LETTERS FROM THE GLOBAL PROVINCE 2002


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2002 LETTERS

GP24Dec: Dear Santa Claus

Dear Santa.  Everything is topsy turvy.  We're late in writing this year, what with an ice storm here, a drought there, an Enron here, a Tyco there.  This is the first time we've entrusted a note to you to the Internet, but we thought, "Why not?  Santa is using the web a lot more."  Not only can we chart your progress across the skies every year on the NORAD website (www.noradsanta.org), but there are a cluster of fine places to go now to find out what you are up to.  We just visited www.claus.com, where we were able to check on the Naughty or Nice ratings to get an idea whether you would be coming our way for Christmas.

We Still Believe.  We just got hold of your note to Douglas, a young lad in California, where you said, "It has come to my attention that you have been having some doubts about me.  One of my most trusted elves actually thinks you no longer believe in Santa Claus.  Is this true?  If so, I hope this letter puts all your suspicions to rest.  I know that you chatted with one of my surrogates while visiting your favorite department store at the Newport Mall.  George (for that is his real name) was supposed to give you this note, but completely forgot."  Santa, we are sorry that such doubts could possibly arise.  And also, that George let you down:  it's hard to find good helpers anymore.  Thank goodness you are always here--one bit of permanence in a world where many other delights and mysteries are disappearing.

Santa, we are still very much in your thrall.  Were we to put aside a treasured old friend such as you, we would not know how to fill the void.  Increasingly, we find, old friends (and new friends for that matter) are the best barrier against the turmoil and upsets of the day.  We imagine you heard that Stephen Ambrose died this year, and he seemed to be a fellow who understood that amigos are everything.  His best book, Comrades, Brothers, Fathers, Heroes, Sons, Pals, and even his histories (one of our buddies particularly likes Band of Brothers) dealt with the close bonds between men, and it is for this celebration of human ties that he will surely be remembered.  That's why, Santa, we never let you go.

Inventing Christmas.  An old friend, onetime chair of Oglivy & Mather, Jock Eliot, is out with a book this year, replete with wonderful illustrations, that tells us all about how Christmas came to be.  It's called Inventing Christmas.  Fulsome Jock always looks a little like a grey flannel Santa Claus, and there could be no better teller of the Christmas story.  But don't worry, Santa, he will not steal your thunder, and though full of cheer, he does not quite capture your heigh ho.  You are still the only real Santa Claus.

Green Thoughts.  Santa, knowing you are an environmental Claus, we want to give you some good news.  For years you have told us that you have felt terrible about the massive wrappings on all your presents, feeling that you and the elves are making a mess of things with all the resulting garbage.  Ah, but look at our Global Wit and Wisdom section where you will learn that scientists say garbage per capita is on the decline because packaging materials are so much lighter now than they were 50 years ago.  The paper around Jock's book will not despoil the earth.

By the way, when you have a few moments while en route this year, we hope you will take a look at greenery at its best.  Take along with you Remarkable Trees of the World, which has just been published, and which we discussed on the Best of Class section of Global Province.  These stalwart trees reaching for the clouds will surely give you extra incentive to make next year's trip, knowing that they will be there to greet you on every journey.  Also, you might just take a look at the list of birding books under "Birds Are Big" in our Big Ideas section.  Birding is becoming one of the nation's biggest outdoor activities, and you might as well do a little of this sport while you are aloft.

Invisible Friends.  You're not the only dear friend who's out of sight but not out of mind.  This season brings into one room memories of all the distant acquaintances who live at the far reaches of the globe.

Now this computer thing ain't all that it's cracked up to be, but we must tell you, Santa, that we have harvested from the virtual ether a whole nest of new friends this year with whom we have never spoken and to whom we feel close.  The antiquarian at the British Museum.  The world's foremost expert on the medicinal use of plants.  The venture capitalist up in New York who would much rather talk about chaos theory and Spenser than his investments in unlikely technologies that excite the pocketbook but not the mind.  We are hoping that 2003 will put us on the doorsteps of these most interesting people and the other delightful folks who have floated into our orbit.

Norway or Bust.  Santa, stop off in Norway, the only country we have not been to up Scandanavia way.  The Saturday New York Times talked about its big exports--oil, herring, and peace.  Every time peace breaks out somewhere, it seems as if the Norwegians are involved, whether in Croatia, the Phillipines, Sri Lanka, or Timbuktu.  You know it just seems as if small nations are much better at waging peace than big nations.  If you could get us some while you are there, we would love to find it under our Christmas tree.  Neither UPS nor FedEx can get it here on time. 

Friendship and Business.  Santa, we used to say that the best business is done on a handshake.  We're hoping to see a bit more of that in 2003.  Lawyers, accountants, investment bankers, and government types create transaction costs that suck the life out of enterprises.  And yet, big, massive enterprises that supposedly avoid these costs
just don't do things very well, creating very average products and pursuing terribly mediocre goals.  Santa, you have a small, focused enterprise that does wonders across the globe, because everything is done on the basis of trust and a heigh ho between friendly people.  We could only wish for more of this kind of business, business fueled and guided by the principles of friendship, in the years ahead.  Enterprise flows from good behavior, not from legal mumbo jumbo.  Distrust is so very costly.  

United Health.  Every day we learn that a little friendliness is good business.  United Health Group, way out in the U.S. heartland, knows more about patient friendliness than its competitors and has the sales and profits to show for it.   As we have noted in the Agile Companies part of the Global Province, it provides for the very experimental breast cancer therapies its peers have resisted.  And it lets its members talk right to the specialists they should see, rather than forcing them to visit middlemen doctors first.   Santa, its stock is probably a good stocking stuffer, and we should all be on the lookout for companies that understand what friendly feeling is all about.   More and more, Santa, smart investors will be valuing companies by toting up their intangibles.

Best of the Week.  Surely this spirit of comity informs Craft, one of the relatively new intriguing restaurants in Manhattan.  Cousin Tod thinks it's the tops.  It has a tantalizing atmosphere, supremely good food of simple design, and a cookbook that captures the creative ferment afoot here.  Last night its ginger snaps, using fresh ginger, came out of our oven, so you will have exquisite cookies with your milk when you stop at our house this year.  We realize, Santa, that there's no need to teach an old dog new tricks, but, nonetheless, we will be talking about Craft in coming weeks on the Global Province, and we hope you find it a bit alluring.  Be sure to tell us what the elves think of the cookies.
 


GP11Dec: Third World Economy; First-Rate Commonsense

London Lurching.  A couple of years back, some banking acquaintances moved from Singapore to London.  They had been spoiled, because Singapore is an engine that purrs, greased by an ironfisted autocracy that has its eye on the future and its hand on the levers of the present.  Except for the occasional python that may crawl out of the Botanical Garden into your house, nothing untoward is ever allowed to happen there.  This island nation is proud of keeping gum off its sidewalks and pursuing those who "outrage the modesty of ladies." 

London is shock itself.  The City, London's financial district, suffers occasional bomb scares.  The traffic does not flow, unless you are on the Thames.  Indeed, the gridlock by some accounts rivals that of Bangkok, the capital of going nowhere and enforced lassitude in Asia.  When our friends' car was savaged and broken into while they were staying at a fancy country inn, the wittiest fellow exclaimed, "Oh Britannia.  You have become a Third World country." 

Storm of the Century.  December 4 brought an ice storm to the Carolinas, and minds and hearts came to a standstill.  The local paper called it "The Storm of the Century," which means, we imagine, that the headline writer is stuck in the 20th century and thought that this tempest took the cake for years past.  But maybe the newspaper is prophetic (perhaps you have seen the TV serial in which the headlines spell out tomorrow's tragedies); just maybe it is looking 98 years into the future and sees an all clear out there. 

In any event, the storm did put swathes of the Carolinas out of commission as trees crashed down onto power lines and dimmed the prospects for the week.  As of Monday, lots of lights still were not on, revealing a fragile infrastructure more than symbolic of the last quarter of the 20th century when we built things patchwork and underinvested in all the humdrum systems that keep life going.  The very stuff that leads to a Third World Economy.

Duke Redux.  Duke Energy of Charlotte is a principal electricity provider in North Carolina, suffering vast outages during this icing.  If you prowl along some of its lines, you will see why they can be knocked down with ease.  Trees tower over the toothpicks that hold up the electric lines.  The sclerotic state government provides weak regulation of utilities and several other quasi-public industries, so it has been rather easy to underbuild as housing and the population swells.  And yet the power is fully priced.  All this shows up in truly bad weather, but consumers can also expect halting repairs during an average lightening storm (8 to 12 hours is not uncommon).  Free-wheeling Duke, meanwhile, has had an opportunity to take its eye off the ball, purchasing ventures well outside its service area, and making a horrible muck of speculative activity in energy trading just like several others.  Several trading executives have recently gone their own way.  It has put its foot on the third rail.  As an investment, we have been forced to change our evaluation from "investment grade" to "trading vehicle."   This has not been an inconsequential matter since the whole U.S. economy has traditionally run on cheap, reliable power.

Duke is, of course, just one visible example of the state's slide into the Third World Economy.  Some food items at grocery chains may cost as much as 60 or 70%  more than the same items at discounters.  Price, service, and quality disparities plague a number of industries.  One lady is known to send her cleaning to New York, having found no local outlet that can reliably get the job done on finer articles of clothing.  In another five years, some of its growth districts threaten to choke on traffic, because its planners and politicians have not paid enough attention to its Blue highways.  For the state, this has led to an economy that has peaked for now.  Variations on this theme have led to low growth in industry after industry throughout the nation. Growth is dependent on honest government and a well-wrought infrastructure.

Self Reliance.  If the 21st century offers a Third World dimension to many in the developed world, it's heartening that citizens are slowly finding their own ways to deal with inadequate systems, which, as we have said in previous letters, are melting down.  Out-of-the-box thinking is not enough:  the brave and the survivors find ways to entirely detach themselves from complex, poorly designed, poorly built systems.  During the power outage in the Carolinas, a host of people installed little generators in their houses.  Alternative systems, such as solar power, are gaining traction:  San Francisco is implementing more solar power as a matter of public policy.  More and more innovation is now taking place in the arena of small generators, which will partially uncouple us from central sources of supply.

There are other examples where people are giving up on the system and relying more on their own ingenuity.  We have talked previously about the huge growth of obesity in the United States.  Our national healthcare system has not been able to come to grips with it.  Of their own accord, many are flocking to physical exercise, better diets not recommended by the USDA, and restraint toward fast food.  Some indignant consumers are suing the fast food companies, having grown irate at the unhealthiness of the offerings.  Yet again, this is an area where adversity is bringing out an independent thinking that will eventually lead to real innovation.

Best of the Week.  We recently visited with a fine sports doctor who even finds his own weight and cholesterol creeping up.  Ironically this stems from long hours taking care of professional athletes.  He is treating himself with two organic supplements that show promise in relation to cholesterol.  That is, he is a doctor of an independent frame of mind, fully cognizant of all the received scientific opinion, who nonetheless knows it is worthwhile to find natural substances to deal with medical conditions, since, again and again, we discover that standard drugs may have side effects that have not yet made it into the medical journals and are, in any event, hard on the pocketbook.  It is remarkable when a physician can pull himself free of the handouts from the pharmaceutical companies.   Adversity--Third World Economy, ice storms, broken utilities, high cholesterol, uncertain health systems--inspire self-reliant people to find new ways to deal with things that are not in any of the standard how-to books.  Though Paradise appears to be lost, we can rejoice in resilient souls who are ready to assert their own commonsense.


GP4Dec: Optimism Unbounded

Inspite of the Present Difficulties.  A few years back a chap at Oxford spent a decade putting together a global collection of art prints he called “The Hope and Optimism Portfolio.”  Surely its values have held up much better than the hope and prayer tech stocks of the 1990s.  It’s named after a work by one of his Namibian countrymen, John Muafangejo (see www.btinternet.com/~hopeandoptimism/muafangejo.htm).  The full name is “Hope and Optimism Inspite of the Present difficulties.”  If you can exude optimism in the face of Africa’s AIDS epidemic, overwhelming hunger, and insistent poverty, then you possess the stuff of heroism.  The spirit unbent. 

Three Quarters Full. The ultimate contrarian is the optimist (not the pessimist) who just doesn't know how to fall down. In some instances, rose-colored glasses are used to put a bloom on events. A coterie of economists even now are telling us how good things are, no matter our pain. Until this year, they could not quite admit the economy had hit a speed bump. This year they are sort of saying we had a recession maybe but that whatever it was is over.

None has been as relentlessly upbeat as James F. Smith at the University of North Carolina's business school, who cannot understand why the media has so ignored all the good news he trumpets about our 2002 economy. He is living proof that economics is not entirely a dismal science, and his cup is always 3/4 full. Yet he does remind us that there always niches that merit investment even if many industries have fallen off a cliff. Not a bad thought during this period of disinvestment. Smith will appear on the Global Province soon.

Scotty.  A new book is out about James Reston, who was for decades the powerful New York Times columnist and Washington bureau chief and confidant of presidents, senators, and a host of world leaders.  The book is Scotty:  James B. Reston and the Rise and Fall of American Journalism.  It was during his tenure that the New York Times counted politically, and it's never been as important since. He was civil, a middle-of-the-roader, discreet enough to realize he did not have to tell all. For this he is somewhat disparaged now. Throughout he was an optimist about the American society in which he lived. Clearly no newsperson has come along who enjoys the same power and influence. One of the uses of affirmation and optimism, forgotten by the distrustful, catty scribblers of the present day, is that it lets you sway history as well as report on it. Too clever, acerbic journalists only strut at the margins of life well away from the playing field.

Greater China. Business Week (December 9, 2002) has a lengthy article on Greater China that dwells on the growing economic integration of the People's Republic, Hong Kong, and Taiwan. It reminds us of what an economic colossus China has become and is becoming. What's implied but unsaid here is what sets China apart from the United States and Europe. In the face of all their very considerable problems (bankrupt banks, horribly run State-Owned-Enterprises, rural poverty, a growing AIDs crisis, a high suicide rate), the Chinese have hope and optimism, something currently absent in the West. Business travelers who step off the Dragon Air plane in Beijing or Shanghai sense the go-ahead spirit of the country. Optimism keeps Greater China moving forward, and it is the only major mega-growth economy in the world

Sine Qua Non. Jack Stahl, once of Coca Cola, now heads run-down Revlon, drained of energy by Ron Pearlman and stooped over by debt. Once the country's leading cosmetics company, it is now is a very weak number 3. Stahl is bringing it back through marketing, which means brand investment, not cost cutting. At the heart of his relentless attention to every marketing detail is the belief that there are enough customers out there who want what he's got if he can rebuild the company's relationship with them. Already he has picked up a little market share by spending enough bucks to give the company a future. Without such belief and investment, soon enough there is nothing.

Likewise, Bill McLaughlin came into cash-dry Select Comfort Corporation and rebuilt its marketing by adopting a Sleep Number Index as its key selling tool to reach a much broader audience for its mattresses. Tumultuous changes in our markets call on all of us to reinvent the way we go to market. Sales are well up in 2002. As Stahl, he invested in marketing even in roiled markets. Aggressive marketing, when the cash is low and the economy is slogging, is optimism in action. Lesser men would dress their companies up for sale and give up the ghost. We will discuss Select Comfort on the Global Province in December.

Churchill Got It Right. He said, "The optimist sees opportunity in every danger; the pessimist sees danger in every opportunity." We're at that time when it's easy to be blinded by danger. Those too put off by danger are simply suffering further losses. It is this risk-averse tendency that economist William Baumol has warned us about (see Big Ideas #122 on the Global Province).

Best of the Week. Last week we had Bay scallops for lunch, just taken from Nantucket waters the night before. Wonderful kinfolks had sent them our way. They are better than the scallops found in the marketplace by at least a factor of 5. Nothing like fresh Bay scallops, cooked for no more than a minute in a cast iron pan, to bring a smile to our faces and optimism to our hearts. Similarly we believe our economy will be cured by good, new products and optimistic spirits. We may even have more scallops tonight.


GP26Nov: The Dow Jones Is Average

Attention Deficit.  Our friend Tom Davenport just piped us a copy of The Attention Economy, his must read for anybody who wonders how you communicate in a 21st- century electronic democracy. The title is a misnomer:  he really is dealing with the inattention that is one of the side effects of the Digital Age.  He tells us what we already know but choose to ignore.  Modern technology is pouring a garbled, gigantic stream of undigested information into our lives, making it increasingly difficult to select and focus on the important, making it very tricky to communicate deeply with one’s fellow man.  If obesity threatens the health and physique of 70% of Americans, attention deficit is the disease of the intellect that has 100% of the populace in its thrall.  Our information machines are no different from the dragons in Spenser’s Faerie Queen, disgorging a stew of meaningless printouts and treatises that have made babble the new currency of discourse.  The breakdown of communication brought on by the panoply of new communication technologies is at the essence of our own consulting practice where we strive to create meaning and continuity.  We tilt with a world where the irrelevant has crowded out the important, and flashing signs have dimmed the luster of eternal truths.

The Newsman’s Dilemma.  It’s hard to think of an enterprise that’s been rocked more by the information explosion than the Wall Street Journal.  In the postwar period, Barney Kilgore took it from nowhere to everywhere, moving it beyond the traders and transaction-makers on Wall Street into every business nook and cranny until it became the nation’s biggest and best-edited newspaper.  It owned the business franchise and was on top of the read list for anyone who made a serious dollar.

But somewhere in the 1980s it started to slip off the mountain because it was not able to redefine itself.  It suffered from a buggy whip problem in a jetplane era.  Many, many others began to put forward serious business news.  The stock tables and financial reports that were at its nucleus became more quickly and freely available on computers and desktop terminals.  When it tried to play in the electronic arena with diversifications into data dissemination, it labored under print journalism norms and failed miserably.  Even the bubble-90s could not slow the relentless business and editorial erosion of the 100-year-old Journal.

The Final Straw.  Most recently, the redesign of the paper, particularly of the front page, showed us that the beloved Journal is in utter crisis.  Gone, for instance, was the Thursday Business Bulletin column, by all accounts the best read section in the newspaper.  The heavily read editorial pages were chopped up and strewn through the newspaper.  Everything now appears to be unfocused:  you never quite know where to find anything anymore.  In the attention deficit economy, the Journal does not know what to hone in on, and, for us, the readers, it is out of focus.

A Question of Character. The Journalista (our name for the editor-writer we find at the Journal) is a decent, civilized, relatively objective, intelligent fellow whom you want to get your news from.  We ourselves over the years have hired many Journalistas to write straight, terse, honest business accounts for the corporations we advise.  The Journalista still does the best, tightest writing in the nation.  That character and quality has not been lost with the decay of the Journal.  This sets Dow Jones apart from other media enterprises in the nation such as AOL Time Warner, where nothing of Luce is left, or CBS News, where all of Murrow is gone.  And things are getting sloppy at many of its business-news competitors such as Forbes, Business Week, Fortune, et. al.   The Journal  remarkably still has clear thinking and clear writing.

But the Journal has a bad habit of promoting writers to the head of the class, thinking they can manage as well.  They can’t, at least not since Y2K.  Journalistas as managers can manage the trees but not see the forest.  As all the environmentalists know, the forests are all under attack and must be protected by wholly new concepts, an effort that requires wide angle vision.  The Journalista is a good writer but an uncertain manager in a difficult age.

What to Do?  The Journal is not so unlike other major American enterprises which (a) must find clear niches to dominate domestically and (b) must globalize to a degree not yet contemplated.  For instance, its healthcare coverage is very, very promising and could be a springboard for owning the health sector, which is America’s biggest growth industry, now consuming some 17% of the GNP.  Overseas, meanwhile, it can catch up with and far surpass the Financial Times which, incidentally, is now becoming the newspaper of choice for several global businesspeople.  It’s not that the Financial Times is doing a fabulous job, but it is clearly less provincial than the Journal, which at the end of the day has a New-York-City/Cortlandt-Street state of mind.  Most recently, the New York Times is trying to go international, having rudely squeezed the Washington Post out of the International Herald Tribune in order to use it as a vehicle for its international ambitions. 

The Wall Street Decade.  It’s terribly ironic that the Wall Street Journal should come a cropper at the very moment when Wall Street itself achieved too much power in  America and created the Double Trouble Bubble Economy of the 90s, which will take yet another 10 years to unwind.  This suzerainty saw too many Wall Street types become Treasury Secretaries, an unwholesome development that dates at least back to the Reagan administration.  We had at our economic helm financial engineers from the Street who did not and do not understand the business of business.  They merely understand how to grab hold of the value created by others.  Some of these wheeler-dealers even made a run at the Wall Street Journal but were thwarted at the gates by the Bancroft family (the principal owners) who were loyal to Dow Jones traditions and responsibilities.  This vulnerability of our society to fast money boys is all the more reason why the Wall Street Journal has to be re-invented as something more than an apologist for bankers and brokers.

How Hard It Will Be to Do. The Journal management is proud that its online edition makes a nickel, and counts this feat as a signal accomplishment.  Yet one of our preeminent business thinkers considers this for-pay service a strategic mistake.  If he’s right and management is too prideful, then the Journal must suffer a revolution before it gets pointed in the right direction.  When we wrote a review of the Journal 20 or 30 years ago, it only needed to make incremental improvements to go from good to better.  Now it will have to amputate some limbs to get rid of the gangrene.  As part of its total transformation, it will need to become less of a preacher for laissez faire, more of an advocate of laissez care.  If it begins to insist on the obligations of capitalism, the Journal will become transformed in a 1,000 ways. 

But there are little signs that it might pull it off.  Notice that many, many comparative tables now appear in its pages--a fast way to tell a story in brief to the reader who cannot wade through the  swamp of words that adorn each page.  Occasionally, too, the newspaper sports a writer of panache and verve like Tunku Varadarajan, who frequently pops up in the Week End section.  This dash is sorely needed.

Blood and Guts. Whether you read what they write or see them on TV,  you are never sure how much blood courses through the arteries of the Journalistas you encounter.  There’s a lot of the Stepford wife or Stepford husband in most members of this tribe.  Left brain and no right brain.  This leads to bloodless journalism.

To get back on the mountain will take a lot of passion.  The Journal can no longer survive as a mere provider of information, but must deliver an experience charged with impact.  As it discovers its new strategy, it will also need to uncover new ways to tell its stories with enough gusto to compel our attention when MSNBC is rattling our cage in the background and Al Gore’s Blackberry is sending us urgent, discordant messages.

Best of the Week.  We took in “Maestros de Plata:  William Spratling and the Mexican Silver Renaissance” at the San Antonio Museum of Art last week.  It’s remarkable.  Curated by Penny Chittim Morill, it will be traveling to San Diego, Los Angeles, Albuquerque, New Orleans, and New York.  Be on the lookout.  We’ll have more to say about the show and William Spratling on the Global Province in coming weeks.  This show will get your attention.

P.S. We surely hope you will be home for Thanksgiving, and we recommend that you get your turkey right. It's clear that pre-soaking the turkey in brine for a considerable period will put you on the path to turkey supremo, and your stuffing should have oysters, of course. Our turkey recipe can be found on the Global Province, item number 42 of Best of Class. Happy Thanksgiving.
 


