January 29, 2007
Limit choice; maximize profit
Are we better off when we have more choices?
Yes, but only to a point. After a while “choice paralysis” sets in. As the number of retirement investment options increase, the chances that employees will choose any decreases. Too many types of soft drinks in a convenience store reduce total drink sales. Too many possibilities (of anything) also increase the likelihood that buyer’s remorse will set in. Once you’ve repainted your room, don’t look back at the color chart.
This is probably why waiters take away the menus right after you place your order.
Customers seldom buy a product for what it can’t do. But that’s often what keeps them happy with it.
A trio of business school professors have even quantified the problem of “feature fatigue.” They (Roland Rust, Debora Thompson and Rebecca Hamilton) outline their analysis in the Feb 2006 issue of Harvard Business Review. Their bottom line is that even though consumers “know” feature-loaded products are harder to use, BEFORE a product is purchased capability is valued over usability.
AFTER purchase is when buyer’s values change. Usability then matters much more then than capabilities.
Remember that big Swiss Army knife you bought? The one that can do everything. The one you keep in your dresser drawer because it’s too heavy to tote around.
The profs found that loading a product with features can maximize its initial sales numbers. But repeat sales to the same customer are maximized by editing down the number of features. And somewhere between these points is a happy medium – the right number of features that will maximize a customer’s lifetime value to the business.
Yes, but only to a point. After a while “choice paralysis” sets in. As the number of retirement investment options increase, the chances that employees will choose any decreases. Too many types of soft drinks in a convenience store reduce total drink sales. Too many possibilities (of anything) also increase the likelihood that buyer’s remorse will set in. Once you’ve repainted your room, don’t look back at the color chart.
This is probably why waiters take away the menus right after you place your order.
Customers seldom buy a product for what it can’t do. But that’s often what keeps them happy with it.
A trio of business school professors have even quantified the problem of “feature fatigue.” They (Roland Rust, Debora Thompson and Rebecca Hamilton) outline their analysis in the Feb 2006 issue of Harvard Business Review. Their bottom line is that even though consumers “know” feature-loaded products are harder to use, BEFORE a product is purchased capability is valued over usability.
AFTER purchase is when buyer’s values change. Usability then matters much more then than capabilities.
Remember that big Swiss Army knife you bought? The one that can do everything. The one you keep in your dresser drawer because it’s too heavy to tote around.
The profs found that loading a product with features can maximize its initial sales numbers. But repeat sales to the same customer are maximized by editing down the number of features. And somewhere between these points is a happy medium – the right number of features that will maximize a customer’s lifetime value to the business.
January 05, 2007
The folly of being the world's biggest
Yesterday General Motor’s CEO, Rick Wagoner, announced GM has no intention of ceding the title of “biggest car maker in the world” to Toyota.
Real dumb move.
Fighting Toyota is a good idea. But “who is the biggest” is the wrong battlefield.
You get to be Number 1 in the auto business by selling more cars than anyone else. This does not necessarily mean these are profitable sales (usually a good indicator that you are making the things people value). GM, like other Detroit automakers, has been hooked on discounts and incentives to move vehicles off dealer’s lots. Toyota, Honda, et al rely on eager customers to do the job.
Wagoneer says he likes being Number 1. But he’s dangerously deluding himself. GM lost that position with the car-buying public long ago. It’s just taking the numbers a while to catch up with realities – realities GM risks missing as it clings to bigness as a source of pride.
In Bigger Isn't Always Better I told the story of how Kellogg’s economic performance was badly damaged by executives and systems that focused on tons of cereal produced, not on customer tastes. At Kellogg it took a new smart-growth-oriented CEO, Carlos Gutierrez, to dig the company out of this mess and focus it on what really matters. Wonder if he’d be available to take over a once-great American car maker?
Link
Real dumb move.
Fighting Toyota is a good idea. But “who is the biggest” is the wrong battlefield.
