LETTERS FROM THE GLOBAL PROVINCE 2002 |
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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. 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." 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. 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. 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. GP13Nov: Fear Itself The Election of 2002. We’ve all heard a bunch of
Monday morning quarterbacking Best of the Week. Our thesis, then, is that
fears aplenty are driving people to strange On the Cheap. So there are all sorts of things
to do and investments to make and actions 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:
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.
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 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 |