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Underwriter of Agile Companies--ALH Capital, Inc.

For a comprehensive list of the companies discussed on the Global Province, see our
Company Index.

Index of Agile Companies Entries:
1-25 · 26-50 · 51-75 · 76-100 · 101-125 · 126-150 · Current Entries




416. -new- New CEO Pushes Leaner Microsoft

"In a more than 3,000-word email to employees, Mr. Nadella said Microsoft needed to "rediscover our soul," and he pointedly defined Microsoft's mission not as delivering long-standing software products such as Windows or Office, but broadly as developing technology to help people live better lives and businesses run more efficiently." (07-23-14)

415. A Kiss Can Be More than A Kiss
"The email Tatia Pilieva sent to 21 people Monday morning started off the way such notes usually do when someone wants to get a link on Facebook.

Hey my dears, Ms. Pilieva wrote. I wanted to share our little film with you.

The emails recipients had starred in a video that Ms. Pilieva had recently directed on a shoestring budget for a small clothing company.

The three-and-a-half-minute video, shot in black and white, showed 10 pairs of strangers kissing for the first time."

Here is "First Kiss."   (3-26-14)

414. Tata Motors: Range Rover and Jaguar
"Together the company sold more than 357,773 cars and trucks in 2012 and is on pace to beat that mark in 2013 by a goodly margin."  WSJ, November 23-24 2013, P. D12. Tata has made a hash of its small car Nano, and the Indian domestic market is a permanent headache for all the Indian Motor Companies.  But Tata, which bought Range Rover and Jaguar from Ford, has a grand success on its hands with these British units which show steady growth and sport truly popular models, such as Range Rover’s Sport.  See JLR results for first half  which account for all the gains at what had been a faltering Tata Motors. (12-11-13)

413. Buckland and Taylor's Murray Johnson

You cannot get much more agile than Murray Taylor who "has designed, repaired, inspected or demolished more than 150 bridges," but is best known for sliding them. In "Feat of Bridge-Building Bravura," we learn just how amazing he and his work are.

"This summer, Mr. Johnson will meet his biggest challenge yet, launching the new 2,427-foot-long Milton-Madison Bridge over the Ohio River into a spot currently occupied by a 1929 bridge. It's believed to be the longest bridge slide of its type in the world."

"The logistical intricacies and risks awe seasoned bridge builders. Theodore Zoli, whose bridge engineering won him a MacArthur Foundation "genius" award in 2009, compares Mr. Johnson's task to performing "open-heart surgery on the runner while he's running a marathon."

See a video of Mr. Johnson's handiwork here. (6-12-13)

412. Buffett and Charles Koch Plan to Go Deep in Newspapers

Billionaire conglomerator Warren Buffett has long made clear that he has a large appetite for newspapers, already having snapped up Media General.  According to the Guardian, “The move is just the latest foray into print from Buffett. Last year Berkshire bought the Omaha World Herald Company, owner of Buffett's local newspaper and six other local titles. At Berkshire's recent annual shareholder meeting Buffett said he was considering other local newspaper acquisitions. "We may buy more newspapers. I think the economics will be ok, but it will be nothing like the old days," he told the meeting."  Carlos Slim, Mexico’s billionaire heavyweight, has a big position in the New York Times.

Charles Koch, the rightwing millionaire, is hunting for newspaper properties as well, not, he says, to buy public opinion, but as a serious business investment. In the Wall Street Journal, Koch is cited as claiming that his company can make a go of it in declining industries such as newspapers.  "In some ways, Mr. Koch said, the situation of newspapers beset by declining readership and advertising revenue resembles that of paper used for home and office printers, a product made by Koch's Georgia-Pacific unit, acquired in 2005. That paper market has been shrinking in the U.S. in recent years.

"We're in parts of the paper industry that are declining," Mr. Koch said, "and because we have a big enough competitive advantage and we've innovated enough, we've been able to continue to be commercially viable."  It is possible, of course, that Koch also likes newspapers because they are users of paper, an industry in which he has a position. 

In any event it is clear that major investors see an upside in newspapers, which despite their overall erosion, offer piles of solid assets which can generate good if not substantial returns. (6-12-13)

411. Techcrunch

For tech junkies and others, TechCrunch is a great way to stay up-to-date with developments on new technologies, computer systems, mobile devices, software, and a wide array of tech-related matters. On the top of the homepage, visitors can check out Hot Topics, which might feature anything from updates from Microsoft to venture capital funding developments for new
web-applications. On the right-hand side of the screen, visitors can look over the Trending Stories, which track some of the latest news from the industry. The What You Missed section features key pieces of business news that might have escaped the attention of those who have not visited the site recently. Further along, the Product Guides offer detailed profiles of smartphones, tablets, digital cameras, laptops, and headphones. The site is rounded out by a place where visitors can sign up to receive a daily newsletter. [KMG]  http://techcrunch.com/.  From Internet Scout at the University of Wisconsin.
(3/13/13)

410. Slaying Monopolists and Innovation Blockers

Our old acquaintance Judge Richard Posner has in one small sphere handsomely taken the monopolists behind the woodshed.  Patents in technology and high change industries ironically are used to retard progress, allowing giant companies in tech markets to shut out small innovators.  Microsoft is the case we have always known about, but there are many, many instances where the U.S. is falling behind the curve because the giants can exert monopoly power---in the patent arena but also in many other ways.  Our computers and our phones are a disgrace, and monopoly practices here are imposing artificial friction costs on the economy that retard a host of dependent industries.  One of our staffers, when in Germany, could call home to Indiana more cheaply than he could from North Carolina, because the phone companies here lobby- through outrageous pricing..  These excess networking costs plague our economy.  Patents, unnecessary regulatory blockades, and a host of mindboggling barriers retard our economy and create costs that retard our economy in far-ranging ways. Anyway, Bravo Posner.
(3/13/13)

409. 7-Eleven Goes Healthy

"The chain that is home of the Slurpee, Big Gulp and self-serve nachos with chili and cheese is betting that consumers will stop in for yoghurt parfaits, crudite and lean turkey on whole wheat bread." New York Times, December 25, 2012, pp.B1&4.

"The change is as much about consumers expanding waistlines as the companys bottom line. By 2015, the retailer aims to have 20 percent of sales come from fresh foods in its American and Canadian stores, up from about 10 percent currently, according to a company spokesman."

"Fresh foods can help offset some of those losses. The markup on such merchandise can be significant, bolstering a stores overall profits. It's also a fast-growing category."

(01-02-13)

408. More Employees Means More Sales

"A recent Harvard Business Review study by Zeynep Ton, at M.I.T. professor, looked at four low-price retailers: Costco, Trader Joe's, the convenience-store chain QuickTrip, and a Spanish supermarket chain called Mercadona. These companies have much higher labor costs than their competitors. They pay their employees more; they have more full-time workers and more sales-people on the floor, and they invest more in training them. (At QuickTrip, even part-time employees get forty hours of training.) Not surprisingly, those stores are better places to work. What's more surprising is that they are more profitable than most of their competitors and have more sales per employee and per square foot." James, Surowiecki, "The More the Merrier," The New Yorker, March 26, 2002, p.47.

(12-12-12)

407. Micro-Marketing and Obama 2012

Ostensibly President Obama got re-elected because his troops executed a terrific ground game in the swing states that counted in the 2012 election. Atlantic Monthly has done the best job of making clear that a complex, sophisticated technology infrastructure was vital to making sure that the right people got the message and got to the polls---in "The Nerds Come Marching In."

"In reality, it had three components. "One is vendor integration: BSD, NGP, VAN [the latter two companies merged in 2010]. Just getting all of that data into the system and getting it in real time as soon as it goes in one system to another," she said. "The second part is an API portion. You don't want a million consumers getting data via SQL." The API allowed people to access parts of the data without letting them get at the SQL database on the backend. It provided a safe way for Dashboard, the Call Tool (which helped people make calls), and the Twitter Blaster to pull data. And the last part was the presentation of the data that was in the system. While the dream had been for all applications to run through Narwhal in real time, it turned out that couldn't work. So, they split things into real-time applications like the Call Tool or things on the web. And then they provided a separate way for the Analytics people, who had very specific needs, to get the data in a different form. Then, whatever they came up with was fed back into Narwhal."

(11-28-12)

406. Zara-Inditex

Zara, along with its parent Inditex, has grown into the world's largest fashion retailer, having come a long ways since we first commented on it in 2000. This makes it an unusual animal in Spain where so few companies are currently thriving, and a standout in Galicia, historically a poor section of the country. It changes its product line often, forcing other fashion houses to emulate it. It manufactures much of its wares itself, right in Coruna, and in countries quite near to Spain, though it also churns out clothes at contractors in Asia, which particularly sets it up to do business in China where it is a fast expanding presence. The owner is Amancio Ortega Gaona, now the world's third richest man. He reminds us of Ikea, the Swedish furniture supplier, which is also huge and which is also headed by a hugely wealthy entrepreneur who, likewise, keeps a low profile. The company does little in the way of marketing and advertising, relying more on intimate contact with consumers not only to keep it very plugged into the marketplace but also to stoke its sales. Suzy Hansen recently reported not only on its huge scope but its powerful uniqueness in "It's not us saying you must have this. It's you saying it."

"Inditex is a pioneer among fast fashion companies, which essentially imitate the latest fashions and speed their cheaper versions into stores. Every one of Inditexes brands- Zara, Zara Home, Bershka, Massimo Dutti, Oysho, Stradivarius, Pull & Bear and Uterqe- follow the Zara template: trendy and decently made but inexpensive products sold in beautiful, high-end-looking stores. Zara's prices are similar to those of the Gap: coats for $200, sweaters for $70, T-shirts for $30."

(11-14-12)

405. Turnaround at Japan Airlines

"Japan Airlines filed for bankruptcy nearly three years ago. Now it's cleared for an IPO. The 'JAL Philosophy' handbook, devised by Chairman and Buddhist monk Kazuo Inamori, encourages staff cost-saving initiatives. WSJ's Kenneth Maxwell reports.

The yen-pinching culture shift at the country's proud, once profligate national airline—part of a formal program called "JAL Philosophy"—is contributing to one of the more dramatic turnarounds in global aviation history.

Less than three years ago, JAL filed for bankruptcy with $30 billion in debt, becoming one of Japan's largest ever corporate failures. This September, JAL plans to relist its stock in an ambitious $6 billion-plus initial public offering, the year's second-largest IPO behind Facebook Inc. FB -2.34%and making it the first company ever to return to the main board of Tokyo's stock exchange after going through Japan's version of Chapter 11 bankruptcy. JAL is adding long-haul flights to the U.S., with a strategy of avoiding the crowded coastal airports" (Wall Street Journal, July 30, 2012)

"JAL's emergence from bankruptcy remains an anomaly in Japan. Struggling companies here have long shunned the Corporate Rehabilitation Law, considered the country's closest, if not exact, equivalent to U.S. Chapter 11 bankruptcy protection. According to research firm Teikoku Databank Ltd., only 139 companies have filed for protection under the law since 1962, when its records began.

Teikoku Databank figures show that, including other bankruptcy-filing mechanisms, a total of 11,369 companies filed for bankruptcy in Japan in 2011. By comparison, in the U.S. last year, 47,806 businesses filed for bankruptcy, according to the American Bankruptcy Institute.

Japan's relatively low bankruptcy count reflects a broader problem that many economists blame for bogging down Japan's economy for decades: The thousands of "zombie" companies that have spent years reluctant or unable to restructure, but kept alive by fearful banks that provide cheap loans rather than risking fat write-offs."

(10-17-12)

404. Smart Restaurants and Smart Retailers

In What Restaurants Know (About You), we learn that advanced restaurants now keep a very active database on their customers. "But computer software and Internet companies (particularly reservation systems like OpenTable and Rezbook) have pushed service to another level, allowing restaurants to amass a trove of data with ease. When a reservation is made on OpenTable, the restaurant is sent a bare-bones listing: the customer's e-mail address, any special requests and a note indicating whether the person is an OpenTable V.I.P., someone who has used the service at least 12 times in the last year." "OpenTable's software then allows restaurants to add information, which is called up when a customer arrives. (Restaurants owned by large groups typically share the data with one another.)"

The finest hotels and other high-end vendors often have been years ahead of the restaurants, assembling wonderful compendiums on high-value, repeat customers. Of course, the true customer service artists do much more than amass the details the minor leaguers assemble, accumulating biographical material, culinary restrictions, a host of customer desires going beyond the ordinary. Years ago a legendary broker on the West Coast—Felix Juda—kept a deck of note cards that permitted him to deliver sales that outshone everybody at his small regional firm Sutro.

(10-03-12)

403. Cosmopolitan:The World's Most Important Magazine

It's strange to realize that Cosmopolitan –just one of those tedious women's magazines around the house in the 1950's and then the source of silly titillation under Helen Gurley Brown—is probably the world's most important magazine. To wit, "Cosmopolitan has 63 international editions, is printed in 32 languages and is distributed in more than 100 countries," according to Wikipedia, with over 3 million readers in the U.S. The New York Times recently essayed about its global reach, in a fine article by Edith Zimmerman. .

(09-19-12)

402. Surprise in the Philippines

Somehow the Philippines are coming together.  Ostensibly the Philippines is ready to become an Asian economic star because of its youthful population. "Times are pretty good in the Philippines if you are young, skilled and live in the city. Young urban workers are helping to give the country its brightest prospects in decades, economists say.

With $70 billion in reserves and lower interest payments on its debt after recent credit rating upgrades, the Philippines pledged $1 billion to the International Monetary Fund to help shore up the struggling economies of Europe "  "The gross domestic product of the Philippines grew 6.4 percent in the first quarter, according to the country's central bank, outperforming all other growth rates in the region except Chinas. Economists expect similarly strong growth in the second quarter." "According to the country's Board of Investments, offshore call centers employed 683,000 Filipinos in 2011 and generated about $11 billion in revenue, a 24 percent increase from the previous year. The government is seeking to expand the industry and has said it hopes it will generate $25 billion in revenue by 2016. The Philippines growing prosperity has also been driven by the 9.5 million Filipinos almost 10 percent of the population who work outside the country and who sent home about $20 billion in 2011. That is up from $7.5 billion in 2003."

(09-05-12)

401. Bigger Payrolls Mean Bigger Sales

In "The More The Merrier," we learn that a study published at the Wharton School by Marshall Fisher, Javanth Krishnan, and Sergei Netessine "looked at detailed sales data, from a retailer with more than five hundred stores, and found that every dollar in additional payroll lead to somewhere between four and twenty-eight dollars in new sales. Stores that were understaffed to begin with benefited more, stores that were close to fully staffed benefited less, but, in all cases, spending more on workers led to higher sales. A study last year of a big apparel chain found that increasing the number of people working in stores led to a significant increase in sales at those stores." New Yorker, March 26, 2012, p.47

(08-01-12)

400. The Rise of Chobani

In "Old Factory, Snap Decision Spawn Greek-Yoghurt Craze,"  founder Hamdi Ulukaya tells how he built a dynamic new good segment. Managing his small cheese producer in Johnstown, New York, he quickly decided in 2005 to buy an old large Kraft yoghurt factory, something he did with less than $1 million of loans. "Chobani is now the No. 3 manufacturer of nonfrozen yogurt in the U.S., with about $745.6 million in retail sales, says market research firm SymphonyIRI Group Inc. "Greek yogurt which is strained to remove excess liquid, leaving it thicker and creamier now represents 28% of U.S. yogurt, up from a 16% share a year ago and a 3% share three years ago, according to UBS. The category, which is led by Chobani, will increase 40% over the next year, and 120% over the next five years, UBS forecasts."

"I didn't have a budget to spend on traditional marketing. I used to answer the phones and I would hear people say 'I love this yogurt. I'm going to tell my friends and family about it.' That gave me the idea to reach out to bloggers, and to use Facebook and Twitter to have direct communication with consumers. We also had our own sampling truck that went all over the country to festivals and parades," Mr. Ulukaya remarks.

That said, the yoghurt boom he created has not done a lot for local dairy farmers. In fact, they cannot keep up with the demands of his factory, so he is building another plant in lower cost Idaho.

"It has been called the Chobani Paradox.

The growing popularity of thick Greek-style yogurt has brought hundreds of manufacturing jobs to this tiny town in the green hills of central New York, where Hamdi Ulukaya decided in 2005 to buy an idled cheese plant and start producing a brand named Chobani.

Now, with Americans quickly developing a taste for the stuff, Mr. Ulukaya is running into an unlikely problem for a factory owner in the middle of the third-largest dairy-producing state in the country: He can't get enough milk to keep increasing production"

"You'd think that a growing business can go to their supplier, whether you're talking about rolled steel or paper products or chip makers, and the supplier would say 'Great, I'd be glad to help you,' " said Andrew Novakovic, a Cornell University professor who wrote a paper titled "The Chobani Paradox" about how New York's dairy farmers have struggled to capitalize on the Greek yogurt industry. "In this case it's not so straightforward."

(07-18-12)

399. Luxury Brands Defy Economic Gravity: Rolls Royce

Tiffany's and several of the French luxury brand companies have done very well, indeed, during the depression in Western economics that set in at the end of 2008. The rich continue to buy in bad times: maybe they even buy more. High end retailers have held up during the downturn.

More interesting perhaps is the ability of high quality, niche playing, equipment-supplier Rolls- Royce to battle on in tough times perched in very high cost locations. Situated in the U.S., the U.K, and Germany, it also has gotten itself successfully ensconced in expensive Singapore and Norway.

"Its ability to defend its turf in the brutally competitive international shipbuilding sector offers lessons in how manufacturers from developed "post-industrial" economies can counter the rise of new economic powers such as China. While Rolls has thrived by targeting niche markets, maintaining elite manufacturing jobs in high-cost countries has broader implications for battered Western economies."

"Rolls, in contrast, has shifted little high-value work to emerging markets. Instead, it is among a handful of companies, including Whirlpool Corp. and Caterpillar Inc., that are bringing home or keeping valuable jobs in Western countries. Most of these producers emphasize know-how and manufacturing efficiency over labor cost. That goes even for mass-market products such as plastic coolers, which Coleman Co. now makes in Kansas rather than in China, says Harold Sirkin, a partner at Boston Consulting Group. He recently published a report predicting an American manufacturing resurgence over coming years thanks to such companies, and sees similar potential in Britain."

'"We aren't very good on cost per man hour, so we have to be better on technology," said Per Egil Vedlog, a design manager at Rolls's merchant ship division." Companies such as Rolls-Royce cannot compete on cost but must win on the basis of quality and product capability.

"Preserving even a limited amount of high-end manufacturing in advanced economies can help stem a vicious cycle of industrial exodus that plagues parts of the U.S. and U.K. Each specialized marine or aerospace manufacturing job creates around three more jobs nearby at suppliers, maintenance operations and in services such as design or finance, according to studies." Very high end niche producers are probably the only route for high cost countries if they are to survive. High end audiences and high innovation products seem to be their ticket to survival.

(07-04-12)

398. Grey Marketing

For the first time, minority newborns exceed Caucasian babies. The U.S. Census estimated that as of July 1, 2011, minority babies made up 50.4% of the population under one year old. As importantly, people over 60 and retirees are multiplying rapidly, comprising a fast growing segment of the population in most of the developed countries. Slowly consumer goods companies are tending to focus on both, even if they and media people had relentlessly zeroed in on white affluents 25 to 50 heretofore. All of a sudden Hollywood is making movies starring old people, a sure sign that the media and sellers of products know that they have to pay attention to oldsters. With traditional markets flat in country after country, the old and the poor and the populations in under-developed countries have become targets for those looking to the future. In The Best Exotic Marigold Hotel, retirees somewhat down on their luck move to India to make a life, albeit comedic, there. Amour has just won the Palme d'Or at the Cannes Film Festival, telling of an octogenarian husband and wife who are facing up to the last chapter in their lives. As well, a much wider assortment of ethnic movies are making their way to the American screen.

(05-30-12)

397. Very Lean Products

Smart multinational consumer companies have learned in the last few years to peddle stripped down, simple products in developing countries. The highly developed nations of East and West no longer offer enough burgeoning demand to keep the multinationals growing. As the Economistnotes, "Multinationals are beginning to take ideas developed in (and for) the emerging world and deploy them in the West. Harman, an American company that makes infotainment systems for cars, developed a new system for emerging markets, dubbed "Saras", the Sanskrit word for "flexible", using a simpler design and Indian and Chinese engineers. In 2009 Harman enrolled Toyota as a customer. GE's Vscan, a portable ultrasound device that allows doctors to "see" inside patients, was developed in China and is now a hit in rich and poor countries alike. (Mr Immelt believes that these devices will become as indispensable as stethoscopes.) Walmart, which created "small mart stores" to compete in Argentina, Brazil and Mexico, is reimporting the idea to the United States."  In short, smart, biggish companies have taken up frugal innovation which means they not only market cheap but consciously design cheap in the Third World, and then go on to market the same lean products in Western developed economies.

"This trend will surely accelerate. The West is doomed to a long period of austerity, as the middle class is squeezed and governments curb spending. Some 50m Americans lack medical insurance; 60m lack regular bank accounts. Such people are crying out for new ways to save money. A growing number of Western universities are taking the frugal message to heart (at least when it comes to thinking about things other than their own tuition fees). Santa Clara University has a Frugal Innovation Lab. Stanford University has an (unfrugally named) Entrepreneurial Design for Extreme Affordability programme. Cambridge University has an Inclusive Design programme. Even the Obama administration has an Office of Social Innovation and Civic Participation to encourage grassroots entrepreneurs in health care and energy."

(4-11-12)

396. Belgium: The Best Beer?

We've had an uneasy relationship with the beers of Belgium for years. Sometimes we will strike a great one. And then a disastrous one the next day. The Economist talks about how Belgium turns out the best and, at the same time, "How a small, unremarkable country came to dominate the world of beer making" in "Brewed Force."  There's a bit of a muddle here since the biggest in anything is usually not the best. And, in fact, with Anheuser Busch under its roof, InBev is the big boy on the block and the Belgiques have achieved a world dominance, just as at one time they were the kings of uranium, which came out of their king's infamous possession – the Congo. We have tasted the beers of most nations, including the awesomely bad craft beers of the U.S, and we find that we cast our vote for the Germans—their beers are just more interesting than those from Belgium. So Belgium is to be admired for its scope and volume, but not necessarily for its quality.

Geography and water helped Belgium become a beer giant. But lots of other factors helped it. Duties kept out French wines. Temperance movements suppressed the spirits trade. "This lack of alternatives guaranteed brewers a large and thirsty market. In 1900 Belgians drank 200 litres per head, roughly double what Britons and Germans were putting away. Today thirsts have dried up a little: a typical Belgian now quaffs just 84 litres a year."  Protectionism, we think, made Belgium beer supreme in the world.

The Economist waxes long and strong about Westvleteren 12. We warn you away from the Duvel even if it is well slaked with alcohol. These days we have been putting away La Chouffe, but then shift to Dutch gins which knowledgeable Belgians secretly pine for. It is terribly ironic, of course, that the Dutch produce the good gin, but that the Belgians house a national gin museum on their own soil. Secretly, we are sure, they would rather be gin kings than beer barons.

(3-21-12)

395. -new- The New GE

We've long had the feeling the Jeff Immelt is both a better manager and a more ethical guy that his predecessor Jack Welch, even though his stock price and his earnings are nowhere near as heady. Welch, of course, depended on puffed up GE Financial profits and some fancy accounting to make his tenure look good. Moreover everything was easier prior to 2008:  the economy was more forgiving, and even a dumb manager could look good. There is no clearer evidence that deep change has taken place at GE than its new management system. The company has sold lots of units and narrowed its focus. Along with this, it now leaves managers in one business area for many more years, maybe for their whole careers, so that they can know enough to wheel and deal in the most fractious and contrary of markets. As The Wall Street Journal said, in a recent article, "The New GE Way: Go Deep, Not Wide."

(3-21-12)

394.  Room to Read

John Wood was recently in Vietnam to "hand out his 10 millionth book at a library that his team founded in this village in the Mekong Delta — as hundreds of local children cheered and embraced the books he brought as if they were the rarest of treasures. Wood's charity, Room to Read, has opened 12,000 of these libraries around the world, along with 1,500 schools."

According to Nicholas Kristof in the New York Times, "The humanitarian world is mostly awful at messaging, and Room to Read's success is partly a result of his professional background in marketing. Wood wrote a terrific book, "Leaving Microsoft to Change the World," to spread the word, and Room to Read now has fund-raising chapters in 53 cities around the world.

He also runs Room to Read with an aggressive businesslike efficiency that he learned at Microsoft, attacking illiteracy as if it were Netscape. He tells supporters that they aren't donating to charity but making an investment: Where can you get more bang for the buck than starting a library for $5,000?"

(12-07-11)

393.  Motorola: High Leverage Advertising

Motorola Japan is doing clever things to put over its new Photon cell phone. Its clever videos, laced with social overtones, appeals to avant-garde buyers who are thinking hard about their nation's future. In three parts they appeal to the intellect and to thoughtful professionals. "The narrative comes from the actor and writer Shimoda Kageki, considered a leading commentator of Japanese culture." "The short documentary style piece is shot and directed by Shouda Yukihero." What we are seeing is the power of non-advertising to move buyers-----documentary sales.

(12-07-11)

392.  Merry Ferry

On the East River in New York City, "the ferry service that the city started in June has attracted twice as many riders as its planners had expected." "The East River service is an experiment to spur development in revitalized sections of the industrial riverfront in Queens and Brooklyn." Unfortunately, due to lack of funding, service is being cut back November 1. The weekends are particularly packed, with many tourists abroad, such that sometimes riders have to be turned away. In cities and in other urban spaces, ferries and other alternate forms of transportation such as bicycles, monorails, etc. are springing up and generating surprising demand as people migrate from cars, buses, subways, and other traditional rigid forms of transportation that are based on insufferable congestion. City and urban planners have a hard time adapting to more flexible, less gargantuan forms of transportation which are vital to avoid pollution, economic paralysis, and the like as we try to migrate to a different economic model that is anti-mass market.

(11-09-11)

391.  Rewiring Office Depot

There's been a slowing in the office supply business, especially at Office Depot. In general the company stocked the shelves and waited for the customers to buy.  It was good at the supply chain, but not the customer chain.  To simplify an overwritten article in the Harvard Business Review, November 2011, pp.47-50, it started tightly focusing on the customer (though still not enough) and it added services such as computer repairs and shipping.  There are hints that it least this has stabilized the ship.  Lots of U.S. customers, particularly retailers that are essentially distributors, have this problem.  Wal-Mart is one of them:  it is a store where you have to ask, and sometimes beg, for help. Office Depot has changed some of its metrics for measuring employees, and now an employee will actually stop and take you to an item you cannot find.  This focus on customer contact also turns up products Office Depot does not stock, but the company has no method for piping this data back to its buyers.

(10-26-11)

390. -new- Shanghai Kentucky Fried Chicken

KFC has about 3000 restaurants in China, with a goal of 15,000.  "KFC China menus typically include 50 items, compared with about 29 in the United States."  It also offers variations to meet regional tastes.  Basically it has Chinesed the menu, which means large kitchens, fast expansion, and a complex logistics network. In the 3d quarter of 2010 Chinese revenues exceeded U.S. revenues, and some analysts expect China to be twice the size of the U.S. in five years. Harvard Business Review, November 2011, pp.137-142.  What the article fails to question is why some of the lessons learned in the People's Republic are not exported to the West, particularly the United States. KFC, GM, and a host of other companies are doing pretty well in China, not so well in the U.S.  Like Colgate, once a foreign power and a domestic failure, they need badly to import good ideas spun in subsidiaries abroad.

(10-26-11)

389.  Progressive’s Custom Pricing
If you are really a safe driver, you may save a lot at Progressive Corp.  It “introduced a new type of car insurance that offers a discount to policyholders based on real-time information about how and when they drive.”  Wall Street Journal, March 21, 2011, P. C3.  “With a small device that plugs into a car’s onboard diagnostic computer, Progressive can measure –in real time—when policyholders use their vehicles, how far they drive and how hard they brake. Customers who install the device can get a markdown on their auto insurance of as much as 30% after 30 days, and lock in a discount when they mail the device back after six months.”  Typically rates are based on how drivers with similar demographics do on the road:  young men for instance are heavily penalized because their peers cause a lot of accidents. 

Lots of pricing is similarly crude.  For years smart people have known that mortgage rates, bank loans, and a whole host of financings are based on flawed, generalized credit evaluation.  Generally, dog credits as well as dog drivers don’t pay as much as they should:  good credits and good drivers overpay. (06-08-11)

388.  Progressive to Offer Rates Based on Your Driving

Progressive Corp….introduced a new type of car insurance that offers a discount to policyholders based on real-time information about how and when they drive.”  Wall Street Journal, March 21, 2011. “With a small device that plugs into a car’s onboard diagnostic computer, Progressive can measure ---in real time—when policyholders use their vehicles, how far they drive and how hard they brake.  Customers who install the device can get a markdown on their auto insurance of as much as 30% after 30 days, and lock in a discount when they mail the device back after six months.” (05-25-11)

 

387.  Patriarch Partners       

Lynn Tilton, owner of Patriarch Partners, must be the most successful woman capitalist in the United States.  She owns  “all or parts of 74 companies with revenues of more than $8 billion and 120,000 employees.”  She resurrects down-and-out industrial firms that others have consigned to the scrap heap.  She started as a distressed debt investor but soon realize that the real profits would come from taking control of tired companies and bringing them back to life. “She sleeps only a few hours a night and sips a homemade concoction of clay, salt and chlorophyll.” (1-12-11)

386.  Garden Design

Print is Dying! Long Live Print!  Even as our media empires in the States close publications, cut budgets, downgrade content and production, others are going in another direction.  Sweden’s Bonnier Group, which dates back to 1804, is picking up publications in the U.S. and elsewhere.  Many of these magazines it is upgrading, going upscale, rejecting a cut-rate approach.  Mostly recently it has brought in the editor from Saveur to gussy up Garden Design with very handsome photography and seasoned writers.  Editor James Oseland kicks off the new approach on page 8 of the January/February 2011 issue.  Read about the re-launch in a December preview. (1-12-11)

385.  Selling Luxury Goods Online

Commonsense is beginning to assert itself in the luxury goods market which should and will serve a model for boutique selling—the sine qua non of economic activity in developed countries that inherently suffer from a higher cost structure that countries that are still on the come.  In “The Chic Learn to Click, Economist, July 22, 2010, we learn that high end companies are learning, if a bit late, that their customers love the Internet. “There is every sign, however, that buyers of full-price luxury goods crave the convenience of online shopping, so companies are being forced to adapt. In April Richemont, a Swiss luxury-goods giant, bought Net-a-Porter, a specialist fashion online retailer founded in 2000, in a deal valuing it at £350m ($535m).”
“The most innovative online luxury firms are typically small start-ups, such as Net-a-Porter, Yoox (which went public late last year) or Gilt Groupe, a website which runs exclusive sales for members. All these companies have built successful new business models. The industry’s ageing giants have been caught with their elegant trousers down.”
In developed countries, marketing of all products and services is terribly expensive, stridently wasteful.  For luxury products, marketing costs are even more out of line, and must be sliced so that the maker can put more quality in each and every product.  Those who examine seams of modern clothing will understand what we mean:  the fabrics and the stitching are not what they should be, as producers shave their products. The Internet provides a way out, helping one resolutely and cheaply target the people one wants to reach.  In high cost countries, the only durable economic model is highly individualized products that are terribly well made but where all marketing costs—selling, distribution, marketing, image building, etc.—are kept well in line. (12-29-10)

384. Oklahoma Supreme: A Designer for All Seasons

Danne Design has done work for all sorts of people and institutions in a host of environments.  The key to its endurance is Dick Danne’s level-headed, even-handed disposition.  His design is temperate and tasteful.   Please take special note of the harmonious sounds on his website, all stremming from the fact that he is a musician with a love for Steinways. He is comfortable and brings comfort to those around him. Here, in “Arabian Nights! and Days! and Nights!,”  we learn about his adventures in the Middle East. This is a selection from his forthcoming book—Dust Bowl to Gotham.  Danne Design. 316 Deer Hollow Drive. Napa, California 94558. Tel: 714-224-2661. www.dannedesign.com.  (12-15-10)

383. Lululemon: Growing Without Ads

Lululemon Athletica Inc. is growing like crazy without ads and the assortment of marketing schemes companies normally use to peddle their products.  It just had “a 56% rise in revenue, and a 31% boost in sales at stores open more than a year.  This Vancouver company makes and sells athletic wear for women.  It opened its first store in 2000, and went public in 2007.  It’s been on a tear. See WSJ, September 13, 2010, p.B12.  It recruits fitness instructors to urge their clients to use Lulu’s wares.  For this it gives them a small stipend of clothing and calls them “ambassadors.”  This is not an original tactic, but its execution has been fabulous.  Oral-B, for instance, has managed to get dentists to peddle its electric toothbrushes.  In each instance, what’s needed is a product that is at least branded as superior to that of the competition and a so-called expert recommender who connects often with ultimate customers.  This kind of marketing has many more applications and can be used more imaginatively.  Lord help Lulu, of course, if someone ever starts calling it a lemon. (09-15-10)

382. Rakuten Inc:  Crazy like a Loon

“By 2012, Rakuten’s employees will be required to speak and correspond with one another in English, and executives have been told they will be fired if they aren’t proficient in the language by then.”  “English Gets the Last Word in Japan,” WSJ, August 6, 2010, p. B1.  “The policy was imposed by Rakuten's 45-year-old leader, Hiroshi Mikitani, a banker turned Internet billionaire, who speaks nearly flawless English. "Some people were a little hesitant, but they realized that we were going to do it whether they liked it or not," says Mr. Mikitani, a Harvard Business School graduate who left a prestigious job at the Industrial Bank of Japan to build a Japanese rival to Amazon.com Inc. His company has grown into a sprawling Internet mall with more than 35,000 merchants, an online bank and travel site and net sales of nearly 300 billion yen ($3.5 billion) in 2009.”

“Rakuten's CEO has also taken jabs from Japanese nationalists, who say his policy is the first step toward the disappearance of Japanese and, ultimately, the collapse of Japan. That argument doesn't sway Mr. Mikitani. "Japan is the only country with all these well-educated people who can't speak English," he says. "This is a huge issue for Japan."”

“Among the 34 countries designated as "advanced economies" by the International Monetary Fund, Japan had the lowest scores last year on the Test of English as a Foreign Language, a proficiency test given to foreign students who want to study in the U.S. It had the second-lowest score among Asian nations, outperforming only Laos. “

Many other companies in Japan used English widely, but Rakuten has pushed Anglicization the farthest.  As well it might, since  it has made foreign acquisitions and is in aspects of the retail business.  Mr. Mikitani’s insistence on English amounts to forced globalization—a process directly related to any company’s survival in Japan and probably in most other developed countries. He may be manic—but crazy in the best way.  (09-01-10)

381. Fresh Re-Directed

“FreshDirect is an online grocer making more than 45,000 deliveries a week to customers throughout most of New York City and parts of Long Island, Westchester County, New Jersey and Connecticut.”  Like every other business in 2010, it, as notes the Times , has had a crisis or two.  “During FreshDirect’s formative years, the only thing that kept the company alive was its ability to churn through customers.”  It picked up lots of them, even if turned them over after an order or two. “Against this bleak backdrop, a crisis struck at the end of 2007; Immigration and Customs Enforcement officials announced plans to inspect the company’s…employment eligibility records.”  Within days over 200 undocumented workers, 15% of the workforce, had fled. Richard Braddock, then chairman, took over as ceo, decided to hire replacements but change strategy.  He gave up looking for new customers, deciding instead to learn how to how on those he already had.  He built a database to keep track of its 150,000 active customers and the company’s 8500 products:  this took 2 years.  Now it can keep track of every order and find out immediately what’s the cause of things going astray.  “FreshDirect introduced a rating system for its own produce and seafood.”  As well, the website has been upgraded and flashes items on the screen that fit the profile of any customer who is online.  The company seems to have recovered, and it is now expanding beyond the precincts of New York City.                  (09-01-10)  

380. Danone in Developing Countries

“Danone is among a vanguard of Western multinationals staking much of their future on the world’s poor. Last year, 42% of its sales were from emerging markets—up from just 6% 10 years ago.  Danone aims to reach one billion customers a month by 2013, up from 700 million today.”  WSJ, June 29, 2010, pp. A1 & A16.  It is selling bite size portions of yoghurt, and water, and baby food for 10 cents or so. Adidas, L’Oreal, and Unilever are also pushing into the same low-income markets. Danone, before it woke up to the fact that its traditional markets were slowing, typically sold to the well-heeled in developed countries. It is now active in Indonesia, Mexico, Bangladesh, Algeria, South Africa, Hugary, the Czech Republic, and Poland.    (08-04-10)

379. Caveat Emptor
This entry is about companies that are consciously rigid and customer-unfriendly—agile they are not.  There is a growing trend in the marketplace for companies not to do the job for which they have implicitly or explicitly contracted.  In some instances, the refusal to do the job right stems from errant employees who are improperly supervised.  At other times, second-rate products or service stem from a conscious strategic decision of upper management.  In any event, buy beware—Caveat Emptor.  We will be citing many such instances:


Update: 2. The Poor Post Office.  On May 17, 2010, a registered priority mail letter was deposited at the main post office in Chapel Hill, North Carolina, bound for London.  For days the tracking system showed nothing except that the letter had been accepted at Chapel Hill.  Finally, 10 days later, on May 27, the letter got to New York, and was, ostensibly, dispatched to London.  On June 2, the addressee received the letter, but the post office never noted its arrival. Even today the Post Office merely shows that the letter got to New York City. The moral:  Don’t spend $13.45 on priority, registered mail.  It would have moved along faster if it simply were sent by normal mail. (06-30-10)

1. Fed Ex and American Express.  Fed Ex takes a month to deliver and then tacks on a surcharge.  In the case of the disappearing map, an antique map was purchased in London and dispatched via Federal Express on the 6th of April.  But it never seemed to arrive, though the goods, slightly disheveled, finally got through more than a month later.  For a while Fed Ex did not know where the package was, but finally said it was stuck in customs.  But then it said that the customer, not Fed Ex, would have to prod U.S. Customs to pry the package loose: it washed its hands of the whole thing.  It seems that Customs was checking with Interpol to make sure that the map was not a stolen document. But the agent responsible went on vacation, and nothing could be done until his return.  When he got back, he acted responsibly and retrieved the document.  Of everybody involved, to include the dealer, Federal Express, and American Express, he was the only individual in the supply chain who did his job.  Finally, a month late, the package was delivered:  Fed Ex did not even see fit to close up the package, delivering it open and exposed to the elements.  Later, it rendered an additional bill of $30.50, though it is still unclear what that was for.  When the merchandise was not delivered, American Express was asked to stop payment in line with its ostensible policy of protecting the cardholder against loss:  it did nothing  One can read an entertaining blow by blow at “London:  The Case of the Disappearing Map” and  “The Case of the Disappearing Map: Part II.”   We have since heard similar tales of things fatally mislaid in Fed Ex’s international operations. (06-16-10)

378. Winning the Ryder Cup

Arguably the U.S. fields the best golf players in the world.  Yet, often enough, they collapse when playing as a team against the rest of the world. Captain Paul Azinger broke the curse at the last Ryder’s Cup.  See Wall Street Journal, September 17-28, 2008, p. W9.  The U.S. had lost 5 of the last 6 matches against Europe. First off, he chose the players differently, basing it on points earned during the previous year, not the previous two years. And he extended the selection deadline to two weeks before the actual match, both moves made to secure the hottest players. “The most radical element of the plan was dividing the 12-man squad into three, four-man subgroups or pods,”  an idea picked up from the military. The players in each pod played and practiced together and were assisted by a sub-captain. The players and sub-captains of each pod were grouped together because they shared similar psychological styles. (05-19-10)

377. Re-Inventing DARPA

DARPA, originally named ARPA, the Defense Advanced Research Projects Agency, was founded in response to Russia’s Sputnik, at a time when Americans sensed we were falling behind the Russians technologically.  It has had many victories, working on long-term technological innovation, which the individual military services were unlikely to back.  It’s widely known now, for instance, that DARPA gave us the Internet.  Sundry politicians have tried to rein it in from time to time, either limiting its scope or trying to put it out of business.  Somehow it has survived.