You get to be Number 1 in the auto business by selling more cars than anyone else. This does not necessarily mean these are profitable sales (usually a good indicator that you are making the things people value). GM, like other Detroit automakers, has been hooked on discounts and incentives to move vehicles off dealer’s lots. Toyota, Honda, et al rely on eager customers to do the job.
Wagoneer says he likes being Number 1. But he’s dangerously deluding himself. GM lost that position with the car-buying public long ago. It’s just taking the numbers a while to catch up with realities – realities GM risks missing as it clings to bigness as a source of pride.
In Bigger Isn't Always Better I told the story of how Kellogg’s economic performance was badly damaged by executives and systems that focused on tons of cereal produced, not on customer tastes. At Kellogg it took a new smart-growth-oriented CEO, Carlos Gutierrez, to dig the company out of this mess and focus it on what really matters. Wonder if he’d be available to take over a once-great American car maker?
Link
December 31, 2006
A year-end merger
2006 ends with announcement of regulatory approval of a large telecom merger: AT&T and BellSouth. All that’s missing in the new AT&T to recreate the old MaBell is Verizon and the equipment business of Lucent (now in French hands).
Does the recombination make sense? Only time will. But an analyst at Stifel, Nicolaus & Co., Blair Levin, has raised some important questions about how important it is to be such a large company. In filings with the FCC, he said:
Good questions to end the year with.
Link
Does the recombination make sense? Only time will. But an analyst at Stifel, Nicolaus & Co., Blair Levin, has raised some important questions about how important it is to be such a large company. In filings with the FCC, he said:
“AT&T argued that it needed scale to compete, invest and innovate. Yet its competition amounts to 400 small Internet phone companies."
"If scale really is important, they are the only ones who are ever going to have it. Game over."
"And if there are other attributes that make a successful company, do you need scale?"
Good questions to end the year with.
Link
November 30, 2006
3rd place may not be all that bad
I don’t usually look for management advice in The New Yorker, but the Dec 4 issue has an article by James Surowiecki (p. 44) well worth reading. He charts the evolution of the video-game industry, once ruled by Nintendo, which in the early 1990s was Japan’s most profitable electronics company. One third of US homes had Nintendo devices.
That was then. Now the industry is dominated by Sony’ PlayStation and Microsoft’s Xbox. Nintendo is an also-ran, at least in market share.
Surowiecki’s article makes the case, though, that “bringing up the rear” can be a very lucrative position to be in. He demonstrates how the old logic of GE’s Jack Welch that a company should be number one or two in its market or it should quit doesn’t always make good sense. In this three-way competition, Nintendo is making more money and doing better in the stock market than either of its bigger rivals.
Why?
According to Surowiecki:
Companies that focus obsessively on competitors and market share, according to recent academic research, tend to have lower profitability and return on investment than those who pay attention to other important performance measures. High market share doesn't automatically drive high profitability.
Surowiecki sums up his argument by noting business isn’t the same as a sporting event (or warfare): victory for one company doesn’t have to mean defeat for everyone else, especially in huge markets like global video-games that are worth $30 billion. This is a wisdom often lost when companies quest for bigness as an end in itself.
Not a bad decision.
That was then. Now the industry is dominated by Sony’ PlayStation and Microsoft’s Xbox. Nintendo is an also-ran, at least in market share.
Surowiecki’s article makes the case, though, that “bringing up the rear” can be a very lucrative position to be in. He demonstrates how the old logic of GE’s Jack Welch that a company should be number one or two in its market or it should quit doesn’t always make good sense. In this three-way competition, Nintendo is making more money and doing better in the stock market than either of its bigger rivals.
Why?
According to Surowiecki:
“Sony and Microsoft are desperate to be the biggest players in a market that, in their vision, will encompass not just video games but ‘interactive entertainment’ generally.”
“Sony and Microsoft’s quest to ‘control the living room’ has locked them in a classic arms race.”
“Nintendo has dropped out of this race….Because Nintendo is not trying to rule the entire industry it’s been able to focus on its core competence, which is making entertaining, innovative games.”