GP13Nov: Fear Itself

The Election of 2002. We’ve all heard a bunch of Monday morning quarterbacking
about the recent elections, all the more pronounced from the many journalists, pollsters,
and political hangers-on who called it all wrong. Bush’s magnetism, Republican get-
out-the-vote efforts, a poor Democratic message, gerrymandering, and a host of other
things are supposed to have accounted for the outcome. None of the above seems to tell
us why the impossible happened. We ourselves would look to Kahneman to get hold of
the elections and to grasp what’s up for society in general.

That is, America has been sideswiped by 9/11, the sniper shootings, and a deep and
difficult recession that is much worse that our economic analysts understand. Since the
macro-numbers do not seem too dramatic, they miss the terrible pain running through the
workplace as well as the structural revolution coursing through the marketplace. The
populace, we would guess, has a broad perception of dangers so great that it fears loss of
life or property. For some, the opposition party is taken to be part of the danger. Others
(in line with risk psychology) demand a huge assured premium if they are to turn the
party of government into the streets. We would say that the perception of clear and
present dangers is coloring our politics, our companies, and our consumer behavior.

MicrotooSoft. On 15 January 2002, Bill Gates sent out an email to all his Softees
announcing a new call to arms. It was entitled “Trustworthy Computing,” and it said it
was high time to pay attention to security in the computer world. As we all know,
Microsoft provides unstable systems that crash all too easily and that are too easily
attacked by virusmongers the world over. Microsoft, however, is just the best example of
the widespread focus on risk we predicted in our Annual Report on Annual Reports 2001,
which you can find on the Global Province.

Risk-Free Products. On 29 October 2002, the United Nations Economic Commission
for Europe held a forum—“Towards Risk-Free Products: Balancing Consumer Safety
with Trade Opportunities.” This, of course, is only a bureaucratic example of how the
quest for security is coloring everything we do. Isn’t it interesting, too, that GM’s one-hit
parade vehicle at the moment is the ungainly Hummer, everyman’s very expensive
chance to tool around in a let’s-pretend defense chariot, this being an adaptation of an
unwieldy and probably unnecessary military utility transporter? Then too, there’s an
experiment some utilities are trying whereby they give consumers one guaranteed rate on
their monthly electricity bill, a way to reduce uncertainty about future expenditures.
Cable news, maybe all the news, now depends on terrible crises to sustain viewership,
first offering up some gore to get us excited, and then dishing out some silly soporifics to
free our minds of the scenes we should not have viewed in the first place. In 1,000
ways, the marketplace is offering ways to battle perceived risk, even as substantial risks
continue to increase, without control. This leads to a fortress mentality.

Best of the Week. Our thesis, then, is that fears aplenty are driving people to strange
places and resulting in surprising, unpredictable behavior. Mark Twain must have known
about such fears when he offered his healthcare advice: “Be careful about reading health
books. You may die of a misprint.” That said, we will not counsel you to be careful,
mindful of FDR’s admonition that “We have nothing to fear but fear itself.”

On the Cheap. So there are all sorts of things to do and investments to make and actions
to take, because others won't. There’s a nickel to be made in buying second mortgages,
because investors shun them in good markets, and detest them in bad markets. Small
manufacturing companies don't get the attention of institutional investors--too small and
supposedly too risky--but offer superior rewards because they are perceived as too risky.
The trick, it seems, is not to flee to safety, but to go places that are not as risky as they are
cracked up to be.


GP9Nov: Hiring Some Tough Old Coots

Give Youth a Chance. We hear that some impudent asked Senator Strom Thurmond about the advantages of turning 100. “Well,” he drawled, “You don’t suffer much peer pressure.” Nor does he have to suffer many imitators when he knocks off 25 push-ups on the floor of his Senate office.

Obviously the old Dixiecrat is just getting plain mellow in his old age. He’s obviously decided to make way for the young fellows. Meanwhile, the Democratic Party, quenching its thirst at the Fountain of Youth, has put forward pink-cheeked kids such as Frank ADP Lautenberg (78) and Fritz-the-Ambassador Mondale (74), hoping to get them off the streets. Even a lot of politicians are out of work lately and feeling useless, terribly in need of a government handout. In this one respect, they are in tune with America.

Halloween Day Surprise. Just in time for Halloween, Execunet.com, an online recruiting service, sent out a bulletin entitled “Executives Haunted by the Economy,” where we learn that the white-collar unemployed are now willing to settle for less to get back on the payroll. We ourselves are receiving a flood of resumes--to include quite an assortment of chief executives--from people seeking a new port in the storm. In October, too, the economy lost jobs for the 2nd month in a row, with unemployment edging up to 5.7%. Our scuttlebutt from economists tells us that major corporations will be shaving another 4% from their payrolls over the next year in an attempt to sustain profitability. With gas prices at the pump up markedly from this time last year (see prices in yardsticks below), we can be assured that the recession has legs and will be playing in the theaters for quite a while to come.

Time to Hire. But we would claim that this is a great time to hire some sure winners. There’s lots of wonderful people out of work, just awasting. And there are a flock of very competent, dispirited employees inside enterprises who want to leave because they feel their enterprises are going in exactly the wrong direction. Are they beached whales perhaps: Churchills between the wars? Morale is in the tank almost everywhere. This is opportunity time for business visionaries. While many fire and retire, the strategically apt will hire quality people who are ready to tear out of the starting gate again.

My Losing Season. But who should you pick to put on your team if it will take a few years for the good times to roll again? We heard the answer on National Public Radio last week when a somewhat fatuous interviewer queried Pat Conroy about his new book My Losing Season. Conroy’s book has already been panned by a few reviewers (we bought it on discount), and we must own up that it’s a little long. In fact, he got to the heart of the matter more decisively and wittily over the radio. What he needed was a good editor for his book.

Two men, it seems, had a chance of ruining Conroy’s life. His tyrannical father was memorialized in The Great Santini, a novel later made into a very entertaining movie. And then there was Coach Mel Thompson of the Citadel. This coach broke the spirit of the 1966-1967 basketball team, relentlessly using negatives and scorn to enable good players to play very badly. Oddly enough, Conroy--judged to be almost the least talented of the team’s twelve players--was voted the most sportsmanlike and most valuable player. Because he stopped listening to Coach Mel.

This all came to a head in New Orleans, inherently America’s most hopeless city and yet its second most fascinating metropolis. After all, its other name is Bon Temps Rouler. At halftime against Loyola, Thompson lambasted the team again. Then and there, Conroy escaped into manhood:

 “As we took to the court for the second half, I made a secret vow to myself that I would never listen to a single thing Mel Thompson said to me again.”
 
“With this strange and disloyal insight in a gym in New Orleans, I think I was born to myself in the world. That night in New Orleans a voice was born inside me, and had never heard it before in my entire life.”

That’s what we’re looking for in our next employees. Those who have discovered their own voice in the face of adversity. In business today and for the foreseeable future, employees will get knocked off their feet by imploding markets, unstable bosses, and incredible inertia throughout the political realm. If you’re hiring, you’re looking for men and women who can roll with the punches and who are sustained by an inner voice that keeps them going, keeps them aimed at some distant goal selected by their own powerful intuition.

Voice of Experience. Of course, it helps mightily if that intuition is tempered by experience. In good times, you want kids in charge because they know no limits and will outrun old codgers. They are dumb enough to try new things, fly in the face of experience, and make the impossible happen.

But in bad times, you want fifty, sixty, and seventy somethings who have seen a bad time or two. They'll deal with the tough stuff, knowing that life goes on, no matter the calamity. And there are plenty of oldsters around to advise and act, since, as we've said before, the country is aging at a rapid rate.

There’s another reason for discriminating in favor of old guys and gals who are motivated by an inner voice. Education. Education in these United States has decayed so badly and so quickly that there’s a reasonable chance that you'll be hiring a more agile brain in the over-50 crowd, even if many oldsters are a bit illiterate digitally. The seniors got their grades in school by writing grammatically, doing their arithmetic on paper, and learning that history did not begin sometime after World War II. Rampant grade inflation mingled with muddled educational thinking from sea to shining sea, from Harvard to UC-Berkeley, have given today’s students fast fingers and slow brains. In other words, now’s the time to look for very self-motivated, literate seniors who still have enough get-up-and-go to add zest to your enterprise.

Best of the Week. On Halloween, last Thursday evening, the French suffered a tremendous loss. Lionel Poilane, who built a multibillion French bread empire, crashed into the sea, the helicopter he piloted downed on the way to his second home at Ile des Rimains. His very special bread combined tremendous quality with quantity, as his factories churned out 15,000 loaves a day. In part, his success stemmed from the fact that he talked with 10,000-plus bakers in the 1980’s: this marvelous piece of market research meant that he got his bread right. Quality, and his success, came from tapping into very experienced people in his trade. As he said, “The man with the best future is the one with the longest memory.” Poilane baked together intuition and experience, very much what we need in the present day--surely the recipe which will let the good times roll again in a world which is currently running in place.  We will have more to say about this astute pilot on the Global Province in future weeks.


GP30Oct: Falling Off the Map

Falling off the Map.  Perhaps the best and certainly the most original travel writer of our day is Pico Iyer.  Published in 1993, his Falling off the Map: Some Lonely Places of the World took us to such out-of-the-way spots as North Korea, Bhutan, and Paraguay, not the usual fare of even the more adventurous denizens of our planet.  “Lonely Places, then, are the places that are not on international wavelengths, do not know how to carry themselves, are lost when it comes to visitors.”  We think Iyer is not only a fine writer, but also a prophetic traveler who sees tomorrow in unseen places.   It’s in some of these spots, which run-of-the-mill mortals conspicuously ignore, that we occasionally discover local pioneers who are inventing the future.

Countries at the Margin.  It’s self evident to those not afflicted by denial that the economies of all the major countries of the world are severely troubled, with perhaps the single exception of China, which still manages to grind out extraordinary growth somewhere in the 6-8% range.  As importantly, the leading countries are all caught up in political deadlock, unable to advance agendas that will take them into the 21st century.  This political impasse we suspect has as much to do with our present economic distress as the lack of commercial vitality evidenced by captains of industry.  Somehow this reminds us that President Clinton talked up the 21st century in his convention speeches but that his political success stemmed so much from his ability to cling to the 20th, as he sensed that he was not dealing with a country that wanted to move on.  At any rate, the gridlock is pervasive and acute.

The interesting countries--post Cold War--are little giants who have advanced while we weren't looking.  In 2001, they often showed handsome growth rates of better than 3% (as in Ireland, Luxembourg, Greece, Ireland, Ecuador, South Korea, and Qatar) and sometimes had striking GNPs per capita (as in Finland, Iceland, South Korea, Australia, and Qatar).

This vibrant economic activity suggests that the action has shifted from the name-brand countries, post 2000, to the lesser known upstarts.  Incidentally, this ascendance of the new kid on the block is seen as well in the world of commerce, where outsider brands ranging from budget airlines (i.e. Southwest, JetBlue, Ryan, and Easyjet) to newish alcoholic drinks (i.e. Corona, Grey Goose, and Christiana) are toppling the kings of the hill.  Systems of all sorts have been so destabilized that new competitors can push to the head of the line and change the rules of the game.

Iceland.  Certain off-the-map countries are getting terribly interesting and compel our attention because they are inventing the future while the big countries are mired in the past.  Iceland may still be very dependent on fish for the bulk of its exports, but it’s also active in biotechnology, with the gene pool of its whole population having been mapped and with the large prospect of health and drug discoveries.  70% of its people are on the Internet, 80% of its population has mobile phones, and everyone is literate.  It is active in geothermal power.  A while back, one of the smartest investors in the U.S., who often makes currency bets, began his round-the-world journey in Iceland.  We can understand why.  This country has seriously leveraged its homogeneity.

Finland.  The Finns have taken hits in the current recession, but their Nokia stays on top of the world cellular market.  Like many Finnish firms, it started a long time ago as something else altogether, then sold off its traditional businesses and completely remade itself into a telecommunications company.  This capacity of old enterprises to completely reinvent themselves may be a Finnish national trait, for they are a creative lot.  As Finns will remark to you, “We invent it, and then the Swedes sell it,” alluding, for instance, to the sauna, which started Finnish and is billed as Swedish.  Finland has a remarkable design capacity, exhibited in its wares and architecture, that gives it terrific impact beyond its shores.  High literacy coupled with government institutions that are intensely supportive of commercial activity has earned this nation high marks with those who rate global competitiveness. 

Qatar.  Right beside Saudi Arabia, it is mighty different.  First off, it has a vibrant economy, with a 5.6% growth rate in 2001, while the Saudis have slowed under the weight of a feudal, sort-of-theocratic government.  In 1995, it got a new 45-year old monarch who established a legislature, opened the Al Jazeera satellite-TV station, and even permitted a Christian church to be built.  More importantly, women can now vote and run for office.  Women’s rights constitutes the “tipping point” in Arab society, and is the means by which it can enter modernity and leave its somnolent past behind.  Here women are not invisible, and since they constitute the majority of voters, they will eventually transform this country and the nations around it.

Greece.  Economic growth has been pushing 4% a year.  Who would have thought this could ever happen to this sick man.  But tensions have simmered down in the Balkans, and relations with the Turks are even relatively placid.  Now part of the Euro Zone, its growth rate is twice the European Union average.  With tourism accounting for 15% of the economy, we can hardly claim that this is one of Iyer’s Lonely Places, but now visitors will go much further afield as the economy opens up parts of the country where travelers formerly did not adventure.  Interestingly, the Olympics are coming in 2004, a talisman--as in China--that Greece is spreading its commercial wings.  Equipped with a poor educational system and traditions that favor the aging, the young people have gone abroad in vast numbers to study, and they will surely remake the country as they return in force.  Of course, a worry is that there are simply not enough young people; with low fertility rates, the population is getting as old and decrepit as Greek monuments (in fact, more so, since many of the monuments have been restored).  Just like Ireland, Greece is a shining example of the leavening effects of the European Union.  But, as significantly, it has benefited mightily from its large immigrant community, perhaps 10% of the population, which probably has added 1% to the economic growth rate as well as helping Greece forge productive links outside its borders, setting aside some of yesterday’s antagonisms.

Looking for Growth in All the New Places.  If economic growth, innovation, relative political stability, and a thirst for progress are facets of life in asymptotic, off-the-chart kind of places, then companies and investors must be a bit more reflective about where they plant the flag next.  Pollo Campero, a Guatemalan chicken chain, first spread throughout Central America and then came to the United States.  But next, as you will read on the Global Province in coming weeks, it is targeting Poland, Portugal, and Spain, not going for Europe’s biggest economies.  It’s not self evident where you put your next office, factory, or retail outlet, because all the usual major suspects are swimming in and out of recession and offer mixed prospects for new businesses.  Pico Iyer was right in the 90s to look at all the places people avoided, because this decade has seen the mighty fall, and the obscure flowering.

Best This Week.  Oh, to be in Giverny.  If you have wanderlust, we are recommending you go to offbeat places, the ones that are a bit isolated from the world’s conflicts and are often somewhat immune to the viruses sweeping through the global economy.  Perhaps, too, when you do go to the nameplate countries, you should speed through the capital and head to the provinces.

In France, this might just mean going to Giverny.  We thought about this recently when we came on www.giverny.org., a wonderful website that leads you into Monet’s idlyllic surroundings.  Here Monet created art that not only charged up a 19th-century creative moment, but also, in his later work, set the stage for abstraction and other tendencies of the 20th.  We’ll  be talking more about Giverny.org on Global Province in the future, claiming that it should be instructive to civic boosters the world over who need to use  similar magic to trumpet their own regions. 

Suffice it to say, this site takes you into the sort of  landscape that made Impressionism flourish.  Even American painters flocked there (and they are mentioned on the website) and nurtured an American Impressionism, which is now little remarked on in the United States even though we know collectors of their very pleasant work.  To Giverny you should go to learn how a different theory of light led to such radiant paintings, which never fail to illuminate even the dreariest of museums. 

Out in the provinces, in marginal countries well away from global cities, you will not only find 21st century innovation and surprising economic growth, but you will also discover a coherent life style and even some freedom from the anxieties that pollute the mainstream world.  Who says escapism isn't a better way to go?  Discover, says the travel brochure we will write someday, Iceland’s homogeneity, Finland’s industrial re-inventiveness, Qatar’s emancipated women, Greece’s immigrant power, and Giverny’s warming Impressionism.


GP16Oct: Breakdowns Don't Work

Best This Week. Seabiscuit, champion racehorse of the 1930s, already has found a place on the Global Province in our section entitled Gods, Heroes, and Legends. But we have just learned it takes a heroine to write about a hero. That is, Laura Hillenbrand, who wrote the 2001 bestseller about Seabiscuit, reclaiming him for posterity, is herself a tale untold. Confined to her Washington D.C. apartment by a chronic, mysterious ailment, Ms. Hillenbrand used the computer and a network of acquaintances to research how a discarded horse seized both the national imagination and strident pre-eminence on the track. In coming weeks, we’ll have more to say about her.

Marion, the Opportunist. Hillenbrand’s own victory as an author against all odds reminds us, curiously enough, of Marion Harper, the advertising impresario. Now forgotten, he’s the chap who made advertising a big business, putting McCann Erickson into the big leagues reincarnated as a multi-agency, multi-disciplinary Interpublic (NYSE:IPG; www.interpublic.com). 

One Monday back then an agency executive came into see him, moaning, “Marion, Marion, we have terrible problems.” “There are no problems, only opportunities!” was Harper’s rejoinder. From then on, agency wags would jest, “We just had another 150 insurmountable opportunities last week.” Ms. Hillenbrand, let it be said, has mounted the insurmountable.

Harper, incidentally, was brought low by a palace coup, his close colleagues worried by his free-spending ways. As we remember, he lived out his life in obscurity with his mother back in Oklahoma, far from Madison Avenue. We cherish as well one of his very prophetic lines, “I have been captured by what I chased.” Clearly he was put out to pasture too soon.

From Disabled to Enabled. Gone he may be, but we need some of Marion’s boundless optimism now in order to build a new social contract to break out of the policy impasse that has all our political parties going nowhere. The numbers of people out of the swim--sick and disabled, the unskilled underclass, the imprisoned, retirees--have grown so huge that society is gasping under the load. Some want to offer them support; others want to cut them off. Neither is a sustainable course of action in this country or in the other advanced industrial nations, which are all creaking under similar burdens.

These liabilities must be converted to assets, resource-users turned into resource-generators. Not all can write a bestseller like Ms. Hillenbrand, but surely she has shown the way. Just like Ms. Rowley--a welfare mother before she penned Harry Potter--who climbed out of despair. Can we give such guts and willpower in other people adequate outlet?

Prematurely Retired. Right now awesome numbers of our brethren on earth are entering second childhood, otherwise known as old age. Not a day passes where we don’t have a conversation with someone who is on the shelf who shouldn’t be. Corporate CEOs in their 70s who could do a better and more strategic job now than they did 20 years ago. Technicians out of transit systems and utilities who could avert the meltdown these enterprises are experiencing today. There’s a senior circuit for professional golfers somewhat past their prime--let’s have a senior circuit for everybody.

What we have on our hands is a Social Security System that will be running dry (about 2025 or so) and a health system that is overwhelmed by the diseases of the aging. And we have not yet invented the second careers for sixty- and seventy-year olds who truly do have wisdom and discipline that can be passed on to the wet-behind-the-ears. We have enforced idleness, allowing productive people to become a drag on the body politic.

In other words, with seniors (or with prisoners, the sick, the unskilled, etc.) we can argue that we need to keep a comfortable percentage of them working until they drop or plain want to quit, probably in new kinds of jobs. But it needs to be work of a serious sort born in a legal context where employers are incentivized to hire the aged and the temporarily disadvantaged. Why should our seniors just be ushers at church on Sunday? We must view them as permanent contributors, not consignees to the dustbin of history. We must want everybody to die with their boots on. Maybe we can get retired Senator Monyihan to come back to work, since he, above all, understands the problems and opportunities that abide in our idle millions.

Obsolescence Revisited. In past weeks, we have theorized that obsolescence is no longer a valid economic strategy. As Yogi Berra might say, “Breakdowns don’t work.” Then we were talking about products, systems, and the things we build. But it applies as well to human beings. Societies that marginalize large segments of their populations, even for the most charitable of reasons, must become extraneous themselves. An ethic that salutes lethargy will surely lead to a nation that becomes comatose. If John Kennedy were re-writing Why England Slept these days, he would call it Why the West Slept.

Turning the Corner. At least in relation to oldsters, we are making some headway. For years advertisers have geared their giddy pitches to young people, not realizing that the disposable income of the young set might be shrinking and that the oldster pool was expanding. Now the old are coming into view, and not just in Viagra advertisements.

The New York Times Magazine (October 13, 2002, p. 58ff) explains “The Myth of ‘l8 to 34,’” letting us know that ad agencies and TV networks are dumb to have locked in on such a limited demographic. In a few years, we may surmise that the adpack will be flocking to Mrs. Fletcher and the like.

In other words, marketers are waking up to the pocket power of those over 50. Now, in the decade to come, we can hope that policy makers will treat seniors like adults, rather than hapless, helpless pensioners. To get anywhere, we have to overcome an “attitude problem” that treats people like a problem.

More with Less. It’s obvious, even in these United States, that there’s not enough gold around to support our defense expenditures, our health system (now 17% of GNP), and our retirement bonanza, etc. etc. It’s said that citizens will tolerate and governments can profitably use taxes that chew up about 20% of income. But the USA figure seems to have sailed up to 30% or more, a level at which waste mounts and disillusionment flourishes. That means we need to sharpen our pencils and figure out what has to go. And we will have to tap into the abilities of those sitting on the sidelines.

Black and White and Read All Over. Do you remember the riddle about what’s black and white and read all over? The answer: the newspaper.

Now newspapers have become full color and are read less by fewer people. That brings us to the Saturday New York Times. It’s thinner and better than Sunday through Friday: you will encounter there a succinct treatment of the news, provocative sketches of some interesting cultural figures such as a writer of detective fiction in Italy, and better editorial columns than run in the daily paper (especially Bill Keller, a marvelous writer who lost out in the intramural politics that are so thick at the Times). In media, at least, all the best things happen out of the limelight, almost by accident, free from the manipulations of the mandarins. Quality occurs at the margins.

This Saturday paper is one great example of a larger point. When you have to overcome obstacles like Ms. Hillenbrand or use less money and talent like the Saturday Times, great things can happen. Now then, can’t we turn our lemons into lemonade, taking people at the margin and putting them center stage, stirring up a fire in the ashes?

Businesses that can see over the horizon will sell, employ, cosset, and celebrate those who are not in the fast lane, stealing a march on politicos, policymakers, and poltroons, knowing there’s a dollar to be made where others, too blind, fear to tread. Clearly 18 to 34 is not the place to be. The real leverage in 2002 lies with our rejects.


GP9Oct: Prix Fixed

Best of the Week. On Tuesday Albertus Seba’s Cabinet of Natural Curiosities crossed our doorstep. Published by Taschen, this marvelous, over-sized coffee-table book beautifully illustrates the fauna and flora collection of a wealthy 17th-century Dutchman who prized all the natural oddities he collected. This handsome volume is a reproduction of the original commissioned by Seba, which now resides in the Hague. It sells for $150, and we understand another printing is on the way. You will learn more about Seba and Taschen on Best of Class in future weeks.

