You remember “Pong,” right? The two-dimensional tennis game is a ’70s classic, but you don’t often see the kids running home from school to fire up the Atari these days.
That’s because the industry has evolved itself into one of wireless controllers and online gamer networks. And so Farrell, the chairman, president and CEO of THQ Inc., has never let his company sit still while the gamers crave more realistic shooting action or better story lines. When he arrived at THQ in 1991, the company only worked in licensing, but today, his 2,000 employees put the company’s fate in its own hands, creating innovative games from its own studios
“Look at the music industry,” he says. “The business model changed, the music industry tried to reject it and consumers rejected them instead. We’re committed not to be in that. Our consumers are online, they’re consuming online, let’s go there with them, let’s lead them there.”
Along the way, Farrell and THQ have suffered through downturns that have had Wall Street calling for a coroner — losing rights to a wrestling game that made up 50 percent of its revenue at the time and the dot-com bust at the turn of the century. But each time the company has retrenched itself, and as a result, it pushed out 13 consecutive years of growth.
“So we’ve faced these challenges; that’s one of the reasons that although we’re driving very hard on this current turnaround, we’ve faced at least two other periods of pretty severe adversity,” Farrell says. “You put together a plan, get people on board by communicating with them honestly about what the challenges are and what we’re going to do about it, and then you put your head down and go do it.”
So when THQ posted its fiscal 2009 net sales of $829.96 million, its first year without growth since around the time the Nintendo 64 hit the scene, Farrell looked back to other times when changes needed to be made and used that basic format. Starting by using his already planned travel to address the troops, he later made sharp cuts and then got everybody to focus on the task ahead.
Constantly touch base with the troops
Farrell isn’t a big fan of airports.
He’s been around the world and home again, with more layovers than he cares to remember, and his next journey starts soon. But good times or bad, he believes you start by taking your objectives on the road and letting people hear them from you. Once you’ve done that, you hear what they have to say.
“I try to go out and visit our creative studios at least once a year and do a Q&A,” he says. “But tell them, ‘Here are the five objectives; here are the goals.’”
Schedule these trips ahead of time, regardless of your situation. That way, if times are bad, you’ll already have trips planned.
“I actually have an annual travel calendar starting out that puts all the key things like when our shareholder meetings are, our board meetings, and then I set a travel schedule and try to be as efficient as possible,” he says.
These meetings are about direction. And when things start to go bad, you can use them as context for where the issues are and how they can be addressed.
“So what I try and do is really educate people,” Farrell says. “… Here are the issues we have to face and, look, if I could wave a magic wand and fix the problem I would, but it’s more about, ‘Hey guys, here’s the problem and here’s how we have to address the problem, and like most things in life, there are no easy answers; let’s be thoughtful.’”
Beyond widespread travel, Farrell uses a basic format to get feedback on the company’s direction: an agenda-free brown-bag lunch. This is probably something that you’ve heard of before, but for Farrell, it’s how you drill down for details from people.
“I don’t want more than seven or eight people in the room, and it’s actually been very rewarding,” he says. “You think people might be afraid to speak up with the CEO in the room, but I say, ‘Look, this is just, no harm no foul, say it like it is,’ and boy, it’s interesting what you hear.”
From there, internal issues come forward. But here’s the rub: If you give people an open forum, you might just be inviting people to throw mud. Farrell stops that by letting everyone know he will do quality control checks, keeping names anonymous but using the information he acquires.
“What I try not to do is make it such that it became a forum so if people had to bitch, they could use that,” he says.
If, for example, someone says product marketing isn’t doing its job, Farrell takes that feedback to the marketing guy and asks about the issue that was raised to get their take on it. And whatever the outcome is, Farrell gets back to the person who brought up the issue with his decision.
In one lunch, a product developer told him that three more months on a certain game’s development would make it perfect. So Farrell sat down with the studio head and asked for more information. That particular case was one of Geppetto caring a bit too much for Pinocchio, as the developer wanted a game that was more than perfect.
“The feedback I got was … if we give three more months it will cost an extra $3 million and, commercially, it will make it incrementally better, but to an ordinary user, they’re not going to see that,” he says. “So it was good feedback, and it created a good dialogue, but I got back to the guy and said, ‘Here’s the feedback I got. We’ve already got a great game; to make it “great plus one” is not worth three months and $3 million,’ and he appreciated that I got back to him.”