Regina Dugan, who took over in 2009 as its director, is trying to refashion it. See “New Force Behind Agency of Wonder,” New York Times, April 13, 2010, pp. D1 &D4.   Of particular relevance is her effort to re-invigorate relationships with universities which had grown stale over the last decade.  She is trying to balance the contributions it makes to current war operations with exotic projects that will come to fruition in the future.  One, for instance, is accelerated vaccine production about which she recently spoke:


If the U.S. is to be competitive geopolitically as well as economically, it must fund DARPA and other initiatives that seek to look over the horizon to prepare us for tomorrow. (05-05-10)

376. Craig’s List

“Indeed, so poorly is Craigslist run that it’s easily one of the 20 biggest Web sites in the U.S., and, according to Wired, likely topped $100 million in revenue last year.  It did this with minimal effort and with a staff an order of magnitude or two smaller than those of other sites its size.”  It “has several times any news site’s number of users.”  Newmark “thought about what his users wanted, and put very little on his site that wasn’t useful to them.”  The typical news site has a huge amount of stuff well before the reader reaches the first headline and the first story.  “Ultimately, I would like about 99% fewer navigation links on the page….”  “What Newspapers Can Learn from Craigslist,” WSJ, February 13-14, 2010, p. A13.  Most websites, in contrast, try to emulate newspapers and magazines, and feature stumbling blocks that get in the way of readership.  Internet readers want to get to the meat of the matter---right away. (03-17-10)

375. The New Luxury House
In “Builders Downsize the Dream House,” Wall Street Journal, November 13, 2009, pp1ff, we visit builder John Wieland in Smyrna, Georgia and learn what it’s taking out of its houses in order to downsize costs to fit shrunken pocketbooks.  It average selling price has declined 24%.  To meet the market, it’s doing lots of things. “That has forced Wieland to design a new range of compact homes and reconsider everything that goes into them. Replacing tiled tubs with fiberglass units can slice $4,000 off of the house price. Skipping the fireplace can slash an additional $3,500. In its place, Wieland is trying out a media wall -- essentially a place to hang a big television, surrounded by shelves.” “So the company told her to squeeze 900 square feet and $60,000 out of the original $650,000 design.  The other day, Ms. Bishop sketched a new Arden on tracing paper. She erased the rear staircase and flattened out the bay window. She cut the 94-square-foot pantry in half. She turned the mud and laundry rooms into a mud-and-laundry room. The three-car garage remained, but she redrew it so two cars now had to be parked bumper to bumper.”  A series of other vastly slimmed-down designs are in the works, not only at  Wieland, but at Toll Brothers,  Winchester Homes, Vintage Communities, and others.  “U.S. sales of newly built homes have fallen sharply as well, from 1.3 million in 2005 to 485,000 last year. The latest Census Bureau data suggest that this year's sales will be even lower. Just 294,000 new homes sold through the first nine months of this year.” (12-9-09)

374. Free Shipping

Everybody’s learning that free shipping may move a lot of merchandise over the Internet, something first uncovered by Amazon. This includes Target, Walmart, Zappos, Nordstrom, Bloomingdales, Saks Fifth Avenue, and many others who are trying to get a jump on Christmas 2009 catalog selling. See Wall Street Journal, October 21, 2009, pp.D1 & D6.  Free shipping cost Amazon $630 million last year, but it has grabbed share of market and share of mind with this practice.  Small, innovative companies have entered the fray, with boutique pickle maker Ricks Picks experiencing internet sales gains over 500% from offering this freebie during key periods. (11-25-09)

373. Contagious:  The Network Effect

Any imaginative CEO of any kind of business or institution should read “Is Happiness Catching,” New York Times Magazine, September 13, 2009, pp.28-35, 42, & 57.  It’s a simple notion really.  An awful lot of what we do and even feel comes about because our friend does it, who does it because another friend does it.  The Times calls it “a look inside the emerging science of social contagion.”  Some people talk disparagingly of the “herd mentality.”  But, in fact, most of us are sheep or cows, waiting to be herded.  Investors in the big cities march into the same bad choices in lockstep, simply because they are next to each other.  But it’s possible to turn this domino theory to good effect—to get enough people aligned behind civility that we overcome the vitriol, polarization, and swamp behavior peddled by cable TV, fringe groups, and pathological people not kept in check.  This particular article is based on the work of Nicholas Christakis and James Fowler who tapped into the database of the ongoing Framingham Study to achieve some understanding of network effects in small communities.  They have published their conclusions in a raft of publications, including The New England Journal of Medicine, The British Medical Journal, The Journal of Health Economics, starting in 2007.  What this means is that we cannot conquer certain entrenched health problems—smoking, obesity, etc.—if society at large is dedicated to unhealthy behaviors.  All our healthcare reforms are for nought unless we can first migrate to a healthy society.  Likewise, companies that want to introduce a pathfinding product or service need to infect society with new notions, or they will have disappointing results.

372. Avon and Andrea Calling

Avon, the originator of pyramid-type sales in cosmetics, seems to be showing more strength during the downturn than all its beauty peers.  “Around 70% of Avon’s sales are in developing countries: Brazil, Russia, and Mexico have become Avon’s largest markets after America.”  After a downturn in 2005 CEO Andrea Jung took out more than 25% of senior staff. “Although she cut costs in most areas, she decided to spend more on distribution and advertising.  In March (2009) Avon launched the biggest hiring drive in its history, spending roughly $400 million on advertising that promotes Avon as a potential career for people recently laid off.”  Andrea is calling, but on potential recruits.  “Profits fell in the first quarter from a year earlier, but by less than those of many rivals. Around 1 million new sales representatives have joined Avon since the beginning of last year.”  Low cost products, online selling tools for its reps, and other tactics have helped. (08-26-09)

371. Hulu

Jason Kilar, out of Amazon, took up the head job of Hulu, a joint venture of NBC Universal and News Corp, in 2007.  You Tube and Yahoo are the big guys of Internet video, with Fox Interactive, Hulu, and Nickelodeon following in their wake.  But Hulu seems to be the horse with the momentum, having ample advertisers and a surging video inventory. He only uses professional content—something that pleases advertisers—and aggregates content from more than 100 partners. He has bet on streaming web rather than user downloads, but he has made using streaming easy.  Economist, February 7, 2009, p. 59.  To us, however, he looks like he’s into a lot of TV re-runs and does not enjoy the freedom and irreverence of YouTube. (05-20-09)

370. Mall Bathrooms:  Catching People on the Throne

Paco Underhill, the eminently imaginative retail consultant, remarks that bathrooms at malls and at retailers are pretty much a disaster. See “Adventures in Toiletries,” Conference Board Review, January-February 2004.  “What always amazes me is that the mall, which is a temple to blandishment and consumption, can't think of a single interesting thing to do with a bathroom. Here you've got a captive audience…” “The restroom could be turned over to one of the several shops in the mall selling bath-related products, such as soap, skin cream, fragrance, hair care. Your average mall bathroom's ambience would be dramatically improved if, say, Aveda or Body Shop furnished the sinks with samples of various sweet-smelling goods.” “Not long ago I toured a new prototype store for Lowe's, the home-improvement chain, with maybe 10 members of the senior marketing team. At some point I asked to see the ladies' room, which caused a certain amount of unease among my all-male companions, but we found a woman to enter first to check if the coast was clear, and in we went. The first shock came when a quick poll of the group revealed that not one of these men had ever been in a ladies' room, despite their high position and years of experience at a company that depends on female customer satisfaction above practically all else. The second revelation was that the bathroom, while clean and odorless, was the most generic, no-frills facility imaginable—kind of weird, I pointed out, in a store that tries hard to convince people to buy modern, luxurious bathrooms.” (02/18/09)

369. Grand Strategies
“These initiatives are examples of shaping strategies, which mobilize global ecosystems and transform industries and markets—often dramatically.  A shaping strategy is no less than an effort to broadly redefine the terms of competition for a market sector through a positive, galvanizing message that promises benefits to all who adopt the new terms.”  “Shaping Strategy in a World of Constant Disruption,” Harvard Business Review, October 2008, pp.81-89 is a jargon-filled but important article by some semi-gurus..  Despite the thicket of abstractions and surplus rhetoric, it bravely addresses a significant notion by implication.  We have left the 21st century behind, with its relatively stable political arrangements, predictable markets, and guaranteed continuities.  Headlong we are thrust into a new world where the old rules don’t apply and incremental strategies will buy one little or nothing.  Survivors and conquerors must perceive that they are fighting in a new cosmos that requires grand strategies that put the lie to all that seemed to be the rules of the road before.  “Turbulent times demand that we learn how to shape the turbulence around us by creating an effective management ensemble that moves beyond adaptation…”  While the article really does not present a commanding point of view on how “shaping” really gets done, and, in fact, there are several offbeat ways to become a grand futurist that probably even lie outside the authors’ compass, it does make clear that one must think and operate in very new ways to be a global player in a digital world. The question for all of us is how do we supplant the cataracts and dimming eyesight of the 20th century, and use some sort of psychological laser to bring an entirely different set of eyes to the 21st.  Authors:  John Hagel III, strategic consultant; John Seely Brown, one-time head of PARC, Xerox research center; Lang Davison, onetime editor of McKinsey Quarterly. (01-21-09)

368. -new- Geek Pollster
“Other sites combine polls, notably RealClearPolitics and Pollster, but FiveThirtyEight, which  drew almost five million page views on Election Day, has become one of the breakout online stars of the year.”   See “Finding Fame with A Prescient Call for Obama,” New York Times, November 9, 2008.  Young mathematics whiz Nate Silver first applied his number skills to baseball, but has since migrated to elections where he has earned a burst of attention. What he does is use some commonsense and some algorithms to imaginatively combine the results of a slew of polls.  His readings have proved to be more on the mark than those of others.  “He weighted all the polls on historical accuracy, and adjusted them for whether they tended to favor Democrats or Republicans and other factors, then built a model that simulated elections.”
 (01-21-09)

367. Independent Bookstores: Unchained Melody
Paco Underhill, the guru of the shopping mall, says there is a lot of life left in independent bookstores, if their owners truly have an independent frame of mind that is determined not to ape the chains.  In fact, we might add, the right independent is stronger than any chain store during financial downturns, since the automatic volumes chains usually realize from advertising and marketing fall away in bad times, and they have a harder time covering their nut. “Almost all successful independent bookstores are more than just general booksellers. The easy way they specialize is by picking a genre.” “A good genre bookstore sells new and used products, features first editions and autographed copies, maintains a website, and stages events.”  “The big chains do not have the capability to do anything more than cursory adaptation to individual areas.”  The small ones have restaurants, cafes, put themselves near great destinations.  “BookPeople, in Austin, Texas….is across the street from the flagship Whole Foods.”  It is Paco’s favorite independent.  The Conference Board Review, January 2008, pp.89-90. (01-06-09)
 

366. Collaboration and the Descent of Man
Senator Ted Kennedy, in a reversal of the first treatment plan outlined for him, flew to Durham, North Carolina and had what was hailed as successful brain surgery at Duke University for his brain cancer.  At first Mass General had said he would only undergo chemotherapy and radiation.  What happened is that he convened a national panel of experts on May 30, some on the phone and some attending in person, and then decided on a change in course.  He had a deadly glioblastoma.  “Opinion about the benefit of surgery for Mr. Kennedy was divided.  Some neurosurgeons strongly favored it; two did not, Dr. Sawaya said, including himself, largely because the cancer was not a discrete nodule, but was spread over a large area, making it unlikely that most of it could be removed.”  (See New York Times, July 29,2008, pp. D1 and D6.)  “Whether the surgery was justified or not, that Mr. Kennedy had it at Duke embarrassed the Massachusetts General Hospital, a Harvard teaching institution.  The change in venue strongly suggests that the meeting somehow led to the more aggressive surgical approach.”  Two important and related conclusions arise from  this incident.  For major problems one should convene truly independent experts from a variety of locations in order to arrive at a well-reasoned solution.  We would add that we would have urged the Senator to include experts—such as surgeons—who are not part of the cancer community, in order to break through trade bias.  Further, in the medical field, it is important to get beyond the Boston medical mafia, since the thinking in that town tends to get ideological, with many there lining up behind the current local lockjaw ideas.  But the main thing is that the Senator achieved rapid collaboration among competing voices.

What a contrast to “The Descent of Man,” New York Times, August 10, 2008, p. Wk 12, where it was every man for himself in a mountaineering debacle on K-2.  “In 1953, climbers of K2 knew that heroism meant sticking together.”  On the most recent expedition 11 lives were lost.  A Dutch climber Wilco Van Rooijen remarked, “Everybody was fighting for himself, and I still do not understand why everybody were leaving each other.”  In the Houston expedition back in 1953, in contrast, all were for one, and one was for all.  When it comes to matters of death or urgency, mutual commitment of talented men will always far outshine the genius of lone wolfs. (11/19/08)

365. Big Pharma R & D 
The big pharmaceuticals do not have enough drugs in the pipeline.  The cost of each success and each failure is stupendous.  Something has to change about the discovery process.  In “Rebuilding the R & D Engine in Big Pharma,” Harvard Business Review, May 1, 2008, Jean-Pierre Garnier, CEO of GlaxoSmithKline, reflects on what must be done.  “From December 2000 to February 2008 the top 15 companies in the industry lost $850 billion in shareholder value….”  The problem is “to return power to the scientists by reorganizing R & D into small, highly focused groups….”  Studies show that “our productivity is now two or three times as high as the average of our competitors.”  The company has separated discovery activities directed at first-in-class drugs, from best-in-class, recognizing that they are quite different kinds of processes.  Switching Phase II and Phase III trials from high cost places such as the United States and Europe to low cost areas such India and South America can raise productivity.  Garnier thinks the industry is going to have to place more bets –working on more big drugs.  This will require a shift of money from marketing and the like to R & D.  It will also require many more alliances with universities and biotech companies. 

We suspect that Glaxo, and all the rest, however, are not going far enough—that R&D has to be turned on its head.  In this vein, one should examine “Putting Drug Development in Patients’ Hands,” Wall Street Journal, July 29, 2008, pp. D1-D2.  Jay Tenenbaum, an Internet multimillionaire, had a melanoma, which when it recurred, spread to his liver.  “Frustrated with his treatment options, Dr. Tenenbaum began investigating other potential therapies.”  He created “a company aimed at helping patients develop new therapies faster and cheaper for less common diseases, like melanoma, that often don’t attract major pharmaceutical company research funding.”  It is called ColllabRx.  Wealthy patients are stoking several patient backed research efforts—the Myelin Repair Foundation (multiple sclerosis), the Cystic Fibrosis Foundation, etc. Dr. Tenenbaum has also set up Health Commons, another component really in the R & D puzzle, since it and its offspring create collaboration between independent researchers.  Both efforts are driving kinds of efficiencies into the R & D process that elude ordinary large pharma R & D efforts.  Importantly, we find that all sorts of institutions—government, church, academia, large companies—are bogged down and cannot move on questions with the speed that is required.  Our last best hope is that citizens, with some skin in the game, can get done what the goliaths cannot.  A whole array of companies and foundations are emerging to goad researchers in different institutions to better collaborate.  (11/5/08)

Update:  Patients Who Are Impatient; the Fox Trot
We have previously commented on patients who put fistfuls of cash behind disease research in which they have a personal interest.  We learn this trend is becoming more pervasive, as is clear from “Taking Science Personally,” New York Times, November 11, 2008.  “Mr. Fox did indeed come up with a plan. Like many celebrities who embrace a cause, he started a foundation, the Michael J. Fox Foundation. Last year, it spent $25.2 million fighting Parkinson’s disease. Although he does not run the foundation — never has, in fact — he serves as its chairman and inspirational leader.”  “It has used its money to take control of Parkinson’s research like few other foundations have ever done. In the process of trying to solve the mysteries of Parkinson’s, it has upended the way scientific research is done, and the way academics interact with pharmaceutical and biotech companies, at least in its little corner of the world. It demands accountability and information sharing that is almost unheard of in the broad scientific community.”

Forbes has essayed as well on “Patient Power,” September 15, 2008. pp.70-79. “Inspired by the CFF’s (Cystic Fibrosis Foundation) success, patient groups with an entrepreneurial bent have become the drug’s industry’s new power brokers.”  “A hundred more patient-group-backed drugs, one-twentieth of all the medicines in development, are in human clinical trials for Parkinson’s, diabetes, muscular dystrophy, and a litany of cancers.”  This article cites a bevy of examples of drugs that have been pushed by patients with a lot of willpower who often have enough money in their pockets to make a difference. (01-21-09)

364. Matsushita: Europe is Very, Very Different
“Matshushita says Europe contributed about 45% of its overseas sales of digital electronics products like televisions and cameras in the year ended March 2008, compared with 25% from North America.  Four years ago, the two regions were aboutr even.”  (See Wall Street Journal, July 10, 2008, p. B6.)  “For all products, sales from Europe and the U.S. were nearly the same….”  In part this results from errors in the U.S. where the company concentrated on plasma TV sets and focused on a few retailers.  As the U.S. becomes more and more price competitive, the company is finding Europe attractive where consumers seem to pay up for quality.  It had neglected Europe before because the U.S. was such a big market.  Moreover, it had let different units in Europe operate independently.  With new leadership in Europe, the company operated on a European basis and concentrated on big retailers.  It started building pan-European products and became more ambitious in its advertising.  Even so it still trails Sony, Samsung, and others, both in market position and brand power.  Many global companies, such as Tommy Hilfiger have come to understand that they have to play a different game in Europe, quite distinct from what they do in North America or Asia.  The buyers often go for higher end wares than afford better margins, if less volume.  (10/22/08)

363. GE and University of Pittsburgh
“General Electric Company and the University of Pittsburgh Medical Center have formed a company to help move laboratory analysis of human tissue into the digital age” (Wall Street Journal, June 5, 2008, p. B5).  Omnyx LLC “hopes to market a ‘virtual microscope’ within two years that would scan and store images electronically.”  Pathology has been slow to make the digital adaptation.  What makes this combination interesting is that it illustrates a broader theme—more direct partnerships between academic institutions and nonprofits with the commercial sector have become vital in order for breakthrough advances to occur in the commercialization of technology and the revamping of operations practices.  (9/24/08)

362. Petrobras—Out Front of the Majors
Today, we suspect, Petrobras is the most interesting oil company in the world.  It has made a major find in its Tupi field, and it has shown itself to be out front in deepsea drilling technology which is where all the action is.  “Petrobras has riveted the oil industry since November when it announced that the Tupi field could hold from five billion to eight billion barrels of oil equivalent.”  See the Wall Street Journal, June 11, 2008, p. B5.  By late 2010 it should be producing 100,000 barrels a day here.  Because of its optimism about this find, the company envisions a massive buildup in its drilling capacity with leased rigs.  (9/10/08)

361. Kodak Rising
Kodak is showing signs of life, even if its financials aren’t reflecting its new-found strengths.  “Kodak, which once considered itself the Bell Labs of chemistry, has embraced the digital world and the researchers who understand it.”  (See New York Times, May 2, 2008, pp. C1 and C2.) “Finally, digital products are flowing from the labs,” and the workforce is just 1/5 of what it was 20 years ago.  “It has found more efficient ways to make O.L.E.D.’s—organic light-emitting diodes—for displays in cameras, cellphones, and televisions. “In 2003 Kodak hired Antonio Perez away from Hewlett-Packard. Mr. Perez, now the chief executive, has sprinkled Hewlett alumni … throughout the executive suite,” including Phillip J. Faraci, Kodak’s president, and Bill Lloyd, chief technology officer. It has exited health imaging and gotten back into inkjet printing. It now reaps $250 million a year in licensing intellectual property.  (8/27/08)

360. Bronx Botanical Garden
Gregory Long has restaged the New York Botanical Garden.  Always a marvel, it had nonetheless grown a bit sleepy. After great stints at the Metropolitan Museum of Art, the Brooklyn Museum, the Museum of Natural History, the Bronx Zoo, and the New York Public Library, he took up the Botanical Garden, moving to the Bronx in 1988.  (See Wall Street Journal, April 23, 2008, p. D9.  “When he arrived, the garden had an endowment of $16.7 million and an operating budget of $18.5 million. Today, the endowment stands at $266.8 million and the operating budget is $62.2 million.” He’s renovated the place from top to bottom, not only redoing and adding buildings, but greatly adding to the plant stock, expanding the library, and offering major academic programs.  “There is a graduate studies program that enrolls an average of 40 Ph.D. students each year, a science faculty engaged in research projects all over the world, and an ambitious project now well under way to digitize all the Herbarium's plant specimens. The School of Professional Horticulture offers a two-year full-time accredited program ….”  (7/30/08)

359. Better Dealing with Exploding Bankruptcies
“Building a Better Post-Bankruptcy Board,” Wall Street Journal, May 12, 2008, p. B5 partially grapples with how to bring bankrupt companies back to health.  Generally it has become clear that neither creditors nor the other short-term powers in bankruptcy proceedings are likely to choose company builders as board members.  The problem is to get a mix of people to do the choosing who may look beyond narrow considerations. The major insight in this article is the observation that smart board committees pick candidates with more than one skill that has been adjudged vital for the rebuilding of the company.  We would suggest, further, that one is looking for people with skills that the bankrupt enterprise never had.  Business, in the 21st century, is a totally new creature, and one must have a sense that new board members can put some new sinews into the failed enterprise.  For instance, superior online abilities is a sine qua non of retail enterprises now:  they are not just a nice add-on, but have become the heart of the enterprise.

The advent of new ways to deal with bankruptcy come just in time.  They’re on the rise, as described in “Waiting for Armageddon,” The Economist, March 29, 2008, pp. 81-82.  The spread between “junk” bonds and American Treasuries, only about 280 basis points a year ago, but in March 2008 the spread was up to 800 points, for the first time since March 2003.  It reached “862 on March 17th.”  The bankruptcy rate has only edge only a bit, but Moody’s is predicting much worse to come.  Others are predicting draconian failures for companies with sky-high interest rates.  Companies on the worry list include Beazer Homes, Rite Aid, even Ford Motor. (7/2/08)

358. Strategies When There is No Solution
“Companies tend to ignore one complication along the way: They can’t develop models of the increasingly complex environment in which they operate.  As a result, contemporary strategic-planning processes don’t help enterprises cope with the big problems they face” (“Strategy as a Wicked Problem,” Harvard Business Review, May 2008, pp. 100-106).  This is an article that should be read with great care and then ignored.  Author John C. Camillus brings his readers face to face with a reality—that the world has grown inordinately complex and that the linear processes that corporate spear carriers use to describe a path through the rat maze lead into blind alleys.  But Camillus offers spongy answers to wending one’s way through the thousand but-ifs of modern existence.  In general corporations and other institutions have fallen far behind the curve:  they have not evolved at the same rate as the environment in which they seek to function.  Their best hope is to collaboratively involve outsiders from far and near in all aspects of planning, not just strategic exercises.  They must bring the outside in at a much more rapid rate.  At present there is a wall between them and the world as it is.  This is a very, very interesting article, but only if it helps corporate leaders realize how radically out of touch they are with the world as it is becoming.  (6/18/08)

357. The Checklist
We’re reminded that when it was a good airline, American had a checklist for just about everything.  As a friend said, “You know, the book told the stewardesses just how wide their smile had to be when they served drinks.”  And, you know, things turned out better there than at other carriers for just that reason.  A United Technologies engineer confirmed the same thing for us.  Once upon a time, American had the best maintenance of the domestic carriers, because it was so specific about how various processes would get done.  JAL (Japan Airlines) surpassed American but only because their workers would not take shortcuts at the end of the day.  They would follow every step meticulously no matter what.

All this came to mind when we read Atul Gawande’s “The Checklist” in The New Yorker, December 10, 2007.  Gawande, incidentally, is another Boston doctor who does exceptionally fine medical writing for the magazine.  The New Yorker’s best writing is in the medical area, perhaps stemming from the fact that a key editor is also a healthcare journalist.  Gawande is probably the best, in part because he is gripped by ethical passions which drive him, more than his comperes, to think about affordable, effective healthcare.  This disposition gives him a better sense of what it will take to solve our healthcare crisis than all the posturings of experts inside and outside the medical community.  In other words, he pays attention to simple basics that can make a difference.

In this case, he shows what a difference very simple checklists for complex medical processes can make in avoiding disease and discharging cured patients from the hospital.  “In 2001, though, a critical-care specialist at Johns Hopkins Hospital named Peter Pronovost decided to give it a try.  He didn’t attempt to make the checklist cover everything; he designed it to tackle just one problem, the one that nearly killed Anthony DeFilippo: line infections.  On a sheet of plain paper, he plotted out the steps to take in order to avoid infections when putting a line in.  Doctors are supposed to (1) wash their hands with soap, (2) clean the patient’s skin with chlorhexidine antiseptic, (3) put sterile drapes over the entire patient, (4) wear a sterile mask, hat, gown, and gloves, and (5) put a sterile dressing over the catheter site once the line is in. Check, check, check, check, check.  These steps are no-brainers; they have been known and taught for years.  So it seemed silly to make a checklist just for them.  Still, Pronovost asked the nurses in his I.C.U. to observe the doctors for a month as they put lines into patients, and record how often they completed each step.  In more than a third of patients, they skipped at least one.”  By authorizing nurses to check on the adherence to the correct processes, the hospital secured a wonderful outcome.  “Pronovost and his colleagues monitored what happened for a year afterward.  The results were so dramatic that they weren’t sure whether to believe them: the ten-day line-infection rate went from eleven per cent to zero”

“In December, 2006, the Keystone Initiative published its findings in a landmark article in The New England Journal of Medicine.  Within the first three months of the project, the infection rate in Michigan’s I.C.U.s decreased by sixty-six per cent.  The typical I.C.U.—including the ones at Sinai-Grace Hospital—cut its quarterly infection rate to zero.  Michigan’s infection rates fell so low that its average I.C.U. outperformed ninety per cent of I.C.U.s nationwide.  In the Keystone Initiative’s first eighteen months, the hospitals saved an estimated hundred and seventy-five million dollars in costs and more than fifteen hundred lives.  The successes have been sustained for almost four years—all because of a stupid little checklist.”

“I asked him how much it would cost for him to do for the whole country what he did for Michigan.  About two million dollars, he said, maybe three, mostly for the technical work of signing up hospitals to participate state by state and coördinating a database to track the results.  He’s already devised a plan to do it in all of Spain for less.”

“‘We could get I.C.U. checklists in use throughout the United States within two years, if the country wanted it,’ he said.”

“So far, it seems, we don’t.  The United States could have been the first to adopt medical checklists nationwide, but, instead, Spain will beat us.  ‘I at least hope we’re not the last,’ Pronovost said.”  (5/14/08)

356. Amazon Tech
"The Seattle Internet company, known for being one of the Web's biggest e-tailers, has recently been focused on delivering online services to small businesses through a unit known as its Web Services division.  The unit provides services such as storage and advanced computing capacity, making Amazon an increasingly popular tech destination for small companies that don’t want to pay upfront for their own computer infrastructure.”  See “Small Firms Tap Amazon’s Juice,”  Wall Street Journal, January 15, 2008, p. B3.  “Started in July 2002, Web Services is part of Amazon’s move to position itself as more of a technology company, even though its biggest business involves selling books, music and movies.  According to comments from Amazon Chief Executive Jeff Bezos, the company is aiming to cater to three types of customers: individual consumers, merchants and software developers.”  “Overall, Amazon Web Services now boasts 290,000 customers, up from 135,000 in late 2005.”  (4/16/08)

355. Guided Democracy
“CEO Vineet Nayar, 45, has written a case study about HCL’s experiment for the Harvard Business School….  He believes that in the future, democratic companies will outperform the command-and-control dictatorships that have persisted since the industrial revolution” (USA Today, December 17,  2007).  “Any of our employees can open a trouble ticket on anyone in this company, on (human resources), on payroll, on a manager, on anyone.  Those with trouble tickets have to respond.  It's like a customer opening a trouble ticket.  A response is required.  Otherwise, some departments can become gods in an organization, because they control the power.”  “In manufacturing, it's been command and control, because it is a single process.  In service companies, especially knowledge-based service companies, the value gets created in the interface between the employee and the customer.  When you travel on an airline, it is not the CEO who makes a difference.”  “Similarly, the workplace in India is very command and control.  I believe it’s easier to introduce workplace democracy in Europe and the USA.  As a society, the U.S. is more open to feedback.  It gravitates more easily toward its strengths.  But eventually, democracy works everywhere.”  Nayar’s understanding of the service imperative, and how that necessarily drives corporate democracy is a significant insight.  (4/2/08)

354. Upmarket Virtues
When times are bad, you want to serve the rich.  That was especially true during the Great Depression.  These days everybody in consumer goods is trying to migrate to the luxury market where spending has held up.  The latest example is Saks Fifth Avenue.  See “Saks's Wealthy Clients Help It Buck Trend,” Wall Street Journal, November 21, 2007, p. A10.  “‘Our customer feels good,’ Saks Chief Executive Stephen I. Sadove said yesterday, after the luxury retailer reported strong earnings for its fiscal third quarter.  Saks is on track to ring up ‘high single-digit’ sales growth in the fourth quarter at stores open at least a year and spending on Saks-branded credit cards appears healthy, he said.  His one caveat: weakness in Saks’s lower-level luxury goods, known as bridge products, could lead to a ‘modest decline in gross margin rate’ in the fourth quarter.”  The Saks organization, which shed its lower income department store units, is looking pretty smart.  The bloom, however, has come off the rose as even luxury sales slowed in the 4th quarter of 2007 and 1st quarter of 2008.  (2/27/08)

353. Small Companies: Big Bang
It has become an open secret that small, unheard of companies can achieve a loud and profitable voice through the web.  Small, independent, brick-and-mortar independent bookstores have become power retailers by selling their wares, particularly used books, on the Web, soon thereafter shutting down their locations on the street. One is more than 10 times the size it was when it was a small used bookshop in a southern college town.  In “Small Retailers Gain Large Presence on the Web,” New York Times, December 3, 2007, we learn “The number of small- and medium-size retailers selling online has swelled in the last two years, from 21 percent to 32 percent, according to a survey by IDC, a consulting firm.”  “The retailer of quirky home goods, RealmDekor.com, has experienced occasional sales increases not because of catalog shipments or television commercials, but because it formed relationships with bloggers and posted its products on new ‘social shopping sites’ like ThisNext.com and StyleHive.com.”  “Companies like Yahoo, Amazon and thousands of independent Web developers have become considerably better at building slick sites for merchants, sometimes within a few minutes, for less than $100.  Yahoo Store merchants, for instance, pay $40 to $300 a month, and a commission of 0.75 percent to 1 percent on each sale.  Merchants on the Amazon WebStore pay $60 monthly, along with a 7 percent commission.”  (2/13/08)

352. Grand Alliances
More than a decade ago, Peter Drucker said the compelling organizational trend of our era is alliances and partnerships, not the mergers, spinoffs, and other investment banking maneuvers that make the news.  Occasionally, however, the strategically important becomes more transparent.  Alliances have become inordinately important because no one company is powerful enough to dominate its market space globally and to keep up with all the technological strands that are changing its business.  EDS, under Michael Jordan, has grasped this point with a vengeance.  EDS was virtually the inventor of big-time outsourcing, and once upon a time it owned the field.  No longer.  IBM, for instance, dwarfs it.  What it has done is link itself to a whole nest of partners in order to become collectively more of a force with the world’s largest corporations.  See theWall Street Journal, July 24, 2007, pp. B1 and B3

As well, EDS has had to compete with cheap offshore providers, particularly in India.  “But what makes this alliance unusual is that the partners actually work together under one roof, and operate as one team pitching a client on a contract and carrying out the work.”  “When EDS unveiled the consortium in October 2004, it had six partners:  Sun, Microsoft, Dell, EMC, Xerox Corp. and Cisco Systems Inc. Oracle and SAP AG joined later.  Today about 250 engineers from partner companies are dedicated to EDS, which houses them in offices at its main Plano campus and at a facility in Auburn Hills, Mich.”  “In 2006, deals involving the alliance counted for 40% of EDS’s $26.5 billion in contract signings.”  In 2007, as of June, they add up to about 50%.  (1/30/08)

351. Wine Alliances
We have said elsewhere that the dominant organizing tendency for business in the 21st century will be alliances. Businesses will thrive not by owning everybody on the block, but by freely collaborating with other businesses to grow and prosper. “Wine Made the Co-op Way,” New York Times, Oct. 6, 2007 lends credence to this new way of doing business. His family business sold to Constellation Brands for a tidy figure, Michael Mondavi is back in the wine business with a different concept. “To compete with the big guys, the small family-owned wineries need to be both independent and interdependent,” Mr. Mondavi said. “Own your own vineyard, maintain your personality and style, but be interdependent on everything else, like buying glass and negotiating with distributors.”

“Folio Fine Wine Partners, as Mr. Mondavi’s new venture is called, plans to stay below 50,000 cases from its own production here.” “That will be spread among five brands owned by members and friends of the Mondavi family: Hangtime, I’M, Medusa, Oberon and Spellbound.”

“To give greater heft to its business, Folio imports wine from Italy produced by the Frescobaldi family, as well as wines from Spain, Austria, New Zealand and Argentina. Altogether, Folio sold about 300,000 cases last year.

‘Our import portfolio is $40 million-plus in sales, so I can get the attention of the distributors to the point where I can at least present Oberon or I’M,’ Mr. Mondavi said. ‘I was convinced that if we just did our own 100 acres and 40,000 cases, we could never get enough clout in the market.’

Riding piggyback on Folio’s overall business are several much smaller winemakers.
‘The trend in the wine industry clearly is to tie up less capital,’ said Cyril Penn, Wine Business Monthly’s editor in chief. ‘There are quite a few of these kind of cooperative ventures sprouting up that are different spins on it.’

Another new model is Les Garagistes, a winemakers’ ‘village’ that plans to break ground next spring in American Canyon, a formerly neglected area between Napa and Vallejo.

Les Garagistes will offer 12 winemaking spaces about 4,500 square feet in size, which can be leased by individual winemakers or groups. Capital equipment, like crusher/stemmers and wine presses, will be shared, and the wineries will surround a central courtyard with a café and a tasting room.” (1/16/08)

350. The Power of Power Blogs
Not all blogs work.  Most of them don’t.  But some build a tremendous audience for struggling companies.  In this vein, see “Toy Stories: Show-and-Tell Blog Hooks Customers,” Wall Street Journal, September 10, 2007.  “Mr. Spangler largely credits his blog for his success.   Steve Spangler Science recorded more than $5 million in revenues last year” “liked what [the Netconcepts LLC founder Stephan Spencer] was saying about showing people you're the expert in that field by what you write.  I found out how important it was to have more content, like our experiment library.  People started visiting.”  Powerful headlines also pull in a lot of traffic.  “These days, the blog gets 15,000 to 20,000 unique visitors each day.  Early on, if I got 200 or 300, I was ecstatic.  I attribute 13% of overall sales online to the blog.”  This is a very, very busy website—with a 1,000 different ways of merchandising Spangler.  Part of its effectiveness obviously stems from the passion with which he flogs his wares; part of the power lies in the fact that science for kids is a very, very popular topic.  However, for families wishing to find an Internet curriculum that steeps their kids in science, PCS in Idaho is a leader, and its products are now bought in several lands that want to jumpstart their educational systems.  (12/12/07)

349. Intelligent Life
We have essayed at length on how luxury has totally disappeared from modern life.  You can read about this in “The Lost Art of Luxury.”  But London’s Economist would like to show that the lux life is still around, restaging a magazine called Intelligent Life to reach hefty pocketbooks and upscale advertisers.  See “The Economist’s Foray into Luxury,” Wall Street Journal, September 3, 2007.  “This week, London-based Economist Group Ltd. put out the first issue of a quarterly general-interest magazine called Intelligent Life.”  “The magazine appeared once in 2005 and once last year.  It has been spruced up to try to cash in on the growth of luxury-goods advertising.”  “The new version is laid out more like a fashion magazine.  The pages are about 20% larger than before, there are more photographs and more white space.  Previous editions featured articles on how to travel into space and white-collar boxing.  The current edition has 11 pages of photographs of a French boar hunt and an article examining the problems raised by inheriting lots of money.”  “‘We are lifestyle with substance,’ editor Edward Carr wrote in an editorial in the current edition.”  “Monocle and Intelligent Life have entered a crowded market.  Well-established magazines such as Time Warner Inc.’s Wallpaper*, Condé Nast’s GQ and Vanity Fair are among those that dominate the market for luxury-goods advertising in the U.K.”  (12/5/07)

348. SCE/Ambient Orb
Here's an even wilder idea: How about making our energy use visible to everyone?  Imagine if your daily consumption were part of your Facebook page—and broadcast to your friends by RSS feed.  That would trigger what Ambient Devices CEO David Rose calls the sentinel effect: You'd work harder to conserve so you don't look like a jackass in front of your peers.