Pickpocketed. Seba’s creation might seem a bit dear to you, no matter how lovely, until you check on the prices of the most ordinary things in today’s local marketplace. For instance, the dry cleaners is now ill-satisfied with its $10 tariff for a mere wisp of a dress, having invented some mysterious “up” charges which tack on another $5 if the fabric is silk or anything other than synthetic fibers.

Volumes are falling as we get deeper and deeper into this recession, so merchants and manufacturers are using sleight of hand tricks to bring in the same dollars for less product or service. Retailing began to get mushy in this year’s 3d calendar quarter, and the pricing gambit has been picking up steam ever since. A candy bar may still cost $.50 or a $1.00, but there’s less of it. AT&T promotes cheap long distance, but you may discover that 30% of your monthly bill consists of surcharges. When you open a Sony TV box, don’t be surprised if there’s no cord to attach your new tube to the cable system. Hewlett-Packard and the other printer makers have figured out how to charge a king’s ransom for their ink cartridge replacements, although some Singapore insiders think Dell’s entry into the printer market will soon prick a hole in this balloon. Real estate and housing are still sky high, propped up by the lowest Fed rates in 40 years (even so, this market is now getting softer). We’re paying more for less, uptown prices for downtown merchandise, a sign that our markets are not quite working. So Seba’s book might even seem cheap by comparison, when we learn how little our dollars buy us elsewhere.

What does all this, you may ask, have to do with the “price of tea in China,” or with the direction of the global economy? We would assume that price inflation in a deflationary world (and lots of prices are out of whack around the globe) suggests that the worldwide credit bubble still has not completely burst, and we have a ways to go before we achieve economic stability. The bizarre excesses have not been cleared out of the marketplace, no matter where you sit in the world.

End of Obsolescence. We have said in previous weeks that in this unusual recession, with severe slippage in several markets not seen for several decades, business leaders should consider going upmarket, charging more for providing much more. Simply building products that don't break down or wear out at the drop of a hat would be a major accomplishment, meriting a handsome pricing premium. Ending obsolescence is a compelling idea in a world plagued by breakdowns. As we have also said, however, one’s strategy outside one’s own borders has to be somewhat different. These volatile times virtually command businessmen to have razor-sharp strategies, even though the temptation is to use disposable razors and other short-term tactics that merely get you through tomorrow or next week. Our contention is that “winging it” will put you on the road to bankruptcy.

Priceware. Prices now are crazy, totally divorced from both reality and any sense of value. Retailers are using price-optimization software from which they expect a payback in 12 months. Among the distortions this produces are different prices for the same goods, even at chain stores only a few miles apart from each other. Analysts crunch inventory and sales data from each store trying to find out what the traffic will bear, there being a different tolerance for pain from store to store. Only a foolish consumer now does one-stop shopping, since prices are bound to be out of line on some items at any one shop. At some drug stores, for instance, extra margin these days is packed into non-pharmacy items, with plenty of greeting cards, of pedestrian sentiment and design, selling at boutique prices.

This same price aggressiveness is also seen in business-to-business sales, with as much as 20% in extra dollars tacked onto some expensive electrical equipment when it is revealed that very few sales are lost as a result. Eventually, of course, this leads to trouble: airlines have strained relationships with their all-important business passengers, who have found themselves sitting beside economy passengers who have paid half or less for the same seats. The problem, we emphasize, is not high pricing. It’s the failure to deliver more for the money. It’s offering commodity goods for luxury prices. When the prices of things begin to bear some relation to value, one will know the world’s economy and individual businesses are on the mend.

Three Musketeers to the Rescue. In coming weeks, too, we will be talking about D’Artagnan on the Global Province, who, as you will remember, left Gascony to join the Three Musketeers. Well, D’Artagnan is a hit restaurant in Manhattan as well, and, as importantly, a $30 million a year specialty meat distributor of foie gras and duck and rabbit and lamb and quail and wild mushrooms. Obviously you will run up quite a tab at the restaurant, but, pleasurably, you know in advance that it uses superb ingredients, since it serves as a showcase for its owners’ products. In other words, you are paying up, but D’Artagnan is much too honorable to pick your pocket. It deserves a premium.


GP2Oct: Systems on the Edge of a Nervous Breakdown

The Laws of Lawlessness. Back in the 20th century, when things still seemed to work, we conjured up a number of laws, sometimes humorous, always ironic, that said we were going to hell in a hand basket. Now in the 21st, we’re in purgatory, and the laws have all come true. The space program, apparently, gave birth to Murphy’s Law: “If anything can go wrong, it will.” Augustine’s Laws, the title of a book by one-time under-defense secretary and later Martin Marietta head Norm Augustine, more or less said: “As we get more and more money to spend on trinkets, we put more and more electronics in our jet planes, which condemns them to ever-increasing breakdowns and downtime.” Best of all and all but forgotten now is Cybernetics (1948), a short, exceedingly provocative work by the brilliant Norbert Weiner, a scientist for all seasons. In it we learned that the second Law of Themodynamics guarantees entropy in all systems. That is, organized things will always fall apart. Or as our good friend Regis C. announced to all with a chortle several years ago after a disruptive incident in the subway: “Well, that equine elimination is just gonna happen.” We have abundant laws, written before their time, that underscore the ultimate lawlessness of the universe and the inevitable Decline and Fall of any system you can dream up.

The Myth of Robust Systems. Computer people have nattered on about robust systems for half a century. But now that you know that anything complex is subject to the slings and arrows of Weiner’s entropy, you can state positively that such assertions simply don’t hold water. There’s really no such thing as a robust system. And, circa 2002, as we make our systems more and more complex, we’re simply experiencing more and more breakdown. Moreover, since our systems are interconnected (your house alarm is linked to an outside monitoring service located 100 miles away, which may call the wrong fire department when something happens), the domino effect comes into play. One bolt of lightening in the wrong place can bring 40 interconnected systems to a standstill.

There are all sorts of reasons that systems fall apart. In fact, the chaps at the Sante Fe Institute in New Mexico not only study complexity but stay up nights drumming up ways to make the complex, which is inherently unstable, stay glued together. They, and most of the architects who devise systems, tend to worry about design issues, looking at how systems are wired together. Isn't it ironic that all the people who look at complex phenomena always abide in simple places where the biggest story of the day is that somebody forgot to plug in the coffeepot? 

Shoddy Merchandise. We mere mortals, well away from the ivory tower, in the more complex world outside Santa Fe, can usually look to something more down to earth if we are out to avoid breakdown. In fact, a software guru from Santa Fe taught us that you can have poorly designed systems that function well, if the systems have lots of redundancy. Are there spare parts in the system, so when one conks out another takes over? Are there enough spare parts on your shelf (don't believe in maintenance schedules or just-in-time delivery) so you can pull a burnt-out part out and plug in another? Systems are put together by people often called integrators who, either through calculation or ignorance, use lousy components in their systems. And they’re too vain to acknowledge that even the best of systems (i.e., the systems they have built) will fail often. Simple to say: if you can use great parts, you will have less outages.

So this is a warning to us all to watch out for any system that is called “integrated.” It rarely has rugged enough components to work, lacks redundancy, and its creators usually over claim what it can do, even in the best of circumstances. This yellow caution light applies to all sorts of systems, not just the wired kind such as computers, electric grids, or management-information systems. As oft as not, systems fail because there’s a weak link in the chain. By the way, that certainly accounts for our worst space disasters.

For instance, many of the schools your kids go to now have “integrated curriculums” (a.k.a. curricula). That really means that all the courses are loosely knitted together so that your tots can read some colonial literature in Language Arts (an unfortunate euphemism for what we use to call English) while George Washington is bravely losing a battle or two against the French and Indians in a Social Studies course. But you can be sure that many children are not getting the vital, rigorous training they need in grammar, multiplication charts, or periodic tables. In computer training, they’re fooling around with elaborate Powerpoints, but never really learning to keyboard (type). The politically correct textbooks they use often border on illiteracy, even if they bear the imprimatur of some university in the Midwest. In other words, the components of these integrated curricula are lousy. According to some federal statistics, 30% of college students will need to take remedial course in reading, writing, and mathematics in order to get the fundamentals they missed growing up.

Just as bad is the customer service system at your utility, which lacks real-time data on when the repairs will get done and also lacks the power to send any meaningful data to the repair department so that the right skills are dispatched to do the fix. Their systems lack the correct software, the right training protocols, etc.

It’s not that there aren't simple systems that work. For instance, back in 1996 or so there was a wonderful bank in Palo Alto called University National Bank. As Chief Executive Carl Schmitt then said, “We’re in the put and take business.” He took money in and gave money out. He did not offer an endless array of services or contorted product options. He was in the deposit business. The folks who worked there were exceedingly polite; I seem to remember an Oriental rug on the floor; and you did not have to wait in long lines. Carl gave all his customers some Walla Walla onions at Christmas, as a way of saying thanks. He also took great pictures himself for his annual report. Since then, Wells Fargo or one of the huge integrated financial service institutions took it over, and reliability is out the window. There’s no longer a great non-integrator at the helm who wants to deliver on a simple idea, using simple, no-nonsense components. Here and there, around the nation you can still find the occasional put-and-take, one horse bank--these kinds of banks tend to make money year after year.

Looking Under the Hood. This world of fragile interdependent systems ultimately means that we will have to know what goes into anything in order to make our lives work. Most systems and processes are invisible now, and even if we get a list of contents, we don’t know what to make of them. Eventually we might hope for quality branding, the equivalent of the old Good Housekeeping seal of approval. Just as Intel has gotten computer makers to use “Intel Inside” labels, we are going to need short-hand labels that tell us we are probably getting good goods. This matter of quality contents or components presents incredible opportunities for alert business people who will increasingly grasp that obsolescence is no longer a viable business strategy in a resource-short, environmentally afflicted, stalled market economic environment. We need things that last and work for a long time. But it’s hard to build for a 100 years when you’re used to trashing everything. Here is an almost shocking business observation: obsolescence is obsolescent.

The first hints of making-visible-better-insides are just appearing on the horizon. McDonald’s and Frito-Lay are moving to put better oils in their foods, and we expect they will be better able to dramatize the Health Inside than the American Health Association or other non-profits. The air conditioning man (if he is not part of the national chains) is able to describe and install filtration devices that vastly extend the life of the cooling system. UPS and FedEx have made package deliveries transparent to the consumer, so that one can track on the Internet an item’s progress to its final destination. A few companies are becoming more agile at making the invisible worlds of systems and services visible to their customers. Any product or service is just part of a system: in a world of breakdown, we need to see whether the system works or does not work.

Ask the Repairman. But the insides of systems, products, services, schools, governments, whatever, are generally not transparent. As users, we have two choices.

1. Ask a repairman. He will probably tell you he would prefer to work on a Toyota above all other cars. Or that four TV brands (Sony and a few others) stand out above the pack for reliability and repairability. Repairability often tells you whether you are dealing with a well-wrought system. What we are saying here is that an informed middleman is a way of improving your luck with systems. Japanese manufacturers, similarly, once used middlemen (distributors of products) to find out what Americans wanted in their cars, TVs, power tools, etc.

2. Find some repair data. In a few cases, raw maintenance data of various sorts is available. The government collects on-time and other data on the airlines, which is not always easy to uncover but can be unearthed. Consumer Reports assembles maintenance data on car models that is uncommonly revealing and tells you more than all the testing performed by CR’s engineers.

In other words, until labeling gets better, you had best find out about the reliability of systems from some sort of repair data. It’s the breakdowns that tell you what you are dealing with.

Call 911. Remember when the Monday morning quarterbacks told us that Y2K was really a false alarm, and that the world’s computer systems did not fall apart despite the fact that computer engineers had not anticipated, way back when, that the year 2000 would ever come to pass. But wait a minute: systems of all kinds post 2000 are breaking down everywhere. There are more power outages with many more to come because we are simply not building new generation capacity. We've been to the very edge of the Dark Ages in our financial markets--more than once. The Cold War is over, but Don Rumsfeld is still using the Spanish Armada to battle unconventional forces and terrorist viruses--the wrong system and wrong weapons to deal with an unseen enemy. Who says Y2K never happened?

Chances are you are going to run into total breakdown more and more. Recently a retired physician checked into a hospital north of Boston for surgery. Early one evening he rang for a bedpan, and, no matter how much he rang or shouted, nobody came.

The following night, exactly the same thing happened. But he had a Eureka and picked up his cell phone to call 911. The local police were able to rouse the hospital staff and to get him a bedpan in the nick of time.

Likewise, Don Imus, the radio talkslash host, was just as ingenious recently. No matter what, he could not get a Time Warner cable repairman to come to his New York apartment. Then he railed about it on his radio/cable show and the minions of TW came running. But, even after repairs, they knocked out the reception on one small TV in his kitchen. The system is so flawed that even the repairmen don't know what to do. And cable is one of the most hated services in the United States.

The world of broken systems is also a world of broken communication where citizens will have to be ingenious beyond belief to fight entropy. Broken systems turn ordinary citizens into guerilla fighters. As Norbert Weiner would have said, entropy “subverts the exchange of messages.” So you'll just have to learn to beat on your tom-tom.


GP18Sep:  Going Upmarket in Stormy Weather 

Sunshine Boys and Girls.  All through the booming 1990s, we heard doomsday prophets rant on about the imminent end of the world and the financial implosion that was only 2 days away.  Now it’s just the opposite.  The contrarians and semi-balmy are going on about the resilience of our heartland economy and the power of low interest rates that are already igniting a rebound we’d see if we were only more perceptive.  For instance, if you read the Sept. 24 New York Times, “Against All Odds:  A Couple of Bulls,” you will learn about James Smith of the University of North Carolina and Nancy Lazar of the International Strategy and Investment Group.  They envision 4% growth by year’s end.  Just like the songsters in the old feel-good Broadway musicals, they see, at the end of a storm, a golden sky and the sweet silver song of a lark. 

And The Rains Still Came.  But Saturday also brought in the mail the Herman Miller 2002 Annual Report.  It has a bad weather map on the cover, plaintively announces the company is “Coming Through the Storm Stronger for the Future,” and offers upfront an actual poncho to help you get through these stormy times.  We will be calling Herman Miller (NASDAQ:MLHR; www.hermanmiller.com) to ask for a gross of ponchos to cover us during the many downpours ahead.  Should you need a cold dose of reality to deal  with the better-times-are-coming people, simply examine Miller, which lost $56 million last year, having earned $141 million the year before.  It’s as good a way as any to learn that we are in just the second dip of this recession.  Miller, incidentally, makes very slick, high-end furniture for the office, but this very good company does need a substantial rethink, since corporate purchasing agents are in a threadbare state of mind, and it needs to find whole new markets. 

In Bad Times, Good Goods.  What America did during the first leg of the downturn last year was to go cheap.  We cut all sorts of costs out of business, fired a whole bunch of people, put too little inventory on the shelf, killed customer service, cheapened our product offerings, raised cash, and more or less completed the orgy of cost reduction that got its start way back in 1990.  In many ways, a host of companies have simply been eviscerating themselves.  Everybody in their own way hoped to become a Southwest Airlines (NYSE:LUV; www.southwest.com), the Greyhound of the Skies, by offering no amenities and laughing about their low-rent atmospherics, hoping that their equivalent of $150 fares would garner big revenues, even if the product was just like cattle-car transportation.  In 2001, this worked for many, as huge discounters in every industry took market share and profits.   

Now, in the second leg of this recession, sales are beginning to erode at Wal-Mart (NYSE:WMT; www.walmartstores.com) and the discounters.  Consumers are either saturated, or they’re simply running out of money.  The cut-rate marketplace is just beginning to look a little tired.   

A Paradox Is Upon Us.  As time goes by, it pays to go upmarket, not down..  You will find less competition up there, since others have rushed into the commodity, stripped-down arena.  And there are still some upmarket buyers standing, with dollar bills in their billfolds, whereas other consumers have fallen by the wayside.  The Bad Times, Good Goods Paradox is that for some, deep, long recessions are a good time to go high end.  And a corollary is that product quality will often get substantially better in a slump, since the selective buyers who are left won’t go for shoddy fare.  In the developed markets of the world, we can argue that you should swim upstream, pulling free of the crowd that is bobbing along with the current downstream.   

Bangkok Airways.  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. 

Grey Power.  Even when this long recession finally ends somewhere in this decade, an upmarket strategy will still make lots of sense.  All sorts of demographic things are happening in developed nations that should point companies in new directions.  People over 60 now comprise 20% of the market in advanced nations, and this will swell to one-third by  2050, and even 40% in Japan.  (See the Economist, August 10, 2002, pp.51-52.)  The mature can and will pay for more, if products and services match their requirements.  This, of course, implies a  revolution in the world of marketing, where everything has been blindly focused on younger people.  Ironically, for instance, the TV networks focus on the young, yet the seniors have the wealth and available time to make them fat, empty nest targets for clever salesmen.   

Rainbow Tastes.  On the Global Province, you will now find a Best of Spices section (www.globalprovince.com/bestspices.htm).  This signals that America is steering away from bland, standardized food—as well as other faceless, mass-market offerings.  Surely spices form the dividing line between numbness and enriched experience.  The growing interest in quality spices clearly shows us that Little Calcutta is being grafted onto Middletown.  That is, ethnic diversity is leading to diverse tastes that are infecting the whole of America.  People want sushi to go with their skim milk lattes.  All these micro-food markets have let the air out of the tires at McDonald’s and Burger King.  In other words, differentiating consumers don’t want one size fits all.  We have found, for instance, 6 or 7  special table salts—and a like number of peppers—that people will go out of their way to get. 

The Rise of the Creative Class.  Richard Florida’s The Rise of the Creative Class:  And How It’s Transforming Work, Leisure, Community and Everyday Life implicitly suggests another reason for going upmarket.  In short, he theorizes that the people (i.e. creative technologists and the like) who will build the next economy flock to regions with an interesting infrastructure.  It’s not enough to offer well-funded universities, decent highways, and ample golf courses.  The new creative knowledge class wants galleries, top restaurants, a cosmopolitan population, theater, and a host of other urban delights.  Development has become more dependent on talent than capital.  But the talent will only migrate if good goods are available.  This has been a problem for state development agencies whose tactics have primarily focused on importing manufacturing jobs instead of capturing entrepreneurs who start businesses in a garage and collectively create a critical creative mass.  These agencies don’t try to put in place the little things that mean a lot to knowledge workers.  The creatives want communities with texture.   

Quality of Life Channels.  Nowhere is the value of an upmarket strategy more apparent than in the media business.  We would point particularly to E.W. Scripps (NYSE:SSP; www.scripps.com), which has been doing well even in what could be called the worse advertising market since the 1930s.  While its newspapers and its broadcast units are relatively flat, its Scripps Network unit soars ahead, with a 19-percent increase in revenues in the 2d quarter.  At this rate, it will probably becomes the company’s largest unit in 8 to 12 quarters.   

What Scripps Networks does is author content that is distributed through cable television.  So far this consists of House and Garden TV, the Food Network, Do It Yourself, and Fine Living.  What’s produced is often of very high quality.  We call these networks Quality-of-Life Channels.  Scripps is profiting handsomely by dealing with life improvement, doing well while doing good.  Scripps, and certain of the other regional media companies, are doing well, even as AOL Time Warner and other mass market media goliaths falter in interactive space. 

You’re the Tops.  The media world is a microcosm of what is happening in business across the board in this knowledge economy.  Smaller companies threaten to topple larger companies by upgrading their brands and ministering to selective tastes, since they are not leashed to huge volume requirements and mass market thinking.  In the industrialized, developed markets of the world, now caught in enduring recession, we expect new top companies to emerge because they have decided to be top-grade producers, not because they are low-cost, low-price, low-imagination machines totally dependent on scale to be a force in their marketplaces.  As Cole Porter would have it, they’re the tops because they act the part.  They’re the tops because they’re realistic enough to do something very different when the economy is in a ditch, singin’ in the rain instead of runnin’ for cover.


GP11September:  Hong Kong Shanghaied

Fear and Loathing in Hong Kong.  You have already read about rising unemployment there, homes that are now worth much less than the mortgages they bear, and migration of shipping revenues to neighboring provinces as well as to Singapore.  Hong Kong is more than participating in the grand Bear Market that has swept over the world.  Nowhere is this more evident than in the financial services sector, once Hong Kong’s pride and joy, which is now foundering.  The banks are paranoid to a fair-thee-well, with many loans under water and without a clear vision as to how the local economy will recover.  This paralysis has clearly even affected foreign banks with operations there.  Local bank managers even for the European banks are sitting on their hands and not getting loans made, passing up good opportunities and sound credits backed by a pile of assets.  If Hong Kong cannot make loans, if its core financial businesses are standing still, you can be sure the city’s woes will last much beyond the present crisis, hinting at an enduring long-term decline in its affairs

The Upbeat Boys from Shanghai.  Ironically, a few of the more limber Chinese banks based elsewhere are ready to do business.  In part this reflects the genuine business optimism still coursing through China even as the rest of the world wrestles with a slough of despond.  But the irony is deeper.  Quietly, banking in China is awakening, even if the principal banks appear to be teetering on the edge of bankruptcy, burdened by horrible loans to state owned companies that have no prospect of being repaid.  So if you are a smart entrepreneur in Hong Kong who cannot get local financing, you are now welcoming smaller, nimbler Chinese banks in to finance your trade receivables.

Certain Chinese banks are learning from the foreign banks now invading their turf and then racing to do new kinds of business.  An interesting article in the Wall Street Journal, (August 27, 2002, pp. C3 & C13), entitled “Foreign Influx Could Benefit Chinese Banks,” captures just this point.  It talks about how Citibank and other foreign banks  bought up accounts receivables from Ericsson’s Chinese operations, wresting banking relationships away from the Chinese.  The foreign banks have provided a wake-up call, and local bankers are heeding the message:  Learn how the foreigners do it and get even more aggressive than the invaders.  “Far from crumbling, Chinese banks are proving quick studies in learning firm their foreign counterparts.  That suggests China’s banking sector may follow a pattern similar to” other business sectors.  “First, foreigners enter the market by storm, then Chinese companies fight back and retake lost ground.”  This is fascinating because several foreign observers predict bad times ahead for China based on the fact that the principal banks are underwater.  Is it possible, we may ask, that as whole new flock of free enterprise banks may supplant the old dinosaurs?

Liquidity at All Costs.  Lest we forget, the tendency of the Hong Kong banks to get some cash in their jeans and to hold onto it is mirrored by companies aplenty in Europe and America.  As we said in our Annual Report on Annual Reports 2002, the signal thrust of principal companies last year was to gather cash, not to raise revenues or profits.  In general they were not seizing opportunity but avoiding risk.  Of course, this is the time when banks should be nailing new, good customers and companies should be buying up new businesses on the cheap.  But that’s not what most people do in a storm. 

