75. It's the Brand, Stupid
Clinton's campaign refrain: It's the economy, stupid. Well, in business, it's
the brand, stupid. In fact, some companies refuse to die, no matter how abusive, how
terrible their managements, if only because they have the brand. Certainly this is
true of Lionel, sort of the Harley Davidson of the model-train world, which had run
down its products and neglected its customers. But
somebody kept buying anyway. In like fashion, the executives of Krispy Kreme once
told me that they had such a good product that things rolled on, even though they had done
everything in sight to foul up the company. Sears and Leica are other examples of
companies that won't quit in spite of the masochistic machinations of their managements.
If you can last 100 years, maybe 50, it is quite possible you can make it to 200,
even with dumb management. See "Toy-Train Company That Thinks It Can," Business
Week, December 4, 2000, pp.64-67. For Lionel's company website, go to www.lionel.com.
74. Early, Early Warning
turns out that the best economic signs of a slow down may not emerge from the government
or the think tanks. Since last summer, the PMI (Purchasing Managers Index) from the
National Association of Purchasing Management has shown that we were stalling out, even as
everybody else was still talking up the economy. See "An Early Warning from the
Factory Floor," Business Week, December 11, 2000, p.36D. It's
interesting that a delta sample from a large number of unaffiliated, very average people
often tells you so much more than the wisdom of the experts.
73. Unusual Produces Unusual
Andy Law, head of the British ad firm St. Luke's, one client says, "He can readily
get you to think about things in a slightly different light." (See "U.K.
Ad Titan St. Luke's Is Still Different," Wall Street Journal, December 6,
2000, B12.) Organized as a cooperative, St.
Luke's provides no personal space for employees, only allocating office space to clients.
A special culture and environment seem to produce ads that are enough off-center
from the British mainstream to make a difference for British Telecom and other marquee
clients. See www.stlukes.co.uk.
is Bad Information
Paul Bell of Dell Computer describes inventory as
"the physical embodiment of bad information." See "E-Management
Survey," Economist, November 11, 2000, pp. 9 and 30. But the information
is obviously getting better: companies are now saving $10 billion each year in
inventory costs, with inventories as a percent of sales dropping at least a third over the
last 20 years. The combined effect of less physical inventory and more efficient
supply-chain purchasing has boosted returns. In the postwar period, excess and
mismatched inventories have been the bane of centrally directed and market
economies, waiting to be snipped out of the economic system.
71. Creating a Top Orchestra
"I looked at the 128 members in that orchestra, found the 20 who were top-flight and
wanted to excel, and worked with them. Sure, I had to fire a second oboe, but
for most of the others, suddenly, the standards, the vision had changed."
(George Solti's words to Peter Drucker as cited in "Meeting of the
Minds," Across the Board, Nov./Dec. 2000, p. 2l.) Drucker's point is
that you do not improve societies or organizations by slaving over the average: push
on the top people and the bottom will follow.
$l.7 million spent by the No on 200 forces (not counting the $275,000 in ads from the Times)
was almost three times what we spent. Each vote we got cost us 60 cents; each vote
they got cost them $2.50. (From Ward Connerly, Creating Equal:
My Fight Against Race Preferences, p. 245). We all have heard of
Connerlys Proposition 209 win in California against racial preferences, but little
about I-200 in Washingtona more remarkable victory, frankly. A smart Governor,
every major corporation in Washington State, a rogues galley of semi-scholars such
as Harvards Derek Bok, and everybody else you can imagine were arrayed against
Connerly and company in this contest. All he had was a sound idea (racial preference
systems are racially discriminatory and, hence, morally, legally, and humanly wrong with
bad consequences for the nations minorities) and a lot of tactical finesse.
Politicians should track his principles and his politics. But, as a result,
we still need a prescription for helping the underclass that goes beyond the self-reliance
that seems to lie behind Connerlys thinking.
69. Life After Death
We had thought two publications had died years ago. Instead they are back with a
flourish. This is extraordinary in an age where so many of the principal magazines
of all sortsTime, Business Week, Readers Digest,
whateverare in relentless decline, and many of the new mags offer us high-falutin
gibberish. The Atlantic is
amazing, with recent significant articles about the epidemic pace at which asthma is
spreading and another about the terribly influential wine critic Robert Parker who is
exposing a lot of bad, overpriced wine while also changing the face of the wine trade with
the prospect that only real boutique wines will fetch cadillac prices in the future.
And The New Yorker is also back,
perhaps not quite as grand or funny as in days of yore, but worth a read after an
unfortunate confused, glitzy interlude with a British editor who was out of her depth.
Both publications still need to work out how they will make some real bucks, but
they merit our support and thanks. And if you just want a laugh, look at The New
Yorkers cartoon site at www.cartoonbank.com.
