thanks for coming down on short notice. How is your family doing these days? she asks.

My brow furrows. If I wanted to chitchat, there are many people Id rather talk to than someone in HR . I force myself to banter about our families and kids, trying not to think about my other pressing commitments. Eventually I say, without much grace, So, what can I do for you this morning?