Doing Nothing or Something.  We have spoken with several investment managers around the United States who are doing a bit better than their peers by doing nothing.  They are under-invested, sitting on cash, so they have avoided stocks in decline.  That sort of describes what you do in this business climate at the moment.  Either you sit on your cash and wait for that ever receding bottom in world markets, or you look for niches you can buy into cheaply with a view towards establishing a major long-term market position.  If you are a Shanghai bank, right now you can position yourself cleverly throughout Hong Kong, Southeast Asia, and other ports of call.  If you an investment manager in Boston who has to dress up your results for the next 8 quarters, you probably have to sit tight.  If you are a private company or private investor, you are buying all sorts of things at bargain prices.  Or, if you are Warren Buffett, you are participating in a joint venture to buy very cheap telecommunication assets that are under water now.

Pushing the Boundaries.  But the strategic insight here that will have meaning when this nine year Bear Market comes to an end is not that some bankers and investors are sitting on the sidelines.  What’s happening is that enterprise everywhere is becoming global in ways that we could never have imagined.  Even capital-hungry China is beginning to deploy capital further and further afield, first perhaps in Hong Kong and then all about its region.  Western multinationals will probably be investing and operating in Third World countries they have typically shunned in order to create new markets.  The September 2002 Harvard Business Review (pp. 48-57) in “Serving the World’s Poor, Profitably” suggests that there’s a nickel to be made among the 65% of the world’s population that earns less than $2,000 a year.  Hindustan Lever (Unilever’s operation in India) does $2.6 billion in India, making a living by keeping its aggregate capital investment low and using some unusual tactics to reach poor villagers.  Business, in fact, will be driven more and more to reach new frontiers, where angels fear to tread and the complacent never venture. 


GP2September:  Bests, Greats, & Other Superlatives

Global Bakery.  Last week we added the whole story about Guglhupf in our Best of Triangle Section.  We have said already that it was the one world-class bakery in the Raleigh-Durham area.  But we have expanded on that because we wanted to talk about the origins of good taste and excellence.  In the case of this bakery, the key to its excellence lies in the fact that two very talented Germans moved from Europe to the Triangle and brought with them their various rigorous standards.  It's a template for other areas of the country that want to create value-added development:  more jobs and a better economy result when you concentrate on importing talent instead of bricks and mortar.  This bakery is just another example of knowledge transfer, where something substantial results when you import skills, good taste, and dogged persistence into a region.

Great Companies.  We also posted last week a list of the companies that can be found on this site which we will try to keep up-to-date.  Many, but certainly not all, are companies that have demonstrated agility, excellence, and a yen to do something new and different.  But, for contrast, there are certainly many dogs as well.

Best of Class.  A while back we sorted through out Best of Class section and made special indexes of items that particularly interest readers, such as the Best Hotels, Best Spices, Best of New York, etc.  You will want to pour through those special categories, which you can reach through the regular Best of Class page.  Soon we will also be posting some of them on the front page of this site.


GP19Aug:  Stories R Us

Storyville.  Only recently have we learned about the other Storyville, well away from New Orleans.  It is in Jonesborough, Tennessee, where people gather yearly to tell their yarns before large audiences.  Tennessee, it seems, not only has Nashville where country and western singers wax eloquent on getting through love and all the other joys and agonies of life.  In  Jonesborough, yarnmeisters lift up our spirits with tales of heroism and anecdotes that reveal some moral truths about life. 

Jonesborough, if we have it straight, has a historic right to be at the center of storytelling.  It is at the heart of Washington County which bounced back and forth in earlier times between North Carolina and Tennessee, much the unwanted stepchild.  In fact, it tried to break off as the new state of Franklin in 1784, but that rebellion was put down by Tennessee which, in the end, wanted to own this mythic state of mind.  You can read all about this Storyville on one of its websites:  www.jonesboroughonline.com and  about our storytelling subculture on the host of interrelated sites about storytelling, such as www.storynet.org, www.storytellersguild.org, www.storytellingfestival.net, and others.   

Upbringing.  Stories do have a lot to do with bringing up our children right.  There is ample evidence that children turn out more literate if their parents will read to them at bedtime, year after year.  And there’s a chap in Dallas who was in the duck whistle business who believed that he had brought up his children right if they had a bunch of good memories (stories to tell).  Education, training, learning—all that stuff—seems to work better when we use stories, because tales capture the heart as well as the mind, while pedagogues, sadly, often capture very little with their abstractions. 

Case Method.  Once upon a time, the Harvard Business School taught almost exclusively by the case method wherein students poured over, debated, and tried to understand a tale about some aspect of a company’s history. In other words, Harvard was in the story business.  This worked pretty well, even though the tales were not richly told or written.  In fact, Harvard should get back to cases and insist that professors and students alike learn to create them—with lots of metaphors and levels of understanding—and to understand them. 

There are a few companies today that esteem their myths.  And we know of at least one company that is putting together a company training program simply based on richly told stories out of the company’s history book.  Its best story is about how badly early managers ran the company but that its product is so good that they simply could not destroy the company no matter how hard they tried. In this company, it is felt that story-training does more than help employees achieve analytical minds:  it motivates them and gives them a common language and helps them tell their company’s story to the world.  We have discovered, too, that the best way to help employees understand something is to get them to teach it.  With stories, they are far better teachers. 

Tell Me a Story.  This is the title of Don Hewitt’s book, the longtime producer of Sixty Minutes.  “I may not know a lot,” says Hewitt, “but I think I know how to tell a story.”  Probably he doesn’t  tell a good story, but he does know how to write good headlines like “Tell Me A Story.”  TV is not a good story medium, and most of the news features done on his show have an axe to grind.    Somehow they do not lead to feelings of exaltation.  In the days of radio (stories are a hearing thing), we heard tales that led us to new worlds and often put us in mind of a better thing.   

Lemons into Lemonade.  One of our partners said the task in business is to turn “lemons into lemonade.”  That sure makes for both useful and entertaining stories in business.  We remember the tale of the chap whose truck broke down on Central Avenue just outside of Hartsdale, New York.  With nothing better to do, he set up shop and started selling soft ice cream then and there.  People aplenty stopped:  this scientific location analysis drove him to come back to this spot endlessly to sell ice cream.  Eventually he put up a store in that very place.  Thus was born the Carvel soft ice cream empire, finally a success because an unsuccessful itinerant soft ice cream vendor accidentally opened up his stand in a magic location where his product flew off the shelf.   

We would conclude that it is good business to recount stories about successful accidents and that accidental stories are the tissue that connects business enterprises together in ways that last through the generations.  Good stories are believable:  this power seems to elude TV news magazines, management textbooks, sermonizing self-help books, and a host of other vehicles where telling a good story superbly is not the supreme objective.  We can always use a story or two.


GP5Aug:  Sigma Six Service

Sigma Service.  We have recently put up a note (Agile Companies #165) about the effort to apply quality improvement  techniques, traditionally reserved for manufacturing, to a host of services:  from back-office operations at financial service companies to customer service processes at manufacturers, utilities, etc.  This is all to the good, because service is the real growth factor in advanced economies such as ours, as manufacturing migrates to cheap labor countries.  It’s no accident, in this regard, that IBM has shifted its skew to consulting services, most recently buying Price Waterhouse’s consulting outfit.  To grow, companies must offer services; to grow profitably, they must render these services terribly well.  But it’s the rendering well that they are not doing. 

Utilities Hurting the Most.  If you use electricity or talk on a telephone, you know how bad service can be.  Recently, for instance, one of the nation’s most esteemed utilities took 7 hours to respond to a fairly simple electricity outage.  Customer service personnel could not transmit the nature of the outage to engineering; they were not equipped, moreover, to ask the right questions of the customer, much less communicate the right complaint to the fix-it people.  That later led to two sets of personnel being sent to the problem site as well as other mishaps—a very unnecessary cost.  And, of course, no repair times were spelled out for the customer, although it was terribly clear that engineering knew about when it could show up.  Remedial actions, after the repair, which might avoid future breakdowns, were never contemplated or taken.  It would be fair to say that almost nothing about this service process was correctly designed.   

Similarly, during the month of July, a minor auto damage claim took 9 days and 4 people at 4 different locations, accompanied by lots of hectoring phone calls, to get acted upon.  The claims process of this insurance company is clearly terribly expensive, and this excess cost obviously exceeded the amounts the company saved by delaying disbursements. 

Good Conversation.  Examples of good, low-cost service do pop up all the time.  A catalog firm provides its customer service people with enough data to save lots of time on re-orders.  A Delaware credit card firm allows its phone people to cancel dubious charges, with good will and savings accruing all around. 

We have said in a previous letter that the first test of a good company is whether you can pick up the phone and reach somebody helpful in less than 5 minutes.  Clearly that eliminates AOL Time Warner’s cable unit.  But some companies make the grade. 

If the phone is picked up, then we must see whether the customer service person can ask meaningful questions and whether the information actually reaches someone who can act on it.  Does the information get transmitted to operations?   Finally, of course, we have to discover whether we can then get real-time updates as to when an order will get filled or a problem resolved.  Fed Ex and UPS, for instance, tell us on the Internet where our package is in the transit chain; if it is delayed, we can adjust our business plans realistically.  We can avoid “airport syndrome,” where one waits around an airport for an aircraft that is never going to make it, a result of the airlines’ calculated insistence on not  giving out meaningful information.   

There’s nothing worse—for a customer or for a provider—than a customer who simply does not know what’s going on.  Quite often, in fact, that means the company does not know what’s going on as well—at great cost to everyone.  What we discover, in looking at customer service, is that customers often cannot talk to the company, and worse, that the employees of a company can’t even talk to each other.  Everybody is stymied.  That’s the nature of a broken system.   

Dell Does It.   All this would not be worth talking about if things were hopeless.  But they are not.  Dell lands computers on our doorstep, configured to our wishes, in a terribly short period of time.  The small limousine service in a Northern city knows an infinite number of routes around town, finding ways to beat even the most obdurate traffic jams.  The Wall Street Journal makes its way to our door more reliably than other papers, but when there’s a glitch its service personnel know about the problem quickly and already have worked out the solution.  Service done right is not only a competitive advantage, but often it is cheaper than getting it wrong. 

P.S.  We talked about companies and the telephone in our July 1 letter below.


GP29July:  McKinsey: Brightest But Not the Best?

McKinsey in the News.  Ever since the fall of Enron (www.enron.com), McKinsey and Company (www.mckinsey.com), the illustrious blockbuster management consulting firm, has been much in the news.  Articles in several leading publications have asked whether there are some flies in the McKinsey ointment.  At question is whether McKinsey itself played a crucial role in the moral and economic failings that brought Enron low.  CEO Skilling himself came from McKinsey, and the consulting firm’s yearly bill to Enron was a whopper.

The Teetering Point.  In the July 22, 2002 New Yorker (www.newyorker.com), Malcolm Gladwell’s “Talent Myth” reasons that a Mckinsey dogma--bright, young MBAs can remake the world--put Enron on a certain path to failure.  Marvin Bower, the founder of present day Mckinsey in 1939, had emphasized intelligence over on-the-job experience in his new hires.  In the 1990’s that had come to mean at McKinsey and Enron (and a score of consulting firms, incidentally) hiring massive numbers of bright MBA’s out of the best business schools and then turning them loose in the sandbox to work wonders throughout the business.  The freewheeling MBAs at Enron took the company down some strange and unproductive byways.  Brightness alone does not make for superior performance. As Gladwell puts it, “Are smart people overrated?”

CEO Confidant.  In the 1990’s, when we talked to more than 50 major chief executives about consulting firms, we discovered that they rate McKinsey’s senior partners highly, finding their one-on-one inputs valuable.  But they found the analytical work of other firms to be much more helpful.  Over the years when we have helped some companies implement McKinsey recommendations, we have, indeed, found that the details have to be fleshed out in order to be practical and useful.  Perhaps this is about what we should expect from a company with 84 offices that claims to serve “every business sector and industry,” as well as governments and non-profits.  Its experienced seniors bring a lot to the table, but its MBA juniors might just be a bit stretched.  This personnel equation has produced rampant growth for McKinsey, yet we must ask whether this is the right model going forward.

The Next Consulting Firm.  With more than one consulting firm in disrepair and with a few out of business, we have to ask what’s next for consulting.  One Dallas chief executive has told us that consulting firms cannot keep up with the changes in his markets and that he has had to find other ways of staying ahead of the business curve.

The tasks for consulting firms of various stripes are speed, revenue, and intuition.  They have to help their clients leap ahead of the meltdown in their markets or the movement of production to Asia.  They have to find new revenues for companies hitting the growth plateau: if the fizz has gone out of colas, they have to get their beverage clients adeptly into specialty water, non-carbonated drinks, and snacks.  They must find the intuition and inspiration to replace pure analysis: analysis will project poor returns for almost any new product, but intuition will pick out some winners and suggest new ways to sell them. In a word, they must become a bit more creative, soaring well beyond mere intelligence.  But creative businessmen are a lot harder to find than MBAs....

P.S. Our associate Steve A. Martin contributed key insights to this letter.


 

GP22July:  Santa Fe: What You See Is Not What You Get

Santa Fe Baggage. Life there should be simple, but it ain’t. Fifteen years ago when we went out to Santa Fe for a couple of months.  We learned that affluents from New York, Texas, and California had imported all their anomalies, putting the lie to the all the bucolic airs we attributed to the place.

For instance, the retiring head of a Dallas corporation had wrapped his new house in a security system that would do justice to Fort Knox. One of our favorite art galleries for gossip was owned by an ex-Playboy bunny who had discovered other ways to liberate fat cats of their spare change:  New Mexican art, of course.  Out on the plaza, we spied failed New York politicians, clearly relieved to be somewhere where a number of people had given up all pretense of making it. In Santa Fe, you only thought you were getting away from it all, but people had brought plenty of baggage.

Home of Complexity.  Urban civilization’s overlay had done good things to Santa Fe as well, such as the summer opera. Or, more importantly, the Santa Fe Institute (www.santafe.edu), the home of complexity. There scientists had nurtured complexity theory, modeling, for instance, in fairly convincing ways, how advanced life came to be and how it evolved. Complex scientists say that it’s much more pleasing and useful to use 20 or 40 variables to mirror the complexity of life and of human processes than to try to explain them with a simple equation that only looks at a couple of factors. In complexity theory, you admit that life is complex and try to get a picture of how complex processes work.

Ironically, then, fairly simple places gone awry Santa Fe for complexity, Princeton for chaos, the Peninsula for transistors and chips provide the incubators where profoundly different ways of thinking about things can germinate and flourish. Strangely, the isolation helps. Of course, it is no accident that Los Alamos is just up the road from Santa Fe, or that the Institute of Advanced Studies was already a temple for math, physics, and other things right at the edge of the Princeton campus.  Really big changes seem to take place in hamlets, very far from the cry of the cities

Bios. You will find on the Global Province (see Agile Companies) a company called BiosGroup (www.biosgroup.com), an operations research firm that applied complexity theory to business systems. We’ve just had our first talk with Stuart Kauffman, its founder and also one of the originators of the Santa Fe Institute. We’ll eventually include some of our discussion with him on Global Province. BiosGroup has completed some big-league assignments applying complexity theory to corporate systems in order to make them work better. Most systems, you will find, are sloppy patchworks both theoretically and mechanically, needing all sorts of rework. BiosGroup can help get them rethought. Complexity, then, is working its way out of the academy into the marketplace.

Fighting Fire with Fire. Well, we would all like to go back to Rousseau’s and Emerson’s nature, where things were innocent and sweet, but it’s not in the cards. Indeed, as in Santa Fe, we have made everything so complex that we will have to grapple with the slapdash, horribly intricate systems that we have wrapped around the planet. That means we need “complexity” to deal with “complexity.” Economically, we can still lick 2/3 of our problems with plain common sense. But 1/3 of the solutions aren’t intuitive and require subterranean, complex answers.

Albuquerque Surprise. And New Mexico has other surprises in store for us. In Albuquerque (the big city for New Mexico), Eclipse Aviation (www.eclipseaviation.com) is getting close enough to rolling out its Eclipse 500 jet to start taking orders. The price is $800,000 to $1,000,000, meaning that its price is 1/3 that of an entry-level business jet and its operating costs are projected to be 40% of what a business bird will cost. If this all works, we are talking about an air taxi, cheap to operate and buy, which can be used by commuter lines to take small numbers of passengers in and out of the thousands of under-used, small airports in the country, reshaping the unwieldy U.S. air system. It’s this on which James Fallows essayed in his new book, Free Flight: From Airline Hell to a New Age of Travel, which you can find in our Infinite Bookstore.


GP15July:  Lexington: Built to Last

Holloway of Lexington.  Our old friend Roger Holloway of Riveredge Farms decorated the pages of the New York Times last week ("The Star of Elm Street Stages a Comeback,"  July 11, 2002).  Lexington, Kentucky, it seems, is fertile ground for more than racehorses.  Roger, along with James Sherwood of the Orient Express, if we remember correctly, and J. Peterman of catalog fame (see Best of Class, entry 234), all came from that blessed patch of bluegrass.  We talked about Roger in Best of Class (see Elm Revival, entry 188) a year or so ago, recommending his Princeton Elms to one and all.  They resist the Dutch Elm Disease and they grow like blazes.  Ours is now 11 feet tall and reaching higher every day.  By the way, the Times also mentions the Valley Forge variety, which we don't recommend, because, while handsome, it simply doesn't grow as fast as the Princeton, though it has a worthy spot on our back line.

Our Best of Class section, where we've parked Roger, is by far the most popular section of the Global Province.  It has a bunch of stuff on great locales (Alaska, San Antonio, San Francisco, New York City, France, New Orleans, etc) and on life's several delights such as books, restaurants, hotels, spices, tea, wines, museums, etc.  We recommend it to your attention and suggest you take a peek at our index (www.globalprovince.com/bocindex.htm) which will lead you to some of the categories that interest us.  Of course, there are also a lot of bests in our Best of Triangle, Two Rivers (Asia), and Global Sites sections. 

Only the Best.  As you've already guessed, what interests us to the point of obsession is the best of the best, whether we’re talking about business or life writ large.  For a great many, the best is always out of fashion.  In good times, they say, the mediocre sells very well, at a higher profit.  In bad times, the minions who decide what should survive always opt to take out costs and to offer the less than mediocre.

Oddly enough, that's a bad business strategy.  We understand, for instance, that Continental Airlines maintains some perks on its flights while others shave away the extras.  Ostensibly it enjoys a higher load factor as a result.  In any event, bad times and the prospect of a nine-year Bear market call for some long-haul thinking.  In bad times, one needs a car, a blender, a house, a piece of clothing that will endure for 6 years rather than wearing out in 2.  What we want to put on the shelves are products that don't have a shelf life, but hold their value.  Obsolescence is a terrible strategy right now.

Maybeck.  Years ago we studied the West Coast architect Bernard Maybeck, who had an active practice up to the 1930s, once the only winner of a gold medal from the AIA other than Frank Lloyd Wright.  Many said his houses were too expensive.  But a fine San Francisco architect told us it depends how you look at it.  “Maybeck’s redwood houses,” he said, “were built to last.  They're cheap if you realize how long they will endure.”  We hope that's what shows up on our Best of Class.  Experiences, and things, and services that are “Built to Last.” 

New Best of Class.  If you will take a look at Best of Class this week, you will find we have added some categories to the introduction page which will make a little of your searching easier.  You can now easily jump from there to our best stuff on spices, hotels, restaurants, New York, San Francisco, etc.—categories which we will continue to expand.  Good reading!


GP8July:  Red-Blooded Americans Again?

Moldy Quality.  A half century ago we stayed overnight at a Springfield, Massachusetts hotel—could it have been the St. James?—not because of the accommodations, but in anticipation of the dining room below.  There was served the tenderest beef known to man, far from cattle country, but several notches above prime.  As our meal cooked, my host rounded up the manager so we could get a look at the doings in the kitchen.  The biggest thrill was the tour of the meat locker where great carcasses, hung about hooks, aged gracefully in the coolish air, mold decorating the sincere red marbled slabs we contemplated.  The mold, you see, added tenderness and flavor, a conspirator in the battle to create texture and bouquet.  This was in the pre-antibiotic, pre-hormone days of beef cattle when Massachusetts still believed in meat, free as it was of politically correct police. 

Beef is Back?  Remember the missing beef Wendy’s talked about in its advertisements?  A quarter of a century ago doctors and government meddlers took it off our plates, saying that beef and fat were the source of our fattening bellies, cholesterol, heart attacks, and most anything else that might be wrong with us.  The Framingham (Massachusetts again) studies, about which some smart physicians have long had questions, said cholesterol kills, and the potentates of medicine said fat and meat make cholesterol.   

Now, we read, the scorned Dr. Atkins may be getting his own.  His high protein diet has, up to now, been dismissed as a dangerous fad by nutrition experts.  Carbohydrates (e.g. bread, etc.) may be the real culprit in obesity, and a low carb, reasonable fat diet may cut pounds and cholesterol.  Read more in “What If It’s All Been a Big Fat Lie” by Gary Taubes, the New York Times Magazine, July 7, 2002, p. 22ff. 

Obesity Balloon in View.  The New York Times’ article is just one in a growing series of articles on the huge, growing global epidemic of obesity.  It is our worse disease.  And suddenly, it has gotten the deserved attention of almost everybody.  Apparently obesity rates in the U.S. began to skyrocket in the 1980s, just when the medical establishment weaned us off meat, followed later by the almost promiscuous prescription of lipid-control drugs (i.e., statins), big business for the pharmaceuticals.  A few think that maybe the docs unwittingly elevated our lipid profiles, and then, alarmed, rushed in with the drugs.  For this you cannot blame them.  The Medocrats in both Cambridge and on the Potomac verbally scorched any heretics who expressed faint doubts about the cholesterol/low fat/heavy statin trinity that has ruled obesity thinking for so long. 

Even if Atkins is right, we will have a hard time making a switch to a better-founded diet.  The medical community requires 10 years of studies in hand to give up a devoutly worshipped belief—a very long time for those with compulsive weight problems.  And, of course, our meats are now so full of chemicals, they’re often hardly worth the eating.  The biggest near-term outcome of  these fat thoughts will surely be to make us pregnant with doubts about the whole healthcare system, which is awfully long on costs and short on results.  It is not clear that the present system develops well thought out medical doctrine or publicly efficacious medical procedure.  Meanwhile, we ourselves are still pinko salmon eaters and can say the salmon diet really works.


GP1July:  Ruth & Paradise Lost

The Story of Ruth.  Years ago we hired Ruth, then a housekeeper, to man the phones in the New York office of the last business we ran.  All our staff bellyached for 3 months, because she made mistakes aplenty at first.  It was hard to deal with the primadonnas amongst our 50 people and with the raft of very demanding callers from America’s largest companies. 

Then the gripes disappeared.  Everybody began to love Ruth.  She got into the telephone, immersed herself in all the details of making the phones work supremely.  Somebody might call in who had not talked to us for a year, let’s say Henry Lindstrom, and she would say, “How are you, Mr. Lindstrom?  We haven’t talked to you lately.”  It was as if he just called us yesterday.  And she called him, “Mr.,” not “Henry,” avoiding the unwarranted familiarity phone sales personnel display these days.  And she did a 1,000 other politenesses to put our clients at ease. 

Ruth’s no longer there.  And the business has never been as good.  Paradise Lost. 