This isn't as far-fetched as it sounds.  The design firm DIY Kyoto (as in Kyoto Protocol) recently began selling a device called the Wattson, which not only shows your energy usage but can also transmit the data to a Web site, letting you compare yourself with other Wattson users worldwide.  In a Borg-like way, users can see how much they've collectively reduced their carbon impact.”  See “Clive Thompson Thinks: Desktop Orb Could Reform Energy Hogs,” Wired, July 24, 2007.  It’s interesting to see if we can modify wasteful behavirors if people can see, instantly, where they are going wrong.  (11/28/07)

347. Redefining Colleges and Universities
One of America’s most famous physicists told us 50 years ago that it’s a simple matter what you do about college.  If you are going to be in the sciences, go to a large university, because only there will you find the physical plant to support your investigations.   Otherwise, go to a small liberal arts university where you will get an infinitely better education than you will receive at one of the big monstrosities.  True enough.  But time and circumstance has complicated matters.  In a global age with all its digital connections, the function of a university and of a college has changed the world over.  So you have to examine each school on a case-by-case basis to see if it has adjusted to the future or if it is still riding a dead horse.  So this note is only part of an ongoing discussion we will have about the future of higher education.

For starters, we refer you to “Fight Song at Ozarks: Work Hard and Avoid Debt,” New York Times, July 25, 2007, p. A17.  “Like many undergraduates, students at the College of the Ozarks … work their way through school….  But what is truly different about Hard Work U—as the college styles itself—is that all 1,345 students must work 15 hours per week to pay off the entire cost of tuition—$15,900 per year.”   The school believes that students should not start life with a pile of debt, built up to pay for college.  “College of the Ozarks is run on a lean staff—it has only four deans—and pays full professors under $70,000 a year for teaching more hours per semester, 12.”  Many students have extra jobs as well off campus, several at nearby Branson, Missouri, an entertainment capital.”  Perhaps as we are reforming universities, we can think of adding elements that give students a touch of the practical and nicely foster the Midwesterrn work ethic. (11/7/07)

346. Small Banks Still Can Make It
“A small bank is the vein that carries blood to the heart,” said Edward Carpenter, chairman of Carpenter & Company, an investment bank that in 33 years has organized the founding of 708 banks in California and across the United States” (New York Times, March 15, 2007, p. C5).  Community banks continue to be founded, since they are still better at serving small businesses that have been on the increase.  There is demand for new banks since mergers and the like roughly halved the number of banks nationally in the last quarter of the 20th century. (10/31/07)

345. Haier Calling
“Twenty years ago, the Qingdao Refrigerator Factory was a dump, its workers were unpaid, and its products were shoddy.  Today it’s called Haier.  The home-appliance giant is China’s best-known global company….”  See “Raising Haier,”  Harvard Business Review, February 2007, pp. 141-146.  In this article Zhang Ruimin tells how he put it all together.  “When you start a business, your employees are willing to follow you, if you set a good example and bear more hardships than they do.”  “Later, it’s conviction that appeals to people.”  At the start Ruimin did a few fundamental things—getting loans so employees could get paid, buying a bus  so that it was not so hard for them to get to the factory.  Then he instilled discipline built around clear rules.  From the article it would appear that, on the one hand, he is autocratic, expecting fast, decisive action on his demands, but that he fosters quite a bit of tactical innovation on the part of his project teams, as long as it all adds up to the results he wants from them.  A signal event was his decision to build Haier Industrial Park in 1991—for which he was short of funds, but he brazened it through.   As it turns out, the country was headed towards heated expansion, and the building of this vastly expanded capacity had a great deal to do with turning Haier into a very larger company.This interesting essay does not reveal as well the kinds of tactics that have allowed Haier to go global, which one would have to glean from other articles.  For instance, in the U.S., it has made quite a mark in very small refrigerators a segment not well served by GE and the other main producers.  This end run is similar to how Japanese power tool manufacturers gained a foothold in America: they went to a high end segment that Black and Decker, etc. served poorly. (10/24/07)

344 Bringing Back Marks and Sparks
Marks and Spencer, the department store everybody went to in Great Britain, grew fat and troubled as it entered the 21st century, having achieved a profit of 1 billion pounds in 1998.  Oh, how the mighty can fall!  It had gotten into too many things and too many places and, by 2004, was carrying unconscionable inventory.  Stuart Rose, who had come out of Marks, and then went on to head other retail companies, came back to ward off an unfriendly takeover, slash out excess lines and inventory, wring out 260 million pounds of costs, and refit rather tired stores.  Thereafter, sensible controls, an energetic team, and a clear merchandising policy has brought the company in sight of its former profit levels.  Rose gives a good account of this in “Back in Fashion: How We’re Reviving a British Icon,” Harvard Business Review, May 2007, pp. 51-58.  These first person accounts are amongst the best articles now appearing in HBR, which tends to have too much copy from professors and consultants, people who have now largely fallen behind the business curve.  Thoughtful articles from turnaround presidents and bootstrap entrepreneurs are relevant in the very uncharted territory of the 21st century.  Alumni with operations experience on the outside, such as Rose, make good CEOs in a pinch.  Sort of like bringing in Winston Churchill for the Battle of Britain.  There are a few surprises with Rose, such as the hiring of Mary Gober, to do “Billy-Graham-type training” starting in July 2005, with the entire store workforce of 56,000 attending motivational sessions over a nine month period.  This reminds us of a clever fellow, a one-time Ford dealer in Cuba, who did the same thing at Litton Industries: he brought in a financial theory consultant from the East, not so much for the theory, but to get people “to lift up their eyes.”  When you’re turning around a company, you have to make sure people are not staring down at the ground.  Marks, incidentally, has a lousy website, so it still has a ways to go. (10/24/07)

343. Grand Alliances
More than a decade ago, Peter Drucker said the compelling organizational trend of our era is alliances and partnerships, not the mergers, spinoffs, and other investment banking maneuvers that make the news.  Occasionally, however, the strategically important becomes more transparent.  Alliances have become inordinately important because no one company is powerful enough to dominate its market space globally and to keep up with all the technological strands that are changing its business.  EDS, under Michael Jordan, has grasped this point with a vengeance.  EDS was virtually the inventor of bigtime outsourcing, and once it owned the field.  No longer.  IBM, for instance, dwarfs it.  What it has done is link itself to a whole nest of partners in order to become collectively more of a force with the world’s largest corporations.  See the Wall Street Journal, July 24, 2007, pp. B1 and B3.  As well, EDS has had to compete with cheap offshore providers, particularly in India.  “But what makes this alliance unusual is that the partners actually work together under one roof, and operate as one team pitching a client on a contract and carrying out the work.”  “When EDS unveiled the consortium in October 2004, it had six partners: Sun, Microsoft, Dell, EMC, Xerox Corp. and Cisco Systems Inc. Oracle and SAP AG joined later.  Today about 250 engineers from partner companies are dedicated to EDS, which houses them in offices at its main Plano campus and at a facility in Auburn Hills, Mich.”  “In 2006, deals involving the alliance counted for 40% of EDS’s $26.5 billion in contract signings.”  In 2007, as of June, they add up to about 50%.  (10/17/07)

342. Phillips Reborn
Lumbering Phillips of the Netherlands looks like it is making a smart strategic shift.  It is exiting several markets, such as segments of consumer electronics and computer chips, where it was getting whipped, and tackling at least one growth area where it might make a mark.  In specific it is getting into healthcare with services for the aging.  See “Fleeing Chips and TVs, Philips Makes Big Bet On Aging Consumers,” Wall Street Journal, July 11, 2007, p. A1.  “Philips paid $750 million last year to buy Massachusetts-based Lifeline, an acquisition that represented a turning point for the company.”  The service permits the elderly, for $40 a month, to call easily into a call center that can respond to anxious health questions and the like.  “Philips is joining a parade of industrial giants making big bets on a growing elderly population and rising incidence of chronic diseases. General Electric Co. and Siemens AG, which both manufacture large-scale medical equipment, are restructuring to make big pushes into health care.”  “Philips projects its nascent consumer-health division—which so far also sells baby-care equipment, such as home infant monitors—will bring in sales of €750 million to €1 billion, or $1.03 billion to $1.37 billion, by the end of next year”  This builds on the strong position Phillips occupies in medical equipment, an area of robust growth for it.  (10/17/07)

341Linear Technology Corporation
Linear Technology can charge a lot for its analog chips and does.  “Linear makes a 39% profit on its $1.1 billion in sales in calendar 2006—more than five times the average for U.S. industrial companies,” and way ahead of Microsoft and Google, which hover in the mid-twenties.  Others are beginning to horn into the analog space, and both Richtek of Taiwan and Freescale of Austin, Texas are targeting the power management area where Linear has focused.  But Linear has 17,000 customers, none accounting for more than 3% of its sales, so it is not easy to pluck away its business.  Linear also is religious about keeping its costs down, buying used testing equipment and doing lots of other pennypinching.  See the Wall Street Journal, July 10, 2007, pp.A1 and A10.

Key to the Company’s success is that Swanson was able to bring with him chaps that he had worked with before.  He put in considerable time at Fairchild and at National Semiconductor, so he knew the industry inside out and smartly picked a huge niche where, in effect, he erected two barriers to entry—he was in a niche part of the business that was vital but unappealing, and he was not dependent on any one large customer.  (10/10/07)

340. Red Wine Medicine
Several of us our drinking red wine, cheered by the thought that it may bolster our health. Sirtris, a Cambridge biotech spun out of some research at Harvard, is busy proving our theory well-founded.  “Imagine a pill, derived from a compound found in something as benign as red wine, that treated the most feared and debilitating diseases of aging: illnesses like diabetes, neurodegenerative conditions like Alzheimer’s and Parkinson’s, and many forms of cancer.  Imagine, furthermore, that this pill had no injurious side effects.  Imagine, finally, that the pill’s only side effect conferred what human beings have always wanted: an increase in life span.  That’s what Sirtris wants to create.”

“Sirtris was founded in the spring of 2004 by Dr. Westphal to commercialize the research of David Sinclair, a professor of pathology at Harvard Medical School and the director of the Glenn Laboratories for the Biological Mechanisms of Aging.  Mr. Sinclair, who at the relatively youthful age of 37 is already renowned for his investigations into how we grow old, discovered in 2003 that a molecular compound called resveratrol, found in red wine and other plant products, extends the life span of mice by as much as 24 percent and the life span of other animals, such as flies and fish, by as much as 59 percent.”

“Mr. Sinclair believes that resveratrol works by activating a gene called SIRT-1, which many biologists think plays a fundamental, if still obscure, role in regulating life span in mammals.  Scientists have shown that increasing the activity of SIRT-1 in animals slows down aging and postpones or eliminates diseases of old age.”

“The company has one compound, called SRT501, an improved formulation of resveratrol that is in early clinical trials for the treatment of diabetes.  Later this year, Dr. Westphal says, the company will also begin clinical trials with SRT501 to treat Melas syndrome, a disorder of the cell’s mitochondria, in which sufferers age with unnatural haste.”  See the New York Times, Business section, July 8, 2007.  (10/10/07)

339Phillips Reborn 
Lumbering Phillips of the Netherlands looks like it is making a smart strategic shift.  It is exiting several markets, such as segments of consumer electronics and computer chips, where it was getting whipped, and tackling at least one growth area where it might make a mark.  Specifically, it is getting into healthcare, with services for the aging.  See “Fleeing Chips and TVs, Philips Makes Big Bet On Aging Consumers,” Wall Street Journal, July 11, 2007, p. A1.  “Philips paid $750 million last year to buy Massachusetts-based Lifeline, an acquisition that represented a turning point for the company.”  The service permits the elderly, for $40 a month, to call easily into a call center that can respond to anxious health questions and the like.  “Philips is joining a parade of industrial giants making big bets on a growing elderly population and rising incidence of chronic diseases. General Electric Co. and Siemens AG, which both manufacture large-scale medical equipment, are restructuring to make big pushes into health care.”  “Philips projects its nascent consumer-health division—which so far also sells baby-care equipment, such as home infant monitors—will bring in sales of €750 million to €1 billion, or $1.03 billion to $1.37 billion, by the end of next year.”  This builds on the strong position Phillips occupies in medical equipment, an area of robust growth for it.  (10/3/07)

338Red Wine Medicine 
Several of us our drinking red wine, cheered by the thought that it may bolster our health. Sirtris, a Cambridge biotech spun out of some research at Harvard, is busy proving our theory well-founded.  “Imagine a pill, derived from a compound found in something as benign as red wine, that treated the most feared and debilitating diseases of aging: illnesses like diabetes, neurodegenerative conditions like Alzheimer’s and Parkinson’s, and many forms of cancer.  Imagine, furthermore, that this pill had no injurious side effects.  Imagine, finally, that the pill’s only side effect conferred what human beings have always wanted: an increase in life span.  That’s what Sirtris wants to create.”

“Sirtris was founded in the spring of 2004 by Dr. Westphal to commercialize the research of David Sinclair, a professor of pathology at Harvard Medical School and the director of the Glenn Laboratories for the Biological Mechanisms of Aging.  Mr. Sinclair, who at the relatively youthful age of 37 is already renowned for his investigations into how we grow old, discovered in 2003 that a molecular compound called resveratrol, found in red wine and other plant products, extends the life span of mice by as much as 24 percent and the life span of other animals, such as flies and fish, by as much as 59 percent.”

“Mr. Sinclair believes that resveratrol works by activating a gene called SIRT-1, which many biologists think plays a fundamental, if still obscure, role in regulating life span in mammals.  Scientists have shown that increasing the activity of SIRT-1 in animals slows down aging and postpones or eliminates diseases of old age.”

“The company has one compound, called SRT501, an improved formulation of resveratrol that is in early clinical trials for the treatment of diabetes.  Later this year, Dr. Westphal says, the company will also begin clinical trials with SRT501 to treat Melas syndrome, a disorder of the cell’s mitochondria, in which sufferers age with unnatural haste” (New York Times, Business, July 8, 2007).  (9/19/07)

337Service Research and Innovation Initiative  
IBM, Oracle, and other large technology companies such as Accenture, Cisco, Computer Sciences, EMC, Hewlett-Packard, Microsoft, and Xerox are looking for ways to plug more technology into the service sector (New York Times, March 18, 2007, p. C5).   Many universities are adding service science courses and the National Science Foundation is now financing a few service research projects.  However, even with a symposium coming up in May, the organization looks a bit sleepy.  (9/12/07)

336Farm Tourism 
We have commented on some of the farm tourist initiatives in North Carolina in “Amazing.”  But farmers and others around the nation are doing all sorts of things to bring paying customers out to the farm.  As their revenues tail off from standard crops, dairy and beef cows, etc., the farmers are inventing a host of tricks to find some revenues.  Farm tourism is one. Specialty or boutique farming is another with organic initiatives, hormone free milk, and heritage breeds.  As well, there are new museums and sundry other exhibitions to draw urbanites out into farmland—all promoted by the the Association for Living History, Farm and Agricultural Museums.  Some of this is summed up in “10 Great Places to Dig Up Old Dirt on Farming,” USA Today, March 23, 2007, p. 3D.  (9/5/07)

335The Milkman Cometh 
“Returning to your doorstep: the milkman” (Wall Street Journal, May 15, 2007, p. B4).  “Crescent Edge Dairy Inc. in Sharon, Mass., a small third-generation family dairy … still processes and delivers its own brand of hormone-free milk in old-fashioned glass bottles, placing them in white steel boxes outside customers’ homes.”   “The milkman was still a familiar sight as recently as the 1960s when home delivery accounted for 30% of all milk sales….”  “In addition to milk, Hudson Milk also delivers items like cream, organic eggs, yogurt and Poland Spring water for a flat delivery fee of $2—which has boosted his average order to $25.”  Online orders at Crescent have been the key to higher sales per customer, with Internet orders 20% higher than other purchases.  Crescent is also trying to build its ice cream business where margins are higher and volume is now up to $1 million a year.  (9/5/07)

334The Mystery of Belk’s
Belk, headquartered in Charlotte, North Carolina, is the large privately held private department store in the United States.  We do not understand it very well, especially as we prowl through its aisles.  We do not recommend that you go there, but it is a survivor.  Obviously it was a whole lot more fun in 1888 when it was founded.  First called “New York Racket,” a fantastic name, it then became Belk Brothers.  Apparently its profits and sales keep growing, as “Belk Defies Odds” (Raleigh News and Observer, March 24, 2007, pp. D1 and D5).

Today there are fewer than 10 chains, mostly national.  “The Charlotte chain … has 309 stores in 17 states.”  It is now approaching $3 billion in sales.  It only goes into small neighborhood shopping centers where it is the only store.  It targets midsize towns with populations of 100,000 or under.  It has brought a fair number of stores, such as Profitt’s, McRae’s, and Parisians’s.  (8/8/07)

333Water Works
Personalized Bottle Water absolutely proves the power of packaging.  Mark Sikes was a stick-on label merchant until he got the idea of setting up a bottler in Little Rock, where he would stick on the buyer’s label.  Schools, funeral homes, and hotels soon jumped on the bandwagon.  By 2006 he got the revenues up to $350,000.  He has since gotten advice on how to sell over the web, how to franchise, and how to get more strategic.  Apparently he can haul in $52.00 a case when he is selling to wedding planners, and he’s been told to close in on this market slice.  (7/18/06)

332New York City’s Useful Broker 
The very bright commentator on New York politics, Ken Auletta, calls Howard Rubenstein “The Fixer” in the New Yorker, Feburary 12, 2007, pp. 46-57.  Our scattered contacts with Rubenstein would find this to be a bit glib: he is a quiet good counselor and doer of sensible things, knowing how to operate under the radar screen.  He is better called a catalyst that makes useful things happen between people who don’t know each other or whose egos keep them from successfully talking to one another.  Even ‘consiglieri’ would have been more apt.  He clients run the gamut—Steinbrenner Murdoch, etc.—but his most important base of contacts we think has been a slew of the moguls in the real estate industry.  These relationships have led to everybody else, particularly the politicians up and down the state.  Strange, we think, that Wal-Mart does not seem to be a client: it has stumbled in New York City.  (7/18/06)

331IBM in India 
“Last June IBM held its annual investors’ day on the grounds of the Bangalore Palace, a fake Windsor Castle in India’s equivalent of Silicon Valley” (“Hungry tiger, Dancing Elephant,” Economist, April 7, 2007, pp. 67-69).  “With 53,000 employees, India is now at the core of IBM’s strategy,” its employee workforce there second only to America, and revenue growing 40 to 50% a year.  CEO Palmisano has announced that IBM will invest $6 billion in India over the next 3 years.  Incidentally, John Patterson, IBM’s chief procurement officer, has moved to Shenzen, as IBM puts functions in the countries that can best serve it globally.  The Company meanwhile has been growing services and software to kickstart its revenues and has hopes of  both increased growth and profitability by achieving synergies between hardware (IBM’s traditional business but a shrinking percentage of the pie) and the other two.  In 2006 Hewlett Packard’s revenues pulled just past  IBM ($91.7 billion vs. $91.4 billion).  (7/11/07)

330Post-Industrial Smarts  
For developed countries, we have theorized, the only hope in a global economy where somebody in Asia can crank out any product at half the cost is “vive la difference.”  Make one of a kinds that don’t make for easy knock-offs.  The product must not only be physically differentiated: the whole experience associated with it must be a cut above things that come out of the mass market economy.   

All this involves a different culture and a different set of skills quite apart from the attitudes and habits learned in the modern nation state.  Hither and thither, there are solitary examples.  “The Fondation de Coubertin spreads over an estate covering 160 acres in Saint-Rémy-lès-Chevreuse, 20 miles southwest of Paris.  Virtually hidden in the estate's secluded woods behind the sculpture-studded gardens and 300-year-old chateau are massive workshops and an art foundry.  Here, 150-odd of Europe's finest artisans, including 30 young fellows on full scholarship, are working in metal, stone and wood, or casting sculpture in bronze and steel for world-class artists living and dead, including the Spanish architect and sculptor Santiago Calatrava, the Hungarian sculptor Marta Pan, and the late Auguste Rodin” (Wall Street Journal, March 21, 2007, p. D11).   

“Besides its setting on the grounds of a magnificent estate, what distinguishes the foundation from just a bunch of workshops is the fellowship program for 30 young artisans, mostly French but including other Europeans and the occasional American.  They have previously apprenticed in one or another of these crafts and most of them are likely to be admitted soon to the Compagnon du Devoir, the guild that emerged in the 11th century when the great cathedrals of Europe were under construction.”  “During their year at Coubertin, they work on the foundation's commissions and their own chef d’oeuvre, a sort-of doctoral dissertation that they must submit for admission to the guild.  But they also get courses in English, psychology, computer-assisted design, math, accounting and salesmanship, as well as regular lectures from visiting scholars and artists covering a range of subjects, from Guy de Maupassant to the life of bees.  Nowhere else in the world can such craftsmen find a similar experience.”  

“Mr. de Navacelle, a Coubertin descendant and retired French businessman, has established Saint-Jacques Artisans Workshops Inc. in the U.S. as a subsidiary of the foundation.”  See http://www.coubertin.fr.  (7/4/07)

329Automatic Search Engines
As we suggested in “In Search of Searchlights,” search engines on the web are still pretty crude, missing much of what is there and spitting out hundreds of entries that are not relevant to what the searcher is trying to discover.  Efforts aplenty continue to try to devise a better mousetrap.  One “Metaweb Technologies, is led by Danny Hillis, whose background includes a stint at Walt Disney Imagineering and who has long championed the idea of intelligent machines.”  It seeks to “create a vast public database intended to be read by computers rather than people, paving the way for a more automated Internet in which machines will routinely share information” (New York Times, March 9, 2007).  “On the Web, there are few rules governing how information should be organized.  But in the Metaweb database, to be named Freebase, information will be structured to make it possible for software programs to discern relationships and even meaning.”  “It’s like a system for building the synapses for the global brain,” said Tim O’Reilly, chief executive of O’Reilly Media, a technology publishing firm based in Sebastopol, Calif.  Hillis was a founder of Thinking Machines, a pioneering firm in the field of massively parallel computers.  He’s also been involved with Applied Mind.  P.S: The name Freebase is very unfortunate since it also refers to the world of illicit drugs.  (6/13/07)

328Free Association
The great value maker for forward-looking companies in our age is not merger and acquisitions, but strategic alliances.  Huge volatility in markets across the world coupled with rapid technology shocks that change the business playing field daily have devalued traditional organizations—and the outdated acquisitions they make.  William Dunk Partners, Inc. expands on this trend in “Free Association.”  (5/2/07)

327All Volunteer Army of Workers
“Will Volunteers Replace Paid Employees As Companies Bank on Free Contributions?” (WSJ, Feb 17-18, 2007, p. A5 cited from Time).  Everything, from Wikipedia to Linux innovation, depends on unpaid volunteers to create their product.  “One of the leading prophets of the gift economy is Youchai Benkler, a Yale University law professor whose 2006 book The Wealth of Networks can be read for free online (www.benkler.org).”  Many doubt that volunteerism for profit-making enterprise will work.

Time and WSJ barely scratch the surface in coming to terms with the innovative ways companies are putting volunteers to work.  It’s not just that the labor is free, but the volunteers often are doing jobs that cannot be performed by hired hands.  Viral marketing firms often depends on a corps of advocates to spread the word about a product, an idea we touched on in “Authentic Conversations.”  Banks get you to do all the works at their automatic teller machines; a host of organizations want you to manage your purchase transactions, in all respects, on the Internet.  Healthcare organizations of various sorts are no longer treating their patients as dumb terminals, but are helping them make informed decisions about their own health.  Many companies provide their ‘volunteers’ with minor gifts or inducements, but many free workers enjoy the tasks and would work without compensation.

Wikipedia is, of course, an encyclopedia built on volunteers.  Google is trading free services such as email and more with consumers who are its unwitting volunteers, since they enrich the database on which its future revenues are being built.  (4/25/07)

326-new- Dockers Saves Levi Strauss
“When the beleaguered jeans company reported fiscal 2006 earnings … the U.S. Dockers unit was a standout, posting an annual sales increase for the first time since 1998.”  Three years ago, Levi had tried to sell the division.   John Goodman, formerly of Gap, and K Mart, who turned around Banana Republic, was brought in to head things up.  Goodman turned a khaki company into a brand, adding on shirts, sweaters, blazers, and more fashionable women’s clothing.  It also started bringing out men’a apparel in four categories—work, weekend wear, formal wear, and golf.  “Dockers launched its most expensive pants to date, $150 dress pants made with super-fine wool that is machine-washable.”  Khaki, of course, is hot, and higher end brands may threaten Dockers resurgence, just as premium jeans ate into Levi’s market.  Interestingly, offbeat operations are the salvation of several clothing companies.  For instance, Hilfiger’s operations in Europe, once troubled, are now a key profit center of the company.  (4/25/07)

325Hilfiger Makeover in Europe
Tommy Hilfiger, a fashion brand in the United States that has always been at the low end of the high end, has had to have a facelift in Europe.  Hilfiger, like other clothiers, has discovered that U.S. market growth has peaked out and that it has to go abroad.  But it has discovered that Europe has different merchandising rules, as recounted in the Wall Street Journal, February 2, 2007, pp. A1 & A17.  “The upscale loft-like space (in Dusseldorf), one of 34 Hilfiger Denim stores in Europe, is a new concept catering specifically to European tastes.”  Higher quality shirts and jeans bear price tags many times higher than those in the States.  “The U.S. clothing market has grown less than 5% annually in recent years.”  Department stores now allot 1/3 of their space to private brands or lines with which they have an exclusive.  Hilfiger in the United States is in turnaround mode, having peaked at $1.9 billion in 1000, and it now relies on its European success to stabilize the company.  “Margins in Europe can be 50% to 100% higher than in U.S. department stores….”  Dutch born Fred Gehring, now CEO of Hilfiger, built Hilfiger Europe steadily from its base in Amsterdam.  Besides signing up the big department stores, he also did business with the boutiques, 4500 of them in 15 countries.  He set up many showrooms with 25 lines of merchandise for retailers to view, creating high operating expenses, which were vital, nonetheless, in his push to overtake European brands.  He now has a separate European design staff in Amsterdam of 37 people.  They design for an older demographic in Europe, not the youth crowd Hilfiger aims at in the U.S.  (4/11/07)

324Cisco: DIY Innovation
Having done a raft of acquisitions, Cisco is now trying to grow new products and services at home.  See “Cisco’s Homegrown Experiment,” Wall Street Journal, January 23, 2007, p. A14.  “The Telepresence high-end video-conferencing system is a test of Cisco’s new plan to juice growth: Create new products, especially those outside its core networking gear, from scratch, on its own.”  “The company’s high double-digit growth rate has slowed to low double and single digits. To recapture some of its former glory, Cisco is trying to jump-start new growth by making completely new products outside of networking gear on its own.”  “The unit was launched by Charlie Giancarlo, Cisco’s chief development officer, who is often mentioned as an heir apparent to Mr. Chambers.  Mr. Giancarlo says he wanted to set up a structure to house new nonnetworking products that were bubbling up within the company.”  (4/4/07)

323Keeping the Tarnish off Tiffany
“In the late 1990s, Tiffany & Co’s silver charm bracelet was a must-have fashion accessory.  Teens jammed Tiffany’s hushed stores clamoring for the $110 silver bauble. Sales skyrocketed, investors cheered.”  But Tiffany worried, afraid that the teen crush would ruin its standing with older, very affluent customers.  It raised the price of the bracelet, hoping to shed its raucous following.  See “To Refurbish Its Image, Tiffany Risks Profits,” Wall Street Journal, January 10, 2007, pp. A1 and A15.  And it introduced more upscale luxury merchandise.  The move has been a mixed success: it is selling more upper-end merchandise, but it has not recovered the revenues and profits of yesterday.  The truth, moreover, though not known to many, is that Tiffany for decades has depended on middlebrow customers buying midprice merchandise, and it really cannot afford to lose the great middle.  The company continues to aggressively expand into smaller cities, and we wonder if that will cheapen the brand.  The bracelet eventually worked its way up over $200, although we believe we saw one at $169 on a recent visit.  Though the stock is up, we sense that the company is still in an uncertain period.  (3/14/07)

322Over Hill and Dell
You have heard that Dell is faltering, losing market share to H-P, and plummeting in other ways.  Don’t bet on its decline.  Michael Dell has demonstrated founder smarts for a long time, and we can imagine he will stage a comeback.  He is demonstrating his usual go-it-alone smarts in his environmental approach.  He is going to sell trees online to put green in the world.  See Financial Times, January 10, 2007, p. 17.  Dell said “Dell was the most energy-efficient company in the industry and the global leader in product recycling.”  “Dell’s carbon-neutral initiative is a partnership with the Conservation Fund and Carbonfund.org non-profit organizations, who will plant the trees in sustainably managed forests.”  He is asking consumers to donate $2 for every notebook computer they buy and $6 for every desktop.  Dell will pick up the administrative costs of the Plant a Tree Program.  Recently, Dell has come back to run the company, which is not doing as well as it might in consumer markets.  (3/7/07)

Update: Dell Changes His Bench.  Michael Dell once before brought in a team to put some pep into his company, capturing, for instance, nimble Morton Topfer who came out of Motorola.  Now he’s made Don Carty, one-time ceo at American Airlines, his chief financial officer.  He has brought in others from IBM, Motorola, etc, and has a raft of headhunters working on his top team. 

“Overall, Dell is whittling its executive team down to just 12 members from more than 20.  The company also is abolishing its practice of splitting high-level jobs by assigning two executives to head up a business unit.  The structure helped create a bureaucratic organization in which no one was responsible for the whole business” (Wall Street Journal, March 1, 2007, p. B1).  “Many of the executives Mr. Dell has brought in have been involved in corporate turnarounds before.  Mr. Cannon, for example, is credited with rejuvenating hard-drive storage maker Maxtor Corp. (which is now owned by Seagate Technology) and helping to boost Solectron’s growth.”  (5/9/07)

321Playland
Playland, in Rye, New York, is the nation’s only publicly owned amusement park.  It was formed to provide a wholesome recreation spot for Westchester residents who were concerned about the unsavory elements that had been attracted to Rye beaches.  Westchester County is struggling to keep it afloat and has been doing a facelift to see if it can be re-floated.  See “Finding Funds to Keep the Play in Playland,” New York Times, December 17, 2006, p. NJ7.  It attracts a million visitors a year, has been part of several Hollywood films, and once provided the practice rink for the New York Rangers.  It’s also a National Historic Landmark.  The county is refurbishing the bath houses, buying up privately owned rides, redesigning the Kiddyland area, and taking steps to increase customer flow.  To savor its delights, take a look at “A Fun Afternoon at Rye Playland.”  In business since 1928, Playland has a lively website with carousel music to peddle its wares.  (3/7/07)

320. The Easy Button
About two years ago, Staples, one of the big three office-supply chains along with Office Max and Office Depot, started putting out TV commercials showing people accomplishing tough, boring tasks with an ‘easy’ button.  The idea was to convey that Staples is an easy, relaxed, fast shopping experience.  The ads caught on so much that now Staples now offers Easy Buttons on its shelves for $4.99.  See “Ad Play,” New York Times Sunday Magazine, December 17, 2006, p. 40. 

What’s so interesting about this campaign for us is that nothing could be farther from the truth.  We’ve shopped at Staples, every month or so, and it’s a horror show as far as we can tell.  Stuff is wretchedly hard to find and check out takes forever.  Heaven help you if you want to use one of its services, say copying.  One of the things that’s happened to advertising is that it tries to take up a company’s worst flaw and claim that the flaw does not exist: shopping is tres difficile at Staples, so the trick is to call it easy.  Years ago, a senior IBM official, who had turned down the offer of a PC in his office to everybody’s distress, told us that there was nothing friendly about ‘user-friendly’ computers.  In fact, computers are a mass of confusion that regularly go into meltdown.  And the list continues. 

But as well, advertising adopts themes that are on the wish lists of modern Americans, making promises on which the admen cannot deliver.  In modern times, we want ‘easy,” even though modern life has become complex and unwieldly.  We want ‘energy saving,’ though most everybody we do and use is energy-gobbling.   Advertising, then, frequently no longer talks about the product but, instead, about all the wishes modern civilization cannot address and frequently frustrates.  (1/24/07)

319. Disarray in U.S. Financial Markets
You will in “It’s Not Carly’s Fault” and in several other places on the Global Province commentary about the utter, complete, and devastating failure of Sarbanes-Oxley, the handiwork of two legislators on the way out.  It, along with missteps by the Bush Administration, have sent our financial marketplace into retreat—our commercial Iraq.  Clipped comments in the Financial Times, November 17, 2006, p. 14 sum it up nicely.  “The compliance revolution has eaten its own.”  The SEC’s Annual Report is self-congratulatory on all it has done to clean up the markets.  “It is now clear that Europe see financial market regulation as a source of competitive advantage.”  The UK has proposed a law “allowing the Financial Service Authority to ring-fence the London Stock Exchange … against ‘disproportionate regulation’—code for American laws in general and the Sarbanes-Oxley Act in particular.” Other European initiatives are afoot to counter U.S. over-regulation.  Any of us who advise public companies know that Sarbanes has become a license to steal for both accountants and lawyers who have laid on wonderful fees to help companies through all the trash imposed by Sarbanes and the SEC.  Smart companies are migrating overseas for listings and to raise their money, raising the power of London as a financial center and taking air out of New York’s balloon.  (1/17/07)

Update: At Home in London
A number of journalists have written us saying that Sarbanes-Oxley ain’t that bad.  The protests against it, they think, are just the usual huffings and puffings of Wall Street types and knee-jerk chief executives who always want less regulation.  When it’s all said and done, they say the new regs are not that onerous.  The facile one-page financial journalist for the New Yorker, James Surowiecki, doesn’t think we are missing out on very many IPOs and that anyone of note still also looks to the U.S. for capital. 

We’re all for tight, sensible regulation, but let us assure  these scribblers that they are simply dead wrong.  Our work has made us intimately aware of the egregious extra costs accountants and lawyers now impose on companies because of SOX.  We converse with some regularity with companies avoiding listings in the U.S.—most recently a fine German company.  We know of worthwhile executives who no longer want to serve as company directors, and of companies who are contemplating going private.  All because of SOX and the regulatory atmosphere it has engendered. 

Clara Furse, chief executive of the London Stock Exchange, is the latest celebrant of the vulnerability of U.S. financial markets.  She’s author of “Taking AIM at Small Caps,” Wall Street Journal, January 30, 2007, p. A17.  “In the last 12 months, the U.S. capital markets have started to take a serious interest in AIM, the London Stock Exchange’s market for smaller, growing companies.”  “If AIM were an exchange in its own right, it would rank sixth in the world by money raised last year.”  “The pursuit of high-quality regulation without the imposition of high-quantity regulation appears to be gaining currency in the U.S.”  There is a lot of talk about more deft regulation, but right now it’s  both cumbersome and ineffective.  (4/18/07)

318. Internet Realtors
Internet realtors threaten to displace traditional, expensive, slow, brick-and-mortar realtors in the years ahead.  The Financial Times, November 25-26, House and Home, p.1 takes a look at this revolution in “A Bitter Battle for Sales Territory: With growing numbers of us turning to the internet to buy and sell our homes, are the days of the traditional estate agency numbered?”  It’s not hard to see why Glenn Kelman of Redfin.com “backed by Microsoft pioneer Paul Allen, is seen as a threat” to the agent down the street.  “‘We think people can save thousands of pounds,’ says Helen Probert, the 28-year-old founder of Cutthemiddleman.co.uk, one of about 100 UK-based self-sell websites.”  New kinds of sites aggregate ads selling homes provide satellite imagery of towns and houses, give additional details on properties.  Redfin flat fees come in at about $2,000 versus the egregious 6% in the United States, and 2% in the UK.  (1/10/07)

317. Social Entrepreneurs
Ashoka, founded and run by an ex-McKinsey type, is one of many organizations set up to lend aid and comfort to social entrepreneurs.  In theory, anyway, social entrepreneurs take on the deep problems of society but put freebootin’ ideas and techniques and charisma to work to cut down big nagging roadblocks to poor people’s progress.  See, particularly, “The Rise of the Social Entrepreneur.”  While it is clear that intermediaries can bring more capital into social causes, the jury is still out whether they help or hinder the entrepreneur-led causes they are underwriting.  “Meanwhile, Ashoka hopes that its relationship with UBS will flourish, and that prizes will soon be awarded across Latin America and Asia.  But as well as highlighting the growing role of social entrepreneurs, this experiment also points to another new trend: a more active role for intermediaries in the emerging philanthropic capital market.” 

We still have a huge task understanding how money is successfully distributed into philanthropy, since the intermediaries act much like governments, adding layers and layers of bureacracy to the development process.  The much-enlarged microfinance movement is now dealing with donors who have complex motivations and who devise complex schemes to put a $100 loan into the hands of a peasant.  We will have much more to say about microfinance later.  (12/27/06)

316. Bad Apple
Apple Computer has long been the darling of mildly anti-system affluents.  But their affection is probably not warranted.  Bad old Microsoft is probably doing more for the world (Gates Foundation is very active in global health) than the inventive but perhaps more provincial Apple chieftains.  Jobs, for instance, is psychopathically tight-lipped and covert, an odd posture for the pres of a company that is suppose to be mellow, pretty, laid back, and, above all, open.  He does not hand out written instructions with his computers, and the online helps are no help at all.  Neither the screens nor the operating paths are intuitive.  The I-Pod, like the computers, is horribly overpriced, subject to breakage, hard to use, and difficult to keep charged.  Users say the graphics are wonderful, but so what.  It is little wonder to us that Holman Jenkins wound up calling Jobs “A Typical Backdating Miscreant,” Wall Street Journal, October 11, 2006.  Of course, Holman, an apologist for breaking the law, does sort of pan all the furor over backdating options, clearly not thinking the practice is a big deal.  Kindly Steve Jobs has gone after a host of bloggers who dare to tell secrets that they have learned about life inside Apple with endless law suits. See BBC News.  (12/13/06)

315. Emap
“Ten years ago, says Emap Group Chief Executive Tom Moloney, no prestige media company wanted to touch either data directories or trade shows, both of which were considered the ‘rough end of the business.’  But since then the four big publishers—Thomson, Wolters Kluwer, VNU and Reed Elsevier—have transformed their businesses from traditional media such as trade papers into commercial data vending, mostly with electronic distribution.”  (See “The Rough End of the Business,” Forbes, June 19, 2006, pp.134-35.)  “Emap is the largest trade show organizer in Britain.”  It has bought seven trade shows and started up another three.  Its share of UK magazine sales at newsstands is 19%, with Time Warner coming in at 21%.  “Emap’s heavy metal music magazine, Kerrang!, is now a radio station, TV channel, Web site and host of ‘live’ music events.”  As such its Emap ad salesmen have perfected cross selling and the idea of selling total platforms for brand building.  Its foray into America—the purchase of Peterson Magazines—nearly broke the company, but it dumped Peterson in 2001 in a sale to Primedia.  In addition to trade shows, it has been a big buyer of electronic data banks and radio properties.  The data and trade show niches are felt by Emap to be safe revenue streams, while advertising spending in traditional channels is flat and is being split up amongst more and more magazines.  (12/6/06)

314. The Green Theme
The pols and the journalists are slowly twigging on to the fact that business is turning green.  They point to the battalion of Fortune 500 companies that have jointed Pew’s initiatives on global warming.  Or they spy Wal-Mart’s goals for greening itself and its push to stock more organic products. 

