Mickey Mouse Vs. the Name-Change Firms
Everybody does a name change, without a lot to show for it. But smart
companies use mascots for their identification, since it has long been
proven that people don’t remember your name, your tag line, or what you do.
Animals will work for you. The Wall Street Journal (April 9,
2002, P. B12) notes that “Mascots Are Getting Bigger Role in Corporate
Advertising Plans.” It’s simple: mascots are memorable.
Big and Agile
fate in enterprise is to sacrifice both quality and speed as we strive for
scale and low cost. The incredible thing about America’s creation of the
transcontinental railroad is that it captured, almost for the first time,
gigantic scale mixed with get-it-done agility. This is well chronicled in
Nothing Like It in the World, which shows how a nation spliced its
continent together with swashbuckling finance, daring engineering,
singularity of purpose, imported labor, and President Lincoln’s support.
Lincoln, in fact, backed and more or less headed the two great enterprises
of the third quarter of the nineteenth century—the Civil War and the Pacific
Railroad. They made the nation, for sure, one nation, and they together
created the basis for its vast industrial strength which was the capacity to
direct large enterprise. Quoting the great Western historian Hubert Howe
Bancroft, Ambrose captures the global meaning of all this: it was “the most
stupendous work that men had ever conceived, and one of the most
far-reaching in its results” (p. 248). Ambrose would have penned an even
stronger book if he had simultaneously discussed the war enterprise and how
the two together remade America and the world. Nonetheless, he clearly
understands the contribution that generals and soldiers alike made directly
and indirectly to the railroad. Simultaneously, we had a war that
knitted together North and South, and a railroad that bridged East and West.
Remember, too, the part railroads played in the Wars of unification that
created one Germany circa 1870.
Sidney Karman runs a very successful company, Harman International, by
unusual methods. His factory in Suzhou, China "provides air-conditioning,
showers, English tuition and monthly parties at which workers can mingle
with managers." "Programmes at his California plants in the mid-1990s
placed surplus workers in spun-off businesses, including one that made
clocks from waste wood." Simple and sweet, he goes an extra mile for his
workers, and it is the successful management of one's workforce that Drucker
and others find to be what will separate the cats from the dogs in the years
to come. See the Economist, March 16, 2002, p. 68.
Matsui Securities, Japan's leading online broker, bursts with new profits
(pre-tax up 51%) even as everybody else tumbles. An 84-year old firm, it
owes its prosperity to its current president Michio Matsui, who closed all
branch offices and did away with its sales force of 70. His so-called
"box-rate" commissions let customers trade an awesome amount of securities a
day for a fixed rate that brings droves of traders to his doors. See
the Economist, March 2, 2002, p. 71.
the Philippines, they said it couldn't be done. You cannot take on
McDonald's. But Tony Tan's Jollibee chain did and now it is the market
leader there, having tailored the food to fit local tastes. Now he is
invading other parts of Asia, as well as California, with one store recently
spotted in San Francisco's Mission District, on the other side of Market.
This is yet one more piece of evidence of just how vulnerable all the major
retail chains are, cursed by devastating employee recruitment and training
problems, as well as over-dependence on old-fashioned marketing, and a
product where someone is asking, "Where is the beef?" See the Economist,
March 2, 2002, p. 62.
Williams-Sonoma Goes Down Market
Williams-Sonoma has launched a new catalog unit called West Elm. "The new
brand aims for consumers with household incomes ranging down to $50,000,
making it a head-to-head competitor with the likes of Crate & Barrel, Pier I
and even discounter Target.” What we are seeing in several industries is an
effort by boutique brands to penetrate every income category. This is a
difficult strategy. See USA Today, March 26, 2002, p. 3B.
The Shortest Distance Between Two Points...
Robert L. Crandall, former head of American Airlines, now admits we
may be at the end of the hub-and-spoke system that all our money-losing
trunk airlines slavishly follow. We just got caught on a 7-hour
layover in Dallas because of this dumb way of doing business.
Southwest and Jet Blue, flying point-to-point, are running rings around the
majors. Isn't it odd, just as businesspeople are old and and
experienced enough to actually know something, we put them out to pasture?
Crandall, in retirement, is coming to a realization that eluded him as chief
executive. See the New York Times, March 24, 2002, p. BU2.
143. Goldman Goes East Again
Goldman Sachs (www.gs.com) is
putting up to $1 billion in private equity in Asia, even as other financial
institutions are pulling back. It will steer clear of tech
investments, putting its bets on restructuring in financial services,
industry, and consumer goods. See the Wall Street Journal,
March 12, 2002, p. C16. Goldman, like many firms, is of two minds on
Asia, with large parts of its leadership considering investment there to be
more trouble than it's worth, and a few stalwarts seeing a pot of gold at
the end of the rainbow.