The Numbers Don’t Work.  If you are an investor, you are slowly learning from today’s headlines not to rely on audited financial statements.  Even when accurate, may we add, they don’t tell you much about the company.  At the beginning of the 20th century, we stopped using our financial statements to manage the company and began to use them for the entertainment of publics outside the company.  They have never been the same.  Even in the best of companies, they don’t tell you what’s happening inside.  Paradise Lost. 

Give Them a Jingle.  So what do you do when you no longer have a friend named Ruth at a company you are calling and you can’t trust the numbers.  Investors, we’d suggest you give any company that interests you a ring on the telephone.  See how you are treated.  Can you reach someone fairly soon?  Are the people you talk with forthcoming and polite?  Can you get your business done?  In the last month, we have been undone by United, put in the slow lane at American Express, sorely tested by Southwest Airlines, and put on hold by AT&T.  They’re not stocks we would recommend. 

United (NYSE:UAL; www.united.com).  On 4 separate occasions, seat reservations for a party of 7 were lost by United’s reservation system, despite our frantic phone attempts to set things right.  And that was just one of our problems.  In fact, a gate agent later assured us that the reservation people always fib to get people off the line. 

American Express (NYSE:AXP; www.americanexpress.com).  It took 3 departments to settle Amex’s billing mistakes and to get back some frequent flyer points its chintzy systems denies ostensible late payers. 

Southwest (NYSE:LUC; www.southwest.com).  Reputedly, this is America’s best run major airline, as shown by its continuing profitability.  But recently a reservations clerk could not open a reservations record in order to ensure that proper ticketing occurred.  The hapless customer resorted to prayer.   

AT&T (NYSE:T; www.att.com).  It took 10 minutes and several other complications to pay a simple bill over the telephone.  Obviously AT&T doesn’t need the money.  We stuck with the call just to see how bad things could get.  Pretty bad. 

L.L. Bean (www.llbean.com).  They’re polite and they’re fast. 

Talking to the Customer.  In this era, when most products are about the same, businesses can only make a difference by offering superior service.  By and large, that means making it very easy for a customer to do things with the company over the telephone.  But, increasingly, companies are making it very, very agonizing for a customer to reach out and touch someone.  The gremlins that run call centers have been taught by shortsighted operations people to squeeze out the conversation.   

Telephone excellence is just the thing we now focus on with clients in several industries.  We are amazed at how little time customer service people actually spend with paying customers on the telephone.  We are amazed that training does not install politeness, transaction speed, product knowledge, and one-stop shopping in the lexicon of the “phone associates.”  We are amazed because successful retail phone operations will be one of the defining characteristics of great, high-return companies in the 21st century. 

JetBlue.  We have not tried JetBlue (NASDAQ:JBLU; www.jetblue.com) yet, but we hear that it’s a good airline experience at the right price.  A highflying stock, JetBlue sports a very low 6.98 cents cost per seat mile versus an average of 10.14 cents for the industry.  Lo and behold, its operating margins for 2001 was 8.4% versus a negative 8.7% for the industry as a whole.   

On Global Province this week (see Agile Companies) we talk further about JetBlue, recapping CIO’s July 1, 2002 article on JetBlue’s paperless, information-intensive operations, much of which supposedly makes life very much easier for the weary traveler.  We hope the system is all it is cracked up to be, but it wouldn’t be hard to better our major trunk airlines all of whom abuse the customer from the moment he tries to buy a ticket to the point where he finally gets on the airplane. 

Vorwerk.  Our favorite annual report just arrived in the mail, straight from Vorwerk (www.vorwerk.com) in Wuppertal, Germany.  Its theme is Paradise—Lost , Regained, etc. Shocked by September 11, management nonetheless believes this will be a century of peace and freedom, and that we will stumble somewhat closer to Paradise. 

Importantly for Vorwerk, direct sales continues to be its central strategic theme, even if it at first seems to be a manufacturer and mostly industrial company.  Vorwerk says, “The direct sale of high-quality household appliances is the company’s core competence.” 

Direct selling will be a key competence for more and more industries, a natural outcome of the relentless disintermediation that is setting in with the growth of the Internet.  New technology provides the means for us to be talking, one on one, with all our real customers, instead of middlemen.  But it ain’t Paradise if ya just talk to an answering machine. 

Speechworks (NSDAQ:SPWK; www.speechworks.com).  Part of the problem in getting to Paradise is that companies have made absolutely lousy conversions to computer telephony, almost without exception.  This makes it an agony for you to call them.  This doesn’t have to be.  For instance, when you call Speechworks, a voice-recognition company, you just tell the phone whom you want to reach and you are quickly switched to him or her.  Calling a company does not have to be an ordeal:  it just calls for a little management on the part of management.   


GP24June:  Risky Business

Danger.  With Don John Gotti safely in his grave and all the wakes in his honor subsiding, we can now start writing odes In Praise of Living Dangerously.  As the Chinese would have it, there is no opportunity without danger.  But, equally, a life ruled utterly by caution is fraught with risk. 

The Hollywood Paradox.  The people out in Hollywood love to talk about risk, making movies like A Year of Living Dangerously or Risky Business, but they actually hate risk, and are in desperate search for a sure thing.  Most of their movies—failures—are put together to be sure things.  And yet the real profit arises on low budget pictures that ostensibly will go nowhere, put together by directors who are on the outs, like Robert Altmann, who perversely put together ensemble hits such as Gosford Park.  Hollywood scores when it can bet on talent, cheap on expenses, and try to do something that has not quite been done before. 

Pascal’s Wager.  Franklin Roosevelt, mid-Depression, said, “We have nothing to fear but fear itself.”  The philosopher Pascal went him one better.  In telling us to believe in God, he said we have to make bets when you can’t resolve things rationally or empirically.  When the brain won’t pick out an answer, emotions and intuition must come into play.  Pick the option that will let you live better.  In this case, better a God than not.  Better to believe, than not.  Right now, business-wise, the majority of leaders are sitting on their hands, afraid to bet on a new idea, devoid of new ideas.  It will cost them.  Better to find a way to act. 

Baumol.  This week we have posted a note about William Baumol, economist extraordinaire, who says that overly paranoid, anti-terrorist thinking may get in the way of our economy and of business innovation (see Big Ideas).  Isn’t it funny, incidentally, that the best economists are really undercover philosophers pretending to be bean counters?  Playing it safe, he finds, is very risky.  There are and have been a host of examples of how ultra-prudence and safety-at-all-costs have been losing strategies. 

Below the Radar.  Some weeks from now we will begin to post our own Investment Outlooks on the Global Province.  Basically we will be telling you to adopt what appears to be a ‘high risk’ investment strategy—finding ways to short the market and picking stocks here and abroad that nobody has heard much about.  Avoid, we say, the big, safe, brand name companies, for the bigger they are, the harder they are going to fall.  Some big thinkers we have in mind claim we are mired in a 9-year Bear market.  If so, we must learn how to play the Bear.  We would contend that the usual ports-in-the-storm will not be safe havens this time around. 

Esprit de Corps.  You can also read this week that Esprit, the San Francisco clothing manufacturer and retailer, has been blown out of the water.  But its offspring, Esprit Holdings in Hong Kong, of all places, has now taken over the whole company.  It has turned the Esprit business model upside down, focusing on 28-year-olds and over, rather than the teeny boppers and the twenty-somethings San Francisco was targeting.  In other words, it is taking risks and living dangerously, upsetting the apple cart in order to survive.  Not to do so would be foolhardy. 

China Struggles, China Lives.  We also include thoughts on a survey of China by the Economist, which is an endless litany against the giant problems that threaten to overwhelm China in the years ahead.  Oddly enough, it’s these stupendous problems that probably will make China survive and flourish.  With all its obstacles, the leadership of China will have to take some very big chances in order to prevail.  This is exactly what it has done over the last 15 years, and we see no reason why it cannot do so again.  When you’re in an affluent country and bad times strike, you batten down the hatches and try to protect what you have.  But when you don’t have much, you try to wrestle the Bear to the ground.  Remember, China still does not have much.  Things have gotten better over this last decade, however, so, as the Wall Street Journal has written, affluent Chinese are now once again building fancy tombs for themselves.  Even in these grave times, more Chinese are going out with style.


GP17June:  The Last Time I Saw John Gotti

Siracusa.  Well, actually it was the only time.  Twelve or so years ago we were having an early dinner at Siracusa, an Italian favorite just above Astor Place on 4th Avenue and the Bowery.  The restaurant was half-filled with couples who knew their caponata and avoided the glitzy places with formula food that were in the center of Manhattan.  In wandered four gentlemen, who were seated in the northwest corner to the rear of the restaurant.  The owner and waiters hovered over them, clearly attentive to every request.  Only gradually did we notice that the grayish haired fellow beside the wall was Don John Gotti, then the ruler of New York’s crime families.  By then every patron in the establishment had melted away, and we were the only other party left.  It was most pleasant:  the four gentlemen from Queens were most discreet, and the atmosphere became quieter, more distinguished, a perfect end to another perfect meal. 

Siracusa was a one-of-a kind restaurant.  It was the secret in those days that all the very best Italian cafes were tucked away somewhere in camera below 14th Street, far from the East Side clip joints.  Here the pasta was homemade, a favorite of mine being linguine bathed in a nearly black squid ink sauce.  Likewise, the gelato was made on the premises by the brother who cooked, the other brother being the front man with the customers.  The recipes, incidentally, all came from Mother who had imported tastes from their home in Sicily.  One felt silly eating at any of the better publicized Italian affairs in New York when you could have supreme food in a restrained, decorous eatery hidden away in the Bowery.  Unfortunately, Siracusa is long gone, its special fare just a memory. 

The Don Dies.  In prison, John Gotti died at 61 last week, the victim of cancer.  The New York Times, which does not do a good job of covering New York City, did a bang up job on Mr. Gotti, with a front page story on Tuesday that captured his Brioni suits and captured a little bit of his ascent and a lot of his downfall.  Tracking him to his funeral, the Times tribe found that “Only the florists outnumbered the police.  Van after van pulled up at the funeral home to deliver displays so large that often only one could fit in their cargo bays.  Some of the florists made as many as a dozen separate deliveries.”  (See the New York Times, June 14, 2002,  p. A3l.)  The newspaper scribblers, not unlike their counterparts in broadcast TV, show a certain affinity for crime and death, a relief for them from the drudgery of everyday reporting. 

And Loudly Flows the Don.  Despite the almost sedate dinner we shared with Mr. Gotti at Siracusa, he was known as a man who liked the spotlight too much—addicted, it seems, to fame.  This is reported in “The Celebrity Gangster,”  by Jerry Capeci and Gene Mustain, joint authors of a book about him, which appeared in the Times Op-Ed on June 13,  2002.  In their eyes, he was good at strutting, but lousy at managing the mob, talking too much about his doings, all of which got recorded in FBI wiretaps.  In other words, he was great theater but got himself and all sorts of colleagues sent to the big house. 

We would object to this critique, however.  Why should he be any different?  The nineties and the eighties were all about showbiz leaders—from Clinton on down—who strutted their misdeeds and, often as not, got away with them.  And it was about politicians and CEOs who watched their polls and their press clippings—instead of paying close attention to business.  Why should Don John be any different?

Showbiz Is Not Business.  In this vein, we recommend a read  of “The Misguided Mix-up of Celebrity and Leadership (And Why it Imperils our Institutions),” an essay by Jim Collins in the Conference Board’s 2001 Annual Report.  He suggests that the best leaders, with cumulative stock returns three-times better than the stock market over the last 15 years, didn’t make the front pages and didn’t rule by charisma.  He cites Darwin Smith of Kimberly Clark and David Maxwell of Fannie Mae (and several others) in this regard.  Some of his heroes are very shy, indeed, but somehow they get the job done, mostly because they are determined to build great institutions based on clear standards of performance, instead of creating monuments to themselves.   

All this is of tremendous interest to us as we work through our own leadership studies.  In this low-growth era racked by tremendous economic volatility, CEOs lack a roadmap for sustained performance.  We are now trying to identify the kinds of individuals who can navigate in a world of so many unknowns.  They will be very, very different from those who came before.  

A Life of Crime.  From today’s front pages we have learned that a whole raft of people are trying to horn into John Gotti’s act—from accountants, to CEOs, to religious fanatics, etc.  Everybody wants to be a celebrity criminal.

 We wonder, indeed, when we can get back to old-fashioned circumspect crime.  In this respect, consider the words of Rumpole of the Bailey, John Mortimer’s astute and very comic English defense lawyer: “It is now getting on for half a century since I took to crime, and I can honestly say I haven’t regretted a single moment of it.”  Rumpole likes defending criminals, and he is smitten with honest-to-gosh thieves and murderers.  He has no use for white collar-criminals such as libelers, whom he finds to be a shifty lot.  The trouble, it seems, with the white collar cheats and celebrity mobsters is that they are too dishonest and too lacking in substance.  They are Eliot’s Hollow Men.

To get a little honest, fun crime, read John Mortimer’s The Third Rumpole Omnibus and find out about his discontents with editors and celebrities in “Rumpole and the Bubble Reputation.”  (See Wit and Wisdom for more on Mortimer's Rumpole.)


GP10June:  Thin Minds in Fat City

Good Ideas, Bad Ideas, and No Ideas.  Last week Scott Burns of the Dallas Morning News did a review of our Annual Reports on Annual Reports 2002 titled “Crisis of Ideas.”    He stated our case better than we did:  we said business leaders, statesmen, and pundits are—temporarily—running out of ideas and that is a big reason why the steam has gone out of business.  Good ideas, even bad ideas, can be catalysts for action, but no ideas sends us into a torpor or into aimless anxiety. 

Mr. Burns is the reigning king of financial journalists in the Southwest and adds necessary luster to the Dallas paper, a dily that does not quite capture the greatness of the city where it abides.  Broadly syndicated, he deservedly has built a fanatical following:  he has brought a flock of new readers to the Global Province.  This week we are adding a new feature to Best of Class:  “Journalists Worth Reading.”  You can be sure that we will be adding him to the list in weeks to come.  Of course, it’s not hard to admire someone who has such nice things to say about us.

Obesity.  The world’s Barnum and Bailey Disease.  There’s a cancer association, a heart society, and a pressure group for every disease under the sun, but, despite WeightWatchers and 40 fad diets, we have yet to hear about the American Obesity Association (AOA).  Maybe we have not searched hard enough.  Yet clearly the tons of fun that afflict all of us comprise this nation’s greatest disease, and our affliction is rapidly taking over the world, with reports of the tragically overweight even among the poor in the world’s developing and undeveloped nations.  Fat, fast foods are now all too available wherever you go.

What bothers us is that there is often a tone of hopelessness in the face of fat when you do a read of the health scribblers around the nation.  We read that every year more and more people from every age group are getting too copious.  Moreover, we are told that all sorts of metabolic checks will sooner or later overwhelm the thin aspirations of most overweight people, with the subtext: you almost might as well not bother trying.

On Stitch in Time in future weeks we will be devoting more time to the obesity  problem.  How not to get fat!  How to get rid of it when it creeps up on you!  How not to ruin your mind or your body in dealing with fat!  So get ready for the salmon diet which, by gosh, does work, even it does not, as claimed, do much for your complexion.

Malcolm Gladwell, who will be our first journalist to go up on Best of Class this very week, has written about practically everything, so it is no surprised that he has essayed on obesity.  In “The Pima Paradox,” (New Yorker, January 2, 1998) he explores the fruitful research that has been done on the Pima Indians that has laid bare all sorts of fat secrets except for the fact that neither the NIH nor anybody else has actually helped the Pimas to lose weight.  You can also read about the Zone and Atkins diet, which will make you chuckle and wince.  Needless to say, in the end we all learn that losing weight is about eating the right things moderately, getting exercise every day, and getting one’s personal psychology straightened out.  It’s that last thing, the head part, that is a trifle tricky.

Fat, Dumb, and Unhappy.  Fat City—bulging stomachs, SUVs, overstaffed businesses and governments, production of goods the world does not need, exaltation of quantity over quality, speed over deliberation—make it hard to grow thin or to have lean minds.  The Austrian philosopher at Princeton, Peter Singer, says we must tithe and achieve a lean state of mind if we are to have the good society.  In truth, a good society has a lot to do with whether we can lose pounds and put aside things that don’t count very much.  The bloated 90s have a lot to do with why we lack good ideas today.  However, now that businesses can no longer cost-cut or advertise their way out of trouble, they will have to generate truly new products and services.  They simply will have to get ideas.


GP3June:  Pinehurst:  Lessons in Regional Development

Carmel Without the Ocean.  A couple of weeks ago we toddled off to Pinehurst, one of the four or five exceptionally fine spots in North Carolina, and certainly the only oasis near its core cities of Charlotte, Greensboro, and Raleigh. 

It was created by the Tufts family of Massachusetts, but it is now owned by the Club Corporation of Dallas, owner and operator of a bunch of middling golf and country clubs around the country.  This turn-of-the-century resort is in surprisingly good shape, offering several entertainments well beyond the golf for which it is so well known.  The spa gives professional strength rubdowns; the walk around town offers sightly houses and a petit, decorous shopping district, and the miniature golf course in neighboring Southern Pines is by far the most pleasant you will find in the state.  Just a few miles away, the botanical gardens at Sand Hills College are one of the better kept secrets in the Southeast.  We will be talking about all these rather unknown delights on the Global Province in the weeks to come.  This is Carmel without the sea, a very nice real estate concoction that pretends to antiquity and where antiques do retire. 

Unrealized Potential.  The sandhills are only half what they could be.  The legal beagles of Pinehurst’s parent have barred locals from using the Pinehurst name, so a few local enterprises have had to come up with new monikers.  They’re myopic when it comes to thinking about North Carolina.  With absentee ownership, the Pinehurst resort has been terribly absorbed in its own care and feeding, not looking to the nourishment of the community lying outside its own holdings.  Yet there could be a major, uplifting spillover effect from this golf course tourism if the right spirit took hold.. 

This is of some concern since North Carolina has flattened out economically, and it needs a boost from locally based enterprises willing to think about how to get it moving again.  Its relatively affluent communities have not had a halo effect on their neighbors.  The mercantilist attitudes of its prime movers, inert state government, and the tunnel vision of national business chains, headquartered elsewhere yet so dominant in its business life, are not a potent combo for growth.

Tourism Not Inconsequential.  Pinehurst is worth looking at, because tourism does mean a lot to the state.  In 2001 some 43 million visitors plunked $11.9 billion in the tills: it is a big industry for Tarheeldom and puts the state surprisingly high in national tourist ratings.  Because of absentee ownership and low per-capita tourist expenditures, however, not enough dollars stick to the North Carolina economy.  Tourist dollars provide tax receipts and lots of low paying jobs, making the politicos happy, but do not create enough growth in capital, physical assets, or intellectual infrastructure. 

Tourism can mean much more.  It would take more Pinehursts operated with a strong view to regional development.  In other words, there’s tourism and there’s tourism.  With the meltdown of its manufacturing base, North Carolina would surely benefit from growing the right kind of tourism.  It can be reasonably expected that domestic vacations will continue to grow, as the fear of flying flourishes.  Then too, the market will expand as a burnt-out workforce looks for the right kind of rest and recuperation.

Creating a Destination:  Wilmington.  The state now lacks a destination—a Washington, D.C., an Orlando, a Las Vegas.  The hope in time is that it will create one, most likely at Wilmington, its almost seaport.  It will take a Rouse Company—and other co-venturers—to make Wilmington all it could be.  Yet proper development there could set the stage for economic activity  in the eastern part of the state, which is so sorely beset now.  Oddly enough, a North Carolina for vacationers must have an urban experience as well as its country pleasures if the economy is going to get a charge out of tourism.

World Cup Tourism.  Countries that aren’t getting their share of tourists understand that tourism brings more than dollars, creating a waterfall of collateral benefits.  Japan and Korea are hoping the World Cup soccer matches will kickoff a substantial rise in long-distance visitors.  “Japan has set a goal of eight million foreign visitors a year by 2007, up from 4.8 million in 2001.  South Korea is aiming for 10 million by 2011, compared with only 5.1 million last year.”  See the Wall Street Journal, May 29, 2002, p. D3.  This suggests that you need big events as well as key destinations to really prime the high-value-visitor pump if you are not now capturing enough tourist dollars.  The Carolinas, of course, could do this with golf, drawing many more long-distance, high-value visitors, rather than the regional influx it gets today.

North Carolina, South Korea, Japan.  Well-conceived tourism is more than frosting on the cake:  it can contribute terrifically to development.  Interestingly enough, it is not enough to go from a regional to national audience.  Your product and your lines of distribution must reach right out to all the world,  achieving a cosmopolitan feel even in the most provincial of landscapes.  Development experts at the World Bank and elsewhere might think about how tourism can be styled so as to be a transforming experience, rather than a bothersome part of the economy serious economists have a hard time thinking about.  We still lack to the will and knowledge to make Johnny Appleseeds out of all our travelers.


GP27May:  Lessons from Amazon:  Sleeping Well in Seattle

Not in the Obits.  One old bluegrass song sort of goes like this:  "I wake up in the mornin’ and read the obits.  If my name ain't there, I know my get-up-and-go has not got-up-and-went."  Well, Amazon, the Internet bookseller, is still kickin’, much to the delight of those of us who have a certain fondness for it.

Flat Wrong.  Back in 2000, a bond analyst named Ravia Suria claimed Amazon was bleeding to death and that it would soon run out of cash.  In a series of dismal reports, he predicted its demise.  But, instead, it has now reported operating profits; it has a billion dollars in the bank, and its bonds are up nicely—all since the dire warnings hit the marketplace.  All this is very well chronicled in James Surowiecki's column in the New Yorker (May 20, 2002, p. 40).  As Surowiecki puts it, Suria, a bunch of analysts, and a covey of financial columnists were simply dead wrong.  We are delighted, since Amazon has done some pretty good things for the consumer.

Slow Death.  Nevertheless, Amazon is far from out of the woods.  And, as the New Yorker notes, this gives plenty of wiggle room to the naysayers who looked for it to go bust in a hurry.  Now, with management turnover, with Amazon's inability to capture big revenues beyond books and music, and with other sundry warts and problems, these analysts and columnists can simply imply that they meant it would slowly expire.  Not atypical is a long article in the New York Times (May 19, 2002, p. BU 1), entitled "Amazon II:  Will This Smile Last?"  While acknowledging recent good news at Amazon, the writer gives more than ample voice to the Street's skepticism.  Lesson 1:  When Wall Street analysts and business journalists blow it, don't expect them to own up.  They'll just rejigger their stories a bit.

Wear ‘Em Down.  What the Amazon case suggests is that companies and other institutions in our society need to make their case 24 hours each day to counter the swirl of chatter about them out in the media.  The messages about a company, be they positive or negative, circulate relentlessly, mistakes and all.  In this over-messaged world, a company must seek to dominate or neutralize the airwaves—through a flood of information and transparent completeness.  It must provide better information and perspective than are found elsewhere.  That's one of the things some companies are learning, according to our recently issued “Annual Report on Annual Reports 2002.”  The Global Province's Investor's Digest deals with this very problem—creating transparent, extremely comprehensive information about public companies.  Lesson 2:  Communications has turned upside down in the last decade; relentless messaging has become integral to growth and preservation of both company and product brands.  Traditional advertising does not meet this need.