But it’s all the little things and unheard of companies that truly convince one that we have turned the corner.  Bazzini Associates in Grand Rapids, Michigan is making a living from green practices.  “The firm, which specializes in restoring old buildings, uses techniques and tools including green roofs that are covered with plants, storm water management systems, and environmentally friendly building systems” (“Making a Profit and a Difference,” New York Times, October 5, 2006, p. C5).  Guy Bazzini says, “We found that we can build green buildings that utilize 40 percent to 50 percent less energy at the same price as traditional buildings.”  Local First of Grand Rapids “is just one of 35 similar business networks around the United States and Canada that have sprung out of the Business Alliance for Local Living Economies, or Balle, a nonprofit organization founded in 2001 by two successful small-business owners in Boston and Philadelphia.”  The concept is to foster profitability but combine it with social and environmental consciousness. 

In Manhattan Andrew Shapiro has made a go of GreenOrder, Inc., a consulting company that promotes environmentally friendly business practices (“A Dollars-and-Cents Man with a Green Philosophy,” New York Times, October 8, 2006, p. BU 24).  Much of his work is on buildings for Silverstein Properties (World Trade Center), Tishman Speyer, Vornado, and General Electric’s real estate unit.  (11/29/06)

313. Getting Naked
Don Tapscott, co-author of The Naked Corporation and a Canadian B-School professor, believes he’s on to the next big thing for corporations.  See the Economist, October 18, 2006, p, 66.  In this age, when business is becoming ever more virtual, he believes the ticket for companies now is to become increasingly more transparent to customers, employees, investors, and other constituencies.  Of course, he does not reckon with Sarbanes-Oxley, the hamfisted attempt of Congress to get companies to let it all hang out but which instead has had the dual effect of making public companies more closemouthed and causing private companies to stay private.  Greater transparency he feels is inevitable, since everybody now demands more.  The Economist feels the big problem is that in an imperfect world that there is simply a great deal that competitive businesses have to keep private.  We ourselves feel the real challenge is how to orchestrate not transparency, but interconnection.  To win the global race now, a company needs its employees to be networking with a host of people outside the corporate walls who have no economic connection to the company but who have knowledge to share and who can help build practical theses of how to accomplish this or that business chore.  From our own experience, we can say that the real problem is to develop a mindset where one’s employee does not think in us vs. them terms.  (11/22/06)

312. Small Is Beautiful
We’re always debating whether the sentiment “small is beautiful” is actually true, especially when we contemplate the havoc of many small enterprises.  But it is true in at least one regard.  “Highest Safety Risks Found at Small Worksites of Larger Businesses, Not at Small Businesses,” according to the Rand Review, Summer 2006, p. 3. “Employees at worksites of fewer than 100 employees were much safer when a small business owned the plant than when a larger business did.”  Better to be owned by a business of 1 to 20 workers, or a business over a 1,000 workers, if you are at a small worksite: companies with 20 to 999 workers experience 2.5 to 7 times the safety problems.  This would suggest that the Feds should lighten up on safety enforcement at very small businesses and at worksites that have more than 20 workers.  In any event, we suspect that safety correlates with the quality of onsite worker supervision which, in the case of very small businesses, probably means that the owner is present.  (11/15/06)

311Jonathan Schwartz
It makes me want to buy the stock.  Most CEOs are afraid of the Internet, and their websites show it.  We cannot say enough bad things about corporate websites: they’re uninformative, out-of-date, badly written, poorly and usually over-designed, and on and on.  But Jonathan Schwartz, the guy who’s in charge of the store at Sun MicroSystems now that the founder is up and out, keeps an interesting blog, Jonathan’s Blog, where he tries to lend transparency to both Sun and himself.  He has beaten back his lawyers who are the enemies of communication in most companies:

As a CEO who blogs, the most frequent question I get is, “doesn't this drive your lawyers nuts?”  And as I’ve said, no.  Our legal team understands, guides, drives—and protects—our business.  All without sneaking into phone booths to change costume.  And with technology, regulation and our products all colliding in the marketplace (is it legal to scream “SOX!” in a theater filled with CEO’s?), I sleep better at night knowing they’re actively engaged.

Very quietly, this week, our General Counsel—the senior most lawyer in all of Sun—started a blog.  It’s here.  He, too, is now the only member of his tribe, the only GC in all the Fortune 500 to have a blog.

A great company that has stumbled, Sun has been in retreat.  There is no better way to lead a charge back into the marketplace than to be the CEO who says it all.

The New York Times, July 30, 2006, p. BU3 wrote about his exceptional bog, noting that he’s the only Fortune CEO to put his pen to computer.  The only way you can get a wisp of what’s happening with the notoriously, paranoid secretive Steve Jobs is to read a parody site, “The Secret Life of Steve Jobs.”  Microsoft proudly notes that some 3,000 employees are so are blogging up a storm, but Gates and Steve Ballmer are not among them.

There once was a rather fine disc jockey in New York named Jonathan Schwarz.  Could he be at all related to Silicon Schwartz?  (10/18/06)

310Mis-Guided Guidance
We have been at pains to tell companies all the self-defeating things they do to achieve recognition from investors.  In “If You Believe in Yesterday, Your Stock Will Not Act Like Tomorrow,” we lay out some of the myths that companies believe in and act upon in their dealings with the stock market.  But we did not deal with the worst thing companies can do to themselves: giving quarterly or yearly financial guidance to investors is nothing short of suicide.  Sooner or later, you won’t make your numbers and Wall Street will savage your stock.  Sooner or later, the shareholder suit mills such as Lerach, Coughlin will go after a chunk of your assets, claiming you deceived investors and traded on your own behalf.  In an attempt to meet the highflying targets you have set out, you will sell products at low prices and fail to invest for the long term.  The reasons for not giving financial guidance are so numerous and so obvious that it’s hard to imagine why companies fall in this trap.  But, of course, analysts, like reporters, are lazy and want their work done for them.  Better for them if you make a fool of yourself by putting out predictions and then they can put out long scripts on why you may and why you may not make it.

At long last some sober citizens at the Business Roundtable and the CFA Institute have come out with an impressive document that examines forecasting.  Simple to say, “Breaking the Short-Term Cycle” instructs companies, “Give It Up.”  Focus on the long term and communicate about the long term.  We have spent considerable energy with our clients here and abroad for several decades teaching them how to do just that.  Basically we have shown companies how to devise and communicate very long term goals: everyone is clear that they are goals and that performance may deviate sharply from the goals from year to year.

We have constructed an impressive list of long-termers who have given up quarterly forecasting.  One caveat: we have missed many companies who have also given up this addiction, and a few have taken up the habit again after becoming forecast-free.  At any rate, an impressive list of enterprises have given themselves breathing room and greater capacity to manage their businesses in the right way by fighting off the tyranny of quarterly forecasts.

Update: Why Bother?
“For the life of me I don’t know why companies give earnings guidance.  Nobody can see the future; yet every quarter it’s the same old song and dance” (Herb Greenberg, “If Earnings Guidance Lacks Clear Direction, Why Bother?” Wall Street Journal, February 3-4, 2007, p. B3).  The number of companies providing any guidance has dropped to 66% from 71% a year ago, and those providing only annual guidance has increased from 23% to 43%.  Baruch Lev of NYU, author of the paper “To Guide or Not to Guide,” still believes guidance is important in order to control the range of analyst forecasts.  (4/11/07)

Update: Profitless Prophets
McKinsey confirms what so many of is already know.  Earnings forecasting is a profitless, dangerous game.  In “The Earnings Guidance Fallacy,” McKinsey asserts “Contrary to what some executives believe, frequent earnings guidance doesn’t raise market valuations; indeed, it appears to have no significant relationship with them—regardless of the year, the industry, or the size of the company in question.” “Read ‘The misguided practice of earnings guidance’ (March 2006) for more on why companies should disclose their long-range strategic goals and business fundamentals instead of speculating about their short-term performance.”  (3/12/08)

309. Bain’s Orit Gadiesh
Hailing from Israel, “Ms. Gadiesh lives mostly in Paris with her British husband.”  Although hardly speaking English when she began at Harvard Business School, she graduated in top 5% of class.  When Bain was near bankruptcy, Gadiesh, trained as psychologist, arranged a rapprochement between founders and 1980 employees to ease up on the firm.  She became chairman in July 1993.  She says you should go for 80% of perfection, since you cannot realize 100%, which probably explains her mediating abilities as well.  See the Economist, October 22, 2005, p. 72.  (10/4/06)

308Innovative Toys—Japan
Many commentators from around the world, and even the Japanese, take potshots at Japanese creativity and innovation.  But as we take a look at the global toy industry, we find it is Japan and not the United States that has been moving in new directions, as sales of traditional toys stagnate.  In “Flexing Your Brain,” we found that Nintendo, hitting the wall a bit in sales to kids, now has moved onto adults, offering games both in Japan and now in the West that playfully exercise the brains of adults with the hope of improving mental skills.  But its toy industry is generally vibrant because it has realized it can expand the $6 billion domestic market for toys, “by marketing to adults as well as children.”  See the Economist, May 6, 2006, p.66. 

“Japanese men in their early middle-age can now relive the hit television series of the 1970s, which featured super-heroes and super-robots piloted by brave men out to save the world.  These champions are now back, with more gizmos.”  “Robot Okoku (kingdom), a shop in Akihabara, Tokyo’s geek district, has sold a couple of thousand remote-controlled robots … the walking robot” costs $1,105.  Masked raider belts, once thought just for children, are also selling to the middle-aged.  “Abandoning high-tech for simplicity has been another surprising success.”  “As if to underline their success, recent top-selling toys in America and Europe have been Japanese.”  The editor of Japan’s Toy Journal also thinks that the surge in toy sales to adults represents an attempt by adults to grow closer to their children through joint play—an antidote to the alienation between parents and children that has reportedly grown in that society.  (9/27/06)

Update: J-Pop Culture
“J-Pop Goes the Market” (Duke Magazine, September October 2006, pp.28-35) theorizes why Japan has been able to make such a push in world toy and other entertainment markets, relating this success to a number of cultural strands that have come together to make Japan uncover the soft spot in global consumer markets. “Sanrio Company Ltd. ... sells nearly $1 billion worth of Hello Kitty and other cute-character fancy goods each year,” 15 percent of its profits coming from outside Japan.  There was a huge turnout for J-Pop products at the 15th Anime Expo in Anaheim in July 2006.  Anne Allison in Millennial Monsters: Japanese Toys and the Global Imagination tracks the evolution of the monster, cute character toys, and related media market in Japan from the end of World War II.  Kawaii, or the cute characters, have thoroughly penetrated Japanese culture, every company having a cartoon mascot that is one way any group (company or otherwise) projects its identity in Japan.  Takashi Murakami, an artist of wide renown, is both a practitioner in the J-Pop culture and a critic of it.  The key to the re-invention of Japanese toy and media companies has been their ability to connect with the J-Pop culture which permeates Japan but which also is fantastic enough in design to have a global appeal.  For yet more on J-Pop, kindly visit American Radioworks, which transports you right into the culture that is increasingly shaping everyday life in developed countries.  (12/20/06)

Update: Nintendo Exploding
Nintendo’s invention of DS (along with other innovations) has powered a surge in revenues and profits.  “Strong holiday sales of its Wii videogame console and Nintendo portable game device helped Nintendo Co. nearly double its nine-month net profit and raise its sales forecast for the third time this year.”  “In recent years, Nintendo has tried to expand its videogame market by targeting women and the elderly with easy-to-play casual games” (Wall Street Journal, January 25, 2008, p. B3).  (5/14/08)

307. Samurai Peddler
Arthur Schiff just passed away on August 24 in Coral Gables, Florida.  Schiff is credited with writing the phrase: “But wait! There’s more!”  Today, the phrase and the knives are an indelible part of American kitsch culture, and a tribute to the success of his Ginsu ads on TV.  “One of his most successful ideas, which he said came to him during a bout of insomnia, was finding a way to sell a knife with the uninspiring Quikut brand name.  Mr. Schiff dreamed up a new name—Ginsu—that invoked a Japanese heritage.”  “Between 1978 and 1984, the Ginsu racked up sales of more than $50 million….”  “And Mr. Schiff sold everything from singing bird clocks to antisnore spray to pocket-sized sewing machines in more than 1,800 low-budget, late-night television commercials that pioneered the direct-response form of advertising urging viewer to ‘buy now’ by calling a toll-free 800 phone number” (Wall Street Journal, September 9-10, 2006, p. A4).  Moving on from Dial Media, he opened his own Direct Response Associates in Sunrise, Florida in 1993. 

“Mr. Schiff scoffed at big ad-production budgets. ‘I can make an extremely effective commercial for $20,000 to $25,000.”  His powerful ads made output from the big shops look very weak, indeed.  (9/20/06)

306. A Tea Party Is Brewing
Tea packagers on several continents are trying a host of tactics to broaden the market and capture more share.  Generally, however, their efforts are strategically flawed, since, in today’s world, one must have a retail presence to extend and remodel brands.  There’s no Starbucks here, and the sundry purveyors that peddle coffees tend to do a crummy job in the tea business.  But there is some retail movement in the U.S. 

“Tea drinking is on a roll in the U.S.  There are some 2,000 tea houses nation-wide, up from 200 a decade ago.  And tea sales reached $6.2 billion last year, more than quadruple their level in the early 1990’s according to the Tea Association of the USA” (Wall Street Journal, 2006).  Moreover, there is tremendous ferment in the specialty tea market which you can read about in “The Very Best: Wine, Tea, Coffee, etc.” on The Global Province. 

United States.  “Tealife LP opened Tempest as something of a Starbucks knockoff….  TedGschwender USA Inc, originally a German company with more than 130 stores globally, opened its first U.S. store in Chicago in March 2005.”  The Germans, incidentally, are the most avid buyers in the world of the finest green tea and other high-end blends.  “Foodx Globe Co, which operates several tea shops in Japan, opened its first green-tea bar in May in Seattle…”  “Teavana Holdings Inc. of Atlanta has the biggest foothold in the market with nearly 50 stores.”  “In 1987, beverage company Snapple introduced an ice-tea line”  The Journal notes that some retailers are consciously appealing to an upper crust niche, while the others are going mass market. 

Great Britain.  The tea market has gotten a bit tatty in Great Britain, and choosy U.S. customers are looking beyond British brands to get better taste.  But the Brits are trying for a comeback.  “Twinings, Britain’s oldest tea brand, wants to turn the teakettle into the new wine rack” (Wall Street Journal, July 10, 2006, p. B5).  “Twinings is introducing specialty brands, including a new line of white teas due our in September….”  “Globally, the market for all fruit and herbal teas grew 6.3% in revenue terms last year, and that for specialty black teas rose 3.1%, compared with just 2.5% for standard blends….” 

Japan.  “A battle for ideas is heating up among bottled tea producers....” (Trends in Japan, 27 July 2006).  “In May 2006 Suntory Ltd., Japan’s leading manufacturer of bottled oolong teas, released Suntor Kuro Oolongcha OTT..a drink with large amount of … polymerized polyphenolas” which has been certified for health uses.  “This was Suntory’s first new oolong tea since 1981.”  Kao Corporation has put forward both Healthya and Healthya Water, laced with green tea, as weight control tea entries.  Coca Cola is out with new, improved Sokenbicha, “a drink comprising a blend of different teas that is targeted at beauty-conscious women.”  Several other companies have new bottled tea entries.  “The bottled tea market is the scene of cut-throat competition among the major brands, with Ito En Ltd’s Oi Ocha currently occupying the top spot.”  Bottled green tea, blended tea, and oolong tea have doubled the market, each in turn giving a new burst to the bottled market.  (9/6/06)

305. South Coast Mall
Henry Segerstrom’s South Coast Plaza, near John Wayne Airport in Orange County, likes to think of itself as the Tiffany of malls.  “A South Coast Plaza shopper goes from Burberry to Bulgari, pops into Louis Vuitton and stops for lunch at Pinot Province.”  Somehow we remember a distinctly more middle market luncheon experience there.  “But Henry concedes that the Plaza for some time has been generating annual sales of $1 billion—and is on track to reach $1.5 billion next year” (The Economist, July 1, 2006, p. 62. 

Segerstrom underwrites a fair number of cultural events at the Plaza to maintain the patina.  “The median income of a South Coast Plaza shopper last year was $93,800.”  Keeping up its image means “acres of renovation, involving travertine marble, that by the end of next year will have cost the Segerstroms $25m and their tenants another $100m.  (8/9/06)

304Confederate Motor Company
It’s nice to read about a company that puts it all on the inside—not the outside.  Just the opposite of your cellphone.  “With its primitive, shockingly different look, the B91 Wraith recalls board racers from the early 1900’s” (“Out of New Orleans, Confederate Rises,” New York Times, July 2, 2006, p.S11).  “Now Confederate has moved with the old Confederacy, from New Orleans to Birmingham, Alabama, not far from the Barber Vintage Motorsports Museum and racetrack.  Being close to the museum, which has a collection of 900 motorcycles that is considered one of the best in the world, is appropriate.”  “Though high-tech in materials and construction methods,” the Wraith is clunky in appearance.  Founded in 1991 by Matt Chambers, the company introduced the Hellcat in 1996.  “The V-twin engine is built specifically for Confederate by Katech Inc. of Clinton Township, Michigan.”  “The wheels are 17-inch Italian-built Marchesinis with German Metzler tires.  There are serious brakes: an eight-piston Spiegler setup on the front and a Brembo on the back.”  The company’s credo is: 

Never compromise passion, intensity, time or money.
Create through deep considered actual individual emotion.
Perfect a balance of technology and the primitive.
Invest absolute faith.
Overbuild.
Maximize and evolve individual craftsmanship.
Relish the challenge.
Persist eternally (8/2/06)

302. Managing by Mistake
Paul Schoemaker and Robert Gunther explores the uses of intentional errors in “The Wisdom of Deliberate Mistakes” in the Harvard Business Review, June 2006.  Before its break up, the Bell System could require deposits from many customers.  But nobody knew whether it was asking the right people.  So, in a large sample of 100,000 customers, it asked for no deposit but found that an impressive number paid their bills in a timely manner.  It refined its model and screened new customers more intelligently.  As a result, it saved a great deal of money and effort.  It’s a commonplace that we learn from our mistakes, but companies usually have failed to tap into this insight.  The right mistakes and right course corrections can speed organizational learning and secure competitive advantage.  Implicit in all this is that so many longtime institutional practices have long outlived their usefulness and add to costly corporate overhead.  (7/19/06)

301. -new- Mayer's Marker
Martin Mayer, who has written about the Fed, lawyers, and a host of other important sectors in our society, is a painstaking author whose insights soar beyond the average journalist.  Apparently he now hangs out at the Brookings, but we won’t hold that against him.  His “The Mark of the Bust” (New York Times, June 14, 2006, p. A23) is worth a read, and you can take it all in the 5 sips of your morning coffee.  “What we have to watch out for is a sudden and drastic increase in foreign official holdings.  Rapid growth in this number in the late 1960’s and 1970’s forecast the recessions of the early 1970’s and 1980’s, and it could happen again.  …  Recent large increases in foreign official holdings indicate that foreign private investors see fewer attractive places to put their money in  the American economy.”  He takes this to be the most important number appearing in the panoply of statistics every Thursday night “as an appendix to the weekly statement of the condition of the Federal Reserve System.”  It is the quantity of government and agency securities held for “foreign official and international accounts.”  (7/19/06)

300. Secrecy at Apple
Obviously Steve Jobs has done a brilliant job saving Apple by making it into a music company.  So our youngsters exit this world by tapping away instant messages on their personal computers while plugging their ears into their iPods to drown the senses in a vast catalog of music.  It’s odd that this company that is built on a personal computing and listening relationship with young consumers is a bit kinky, unfriendly, and furtive.  See “At Apple, Secrecy Complicates Life But Maintains Buzz,” New York Times, June 28, 2006, pp. A1 and A11.  We don’t know how much its lack of transparency has to do with its success.  We always have been annoyed that it led the way in doing away with printed instructions for its computers—you know, those badly written technical guides that ensure that you cannot operate the darn things.  Jobs, incidentally, no longer has a print annual report for shareholders.  Ironically, it was a glossy annual report that announced that IBM was the mainframe company that was going to remake the world in the 1950s, a company apart from all others.  HP terminated a deal it had with Apple on iPods, since Apple often did not communicate vital information to HP in a timely manner.  “Most Apple employees are allowed to enter only their section of the company’s headquarters complex in Cupertino, California, helping the company keep a tight lid on its secrets.”  “It has fired and later sued workers who leaked information about unannounced products.  More recently, it has filed suits against Apple-enthusiast Web sites (e.g., PowerPage and AppleInsider) that publish tidbits about the company.  The secrecy apparently helps its marketing, generating heaps of curiosity in the marketplace about new products.  One university manager says, “Apple went from being the most open company in the mid-90s to being an impossibly closed company.”  (7/12/06)

299. Chez McDonald
Old McDonald had a farm, but he also has a fast food stop in Paris and all around France.  There are a host of companies in this world that do a better job overseas than they do on their home turf.  Colgate has been a much better competitor of Proctor and Gamble around the world than it has been in the United States; in some of its lean years, the revenues from overseas kept it going.  The biggest victory of Georgia-based American Family Life Assurance (AFLAC) has been in Japan, not the United States.  For the past few years, McDonald’s—the hamburger chain we still like to ignore—has done a better job in France, of all places, than in the United States.  It’s been a fascinating story, and it is partially retold in “A McDonald’s Ally in Paris,” New York Times, June 20, 2006, pp. C1 and C5. 

“McDonald’s operating profit in France last year was second only to that of McDonald’s in the United States.”  “Denis Hennequin, a Parisian, overseas 6,276 McDonald’s  restaurants across Europe.”  “He says the French took so quickly to McDonald’s, despite their own sophisticated cuisine, because it was fast, convenient and affordable.  And it was child-friendly, not a characteristic of the traditional French restaurant.”  One cannot ignore affordability: a lot of French family budgets are very taxed.  (7/5/06)

298. Air Canada’s Sidelines
“Air Canada last year became the first airline to float part of its frequent-flier program on a stock exchange.  The listing valued Aeroplan LP at more than $2 billion” (Wall Street Journal, April 25, 1006, pp. A1 and A14).  Flying big airplanes is supposed to be the business, but Chairman Robert Milton is finding the profits in support operations such as maintenance and regional flights.  ACE Aviation Holdings, Inc., an umbrella group he created, “was one of the few profitable airline companies in North America last year, its first full year of operations,” netting $226.5 million on $8.6 billion revenues.  The airline’s new president Montie Brewer, meanwhile, has tried a host of innovations to garner more revenues—simpler budget fares, subscription fare books, etc.  (7/5/06)

297. Skip the MBA
Matthew’s Stewart’s “The Management Myth,” Atlantic, June 2006, is worth a read, as long as you bring along a skeptical eye.  He basically says that management consultants and business schools are not worth a damn.  All, in his eyes, either is telling you to put scientific management to work (i.e., Frederick Winslow Taylor), which means getting more work out of the same employees, or is pushing some version of  Professor Elton Mayo, which consists of using some happy-family techniques on your employees—hoping without much evidence that either the stick or the carrot will reap big dividends. 

Even if vastly oversimplified and if far too long (both symptomatic characteristics of the Atlantic which understands absolutely nothing about business), Stewart and his article hint at something we should face up to: the rise of gurus, business schools, and consultancies have done little for businesses or national economies.  In fact, they have risen just as business and the economy were descending, both in America and the West.  By and large, post-war management consulting firms have grown fat showing businesses how to take out costs, which was tactically right, but which amounted to long-term suicide.  You either figure out how to grow—for a century—or you die. 

You may correctly ask us why then we bring Stewart to your attention, since he is eminently forgettable.  It’s to ask ourselves what kind of thinking promotes healthy economic growth, if the gurus and the business schools ultimately are subtractive.  We don’t know the answer, but we suspect the real sources of growth will be a surprise to us all. 

As an example, we cite SOHO (south of Houston) in New York City.  This was an old loft section that was going to pot, before the artists moved in.  They did cheap remodelings, plunking themselves, their residences, and their businesses in this bereft section of New York City.  This changed Manhattan forever and brought back the area.  This is just one illustration of an economic renaissance that was sparked by nothing the gurus nor the business schools would ever think about.  A rather low order of inputs, imaginatively applied, sparked high economic results.  (6/28/06)

296. The National Football League
Franchises in the National Football League are more highly valued than those in other sports—for a simple reason.  Under the direction of Commissioner Paul Tagliabue, the teams have engaged in monopoly, restraint of trade, and generally oligarchic practices that have been a win-win for every team in the sport.  See The Economist, April 29, 2006, pp. 63-64.  There have been no strikes, which have plagued other major sports.  “It has the highest total revenues of the four, at nearly $6 billion a year.  It has the firmest grip on its labour costs, which have grown only 9% a year since 1990, compared with 12-16% in the other three leagues.”  The owners share about 70% of their revenues with each other.  “And they stick to a strict salary cap that limits the amount each team can spend on players’ salaries.”  Every team is financially viable and can put a good team out on the pasture.  The league itself negotiates all TV contracts, obtaining maximum leverage with the TV networks, the most important revenue source.  (6/28/06)

295. Zappos.com
Zappos offers shoes online, with “90,000 styles and more than 500 brands.”  It has “a near-fanatical devotion to customer service.  Shipping and return shipping are free; most repeat customers get upgrades to free overnight or second-day delivery.”  Sales have doubled annually for the last six years. See Business Week, December 5, 2005, p. 84.  Reps in the Las Vegas call center get lots of service and warehouse training, 100% company-paid health insurance, and a free lunch every day.  The warehouse is open 24 hours a day, so next-day delivery is not a problem.  (6/20/06)

294. Very Global Ikea
Extremely versatile Ikea, the Swedish home furnishings giant, increasingly is in the sights of the world’s media for all sorts of reasons.  As we have said in “Ikea in China,” Ikea has made news by adopting a daring strategy that seems to be paying off.  Instead of pricing above the marketplace, as has been the temptation for foreign retailers and consumer goods companies, Ikea has been sourcing locally and delivering goods with very affordable price tags for the Chinese consumer. 

Elsewhere it’s noted that the founding Kamprad family has been extremely deft at preserving family ownership, hiding its ownership arrangements, and avoiding taxes. Taxation is something that every Swedish capitalist has to think long and hard about in any event.  See “Flat-Pack Accounting,” The Economist, May 11, 2006.  “What emerges is an outfit that ingeniously exploits the quirks of different jurisdictions to create a charity, dedicated to a somewhat banal cause, that is not only the world's richest foundation, but is at the moment also one of its least generous.  The overall set-up of IKEA minimises tax and disclosure, handsomely rewards the founding Kamprad family and makes IKEA immune to a takeover.” 

“The parent for all IKEA companies—the operator of 207 of the 235 worldwide IKEA stores—is Ingka Holding, a private Dutch-registered company.  Ingka Holding, in turn, belongs entirely to Stichting Ingka Foundation.  This is a Dutch-registered, tax-exempt, non-profit-making legal entity, which was given the shares of Mr Kamprad in 1982. Stichtingen, or foundations, are the most common form of not-for-profit organisation in the Netherlands; tens of thousands of them are registered.” 

“Ikea: How The Swedish Retailer Became a Global Cult Brand” was Business Week’s cover story, November 14, 2005, pp.96-106.  Ikea’s operating margins of approximately 10% are among the best in home furnishing, according to Mattias Karlkjell of Stockholm’s ABG Sundial Collier.  The president is targeting its biggest expansion in the U.S., Russia, and China.  Its Klippan love seat, which exemplifies its whole product development process, has been refined and steamlined enough to drop 40% in price since 1999—with material changes, with 4 manufacturing locations around the globe, and re-engineering that has led to much cheaper shipping.  Founder Kamprad’s ethos of “a better life for many” is set out in his 1976 Furniture Dealer’s Testament.  The company seems to be a Wal-Mart with style (i.e, heavy emphasis on design), probably equipping it better for global competition than does the low-cost, low-brow style of the Arkansas retailer, though Ikea’s particle board products hardly are made to last generations. 

Competition is growing.  Target now has a designer for low-price furnishings, and Kmart has been working with Martha Stewart on a line.  A chain called Fly is popular in France, and in Japan, where Ikea stumbled 30 years ago, Nitori is the low-cost furniture king of the moment.  (6/20/06)

293. Daley City
The federal government is suffering from high deficits and gridlock, the state governments are running just to stay in place, and the middle-of-the-road citizenry is ignored by well-heeled interest groups pushing through crazy power grabs that set us against ourselves.  Curiously, innovative, good government has moved into the ungovernable cities.  Giuliani and company got control of crime in New York City, and the autocratic Bloomberg seems to tuning up the public schools even as he tries to stuff smokeless bars and an unwanted West Side stadium down the craw of Manhattanites. 

Yet more interesting is Daley City, as revealed in “A Survey of Chicago,” The Economist, March 18, 2006.  Somehow the city has proved governable, and this survey is effusive about how well Chicago is doing.  Perhaps it is all due to family politics.  Ruling Chicago today is Richard Daley the Younger, son of the famed Boss Daley who presided over the town with an iron fist and who is credited with delivering the 1960 election to Kennedy, perhaps with a few stolen votes, just as LBJ in 1948 won his first purchase in the Senate by miraculously discovering extra votes in San Antonio and other precincts in Texas.  Daley the Younger has been surprisingly effective, on top since 1989: 

Chicago’s revival should not be judged merely by the manifest sparkle of the Loop and such districts as River North, the Gold Coast and Streeterville.  A more telling indicator is the growth of population recorded in the most recent (2000) census: an increase of 4.0% for the city since 1990 (compared with 3.9% for Minneapolis, and losses of 5.4% for Cleveland, 7.5% for Detroit and 9.6% for Pittsburgh). Other signs of economic vigour include the arrival of Boeing, which moved its headquarters from Seattle to Chicago in 2001, the growth of the futures and derivatives markets embodied in the Chicago Mercantile Exchange and the Board of Trade, and the decision to expand O’Hare to ensure it keeps its place as the busiest (depending on the measurement) airport in the country. 

Once the railroad nerve center of the country, it has managed to keep logistically relevant with huge O’Hare, the airport all business flyers learn to hate. 

With varying degrees of success, the Mayor has reworked both public housing and the school system.  But it’s his third area of concentration, the city’s appearance, that makes him distinctive in our eyes.  He has turned out to be a ‘green mayor’ at a time when other politicians talk about the environment, but do little for it: 

The mayor has put his political dominance to good use, devoting his energies to three issues in particular.  The first is the appearance of Chicago, a city long famous for marvelous architecture but also for blitzed neighbourhoods, industrial wastelands and urban dereliction.  No more.  Flower beds now run alongside about 70 miles of streets.  New patches of greenery soften and brighten the concrete townscape, not just in the centre, where Millennium Park and Wabash Plaza stand out, but in the neighbourhoods too, where the city was found to own about 30,000 vacant lots, and where 100,000 trees had been lost in the ten years or so before Mr Daley came to office. The mayor is still far off his stated aim of replacing them fivefold, but he has planted about 200,000. 

The main point was to cheer the place up, but the mayor is a convinced environmentalist, too.  So City Hall now has a micro-prairie on its roof, complete with creeping succulents and waving grasses.  The prairie absorbs rain that would otherwise contribute to flooding and, on a scorching summer’s day, lowers the roof’s temperature by about 50 Fahrenheit degrees (28 Celsius degrees), thus tripling its life.  About 150 other buildings, including those of Apple Computer, Target and a prominent McDonald's, have followed suit.  The city provides all sorts of incentives to encourage acts of greenery, and sets green examples, such as using cars that run on compressed natural gas or ethanol and heaters that run on recycled oil. 

Who would have ever thought that substantive green efforts would come from the cities.  But then, most of the energy behind good ideas today is at the local level, here and there across the country. 

Chicago has surprised us in other ways.  The home of the meatpackers and toughminded Daley senior is now host to the politically correct in a big way.  The City Council is off to the races.  “After passing a ‘sweeping ban’ on public smoking last December—not to mention declaring the city a ‘nuclear-free zone’ back in 1986, the council’s latest triumph of ‘lifestyle policing’ is a ban of foie gras.”  See “Foie gras: The ethics of a delicacy,” The Week, May 12, 2006, p. 17.  We wonder if this victory of the guilty bourgeoisie has come under scrutiny by Chicago’s Second City.  (6/14/06)

Update:  No Longer Fat City
The nut fringe continues to cast a spell over Chicago.  We would not recognize the Midwest, especially Chicago, if it did away with its paunch-growing cuisine.  This town has already jumped into laboratory food which is too strange for words (see “Restaurants with Laboratory Food” in Big Ideas), in addition to doing away with foie gras.  Now the fat police are lurking in the wings.  “Edward M. Burke … is pressing his colleagues” on the Chicago City Council “to make it illegal for restaurants to use oils that contain trans fats, which have been tied to a string of health problems…..”  As well, there are proposals up to force cabbies to dress better and to ban smoking at the beach.  See the New York Times, July 18, 2006, pp. Al and A15.  Even the Mayor is balking at the ‘fat’ proposal.  Tiburon in California has already proclaimed itself a fat-free zone, and there are similar voluntary attempts in New York City to cut out fat cooking.  (8/23/06)

Update: Foie Gras Rebellion
The foodie are not going down without a fight.  “This city’s lawbreakers were serving foie gras” (New York Times, August 23, 2006, p. A14).  “The illicit substance could be spotted in places it was rarely seen when it was legal: buried in Chicago’s famed deep-dish pizza, in soul food on the South Side, beside beef downtown.”  “Even after Tuesday, though, the possibility of foie gras raids appears remote.”  (10/11/06)

Update: Prohibition: Big Al Would Love It
Al Capone would surely laugh his way to the bank, helping fight Chicago’s New Prohibition.  The City has banned smoking, wants cabbies to dress better, is vying with Mayor Bloomberg of New York to do away with trans-fats, and has it in mind to stop all sorts of other things.  The present Mayor Daley’s father, a politician of the old school, would be turning over in his grave.  Best of all, the silly foie gras ban has given rise to many lawbreakers.  Fortunately the city is mostly showing salutary neglect.  See “Foie Gras Ban in Chicago Attracts Few Followers,” Herald Tribune, January 9, 2007.  “The city, which is being sued by restaurants over the ordinance, has sent out but a smattering of warning letters and has conducted just one inspection.”  “At one restaurant, the owner has treated his warning letter like it was from a celebrity praising a great meal.  ‘I did frame the letter and put it up on the sales counter,’ said Doug Sohn, owner of Hot Doug’s, a gourmet sausage store.”  “Evoking Chicago’s past during Prohibition when a secret word gained entry into illegal establishments that served alcohol, at least one restaurant is rumored to be serving foie gras to customers who ask for the ‘special lobster’ dish.  Meanwhile, such civil disobedience over what Mayor Richard Daley has called the ‘silliest’ law the City Council has ever passed does not seem to be raising much ire with either the public or city officials.”  “At Copperblue, one menu item is the “It isn't foie gras any Moore” duck liver terrine’—named after the ordinance’s chief sponsor, Alderman Joe Moore.”  It’s one of the natural contradictions of our time that the affluent, who are paying outrageous prices to gobble up everything material on the planet, are salving their consciences by ginning up a list of petty no-no’s.  (3/28/07)

Update: Sticking Point 
There are some unfortunate signs that the Daley regime and the Illinois state government are taking their eyes off the ball.  Chicago’s great success stems from the fact that it is a crossroads: as a transshipment point, it has been prosperous even as other parts of the Midwest have been floundering.  “It arteries—both road and rail—are increasingly clogged.”  See “Gridlock on the Lake,” Economist, March 31, 2007, p. 36.  Chicago’s Regional Transportation Authority (RTA) is suppose to coordinate transport in Chicago and its adjoining counties, but this is hard to do with varying tax systems and a somewhat diluted mandate.  So passenger traffic is clogging, and freight is an even bigger problem. Goods from Asia pour across the continent from West to East, but the logistics and infrastructure demands to knit together the activities of the nation’s 7 best earning railroads, which converge there, are taxing the powers that be.  Clearly there is hostility to road pricing schemes that might at least come to terms with the packed freeways that make getting to O’Hare a nightmare.  Transportation made Chicago; bad transportation could unmake it.  (8/22/07)

Update: Viva Foie Gras
There was always something ironic about Chicago’s ban of foie gras.  Two years ago slaughterhouse city turned tail on its history, tricked into prohibition by a nutty alderman named Joe Moore. Mayor Daley had long urged the City Council to repeal the ban which, as many had said, had made Chicago “the laughingstock of the nation.”  He personally knocked heads together and forced a quick vote on the reversal.  His Honor had called it “the silliest law the City Council has ever passed.”  California, however, has elevated foolishness to a higher art, and we learn it will ban foie gras in its borders starting in 2012 (NewYork Times, May 14, 2008).