Renovation of State and Defense
We've already heard that Rumsfeld is trying to drag the Armed
Forces into the 21st century, hoping to ditch antiquated doctrine and
irrelevant weapons systems. But Colin Powell is up to a few things,
too. For instance, he's hired an ad lady--Charlotte Beers, formerly of
Ogilvy and J. Walter Thompson--to sell the world on America. She's
called undersecretary of state for public diplomacy and public affairs.
Product marketing experience usually does not mix well with reputation
management, Ms. Beers' new task. Yet it's probably a positive that the
role encompasses more than the old Voice of America machine. See the
Economist, February 23, 2002, p. 20.
Big Mac in Russia
An amusing op-ed piece by Bill Keller of the New York Times
(February 23, 2002, p. A31) makes several serious points about McDonald's (NYSE:MCT;
www.mcdonalds.com) and Russia.
First off, McDonald's is succeeding in Russia even if it is currently
bombing as a company in the U.S. Its Moscow Pushkin Square outlet is
the busiest in the world, outstripping, apparently, the Ginza store that
used to be McDonald's leader. When it opened, only 25% of the
ingredients came from Russia; now Russian suppliers provide 75% of its
purchases, proof of the advance of the Russian economy. McDonald's in
Russia now even exports some foodstuffs to Europe.
Flexible Car Factories
Car factories are becoming smaller and more agile, with much less down-time
when switching to a totally different model. In some situations, the
auto giants are outsourcing the production of the whole car to an
independent supplier. All of this is an outgrowth of the end of the
mass product, with a proliferation of models and options mixed with
relatively short production runs -- a consequence of flatened demand in
declining world markets. See "Car Manufacturing," Economist,
February 23, 2002, pp. 71-73.
Bowen and Headley's
Every year these fellows ride the airlines and give us tips on how
they're all measuring up. Even the best (Southwest) has slipped now
and again on baggage handling and on-time performance, pointing to future
product problems. These are the 2001 ratings. Amidst all the
airline turmoil, this also shows you who is pandering pretty well.
Winner Takes All
The New York Rangers once again are turning in a lousy hockey
season, even with a new general manager and coach. They're vying for
7th place. Yet theirs is the most valuable franchise in hockey, as
ranked by Forbes (January 4, 2002, p. 62). It's not that
winning hurts (the value of the Colorado Avalanche team has soared), but
that at the end of the day, the size of your market is more important than
Joyce de Ginatta just can't stop succeeding. As a young
bride in Ecuador, she took over her husband's steel importing enterprise and
made a go of things in a culture that did not tolerate bright,
entrepreneurial ladies. Two years ago she pushed Ecuador's leaders to
abandon the sucre and run the economy on dollars--an outrageous
success. This move pulled the country out of crisis. "In
2001, the growth rate shot up 5.4%, the highest in Latin America, and
inflation dropped to 22 percent from 91 percent the year before." See
The New York Times, February 2, 2002, p. A4. She thinks the
dollar would turn around Argentina, too. "They will do it when they
see how stupid they have been." See also
Minor-League Enron: Duke Energy
Duke (NYSE:DUK) is trying a little bit of
Enron's trading stuff, but it has
held onto solid underlying assets. Always helped by a rather favorable
regulatory climate in its home state of North Carolina, whose consumers
really have to pay up, Duke still has to streamline. It has put gas
and electricity together and has a willingness to sell assets, buy on the
open market, and do whatever else will give it some hefty spreads. See
Forbes, January 21, 2002, p. 53.
Pfizer's Consumer Ads
In 1993, Pfizer spent zero
dollars on consumer ads but ploughed about $400 million into drug
advertisements in 2001. The fastest-moving of the drug giants, Pfizer
has turned a pure research business into a marketing business. See
Advertising Age, December 10, 2001, pp. 54 and 56.
Heartland Express grinds out profits that run 12% to 13% of
revenue, "while most truck companies make do with 3% to 7%." It has no
debt, lots of cash, and trucks that average 18 months old. Russell Gerdin,
who owns 52.6%, runs it fingers-and-hands-on. With computer
print-outs, he makes sure the company only picks up short-haul loads that
make sense. In other words, he cherry picks the profit-makers. His
25 big clients account for 68% of revenue. See the Wall Street
Journal, November 27, 2001, B4.
Shaking up hospitals! The leader must be a small,
out-of-the-way leader somewhere in Utah. Wrong! The U.S.
government, in the shape of the Veteran's Health Administration, has made
computers sing and the organization swing in order to deliver better
healthcare at less cost. What happened is that Dr. Kenneth W. Kizer
somehow got to the top and shook up the place. He eliminated 55% of
the hospital beds (they were unneeded excess) and opened 300 clinics. He has spent
several hundred million dollars wiring the whole organization with seamless
computing. With barcoding, medication errors have been reduced by 70%.
Naturally Congress, pressure groups, and lobbyists have run Kizer off the
reservation, but his handiwork lives on. It is uncanny how many good
things -- 21st-century hospitals, records administration, the Internet, etc.
-- get invented by government in spite of itself. See Wall Street
Journal, December 10, 2001, pp. A1 and A10.