Leave It to the Marines.  We note on the Global Province this week that the Marines, more than the other service branches, are seizing the high ground in strategy and logistics.  And they are effectively getting the story out that they are reshaping themselves.  Lesson 3:  The best communications always refer to and extend the organization's strategy.  This is particularly the case now when several organizations seem to lack a strategy.

Reader Notes.  Readers have written with good suggestions about items to include in Best of Class.  One is particularly fond of the catalog of cabinetmaker Thomas Moser, who has produced striking advertisements and catalogs for a number of  years.  See www.homeportfolio.com/BrochureExpress/Manufacturers/moser/index.html.


May 20, 2002Annual Reports 2002:  Long, Heavy, and Thin.

As Promised.  We have included on the Global Province this week our Annual Report
on Annual Reports 2002:  Long on Words; Short on Ideas:  Krispy Has Right Recipe
.  America's reports reflect a difficult year—and businesses are showing the impact psychologically and economically.  Most companies seem taken aback, but a few stand out because they have new ideas, a confident stride, or a well-wrought response to a difficult atmosphere.  Smaller capitalization companies appear less shaken, perhaps suggesting that many of them will have a better 2002 than their larger cousins.

Amendments and Suggestions.  Our readers are sending in more suggested items and, as well, are correcting some of our errors—all of which we welcome.  Thank you.  We are surprised how painstaking our readers are.  One just turned up a correction to our account of highjinks at Cal Tech.


May 13, 2002—For the Love of a Mother

Celebrate.  It was Mother's Day, and Mom got the day off from mealmaking and a few other tiresome chores.  We celebrate all the holidays, and Mother's Day is right up there in the galaxy of great ones that help to push aside earthly cares and daily monotony.  We hope you made lots of phone calls, sent out a bunch of cards, and made bare the shelves of your local florist.

Venerable Occasion.  We all know those sadsacks who think Mother's Day is a commercial farce designed to do them out of their gold.  We learn, however, that the day has a venerable history, often heavily promoted by women of character who felt strong affection and admiration for their mothers.  Apparently there was a spring rite in ancient Greece for Rhea, mother of all gods and goddesses.  England had its Mothering Sunday.  In 1872, Julia Ward Howe, lyricist for the Battle Hymn of the Republic, advocated a Mother's Day.  Others followed in her footsteps, but it was Anna Jarvis of Philadelphia who buttonholed everybody and really put Mother's Day on the national map.  Finally in 1914, President Wilson and the Congress proclaimed it a national holiday.

Power Moms.  Mother's Day reminds us that we need a few high-powered moms at the pinnacle of politics.  It is probably not too much of a stretch to say that Mother Maggie Thatcher saved Great Britain.  Mary Robinson (we have not checked her motherhood credentials) has distinguished herself as president of Ireland and in her duties for the European Community.  Golda Meir brought heft to Israel not seen since in the prime ministership.  And so it goes.  It is arguable that a lot of governments (say Japan?) won't get straightened out til’ we get mothers at the helm. 

Next Week.  On the 20th we will tell you in our Gods and Heroes section how foster mother Louise Brown saved children from the welfare bureaucracy.  This week on Big Ideas we tell you about Lord Peter Bauer, an economist who correctly theorized that big Western governments and poor developing economies don't mix, maybe because governments don't really, really care for the poor, lousy surrogate parents that they are. 

Also look out next week for our Annual Report on Annual Reports 2002, by the way, in which we say that companies are running scared and know not where they are running. 


May 6, 2002—Idea Light and Boston Heavy

Oberoi Dicta.  Mr. Mohan Singh Oberoi, hotelier extraordinaire, passed away last week, having created some pre-eminent Asian hostelries.  According to the Times, he was fond of saying, "You think of money and you cannot do the right thing.…  But money will always come once you do the right thing, so the effort should be to do the right thing."  Obviously it would have been worth knowing this inkeeper, and we have a few more words about him under Wit and Wisdom this week.

Mostly Outside; No Inside.  A few weeks ago we commented that San Francisco had become a city without an idea, suggesting that it could rediscover purpose as a 21st- century portal to Asia.  For better than 40 years it has been one of our favorite places on the continent, and we lament that it now has to find its bearings.  Readers wrote in droves to say, “How can you malign our town?”  These are mostly newcomers, incidentally.  And an equally large number of San Franciscans sympathized, “Yes, it has fallen quite a bit, hasn’t it?”   Even on Thursday a latecomer to the debate claimed, “You are part of the past.  It is, in fact, much better now than it ever was.”  Well, we still don’t know what the big idea is that motivates the city:  all we see is packaging.  It lacks Mr. Oberoi’s right thing.

The China Debate.  Two extraordinary, long articles appeared in The New York Times last week about the People's Republic.  First, “China's Communists Try to Decide What They Stand For,” (May 1, 2002, p A3), opined that the Party is aggressively trying to re-discover a meaningful ideology in the face of the New Vast Economy and the considerable social rearrangements of the last two decades.  And, on Saturday (May 4, 2002, pp. A1-A17), the Times said, “Some Chinese See the Future, and It’s Capitalist,”  claiming that a host of Chinese scholars no longer concern themselves with whether the country should be capitalist, “but what kind of capitalism it should have.”   Since these authors lack the kind of access they need to provide adequate proofs of their theses, we don’t get the data and anecdotes that validate their theories.  Nonetheless,  it does suggest that the Chinese are not unlike a number of other large societies:  since the end of history (the end of the Cold War), many of the larger countries lack a core belief.  It is probably why a number of smaller, second-tier countries, on the other hand, are performing more admirably at the moment and exerting more power in world affairs. Who would have thought that South Korea, on its knees just a few years ago, would be turning in 6% growth now?  A number of small nations do have big ideas.

Implacably Correct.  Boston, which fired that shot that’s heard around the world, never lacks for a purpose and some kind of view.  It’s the home of the higher education industry, and a host of the interesting things that are going on in healthcare get started there.  Because of its academic overlay, almost every conversation about everything has an ideological coating, and there’s a correct, pinched-lip take to exercise, seat belts, diversity, food, and even to topics the proponents know absolutely nothing about.  Secretly the City on the Hill, locus of the most devout sports enthusiasts in the nation, harbors a religious fervor that comes up in all sorts of ways.  Even with a goodly crop of wayward priests and an outsized pack of car thieves, this is a righteous place always equipped with an idea.

Mrs. Jack.  That’s why the museum to go to in Boston is the Gardner Museum, which you will find in Best of Class this week.  The Gardner gets you off the sermon circuit.  She came up from New York to marry Mr. Jack, gave a touch of color to the place, skirted all the edges of scandal, and bequeathed a museum that is as much about her as it is about art.  Just toddle by the Boston Museum of Arts, which does, we admit, house some fine silver, and go over to her place for some real romance.

P.S.  So we think it is a good time to be looking for businesses, cities, and countries that have an idea.  That's some of what we will be talking about in this year’s Annual Report on Annual Reports 2002


April 29, 2002—The Ground Is Shifting If You're Listening

10 Quakes a Day. Last week we posted the Geologic Survey's very current earthquake map for San Francisco on the Global Province (see Global Sites). Whenever we peek at it, we find 30 or 40 shocks in the Bay Area for any four-day period. That seems to work out to 10 quakes a day.

Lately the Northeast is trying to compete, part of its unstated horserace with California. Last weekend's news reported 5.1 richter-level seismic events with a fissure here, a tear in the fabric there, and a loss of a foundation here and there. The clatter we hear in New York City is not always a subway or a demagogue from the outer boroughs.

$54 Billion and Counting. Another seismic shift was recorded in the City.  AOL Time Warner (NYSE:AOL; www.aol-timewarner.com) got the attention of the markets on Wednesday by reporting a quarterly loss of $54.2 billion, the largest ever for a business in U.S. history, eclipsing JDS Uniphase's (Nasdaq:JDSU; www.jdsuniphase.com) piddling $41.8 billion. As Senator Dirksen of Illinois was wont to say, "A billion here and a billion there and sooner or later you're talking real money." Analysts actually pushed the stock higher, since earnings (the way they count them) before special charges came in higher than they expected. Cash flow, we remind you, is still in the tank. Did you ever have the feeling that we are in an era of funny money and plain weird accounting?

More Tremors Around. There's lots of other big stuff that's escaping our attention, overcome as we are by the din of war, cable TV, and assorted scandals. Recent studies out of China, for instance, tell us affluence is already having its way with the people: blood tests show that surprising numbers are pre-diabetic and pre-coronary, the output of fast food and other habits of people on the rise. We can expect an epidemic of affluent disorders as part of the economic miracle.

And the old reliable Wall Street Journal, meanwhile, looks to have made a complete hash of a recent redesign, the world's best newspaper fast turning into a confusing mess where it is plain hard to find the goodies you are looking for. Sadly, the WSJ has shown an aptitude for snatching defeat from the jaws of victory for the last 10 or 15 years. Even its online newspaper, of which it is so proud, is taken to be a strategic mistake by Peter Drucker, if we remember correctly. The Journal's missteps, too, are unnoticed except by a few big investors who want to take over the paper and break it up.

Our Annual Report 2002. Well, we are just doing our annual on annuals 2002, and you might think at first that it is a repeat of the story we told last year. More troubled companies all over are using the universal nostrum of cost-cutting. But there are all sorts of changes afoot as well. GE and IBM, for instance, are providing some unprecedented extra-voluntary disclosure in order to assure investors that the companies are not standing on quicksand. The big annual report news this year is that corporate moguls are trying to reassure us (and themselves) that their get-up-and-go has not got-up-and-went.

We also found that Wal-Mart became the nation's grocer last year, taking over first place from all the ordinary retail chains, who simply don't know what's hit them. While we were napping, the Boys from Bentonville simply created a second whole business inside the old one.

Keep an Ear to the Ground. A lot of big things are happening but you won't see them on TV. Keep an ear to the ground, maybe keep your eyes shut, and you might just hear the tectonics at work.  Here lies great opportunity if you're listening.


April 15, 2002Culture:  The Medium Is Not the Message

Exhorticulture. On Big Ideas this week, we look at an article by Michael Z. Wise of the New York Times in which he highlights the vast number of New York City cultural edifices (fortresses) and projects supported by a slew of foreign governments. This is diplomacy through cultural foray. And he asks whether the U.S. Government should be doing the same sort of thing abroad.

We would think that the U.S. already has it right. Cultural communication pays, but you have to think how to go about it. Don't build fortresses or palaces of culture. For starters, the Europeans are not reaching America by setting up a cultural address in Manhattan. That’s Gucci warfare. And we would not be getting to the Brits, the French, or the Germans were we to plop something in the plutocratic districts of London, Paris, or Berlin. Culture is a binder, not a V-2 rocket to be aimed at the heart of metropolis. Culture is peace, not warfare.

Culture Works
. Our strongest ties with Japan, or China, or Austria, or Iceland are cultural. Ideas, and images, and folkways swim invisibly across the oceans, linking peoples together in a million different ways, despite the passion of leaders and policy wonks to create differences and preserve distances. Only a year ago we learned of a Chinese-American artist from San Francisco who now spends 9 months a year in Shanghai (and only 3 in San Francisco) because he finds the China arts scene so much more alive than our own. By nobody’s plan, he is creating fusion between our two societies that has nothing to do with statecraft or commerce. It is fair, we think, to envision culture as the glue in a fragmented world--reverse entropy in a globe that is perpetually coming apart at the seams. 

A Reason for Being. Curiously enough, the New York Times has become a vehicle for transporting culture and social mores. Truly serious people no longer read it for politics or economics, since its editors don't grasp those precincts and are much better equipped to explore the ins and outs of America’s affluence. Society and culture have become the real beat of America’s newspapers, and the source of their commercial livelihood. That is somehow evident, incidentally, in the recent remodeling of both the New York Times (national edition) and the Wall Street Journal, both geared to the concerns of everyday life.

Corporate Education and Training. The makers of America’s best commercial donut, Krispy Kreme, have appointed a Dean of Learning, a fact that is also noted on the Global Province this week under Agile Companies. Dr. Martin tells us that lore, and stories, and the anecdotes about Krispy Kreme of old are the heart of Krispy Kreme training, instead of the typical argot of finance, business school, consulting firms, and operations gurus that is the gist of most corporate schooling. In other words, in its training and education, Krispy Kreme focuses on its own culture and stories--the age- old way societies have passed wisdom from one generation to another.

The Medium, Not the Message. Culture, we'd say, is the medium, but not the message. Despite the Internet, universities, the cultural forums in New York, etc., culture is the best way knowledge gets passed around. It’s not an end in itself, but the ether that carries our hopes, thoughts, and visions to others in towns about the globe.

P.S. Oddly enough, America’s corporations have not been particularly apt cultural marketers. They have been reasonably adept at using sport as a vehicle to carry their wares, but clumsy in the cultural sphere. Luck and happenstance have led entertainment companies, most notably MTV, to use pop trivia to push pop. But the creative use of culture in business has been hit or miss at best. A little of this can be viewed in our section Poetry and Business. We also would urge you to look at www.salmonlady.com where the proprietor tastefully laddles out bits of Scotland, with its smoked trout and salmon. Also look at www.amanresorts.com, just added to Best of Class this week, where the commentary about the locales is taken to be as important as the propaganda about the resorts. In time we will be measuring companies ability to play on the cultural ball field.


April 1, 2002—San Francisco Passing

San Francisco Once Again.  We are resending last week’s Global Province Letter, which seems to have become lost in the virtual ether.  As near as we can tell its disappearance had something to do with the phone company or our ISP (a horrible abbreviation for the computer people who link us to the Internet).  At any rate, we are sorry we did not reach you.

Incidentally, we are going to send these letters less frequently anyway, but we will always provide updates so you will know what’s new on the Global Province website.  When the Global Province started, the Internet was still novel, and your email mailboxes were not stuffed with endless messages.  Thus, in order to help alleviate the email crush, we will exercise even more rigorously our already deep belief in quality over quantity.

The Late Fifties.  The San Francisco we first visited in the late 1950s has absolutely no connection with SF circa 2002.  Then it had grand hotels with customers who dressed for the part.  Herb Caen's column told us of innumerable visits to the bar at the Clift Hotel, where you were rejected out of hand for long hair or the lack of a suitcoat.  Cars stopped on a dime when pedestrians stepped into the street.  Then San Francisco's proud banking community was led by the Bank of America—currently a subsidiary of North Carolina—and its home-grown boutique investment bankers later reigned over high tech financing, at least on the West Coast.  All of that is gone now, and the action has moved from Union Square (now disappearing as part of a “civic” improvement) and Montgomery Street to the other side of Market as the town becomes a convention center and shopping mall.  Today you need a car (perhaps the Yellow Cougar from the cops-and-robbers show Nash Bridges) to get around a San Francisco that is no longer compact, no longer a walking city.  The late, fun Chronicle (we remember a banner headline in the 60s saying, “San Francisco Coffee is Swill”) once wrapped a little news around comedic columnists and the paper's core—Herb Caen's gossip column.  All the fizz has gone out of the newspapers, and USA Today is more lively than the local rags.

San Fran Vaporizes.  The beauty of this ingrained transience is that it can make for terrific originality.  A host of things have been conceived in the Bay Area, only to go elsewhere to ripen into significance.  There was a Fillmore West before there was a Fillmore East.  Birth control got its wheels down the Peninsula at a company called Syntex, and the first pushes for a transcontinental railroad seem to have come from Northern California.  The nation's pre-eminent major integrated health system—Kaiser Permanente—is headquartered in Oakland.

Here and down the Peninsula, fog and sun mix to make magic.  Since the past dissolves and disappears forever, inventors easily spin new dreams that come fully to life elsewhere.  No stubborn old images stand in the way of new fantasies.  The stillborn dotcom revolution half-happened in San Francisco, even if the substantial fruits of the E-conomy are picked elsewhere.  And so when dotcom is over locally, San Francisco moves on to the next thing, whatever that is.

Pie Squared.  The surrounding areas (Marin, East Bay, the Peninsula) like to think they are very different from San Francisco, but they are probably even more extreme examples of the same phenomenon.  Malvina Reynolds, the Berkeley folksong grandmother, wrote about the green and yellow little boxes the working classes lived in south of San Francisco (e.g. “Little Boxes”).  Her song captured, she felt, the essence of the cookie cutter houses where a tipsy householder more than once wandered home to the wrong dwelling, since it was so hard to tell them apart.  This sameness of everything also describes the towns, the hotels, and, most-of-all, the offices on the Peninsula.  All the buildings look alike, inside and out.

This probably has been good for the engineers in Siliconville.  The walls are blank, the flip charts are empty, and the decoration is non-existent.  Any business could move out tomorrow, and nobody would know it had ever been there.  Silicon Valley is a giant tabula rasa where engineers can think big thoughts untroubled by distracting niceties which might take them away from their calculators.  Transience and evanescence, greater exponentially than in fleeting San Francisco, free hands to draw lines in the sand and circuits in the sky.

Gourmet San Francisco.  Under new editor Ruth Reichl, Gourmet Magazine is undergoing something of a revival.  A very successful recent issue was devoted to San Francisco (March 2002), a town where all aspects of cooking absorb a determined percentage of the citizenry.  Strangely, the designer food, even in the most noted restaurants, is often quite bland, although it is presented quite prettily, all in keeping with a City that is conspicuously decorative at every turn.  Things are often picture perfect on the outside, but sometimes a little hollow at the core. 

However, it is a side article that is the most intriguing aspect of the whole issue.  Writer Michael Chabon, who has lived everywhere, essays on why he loves and lives in Berkeley.  As for the Berkeley state of mind, Chabon says, "As for neurosis, you can pretty much start at my house and work your way out in any direction....  If neuroses were swimming pools, one might ... steer a course from my house to the city limits and never touch dry land."

For a host of reasons, San Francisco and its environs seem spiritually askew and more than a little neurotic.  Originality has been flattened, as the inhabitants become more and more self-absorbed.  The town needs a renaissance:  the spirit of the place needs a resurrection.

Earthquakes.  In 1906, the year of the great earthquake, the region came together and came alive.  Not far behind was the Panama-Pacific Exposition of 1915, a celebration of San Francisco looking beyond itself—a city with purpose and with aspiration for all kinds of progress.

It's had earthquakes since.  And it has guaranteed major seismic happenings in its future.  The kind that shake complacency.  Maybe its resurrection demands an earthquake, something to wake up the Grateful Dead.  But revival does come in other forms.

The China Trade In the distant past, the China Trade lent meaning and purpose to San Francisco.  Once upon a time, too, the town's most wonderful store, Gump's, sported endless Chinese artifacts and furniture.  Gump’s, now across the street, has withered on the vine.

A China Revival might bring this town back to life.  By this, we do not mean a return to the physical movement of goods, for the port has long since ceded its historic role to Los Angeles.  But it might become an information portal to Asia, particularly China, by fashioning itself into the node through which ideas and culture bounce from East to West, and West to East. 

At the margin, one detects some of this going on today as we meet, for instance, entrepreneurs of various stripes who are much better known in China than they are in the United States.  Can San Francisco, we ask, turn the corner and seize the China Moment?  The San Francisco Bay Area has demonstrated a chameleon-like ability to change its colors with ease.  Can it change a little more purposefully? 

P.S.  Whether San Francisco remakes itself or not, companies are well advised to stage their assault on both Asia and China from San Francisco.  Sure enough, just the other day, we saw a new outlet for a hamburger chain from the Philippines, Jollibee, south of Market, yet another indication of the portal nature of San Francisco.  In this view, San Francsisco’s bible should be F.S.C. Northrop’s Meeting of East and West.


March 25, 2002—Calling a Spade a Spade; CP up 50%

Bull's Eye. Now and again, some wonderful journalists do their job. They spot a bit of buffoonery and actually have enough get-up-and-go to pin the tail on the donkey. We're not talking about so-called "investigative reporters" who, like Joe McCarthy, are liable to spot a varmint under every bush and, often as not, are wrong in what they have to say. We're just talking about workaday journalists, of balanced-mind and middle-of-the-road views,who almost accidentally bump into a sham in the road in the course of their work and are compelled to call someone to account.

Landro Has Landed. Laura Landro seems to have just done just that in the last couple of weeks. We are not referring to her weekend Wall Street Journal column about her Fear of Flying. Rather, it's her opinion piece on a Seattle reporter who was too cavalier in his reporting on and actions towards a Seattle institution, the Fred Hutchinson Cancer Research Center. Not only is Ms. Landro a very fine health reporter but she has been through cancer herself, apparently at the Hutchinson. And, by the way, she works at a paper where management has enough backbone to support a journalist, no holds barred, when she or he is fighting the good fight. The New York Time's media chatterbox and others came down on Ms. Landro for her outspoken comments about a member of the scribbler tribe, but the WSJ stood by her.

H-P Implodes. Some serious business journalists need to examine H-P management which, as near as we can tell, has hastened the dissolution of Hewlett-Packard with its ill-conceived marriage to COMPAQ. We understand that Red Herring, a tech magazine in San Francisco, did write an open letter to Carly, even before the misalliance, in order to assail a series of decisions at the Palo Alto headquarters which may lead to a meteoric crash of the company. H-P, incidentally, is as much at the heart of Silicon Valley as Stanford University, and its possible demise may have Richter-scale effects on Northern California. Financially gutted already by the mindless loss of its big banks and boutique investment banks, the Bay-Area economy is vulnerable; its techno-structure could come apart as well. It is mighty curious that national journalists have not sunk their teeth into this one.

First Koppel, Now Rukeyser. We are not as shocked that ABC-Disney is toying with toppling Koppel as much as we are that the Maryland Center for Broadcasting has brought down Rukeyser and Wall $reet Week. Years ago a visionary there, Anne Darlington, created TV's most successful business program (sort of the only one for a long while) with Rukeyser as pilot. Early on, the Maryland folks eased out Ms. Darlington. Now they have axed Rukeyser, the kingpin of a still very successful, beloved show. They're after a younger crowd, and Lou seems to have attracted commercially unattractive audiences. They wanted to edge him out by inserting a co-host, and he angrily resigned this week.

It's not that the program does not have to be renovated. Obviously the station has not been up to that task for several years, Rukeyser or not. But it is very unfortunate that it will be so dumbed down now, a reasonable assumption since the station has brought in Fortune as equal partner. As it happens, there's not one publication in the whole Luce empire today (AOL-Time Warner now) that we could accuse of pandering to quality. What we have here is a local, average PBS station--which would be nowhere without Darlington/Rukeyser--that is about to burn out the engine that drove its reputation and growth.

Having said all of the above, it was still a pretty good week for journalism, most of all because it was a week when a few brave souls from the Fourth Estate took on slovenly journalism and suicidal media management. The press, as you know, is exempt from the normal checks and balances of a pluralistic society. The best we can do now is to hope reporters will begin to police themselves. We can think of more than 100 whose bite is worse than their bark and who are more than up to the challenge.

P.S. With the decline in print and television-network quality, and the subsequent erosion of audiences, custom magazines (usually put out by big companies with a specific marketing purpose) are fast growing in number and circulation. "Custom publishers had $1.5 billion in revenue last year, up from $1 billion in 2000, according to Jim Gabal, co-chairman of the Custom Publishing Council, a trade group." See the Wall Street Journal, March 13, 2002, p. 13A. In fact, our traditional media, rather lumbering in so many ways, are creating a vacuum that is being filled by all sorts of new information vehicles.