Raymond Sokolov tells us that restauranteurs are already celebrating their new freedom, with abandon.  As Prohibition proves, the forbidding of natural tendencies only stirs revolt amongst the masses, foie gras now more popular in Chicago than it ever was.  In “Foie Gras Freedom,” Wall Street Journal, May 31, 2008, p. W1, we learn that many humorously flouted the ban even when it was in force:  “Doug Sohn, bodacious proprietor of the northwest Chicago sausage mecca Hot Doug’s, also had flouted the ban, serving a hot dog laced with foie gras and named after the edict’s sponsor, Alderman Joe Moore, until he got slapped with a fine.” (7/16/08)

292. End of the Mid-Market
Finally the marketing wizards and the journalists are catching on to the fact that the marketplace is breaking in two—along with society.  The GM strategy, as you will remember, was to provide a car for every segment.  But now it’s luxury or commodity, department store or boutique, excessive or barebones.  Most recently, The Economist has written about this in “The Disappearing Mid Market,” May 20, 2006, pp. 68-69.  For retailers, however, neither slice provides enough business to feed the corporate appetite, so overpriced Whole Foods is trying to offer a few bargains now and again, while Wal-Mart and its warehouse club Sam’s try to crawl into pricey goods, finding themselves too dependent on working stiffs.  Retailers even find that the middle classes are pairing purchases, buying low for things they don’t care about, but paying up for things that provide them status or self worth.  This is putting pressure on consumer companies who can not migrate to the ends of the spectrum and are still stuck with middle wares.  (6/14/06)

291. Asset Recovery and WiMax
Asset Recovery Center in Milford, Connecticut buys and sells excess computer and telecommunications equipment (Smart Money, May 2006, pp.99-101.)  The sales trends at John Lynch’s company serve as an early warning about the health of the industry and of the companies in it.  Susan Kalla of Caris and Company has a pipeline to Lynch, and his data told her to bet against telecommunication equipment giants just when others were predicting a recovery.  With junk prices now up for the equipment he buys, one can safely assume that computerdom is on the rise. 

Lynch does not see much going on in technology that will ignite a sustained boom.  But he is very enthusiastic about “Worldwide Interoperability for Microwave Access, or WiMAx.”  It is “a technology for wireless broadband that typically has a range of 30 to 90 miles.”  He predicts that everything will be running on WiMax in the not too distant future.  “The WiMax Forum, a nonprofit Industry Group whose members include Intel, Cisco and Nokia, has already ratified interoperability standards for the new technology, and Intel plans to start shipping WiMax cards for laptops this year.”  “Instat, a market-research firm, estimates that 90 percent of U.S. homes could be reached by WiMax networks for a relatively small investment of $2.8 billion.”  Lynch fell into a license in Florida on the cheap, and hopes to peddle it at quite a mark up soon.  (6/7/06)

290. Sweet Goes Low
As in many family companies, some of which we have counseled, bad family management prevented Sweet and Low from growing into a giant, but it did not kill it.  Often a family astray will turn a tiger into a sloth, but not kill it.  Danile Akst does an apt review of Rich Cohen’s Sweet and Low in the Wall Street Journal, April 7, 2006, p. W7.  Cohen knows the whole warts-filled story, because he was the Cohen son.  The company got its start because the founders saw a clunky sugar dispenser in a restaurant.  They came up with a mixture of cyclamate, saccharine and lactose—sweet, easy to use, but not  fattening.  Because of poor management, competitors Splenda and Equal pass it by.  The next generation reportedly were involved with the mob and they looted the company.  In 1969, the FDA issued a ban on cyclamate, and later saccharine itself got into the doghouse.  Later, science reversed itself, and neither sweetener is now considered a carcinogen.  The company continues, but it has never been the same, since the government and family canker attacked it.  

Akst says Cohen has devised a few rules about family success: 

Do not observe primogeniture: birth order has no significance.
There is nothing immediate about immediate family.
Make the kid work for it. 

In other words, if you start a pretty good family company, look around before you decide who should inherit your roost.  Probably Junior should not.  (5/31/06)

289. Outsourcing R & D
Paper Converting Machine Company, situated appropriately in paper-making Wisconsin, long had a solid business making A-Z packaging equipment for all sorts of applications.  Then it felt the effects of global competition, with key customers telling it to get its prices down.  “Last year, a St. Louis holding company, Barry-Wehmiller Cos., acquired” it and cut employee pay in a hurry.  Already its sales had shrunk 40% to $170 million in the last five years, and its workforce was down from 2000 to 1100.  See Business Week, January 30, 2006, p. 50.  “As part of its turnaround strategy,” it “plans to shift some design work to its 160-engineer center in Chennai, India.  By having U.S. and Indian designers collaborate 24/7, explains Vasant Bennett, president of Barry-Wehmiller’s engineering services unit, PCMC hopes to slash development costs and time … and keep production in Green Bay.  Barry-Wehmiller says the strategy already has boosted profits at some of the 32 other midsize U.S. machinery makers it has bought.”  (5/24/06)

288. Air Tran Back from the Dead
Once known as Valuejet and threatened with extinction, Air Tran is the Lazarus airline, risen from the dead (New York Times, April 22, 2006, pp.B1 and B9).  It has taken major share away from high cost Delta, whose home base is Atlanta.  With low costs, it is a Southwest plus, offering assigned seats, both business and coach classes, newer planes, etc.  (5/17/06)

287. DNA Companies
In “Fire and Darkness,” we suggested that a leader could not grasp his times unless he landed on the correct philosophical base.  Those adhering to constructs that posit a static world will not do well now: better to be a Hegelian, or a Heraclitean existentialist.  Those trying to work out a strategy for an organization have much the same dilemma: if they do not understand the dynamic nature of modern systems, they will try to separate structure from process, when both have become one and the same. The Economist got to this very idea in “The New Organisation,” January 21, 2006, p. 18: “In the 1990s engineering enjoyed a renaissance, in the guise of Business Process Re-engineering (BPR), the dominant management idea of that decade.”  This, by the way, largely turned out to be an idea that jibed with an era of restructuring and cost-cutting, but not with substantial business transformation and revenue enlargement.  “The ‘new organisation’ breaks free of this engineering heritage.  In Results, a recent book by two Booz Allen consultants … the authors talk about ‘the DNA of living organisatons.”  “McKinsey’s Lowell Bryan also talks about ‘the personality of the firm.’”  As The Economist puts it, this is a corporate switch from “Lego to DNA.”  We would suggest that this paradigm shift mandates an organic interpretation of the company and, more importantly, a complex look at its interaction with its environment, something we used to call ‘markets.’  (5/10/06)

286. Luxottica and Safilo
How do craftsmen survive against cheap imports from across the globe?  Maybe Luxottica and Safilo, both headquartered within striking distance of Agordo, Italy, long home to Italy’s most skilled eyeglass frame makers, have discovered the secret.  “Both Luxottica and Safilo, borrowing a chapter from the playbook of Gucci or Dior, transformed eyeglasses from a commodity health care product into a costly fashion accessory.”  See “An Italian Rivalry Born of Expertise in Glass,” New York Times, March 24, 2006, p.C5. “Still family-controlled, [both] … have added sunglasses and goggles for skiing, surfing and motorcycle racing to their product lines in the last 10 years.”  “Americans who visit LensCrafters, Pearle Vision, Sunglass Hut or Solstice Sunglass Stores are shopping in stores owned by the two companies.”  Though the bulk of their products are made in Italy, “Luxottica has added two factories in China to the six it has in Italy.  Safilo added a factory in Slovenia to the four it has around Padua when it added the Austrian maker of sports goggles, Carrera.”  “Luxottica, with revenue last year of 4.4 billion euros ($5.17 billion), is four times as big as Safilo, which has revenue of 1.1 billon euros.”  Luxottica has paid advance royalties for deals with big brands such as Ralph Lauren and Dolce & Gabbana.  Safilo apparently “turns out 2,500 designs a year, compared with 1,000  at Luxottica.”  “Luxottica generates 68 percent of its revenue in the United States.”  “To maintain as much of their production in Italy as possible, both companies are investing heavily in automation.” 

Notice that there are several keys to warding off global competitions: at least one intense competitor in your home market that hones your skills; a global distribution chain that is well oiled, particularly in the United States, where you own several pieces of that chain; dominant family ownership; a focus on upscale brands; automation in the home market; penetration of allied niches; some offshore manufacturing.  (5/3/06)

285. Slow Meld
When Yellow acquired Roadway Express, nothing happened.  After the acquisition in July 2003, William Zollars of Yellow left most of Roadway alone.  “Instead of conquering Roadway and imposing a bloodbath of layoffs and price hikes” … Zollars left it in “the hands of most of the people who had been running it, while folding the two rivals together to cut overlapping costs and get bigger discounts on trucks and fuel, chopping only 500 jobs among 70,000 people—half of them from the Yellow side.”  “Half of the $1.3 billion in new sales will come from internal growth, this in an industry that grows only 5% or so a year.  YRC’s pretax profit margin has doubled to 7% in three years.”  Now it has acquired YSF, a next-day carrier.  Zollars left the brands as they were externally, worked hard at meshing the people on both sides, and delayed integrating technologies from both companies.  Even James Staley, CEO of Roadway, stayed on to run it for a couple of years, and now he is heading the newly acquired USF.  A hundred or so synergy teams, with members from both sides, worked to make the two companies hum together.  Now Zollar is planning on moving into China.  See Forbes, February 13, 2006,  pp. 112-115.  In most mergers, everyone, especially the cost cuts, are made too fast, and growth is sacrificed for immediate margin.  This case is intensely interesting, since 97% of all mergers erode economic value.  (5/3/06)

284. Pennies for Charity
Ken Ramberg and his sister have started Goodsearch.com, an Internet search engine.  Advertisers pay engines a fee whenever users click on particular links, and such usage fees added up to $6 billion last year.  What Goodsearch does is turn a tiny bit over to any charity you designate.  It’s equivalent to supermarket points programs where a consumer can direct the rewards to charities of his choosing.  “Ramberg estimates that each search sends about 1 cent to a given charity” (Fortune Small Business, March 206, p. 102).  (4/26/06)

283. Guerilla Warfare
Painfully, the U.S. Army is learning something about guerilla warfare.  Emerging from Vietnam, it blamed our losses there on politicians who did not allow it free rein to bring its full firepower to bear on the North Vietnamese.  But its braver theorists have since realized that it only knew how to fight conventional wars, when anti-guerilla tactics were called for, both in Vietnam and in Iraq.  See “As Iraq War Rages, Army Re-Examines Lessons of Vietnam,” The Wall Street Journal, March 20, 2006, pp. A1 and A13.  Now it learned what the British achieved during their victory over the Communists in Malaysia: massive, conventional forces cannot win.  Their strikes alienate the citizenry who have to be won over and who have to lead the fight against guerillas—if the war is to be won.  And, guerilla forces eventually wear out the resources and willpower of a conventional enemy, given enough time.  The Army and Vietnam by Andrew Krepinevich and Learning to Eat Soup with a Knife by John Nagl, both authors being Army officers, are slowly changing Army doctrine, equipping it to deal with the wars of attrition where the enemy melts into the crowd.  (4/19/06)

282Good Coke, Bad Coke
The heavy-handed soft drink dinosaur in Atlanta is dealing itself body blows.  Coke aficionados have long known that Coke has ruined domestic Coca Cola, fiddling with the formula and using lousy corn syrup instead of sugar.  True enthusiasts get their Coke abroad where it tastes a whole lot better.  If you are going to drink something that is so bad for your health, you might just as well enjoy it.  You cannot get “the real thing” in these United States. 

Well, Latinos in the United States support an underground trade, and it not cocaine or marijuana that they are after.  They’re avid for Mexican Coke.  See “U.S. Thirst for Mexican Cola Poses Sticky Problem for Coke,” Wall Street Journal, January 11, 2006, pp. A1 and A10.  “U.S. bottlers switched from cane sugar to high-fructose corn syrup in the 1980s to cut costs.”  Coke has been aggressively trying to push its prices up in supermarkets under current management, while all the time providing less of a product.  Classic coke sales are down 10% since 2000 and Coke’s market share has tumbled to all-time low.  “In Europe Coke is made using sugar from beets.”  Mexican Coke, incidentally, is still sold in genuine glass coke bottles, rather than the cheap plastique knockoffs used in the U.S.  Coke has been trying to shut down the imports which come from legitimate Coke bottlers in Mexico.  Coke is mismanaging its wonderful franchise, and guerilla operations are pocketing some of its profits.  (4/12/06) 

281Soccer Blog
Christian Sarkar is an Internet marketing expert who is about to prove that he can do for himself what he does for others.  Put his ideas on the map.  He has just started a SoccerBlog, a terribly bright idea.  It’s the world’s most popular sport, and yet, World Cup and all, its commercial possibilities have not truly been realized, especially on the Internet.  To reach soccer nuts is to reach a huge worldwide audience that is mobile, well heeled, educated, and otherwise equipped with wonderful demographics.  Sarkar says:

The World is Round: About Soccerblog.com

“Time is an awkard inconvenience between football matches,” said the French existentialist Albert Camus.  He should know- he was a goalkeeper! And not just for the team down the street.

As goalkeeper for Algeria, Camus found the missing link between football and existentialism: “All I know most surely about morality and obligations, I owe to football.”  And went on to win the Nobel Prize in Literature.

Name another sport where the goalie wins the Nobel Prize. I dare you!

That’s why we’re here. This site is a site about life, or soccer, as we call it.

The history, the players, the teams, the experiences—the meaning behind the beautiful game.

Join us on our journey. Don't be a stranger!  (4/5/06)

280. The Unfocused Mutual Fund
You’re supposed to buy a country fund, or an industry fund, or a growth fund, or an income fund.  That’s what all the big mutual fund houses tell us.  Wrong.  All of their slices and dices help them sell us more of their stuff, and stuff it is, according to David Swenson, the top performing endowment manager at Yale University.  “Lately the bulk of Ronald Muhlenkamp’ assets are in large caps (66%); in 2003 he put most of his bets in midcaps (41%).”  He invests all over the place.  “His Muhlenkamp Fund boasts an 11.7% annual return over five years…” (Forbes, February 27, 2006, pp.73-74).  This value-oriented fund has shown strong results for more than 15 years, with very little turnover.  “He wants companies with a return on equity above 14%, revenue growth of at least 10% a year.  He’ll have no truck with exotic asset allocation theories.”  (4/5/06)

279. Blogging for Dollars
Early stage companies are discovering that high-impact bloggers can be key helpmates in raising dollars.  They get the story around better than conventional media.  Fon Technology has a slew of techy bloggers on its U.S. advisory board who gossiped about its recent funding successes.  See the Wall Street Journal, February 9, 2006, p. B4.  There have been some questions as to whether such advisors, on the company payroll, have a conflict of interest when they flog a company to which they are connected.  But there is no denying their impact. Michael Arrington’s TechCrunch comments on early stage companies and has a wide following.  Bill Burnham’s Burnham’s Beat also has quite an impact on young companies, which have a narrow following and whose fortunes can be stoked or diminished by offhand remarks in the blog world.  (3/29/06)

278. Tesco Moves Abroad
The best of the grocery chains may not be in America, but in England.  Tesco, which has grown like a weed and given Wal-Mart lots of grief in England, is now coming to America.  Britain’s largest retailer and 5th in the world, Tesco plans to open convenience stores on the West Coast.  See the Wall Street Journal, February 10, 2006, p. B2.  It has slowly been working its way outside the British Isles—in Asia and Eastern Europe.  According to the WSJ, it has shown great skill in operating stores of varying sizes.  Interestingly, another smart retailer, Aldi of Germany, has made its biggest hit here with Trader Joe’s, price-conscious specialty food units which are gradually spreading across the nation.  Tesco’s entry in the convenience segment is doubly interesting and puts the lie to analysts who thought it would buy a large supermarket chain.  See also our “Tesco Has the Right Internet Brew,” where its smart, profitable Internet strategy is reviewed.  (3/22/06)

277L.L. Bean: Turning on a Dime
In late 2004, L.L. Bean began building a call center near Waterville, Maine.  But when T-Mobile said it was building a call center next door, CEO Christopher McCormick quickly pulled the plug.  “Mr. McCormick says he worried immediately whether Waterville, a city of 16,000, had enough workers to supply both companies.  He was especially concerned because much of Bean’s work force is seasonal, peaking near the Christmas holidays.”  He imagined many more experienced workers would migrate to year-round employment with the other company (Wall Street Journal, February 6, 2006, p.B3).  Instead, Bean opened a call center in Bangor with employment growing to 700 around Christmas.  In our opinion, Bean got it right.  We find that areas of the country that have multiple call centers have terrible turnover problems.  Bean does a huge amount of its business over the phone: it needs an experienced force, even if seasonal.  It is one of the nation’s best companies, particularly since its call center personnel are unusually helpful, polite, and cheerfully measured in tone.  It is a pleasure to do business with the Bean folks.  (3/1/06)

276. White Collar Outsourcing
“The Future of Outsourcing: How It’s Transforming Whole Industries and Changing the Way We Work” (January 30, 2006, Business Week) makes very clear that outsourcing has moved to a new stage beyond mere subcontracting of production.  Even very brainy testing and R&D functions are moving to India and a host of other locations around the world.  The idea is not just to save on labor costs, but to leverage the huge pool of educated talent offshore, so as to tap into rare skills, to increase efficiency, to turn out more diverse product lines, and to increase revenues.  Gartner’s ranking of the “Hot Players in the Offshore Outsourcing World” shows that the major outsource suppliers are U.S. and Indian companies, although it is clear that agile, risk-averse companies are sourcing in many other countries.  “McKinsey Global Institute estimates $18.4 billion in global IT work and $11.4 billion in business-process services have been shifted abroad so far.”  Eli Lilly, cited by some for the fecundity of its labs, has made a big push to go overseas.  “The drugmaker now does 20% of its chemistry work in China for one-quarter the U.S. cost and helped fund a startup lab, Shanghai’s Chem-Explorer Co., with 230 chemists.  Lilly is now trying to slash the costs of clinical trials on human patients, which range from $50 million to $300 million per drug, and is expanding such efforts in Brazil, Russia, China, and India.”  As we have said elsewhere, this outsourcing trend will accelerate the search for collaborative managers who can work seamlessly with their counterparts in enterprises over which they have little control.  (2/22/06)

275Reinventing Museums
You will already find a great deal about museums on the Global Province such as “Museums: Is There a Muse in the House?,“Empty Palaces,” “The Explosion of Museum Architecture,” and “Keeping the Doors Open.”   The problem for museums is that they have been conceived of as a resting place for valuable art objects and other artifacts, rather than as an agora to animate the best impulses of the citizenry.  That’s what we must confront now.

We are much taken, incidentally, with one thought from Dr. Francis in his “The Explosion of Museum Architecture.”  He ponders: “Instead of being a physical monument as in the past, perhaps the future of the museum should be to reconnect with the physical world.”  Why not?  We have asked of museums that at least they get better hitched to the societies of which they are a part.  But, as well, they need an umbilical cord that establishes an organic tie to the environment.

Researchers can look into a couple of source documents to expand their thinking on the subject.  UNESCO is trying to promote more global interchange in the museum field, and its website directs one down some interesting alleys.  Hege Maria Eriksson’s “Museum Architecture: A Study of Recent Norwegian Museum Buildings” obviously raises many of the questions we must think about globally: Should we be spending so much on new building?  How do we better get museums to coordinate their efforts?  What are the other purposes to which museums should devote themselves?  A Texas student, Lily Bartoszek, has done an annotated bibliography on museum architecture that reveals to us that it’s pretty easy to get a detailed look at the insides and floor plans of a host of museums.

While it is intellectually thin, we would recommend a peek at another student’s paper.  In November 2005, Jon Heimdahl of the University of Oregon did a short look at “Museums in Modern Society” where he contends that “Museums have strayed from their intended mission of preserving and displaying art into a tool for economic and corporate interests.”  We could only wish museums were serving somebody’s interests, but we fear that they are actually at a dis-connect with society.  A forward looking goal is needed whereby museums get past the notion of art for art’s sake and get to the concept of art for humanity’s sake.  (2/15/06)

Update: MilwaukeeRedux.  As we have already made clear, the Milwaukee Art Museum is troubled.  But there’s also “A Struggle for Solvency At Milwaukee Museum” (New York Times, January 29, 2006):  the Milwaukee Public Museum, one of the largest natural history museums in the country, spent itself into insolvency: “Largely by borrowing in the late 1990’s, the museum opened stores across the state, bought half-interests in an Imax theater and a rain forest in Costa Rica, built a butterfly vivarium and began holding major exhibits.  It even started selling chocolate made from cacao from its rain forest.” 

The museum ended its fiscal year in August with a deficit of more than $10 million and just $387,000 in its endowment—effectively bankrupt.  “I think its aspirations generally exceeded its resources,” said Roger W. Bowen, general secretary of the American Association of University Professors.”  Senator William Proxmire, the deceased former renowned senator from this state,  and a skinflint to boot, would be appalled at this profligacy.  (3/8/06)

Update: Whitney Artport.  Having said that our museums are lagging behind the transformation of our culture, we must add that little museum experiments are taking place all about us.  The Whitney has created an online museum portal called Whitney Artport which merits your attention.  Please understand that it foolishly dwells on what the doings of the Whitney in virtual space.  This is very limiting for a so-called portal.  There is a Resources section that leads one to other museums and galleries, but it is a pitifully small list, and misses some of the best museum websites out there in the ether.  Also, you will have to pardon the graphic treatment on this site, which is a bit rough-hewn.  (3/15/06)

Update: Museums of the Future
We have said a great deal about museums—museum architecture and the small, charming museums we prefer.  The California Academy of Sciences adds yet another dimension to what museums must become.  It has striven to become the greenest museum in the world.  “Architect Renzo Piano used a textbook's worth of enviro-engineering tricks for the seven-year effort, an almost total teardown and rebuild.  At $484 million, it's one of the most expensive museum projects in a century.”  This involves recycled materials, passive climate control, a living room with plants aplenty and photovoltaic cells, natural illumination, and water conservation are embedded in its walls.  (11/14/07)

Update: Reinventing the Science Museum
As we have made clear elsewhere, there is an “Explosion in Museum Architecture,” but we fear that several of the new grand emporiums will run up huge debts and play to empty houses because they have not rethought themselves to meet the new consumer who has different tastes and declining amounts of free time.  But there is some thought that museums have to become very different.

In this vein, one might look at “Reinventing the Science Museum,” Wall Street Journal, November 28, 2007, p. D10, an interview with Emlyn Koster, head of the Liberty Science Center in New Jersey. Koster, after his career at a geologist and subsequent to dinosaur fieldwork in China, worked at the Royal Tyrell Center of Palaeontology near Calgary and Toronto’s Ontario Science Center.  He considers John Cotton Dana and Stephen Weil to be thoughtful pathfinders in defining what museums should and can be. Instead of applying for state grants, he has tried to contract to provide specific services—providing educational packages to various school districts. In conjunction with hospitals, it is offerings programs that look closely at the medical process, showing, for instance, kidney transplants.  Koster’s museum is really a multimedia and distance learning school. (5/14/08)

Update: Review of New Museums

"Set in Stone: Building America's New Generation of Arts Facilities,
1994-2008 http://culturalpolicy.uchicago.edu/setinstone/
Over the past two decades, there have been hundreds of new museums,
performing arts centers, and theaters built around the United States. The
University of Chicago's Cultural Policy Center, in partnership with the
Harris School of Public Policy and the National Opinion Research Center
(NORC), has crafted this most interesting study of cultural building
projects between 1994 and 2008. The site is set up with a rather neat
graphical representation of a small set of books, and visitors can click on
sections like Set In Stone: The Videos, Final Report, Follow the Money, and
several others. The Final Report contains all five chapters of the actual
report, including "The Investment Determinants of Cultural Building" and
"The Feasibility of Cultural Building Projects." The Set in Stone: The
Videos area features short films related to the report, including a nifty
two-minute animation that "consolidates the report's findings in an easily
accessible form." The site is rounded out by some International Perspectives
and a rather intriguing area that looks at the relationship between these
facilities and their urban environments. [KMG." From Scout at University of Wisconsin. Also see Set In Stone video.

(10/03/12)

274. Sensible Green
It takes a practical person, somebody invested in our society but willing to see it improve, to put over healthy living and green habits.  Such is Wendy Gordon of the Green Guide Institute.  Her Green Guide helps consumers pick and choose in a world of imperfect information.  On the one hand, she’s a drinker of New York’s very good tap water, not joining Americans who “spend millions on bottled water, on the myth that it’s safer.”  See “Living Green, but Allowing for Shades of Grey,” New York Times, January 15, 2006, p. BU6.  A graduate of Harvard’s School of Public Health, she has educated herself to separate fact from fiction, the possible from the ideal, in her pursuit of organics and a green world.  She and Meryl Streep have become avid collaborators against pesticides, heavily concerned about their effect on children.  That said, the website is not well put together, and we recommend that readers start on the product page.  (2/8/06)

273No More Tiger in the Tank
Dr. William Grossmann writes us to tell how, for a while, Ford got its design act together by installing  concurrent engineering processes as well as a thoroughgoing collaborative culture.  But apparently mindless cost-cutting since that time has wiped out all these design gains:

Faced with killer competition from the Japanese automobile manufacturers, Ford Motor Company introduced, at the time, a revolutionary approach to developing a car that could successfully compete with the Japanese.  This approach used concurrent engineering.  Ford established Tiger Teams consisting of representatives from all phases of a new automobile’s life cycle, including managers, designers/stylists, manufacturing types, suppliers, marketing, sales representatives and dealers and not the least, customers.  These Tiger teams stayed together during the complete life cycle of an automobile which Ford called the Taurus.  The first Taurus hit the showroom floors in 1986 and by 1992 was named the best-selling automobile in the United States.  The essential ingredient of the concurrent engineering approach is that, in strong contrast to a sequential engineering approach, knowledge from all facets and phases of the development cycle are available to the development team at any time where it may be needed or useful.

Ford abandoned the Tiger Team approach and, with other cost-cutting exercises, eliminated all advanced systems engineering development—it now make cars the way it did 20-30 years ago.”  Interestingly, Ford went off the tracks in several ways, probably a decade ago.  It had, for instance, one of the outstanding plants in the world, located in New Mexico, that stood up to the Japanese on both quality and productivity.  It had early inklings about becoming a “green” company, well before Toyota got into the hybrid business.  It is the interesting example of a company that had it all, but let it all get away.

Incidentally, several companies have made accidental breakthroughs in their design processes and then fail to realize the value of their newfound intellectual capital.  Reebok had a breakthrough years ago on one shoe design, but it just never grasped that its victory was due to a different design paradigm, not to the lucky application of a new technology.

Grossmann is currently studying Product Life Cycle Management, a topic attracting a great deal of attention these days.  Importantly, it generally reveals that product development has gone off the rails.  Under the best conditions, products now require collaboration that goes beyond internal teams and reaches out across the world to a network that is not on the company payroll.  (2/1/06)

272. Deutsche Post Goes Global
Besides being privatized, Deutsche Post has become a global growth company that operates at a profit.  In the last ten years, it trimmed its workforce by 140,000.  See the Financial Times, July 27, 2005, p. 8.  In June 2004, Postbank, of which DP owns the majority, floated a 1/3 of its shares on the Frankfurt Exchange.  It has taken over DHL and Airborne—express delivery services—in the United States.  CEO Zumwinkel notes that world trade is growing at twice the rate of his own economy and that he must conquer the globe if the company is to be vibrant.  The Dutch group TNT, also a privatized postal group, has similarly contained its costs, expanded its services, and gone global.  (1/25/06)

271. Lewis and Sports Management
Michael Lewis has to be one of the more interesting chroniclers of our time, and he has caught hold of some trends that we all seem to miss.  We have not really followed the in’s and out’s of his career, but we think his life as author got started in Liars Poker, where he recounted his own life before writing at Salomon Brothers.  In this witty book, he showed investment banking to be a pissing game where the contestants go to all sorts of pains to show who has the longest stream.  The theme of gamesmanship and competitive antics shows up a lot in his writing, revealing, in The New New Thing, Jim Clark of Silicon Valley to be first and foremost a gambler in who very much understood the art of bluffing.

We’re taken as well by his writings about big-time athletics.  There, we think, he depicts avant garde management processes that leave the business world in the dust.  On the one hand, he has shown how general managers with limited resources can put together winning ball clubs by combining statistical analysis with recruiting.  We discussed just this in “Sportsmanship”:

Michael Lewis’s Moneyball: The Art of Winning an Unfair Game lays out how General Manager Billy Beane has used statistics and intellect to put together winning ball clubs at the Oakland Athletics.  Similar systems for measuring value have buttressed the Red Sox under the guidance of GM Theo Epstein.  They have proven that there’s a lot to be had in the dregs of the wine bottle and the leftover players whom nobody wants.  This is all part of a tendency of the new breed of managers to get very much more out of limited resources.  Increasingly, we will be using mathematics in several fields of activity to marshal what we need in an environment where the options are constantly changing.

Now Lewis has moved from hardball recruitment practices to dynamic operations principles.  In a look at college football, he has shown how Coach Mike Leach of Texas Tech has run rings around his peers with a whole different view of how the game should be played.  In a passing game, he puts out more receivers and does more plays than ordinary heavyweight teams.  Huge emphasis is placed on running and conditioning: the coach puts his players in better fettle than those of the opposition.  For the first two or even three quarters, Leach uses diverse plays to probe how the opposing team defends against his gamut of plays.  His quarterbacks have great latitude to depart from the playbook set before the game, so that they do not respond to an evolving situation with setpiece tactics.  In game after game, this has led to rapidfire touchdowns towards the end of the game, leading to scores that literally embarrass opposing coaches, who begin the day with high confidence.  Some of this is detailed in “Coach Leach Goes Deep, Very Deep,” Sunday Times Magazine, December 4, 2005, pp. 58-65 and 109-114.  “Synergy, in Leach’s view, doesn’t come from mixing runs with passes but from throwing the ball everywhere on the field, to every possible person allowed to catch a ball.”  Operations research—in football—has led to a different kind of air-war dominated game.  (1/25/06)

270Factoid Journalism
“Aristocrats love to hate it and hate to love it.  But with 2.25 million copies distributed each day, USA Today is America’s most widely read newspaper.”  “Today the fact that nearly every major newspaper has gone to color and stresses shorter stories is largely because of USA Today.”  “Beyond such writing nobody does more enterprising CEO interviews” (Elsworth Quarles in Across the Board, November/December 2005, pp. 57-58).

There are many, many other things that USA Today gets right to which we should pay attention.  Signally it has the best sports section you will encounter anywhere: the New York Times often misses sports stories from the previous day, and it is spotty at best in covering critical sports.  USA’s “Life and Entertainment” section hauls in women readers and others who want to follow the stars, an ersatz version of People and USOnce in a while it does very lengthy, well-researched stories that you cannot find elsewhere.  This has particularly been true on healthcare matters, where the main rags often miss the boat.  Also, it should be carefully noted, that the editors got into the website business very early and very deeply.  This has been a profitable notion.  Though it is the MacPaper of newspaperdom, it has done things that the other papers simply never thought about.  With all its failings, it has plugged big holes the others have not even noticed.  (1/18/06)

269Keeping the Doors Open
Bruce Courson writes of the plight of country museums in “Why Rural Museums are Becoming Ancient History,” Wall Street Journal, December 27, 2005, p. D8.  He notes that many museums have seen their attendance cut in half.  “My own institution, the Sandwich Glass Museum, saw attendance drop from 84,000 in the early 1980’s to 42,000 in 2000.”  He believes the central cause is cheap air travel which has put people in the air: no longer are they taking vacation trips in the automobile to local sights.  Museums, he finds, have dealt with the drop in visitors by raising prices, then raising them again as attendance drops further.

He took a different course.  “In 1998 we launched our first-ever capital campaign, raising $2.3 million—four times the institution’s operating budget.  We built a gasblowing arena, a high-tech multimedia theater and new retail space.  The difference was that our business plan included holding general admission fees to 1970s levels, $4.50 in 2004 dollars, and reducing group admissions fees to $1….  In short, more bang for the buck, not more bucks for the same old bang.”  To wit, he improved his product, while many, in both the profit and non-profits sectors, are degrading their products and raising the prices. “The museum is now in its third post-expansion year.  The number of paying visitors increased by 26% over that period and is now holding steady at that level….” 

As we made clear in “Empty Palaces,” there appear to be a host of consumer trends biting away at museum attendance.   Movie theaters, for instance, sold 4.6 billion tickets in 1948, but sales had plunged to just over a billion by the late 1980s.  Even major museums in the cities are in for rough sledding, especially as so many of them have undertaken ambitious building programs that are based on very optimistic assumptions about future revenues.   All museums, and virtually all non-profits, would be well advised to pay attention to Mr. Courson.  They’re in need of totally new products, not just makeovers. And bricks and mortar, no matter how fancy, are probably not the answer.  (1/11/06)

268The Decade’s Best Seller
“Under Drucker’s tutelage, Warren’s own success as a spiritual entrepreneur has been considerable.  Saddleback has grown to 15,000 members and has helped start another 60 churches throughout the world.  Warren’s 2001 book, The Purpose-driven Life, is this decade’s best seller with 19.5 million copies sold so far and compiling at the rate of 500,000 per month.”  Rich Karlgard interviewed Peter Drucker “On Leadership” for Forbes on November 19, 2004.  He got two for one that day, also conversing with Rick Warren, pastor of the immensely successful Saddleback Church in Orange County, California as part of the same dialogue.  Warren has put together a huge ministry—without TV—and, as evidenced by his book, stays on message, dwelling on the essentials of a purpose-driven life.  Warren has been able to get churches throughout the country to spread his message and sell his book, collaborating, if you like, with other pastors and avoiding the cumbersome and expensive process of developing the bricks and mortar which would go into his own distribution network.  His has been a cooperative or networking enterprise.  (1/4/06)

Update: “Jesus, CEO.”  The Economist (December 20, 2005), in an irreverent mood, talks about how churches are having to model themselves on businesses and, in particular, to learn the rules of marketing:

This emphasis on customer-service is producing a predictable result: growth.  John Vaughan, a consultant who specialises in mega-churches, argues that 2005 has been a landmark year.  This was the first time an American church passed the 30,000-a-week attendance mark (it was Lakewood, which earlier this year moved into its new home in Houston's Compaq Center).  It was also the first time that 1,000 churches counted as mega-churches (broadly, you qualify if 2,000 or more people attend).  …

Most successful churches are humming with technology.  Willow Creek sports four video-editing suites.  World Changers Ministries has a music studio and a record label.  The Fellowship Church in Grapevine, Texas, employs a chief technology officer (and spends 15% of its $30m annual budget on technology).

Willow Creek has a consulting arm, the Willow Creek Association, that has more than 11,500 member churches.  It puts on leadership events for more than 100,000 people a year (guest speakers have included Jim Collins, a business guru, and Bill Clinton) and earns almost $20m a year.  Rick Warren likens his “purpose-driven formula” to an Intel operating chip that can be inserted into the motherboard of any church—and points out that there are more than 30,000 “purpose-driven” churches.  Mr. Warren has also set up a website, pastors.com, that gives 100,000 pastors access to e-mail forums, prayer sites and pre-cooked sermons, including over 20-years-worth of Mr. Warren’s own.

Obviously there are some downsides for religion and faith as earthly showboating comes to dominate, even obliterate spiritual focus.  But it is part of a wider shift that is occurring in non-profit institutions that cater to large audiences—from churches to universities to museums.  They are having to retool themselves to deal with consumers who are terribly busy and who often prefer to take entertainments and leisure at home, eschewing mass environments.  Undercapitalized institutions of any type who have not re-invented and invested in their product are losing audience share, particularly smaller institutions.

These mega-churches have put entertainment tactics to work, even as many of the principal organized religions continue to experience attrition.  “The number of Methodist lay member fell 0.7% from 2002 to 2003, to 8.2 million.”  This has led both Methodists, as well as Episcopalians, to reach out for members through advertising.  The Episcopal Church experienced a “1.6% membership decline between 2002 and 2003” (Business Week, September 26, 2005, p. 14).

Meanwhile economists are getting into thinking about religion as a business, theorizing about “how people ‘buy’ and ‘sell’ the goods and services—material and spiritual—that religious organizations provide.”  See Business Week, December 6, 2004, pp. 136-38.  Likewise, they are looking into religious terrorism.  Pre-eminent in this field is “Laurence R. Iannaccone … professor at George Mason University” who studied under Gary Becker at Chicago, who heads up the Association for the Study of Religion, Economics & Culture.  In effect, economists who study such things suggest that consumers exhibit the same rationality in buying religious goods as they do with other economic choices.  Timur Kuram at the University of Southern California is looking at how religions affect economic growth, noting the constraints Muslim belief have put on Islamic societies, which he details in Islam and Mammon: The Economic Predicaments of Islamism.

Of course, in Europe and the West, religion has been a prod to the economy, an idea documented by a host of economists.  In this regard, see our “Celebrating Tomorrow.”  (1/11/06)

267. Honda’s Amazing Research
A contributor to the Global Province has once again flagged for us a wonderful anomaly.  Even though Honda has stumbled in the competitive rat race among global car companies, it should win the award as the most innovative auto company.  It really gave birth to the mass production hybrid:

Introduced in 2000, the Honda Insight was the first mass-produced hybrid car to be offered to U.S. consumers.  It features many advanced construction techniques. The unitized body is made of aluminum (except for the front fenders, which are made from plastic) and boasts a drag coefficient of only 0.25.  Thanks to its aerodynamic bodywork, flat underbody, low rolling-resistance tires and extensive use of lightweight materials, Honda says the Insight requires 30-percent less power to operate at highway speeds than the previous-generation Honda Civic.

The Honda Insight also happens to be America’s most fuel-efficient car.  Given the car’s 66-mpg EPA highway mileage estimate and 10.6-gallon fuel tank, one could, in theory, drive from Los Angeles to Salt Lake City and still have a bit of fuel left in reserve.  In practice, however, the car’s range is about 500 miles.  Six years on, the Insight still attracts plenty of attention.  But its singularly focused mission of fuel economy limits its usefulness.  In years past, one had to accept its shortcomings—only two seats, not much point-and-shoot power, a paltry 365-pound payload capacity—because there wasn’t much of an alternative.”  (See Edmunds.com.)

Honda, as well, has given birth to a host of safety innovations to include braking systems that work hand in glove with vision devices that sense hazards ahead in the road—called the Collision Mitigation Brake SystemForbes, in “Honda’s Hang-Ups” (July 27, 2005) sums in all nicely.  This company produces miracles, but it cannot come up with new winning cars, slumping badly in its middle market niche.  Still, just read about its productive R & D:

Its legendary R&D department develops rice and robots.  But what the company needs is a hot car.