Address your issues quickly
Throughout 2008, Farrell was finding that the Q&As and brown-bag lunches were increasingly focused on the economic downturn
“We reported a sales decline for the first time in many years, (along with) a fairly substantial operating loss, and that’s something that’s been very difficult both on a personal level and for a culture that has known nothing but success for 13 years,” he says.
So, like pulling a Band-Aid, THQ took a look at the issue and dealt with it quickly.
“We saw that growth was not going to take place (in this economy), so we cut back,” Farrell says. “We cut back quickly and aggressively, and, again, it goes back to the tenets we talked about — we communicated directly to the employees, very honestly, here’s what’s going on, here’s what we’re doing about it, it will affect jobs, you will be notified in a certain way.”
That began with Farrell being the one to address the issues. As soon as senior leaders realized that cuts had to be made, he got out in front of the company and told them that cutbacks and job losses were coming. To keep the process quick, though, the senior leaders set a date by which all cuts would be made and communicated it to employees.
“Again you do it in front of them at company meetings,” Farrell says. “I’ve done more all-employee e-mails in the last three or four months and been very clear: ‘Here’s what the issues are, here’s what our plan to attack it is, and here’s the effect on you. Yes, there will be jobs lost, and by March whatever, you will be advised.’ It was no spin and everything’s cool. It was, ‘We have to take some very direct and very deep cuts, but here’s what we’re doing and here’s why we’re doing it, and by this date, it will be done.’”
While some employees will appreciate that honesty and that approach and even though it will make things better for you long term, don’t expect it to improve morale during the hardest stretches.
“I did get a couple of e-mails back from employees saying, ‘Brian, really appreciate the honesty and directness,’ which actually kind of blew me away, but I think we have to be realistic,” he says. “When the world is running down, house values are down, people’s stock portfolios are down, the companies they are working for are struggling, [and] to have expectations people aren’t struggling with that would be unrealistic. I didn’t do it to keep morale high; I did it because that’s how you’re going to keep people believing in the vision of what can happen. Say, ‘It’s not happening now, don’t feel good, but we’re doing it fast, and here’s how we’re going to do it.’ So things aren’t good, but here’s how we’re going to get there from here quickly.”
Get back to work
When that fateful day in March passed, Farrell woke up the next morning and did what he’s done in every other downturn THQ has faced: He got up and went to work.
“One of the things I insisted on is if we’re going to cut, we’re going to make the decisions and do it quickly and not study ourselves to death,” Farrell says, recalling something he learned as a young basketball player at John Wooden’s school. “He had a great quote, ‘Be quick, but don’t hurry.’ It’s so common sense. Don’t hurry to make mistakes, but execute quickly once you make a decision and so I said, ‘March 31 we’re done, guys. Done, done, done.’”
Once THQ was done with the work force cutbacks, Farrell put his game face back on.
“Right at that time, we had two product launches coming out; we had this highly rated game called ‘Dawn of War II’ for PC, and I sent out an e-mail: ‘“Dawn of War” just hit No. 1 in six different markets; congratulations to the team,” he says. “A couple of weeks later, we shipped a new WWE brand extension. Again, ‘We just shipped this great game that’s getting good reviews, it’s got positive momentum at retail, and, oh, by the way, we have “Ultimate Fighting” coming out and “Red Faction Guerilla” coming up.’ Once the bad is behind, then start rebuilding confidence and promoting the proof points. And, again, no BS, but share the successes to give people reasons to believe again.”
Farrell also didn’t let employees see a CEO behind closed doors sulking over the company’s downturn. When THQ released “UFC 2009 Undisputed,” a fighting game for which the company partnered with Ultimate Fighting Championship, Farrell played UFC President Dana White in Times Square after the two rang the closing bell for NASDAQ (Farrell lost, by the way). It was time to move away from the turbulence and get back on track. For Farrell, that means putting the focus back on innovative games and staying ahead of the evolution of the industry. Doing that doesn’t mean you’ll avoid every misstep, it just means that you attack them when they come and then get back to work. That attitude is what’s kept THQ floating through tough times.
“One of the big lessons is we have to create a culture that anticipates and manages change,” he says. “And we haven’t always done it perfectly or even well. We’ve had our missteps over 18 years … but I will say our batting average is pretty darn good.”
How to reach: THQ Inc., (818) 871-5000 or www.thq.com