March 18, 2002—March Madness

Coach Porter. Coach and, later, impresario in both the Illinois and national high school athletic associations, Henry V. Porter coined "March Madness" in an essay he wrote for Illinois High School Athlete in March 1939. He went on to write a poem, "Basketball Ides of March," his pen never silent. March Madness amounts to an affectionate term for all the hubbub surrounding Illinois state high school tournaments. You can read about this at www.marchmadness.org. It's odd, of course, that March Madness should originate in Illinois, since legend has it that Indiana's Hoosiers are much more passionate about their high-scholl basketball warriors.

Of course, the term has been co-opted for NCAA doings and everybody else's basketball fireworks this month. And the madness itself stretches well beyond sports. Haven't we always talked about the Ides of March and the conspiratorial killing of Caesar? Then there's St. Patrick's Day, when the wonderful Irish march a crooked course staggering a bit from libations too many. The progress of madness in March touches more than the pedestrian antics of basketballers caught up in competition.

Love is in the Air. Included in this insanity are the transports of love. Friend Chuck, whom we thought to be retired from everything, just looked up his high school sweetheart of 40 years ago, and, after a whirlwind courtship, they are to be married. The retired chairman of General Electric has been tap dancing with the editor (now ex-editor) of the Harvard Business Review. Meanwhile, certain lady politicians of Taiwan are reputed to be engaged in acrobatic romances with sundry married men of Taipei.

A Good Face on Despair. Yet another way to trip through the madness of March is to take on the flavors of New Orleans. Oppressed by a deflated economy, sparkling crime statistics, and legendary corruption, the Mardi Gras city always puts a smile and a shrug in front of its troubles. March puts it at its best and most surreal, as our recent visit revealed. Thankfully, its overwhelming humidity has not yet set in, and the streets, oddly enough, are rather free of people, making peregrinations easy and unchallenged. You will hear about Three Dog Bakery, The Epitome cigar shop, and other singular old Orleans delights on the Global Province in good time. Suffice to say, this is still very much a city which, unlike the rest of the tourist cities in America, has not remade itself into a gigantic mall inhabited by all the look-alike national retail chain stores that have driven the special and local out of shopping. The cuisine, of whatever style, bears a decisive New Orleans stamp, even though some cooks come from out of town now. The power of the place is stronger than all the stereotypes that predominate elsewhere. The madness of New Orleans, despite its tears, is that it remains stubbornly itself in the face of all the sameness that has become the patina elsewhere.

It Ain't Over Til It's Over. The bulls are strutting again, a covey of economists tells us the recession/depression is over, and congressmen are larding the humongous new defense budget with lots of pork barrel. As they say in New Orleans, Let The Good Times Roll. Well, almost, maybe.

Yes, stock-market mania has also come in March. And yet some pretty wise fellows, Sir John Templeton and Jeremy Grantham, for instance, think we're in the midst of a bear market that's here to stay. They believe we must wrestle with a 7-to-9-year Bear. So keep some of your powder dry. While Grantham's favorite asset is timber, he does think small caps will outperform big caps, so you might look for little, unnoticed, very liquid, underpriced companies.

The recession and the stock market blues may be over. Or we may be just having some market madness.

P.S. For those suffering from the drought in the East, we can console you with Chaucer's thoughts on April, which kick off the Canterbury Tales:

Whan that Aprill, with his shoures soote
The droghte of March hath perced to the roote
And bathed every veyne in swich licour,
Of which vertu engendred is the flour....


March 11, 2002—Looking in All the Wrong Places

Boutique Beers With wines over-rated and over-priced, we have been digging into the beer barrel lately to good effect. Some offbeat brews have proved very tasty, each eatery providing different treats. One of our local greasy cafes stocked Buzzard's Breath (a Canadian import we think) for a while, though it is now off the blackboard. With our Vietnamese pho, we knock down 33, Danang's best, an antidote to the spices with which we lace our soup. Our Chinese restaurateur, a cosmopolitan sort of fellow from Calcutta, offers us Sing Ha, straight from Bangkok. Since we cannot fit an MG in our garage, we have done the next best thing which is to quaff "Old Speckled Hen," out of Morland brewery, which dates back to 17ll, and is named after a vintage MG car that must have delighted the brewmaster.

Winners Are Losers Wines, beers, and a host of other things now have to come from boutiques, because the well-known companies seem to have taken all the guts out of their products. Anheuser (NYSE:BUD) just reported boisterous results for the last quarter, once again picking up market share by packaging soapsuds in a bottle, leaning on its distributors, and flogging us with advertising that never relates to the quality of its product.

It is not alone in achieving viagra performance despite the lackluster physique of its products. We have had occasion to look at all the companies at the top of the Fortune lists (Fortune 500, Global 500, Diversity 500, Most Admired 500, Ad Nauseam 500) and so on. The top rated don't have the ring of quality, ethicality, innovation, wisdom, environmental concern, or dedication to excellence. In some instances, they are actually drags on the economy. They are yesterday instead of tomorrow, substituting marketing fizz for product substance and integrity.

The Gap The politicos tell us that Andersen did not make Enron adhere to GAAP, generally accepted accounting principles. That's true enough. But GAAP would not get to the heart of the problem. It's long been known that GAAP and the accountants don't know how to measure the worth of an enterprise. So even if a company makes a Fortune list and passes an accounting examination, it may not merit your attention. There still may be no there, there.

Sorry About That. In all sorts of ways, the beleaguered accounting systems of bean counters do not capture economic value. It's no secret that serious investors don't use accounting statements to decide whether to put their money where their eyes are looking. Beady-eyed investors tear apart the statements, and look for the shakedown, break-up value of an enterprise in order to see whether they want a piece of the action.

Accountants aren't the only ones who have trouble looking at performance, value, and excellence. McKinsey, the General Electric of consulting firms, has commonly got it wrong. Read, for instance, an article in Across the Board, March/April 2002, "Excellence Won't Save You," where McKinsey's Richard Foster says, "This beguiling simple business of picking excellent companies was unfathomably difficult because every time you picked them they stopped being excellent."

Accountants, consultants, magazine editors, and all the rear-view mirror boys pick companies that used to be excellent, but are now coasting on their reputations. And, to boot, they usually measure the wrong things anyway. If you will look at Agile Companies on our site, you will find companies with a patch of excellence that make none of the lists and, often, have spotty financial performances. But they are up to something good.

Looking for Excellence. Excellence, in fact, is elusive. Only a few make the grade, unless you indulge in grade inflation. Ordinary tabulations don't find the right beers, cigars, brandies, companies, or chief executives.

And, horror upon horrors. Great companies that will shine for a century often seem plodding in the present. General Electric, today's star on every list, looks to us to be in decline, both because it is too dependent on the earnings of its financial services subsidiary which should be severed from the parent and because its leaders lack some of the ingredients that make for long-term value. L.L. Bean in Maine, honest to a fair-thee-well, will be around for a long time, although it is far from turning in the financial performance it could. It does not look like it will implode.

Passing Fancy. What a fragile creature excellence is. In the late 1950s, Yale University under A. Whitney Griswold was probably the best university in the United States. It was wedded to a liberal education, and its professors actually had to teach to earn their merit badges. At other institutions the profs made their reputations, and their graduate assistants made their classes. But that Yale is gone now.

We're reminded of Capote's Breakfast at Tiffanies. At the end, Holly Go Lightly loses her cat, and only then realizes how dear the cat was to her. We only know how valuable something is when it is lost.

That is excellence. We don't know how important it is till we don't have it. Like Paradise Lost, we cannot reclaim it. We don't know what ingredients make it up or how to account for it. Somehow it just gets away from us.

P.S. Notice that the PMI index has gone over 50, at least a temporary sign of economic recovery.

P.S.S. On Agile Companies, note Burberry, Analog Devices (NYSE:ADI), Tesco (NASDAQ:TESOF), Inditex (MADRID:ITX), and Bose, to name just a few companies with a touch of excellence. We will start laying out some of the characteristics of excellence in a future letter, though , in the end, it is indefinable. At work is the Heisenberg Principle where the process of measurement actually destroys the phenomenon being measured.


March 4, 2002Mauled by the Mall

Elton at the Mall. Saturday's paper, hard up for copy, chortled that Elton John hangs out at the mall or the movies in his spare moments in these United States. Or, so says People, AOL-Time Warner's (NYSE:AOL) money machine and the mainstay of the Luce empire, now that all its other publications are sliding downhill financially and editorially. We sorrow for Sir John, wondering that he has nothing better to do with his time. And yet, this addiction to the mall makes him one with his audiences. They, too, are doing the retail.

Consumers Have Been Shopping. This has been a most curious recession. A slew of economists are still denying that we're in a slump. All the people out of work know we're in the pits. Alan Greenspan knows we are hurting and has chopped interest rates at an unprecedented rate to reflate events. Almost every business person has tales of woe and will privately share fears aplenty. But -- and it's a big but -- the consumer keeps spending on houses and all sorts of other things. The culprit in this slowdown is business investment, which is massively off; but the consumer dances on day and night. We ourselves think the populace is on a last, addictive spending fling, a hangover from the profligate 90s. Even so, economists vow that our non-recession is almost over, though they are only promising a mild recovery. Note, however, that unemployment is turning up again, and that the other economic indexes will not warm the cockles of your heart.

The Age of Wal-Mart. The New York Times' best economic writer (albeit as a guest columnist), Virginia Postrel, has discovered that the avid consumer has made our retail sector a hero in more than one way. Ms. Postrel has the knack of recycling economic research in the popular press. Now she cites a survey from McKinsey, the consulting behemoth, which reports that 6 sectors, retail a standout, account for America's burst of productivity during the 1990s. Retailing chalked up 25% of the productivity gains during the period 1987 to 1995. (See New York Times, February 28, 2002, p. C2.) Wal-Mart's (NYSE:WMT) innovations directly or indirectly caused much of the big leap. Wal-Mart, we would suggest, got the deed done at the back of the store, managing its supply chain and logistics extraordinarily well, while providing a chintzy, serviceless, sterile experience up front. Having displaced Sears Roebuck (NYSE:S) as America's prime retailer over the last quarter century, Wal-Mart now provides less relative value than its predecessor, paradoxically allowing it to obtain more of a monopoly in America's marketplace.

Massification of Retailing. The chains, particularly the discounters like Target (NYSE:TGT) and Wal-Mart, are driving traditional retailers to the wall. In retailing, we seem to be imitating the early days of the car industry, with a similar lack of customization and service. You buy what the juggernaut gives you, becoming a docile, deferential customer who does not make any waves. As a consequence, it has now become more pleasurable to shop at a catalog store (L.L.Bean) or an internet purveyor (Amazon) than at the mall, despite Elton John's predilections.

Mass Customization to Come. The technology is at hard to introduce something besides meat-and-potatoes retailing. Wal-Mart's dominance could be very short-lived. Mass markets are slowing and fragmenting fast, compelling manufacturers and retailers to offer more choices, act with greater flexibility, and reconfigure around the customer. The move to agile, short-run car factories noted in Agile Companies this week is just one sign of where all the markets are moving.

Levi Strauss and others have made it possible for customers to get their clothes semi-cut to order. Speech recognition technology and customer relationship software allow retailers to super-serve loyal or high volume customers. Vast possibilities for follow-on services and products intelligently rendered exist in the car industry which has historically delivered big metal instead of a unique car experience.

Sephora Because. Even without new technology, the independent retailer who wants to do it better has a distinct opportunity. The tug of war between the downtown retailer and the mall chain is instructive. Up to now, the downtown store has cut prices, quality, and everything else in hopes of competing with the mall. This has been a hopelessly flawed strategy. The mall will win every time.

A few years ago Sephora, a French cosmetic chain and subsidiary of French luxury goods company LVMH (NASDAQ:LVMHY), planted a store in an unlikely small Southern town. It's still there, doing a lively trade. An upscale, Asian-fusion, newly opened restaurant, by far the region's best, has just opened a few blocks up the main street. The only strategy is to find out how to go up-market.

A host of other stores, dotting the same thoroughfare, have outdone themselves trying to offer cheap knockoffs, discounts, and the like. They are failing at a mad rate, in a death spiral without either volume or margin. The downtown parking situation, with parking meters, meter-mail tickets, and no parking spaces, guarantees a lack of sufficient volume. They absolutely need an up-market formula, a big lesson for city planners.

P.S. We advise a close look at foreign retailers, where a goodly amount of the most interesting innovation is taking place. Tesco (NASDAQ:TESOF), the British grocery chain, quickly made money in the Internet business, because it closely linked its virtual business to its bricks and mortar. Zara (MADRID:ITX), the Spanish women's chain, has danced around its competitors, by frequent stock changes based on a close reading of trends and its own inventory movement, on manufacturing in Europe instead of Asia, and a little better style instinct than most. Ikea, out of Scandinavia, has put starter home furnishings in the Western World's yuppie households by a surefire combination of modern design and low prices combined with fairly astute store location.


February 25, 2002—Don't Worry About the Copperheads; The Big Bear Will Get Your First

Copperheads and Big Bears. A friend up North gave me this adage as we restruck our friendship over the phone last week. It strikes right to the heart of this week's letter How do you pay attention to the risk that really matters when 1,000 calamities press their claims upon you? It also is the title of a new dictum added to the Global Province this week.

Year of Risk. Last March, when we were working on our Annual Report on Annual Reports 2001, we were tempted to call it "The Year of Risk." At no time did we anticipate the monolithic meltdowns we have seen since -- California's electricity debacle, the World Trade Center tragedy, Enron, Global Crossing, Argentina, etc. -- but we spied a deep, wide, and pervasive systems breakdown, even if the much vaunted Y2K tempest had ostensibly been avoided. The irony of 2002 is that we see disaster all about us now -- to the point of paralysis -- but we still don't see the big pileups coming down the track. More often than not, we are consumed by the wrong risks, fearfully preparing for things that are not going to happen. We're watching the copperheads, yet the big bear is lurking in the bushes. We have been, we are, and we will be bushwhacked.

Lone Wolves. What's uncanny is that there are chaps around who do foresee the big risks and anticipate, in vivid detail, the calamitous events that will ensue because the risks are unattended. Such was Rick Rescorla whose sad, wonderful, charming tale is retold in James Stewart's "The Real Heroes Are Dead" (The New Yorker, February 11, 2002). From Cornwall in England, he had fought against insurgents in Cyprus, Rhodesia, and Vietnam. Cancer survivor, Zen Buddhist, and novelist, Rescorla did a stint teaching criminal justice at the University of South Carolina, with a textbook to his credit on that subject. He wound up as security chief for Morgan Stanley Dean Whitter at, where else, the World Trade Center.

With the aid of his wartime buddy Dan Hill, a Moslem convert, he anticipated the first 1993 bombing of the WTC, and the airstrike last year. "Drawing on his research" for his novel about the air-cavalry, "Rescorla envisioned an air attack on the Twin Towers...." In the first instance, he alerted Port Authority officials; they did not pay attention. In the second, he alerted Morgan Stanley's own brass; they did not pay enough attention.

Inside almost every system, there are mid-level, somewhat alienated managers -- usually brighter than their superiors -- who spot clear and present dangers that the bigwigs simply don't see. They are not wedded to inertia, but respond vigorously to the promptings of their senses and their intelligence. If you are, on the other hand, too much part of a system, chances are you won't spot the torpedo coming your way you will believe in the system so much that you will implicitly believe it is impregnable. Lone wolves -- people of principle and intelligence who march to a different drummer -- seem to divine the real threat. It's the lone wolves, not the panoply of risk managers at banks, insurance companies, and detective firms, who can give us a little security if we will listen.

Churchill and Other Rank Amateurs. It was Churchill who saw World War II coming and who, when the call finally came, could deal with it, even in woefully under-prepared Great Britain. Despite some military postings and his naval overseer duties in World War I, he was an amateur warrior. Yet, oft as not, he understood what had to be done better than the professionals around him.

That is the intriguing thing about crises. The professionals rarely anticipate the big ones; that takes lone wolves. And the professionals -- as is so often demonstrated in wars ranging from the Civil War, to two world wars, into Vietnam -- don't do very well at leading us out of crisis. That takes splendid amateurs.

Probably this is one of the lessons implied in Peter L. Bernstein's excellent Against the Gods The Remarkable Story of Risk. Again and again, we discover that the chaps who lay the basis for containing risk don't come from the professional guilds, but are independent, curious minds who come from intellectually fecund family lines. Bernstein has this to say about the utterly fascinating Francis Galton: "Galton was an amateur scientist with a keen interest in heredity but with no interest in business and economics. Yet his studies ... led him to a statistical discovery that is essential to forecasting and to risk management." He was not part of the academy or officialdom -- he was just curious.

In Chaos Opportunity. Risk, it seems, is always one step ahead of our experts, always putting us in need of civilized rebels such as Rescorla and Galton who can foresee and devise against risks.

Clearly the magnitude of present risks has outrun our risk-management and mathematical apparatus. We would think that chaos and complexity theory will have to come into play in order to grapple with the sheer numbers that have to be analyzed to contain risk in a world of a billion-trillion possibilities.

This need not depress us. The very term risk raises the spectre of fear and danger in an affluent, coddled society. But as Bernstein points out, it is the successful management of risk that has established the basis of modern commerce. All the quantitative heroes in the history of risk, he says, "have transformed the perception of risk from chance of loss into opportunity for gain, from fate and original design to sophisticated, probability-based forecasts of the future, and from helplessness to choice."

P.S. You will find a few companies that have made risk their business. We have mentioned before that Duke Energy (NYSE:DUKE; www.duke-energy.com) has appointed one of its top executives Chief Risk Officer. And also that a Canadian grain company, United Grain Growers (TORONTO:UGG; www.agricoreunited.com) has tried to codify and hedge all its risks, having enumerated 47. In a major strategy shift, Gates of Microsoft (NASDAQ:MSFT; www.microsoft.com) announced in January that the company is moving computer security and privacy to the center of its stage, its record badly flawed in both areas up to now. The insurers, meanwhile, are cashing in on all fronts, with AON (NYSE:AOC; www.aon.com), for instance, trumpeting its political risk coverage (see the New York Times, February 24, 2002, Business Section).


February 18, 2002Throw Caution to the Winds

Tearing-Up Your Career. Novelist and essayist Arthur Koestler had a diverse career in many countries. Best known for Darkness at Noon, which made it to Broadway, he's less known for what is reputedly a passable manual on sex, put together under a pseudonym while he was in England.

We like him best for his two part autobiography, Arrow in the Blue and The Invisible Writing, where he recounts how he began life all over again on at least two or three occasions. Educated in the remnants of the Austro-Hungarian Empire, he tore up his record of courses taken at the last (in those days you kept your own university transcript) and headed off to Israel to work in the kibbutz, or something like that. Later on, he became a semi-renowned journalist at a liberal newspaper in Germany only to leave it and the beginnings of Nazism behind to try out Soviet Russia. Equipped with no more than a phrase book and a couple of names to contact, he tried his hand at Stalin's Russia. Unlike his whole nest of relatives in Austria and Germany, he fled security. Ironically, of course, he lived to tell his story; they didn't.

Templeton Speaks. The euphemists say, "Common stocks will do well for you in good times and bad over the long term." Wrong, at least some of the time. As far back as the first quarter of 2001, the prescient Sir John Templeton warned us off stocks. Stocks, the obvious place to invest, will probably give you cause for remorse for a while to come. Sir John thinks an excessive 18 year bull market could only be followed, in his estimation, by a 9-year bust. It will be problem enough to conserve capital, much less grow it.

A List of No-Nos to Do. In fact, the investment trail leads to a bunch of places the wise men are shunning. For example, institutions are chary of international venture investing, particularly in Asia. They say they've lost 3% in Asia over the last decade. But, logic rather than emotion says it is very much the time to get into China, the only major economy with heady growth in the world.

Closer at home, we've spotted a little company in Cary, North Carolina that resells second mortgages, buying them from issuers and selling them into various financial channels. We hear from everyone that you should watch out for mortgages, especially in tough times -- and you should simply forget about second mortgages at all times. But ALH Capital is making a handsome nickel for all concerned, because its second mortgages are doing very nicely, thank you. In fact, foreign investors are beginning to recognize them as a good thing to own. As it happens, the right mortgages, properly screened, can turn out to be very, very secure.

The Counter-Intuitive Man. We are living in an age where he who lives dangerously but has a keen eye and an agile brain will be the survivor. The need for apparently risky behavior ranges well beyond our investing activities. All the airlines, now in meltdown, are shaving away passenger comforts and amenities Continental has kept a lot of the extras and, lo and behold, has captured lots of extra passenger revenue. Ecuador, by giving up its currency and locking into the dollar, has turned in a 5% plus growth rate, the highest in Latin America. Everything tells us to pull in our horns and do what we did yesterday, shying away from new ventures the evidence lately is that caution will be a losing strategy. At no time in the last 30 years have our day-to-day tactical impulses and our long-term strategic interest been more at war with each other. For the long haul, one must live a little on the wild side.

P.S. A couple of companies who have struck out for new pastures come to mind. Years ago, AFLAC (NYSE:AFL; www.aflac.com), a supplemental cancer insurance company in Georgia, temporarily had a downdraft in its business due to some negative press in the United States. It went into Japan big time -- and today Japan is its key market. Hewlett Packard (NYSE:HWP; www.hp.com), once an instruments company, then an also-ran in the computer business, got into the printer business a few years back, the business that Xerox (NYSE:XRX; www.xerox.com) should have owned. At any rate, it's printers that have kept HP alive, a business it will probably neglect with the purchase of Compaq (NYSE:CPQ; www.compaq.com).


February 11, 2002—Do Something; Red Adair

Get Off the Sidelines. This week's mail brought the February Turnaround Letter, George Putnam's excellent advisory on turnaround stocks. Naturally he has a lot of lame companies to talk about these days, although even in the best of times he never lacks for companies who are in the doghouse and ready for a comeback.

We liked best his sidebar, "The Risk of Staying on the Sidelines." He shows a chart from the Franklin Mutual Fund Group that suggests you won't do well if you sit out bad markets and wait for the good times. You must stay invested.

While there are some flaws in logic here, the idea is right. To sit on your hands is to lose money. To find a way to remain engaged at all times will net you average or better returns.

A lot of hot hands have turned cold lately, and a ton of cash is worried and idle. This has been particularly true for the venture capitalists, so you can expect some flat results ahead. The frightened herd is reacting to crisis by standing still.

Denial. Crises of all sorts have now gotten bad enough that we have become a bunch of scared rabbits. In the nineties, we did our best to ignore our problems (no matter how severe), wasting a decade when we could have rebuilt our infrastructure and reinvented our institutions. After a brief flurry of activity, for instance, the Clinton Administration just gave up on the healthcare mess, tail between its legs. As a consequence, despite a brief period in the nineties when healthcare costs leveled off, they are soaring again. More people are unwell and untended. Employers expect these costs to rise a gigantic 13% in 2002.