In June Honda Motor announced a clever engineering breakthrough.  It wasn’t a new engine, transmission or suspension system, though.  It was that its researchers had isolated a gene that dramatically increases the yield of rice.

This is going to sell cars?

Honda’s research and development department is regarded as one of autodom’s best, and the company has a track record of clever inventions.  Its robot, Asimo, can walk up and down stairs.  Honda’s fuel cell vehicles are probably the most advanced in the world.  It is the only company that sells natural-gas-powered vehicles to private individuals (a home refueling unit can be leased at Honda dealers for $80 per month).  This is all to forward Chief Takeo Fukui’s ultimate goal for Honda: “to be a company that society wants to exist.”

There is an interesting creative dilemma here.  We constantly discover that the companies that generate the ideas that change the world almost inevitably falter in the marketplace.  A lesser example is Sony, which has often been first with the best but then watches a Panasonic or Apple grab the market.  Who can forget Xerox’s PARC, who came up with a host of inventions including much that made personal computers hum?  But Xerox, back in New York State, did not reap many rewards from its Palo Alto outpost.  And then there’s Bell Labs, which invented a whole array of our modern technological apparatus, that flourished inside a static AT&T but could not adapt to Judge Greene’s so-called competitive marketplace.

It is not altogether clear that first rate science and outstanding engineering can flourish inside market rapacious companies.  That is probably why Microsoft has been a drag on computing advances and why it has to buy sundry start ups to fuel its product development.  There is a legitimate question as to whether countries should label their best research emporiums as national treasures and figure out how to enshrine and support them.  Bell Labs, for instance, is now floundering inside beleaguered Lucent Technologies and needs some outside influence to nurture it and return it to its pathfinding ways.  There is always a rather uneasy relationship between creators and the context in which they swim.

Peter J. Kindlmann at Yale, in this regard, is reminded of Eric Von Hippel, who finds that the stimuli for creativity come from outside the corporate walls.  Von Hippel, an economist and thinker about innovation at MIT, has long tied innovation to end users and his Democratizing Innovation.

The polytalented thinker Gregory Bateson felt that systems which achieve stability sacrifice adaptability; that is, for our purposes, rigid environments don’t produce creative breakthroughs.  Batesons’s thinking is relevant here because he jumped in and out of so many disciplines, not making a deep mark in any, but touching on so many.  Therefore, he achieved some intuitive understanding how the ripples from one pool of thought spread into other pools—or didn’t if the hurdles were too effective.  Here’s how one commentator rephrased Bateson:

The mutually reinforcing forces within a system or organism increase stability and hence rigidity at the cost of adaptability. The more integrated a culture is with its environment, the more vulnerable either becomes to a change in the other. Change is possible when contradictions are allowed to exist, but it must cohere to the internal demands of the organism and the external demands of the environment.  (See Alexandru Anton-Luca.) 

It’s bad enough to surround creative individuals with an organization.  But when the organization becomes sclerotic….  (12/28/05)

266. Recycling Junk Homes
HomeVestors looks for dumps it can buy, fix quickly and flip.”  HomeVestors of America offers franchises to entrepreneurs in local markets who bottomfeed for properties, quickfix, and then dump. “The company has ridden a gushing real estate market from 40 franchises in 2000 to 252 in 29 states today.”  See Forbes, October 3, 2005, pp.71-72.  “Last year HomeVestors netted $1.4 million on $27 million in revenues.”  To franchises HomeVestors provides a stream of leads and two-week  training on how to find additional properties, pay the right price for new acquisitions, etc.  It also offers expensive financing to franchises which provides 1/6 of company revenue.  (12/28/05)

265. Sonic Impact Technologies
“As gadgets go, the T-AMP was nothing to brag about, just a $39 battery-powered amplifier that hooks up to chintzy cardboard speakers.”  It comes from Sonic Impact Technologies.  It’s been selling like hotcakes, as customers hook it up to expensive systems and speakers.  See Forbes, October 3, 2005, pp. 67-68.  Lucio Cadeddu raves about it on his TNT-Audio website.  The key is a special $3 chip from Tripath plus some good ideas from Tripath’s founder Adya Tripathi.  (12/21/05)

264. Dowdy Valero is Dancing
While the big boys looked for more oil, or tried to buy companies who had it, Valero Energy has plumbed the sadsack part of the business, refining, and shown its best profits ever.  “Valero has done especially well because, years ago, Greehey chose to concentrate on processing so-called ‘sour’ crude, which is heavy with sulfur.  As the U.S. required cleaner blends of gasoline, the demand for the ability to strip sulfur from large volumes of sour crude—Valero’s speciality soared” (USA Today, October 27, 2005, p. 3B).  Generally the industry has not been building new refineries, which has created a bottleneck in fulfilling U.S. energy needs.  The government is trying to encourage new construction, but outgoing CEO Greehey believes environmental constraints and other problems really dictate that the right policy would be to encourage revamping and expansion of existing facilities.  “In part, Valero is focused on expanding wht it owns because it acquired just about all the bargain refineries available.”  (12/14/05)

263. Symyx Rapid-Fire Chemistry
In two years, Symyx of Santa Clara, California came up with a new polypropylene for Dow Chemical, the first breakthrough in this area in 30 years, outpacing the usual labs that take 10 to 15 years to come up with such things.  It is “shaking up the slow-moving world of chemicals by applying tools borrowed from the drug industry: miniaturization and high-speed automation.”  See Forbes, October 17, 2005, pp. 63-64.  This amounts to an application of robotics to materials science, although these techniques have not worked out so far in pharmaceuticals.  Other major customers include ExxonMobil, Merck, and General Electric.  Its competition is mainly from foreign companies—Avantium in the Netherlands, HTE in Germany, and Chemspeed Technologies in Switzerland.  It’s the brainchild of Peter Schultz, a chemist out of UC Berkeley.  He is a friend of and got backing from Alejandro Zaffaroni, a biotech wunderkind with whom he was involved at Affymax and who was also the force behind Alza.  (12/7/05)

262. Spin Master
Fast-growth Spin Master has grown from nothing 10 years ago into one of Canada’s largest toy companies.  Anton Rabie, the president, claims the key is keeping in touch with toy inventors and on top of major trends.  It places executives on the ground in the U.S., Britain, and Japan—the countries where the important new toy concepts originate. He finds out what’s up at key competitors by getting confidential data from a major retailer.  See profitguide.com for “Toying with Innovation” and other Spin Master articles.  (11/30/05)

261. Unusual Spare Electricity
Consumer Powerline … is New York’s largest ‘aggregator’ of electricity-savings contracts.  Twice a year Gordon signs up huge office tenants … to shut off nonessential lighting or turn down a building’s chillers a bit on heavy usage days.”  “When the New York power grid is under stress, Con Ed calls in the favor with Gordon to ease demand—and pays 50 cents a kilowatt hour for the energy he saves.  That’s half the price of juice on the spot market.”  Now CEO Michael Gordon has customers in California and Massachusetts where de-regulation has boosted electricity prices.  As well, Gordon’s group appears to have saved money in other ways, helping large customers cut costs through aggregated purchases.  (11/23/05)

260. Illinois Tool Works
Surely anything with “Works” in the title must an anachronism.  But no, this is a devil of a fine company that shows no sign of being wiped out by history or vulture capitalists.  “With some 650 separate companies in 45 nations, ITW makes a range of products used in the automotive, construction, paper products, and food and beverage industries.”  But, of course, there are a host of companies throughout the Midwest that have successfully made a business out of making lots of small acquisitions and tuning them up.  Still there’s more afoot at this company, which you can read about in “Taming of the Screw,” Forbes, September 14, 2005, pp.66-70.  “Kenneth LeVey … a product development director … has reinvented what the company dubs the threaded fastener (screw) in a way that lets it grip tight where it used to be loose—and compete with cheaper screws made by offshore rivals.”  Illinois Tool, “which gets $400 million of its $12 billion in revenues from screws, can now sculpt threads to match any application a customer needs.”  GM has ordered 60 million units, and LeVey has devised a concrete screw for construction.  See ITW Buildex at www.itwbuildex.com.  Such breakthrough innovation is about the only way high-cost America can compete against offshore suppliers in a variety of industries. LeVey, incidentally, has 19 patents, with an additional 18 pending.  (11/23/05)

259. Banking on Distress
“Gordon Brothers Group is trying to benefit from an expected wave of bankruptcies….   Founded more than a century ago, the Boston investment firm’s focus evolved from backing distressed companies to having more than 50% of its engagements in healthy companies….  The availability of cheap capital, combined with a squeeze on consumers, is expected to lead to a lack of liquidity for companies across the board.”  “On average, the firm disposes more than $10 billion of assets annually and appraises more than $30 billion…”  “There’s a growing distress market in the supermarket sector that is due to the Wal-Mart effect,” according to Mark Schwartz, CEO.  See the Wall Street Journal, October 26, 2005, p. B48.  (11/16/05)

258. Banking on Infrastructure
“Macquarie Bank Bets Aggressively on Global Infrastructure Projects.”  See the Wall Street Journal, August 23, 2005, p C1.  “Already Australia’s biggest homegrown investment bank by market capitalization,” Macquarie Bank Ltd. “is leaping into the global big leagues with an aggressive bet on infrastructure.”  Around the world it owns pieces of expressways and toll roads, airports, and TV and radio broadcasters.  It is making a preliminary bid for the London Stock Exchange and is going after French toll-road companies.  “Starting out as a merchant bank in the late 1960s, Macquarie focused on traditional banking and commodity businesses.  Now infrastructure fees it collects probably amount to 20% of its revenues.”  (10/26/05)

257. Growth of Virtual Businesses
In case you did not notice, every Tom, Dick, and Harry has gotten into business over the Internet.  “An astonishing 724,000 Americans now count eBay as their primary or secondary source of income, and another 1.5 million supplement their income through eBay sales.  In the U.K., a study by the Centre for Economics and Business Research shows the average household boosts its earnings by £3,000 through online trading.  Making it all easy is today’s instant access to affordable, professional-grade software, cameras and other gadgets, enabling minipreneurs to get their businesses up and running instantly, plus online design resources like eMachineshop.com, advertising opportunities like Google AdWords, payment options like PayPal, networking sites like LinkedIn, and a host of other on demand business services.”  From Innovation, drawing on “Trend Watching” (www.trendwatching.com/trends/MINIPRENEURS.htm).  (10/12/05)

256. Christel House
Christel DeHaan, founder of timeshare-company Resort Condominiums International, which she sold for $820 million in 1996, has since devoted herself to Christel House, a comprehensive or integrated charity for impoverished kids around the world (www.christelhouse.org).  It has sites in India, Mexico, South Africa, and Indianapolis, where she now hangs her hat.  “The students receive a top-quality education, meals during the school day, and health services such as immunizations and checkups.”  “Christel House follows its students from elementary school until they have graduated and are working.”  See FSB, September 2005, P. 110.  Interestingly, she has formed a partnership with Edison to manage the U.S. school (www.christelhouse.org/CHA.PR1.htm).  (10/12/05)

255Crispin Porter Breaks the Mold
Volkswagen of America has fired its longtime ad agency Arnold Worldwide in Boston and taken on Crispin Porter & Bogusky in Miami.  “Risk-taking, rule-breaking campaigns for marketers like Burger King, Ikea and Mini (Mini Cooper from BMW) have helped turn Crispin Porter into one of the most highly regarded of American agencies” creatively.  Crispin Porter is majority owned by MDC Partners.  Crispin’s work for the Mini Cooper made “extensive use of nontraditional elements like e-mail messages and Web sites” (New York Times, September 7, 2005, p. C2). 

In fact, many auto companies, as well as companies in other industries, are breaking out of the TV/print straightjacket while spinning messages that lead to more intense audience engagement.  Audi’s “ads for the new A3 hatchback, appearing in magazines and on TV, billboards, and the Internet, wove a complicated serialized mystery of a stolen car.”  As importantly, Audi and many others are drawing consumers into the process by getting them to participate in the ad making.  See Business Week, July 25, 2005, pp. 63-64.  Audi spent $5 million on its “Art of the Heist” game, where consumers followed clues and tried to solve the mystery.  One couple, who broke the code, then participated in a round of Audi activities.  Traffic was up heavily on its website, and both sales leads and test drives appeared to rise sharply from this campaign.  (10/5/05)

254. Nardelli's Home Depot
Pushing the founders aside, Robert Nardelli, onetime head of  Power Systems at GE, is very much refining Home Depot’s big box concept.  He has ploughed money into software to manage workflow as well as customer transactions, styled stores differently for different markets (e.g., in cramped New York, 7% of floor space is dedicated to closet designs), and raced into offering services such as installation.  See Business Week, October 25, 2004, pp. 70-72.  Wall Street still apparently loves arch-competitor Lowe’s, which has somewhat more attractive stores and a more thoughtful merchandise selection.   We have examined both stores and find that they’ll still terribly behind the curve.  Garden products at both are underwhelming and over-priced; Lowe’s typically has terrible parking and ingress/egress problems; at both it is hard to find goods and employees often don’t know the stock or where it is located; and  product quality is often inferior.  (10/5/05)

253. Scientific Wine
Leo McClosky uses his software to test the chemistry of client wines, comparing them against a benchmark, with the aim of modifying them enough to get a big grade from Robert Parker, Jancis Robinson, and the other potentate critics who drive the wine trade and its flavors.  For more about him and his company, see Enologix at www.enologix.com. See also articles on his website at www.enologix.com/magazine/
archive.lasso?-database=content&-Table=web_mag&category=Magazine-
Stories&-sortfield=listdate&-sortorder=descending&-search

This is a sidebar to the general complaint of the movie Mondovino about the global wine industry, which shows a worldwide drive towards monoculture and a one-taste global wine.  All this is brought about by industry economics that seek to produce massive quantities of something that will move off the shelf but that is also economical to produce, resulting in early picking of grapes and several other shortcuts that turn wine making into a manufacturing process.  Learn about Jonathan Nossiter’s Mondovino at www.mondovinofilm.com, which tells you what globalization had done to wine, but does not really penetrate the complex corridors of the wine world.  The wine boutiquers love it: we were charmed, too, but can see that it needs a very thorough edit. 

The New York Times just ran a considered article about McClosky and company called “The Chemistry of a 90 (plus) Wine” (August 5, 2005).  It is authored by David Darlington, who writes about zinfandel and various facets of the wine trade, and it has attracted a fair amount of attention from winemakers.  They are mostly down on McClosky   But he clearly has his virtues.  On the one hand, one does not want to wind up with the good (never great) one-taste his formulaic thinking would generate.  On the other hand, he does a great service in understanding the chemistry of wines.  Incidentally, he is married to Suzanne Arhennius, whose field is chemical ecology and who is descended from two Swedish Nobel Laureates whose field, of course, was chemistry.  Clearly vintners need to pay more attention to the nourishment of the earth in which they choose to grow, something which can be abetted by precise chemical analysis.  For an extract from the article, see the Depraved Librarian blogspot at http://depravedlibrarian.
blogspot.com/2005/08/chemistry-of-90-wine-new-york-times.html.   

It succinctly relates how McClosky goes about his business: “To analyze an individual wine, Enologix runs a sample through a liquid chromatograph (and for white wine, a mass spectrometer) to separate and measure chemical compounds. McCloskey says he has identified about 100 that can affect a person’s response; to compute a wine’s ‘quality index,’ the ratios—not just the amounts—of these compounds to one another are compared with those of bottled wines previously judged and scored by groups of vintners, growers, owners and critics.  McCloskey publishes his findings in his magazine, Global Vintage Quarterly, alongside a separate National Critics’ Score, which represents an average rating compiled from five publications: Wine Spectator, The Wine Advocate, Wine Enthusiast, Stephen Tanzer’s International Wine Cellar and Connoisseurs’ Guide to California Wine.

Enologix divides wine into four categories.  For reds, Style 1 is pale in color and low in tannin, like most pinot noir or French Burgundy; Style 2 is also pale, but higher in tannin, like Italian Barolo; Style 3 is dark and tannic, like a great many cabernet sauvignons and first-growth Bordeaux; Style 4 is similarly dark but only moderately tannic. This last category, McCloskey told me, represents ‘the vast majority of successful, flagship mainstream wines, the most elegant and popular wines in the world.’  The New York Times article is located at www.nytimes.com/2005/08/07/magazine/07ENOLOGI.
html?ex=1124683200&en=0196d251a76b7301&ei=5070&adxnnl=1&adxnnlx=
1123628759-57MCKouVNh/.  (9/28/05)

252Innovative Processes
Management guru Gary Hamel is off on another tangent.  He is trying to do more about the core processes he feels companies are lacking—those thick with innovation.  (Remember, he’s the guy who pushed “strategic intent,” “core competency,” and all that stuff)  He’s helping launch the Management Innovation Lab at the London Business School.  See Business Week, August 15, 2005, p. 12.  He should also help LBS set up a decent website: the current one is hard to read and hardly innovative.  See http://www.london.
edu/assets/documents/PDF/Terry-Neill-GLS-presentation-2005.pdf.  (9/21/05)

251Wine at UC Davis
As far as we knew, UC Davis was the school that pretty girls went to in order to become veterinarians, but then they would leave, go to fancier schools, and become much less useful as anthropologists.  Only late in life did we learn that this was the centre of learning for California wines, such as they are.  We have always been pleased that the UC wine grading system uses a 20 point, rather than 10 point, scale, which very much helps separate the best from the rotgut.  For better and worse, as you can see in the following, Davis has had a huge effect on both the California and the global wine business.  See (www.bath.ac.uk/~su3ws/wine-faq/ucdavis.html and http://en.wikipedia.org/wiki/
University_of_California,_Davis.)  Curiously enough, UC Davis lists Nobel prize winners and other distinguished scholars on its website, but we don’t see Maynard A. Amerine or any of the other wine greats there.  (9/21/05)

250GM Korea Exports to China
GM Daewoo Auto & Technology Corporation will export kits to GM’s new factory in Shanghai for assembly.  Daewoo is the key to GM’s small car sales in China, selling 40,000 units there in 2003 and expected to sell almost 200,000 in 2005.  Worldwide sales will have virtually doubled since GM’s takeover of Daewoo to 1,000,000 units, essentially based on export of kits to sundry factories in offbeat locations to include the Ukraine and Rumania.  See Business Week, August 1, 2005, p. 48.  Lumbering GM shows a great deal more agility in operations well removed from Detroit.  (9/7/05)

249The New Regional Daily
The Lawrence Journal-World has been widely acclaimed as a family-owned paper that knows what it is doing about convergence—with solid, growing franchises on the Internet and in cable (http://ljworld.com/site/about_us.htmlm.)  Rob Curley, leader of its Internet edition, has attracted a fair amount of attention within the industry  (www.robcurley.com/
bio).

Since we all are wondering how newspapers are going to survive, we are particularly interested in seeing how small regionals are changing their business model, a transformation not limited to the Lawrence J-W.  In this regard, one should pay special attention to the News & Record in Greensboro, North Carolina, subject of an article in the New York Times, “Hands-On Readers,” July 4, 2005, pp. C1 and C4.  We have not found the newspapers of North Carolina to be particularly distinguished, yet several show interesting business acumen.  For instance, the Daily Record of Dunn, North Carolina, near Raleigh, has achieved 112% market penetration, tops for all papers in the United States.   

The News & Record is going for reader participation on its website, a growing trend.  “In some cases, like Backfence,com, in suburban Virginia, citizens are the only contributors,” on an unedited website.  “Blufftontoday.com … is largely made up of reader contributions.”  There are parallel happenings at Rocky Mountain News in Colorado, the Commercial Appeal in Memphis, and the L.A. Times.   

Greensboro, incidentally, is full of bloggers, many of whom have broken news before it has appeared in the News & Record.  While the paper is starting slow and not putting much money in the effort, several staff reporters are creating blogs to take advantage of the new outlet.  The newspaper’s circulation has been stuck around 100,000 for two decades, and it is in need of a jolt.  The new site at last reports was to open July 11, but we cannot find much about it yet, though the leader of the Town Square initiative does have an ongoing blog on the company’s website (http://blog.news-record.com/staff/lexblog/archives/
2005/07/getting_into_th.html).  Some version of citizen journalism combined with new micro-marketing techniques linked to much more comprehensive local coverage, as in the Dunn newspaper, probably could reinvigorate local papers.  (8/10/05)

248. Tangle Toys
“Sculptor Richard X. Zawitz invented the Tangle Toy in 1981—a twistable cable of interlocking plastic pieces.”  Now he has it in Wal-Mart and 2004 revenues are up to $12 million.  (See www.fortune.com/fortune/smallbusiness/breakingbig/0,15704,1072633,00.
html and www.tangletoys.com/flash/flash.php?sid=ilzIIv9QnZ.)  Apparently over 60 million tangle toys have been sold since 1982.  The hyperbole on Tangle’s website claims  Zawitz was inspired by the Tibetan infinite knot—a symbol of wisdom.  Even in the shrinking, old-fashioned toy business, true novelty items that are not knockoffs of previous toys can achieve sizable volume at retail.  The difficulty, however, in the United States is that even a toy innovator has to penetrate mass-discount merchants such as Target and Wal-Mart.  Probably this inventor would have done better to merchandise his toy outside the United States in its early stages.  (8/3/05)

247. LG Going Global
LG Electronics (once known as Goldstar) has come out of nowhere, and is now Korea’s trendsetter with sales up 21% in 2004 to $23.6 billion, and almost a trebling of profits.  Its net profit margin has doubled each of the last two years.  Because of its holding company structure, its horrible website, and its various re-organizations to include demergers, you will find its financial statements totally murky.  We advise going to www.Hoover.com for a quick look.  We have noticed that young things at colleges are as happy to have a LG mobile phone as any.  It’s now the world’s number one air conditioner maker and ranks third in the plasma-TV sweepstakes.  See Business Week, January 24, 2005, p. 50ff.  Note that it is part of LG chaebol.  Management has its eyes on Samsung which has generally outclassed it: it is trying to win through speed-to-market, beating Samsung with its entries in MP3 and camera phones in the U.S.  Also it sells under different brand names, allowing it to expand share without cheapening the LG moniker.  Interestingly, the bulk of its foreign sales are in North America, despite its weak marketing.  It is a big mobile handset seller to both Verizon and Cingular, U.S. mobile leaders and is looking for 70% growth in that sector this year.  As near as we can tell, the key drivers here are “get up and go” mixed with “envy.”  (7/13/05)

246. Bang & Olufsen
We have previously commented on B & O in our Best of Class section, “The Very Imperfect Perfect Stereo.”  It has traditionally designed wonderful looking and wonderful sounding stereos at exaggerated prices—wondrous when they work, and a nightmare when they do not.  An old piece of an equipment is terrible to get repaired: parts are scarce, and nobody knows how to deal with it anyway.  What you have to do is to find an underground repairman who knows what he is doing in New York City, a guy who knows how to scrounge up out-of-date parts since B & O does not support its old equipment.  So today we still listen to our B & O of some 20 years, to which we have jerry-rigged a CD attachment. 

That said, the Company is going beyond its engineers, and becoming more capitalistic.  Its chief executive is now Torben Bellegaard Sorensen, who took over in 2001 after six years at LEGO, which is also stuck in the slow lane.  He’s added products, cut staff by 25%, and shuttered struggling stores.  Profits are up, and it has recorded its first growth in revenues since 2002.  Some production is being moved out of Denmark into Czechoslovakia.  See Business Week, March 14, 2005, p. 60.  There is some thought that the products have at least come up in technical quality, but, at the same time, there remains a question as to whether they merit a premium, since they are not ahead of the market.  (7/6/05)

245. McKinsey’s Assorted Wisdom
Several years ago when we personally surveyed the chief executives of more than 50 major corporations about management consulting, we found that they loved McKinsey for its relationship abilities (i.e., “lots of grey hair that talks my language”) but often preferred to go elsewhere for youthful smarts, sharp insights, and consulting advice that was likely to achieve a fast, major payoff.  We have observed a lot of McKinseyites on the job and on other jobs outside the firm: the chief executives have it about right.  Amiable, competent, but rarely brilliant.  

But McKinsey does have a good publishing program—with a journal that is often thought provoking and a flood of books from partners that often produce a little frisson in the marketplace, even if they come up a bit short over the long haul.  The odd thing is that McKinsey does not do a terribly good job of distributing its articles and other work, which is probably its best advertisement.  We even find that people inside the firm have not accessed some of its provocative pieces. 

To get a feel for why McKinsey articles do sell the firm and why they often point you in the right strategic direction, even if they are tactically lacking, we refer you to a piece by Ian Davis, the current managing partner, that is a good argument for branding, for strategy, and for a number of other practices that can convey that a corporation has a bright, long-term future and is not just a flash in the pan.”  (See How to Escape the Short-term Trap.)  Some of its partners have authored a set of 3 articles that complement his thinking here, which are abstracted as follows: “Don’t Expect Too Much of Your Share Price”; “Do Fundamentals—or Emotions—Drive the Stock Market”; “Measuring Long-Term Performance.”  The failure of McKinsey to share more of its thinking more openly and broadly very much indicates that it has not entered the Open Source world where one gains strength and alliances through wide, broad, open dialogue.  (6/8/05)

244Pretty Cool School (PCS)
We have been watching this company for a long time.  PCS got its start back in 1984 when Pat McShane of Nampa, Idaho, wanting to expand his business, started an afterschool computer education program for kids.  In the course of events, this start-up moved to Boise, expanded its curriculum into science and math, and put up some schools.  Under president Anthony Maher and technology leader Robert Grover, it then migrated to the Internet and gradually gave up all its brick and mortar facilities.  Indeed, it even tried to sell its course offerings over the Internet directly to parents, hoping a direct-to-consumer package would be able to generate enough credit card transactions to support a business.  Using this flawed economic model, PCS had a long dry spell that lasted several years.  Then it offered labs to schools and other institutions at prices ranging from $500 to $25,000, selling its first PCS Lab to Detroit City Public Schools in 2001.  Since then it has been gathering steam, and revenues have gotten well over the million dollar mark.  As interesting, it now gets 20% of its revenues from overseas, with particular success in the Middle East, where its client countries include Egypt, Saudi Aradia, Dubai, and Pakistan, finally putting the company on a serious growth track.  In fact, prospective interest around the world, particularly in developing countries, is so strong that management envisions 75% of revenues coming from overseas, and only 25% domestically in years to come.  

In some respects, its progress is analogous to cellphone growth: some developing countries are skipping landline phones altogether, leaping ahead by setting up modern wireless networks.  Likewise, they are bounding forward by finding rapid, cheap ways to distribute curriculum and content.  The PCS Internet course offerings are the twenty-first-century way for up and coming countries to offer math and science to their youngsters, an important breakthrough for societies still caught up in medieval trappings.  

Despite the fact that PCS offers virtual courses, it ties in the use of Lego blocks for instructional purposes.  It is an enthusiastic advocate of “construct” or tactile learning.  As the president said to us, “You retain 10% of what you see, 20% of what you discuss, and 90% of what you do.”  Moving the blocks around fastens concepts in the heads of eager, young learners.  Given the stagnation in the business school market, we are hopeful that the Harvard Business School will add Lego Blocks to its curriculum, putting some more doing into an education that’s a bit too theoretical.  PCS Edventures, Inc. 345 Bobwhite Court. Suite 200. Boise, Idaho 83706. Telephone: 208.343-3110.  Website: www.edventures.com.  Nasdaq:  PCSV.OB.  (5/18/05)

243. Whole Foods
Whole Foods is the best story in the grocery business (high prices plus organic), even outdoing Wal-Mart, which has become the nation’s largest grocer (20% market share).  Its sales per square foot of $798, its soaring stock price, and its relentless expansion—both by acquisition and internal growth—makes for quite a tale of success.  It’s now giving up its 31,000 square foot stores and building a heap of 50,000 square foot stores, even as the industry is slimming down. The chain expects to go from $3.9 billion in sales in 2004 to $10 billion in 2010, though it has just a 1% share of market today.  See USA Today, March 9, 2005, pp. 1B and 2B. 

Lately, Whole Foods has been taking New York City by storm, stealing a march on Wal-Mart which is trying to enter city.  New York is a tough market, but offers high rewards to the retailer who can figure it out.  The high income and politically correct New York audience is a natural constituency.  On March 16, it opened its latest store at Union Square.  The 50,000-square -ot, three-level store has 32 checkout counters, and plans to buy a great deal of produce from the farmers at the Green Market that is next door in the park.   

“The other Whole Foods markets in Manhattan are in Chelsea and at Columbus Circle.  …  Next year a new market of about 70,000 square feet on two levels is to open at the Bowery and Houston Street. Another store, occupying 55,000 square feet, will follow in TriBeCa, at Greenwich and Warren Streets, in a couple of years. In Brooklyn a Whole Foods being built at Third Avenue and Third Street in Park Slope is to open in late 2006.”  See the New York Times, March 16, 2005. 

Mackey, the founder of the chain, sort of drifted until he got into the food business, but then hit his stride.  Son of an academic who turned into a successful CEO, Mackey shows that the right genes will out sooner or later.  (4/27/05)

242Free for All
Everybody is doing it.  Free newspapers, that is.  The New York Times has just put up $16.5 million for a stake in Boston Metro.  The Washington Post, Chicago Tribune, Chicago Sun-Times, and Dallas Morning News all have free entries.  All are experiencing declining circulations and need briefer rags that will reach younger readers who have simply given up on real newspapers. The Times, incidentally, is pegging more of its own daily copy to single thirty-year-olds who want their enjoyments on the quick.  Reportedly all these skimpy freebies are attracting a steady flow of advertising. Mogul  Philip F. Anschutz is bringing out the Examiner in Washington, D.C., for door-to-door delivery, with tentative plans to do more of the same in other cities.  See Business Week, January 31, 2005, pp. 74-76.  Hawkers, earning $9 an hour, according to the Wall Street Journal (January 18, 2005, pp. B1 and B6), have given amNewYork as well as Metro New York soaring circulations.  The most intelligent versions of online newspapers are now offered for free, at least for a period of time, although pinched publishers are thinking of moving away from this strategy. 

“Free” is turning out to be a successful marketing ploy in several kinds of industries.  Software, often sold over the Internet, is commonly given away for a trial period by several developers.  Other companies have paid and unpaid versions of their programs.  To encourage utilization, Adobe offers reader versions of its Acrobat PDF programs.   Smarter hotels, trying to build their brands, are offering a wider range of freebies along with rooms, smartly avoiding wrongheaded service charges.  To fight the discounters, upscale supermarkets are giving shoppers samples or tastes of high margin products.  For more on this, see “Sales: Branding Again” on Letters from the Global Province. To get a good feel for an urban free newspaper, read Metro at www.bbc.co.uk/dna/h2g2/
A185131.  A Swedish company, Metro S.A., really put free newspapers all over the global map, and even today is showing oldline publishers the power of the “free” concept.  See www.metro.lu/overview/index.htm

We are expecting “free” to eventually transform the whole world of advertising.  Advertising, as done today, does not make a great deal of sense.  A former chairman of one of the world’s fine advertising agencies told us he literally cannot understand what admasters are trying to do in the print and TV commercials now being offered.  Advertising is currently selling everything but the actual attributes and value of the product or service it purports to illuminate.  Rather, it is offering perfume and aroma, lifestyle, and other hazy associations that will ostensibly accrue to the consumer through use of the product.  In reaction, we expect a great deal more effort to be expended, particularly on the Internet, to giving consumers unvarnished information that speaks to the careful use of the product, with a little more frankness about what the product does and does not offer.  In other words, we think smart entrepreneurs will want to surround their products with free, candid, helpful information, instead of perfume and atmospherics. 

Meanwhile the world of technology is being revolutionized by free online journalism where research articles are now offered for free, outgunning the expensive journals that take too long to publish peer-reviewed discoveries.  See http://biology.plosjournals.org, for instance. 

As importantly, we are discovering that impatient technologists are breaking commercial logjams that impede new applications in the sciences through the popularization of open source software, such as the widely heralded Linux that is now giving Microsoft quite a run for its money.  The same thing may happen in biotechnology.  Cambia, a non-profit biotech research group in Australia, is now offering for free a new process for transferring genes into plants, moving around agrobacterium transformation, the common technique today which is protected by a horde of patents.  We are moving to broadscale operating systems that are transparent to all, and free as well. See more on this at “Linux for Biotech.”  (4/27/05)

241. Ms. Sabanci
Turkey, apparently, is dominated by two large family business groups—Koc and Sabanci.  In 2003 Koc leadership went to Mustafa Koc.  But last year Sakip Sabanci chose his niece Kuler as his successor, surprising all of Turkey with this recognition of female competence.  “The newly stable environment has prompted Ms. Sabanci to look for new alliances with foreign partners, a strategy the group excels at.  She herself masterminded the first joint-venture, with DuPont in 1987, setting up a $100m nylon-yarn producer in the port city of Izmit.”  Its joint venture with Toyota has captured 6.7% of the local car market.  See “Breaking into a Man’s World,” The Economist, January 29, 2005. 

Turkey, incidentally, is yet another of what we like to call “Falling-off-the-Map” countries re-inventing the world economy.  Developing economies, as we have pointed out, are turning in twice the growth of the developed nations, and, increasingly, are accounting for some of the most strident innovation in business products and processes.  The Turkish economy grew 8% in 2004.  “This rosy picture owes a lot to the unprecedented political stability that Turkey has enjoyed since the AK party, led by Recep Tayyip Erdogan … came to power in 2002….”   

It is just beginning to develop an efficient mortgage market which would not only fuel homebuilding but help as well entrepreneurial classes.  In developing countries, property is often the only real asset of  those on the rise.  Creators of new business will, in the future, be able to secure capital by taking out loans against their homes.  For more on this, see “US Agency Supports Turkish Mortgage Lending Program,” Turkish Daily News, March 10, 2005 (www.turkishdailynews.com.tr/article.php?enewsid=7878).  (4/20/05)

240. ING Direct
The biggest online bank, ING Direct, has 2.2 million U.S. customers and $29 billion in deposits.  It now pays 2.6% on accounts, well above the .56% money market rate at average banks.  Even with intense marketing, it makes a pretty penny, with pretax profits of $250 million in 2004, up from $110 million in 2003.  No checking accounts and hardly any facilities—just 4 cafes to promote services in New York, Philadelphia, Los Angeles, and Wilmington, Delaware.  It operates out of converted warehouse in Wilmington.  Now MetLife and Emigrant Savings Bank are crowding into this lucrative niche.  And so ING Direct is expanding into mortgages, particularly adjustable rate loans, to keep growing. See Business Week, March 14, 2005, p.88.  (4/13/05)

239. Business School Reality Show
Students at Jeff Davis Sandefer’s Acton MBA School (affiliated with Hardin Simmons University) get a real feel for the marketplace.  The teachers are not academics but business executives and entrepreneurs.  In Austin, the school is now housed in an ordinary office building, though a new larger space is in the works.  Teachers are evaluated by students and can earn a bonus up to 5 times course pay of $5,000.  The curriculum consists of real-life business exercises and discussion of some 250 Harvard case studies.  Mandatory is a “Life of Meaning” class where students map out personal and business goals for their decades ahead—age 30, age 40, etc.  See www.mbae.info/local.php?id=13.  (4/13/05)

Update: Business School Shake-out
It’s time for business schools to upgrade their product, as the number of applications fall and business at large senses that the schools are no longer delivering a relevant product.  Even insiders in the B-School swamp know the game is up, as evidenced by a recent Harvard Business Review article, “How Business Schools Lost Their Way.” http://harvardbusinessonline.hbsp.harvard.edu/b02/en/hbr/hbrsa/current/0505/article/
R0505F.jhtml;jsessionid=I4KCUPAEY5APYAKRGWCB5VQBKE0YIIPS   And, for more about this article, read http://news.ft.com/cms/s/c6d708d0-b84f-11d9-bc7c-00000e2511c8.html.  We recommend a read of this article, although it somewhat misses the point.  Bennis and O’Toole  claim that business schools have lost their way because too much emphasis is given to “scientific research” and other off-base tendencies in the B-School curriculum.  In other words, the schools have strayed.  We would claim, rather, that the difficulty of the schools is no different from the quandary of other institutions in 21st-century society.  The world has changed so radically so fast that the schools have not been able to keep up and so find themselves irrelevant.  It’s not that the schools diverged from the good and the true: it’s that the world ran away from them.  (5/18/05)

238. Rio Jeans
Gang Rio (G 128 Comercio de Roupas Ltda.) is cracking the U.S. market with jeans that make any lady’s bottom look big.  “Gang’s pants are now sold in nearly 30 countries,” and entrepreneur Alcyr Amorim sells them through word of mouth, boutique penetration, and zero advertising.  He works to create an exclusive feeling about the brand.  Its website (www.gang-rio.com.br) plays a big part in sales, spelling out store locations where they are available as well as offering merchandise over the Internet.  See “Taking Care of Bigness is the Bottom Line,” Wall Street Journal, January 25, 2005, p. B4.  (4/5/05)

237. Mobile Ultrasound
“With 60% of the portable market, Sonosite (www.sonosite.com/home.html) is No. 1.  While GE is tops in big ultrasound gear, it has only 30% of the market in handhelds.  Sales now are just $144 million.  A new hand-carried ultrasound is now being introduced, which CEO Goodwin claims will equal or better quality of big systems, while undercutting them on price.  See Business Week, March 14, 2005, p. 117.  (4/5/05)

236Health-Conscious Employers
Employers are becoming every more conscious of how healthcare costs have affected their competitiveness and profitability, and how resulting employee absenteeism and turnover have penalized their enterprises.  They are doing something about it, actively taking over and directing aspects of their healthcare programs.  One high-profile example is the expansion of in-house clinics such as those of  Wisconsin Quad Graphics, an effort recently profiled in The Wall Street Journal (February 11, 2005, pp. A1 and A8).  Last year it spent about $6,000 per employee on health. 30% less than the average company in its state.  Others with in-house facilities include Perdue Farms, Sprint, and Pitney Bowes.  Quad is now running similar efforts for other companies. 

Employers are also expanding the range of complaints they are tackling on the job in order to keep their employers functioning smoothly day after day.  Many have had programs for high profile complaints such as heart disease and diabetes.  “It is a newer tack, however, to address the lower tier of pesky chronic conditions,” such as seasonal allergies, migraines, and stomach problems.  Active in this way are Comerica, Dow Chemical, Bank One,  and International Truck and Engine.  See The Wall Street Journal, January 18, 2005, p. D5.   