Some of Your Hidden Cards
In Dunks Dictims
(#l5), we talked a bit about how to carry on an intelligent conversation with
investors, reaching beyond the narrow interests of traders in the Wall Street community.
But we did not tell you about any of the companies who have been able to reach
beyond the Street to build enthusiasm with solid long-term investors. A few actually
The trick is to turn over a few of your hidden cards. That
way, serious investors learn that you actually can deal with complexity, as you think
about issues and execute maneuvers not apparent to average observers. For
instance, we know of one pace-setting insurance company that used to allow outsiders to
look at its management newsletters, allowing number-crunching investors to see the soft
stuff of business that makes all the difference between average and extraordinary results.
What we will do here is to mention some of the companies that have
shown us their hole cards to great effect. We will be adding to this list on a
Analog Devices: Founder and now
chairman Ray Stata has, over the years, told us details of how he recruits, develops,
rewards, and retains key talent. He has a
separate system of rewards and a different career ladder for his scientists: you
dont have to be a paper-pushing executive to get recognition and compensation from
Analog. In one quarterly we remember, he gave us recruiting and retention
dataimportant data for smart investors in high-tech companies never required by the
CPAs and the SEC. This is the sort of thing a serious investor should regard
as telling detail. By the way, also notice how early
Stata relinquished the chief executives chair.
67. Location Really Matters
We used to know that great pianists come from the border of Poland and Russia,
that West Virginia produced a disproportionate amount of Rhodes Scholars.
Location matters in business as well. Wolfgang Reitzle has put Fords luxury
car headquarters in London, which he says is the trend capital of the world.
See Herr Luxury, Economist, November 4, 2000, p. 74.
Knight-Rider moved to San Jose to put some New Media zing in its Old Media. We
are in an era where innovation is the sine qua non for business growth, and so it
becomes important to seek a truly creative setting that ignites process and product
Update: Location Is
we have been astounded to learn of the outpouring of National Hockey League
players that grew up in Ornskoldsvik, Sweden. See the New York Times,
May 3, 2007. “Among the sports world’s talent-breeding hot spots—from the
dusty baseball diamonds of the Dominican Republic to the basketball
playgrounds of America’s urban areas to the improvised soccer grounds of
Brazil—Ornskoldsvik, which lies near the Arctic Circle, may be the most
inconspicuous.” “If there is such a thing as a father of Ornskoldsvik’s
hockey family, it is Anders Melinder. For the past 20 years, he has been in
charge of the town’s hockey high school, working closely with Modo’s junior
program.” Amongst the greats are Peter Forsberg, now on Nashville, Niklas
Sundstrom, and the Sedin twins on the Vancouver Canucks. If you are a
recruiter for just about anything, you are well served to uncover the mother
lode for the kind of gold you are seeking. (7/25/07)
In the retail trades, we say to the shopkeeper, “Location, location, and
location.” If you can get yourself situated in the right spot with ample
traffic, you will probably do a land office business even if you are only
offering average goods. But location is all-important in so many other
senses. Right now the hot countries in the world—be it Singapore, Norway,
Qatar, or Ireland—are not the elephants, but the minnows, the countries at
the margin we choose to ignore. Or, as we have discussed elsewhere on the
Global Province, expertise so often turns on location, and if you are
hunting for employees or someone to solve a problem, you would do well to
find out where the best in a particular vocation tend to cluster. By and
large, they are not at the Harvard Business School. As we said in
“Why Experts Are Wrong,” most likely you should explore the border of
Russian and Poland to find pianists unless you go to
“Piano Island” in China, or root around at Cambridge in England to get
yourself an intuitive enough geneticist.
66. Leading Economic Indicators
The Conference Board--Americas
pre-eminent business networking organization--weaves together business leaders from 67
nations. It is steadily becoming more global, a little less Anglocentric. The
latest evidence of this is its announcement
of the expansion of its leading economic indicator series. Five years ago it took
over the Indicator Index from the U.S. Government. Now it will produce indicators
for 25 other nations. Its already out with the United Kingdom, Germany,
Japan, and Korea. France, Spain, Australia, and Mexico are not far behind.
The Conference Board is proof positive that agility in 2000 means becoming more and
more global. The digital information economy is coming but its not really here
yet in a practical sense. Ten years ago chief executives told me the
Conference Board was a nice organization in search of a mission. Well, it has
found the mission in spades. It creates global conversations. See www.conference-board.org.
65. Tesco Has the Right Internet Brew
Everybody loses money on the Web, but Tesco will make money next year with a very
small ecommerce investment. Again and again, as we have said, the interesting retail
innovations seem to be popping up at retailers outside the United States, Walmart
notwithstanding. Tesco fills its orders from existing retail locations, rather than
building brand new warehouses. Of course, importantly, it helps that British chains
already average 5 to 6% profit margins versus 1 to 2% in the U.S. And it helps that
the British population is jammed into more confined spaces. It appears that
successful companies on the Internet will more intimately link their virtual doings to
their everyday bricks-and-mortar operations. See www.tesco.com.