Miracles Happen. Not all miracles happen on 34th Street. Unnoticed things of worth and note occur in the hinterlands. In a crisis there's always a determined person who's too stubborn to be scared and who meets the situation head on. Such is Dr. Kenneth W. Kizer, mentioned before (see Agile Companies #135), who put the VA on the road to recovery, delivering a whole lot more healthcare while spending a whole lot less dollars per capita. You can read about this in the Wall Street Journal, December 10, 2001, pp. A1 and A10. Or, if you can bear up under some medical jargon, read Dr. Kizer's own account in "Reengineering the Veterans Healthcare System," a chapter in Advancing Federal Sector Healthcare. The bottom line is that the VA has achieved a 25% reduction in per-patient costs, while moving all the treatment numbers in the right direction since 1996.

Prescription In money matters--in healthcare and in 100 other things--the right prescription is to do something. And if you don't know what to do, look around for the contrarian who just happens to be doing it right. We can assure you that we have our clients fully invested. And we are pushing our clientele to rapidfire action in their businesses.

The Kizer Plan We visited with Dr. Kizer a week or so ago to ask what would set healthcare in America to rights. His answer was most refreshing "I wish I had an answer as to what we should do." Can you imagine any of the other experts who rush to Washington being so honest and blunt in their testimony?

Nonetheless, Dr. Ken has a few ideas as to what we must do next. If we do the short-term obvious, he thinks, then a more comprehensive strategy will reveal itself. For now he has 3 pills digital management, capitated costs, and performance measurements. In any event, Dr. Ken thinks we have no choice but to act, even without a wonderful roadmap.

In brief, digital means putting everything in a super-accessible information system that looks at everything--patient care, payments, research, quality metrics ... the works. This is, in effect, a version of the wired smart community we discussed in last week's letter.

Capitation means that a health system only gets a fixed amount of money to treat every patient enrolled in the system--so much per patient. This begins to get at the misallocation of healthcare resources throughout the nation, where too much money is spent on certain, complex cases, research investigations, etc., with bread-and-butter care getting short shrift. We know of a system that spent $5,000,000 on one patient who was terminally ill, while its family-care system languishes to the point of malpractice.

Performance is what it sounds like. You keep lots of statistics on how a medical system performs against rigorous standards and goals. Measurement, as in quality management, becomes the principal goad to produce major improvement.

Crisis Fighters. We have a good friend who always thought Red Adair was in the ideal business. Red used to be the only guy you ever called when you had to put out a fire in an oil well--and price was no object. In a crisis, you needed to call a real firefighter.

George Putnam has been at the bankruptcy game for a long while, first as a bankruptcy lawyer in Philadelphia, as we remember. Ken Kizer has a raft of specialties, but his first loves seem to be emergency medicine and public health. Who else would you call to put out the national forest fire in healthcare? Moral We should have called this letter, "In crisis, do something. Get a firefighter."

P.S. For investors there are a number of ways now to play distressed markets in a sensible way. Putnam's Turnaround Letter (www.financialnewsletters.com/adcorn/turn.shtml) has a good track record on stock picks. A couple of bear friends, such as David Tice's Prudent Bear Fund (www.prudentbear.com/homepage.htm), are good for your portfolio as sort of portfolio insurance. Make sure you pick a fund that has been around a while--a bear fund that has survived good times. There's been a lot of interest in gold stocks lately one substantial company is Barrick (NYSE:ABX, www.barrick.com).


February 4, 2002—Smart Stuff

Smart Communities. An unfocused idea that never goes away--but never quite manages to blossom--is "smart communities." At the simplest level it means wiring a bunch of people together with the hope that they will rapidly accrue and exchange knowledge that has tremendous relevance to their economic, cultural, and political lives. After that, it can refer to anything, including Plato's Republic where the philosopher king makes sure that all subjects are in touch with the wisdom of the gods on an everyday basis.

Politically Attractive. The idea has taken hold of politicians across the globe, especially in Asia. The city-state of Singapore has tried to become a knowledge machine, and it is hyperactive on the Internet and in its digital libraries. Japan has had huge city-of-the-future plans, and the world is dotted with other attempts at knowledge corridors. In this country, we have heard most from state leaders such as former Governor Pete Wilson in California who pushed for a wired California and Senate-hopeful Erskine Bowles of North Carolina who wants the state to fund and spread the Internet into the undernourished spaces of North Carolina. Fortunately or unfortunately, all these initiatives have a thick technological patina.

Eger Beaver. One Smart City advocate of particular note is John Eger, a professor at San Diego University, who heads the California Institute for Smart Communities (see Global Websites) and who lectures on the need to solve the cleavage between the knowing and the know-nots through the formation of smart communities. Most recently (November 11, 2001), he talked in Riyadh, Saudi Arabia about the need to get the wires used to transform society by active collaboration and participation of all elements of society. In other words, smart communities are not about technology but about successfully getting people to use the new broadband pipeline for massive knowledge exchange.

Smartness Yet To Take Off. All the exotic knowledge movements--smart communities, smart homes (see www.echelon.com), and smart companies (i.e. knowledge management)--have foundered a bit because there has been a bit more interest in building the networks then defining precisely what the smart networks must and will do. In the case of communities, there is a need to focus local networks on local strengths so as to enhance those strengths. Boston should be wired to better exchange health knowledge since it owns special, long-standing skills in that arena. Houston, despite Enron's failure, could become knowledge central for the extractive and petroleum industries. Santa Fe seems to have a lock on complexity and chaos theory, and, for sure, New Mexico is a center of chaos. Companies, on the other hand, need to archive easily accessible business processes (how-to libraries), and a Boston company named Phios (www.phios.com) has focused on getting this right. This smart stuff will go somewhere when it gets linked to very specific, very practical advances in knowledge transfer. With our own clientele, we find we help create the most value when we succeed at focusing the knowledge building on a few paydirt topics.

Not A Trivial Question. The whole concept of smart communities, which sounds like one of the hot-air euphemisms politicians and academics like to utter, is not quite as impractical as it sounds. All of us know, but forget, that most learning takes place outside the classroom. We have a host of expressions--"street smarts," "school of hard knocks," "on-the-job training"--that acknowledges that reality. A bright society depends on a host of learning experiences outside of the schools. In fact, the schools cannot really function in a sea of dumbness.

With the decline of our educational institutions, the trivialization of our media, and the polarization within our communities, there is immense economic and political leverage in creating a context of smartness. So far we have only secured some accidental semblance of this kind of network with our popular culture--music and movies--which slips and slides into every corner of the world, but probably doesn't have much to do with spreading smartness. Again, the leverage of a smart context is stupendous, if we can achieve agreement and collaboration at a local level as to what we want to be smart about. Just as we have the world's highest per capital healthcare expenditures, so it seems we have equally high education expenditures--without much of a return on our dollars. Smart communities might make a difference.

Building on What You've Got. Bernard Maybeck, the charming San Francisco domestic architect who was an early AIA Gold Medal winner (he and Frank Lloyd Wright got the first two), said he knew he had designed a successful house if the client then went on to complete the landscaping in a harmonious manner. He read his client right if the owner could build on the innate strengths of the house.

This is the task for engineers of smart houses, smart companies, and smart communities. Can the engineer detect the inherent strength of the house, company, or community and make more out of it through his magic wires? The task is to leverage what you've already got, not to replace all that has come before.


January 28, 2002—In Praise of Two Gods Passing

Gods. Neither was a hero, but certainly each is a god. Last week Mr. Stanley Marcus, a.k.a. Mr. Dallas, and Ms. Peggy Lee, born Norma Delores Egstrom, shuffled off their last mortal coils and ambled up Mount Olympus to join Zeus. Each had figured in our last two Global Province letters Mr. Marcus because of his ruminations on elegance lost and Ms. Lee for her song, "Is That All There Is?" Each was unstoppable, the spirit never flagging in the face of illness, commercial impediments, or other earthly impossibilities. Each made it happen to the very end.

Stanley Marcus. We had the pleasure of a very long dinner with Mr. Marcus at the old, reliable Adolphus Hotel in Dallas a month or so ago, just a short walk away from the old flagship Neiman Marcus downtown, which we much preferred to the mall affairs. Accused by us of putting Dallas on the map, he simply said it wasn't true. At 96, as he sighed, his body had deserted him, but the mind was as resilient as ever. We both contemplated some new projects together, all infirmities cast to the side. We learned in the recent New York Times obituary that he was voted the ugliest boy in his high school class, which seems odd to us. Cerebral, fast, capable of telling observations, he was so kinetic that one just did not pay attention to his looks. As a kindness to us he wrote an essay for the Zindart 1999 Annual Report (see www.zindart.com) called "About the Man Who Collected Everything," which was very appropriate for a Chinese collectibles producer. I gave that title to the words he penned he simply did collect everything and everybody.

Peggy Lee. We grew up in those fifties and sixties when Peggy Lee was gliding by. But we never particularly paid attention to her, since other more jarring chanteuses commanded our idolatry. In the late eighties, however, we had lunch outside by the Long Island Sound in the warm idyllic air with a Chesebrough Pond's executive who knew how to be droll and who radiated a little sadness. As we talked about the turns of business and career, he blurted, "Is That All There Is?" Ever since then we have been paying attention to Ms. Peggy Lee.

What you never know about a songmaker is that a lot of bad times go into the nightingale strains that pour from the soul. Orpheus from Hades. Losing her mother at age 4, she bore up against a father who tippled too much and a stepmother who beat, strapped, and dragged her about. After a bout of pneumonia in 1958, she had resurgent breathing problems until her death, so she kept oxygen close at hand. It gave her relief both before and after many a performance. Dealing with a bad heart, diabetes, and even occasional deafness, she just kept singing. Unlike Marcus who spanned almost a century, she was a youngster when she died at 81.

As we said, we didn't notice her at first. She was a master of understatement. We're reminded, however, of our springer spaniel who is much more attentive to us when we speak in a whisper than when we shout. Better to talk softly and carry a big spirit. After a while, like Ms. Lee, you will be heard, soft and clear.

Swimming Upstream. When all the world is floating down river -- lazy and fat -- the quality swim upstream, defying the aimlessness and commonness of their times. Stanley Marcus pushed exceptional merchandise, big-style service, and a spirit of inquiry when designer labels and political correctness were used as packaging for all sorts of products without content. Peggy Lee lulled us with her soft style, but symbolized how well determination will be heard. We like the fact that she won two royalty lawsuits against the sharks of Hollywood, getting $2.3 million from Disney in 1992 and a part of a $4.75 million settlement from Universal Music Group later on. Each made quality happen, because neither was a pushover, both knowing who they were and where they were headed. We trust both are still on their way.

Obits Come to Life. The several write-ups of Mr. Marcus and Mr. Lee we have read in the papers have been first rate. Obituaries have turned into an art form -- a little noticed trend and one of the few writing arenas where things have actually gotten better. Not only have the daily newspapers beefed up their morgues (often crafting the obits at leisure well before their subjects die), but magazines such as the Economist have lately gotten into the business, using the obit as an endpiece for the magazine. Are the papers ministering to an aging population (a demographic of all the developed countries), or is some veneration for our forebears creeping into the national consciousness? The historian David McCullough's great success with John Adams, and A&E's biography series, are further evidence of the growing interest in people past. As it happens, this is one thing the print media does very much better than the broadcasters. At any rate, obituaries, which are usually eulogies, turn out to be a marvelous way of praising the gods.

P.S. Amongst Stanley Marcus's works are Minding the Store; Quest for the Best; The Viewpoints of Stanley Marcus; Stanley Marcus from A to Z; Henry Dreyfus; American Greats; and His and Hers.  To catch Ms. Lee, get her CDs, such as All-Time Greatest Hits and The Best of Miss Peggy Lee: The Jazz and Blues Sessions.


January 21, 2002—Hanging In or Hanging Out

Is That All There Is? 10 or 15 years ago we chatted one an evening with a Dutch lady in a stylish Village restaurant known as "One if by Land, Two if by Sea." Olga, the lady in question, had come a long ways from Amsterdam. Starting there as a secretary a decade before, she had conquered mountains and become a treasured vice president of a U.S. chemical company. Her question for me, after the manner of the songstress Peggy Lee, was "Is That All There Is?" What would come next for her? What should she strive for in the days ahead? Where was the next mountain?

My answer was that she had done it all. Now she could only hope to better her craftsmanship, to do what she was doing with ever-greater perfection. The answer did not please her. But given her relentless drive and self-absorbed ambition, what else was there for her than to lower her handicap? She could not hope to join the gods above Mount Olympus because she did not believe in them. She believed mainly in her abilities.

Wittgenstein Versus Popper. Aspects of this question, the interplay of career and metaphysics, are joined by a rather simplistic, enjoyable, and now quite popular book called Wittgenstein's Poker. By a couple of British journalists, the book purports to recap and explain 10 minutes at the Cambridge Moral Science Club just after World War II, when the Viennese philosophers Ludwig Wittgenstein and Karl Popper clashed early on at a presentation Popper gave to the group. Wittgenstein interrupted and tried to prevail in the argument by rhetorical flourishes and a menacing wave of a poker.

What we learn first is that the British philosophers, at least back then, were rather slavish sorts, who easily clustered at the feet of ostensible greats. If they were teenie boppers, we would be able to call them groupies. Instead, since they were ponderous, we call them philosophers.

More importantly, in oversimple terms, we discover that the core argument between the two lay in their concept of philosophy. For the wealthy, Jewish, upperclass Wittgenstein, philosophy was a semantic tool that sort of cleared away language mix-ups, and little else. It was a game, but certainly not the solution to humanity's problems.

For Popper, the middleclass Austrian, who was also part of Vienna's very productive Jewish intellectual circles, philosophy did help remake the world. For him it was not a game but a career with a vital mission.

It is Wittgenstein, not Popper, who still has a hold over the academic imagination and young philosophers on the make. Probably his terrible angst has turned him into an appealing figure for romantic minds. Hardly a day went by for Wittgenstein where he did not contemplate "suicide as a possibility." He died in 1951, age 62.

Divine Mission. But what if you are a Popper and believe you are changing the ways of man and society for the better? Years ago the chairman of one of the world's premier (at that time, that is) professional service firms asked me whether he should sell his partnership to a financial colossus with the view of still doing great work but accompanied by the comfort of great personal liquidity.

We concluded that selling was the wrong thing--akin to "selling out"--the term young idealists apply to someone who has gone commercial. The time to sell out, we thought, was when you were retiring from the fray, no longer determined to do great work. If you're up to great stuff in your business, it's highly unlikely that this can continue without your ownership and demanding involvement. All the merger and acquisition boys and all the acquaintances who want you to smell the roses gloss over this in urging you to give it all up.

Doing and Believing. If you are doing what you believe in, chances are you should not put your career and business under the gavel, but rather, know that you are best off soldiering on in the work that gives you meaning and worth. Selling out is for chaps like Wittgenstein, people who have spent their lives with the consolation of suicide always near at hand. Karl Popper kept well at it to the end, dying 17 September 1994 at the age of 92. If you believe in yourself and what you are doing stridently enough, you may have a very long run.


January 14, 2002—The Customer Be Damned

Elegance is Dead.  Stanley Marcus, a giant of retailing who gave provincial Dallas a touch of panache, reminds us all that quality is an uphill, Don-Quixote battle against the economics of the 21st century, where fineness is not on the minds of purveyors or customers. In Quest for the Best, he elegizes: “The best, in many instances, may not be as good as it used to be, but once manufacturers and retailers realize the size of the market for the best, they will get smart enough to make best better—not elegant, for elegance is dead.”

About Neckwear. The necktie is as good a metaphor for the end of elegance as any. Mr. Marcus explains how manufacturers have stinted on fabric or substituted lightweight silk, and the merchant who cares has to be on guard against these unseemly tricks. But who really cares? In much of the West, the necktie is regarded as a noose, a burden never to be worn lightly. One night, in a restaurant outside Scottsdale, I saw waiters gleefully chopping ties in half to the chagrin of the hapless suits who dared to wear real clothing into the eatery. The necktie and elegance are affronts to our present culture.

Abuse the Customers. Assaults on the customer, however, are not mere whims of a few small businesses, but are the calculated strategies of some of our largest and most successful companies. Southwest Airlines (NYSE:LUV; www.southwest.com), our only profitable major carrier, makes every flight an ordeal with bad seats, difficult ticketing, no interline arrangements for baggage, etc. Weary travellers refer to it as a “cattle car.” Wal-Mart (NYSE:WMT; www.walmart.com), and particularly Sam’s which is its warehouse unit, makes it hard to find merchandise and has narrowed the selection, eliminating most of the finer items. At Sam’s, you pack your own, if there happen to be any beat-up cartons up front. Meanwhile all the world still titters at Microsoft’s self applied euphemism—Microsoft Works (NYSE:MSFT; www.microsoft.com). Needless to say, it doesn’t, but Microsoft uses its market position to freeze out applications that would. Each of these companies, while admirable in a number of ways, uses monopoly positions to offer an inadequate product, which they combine with cheerful advertising and indoctrinated employees who tell you black is white and all is wonderful. Many, many companies abuse customers, but it is most instructive to see our biggest and best try to gain operating leverage from customer neglect.

Caring More. As Mr. Marcus makes clear in his book, modern economics make it very hard to render quality, much less elegance. Yet Paul O’Neill, our current Secretary of the Treasury, made employee health and safety the centerpiece of his turnaround strategy at Alcoa. It is possible to succeed by caring for people. A few companies, certainly some of the enterprises we counsel, are growing in a surefooted way by caring more than the next guy—and always caring for the next guy. Perhaps it is not a very good strategy over the long term to treat your products, your employees, and your customers like commodities.


January 7, 2002Heathcare I: Giuliani Perhaps?

"The more you spend, the worse it gets." This holds true for all sorts of infrastructure efforts, from education to urban highways to air transportation. But nowhere does it seem more spot on than in healthcare, where things get more muddled each year, and the nation gets at least a bit sicker.

Chronic Instead of Acute Illness. A chap named Jeff Goldsmith at Healthfutures.net eloquently defines one of the problems. We're set up to deal with infectious or acute illness, with the view that we will effect a cure in a week, a month, or at least a year. But, increasingly, we are dealing with illnesses that never go away, such as heart disease, cancer, Alzheimer's, or AIDS. For them we do not need hospitals as much as we need clinics and workers with a telephone who can wrestle with patients for years to come. With more than 60% of the population overweight, we can say that an absolute majority of Americans are victims of at least one chronic illness -- obesity. By some estimates, chronic disease now accounts for 75% of direct medical expenditures and afflicts at least 100 million Americans. We are geared, however, to deal with quick fixes. Our research and capital capital expenditures are going for the wrong things.

Structurally this is very hard to overcome. Hospitals, insurers, government agencies, pharmaceutical companies, health plans, doctors, and citizens have to change radically for chronic care to gain the upper hand.

This problem also cuts right to the heart and soul of the medical profession. All the professions are organized on a medieval craft basis, and they are hardpressed to deal with a lean post-industrial economy where one ministers to large numbers of people in an environment where no case is ever finished. We are talking about continuous care for virtually everyone, not the meal on which craftsmen like to feast.

Self Care. With vast numbers of people permanently ill for 40 years or more, we have no choice but to enable people to take care of themselves, with the medical professional becoming a health catalyst rather than an autocratic director of patient care.

The movement towards "shared decision making" is the most helpful step so far in this direction. The most interesting commercial proponent of patient self-involvement today is Health Dialog in Boston, the offspring, in effect, of the Dartmouth Atlas (see item 26 on Stitch in Time) and the Foundation for Informed Decision-Making, which have created databases and tools to inform all of us about the efficacy of sundry courses of treatment. The thought is that informed people will pick rational treatments, discounting the prescriptions of providers with beds to fill, scapels to wield, and pills to dispense.

Then too, some very tentative steps have been take to cut out wasteful facilities and put in what's needed. The VHA, for instance, has sliced 50% of its beds, and paid for the clinics and information systems that can deliver continuous treatment to its veteran constituency (see item 135 on Agile Companies). But, in the same breath we must mention a substantial Durham, North Carolina medical center that spent several million dollars on one terminally ill patient, while simultaneously delivering Third World-quality care in its emergency room and family practices. Even its own doctors complain about the treatment of their family members at this center. Clearly the greatest good for the greatest number is not uppermost in the minds of the healthcare impressarios who run this operation.

An Ounce of Prevention. The fact is that the real place to spend big dollars -- and even more important to chronic care -- is preventive medicine. Medicine is a lot like quality control the best way to solve the problem is not to have it, to do what is necessary before there are overt symptoms and overt illnesses. Across the globe, virtually without exception, public health structures, which traditionally carry the preventive health burden, have fallen into grave disrepair. For more on this, see item 28 on Stitch in Time, Betrayal of Trust The Collapse of Public Health. This year the cost of a Hepatitis B shot -- a series of 3 is required -- doubled in one southern county to $70, well out of the reach of healthcare and food preparation workers, to the detriment of all. The preventive health bus is still going in the wrong direction.

A widely noticed report out of WHO, "Macroeconomics and Health Investing in Health for Economic Development," says the world needs to spend another $50 billion a year on public health in developing countries to right the system and to enable economic development by making sure ordinary workers can actually function day to day.

Jeffrey Sachs, the Harvard economist who led the group writing the report, notes that the poorest nations are too poor to help themselves. Surely this is a true enough observation, making one hope that over-endowed Harvard could expend some of its resources on the effort. The good side of the report is that it has a bias towards prevention the bad side is that, as usual, the policymakers do not have a clear and frugal notion of how to spend the money in ways that will not exacerbate the grievous problems that already exist.

The Costs of Poor Health. The costs of bad health in advanced nations are as perplexing as those in the poorest, but not as blatantly obvious. For instance, the U.S. national health budget is a rapidly growing fiscal cancer that is retarding national economic growth. More subtle but just as insidious is the way poor health saps productivity. Big businesses try to beef up productivity through training and information-processing investments that make an erratic contribution to efficiency and efficacy. But it is the unhealthy life of the worker outside the office that affects productivity in unseen, dramatic ways. He spends too much time commuting to work under great stress, is 30 pounds overweight, and has family members with heavy-duty psychological afflictions. Meanwhile, he is mildly at war everyday with service providers -- both commercial and governmental. If life were humming outside the company gates, he could make things sing at work. In this regard, businesses need to understand the true size of their health-related costs and to engage in broad health planning that deals with issues not on the agenda of the nation's healthcare providers.

Rudy Giuliani Perhaps. Dr. Andrew von Eschenbach, survivor of skin and prostate cancer, has just been named head of the National Cancer Institute. His father died from prostate cancer. To get anywhere on our national health problems, we probably need sufferers like him who can think like patients. We need health leaders who have walked over hot coals.

It is fairly astonishing that we're in such a bad fix. A phalanx of intelligent people know how bad it is -- and have glimmers of insight into the solutions. But not a whole lot gets done.

Perhaps we need a health czar. Someone from the outside who will think broadly enough about the problem and ride roughshod over the vested interests of health bureaucracies. Rudy Giuliani is just coming off his stint with intractable New York plus a bout of prostate cancer. Perhaps somebody like him.

Just before Christmas, we heard from a dear friend and fabulous doctor at one of the nation's premier teaching hospitals "The practice of medicine and surgery continues to be wonderful," he says. "The business of medicine stinks." Clearly he knows things are going to change bigtime. We can only hope that the revolutionary torrent to come does not swallow up all our wondrous physicians, but instead, lets doctors become doctors again.

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