We are expecting corporations to become much more active in addressing ongoing health complaints and conditions such as obesity that lead to bad health.  It amounts to a privatization of public health efforts.  The workplace is an effective way to reach employees since many forms of communications can be brought to bear on individuals within a tightly knit community that are not available to municipalities, health plans, and other potential health advocates.  It has become clear to several corporations such as GM that their health costs are so prohibitive that established companies are often at competitive disadvantage within their industries.   

Quad is not the only company in the clinic for hire business, although it is still a relatively small market.  Whole Health Management has been providing clinic support since 1981, at first for the Federal Government (see www.wholehealthnet.com) and then for the private sector, beginning in the 1990s.  The Company, out of Cleveland, is now pushing $30 million in revenues. See FSB, March 2005, pp. 49-50.  (3/16/05)

235. Jenny Lou's
“Battling the odds and Chinese bureaucracy, Ms. Wang, a 36-year-old square-faced peasant with a radiant smile, has built a thriving business finding her own niche—charming expatriates with good service and familiar foods from home.  …  She now operates half a dozen stores around the walled compounds where foreigners live in the Chinese capital.”  With annual revenues around $3 million, she has grown beyond the fruit stand she started out with some 15 years ago.  See The Wall Street Journal, February 8, 2005, p. B7.  “Private businesses are the fastest growing part of the Chinese economy,” and small start ups like Ms. Wang’s are now finding more favor with officialdom.  (3/9/05)

234Beef for the World
“While Argentina is still far from becoming a trade powerhouse, one company that has bucked the trend for decades by successfully selling abroad is Swift Armour S.A. Argentina, the country’s leading meat products company….  Swift generates more than 70 percent of its sales through exports…” (New York Times, September 14, 2004, pp. W1 and W7).  Investors in the company, which has variously been owned by the government and the Campbell Soup Company, include American private equity firms J.P. Morgan Latin America Capital Partners and Greenwich Street Capital.  But the lead investor group is captained by the man in charge of the enterprise, Carlos Oliva Funes.  During recent Argentine economic trials, he has been snapping up more premium beef company assets.   

Argentina is the tragic man of South America, having fallen over a century from its perch as a first world country to such depths that it has become a comical basket case.  Maybe it danced its way there, captured by the tango.  Now, with exports creeping up into the $30 billion range, it is showing some promise again.  The U.S., also saddled with too much debt and copious imports, will also have to become a more agile exporter if it is to recover.  (1/26/05)

233Audubon Inc. Aloft
We had always thought Audubon to be America’s soaring wildlife artist, recorder of its natural life, particularly of its handsome birds, but took him to be a mediocre businessman who scraped the ground for a living, always ten feet from the pauper’s grave.  Richard Rhodes, author of John James Audubon: The Making of an American, sees him in quite a different light: “These facts should lay to rest once and for all the enduring canard that John James Audubon was ‘not a good businessman.’  His retail business failed in Henderson in 1819, like nearly every other business in the trans-Appalachian West….”  But the creation of his folios was not just an artistic triumph: it was a monumental financial achievement.

“By Audubon’s own estimate, the actual cost of producing The Birds of America …was $115,640—in today’s dollars, about $2,141,000.  Unsupported by gifts, grants or legacies, he raised almost every penny of that immense sum himself from painting, exhibiting and selling subscriptions and skins.”  He carefully controlled the flow of funds and drawings to his production man as well as the expeditions to collect specimens.  In general, he personally brought in most of his subscribers.  To wit, he was a successful naturalist, artist, production manager, and marketing impresario.

232Bush League Training
PricewaterhouseCoopers now has a third world aid project—its Ulysses program—whereby it sends “top mid-career talent to the developing world for eight-week service projects.”  This boot camp training  both tests and expands partners who may eventually vie for leadership positions in the firm.  So far it has 44 graduates, all of whom have stayed with the firm.  Partners have worked on diverse projects including ecotourism, organic farming, and AIDS awareness.  See Business Week (September 6, 2004, pp. 76-77) and commentary on the program from Managing Partner Willem Brocker at www.pwc.com/extweb/service.nsf/docid/5F175AED211A88D085256EC4005FEAD9.

231GE—The Dancing Elephant
It was once said of a Wall Streeter who went to Washington years ago to head up a regulatory body that “he was the fastest fat man in Washington.”  Well, we knew the fellow and can testify that he always made fast tracks when we were heading towards a restaurant across town in New York. 

Similarly, giant GE has proved adept at repositioning itself in new markets, which we discussed in our Annual Report on Annual Reports 2004.  We have said, for example, that it has bulked up in healthcare and alternate energy—both sectors which have a lot of momentum right now.  Now it is crashing into developing countries, which are often exhibiting faster growth rates than mainstream nations.  For instance, GE Consumer Finance is now engaged in heavy business-to-business lending, with just 15% bound up in direct lending to consumers.  But  it is testing retail banking in Eastern Europe, with Russia, Turkey, and Asia not far behind.  See “GE Banks on Emerging Markets,” Wall Street Journal, August 24, 2004, pp. C1 and C2.  CitiGroup, HSBC, and several other banks also are trying to grab retail marketshare in these same countries.

230. Herbal Medicine Magnate
Bob McGraw has dished out $17 million over the past five years to tee up a herbal medicine start-up variously called Longjiang River and Dragon River (see Fortune Small Business, October 2004, pp. 98-100).  He projects sales of $15 million by year end.  He got started when McGraw-Hill, the family firm where he worked, bought Medical China, which got him enthused about luo han kuo, which he took to ease his sinus infection.  It’s a sweet, green fruit he now grows on his own farm in Guangxi Province that he offers as a cure for respiratory ailments which, incidentally, are multiplying in today’s highly polluted China.  “The company also changes the format of the product to fit local tastes—a liquid in Asia, effervescent tablets for Europe, and pills or a patch in America.”

229. Agile Countries
In “Coming into Flower,” The Economist, October 16, 2004,  pp.67-68, the emerging economies of the world are seen as the early economic rock stars of the 21st century.  That is, they growing 2 ½ times as fast as the developed nations since 2000.  On the one hand, this is a boom time for commodities, many of which are in short supply and which come from these countries on the rise.  But it’s not just favorable swings in the world economy that account for their good fortune.  Better policies and structural reforms have also put them in better shape.  Inflation has come under control, and often deficits are surprisingly small.  Many run a current account surplus, and domestic rather than foreign capital is fueling a lot of the growth.  Debt service as a percentage of export revenues is lower, while many have cash surpluses in the bank.  Significantly their stock markets do not yet reflect these improvements, and average price-earnings ratios at 8 are only half that of America.

Update: Off the Map
In the Harvard Business Review, November 2004, William Dunk claims we should look to small, out-of-the-way countries for genuinely new ideas that can revolutionize the ways things are done in the major economies.  He points to Cuba (education), Finland (public health), and Denmark (wind energy) as examples worthy of emulation.  “There are many reasons for the big successes of small nations.  These countries lack the expensive, often flawed infrastructures of the larger powers that can block or dilute innovation….”

228Indubitably Dubai
Almost unnoticed, Dubai has built itself into an economic mini-colossus by careful husbanding of its oil revenues (only 6% or less of GNP).  It now has “272 hotels with 30,000 rooms” and draws “almost 5 million visitors a year.”  See The Economist, May 29, 2004, pp. 61-62. It has the “largest man-made harbor,” making it a Mid-East cargo hub.  Emirates Airlines, eminently profitable, has been a key to its growth, and “now 100 airlines link Dubai to 145 destinations.”  Tied in with hotels, it made Dubai a stopover place on long trips.  A welcoming country, over 80% of its 1.5 million people are from elsewhere.  It now has ambitions to become the leading capital market in the region.  (See also Global Wit and Worldly Wisdom, item 262, “The Scenic Wonders of Dubai.”)

227. Less Is More
Merrell, Wolverine World Wide’s hiking boot subsidiary, is “eliminating its most popular line of outdoor sport shoes and cutting the number of styles by two-thirds.”  The idea is to make it easier for the consumer to make the right pick, and to get big houses like REI and Nordstrom to carry the complete line of company offerings, or at least whole categories, which are termed “silos.”  Merrell is making the change, even though it has been growing handily for the last few years and is a major contributor to Wolverine’s top and bottom line.  It is also getting more stylish and colorful in its casual shoe offerings.  See The Wall Street Journal, June 17, 2004, p. B5.

226Great Places to Do Business
Last year the International Finance Corporation (www.ifc.org), part of the World Bank,  published a survey on  government regulation in 130 countries with a view to determining which were most business-friendly.  Needless to say, the large developed countries were not at the top, top of the list.  Ranking first was Denmark, followed by Ireland, Malaysia, New Zealand, and the ever agile Singapore.  For more on this, see http://rru.worldbank.org/doingbusiness, where you can order the survey and even manipulate the data.  Forbes (July 26, 2004) provided  the above ranking by looking at a few of the factors that IFC considers.

225. Storyville
We have probably had too much to say about stories and their use in business.  To get some of our thinking on this, please look at our letter, “Stories R Us” (August 19, 2002).  Their application in business, speechmaking, religion, and a skillion other areas of life is a little overdone.  The stories tend to run on.  And sometimes the bizstorytellers are mere propagandists.  That is, they are only telling stories to make a big point, not to simply tell a good story.  Art, first and foremost, whether a story or a painting, is to celebrate beauty and life, not to tilt minds or lay out propaganda.  So corporate storytellers often simply bore us to death. 

That said, there is some merit in understanding the story-in-business movement.  For sure it can make data addicts put their data together in a more communicative form.  To this end, you can read Stephen Denning, “Telling Tales,” The Harvard Business Review, May 2004.  In simple terms, he more or less says different kinds of stories will get different results with your audiences.  Perhaps you will tell an uplifting story if you want to get a crowd behind you, and then a somewhat negative tale if you actually want to train or instruct someone.  There’s a whole layer of complication he adds to the article in order to turn it into business-school fare.  As we remember, he was a corporate development officer at some company until he got into stories.  Nobody pays attention to planning and development guys, so they are frustrated and drift into other fields.  Denning got the point:  planning exercises are analytical and connect with nobody.  To build a bridge with people, you must be emotional and intuitive.  Ah ha, he says—tell a story. 

Mr. Denning is prolific and wordy, so you can read more in his The Springboard: How Storytelling Ignites Action in Knowledge Era Organizations and Squirrel Inc.: A Fable of Leadership through Storytelling.  And, if that is not enough, write him at steve@stevedenning.com.

224. Matterhorn Nursery
Survival in the age of Home Depot, Lowe’s, Wal-Mart, etc. is a retail miracle, and testament to the ingenuity of anybody who can pull it off.  Matt and Ronnie Horn have done so at their Spring Valley nursery, which more than competes with the Wal-Mart in nearby Mohegan Lake.  The Horns offer much more variety than the mass merchants plus 60 knowledgeable employees who can help weekend gardeners with all the vagaries of Mother Nature.  With $3 million in sales, it is rather big for an independent.   It has all manner of sights plus 10 acres of display gardens.  See The Wall Street Journal, May 25, 2004, pp. B1 and B4.  We only wish the Horns could have sought insight from Ulrich Inderbinem, who climbed the Matterhorn more than anyone else (some 370 times) and would have helped them see the forest above the trees.  (For more on Inderbinem, see Wit and Wisdom, Item 300.)

223. Dassault Assault
“In the early 1990s Boeing stunned the manufacturing world when it created the world’s first digitally designed aircraft, the 777 … using 3-D modeling tools from” Dassault.  For Boeing’s 77 Dreamliner, Dassault software will be used not only for design, but for “production, operation, and maintenance as well.  …  Called ‘product lifecycle management’ or PLM, the software links manufacturers with their suppliers and customers to share data about a product….  Dassault, the second-largest software company in Europe, behind SAP, is hardly known in the U.S.”  Biggest in 3-D design software, Dassault now is the king in PLM as well, with a 22% share of market.   See Forbes, June 21, 2004, pp. 117-120.

222. Pepsi Bounce
Pepsi adds “more than 200 product variations to its vast global portfolio” each year.  Key is the fact that it now only pushes to the extreme its old core brands such as Pepsi and Lay’s potato chips, but that it also capitalizes on new consumer preferences and changing demographics.  Its SoBe Beverages, bought in 2001, gets it into “herbally enhanced beverages.”  Even as it has taken Frito-Lay to $9 billion, Sabritas, its Mexican subsidiary, now peddles 4 chippie brands to Hispanics in the States.  With no advertising and limited distribution, these brands will now top $100 million in the U.S.

221. Epitome: Recycling Software
Epitome Systems (www.bpt-us.com/) of Wayne, Pennsylvania is about to market its first product, software tools for document processing it licensed from General Motors Acceptance Corporation.  It grows out of a paperless effort on the part of GMAC stemming from a decision years ago to expand its commercial mortgage operations overseas.  Epitome plans to find other software systems developed by large companies for internal use and take them to a wider marketplace.  See The New York Times, May 14, 2004, p. C4.

220. Sigma 6 Hyundai
Complaints are dropping about Hyundai failings, and by some measures it now ranks with the best on quality, even though it still offers long-term owners plenty of problems.  “Since 1999, Chairman Chung has boosted the quality team to 865 workers from 100….”  As a result, U.S. consumers bought 400,000 of its cars in 2003.  Sales are helped by a generous warranty, “10 years for the drive train and five years for everything else.”  See Business Week, May 17, 2004, p. 45.

219. Caliper
He’s a blind success.  Dr. Herbert Greenberg has been blind since 1940, due to a mutant strain of tuberculosis bacteria.  His firm, Caliper (www.caliperonline.com/about.html), has now grown to 13 offices worldwide and $22 million in revenue.  He tests athletes with “The Caliper Profile” to see if they have the mental toughness to survive topflight competition.  He estimates he has tested some 15,000 athletes.  His services are also used by major corporations such as FedEx and Wal-Mart.  Clearly Greenberg himself has the right stuff.  See The New York Times, April 25, 2004, p. SP 1 and 7.

218. Musical Makeover
Apple Computer got its start with a computer that had innovative architecture and offered much more facility and ease of use than PC Windows.  Indeed today, even if you allow for its significant disadvantages, it offers a lot of tricks not available in PCs, which have 94% of the market.  Apple got beat by better marketing, not unlike Sony, which had the best video format but lost out to VHS that was peddled better. 

Apple almost went down the tubes but has been resuscitated by Steve Jobs, the founder, who came back from exile to rescue his creation.  First, he bought some time by putting a little design buzz in his computer offerings.  But, more importantly, with the iPod, he has moved the company into an entirely different business, taking music down from the Internet.  (See The New York Times, April 25, 2004, p. Bu 1 and 8.)  The music is patched together with retail stores that bring the Apple brand closer to the consumer.  He now sells more iPods than MacIntoshes.  Some suspect he may now make a move in the wireless or mobile phone area.  Fortunately he has grudgingly allowed his new contrivances to be connect-friendly in the Windows world. 

What’s even more interesting about Jobs is that he has discovered what a host of companies in other industries are just now beginning to understand.  Either because of low demand or overwhelming competition, they have found that their core markets are saturated and that growth is either impossible or extremely costly.  That said, the lesson of the 21st century in America is that you must strongly enter a brand new market to survive.

217Castell and GE Healthcare
Sir William Castell, up to now head of Britain’s Amersham, which was just acquired by GE, now has become the head of the whole of GE Healthcare.  He will also be named to GE’s Board of Directors and appointed vice chairman.  GE, by and large, grows its own top managers internally, and this is another departure on the part of Jeffrey Immelt, who is now chairman and who is putting heavy emphasis on innovation.  GE has typically had a medical equipment business: With Amersham it is moving into contrast agents, gene sequencing and more.  While GE typically tries to think 3-to-5 years ahead, Castell is pushing his managers to think 10 or 15 years out, since longer cycles must be managed to bring out the kind of products now envisioned.  Amersham products have traditionally been used to detect disease.  Now it will look into agents  that look more deeply into cells with a view to treating diseases before they really become full blown.  This will amount to moving GE more fully into the biotech revolution that is now underway.  Castell is rotating managers from GE into Amersham, and Amersham into GE, with a view to fruitfully combining the two cultures.  See The Wall Street Journal, April 8, 2004, pp. B1 and B10.

216. Rivendell Bicycle Works
Grant Petersen sails upstream.  He builds bicycles his own way, keeps his shop small,  and eschews much of the high techery that have made bikes as tricky as your cellphone, VCR, or impersonal computer.  As he says, “WE'RE A NINE-YEAR-OLD MANUFACT-URER AND MAIL-ORDER BIKE SHOP for bike riders who prefer traditional, classical bicycles and parts and accessories to today's ever-changing high-tech fare.  If that sounds remotely like you, you're sure to like our catalogue and quarterly newsletter, the Rivendell Reader.”   In other words, he is building quite a brand by taking an entirely different bike path.  See www.rivbike.com.

215. Sweet Smell of Success
Amore Pacific Corporation of South Korea, a cosmetics maker, “started its overseas expansion by peddling cheap make-up to women in developing nations from Thailand to Ethopia.”  See www.amorepacific.com/index.jsp.  Now its Lolita Lempicka is outselling some of the name brands in France.  It put together a French type fragrance and recruited Catherine Dauphin, longtime French perfume executive, to head its marketing.  “The South Korean government has set up a division to help small and medium-sized businesses build global brands,” and the countries of Southeast Asia are putting a lot more energy behind brand building.  AmorePacific, now 26th in the world in cosmetic sales, is aiming at becoming number 10.  It has now launched a line in the U.S. and opened a store in New York’s Soho.  In France, Dauphin created a purely French brand (the company had  previously failed to export perfume from South Korea into France or to buy an existing French brand), linking itself to trendy French designer Lempicka.  The fragrance now has 2.7% of the French market, and it is also now available in 90 countries, with 40% of sales now coming from outside France.  See The Wall Street Journal, March 19, 2004, pp. B1 and B2.

214. It's Miller Time
Subsequent to its purchase by South African Breweries (now called SABMiller) from Phillip Morris, Miller Life has staged a turnaround.  Now contributing 44.9 % of SAB revenues, Miller was so important to SAB that it had to be set right.  SAB sent Norman Adami and 10 other executives to run the business.  In addition to achieving much closer relations with wholesalers, Adami launched a new advertising campaign for Miller Lite, showing its carb content to be lower than the other big lite brands.  Miller Lite is now growing some 20 percent a month.  Miller has also dropped 1/5 of its admin staff, while adding 100 jobs in sales and marketing.  See The New York Times, March 18, 2004, p. C5.

213GE and Alternate Energy
GE, at least, knows there’s an oil squeeze and is sending a signal that other sources of power are slowly becoming economic.  At long last we are turning the corner on alternate power, and it will become a meaningful part of our energy mix.  GE has announced purchase of bankrupt AstroPower for $15 million, another step into solar power, still an unprofitable business but one that is predicted to be a $30.8 billion market globally by 2013.  Research into the electric  possibilities of  plastic, such as turning electricity into light or turning light into electricity, has heightened GE’s interest in this sector.  GE’s chairman has an announced goal of becoming a leader in renewable-energy and energy-efficiency markets to include “wind power, fuel cells, hydrogen storage and microturbines.”  Wind power has already been a smashing success, based on purchase of Enron’s windpower unit two years ago.  “GE is forecasting revenues of $1.3 billion and  profits of $108 million from the unit this year.”  (See more on wind power at Big Ideas #58.)  See The New York Times, March 13, 2004, pp. B1 and B2.

212. The Really Talented Buffett
Grant Carter, an officer at the Canadian Standards Association (CSA), realizes that we all have to have seven hands and seven brains to deal simultaneously with the relentless challenges thrown our way by a digital society during the average business day.  It is virtually impossible to run an agile company without agile performers.  This has led him to look for a model, a hero of business and society, who can run 5 or 6 businesses at once.  His giant is none other than little Jimmy Buffett:

“Jimmy is the man.  Here’s why.  He can write, sing and fly airplanes simultaneously.  He loves the ocean, manatees and dogs (he named his Golden Retriever “Cheeseburger”).  He has sailed the seven seas.  He never had a #1 record in nearly 30 years of strumming his guitar but he is the only writer to have one novel and one non-fiction book on the New York Times Best Sellers List AT THE SAME TIME.  He has had the same summer job for 30 years.  His concerts across North America gross millions each year and place him among the top entertainers.  He has a loyal group of fans that call themselves Parrot Heads, wear silly clothes, drink margaritas and follow him from concert to concert across the U.S. each summer.  To top it off, he is a very shrewd businessman … probably not that surprising given his uncle is the legendary investor, Warren Buffett.  And for good measure, his grandfather was a Canadian ship captain from Nova Scotia.  So Jimmy is my multitasking role model.  Kind of a renaissance man who does it all, and does it all very well.

Pondering the challenge of multitasking in a bits and bites world while listening to Buffett’s Songs You Should Know by Heart CD in the middle of the white-out/white knuckle drive to Collingwood last Friday night, I thought of an early Buffett song titled ‘Coconut Telegraph.’  The song speaks to easy living and communicating Island style—that is the Caribbean islands and not Toronto islands.  As the lyrics go, ‘Put it on the coconut telegraph / All the celebration and the stress / Put it on the coconut telegraph / In twenty-five words or less.’  So here is the Coconut Telegraph, our celebration of success and stress in twenty five words or more!” 

Carter has captured the dilemma of this business age: We no longer have the luxury of tackling problems serially, and woe to the manager or the organization that insists on doing B before moving onto C.  Carter himself demonstrates how Canadian companies have come to focus on revenue problems but are discovering, too, that they have had to work on currency hedge questions at the same time, as the Canadian dollar begins to recover against other key currencies.  Today the smart businessman knows that the urgent is always swallowing the important and that you have to do the urgent with your right hand, the important with your left.

211Collaborative Systems
Tacit Knowledge Systems in Palo Alto (www.tacit.com) is one of the collaborative knowledge systems companies that taps knowledge and people across an enterprise so that the principals tackling any one problem can bring the best thinking of the whole company to bear on the questions at hand.  It has gotten a fair amount of attention for work at Aventis and Northrop, and it claims high effectiveness within the U.S. intelligence community, although it might think twice about crowing about anything associated with the beleaguered spy community.  Particularly in larger enterprises, knowledge integration and timely recall is a vast problem, and we suspect that existing software is netting about 10% of the results we need.

Update: Croquet.  Alan Kay, the catalyst behind many of the inventions that make personal computers versatile, has something new in the works called Croquet.  It is “an operating system that puts the user in a three-dimensional graphic world with scores of other users, all computing collaboratively and communicating through audio and visual messaging.  You can call up a wealth of information—in several visual forms—not only from your own computer but from other users with whom you are working.  All this can be done even on a dial up connection.  It was completed at Hewlett-Packard’s labs and it was released for free as an open source contribution last October. The thought is that it will enable teams that are spread around the world to execute complex projects that require good visualization.  See Forbes, January 21, 2005, p. 66 and www.opencroquet.org/links.html.  (4/20/05)

210. Superwarehouses
“When …Unilever’s home and personal care products division … decided in 2000” to streamline its distribution, it had 15 warehouses of average capability which created long delivery cycles.  In 2001 it turned to ProLogis, a real estate investment trust based in Aurora, Colorado, which provided a turnkey service that advised on location, design, financing, etc.  Now it has cut out 5 warehouses with limited loss of actual space.  “Each warehouse has 32-foot ceilings, occupies a million square feet,” except for its major Dallas Mesquite warehouse.  All buildings are owned by Macquarie ProLogis Trust, which is a public company in Australia, and is a joint venture of ProLogis and Macquarie Bank, an investment bank in Sydney.  According to Unilever, the new system saves $20 million a year, primarily in trucking and freight costs, now lower because every warehouse can handle every product.  “Unilever now can make deliveries to customers” in one day 86 percent of the time, an improvement of about 14 percent.  See the New York Times, February 4, 2004, p. C5.

209. Leapfrog Leaps
Michael Milken, the junk bond impresario the government banned from the securities business, has largely failed in the flock of businesses he has entered to prove that he really is a titan of industry.  But there’s one great exception.  Leapfrog Enterprises (www.leapfrog.com), in which Larry Ellison has had a hand, has been a standout success.  The toys developed there are educational, animated, and in demand, making the company a standout in an industry that is limping, consolidating, and being gobbled up by Wal-Mart. Its Little Touch LeapPads, for instance, has been a stupendous hit.  As interesting is the fact that the company’s forecasting software showed that it did have a platinum toy on its hands, and company executives were able to go back to China late in the summer last year to make sure there would be enough product on the shelf for Christmas 2003.  As important as astute forecasting was the company’s relationship with Capable Toys in China, which was able to produce additional molds fast enough to ramp up enough production to meet the cumulative 700,000 unit demand.  See the Wall Street Journal, December 18, 2003, pp. A1 and A12.  To break out in the toy business today, a company must fill a new niche, include electronics or some tech aspects, and accelerate production quickly to meet unusual demand.

208. Canon Stay at Home Strategy
Unlike other manufacturing companies in Japan and the USA, Canon has not shipped its jobs overseas to China.  It has a target of keeping 60% of its production in Japan, although 75% of its sales are overseas.   

“Rivals cope with Japan’s high personnel costs by increasing their level of factory automation.  Canon by 2001 converted all of its domestic printer and copier factories to a technique called cell production.  It abolished production lines and got individual workers to assemble products themselves.” 

“Canon appears to be betting it can overpower currency considerations by developing higher value-added products.”  It had a strong 2003 and forecasts more record profits in 2004.  

As we have previously said, companies operating in strong markets, such as Canon, are best served by avoiding a commodity product strategy along with overseas production.  Instead, they will do better, amidst a world of cut-throat competition, by pushing higher end, higher value products put together in a high quality manufacturing environment (such as Japan’s) abetted by superior service capabilities close to their  markets.

207. Washington Mutual Now Number Seven
“Washington Mutual—which has spent much of the past decade aggressively courting consumers—is shaking up the market and thriving.  Since 2000, when its current round of branch expansion began, annual earnings have more than doubled to $3.9 billion….  ‘WaMu’ has become the nation’s seventh-largest financial institution, with more than 12 million customers in 50 states.”   

“Its bare-bones branches don’t have vaults or guards but are staffed with a ‘concierge.’  The company calls them ‘stores’ and often plays hip music in the background.  Branch employees work on commission.” 

“The strategy has helped WaMu become the nation’s No.2 home lender, behind San Francisco-based Wells Fargo & Co., with about 12% of the market.”  First it becomes a mortgage leader, then it invades a location with retail branches.   

“The volume of home-equity loans and lines of credit at WaMu soared 167% to $9.65 billion, from $3.62 billion a year earlier.”  See the Wall Street Journal, November 6, 2003, pp. A1 and A10.

206. Politically Incorrect Sells Vodka
From New Zealand comes 42 Below, a vodka started up by an ad man who has used controversial online ads to stir up a storm plus copious sales.  Geoff Ross has pushed sales up from 500 cases in December 02 to 3500 in December 03.  “His online ads not only dare to make light of Maori alcoholism, but also gay stereotypes, the All Blacks rugby team, America’s Cup sailing….”  He’s now entering the American market and moving a gin called South into the marketplace.  See The Economist, January 17, 2004, p. 57.  See also http://end.co.nz/index.php?p=42 and http://www.42below.co.nz/.  The website is a great deal of fun and quite hip, but it is a clunky experience to get around.  Once again, word-of-mouth experiences on the web can make things happen in business and politics, without intermediaries, at low expense.

205. Metro Jumpstarts Technology
Metro AG of Germany, formed in 1996 as the merger of 3 chains, is now the fifth largest retailer in the world, and possibly the most innovative.  It is not only reporting good financial results, but is now committed to fast growth in China, looking to raise to 10% the percentage of sales coming from Asia in the next few years.  As importantly, it is striving to lead the way with new retail technologies.  It plans to roll out RFID, a wireless inventory tracking system by November, well ahead of Wal-Mart, planning to reach 250 stores and 10 central warehouses with the cooperation of 100 of its suppliers accounting for 65% of sales during the first year of implementation.  See The Wall Street Journal, January 12, 2004, p. B5.  See also Big Ideas for more on RFID.  This is only one of many technology initiatives that Metro is exploring.  “The Extra Future Store in Rheinberg, Germany, has smart shopping carts that can guide you to grapefruits….  It has smart shelves that send a signal when they need to be restocked.”  “The Future Store is one of the supermarkets in Metro’s Extra chain.”  See www.siliconvalley.com/mld/siliconvalley/7711626.htm?template=contentModules/emailstory.jsp.

204. Renewing Museums by Emptying Them
The Aldrich Museum (www.aldrichart.org) of Ridgefield, Connecticut just auctioned off its whole collection in Binghamton, New York, using upstate auctioneer Bob Connelly (www.bobconnelly.com).  “Mr. Klein and the Aldrich’s director, Harry Philbrick, said the usual taboos about selling art from a museum were hard to square with the mission of an institution devoted to art of the moment.”  See The New York Times, October 31, 2003, p. B38.   The auction did a bit better than the directors of the museum had expected, netting $75,000 instead of the $50,000 they and others had predicted.

203. Putin on Small Companies
“In Russia, small and medium-sized businesses employ 17% of the population.  We have cut red tape in the system of registration and licensing of small businesses and the system of taxation and accounting has been greatly simplified.  However, there are other problems hindering the development of small and medium-sized businesses, in particular inadequate access to financial resources and administrative barriers.”  Vladimir Putin, president of the Russian Federation, in The Wall Street Journal, October 10, 2003, p. A14, “Where East Meets West.”  Apparently, Russia offers the same impediments to small business thrown up in most of the developed countries.

202. Marching to a Different Drummer
Steinway’s Kyle R. Kirkland and Dana D. Messina are a couple of ex-investment bankers (from the Millken brigade) who had done an LBO of  Selmer, the number one band instrument maker, and later bought for themselves number three United Musical Instruments.  But the gem they eventually got is Steinway, not only because it makes the world’s best pianos but also because it had in place a successful strategy for dealing with exports.  It did not call for “mass-producing less-expensive Steinways,” but instead “starting two lower-priced brands, Boston and Essex.  They were the first pianos in Steinway’s history that it did not build itself: Boston pianos are made in Japan by Kawai, and the Essex pianos in Korea by Young Chang.”  “Steinway now sells about as many Boston and Essex pianos as it sells Steinways.”  Steinway itself has gone even further upmarket, producing more expensive pianos.  It has also opened suburban New York stores with the hope of going from $25 million in sales in its 57th street store to $40 million in the New York metropolitan region.  The article where we learn this and more—by James Barron—is probably the best business story we have ever seen in the Times (although it ran in the New York metropolitan section), capturing aspects of international competition, SEC complications, labor negotiations, and, above all, the quest to retain quality amidst a brutal world of price competition.  And then it goes through a painstaking account of how a Steinway gets built, in this case Steinway Grand No. KO862.  It is the type of article that the Times should be doing to become a distinctive voice in business journalism.  See The New York Times, November 26, 2003, pp. A24-25.

Update. We have said previously that the Times coverage of the making of a Steinway along with the accompanying business analysis is one of the finer articles done at anytime by anybody at the paper.  The saga continues in “Taking a Perfectly Lovely Piano and Fine-Tuning Its Personality,” February 17, 2004, pp. A1 and C17, where we see the finishing touches on KO862, and learn of all the minute adjustments that go into fine tuning.  For more of this fine series on Steinway, also see the New York Times,  December 31, 2003 and  January 1, 2004.  An index to the series of 8 articles that have run thus far can be found at http://www.nytimes.com/ref/nyregion/PIANO_INDEX.html.

201. The World's Most Important Company
In our Annual Report on Annual Reports 2003, we stated that Wal-Mart was the nation’s and maybe the world’s most important company.  Everywhere we go we see it transforming the practices of retailers, manufacturers, and even other businesses that have no ostensible connection with it.  It’s probably fair to say that it invented supply chain management, the premise of ultra-managing one’s purchasing chain in order to do everything cheaper and faster than everybody else.  This is its secret:  It is not customer-centric; it is cost compulsive.  Wal-Mart is forcing producers in any industry it touches to produce average goods (never excellent goods) at paper thin margins.  For better and for worse, it has created the affordable mediocre.   

In our own consulting activities, we have come to watch it much more carefully, since we think it supplies the tea leaves that must be read if one is to know where business is headed in the future.  The entries here will follow some of its twists and turns for you.  Follow this link for entries.

200. Mold Rush
Toxic mold, about which we began to hear 10 years ago, continues to run rampant in American’s housing, creating vast rehabilitation problems and opening up major new business opportunities.  “Insurers paid out $3 billion on mold-related claims last year, more than double the $1.4 billion in 2001,” and now many insurers are excluding mold coverage from their policies.  See New York Times, December 11, 2003, pp. D1 and D8.   

Sundry measures ranging from mold-retardant materials, bathroom fans, better kitchen exhaust, leak detection and prevention systems, and custom building without mold-attracting wallboard or drywall have been pressed into service to resist the mold rush, but the spores continue to multiply.  The mold can also result in allergies and other severe health problems.  FloLogic of Raleigh, North Carolina provides a device to monitor water flow in houses that shuts down houses where the flow is obviously out of control.  Georgia Pacific is now marketing wall panel that is sandwiched between glass, claiming that product sales are increasing 30% a month. American Moldguard (www.americanmoldguard.com), a startup in Irvine, California, is now working with major homebuilders to spray surfaces with a mold inhibitor, the technology for which comes from research done by an established building supplies manufacturer in the Midwest.

199. What's Up in Slovakia
Every time we turn around we learn of yet another country we were not thinking about that is turning in a brisk economic performance even as the major economies tremble and produce increasing unemployment.  Now it’s the Slovak Republic that’s on the rise.  Foreign direct investment has shot up from $2 billion to $10 billion since 1999, and 91% of current foreign investors intend to increase their stakes.  It still has 15% unemployment and other problems, but the trend seems to be in the right direction.  See “Investor’s Paradise,” Forbes, August 11, 2003, p. 21.

198. Churracarias
We never tire, in this section, of commenting on the very successful foreign food invasion emanating from South America and Asia.  Foge de Chao now has restaurants in Dallas, Atlanta, and Chicago; three in Brazil; and one on the way in Beverly Hills.  Beef has been coming back in fashion, and so owner Jair Coser staged his U.S. foray at the right time, even though he now has to contend with rising beef prices here.  He’s averaging $12 million a restaurant.  Joao de Matos has gone even further than Coser in duplicating the Brazilian steakhouse flavor at Churrascaria Plataforma (http://churrascariaplataforma.com), his New York restaurant.  See New York Times, November 16, 2003, p. BU 2.

197. Toothsome Spices
As a further sign of the broad interest in spices that is mounting in the developed economies of the world, we see the advent of mainstream spice toothpastes.  Crest (a Proctor and Gamble brand) is to launch cinnamon, herbal mint, and citrus toothpastes.  This is part of P&G’s effort to regain leadership in the toothpaste category, which it has surrendered to Colgate in recent years, a company which has had more focused leadership domestically and internationally.  For more on spices, see our Best Spices section under Best of Class.  The rise in spices is a clear indication of the globalization of all our dining.

196. Agile Communities
As their manufacturing melts away, both cities and states across the land have been busy re-inventing themselves as hightechvilles in order to have an economic future.  Basically the vision here has been to create smart communities, which essentially means new educational clusters where one imports expensive professors from other regions to put a glow on one’s R & D.  One of the problems here, incidentally, is that the emphasis on postgraduate education and research never really pays the ultimate educational dividend, since the researchers live in splendid isolation, and never share their knowledge wealth with the total community.  So the communities remain relatively dumb.

John Eger, out at San Diego State University, who heads up the California Institute for Smart Communities, at least tacitly understands this, saying we have to go beyond smart communities to The Creative Community, the title of a white paper he has published which can be found on the Institute’s website.  “At the heart of this effort is recognition of the vital role that art and culture play in enhancing economic development, and ultimately, defining a “creative community”—one that exploits the vital linkages between art, culture and commerce, and in the process consciously invests in human and financial resources to prepare its citizens to meet the challenges of the rapidly evolving post-industrial, knowledge-based economy and society.”    

Anybody who is engaged in state or regional economic planning should get on top of the assumptions here.  Technology is not enough.  Higher education is not enough, and too much investment in that sector, at the expense of primary education and other channels of education, may amount to a devastating misallocation of resources.  In our eyes, the wrong kind of planning and resource allocation has stalled the development of several communities that were once very promising.  Too much has been invested in technology without a commensurate understanding of a region’s market potential, and the complex infrastructure that leads to creativity has been neglected.  We are always reminded, incidentally, that the flowering of the region south of Houston Street in Manhattan came about because artists flocked to the lofts, setting the stage for all that came thereafter, including an explosion of Internet media firms.  SoHo came about because of government and institutional neglect:  it was a vacuum where poor creatives could do their thing and, in the process, they transformed the economy in ways that will endure after Wall Street has packed up and gone. See www.smartcommunities.org and item 75 in our Global Sites section.  The task is not to get wired but to create cultural flow throughout the community, dispersing our best everywhere.  Also see items 79 and 118 in our Big Ideas section.

195. Plastic Profits
Jack Harkness, formerly a GE quality engineer, and his wife Stephanie went into the plastics business in 1989.  In the process, they remade the company they bought, which is called Pacific Plastics & Engineering.  Besides redoing their production processes, they shifted the company’s market, moving from computer parts to medical equipment, which offered much better margins.  As importantly, their director of sales, Ratan Bajaj, has a brother in India who owns a high-tech plastic parts plant.  So they have moved small parts to India where costs are much lower, while higher price items are made in their Soquel, California location.  See Wall Street Journal, October 15, 2003, p.B2B.

194. The Info Executives Really Need
In 1995, Peter Drucker wrote an article for The Harvard Business Review (January-February) entitled “The Information Executives Truly Need.”  It was prescient.  “The greatest contribution of our data processing capacity so far has not even been to management; it has been to operations—for example, computer-assisted design or the marvelous software that architects now use to solve structural problems n the buildings they design.”  Drucker argues, however, that so much information is now available that impinges on wealth creation, ranging from productivity data to resource allocation, that the way we look at business processes has now been conceptually transformed.  Likewise, there is huge amount of data available about the markets in which we choose to operate.  The problem then is to get an integrated view of all the information to manage the business process, a difficult but attainable goal.  “They convert what were always seen as discrete techniques to be used in isolation and for separate purposes into one integrated information system.  The system then makes possible business diagnosis, business strategy, and business decisions.”  Drucker prefigures a world where silos (unintegrated information pipes) are a recipe for competitive disaster, since we now live in a world where every piece of information must influence every other piece if the mechanism is to work in even a modestly optimal way.  The trouble, of course, is that businesses have become reasonably successful at integrating information within their walls but have become further isolated from external streams of information.