64. At IBM, Global Services Is King
This division grows 10% a year, and contributes 37% of IBM's revenues, 45% of profits.
(See Business Week, October 2, 2000, pp. 118-120.) It projects 15%
C.G.R. going forward. And all the other computer boys are beefing up their services
units. Services is a business with high logic for IBM--a company that has often not
had the best technology yet which in times past has provided fabulous support. Good
strategy at IBM has consisted of doing the obvious. (www.IBM.com)
Divorced as we are from matters of fashion, we knew nothing about Zara. But the
ladies in our midst testified that Zara has been very innovative, indeed. A
very, very successful unit of Spains Inditex,
it brings as much to fashion as Swedens Ikea does to household furnishings.
Just as we once felt that the Japanese automakers had left Ford and GM in the dust, we
cant escape the notion that these fellows have stolen the thunder from many U.S.
retailing giants. Zara stores get new merchandise twice a weeknot just
restocks, but brand new things. Store managers and global research teams feed
intelligence, instantly, into headquarters about new trends and styles. Not much is
made in advance, and orders can be changed on a dime if something is not selling or a new
big idea surfaces. A consultant says, Zara does not have high inventory levels
and it gets a revenue boost by putting fresh fashion on shelves so rapidly.
See Style with Rapid Response, Financial Times, September 26,
2000, p. 13. Also, see www.inditex.com/izara.htm.
62. Sweet Are the Uses of Adversity
I remember years ago being startled by Aflac, the cancer insurance company from Georgia (www.aflac.com; NYSE:AFL). When it hit a
Congressional storm years ago and its operations got grounded in the United States, it
spread its wings in Japan and became a vast success story there, often recognizing 50% of
its revenues and profits in Asia. If you can make the best of a bad thing, you are
agile, and you are going to more than survive.
So, too, is the case with Medtronic (www.medtronic.com; NYSE:MDT). Generally in the
pep-up-the-heart device business, it has had its bumps. There has been reaction to
over-prescription of devices historically; Medtronic also suffered from its own clogging
of the arteries, plagued by slow development cycles. And, finally, it has had to
wrangle with the Medicare bureaucracy to get its new stuff accepted, since, no surprise,
its users were, often as not, Medicare folks.
Key to success, in [chief executive] Mr. Georges view,
is enabling patients to take more control of their own health. To do so, they need
better information and here, Mr. George has turned to the Internet. See
Devices and Desires, Economist, September 2, 2000. George
proposes to put better decision-making information in the hands of patients, while giving
doctors better fine-tuning data by piping monitor data automatically from the patient
device to the doctor.
61. The Sybase Surprise
Months ago a young man wrote me a note to brag about his boss at Sybase, but I did not pay
attention. And I was wrong not to, because John Chen has truly turned around a dog,
and turned it into a winner. Rich Karlgaard of Forbes, who usually blathers on in
his column (where is Malcolm now that we need him?), caught the drift of things in a
recent conversation with Chen, getting at some of the reasons why Sybase is back on the
map. In his first year he stripped Sybase of 1,500 staff jobs. And
he quotes Chen as saying, Eighty-five percent of our revenues were coming from 1,200
accounts.... Previous management feared our customer base was too narrow.... I
took the opposite view. A small customer base was our greatest asset. We could
work closely with them, learn their needs, do a great job for them.... See Forbes,
September 4, 2000, p. 5l.
60. Hour of Power
Technology and deregulation suddenly promise to make micropower (small generating units)
very economic. If you are a utility, you eventually may want to be an expert at
power distribution and merchandising, rather than an owner of big generating plants.
See The Dawn of Micropower, A Do-It-Yourself Route to
Power, Financial Times, August 10,2000. Interestingly, U.S.
venture capital investment in micropower technology began to take off in 1992, so we
should begin to see some real impact on energy markets around 2015. Temporarily,
this de-regulation trend is driving up power prices, but it will lower costs if state
regulators get off their duffs and mandate purchases from small, alternate power
sources. And this development couldlong-termbe an immense plus for the
environment. The agility question here is to track which states really
open the spigot on energy diversity and encourage multiple utility providers within the
same service areas.
59. Negotiation and Strategic Alliances
Elsewhere on this site we have said that the key issue in a collaborative internet world
is how to make strategic alliances work. The folks at Vantage Partners in Cambridge,
Massachusetts have successfully crashed into this game, likening the process of making
alliances work to the art of negotiation where if you work it all out, it will all work
out. This is not unlike partnering in the construction industry, a pre-negotiation
invented by public authorities and the construction industry to forestall billions of
dollars in delays and legal bills, by pre-agreeing to a way for handling disputes so that
they do not put a terrible wrench in the works. While negotiation etc. is not at the
essence of truly making alliances work, it cant hurt. The subtleties of
collaboration will take longer to discover. See http://www.vantagepartners.com/.