Jospeh Luter rescued
Smithfield Foods, a family company, after a conglomerate nearly ran it
into the ground. The $6 billion company now accounts for 20% of
domestic pork processing. It is the leader in pork, 4th in beef.
With 17 acquisitions, some imported high-quality British sows, and intense
branding efforts, he has gained monopoly status in the industry, albeit with
paper-thin profit margins. With pork consumption flat, and beef sales
declining, he is a classic consolidator. See Economist,
December 1, 2001, p. 63.
J&J Is More than Baby Oil
Johnson & Johnson has been a reliable producer of revenues,
profits, and ethical behavior. As you will remember, they pulled back
on Tylenol when it counted. But the important point is that they are
more than Tylenol and shampoo. In 2001 (9-month results), 62% of
profits are coming from pharmaceuticals. This probably makes them the
most interesting of drug companies, even when compared with Pfizer and
132. 4th-Generation Warfare
See Atlantic, December 2001, pp. 48-50. Also see
www.d-n-i.net. An axiom of warfare
is that powerful nations are always fighting the last war, with armchair
generals and powerful business interests firmly anchored in the past.
According to Jason Vest, that is just what a couple of forward-edge military
thinkers, the late Colonel John Boyd and the Pentagon's Franklin C. Spinney,
have to say. Bombing, heavy firepower, etc. are expensive tactics of
the past, ill-suited to a world needing "smaller units versed in maneuver
warfare" and a diminished military thrust that is much more closely related
to simultaneous "diplomatic, political, and economic initiatives." By
and large, our Afgan campaign is expensive and possibly ineffectual 2nd-generation warfare. Only the U.S. Marines have gotten the message, rehoning their tactics and mission. The Taliban spent $500,000 on
September 11, and we are proposing $40 billion against terrorism. That
ain't agility. We must invent, somehow, a way to make the elephant
agile, or our opponents will simply wear us out. Our strategy now is equivalent to
P&G spending $100 million for a few points of marketshare, a losing
131. Union Pacific
on a Roll
Union Pacific, after a somewhat disastrous merger with Southern Pacific, now is
growing through alliances, not mergers, and expanded service offerings. New services
"are expected to add more than $200 million to revenues this year." These
and other dynamics are fueling expanded interest in the transportation and logistics
sectors by sophisticated investors. See The Wall Street Journal, October
16, 2001, p. B4.
It used to be that you proved your global mettle by succeeding in Japan.
Now, of course, the entrepreneurial jousting has shifted to China, current king of the
economic hill. Nonetheless, Starbucks' success in Japan is remarkable. Only
started in 1996, Bucks Japan is now a 300-store, profitable, and public operation.
Its dollar volume per store is twice that of the U.S., but "the price of an average
cup of coffee in Japan has risen to 419 yen" -- about $3.50. See The New
York Times, Business, October 21, 2001, p. 5. Starbucks, at home and abroad,
has been a marvel of extending its brand. But also, the rise in gourmet coffee shows
the renowned ability of the Japanese to adopt foreign innovations. Japan reckons
well with the inevitable, and its economy will recover.
129. NBC Buys Telemundo
NBC is buying the second-biggest Spanish-language U.S. television network for
$1.98 billion. Analysts think this means GE will now stay in the t.v. business,
though we doubt this will be long-term. Nonetheless, it does mean GE is tapping a
cross-border market with good viewership ratings and interesting demographics. Even
with an eventual sellout in mind, this is a strategic acquisition.
128. The New Rules of Brand-Building
"The new marketing approach is to build a brand not a product -- to sell a
lifestyle or a personality, to appeal to emotions. But this requires a far greater
understanding of human psychology. It is a much harder task than describing the
virtues of a product." See "Who's Wearing the Trousers," The
Economist, September 8, 2001, pp. 26-28. This article has other provocative
insights as well, showing how environmentalism and social responsibility have become part
of the brand. The trouble, of course, is that products continue to decline in
quality, as branding theory distracts us from product-building. The new rules of
branding are muddy, and the costs of marketing are still inappropriate. Meanwhile, The
Economist itself is clearly attempting its own re-branding.
The UK's Morpheous has come up with a small GPS device that defeats stationary
cameras used to track speeders. As you come near the cameras, light-and-sound beeps
alert you to to slow down. Now this product -- Geodesy -- is being peddled in other
countries. In general, this is just one of many pieces of what we call hackerware:
small, inexpensive devices that can frustrate expensive, complex regulatory systems that
impose unusual costs and burdens on individual citizens. See www.morpheous.com.
126. Bribing the Knowledge Worker
"What might be needed to prevent the United States from becoming the England
of the twenty-first century?" "Today ... we are trying to straddle the
fence -- to maintain the traditional mind-set, in which capital is the key resource and
the financier is the boss, while bribing the knowledge workers to be content and remain
employees...." (Atlantic, October 1999, citations from a Peter Drucker
article.) So the real challenge for the truly agile is to put knowledge workers on
top, and to make low-value added financial engineers into employees.
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