193. If It's Not Simple, It's Not Creative
Even as they graft more and more complication onto their lives, restless Americans pine for a simpler, bucolic life of spare pleasures “far from the cry of the city where flowers pretty caress the stream.”  From an early age while still in the Henry Street settlements, the fast, immensely facile Irving Caesar, born on July 4, 1895 and enduring to the ripe old age of 101, penned a river of lines that included these words from “Tea for Two” as well as many other hit songs, several of which became classics that often celebrated the sweet life, flowers, and idyllic interlude.  Besides “Tea for Two,” he is renowned for “Swanee,” Al Jolson’s big song, “Is It True What They Say About Dixie?”, and “Sometimes I’m Happy.” 

When asked what comes first, the words or the music, he is reputed to have said, “What comes first is the contract!”  Obviously he got the basics right. 

Naturally he could not have been more urbane, more complex, or much more street smart (as opposed to country wise).  In this he is probably like a large swathe of Americans.  Market researchers would tell us that we may talk country and the simple life, but we buy the chaotic and the complex.  If anything, we run away from simplicity. 

That said, we will argue here that simplicity is more than unattainable phantasy.  We think it’s good for our health and peace of mind, and that its appeal on these shores is getting ever stronger.  In this horribly complex age, however, it’s not enough to live simple:  we are obliged to create simplicity in the same way that we are compelled to restore our environment.  Fortunately we can probably use simple technology to breed more simplicity, and we will find that it is good for all our pocketbooks.  It’s a moral and economic good that is not so easily imitated by the low cost economies of the Pacific Rim, since simplicity is so much harder to engineer than complexity.  As the web designer Par Almqvist said in his essay “Fragments of Time,” “a modern paradox is that it’s simpler to create complex interfaces because it’s so complex to simplify them.”  (Please follow this link to read the remainder.)

192. East West Bank
East West Bank(Nasdaq: EWBC) (www.eastwestbank.com) in Los Angeles made $50 million in profits in 2002 on a $3 billion asset base.  Its net profits were up 28%, driving its shares up 40%.  First of all, it has cashed in on strong ties to California’s million plus Chinese community.  Public since 1999, Dominic Ng, its chief executive, has taken it into a host of niche acquisitions that have sustained growth without sacrificing profits.  Its niches include trade loans, and it has opened an office in Beijing to make sure it further leverages its Chinese connections.  See Forbes, April 14, 2003, p. 114ff.  For small banks, the right strategy apparently is to dominate small niches; for large banks, such as Royal Bank of Scotland, profits appear to flow from managing several brands which often compete with one another.

191. Tulip World's Secret Weapon
In 1999 some exiles from Andersen Consulting in Amsterdam put together an online tulip company which has done enough clever things since to make a dent in the market.  One of the ways it has made headway in America, which really takes half of Holland’s exports, is to form partnerships with charity organizations (to include an anti-drug group and a Parkinson organization) whereby it moves some product and, importantly, gains names to add to its circulation base.  But the key magic ingredient in our eyes is that they captured as an advisor a top tulip expert, one Jacqueline van der Kloet, author of Magic with Bulbs.  Against Walmart and the like, TulipWorld can only prevail on quality, not price.  That’s where ven der Kloet’s eye and experience come into play.  See www.tulipworld.com.  Also look at Fast Company, May 2003, pp. 107-110.

190. Pop-Up Graves
A third of the way through the August 2003 House and Garden, one discovers a get-your-attention pop-up ad for the pavilions that Princeton architect Michael Graves has designed for Target and your back yard.  They look elegant and prove that everybody is determined to sell proletarian chic, not leaving the smart set playing field to Martha.  Who needs a shed when you can have a pavilion?  Once again, it is a very special graphic, not words, that says to a consumer that this may be something worth having:  thoughtful marketers will resort more and more to stylish graphics to bond to their audience, breaking through an over-messaged world by using fewer words.  For the fun of it, visit the architect’s website at www.michaelgraves.com, where you can find a large sampling of the projects and products designed by his firm.  On balance, probably the architecture is more interesting than the products, but both are fun to see.

189. Hooter Air
Hooters, the restaurant chain, opened its B737 airline with flights from Atlanta to Myrtle Beach, the home of the founder.  It has since added flights to New York and Washington.  All this is Hooters territory, and the airline becomes a useful marketing stunt to promote trade in the Hooter bars as well as a way for the boss to get home to Myrtle Beach.  This reminds us that in the good old days you got great Continental flights to Nantucket during vacation season, because then boss Frank Lorenzo summered there.  Combined with all Hooters’ tie-ins to sports, this is yet another interesting way to create a Hooters way of life.  See www.hootersair.com/about/advantages/.  Also See Economist, June 28 2003, p. 65.

188. Renewing Harvard
Lawrence Summers, Harvard’s president, promised at its last commencement to revamp the undergraduate educational experience.  “Of the first overhaul of the curriculum in 30 years, he said, ‘No organization, and certainly not one as creative as Harvard College, should ever go more than a generation without reassessment and renewal.’”  If the truth be known, it’s not clear that higher education, much less Harvard, is generally very creative. You don’t go to college to get creative.  But it is a sign of the times that every institution in our society is remaking itself in the wake of a dramatically changed environment.  For colleges this means better preparing our students to deal with a world that is ever more tightly knit together, meaning that we all have to be global citizens, whatever our provenance.  See The New York Times, June 6, 2003, p. A29.

187.  Better Learning Networks
In strategic alliances and other business associations, there is some question as to how tightly different business organizations should be linked together so that knowledge seeps over from one business to another, and so that the whole is greater than the sum of its parts.  The evidence from several quarters is that organizations that are too remote won’t learn much from each other.  That goes without saying.  The surprise is that very tight linkages don’t work well either:  groups that are too tightly knit together seem to become less than the sum of their parts as the combination produces stagnation in all the parts.  We refer you to a somewhat technical paper developed at the Santa Fe Institute in this regard, “Coupled Learning Networks,” at www.geog.ucsb.edu/~noah/noah_neil_coupled.pdf   The authors say that “complete coupling or very sparse coupling does not provide as many optimal outcomes as does an intermediate level of coupling.”

186.  Isn't It Nice When Things Just Work?
This statement says it all in one of the provocative ads authored by Honda in the United Kingdom.  “Cog” is a two minute television advertisement.  It putters along showing a bunch of parts that all just seem to work together.  You don’t quite know where the ad is headed, but it winds up with words suggesting Honda is the car with a simple virtue:  it actually works.  It’s estimated that millions have downloaded or seen the ad in the UK, so it has been hugely effective.  It has been much written about in the British media as well, which is all that one can pray for in an advertisement.  Increasingly we are moving towards advertising that is non-advertising, marketing that is non-marketing—the only kind of statements that can penetrate through the protective shield put up by a populace that is assaulted by too many messages that they largely perceive to be overstated and somewhat dishonest.  To see the this ad and eight other similar ones, go to the multimedia section of Honda at www.honda.co.uk/multimedia/index.html.

185.  Duke University Hospital
The public relations staff at Duke University was recently complimented by Forbes magazine for fleet-footed execution after the doctors at its hospital horribly botched a transplant, having put heart and lungs from a type A (blood) donor into Hispanic Jesica Santillan, who had type O blood.  Despite attempts afterwards  to get her compatible organs, she died a couple of weeks after the initial operation.  See Forbes, June 9, 2003, pp. 75-76.  Duke talked freely to national media such as Forbes and 60 Minutes, even though it apparently continued to stiff local North Carolina media as will most major institutions in the area   Net, net, Duke was able to position itself nationally as a caring institution that just needed to tighten up some of its procedures, even if it caused local citizens to wonder what’s what at the tobacco university. 

Forbes, however, really missed the big story.  People inside and outside the Duke community know that, on the one hand, Duke does worthy medical research in certain fields, but, on the other, that its patient care is full of holes on many counts.  For instance, the federal government just released a 70 page report on Duke Hospital based on March inspections made after the Santillan incident:  it details a host of problems and infractions at Duke.  Despite its deep problems with continuous care, Duke is able to sustain its image for excellence.  

Further, many can tell of long, painful, inexcusable waits exceeding an hour in the emergency room, internists in its health service who do not respond to patients under their care with truly worrisome problems, and hit-and-miss attention for even Duke VIPs and Duke medical personnel who would be expected to get goldplated treatment inside this health system.  

The public relations folks have been able to keep the glow on Duke Hospital through thick and thin.  Just a few years ago, Time magazine did a special report on Duke, suggesting that the hospital was a wunderkind.  As we remember, however, it took the Duke people a month or longer to get us the issue when we solicited a copy, stemming from the fact that this is a place where details fall through the cracks daily.

184.  Peeky Boom
Brazil’s small companies don’t export enough, their share of foreign sales having fallen from 35 to 30% since 1997.  Peeky is incorporated in the U.S. but it is really based in  Divinopolis, a textile hub in Brazil’s Minas Gerais state.  All the other players in  town make garments for the domestic market, but Peeky’s wares are entirely for export.  A big chunk of its revenues come from the U.S.  While in Richmond, Virginia to call on an importer, its president Luis Carlos Faria met another salesman who talked up the market for military dress uniforms.  Quickly he jumped on this opportunity and gave a jumpstart to his company.  Its success is all the more remarkable since the Brazilian government and Brazilian banks do not make it easy for small companies to surmount huge   bureaucratic obstacles they generate in order to get products from small companies into the global tradestream.  See the Wall Street Journal, May 1, 2003, p. A17.  Peeky’s website is at www.peeky.net/index.html.

183.  Going Upmarket
We’ve long said that the right strategy for many companies now is to go upmarket, leaving lower cost commodity offerings to other contenders.  This has proved all the more true during the recent “enduring recession.”  In this vein we recommend reading “Luxury for the Masses,” Harvard Business Review, April 2003, pp. 48-57.  While the thinking in this article is less than rigorous, it does make clear that the premium consumer demand may very well be there even in the toughest of times.  “America’s middle-market consumers are trading up to higher levels of quality and taste….  As a result, they are willing to pay premiums of 20% to 200% for the kinds of well-designed, well-engineered, and well-crafted goods—often possessing the artisinal touches of traditional luxury goods—not before found in the mass middle market.”  Reading between the lines, the authors are really saying there’s a market for let’s-pretend-but-not-quite-luxury goods, the stuff we know as knock-offs.  Our own research even shows interesting niches for the real thing—genuinely high-end goods.  But the point is that you can make a nickel providing something a lot better, particularly if you will contain your SG & E, using unusual channels of distribution to get the product in the hands of consumers.  Execution here is tricky, but the margins and the subsequent stabilization of one’s business realized in pushing up quality and the price point is a wonderfully satisfying strategy.

182.  The Treehouse Workshop
The Treehouse Workshop (www.treehouseworkshop.com) has built 40 treehouses for assorted clients, mostly in the “$40,000 to $60,000 range.”  Adults aplenty want yet another way to get away from it all, in their backyard, once again revealing that there are an endless array of luxury niche markets that will see the industrious through tough times.  The market has even spawned a new technology, named after the founder of the World Treehouse Conference, Michael Garnier, who holds this annual event each Columbus Day weekend.  Instead of pinning the treehouse to a tree, many now follow the thoughts of Charles Greenwood, a mechanical engineer who said the treehouse should be placed on steel bolts and cuffs.  This design is called the Garnier Limb.  See the New York Times, March 7, 2003, pp D1 and D7.  Those who don’t want to own a fancy tree house can rent a night in a tree at a number of locations cited in the Times article.  This micro-trend is just one more evidence of the migration of the affluent to a greener America.  The owners of The Treehouse Workshop have created an excellent website, cite a lot of the current literature on treehouses, and have written extensively about treehouses themselves.  Tasteful, knowledge-packed merchandising of boutique micro-businesses is a must for those wanting to turn a bright idea into a sustainable income stream.

182.  Ideas for Superstores
Some of the fizz has gone out of Forbes, with Malcolm gone, and Michaels no longer the editor.  But we occasionally see some of the old spark.  Talking about home improvement stores, current editor William Baldwin dreams of some very doable tricks that would make shopping a whole lot easier.  He thinks these stores need to adopt some of the customer friendly finesse found on Amazon’s Internet site.  He dreams of a speech recognition box at the front of the store to which you could shout “nails,”  whereupon a computer would bark out the correct aisle to find them.  Maybe, too, you could brush a nail gun under a scanner in order to easily learn how to use it or to compare it to other guns to see if you have the one that fits your requirements.  And so on.  In his column (Forbes, January 30, 2003, p.16), Baldwin clearly grasps by implication that shopping in megastores, whether discounters or Sam’s or Best Buy, is not a customer friendly experience, but that a little imagination could make us a lot happier about our visits there.  Is this why we wind up buying half as much as we did 10 years ago in the cavernous stores that have narrowed their merchandise selection, lengthened their checkout lines, and actually cheapened the quality of their product offerings?

181.  UPS Aeronautics
You thought UPS was a package transportation company.  But because of its extensive air operations, it has a unit called UPS Aviation Technologies, which has designed a system called ADS-B allowing planes to transmit their location and speed to each other.  When implemented (it is now being tested), it will permit planes to fly much closer to each other even during low visibility and will make them very much less dependent on nerve-wracked ground controllers.  With closer spaced planes, UPS expects to gain 20% more capacity in its system in a few years, which will permit it to hold down capital expenditures while expanding throughput.  See Forbes, February 3, 2003, pp. 74-76.

180.  Land's End Made-to-Order
Land’s End, now part of Sears Roebuck, is interesting in so many ways.  Over the last several years, it has had all sort of profitability problems and has turned over a bunch of CEOs.  But that has not prevented it from doing a raft of interesting things.  Sears, almost the father of cataloging, had gone out of the catalog business years ago, and it took Land’s End to put it back in the business bigtime.  Sears is also putting Land’s End clothing right into its stores.  And then, as Bob Tedeschi has noted more than once in The New York Times (see November 5, 2001, p.C7 and September 30,2002, p.C7),  it has stolen to the head of the pack in offering semi-custom clothing online.   About 10% of its chinos and jeans are now sold online, with 40% of these sort of custom made.  Users type in a few measurements plus some comments about body shape at the  Land’s End’s website; software translates these numbers into specifications, which are shipped off to Central America for manufacturing.  Two to three weeks later customers get their clothing.  Levi Strauss, Nike, and Bob’s Stores are other clothiers experimenting with customization.  Archetype Solutions (www.archetypesolutions.com) has been a leader in devising the programs and other steps necessary to implement made-to-order clothing.  Blake Ives, the Director of the IS Research Center at the University of Houston, had done a business case on this Land’s End initiative which is worth investigating:   www.blakeives.com

Lest you think that digital customization is just for the mass market, you should realize, too, that Brooks Brothers has adopted scanning techniques and put them to work in the store to produce a better fit.  Behind all this lies a consortium in Cary, North Carolina called the Textile/Clothing Technology Corporation (see www.tc2.com) with which Levis, Land’s End, Brooks, etc. have been involved.  Started in 198l with 13 members, it has since achieved a wide industry membership and its ideas are spreading to other countries.  ASAP, the tech magazine Forbes put out at the height of the dotcom boom, devoted a particularly fine issue (April 5, 1999) to textiles and technology, covering this trend with care and panache.   

As we have said in our Global Province newsletter, it has become imperative for all sorts of companies to move past mass-manufacturing practices in this post-industrial era where market after market has stalled and price competition has become a lose-lose strategy for all but the largest companies in any one marketplace.  In this vein, the swift are moving toward “A Mass Market of  One,” according to Business Week, December 2, 2002, pp. 68-72.  Proctor & Gamble now has a reflect.com site where shoppers can design their own moisturizer or makeup.  Branches Hockey (www.brancheshockey.com) in Wisconsin offers 26 hockey stick design options to players, cranking out the sticks in 5 days and charging a premium of 39% for the custom sticks.   More and more, consumers can get things their way, even if we are talking about products much more complex than skim lattes.  As we have said, when markets get stagnant, it’s time to go upmarket.  For more on this, see Letters from the Global Province, 18 September 2002.

179.  Hard Data Plus Soap
Reed Elsevier is churning out sales, profits, and stock price at a good rate, and doing well on the Internet to boot.  “Of its $8 billion in likely sales this year (2002), $1.5 billion will come from online delivery of data, and its operating margin on the Internet is a fabulous 22%.”  “Credit this accomplishment to two things:  One is that Reed is primarily selling not advertising or entertainment but the dry data used by lawyers, doctors, nurses, scientists and teachers.  The other is its newfound marketing hustle: Its chief executive since 1999 is Crispin Davis, formerly a soap salesman.”  See Forbes, November 11, 2002, pp. 130-134.  One wonders whether papermaker Mead would like to recapture the Lexis/Nexis assets it sold off to Elsevier which provide more leverage than you will find in the paper business.  Davis has upgraded asset quality even as he has taken about a half billion of costs out of operations.

178.  Hennes & Mauritz
We have constantly said that you can get a better idea of what is happening next at the cash register by looking at retailers (particularly clothing firms) and food chains outside the United States.  Hennes & Mauritz, a Swedish chain, is growing like topsy, with $1 billion in the bank and a $15 billion market capitalization.  The prices are low; the clothes are trendy.  Everything is designed in house and then put together in low wage countries, three weeks from design to shop floor.  It’s showing 70% of the profits of Gap on less than 50% of Gap’s sales.  See Business Week, November 11, 2002, pp. 106-110.  Website:  www.hm.com/us/start/start/index.jsp.

177.  Yellow Tail Is a Tiger
Yellow Tail, an average wine from Australia, is selling great guns, and its owners think  it will have moved 2 million cases in the U.S. by the end of 2002.  Its formula:  great design, pricing just above the commodity wines at $6 or $7, and a distribution deal with importer W.J. Deutsch & Sons, where Deutsch gets a 50% equity stake.  Don’t rush out to buy it, but just remember to copy its distribution tactics if you enter the alcoholic beverage market, where distribution is everything.  See www.yellowtailwine.com (as of 1/15/03 the site wasn't working, however) . See Forbes, December 9, 2002, p. 66.

176.  Fair, Isaac & Co.
San Rafael, California’s Fair, Isaac & Co. ( NYSE:FIC) has mined databases to help retailers understandd how safe a risk you are for car loans, mortgages, whatever.  Now, too, it is helping them do a consumer profile of you so that merchants can precisely target their pitches at you.  100 Ph.D.s strong, this firm is able to manipulate electronic data to understand what to sell you, how to sell it, and whether you will pay your bill.  It’s not clear that this is a desirable use of private data, but it is a fact of life that is driving consumer practices. See www.fairisaac.com.  The economics of dealing with retail populations dictates that sellers mathematically characterize buying habits and credit worthiness.

175.  Cafe de Coral
Yet another chain restaurant operator overseas promises to give American fast food and casual dining chains a terrific run for their money.  Michael Chan, chairman of Cafe de Coral of Hong Kong, the world’s biggest chain of Chinese fast-food  restaurants, plans to push aside hamburgers and pizza the world over.  And fast-moving Jollibee in the Phillippines, previously cited on Agile Companies, has now started Chowking, its own Chinese food entry.  See Economist, December 7, 2002, p. 63.   Also, www.cafedecoral.com.

174.  A Wake-Up Call
Select Comfort Corporation (NASDAQ:SCSS), a maker of mattresses in Minneapolis, was tied up in knots and rapidly running out of cash in 2001 when Bill McLaughlin rode into town and pulled off a rescue as its new CEO.  It was opening stores at a mad pace, while still using up much of its ad budget on direct marketing tactics.  Sitting around on the shelf was a great idea that had never seen the light of day; it spoke to everybody, not just back pain sufferers. In 1997 an ad agency had come up with “Sleep Numbers,” a system by which buyers picked firmness ratings from 1 to 100 that best matched their own sleeping preferences.  Chairman Bill latched onto this idea when he heard it, putting  it at the core of his selling message.  Sales are up 27% in the first nine months of 2002.  See Jeff Bailey’s story on Select Comfort in the Wall Street Journal, October 29, 2002, p.B9 and at www.selectcomfort.com/general/sitemap.cfm.

173.  Healthy Health Providers
Hospitals, health plans, and  a bunch of insurance companies continue to stumble.  But United Health Group (NYSE:UNH; www.unitedhealthgroup.com) manages to turn in amazing results and a rousing stock price. At $25 billion now, it has grown like topsy turvy through acquisitions under Dr. William W. McGuire, its CEO since 1991.  Unusually it has turned in big earnings gains, while often providing services now available at competitors.  “Unlike rivals, most United Health patients have long been able to see specialists without first going through primary-care physicians.”  He has seen to it that “experimental therapies for breast cancer were covered.”  The neat trick he has pulled off:  high growth, high profits, some innovative care procedures, and rather high regard from many healthcare policymakers as well as healthcare buyers at corporations.  See Business Week, November 4, 2002, pp. 120-121.

172.  Global Dining
Just in case you think the beleaguered Japanese have lost the race in the world economy burdened by a Liberal Democratic Party oligarchy that refuses to change, take a peek at Global Dining, the brainchild of Kozo Hasegawa, who is determined to adventure down a different path.  And there are more like him in other sectors of the economy, very much determined to win.  His funky, reasonably priced restaurants with worldly menus and sometimes disco dancing include, for instance, the very trendy Gonpachi based in Tokyo’s liveliest evening real estate.  More importantly, says the Economist, Hasegawa has shaken up Japan’s employment practices, with employees getting a raise only if they pass muster with their fellow workers and management slots only going to high-performers who turn in ever increasing sales.  Not unlike the West, where employees run out the door with their riches when a company has its IPO, he lost a bunch of people when the company went public in 1999.  Even with his share price down and his need to find new talent, he has opened a couple of restaurants in California to see if he can take his show on the road.  We would expect him to have some success invading the mid-priced casual dining segment in America, which has not been innovative enough to shield itself from foreign competition.  See http://www.global-dining.com/global/index.html.  Also see The Economist, October 28,2002, pp. 61-62.

171.  Central American Chicken
Founded in 197l in Guatemala and El  Salvador by Dionisio Gutierrez, Pollo Campero now has 73 locations in Guatemala, with a 100 more in Central America and Ecuador.  Just as we bring tamales back from Texas, now Central Americans living in the USA lug home vast care packages of chicken they are returning from visiting Central America, the fragrance wafting through airplanes headed to the States.  In April 2002 the first USA store opened up in Los Angeles at Olympic and Union, and it has been a resounding success.  More are opening in the Los Angeles area, with Houston, Washington, Chicago, and Long Island on the way.  Poland, Portugal, and Spain are slated first in Europe.  As we have noted before, developing countries are having particular export success in bringing their restaurant concepts to the developed world, particularly the United States, filling a taste gap that homogenized, mass-market chains do not satisfy.  Its management is not asleep at the switch about profitability either, some studies showing a 33% price rise in Latin America from 1995 to 1999.  Look at its very hip, very live website at www.campero.com.  And read the New York Times article  that discusses its growth,  “Guatemala Journal; Fried Chicken Takes Flight, Happily Nesting in U.S.,” September 20, 2002, p. A4.

170.  Almost FedEx
Federal Express has always been a company of very bright ideas, but it sometimes comes up short and ponderous on execution.  Lately it has gotten into the ground package business like its arch-competitor UPS.  Lo and behold, this is its growth business, now showing a 30% growth rate.  Its air express business is a little flat, so it needed to find a place to put some spring in its step.  For the fun of it, we thought we would give its ground service a try, having seen its trucks around and always wanting to support the company.  The good part:  unlike UPS, it will accept a credit card for ground shipments.  The bad part:  we would have to go many miles to deposit our packages, there being a lack of convenient drop off points, and you have to be a major shipper to merit a pick-up from Federal.  Even packaging services that handled some of the trucking companies Fed Ex has bought no longer do business with it, so you have to find an out of the way Federal Express depot.  We didn’t, and it did not get us as a customer.  We remember that Fed Ex failed in another initiative, an excellent service it offered before email came along.  Way back when you could take documents to its office for faxing to distant cities whereupon the faxed documents would be speedily and securely trucked to the recipient.  But Fed Ex marketing could not produce sufficient volume to keep it going.  We’re hoping that this almost-agile company does not lose momentum on its ground floor initiative where something better than UPS would be useful.  See “Fed Ex Has Hit the Ground Running, but Will Its Legs Tire?,” New York Times, October 13, 2002,  p. BU7.

169.  D’Artagnan Survives the Deathblow
D’Artagnan, the Fourth Musketeer, had to brave several dangers for king and France.  But D’Artagnan of New York and New Jersey also faced down a challenge that almost amounted to a deathblow.  Founded by two Columbia University classmates—Ariane Daguin of Gascony and George Faison of Houston—it is a purveyor of pates, specialty meats, and the like, today consisting of 85 employees and revenues in excess of $30 million.  Its midtown restaurant of the same name has attracted quite a following in its own right and features many of the products offered by the parent company.  But in December 1999 its owners received a call from the Center for Disease Control in Atlanta which had traced an outbreak of listeria to D’Artagnan’s products.  Immediately they pulled $1 million of product from retailers’ shelves.  Temporarily they were out of the prepared-foods business, placing them at bankruptcy’s door.  But chefs and shops stuck with them, continuing to buy their rabbit, lamb, quail, etc.  Surely it can be said they survived because they acted quickly and responsibly on the product recall, enhancing their reputation, and because they had previously established such a good relationship with their clientele that their sales did not dry up completely. See Columbia, Fall 2002, pp. 49-51.  D’Artagnan, 152 East 46th Street, New York, NY 10017. Telephone:  (212) 687-0300.   Webiste:  www.dartagnan.com.  280 Wilson Avenue, Newark, NJ 07205.  Telephone:  (800) 327-8246.

168.  Flying Upwind
Lest you think every airline is trying to be a Southwest or JetBlue (NASDAQ:JBLU; www.jetblue.com), you should read about Bangkok Airways (www.bangkokair.com), which splurges on passengers and has more than quadrupled its customers in the last decade, with profits up to $2.7 million in 2001.  (See the Economist, September 7, 2002, P. 58.)  It has focused on tourists, not Thais, and its route structure avoids the hub cities of the majors in order to get passengers directly to their favored destinations.  Even its terminals are pleasant places to roost, with good views and lots of comforts.  This airline is heading successfully into the winds, offering more, not less. 

167.  Lam's Tale
Barry Lam,  the king of the laptops, is now leading his Quanta Computer (TAIWAN: 2382.TW; www.quantatw.com) into other pastures.  He designs and makes notebooks for everybody under the sun, such as Dell and the other PC brand companies we all know so well.  Now, with margins compressing, he is moving onto storage and wireless devices.  And he plans to top that off by entering the artificial intelligence area.  At the same time he has been busy moving production away from Taiwan into China proper.  See Economist, July 13, 2002, p.58.

166. The It Ladies
Remember the great actress Clara Bow who was called The It Girl?  Apparently a host of high-potential women managers need more “it.”  “A growing mound of research shows that female execs trounce men in nearly every area of performance.  But many lack ‘executive presence.”  See Business Week, July 22, 2002, p. 88.  Apparently, Business Week claims, a host of achieving women suffer from low confidence and this communicates itself in a lack of presence.  We can speculate as to whether companies are systematically passing over great talent because they lack an effective way to make very competent women strut their stuff.

165. Sigma Service
“Six Sigma, the quality control and cost-cutting power tool, is proving its worth on the service side.”  Business Week, July 22, 2002, pp 72-73.  Apparently Sigma Six techniques, long applied to manufacturing operations, are moving into the back office and are taking hold, importantly, at service-intensive companies.  This has always been the question with quality forays:  are we applying the techniques to the right problem? Increasingly service is becoming the profit generator and the marketing differentiator in business, but our most intense quality efforts have been focused on manufacturing problems.  It is in all the service areas—from sales to back office to delivery—where we can net considerably more revenue and vastly larger margins through intense quality upgrades.

164.  Killed by the Data Hogs
Killian’s, which has the look of an Irish brew and does not taste too bad, comes from Coors in Colorado.  Recently its marketing geniuses snatched defeat from the jaws of victory.  If you look at the Killian’s bottle, you will see that they announce a contest at www.killians.com where you have a chance to win a little.  Out of curiosity, we went to the site.  It was difficult to get into, and then you learn that it is more of a tool to collect data on you as a customer, than a joyous, fun game to make you into a customer.  When you get there, you will see a little blank window.  Insert your birthdate or some birthdate there, or you won’t even get started.  What a great idea, gone astray.  A great use of the print label on the bottle and a great tie to the Internet.

163.  Tsutaya, the Real Blockbuster
“Few companies practice end-to-end management of the customer experience better than Tsutaya [www.tsutaya.co.jp/index.zhtml], Japan’s largest video, book, and CD chain.”  “As founder Muneaka Masuda remarked, ‘This is not a video franchising company.  It’s a planning company.  We deal in lifestyle information.’” Its technology and two-way flow of information with each customer “helps Tsutaya enhance its offerings through personalized product recommendations and automatic content marketing.  Tsutaya’s ultimate goal:  an individualized media store for every customer.”  See “Customers Are Disappearing,” Across the Board, July/August 2002, pp.6l-63.  This is one of several articles that explains how customer relationship management programs have not worked out that well, including the vaunted loyalty programs, and shows how cookie-cutter plans have to be customized both to produce lasting customers and enduring profits.

162.  Selling and Buying Shares
All politics is local.  And, despite the age of global brands, all selling is pretty local, too.  This comes up when you look at what investors care about in evaluating the shares of publicly held companies.  “Free cash flow,”  even if the concept becomes a bit obsolete in a revenue short world, is the number one thing institutional investors flock to all about the world.  Instead of “where’s the beef?” they ask “where’s the cash?”  In Europe, we learn, money managers care a lot about “market leadership,” while Americans dwell on company strategy.  An awful lot of people pay attention to executive compensation—is it in line, is it tied to performance, and, by the way, is management dumping the stock as soon as it can?  In Asia, where transparency is still not all it should be, we find that some special local indicators are flags for stock success.  In South Korea, you watch which companies did worst over the last six months, since things traditionally pick up thereafter, often because of government bailouts.  In China and the Phillipines, you watch current ratios, with current debt or the lack of it acting as a sign of where companies are headed.  In Taiwan, high R&D ratios to sales seem to point to companies that will do well.  See “Of Pigs and Pokes,” Economist, March 14, 1998, p. 69 and “Throw Out the Rulebook”  Economist, May 16, 2001, p. 74.  The biggest lesson here, both for those buying and those peddling shares, is that even with an implied global financial system, equity wears different clothing in different markets, and you should see to it that a company’s dress for dinner is appropriate to the market where it lives.

161.  Account Executive Training
We have long said that the difference between small service businesses and big service businesses is account management.  If you get it right, you can grow big.  If you don’t, you are doomed to wither.  But how do you get good account executives?  We refer you to the menu of Bern’s Steak House in Tampa, Florida where we spent a long evening.  It says:  “Our waiters train one year with us, working at almost every station in the restaurant, workshops, and on the farm, and then train for another 8 to 12 weeks in the dining rooms before they wait on you by themselves.  And then still wear red jackets for perhaps a year before we feel that they are fully knowledgeable to answer your every single question properly.”  In other words, you groom good account executives by making candidates work at every job in your company.  We cannot wait to get back to Bern's for some more management education.  If our memory serves us rightly, the family started out in Brooklyn and moved south, not unlike Howard Schultz of Starbuck’s, who moved West.  Probably all the impresarios of the big restaurants and chains should come from Brooklyn.  That’s the other big question in service:  where do you find the leadership?  If you can combine leadership with account executives, you will be on a roll. 

160.  Stick to Buggy Whips
Lee Enterprises (www.lee.net; NYSE: LEE) out in Davenport, Iowa is doing just fine, thank you, by sticking to its knitting.  Operating profits are slated to rise 31% this year, and its stock is up nicely, even as some of its larger media competitors have hit the skids. 

The secret:  narrow-minded.  CEO Mary E. Junck has dumped its l6 TV stations and gotten ever deeper into midsize newspapers, now owing 45 in 18 states.  Like many small town papers, hers totally penetrate their markets.  Incidentally, we have previously commented on the titleholder for newspaper penetration, the Daily Record of Dunn, North Carolina (see item 122 on Agile Companies) which has achieved 112% saturation in its market, proving that there is gold to be had in Middletown USA.  What a contrast to AOL Time Warner, which owns a lot of everything and has been sinking since the pockmarked AOL came into the fold.  See Business Week, July 1, 2002, pp. 94-95.

159.  Kiss of Death
Remember how we all keep preaching that you should keep it simple, stupid?  That may be stupid for there are now ample signs that we need to apply complexity, chaos, and game theory to business problems not solved by traditional recipes.  In other words, the swift will eventually have to get on top of the complex, since complex systems that are not functioning are now baked into our global environment.  BiosGroup, put together by Stuart Kauffmann, cofounder of the Santa Fe Institute, tries to put complexity theory to work on the problems of our overly complex systems (www.biosgroup.com), having tackled supply chain, risk management, and strategy chores for Fortune 500 companies and the like.  We particularly recommend that you look at the case histories provided in the company description area of its website.

158.  Real-Time JetBlue
Because it has taken the paper out of its operations and put integrated computers in, JetBlue (NASDAQ:JBLU; www.jetblue.com) has, from the start, had lower costs than its rivals, while still offering the traveler perks usually unavailable on economy airlines such as leather seats, TV, and the like.  Its 78% load factor and its 6.98 cents cost per seat mile have made it profitable even as other airlines struggle to avoid bankruptcy.  A smattering of this story can be found in CIO magazine, July 1, 2002, pp. 72-78.  Pilots can do a lot of their own paperless paperwork in order to clear airports in record time, tapping into the portable computers with which they are each equipped.  Passengers can get real-time information on the status of flights, while electronic bag-tagging and other devices reduce their check-in times at the gates.  While we have not studied JetBlue operations, we have only spotted one Achilles heel so far:  the airline has standardized around the Airbus A320, which we suspect has some long-range pitfalls.

157.  Limbering Up GlaxoSmithKline
Drug company after drug company has been floundering when blockbuster drugs go off patent and generic drugs gut their revenue growth.  The Economist (March 23, 2002, p. 62) thinks Jean-Pierre Garnier of Glaxo may have some unconventional answers.  GSK has “led the way in discount pricing for the poor—in America and Africa alike—and voluntary licensing of its patents.”  As importantly, he has broken up R&D into six research centers, each focused on a clinical area, with future funding levels of each center dependent on results, the lab generating the most high impact drugs getting the biggest share of the research pie.

156.  Phoenix in the Ashes
It’s hard to make money in education, especially over the Internet.  And yet a few plough ahead, making a nickel and slowly changing the face of education.  None more than the University of Phoenix, run by the Apollo Group (NASDAQ:APOL, www.apollogrp.com), which in 2001 made $108 million on $770 million in revenues.  “Its distance-learning division, with 37,600 students … thrived through” the dotcom crash.  It has made a billionaire out of its founder John Sperling.  See Economist, June 8, 2002, p. 64.

155.  Marines Get There First
Several journals tell us that the marines have a lead on next-generation strategy, working to make themselves into the most agile, speedily deployed forces available.  Now we read they are redoing their supply chains to make sure their logistics keep up with their troops.  Beholden to 207 technology systems, they cut 20% of them last year.  Their goal is 24 hour delivery, inventory savings of $200 million, and the freeing up of 2,000 marines now working in supply for service on the battlefield.  See Business Week, December 24, 2001, p. 74.

154. The Red Bull
We normally don't associate Austria with global branding or agile management.  But Dietrich Mateschitz has pulled it off with his Red Bull, now a $1.3 billion energy drink company whose market some of the American beverage giants are now trying to invade.  "What Red Bull showed,” according to Nancy Koehn, a historian of brands at the Harvard Business School, “is that mass-market advertising was not the most effective way to reach and keep customers."  "Instead Mr. Mateschitz launched the brand by persuading students to drive around in Minis and Beetles with a Red Bull strapped on top...."  Incidentally, he discovered the drink in Bangkok when he was out there with Bendax, a German toothpaste company that is now part of P & G.  P & G should have gotten the drink instead.  See Economist, May 11, 2002, p. 62.  Also look at Red Bull's tantalizing, humorous, and frustrating website at www.redbull.com/home_intro.html.

153.  Peripheral Vision
Richard Reis, a science and engineering administrator out at Stanford, gives sensible advice (http://nextwave.sciencemag.org/cgi/content/full/2002/01/30/9) to any careerist who wants to get his head out of the weeds and be truly useful.  “If I could pass on one piece of advice to beginning scientists it would be this:  Don't be afraid to take on tasks that are not part of your official job description even if, at least initially, it appears you won’t get credit for the effort … if you don’t develop peripheral vision you may miss important opportunities....”  Despite what all the textbooks say to us about focus, you need to get distracted now and then.  Reis has written a book on how academia works and how to function in it called Tomorrow's Professor:  Preparing for Academic Careers in Science And Engineering.

152.  Donut Stories
Dr. Steve Martin has been appointed Dean of the Learning Institute at Krispy Kreme Doughnuts Inc. (NYSE:KKD; www.krispykreme.com) of Winston-Salem, North Carolina.  Of course, McDonald’s has its Hamburger Universtiy, and several service organizations have intensive training operations which are intrinsic to their success.  What’s notable here is that Krispy is still a relatively small organization which only began to take off a few short years ago, and yet it finds a formal learning program to be vital in its accelerated development.  In talking about learning initiatives at Krispy, Martin says, “Other  companies use language that comes out of finance or management or organizational theory or psychology.  At Krispy Kreme, we use the language that comes out of myth, the stories and legends that survive over time because they teach us what it means to be alive.  This is absolutely unique and and it works!”  And this is how Krispy has made more than one hole in one.  See Krispy Kreme Release, 27 March 2002.

151.  Training Equals Stock Price
Using a database of the American Society for Training and Development, sundry researchers have found that companies with high training expenditures (the highest 20%) earned an average of 16.2 percent, annualized, in the five years leading up to 2001.  Companies in the bottom 20% had much lower returns.  Of course, this performance is based on a five-year period and may not hold up over the long term.  See the New York Times, March 31, 2002, p. 6.

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