58. Guru Talk
Gurus are like journalists like Wall Street analysts like astronomers. They sort of
see what's happening but they are not in the thick of things, so their insights are never
even skin-deep. We were reminded of this with Firstmatter.com, the home of a couple
of sleek gurus from Westpoint and Eastpointe, Michigan. If you go through their
newsletters, you will find a lot of stuff about branding in the 21st century in the
virtual, digital marketplace.
None of this tells you how we really create brands now.
It just says things are different.
And that pretty much tells us how the quick should deal
with gurus. Give them a 2-second read to discover new inflection points. Then
go somewhere else to discover new directions. So rapidly look at www.firstmatter.com.
57. Transaction Costs
We would never have big businesses, but for transaction costs. A million small
units, especially in knowledge enterprises, are inherently more efficient than one big
goliath any day of the week. But it's the middle men and parasites that get in the
way--lawyers, accountants, form-hungry government agencies, and on and on. In this
vein, look at overlawyered.com by Walter
Olson. We will be urging him to try to get out more of the costs of lawterdee and
lawyerdom. And remember that the lawyers get all the land in California, because the
Spanish land-grant system had a morass that 19th-century lawyers exploited to the
fullest. If business-to-business purchasing sites work correctly, it will eliminate
a huge amount of transaction costs.
56. Gene Sequences
The key to merchandising in the Internet world is to give something valuable away for
free. A very good example is Incyte Genomics (NASDAQ/NMS: INCY), which has provided
access to over 1.4 million human genome sequences on its website (www.incyte.com). Of course, this is a teaser to
sell you on the proprietary stuff. Nonetheless, it captures the spirit of the
Internet, where one must collaborate openly to succeed--well beyond the corporate
practices of many businesses. See Incyte release of July 31, 2000, "Incyte
Launches Incyte.com." Like all corporate websites, it is kind of clunky.
Just a year ago, SAP, the German software colossus, appeared to be in its death throes.
The king of enterprise software, it had bet the farm on servers instead of the
Internet. But chief executive Henning Kagermann seems to have turned the corner,
putting it all on the net with mySAP.com, and even getting the company, like Cisco, to put
its own operations on the Internet. See "Turning a Corner," The
Economist, July 24, 2000, pp. 63-64. It is worth studying other massive
conversions to the Internet such as that at Primedia.
54. Virtual Patents
Jeff Bezos believes in a shorter term patent for virtual ideas. "[I] do think
that there's a problem with patents--both software patents and business process
patents--in that their lifetime is too long. If you're building a physical process,
then maybe 17 or 20 years is a reasonable patent lifetime. But if you're doing a
piece of software or creating a business process, then three to five years should be
enough...." See CIO, August 1, 2000, pp. 164 and 166.
53. Evolutionary Computation, Artificial
Business Week has always been able to spot the world's most important
business trends, then fail to understand what it all means. Years ago we used its
clipping files to great effect, uncovering nuggets that its journalists never perused.
Otis Port's "Thinking Machines," Business Week, August 7, 2000,
p. 78 and following, is another great Eldorado, not well mined. This report on smart
manufacturing says that we are finally learning how to get something out of artificial
intelligence. The best paragraph comes first:
The trouble with engineers, says Andrew J. Keane, a
mechanical engineer at Britain's University of Southampton, "is that we are trained
to think with regular geometry--straight lines, circles, and 45-degree angles. But
take a look at nature. How many bones in the human body have straight edges?"
Seems like engineers are just like business journalists,
52. Sleeping on the Job
Ron Dollens, chief executive at Guidant, was asked by a human resources type to
fire a scientist "found sleeping under a workbench in the R&D lab."
Knowing about the man, Dollens sent the staffer to check on the scientist's patent
history, which was extensive. A tireless worker, he simply worked all night and had
to sleep it off. The point is--we think--that middle managers always want to get
rid of losers, but, as often, they kill off winners. See "Cabbage, Coal, and
Integrity," New York Times, July 12, 2000.
51. Risky Business
The New Economy is creating very different job descriptions. We have
previously pointed out that strategic alliance directors are critical to any enterprise
that intends to survive the 21st century. We feel the same way about "risk
managers." Nothing less than a total rearrangement of global political and
economic architecture is now underway. Survival will be based on tremendous
risk-taking with simultaneous assessment of risks to be avoided.
Risk management, therefore, is spreading from the financial
sector to all other aspects of business. A good illustration of this is Duke Energy,
situated in clearly risk-adverse North Carolina. Nonetheless, Duke created a chief
risk officer in May 2000. While Duke has operated in protected markets with high
utility rates and low regulation, it is obviously aware that the game is about to change.
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