Companies that focus obsessively on competitors and market share, according to recent academic research, tend to have lower profitability and return on investment than those who pay attention to other important performance measures. High market share doesn't automatically drive high profitability.
Surowiecki sums up his argument by noting business isn’t the same as a sporting event (or warfare): victory for one company doesn’t have to mean defeat for everyone else, especially in huge markets like global video-games that are worth $30 billion. This is a wisdom often lost when companies quest for bigness as an end in itself.
“… companies can profit even when they are not on top, as long as they aren’t desperately trying to get there. They key is to play to your strengths while recognizing your limitations…Nintendo knew it could not compete with Microsoft and Sony in the quest to build the ultimate home entertainment device. So it decided, with the Wii, to play a different game entirely."
Not a bad decision.
November 29, 2006
The bloated sales force disease
Only a day after Boeing was lauded for its new restrained approach to growth, the world’s largest drug maker, Pfizer, announced similar steps. In Pfizer’s case, the first step was a 20% cut in the size of its sales force.
Pfizer, like many pharmaceutical companies, sharply increased the size of its sales force and marketing budget to try to compensate for its labs inability to discover sufficient new drugs.
This misguided “put-more-feet-on-the-ground” strategy has been followed by other drug makers (and other industries such as banking) that have become caught in the bigness rat race. It papers over the real problems, providing only temporary relief along with a hefty dose of high costs. Worse of all it shifts the focus of the business leaders to sales and marketing issues, at the expense of paying attention to improving the flow of new and better drugs through the R&D pipeline.
Link
Pfizer, like many pharmaceutical companies, sharply increased the size of its sales force and marketing budget to try to compensate for its labs inability to discover sufficient new drugs.
This misguided “put-more-feet-on-the-ground” strategy has been followed by other drug makers (and other industries such as banking) that have become caught in the bigness rat race. It papers over the real problems, providing only temporary relief along with a hefty dose of high costs. Worse of all it shifts the focus of the business leaders to sales and marketing issues, at the expense of paying attention to improving the flow of new and better drugs through the R&D pipeline.
Link
November 28, 2006
Fewer Sales = Greater Sustainable Growth
Airplane maker Boeing just said "no" to one of its best customers when Southwest Airlines asked to buy more planes. Boeing suggested they buy some second-hand aircraft instead.
What gives? The linked New York Times article describes the method to Boeing’s seeming madness – how Boeing has discovered that discipline and self-imposed constraints are the drivers of sustained growth. In sort: too much of a good thing is not a good thing.
Boeing made a tangible demonstration of this anti-bigness strategy when it cut in half the number of planes it offers and suppliers it uses. The company has also sharply reduced its workforce, outsourcing much of the plane manufacturing so it can focus only on the work of design and final assembly.
Building airplanes has always been a roller coaster industry. Hopefully flattening the peaks will also level-out the dips, and make for a longer and steadier ride. That's mature growth.
Link
What gives? The linked New York Times article describes the method to Boeing’s seeming madness – how Boeing has discovered that discipline and self-imposed constraints are the drivers of sustained growth. In sort: too much of a good thing is not a good thing.
“Boeing, which is based in Chicago, is trying to avoid mistakes of the past. In the last aviation boom, in 1997 and 1998, Boeing gorged itself on orders, but its production lines could not keep up and ground to a halt.”
“Nevertheless, the company flooded the market with too many planes and ultimately had to sell them at cut-rate prices. Boeing’s write-offs came to more than $4 billion in 1997 and 1998, executives were sent packing and 20,000 workers lost their jobs. Boeing’s stock plunged, as did profits, and many wondered whether Boeing would ever regain its footing.”
“Today, having learned its lesson, Boeing is adopting a polar opposite strategy as it faces a new wave of orders that, if not managed right, could swamp the company again.”
“ ’In this hot market, it would be easy to be consumed with the desire to sell anything to people walking through the door who want to buy and push our production system to the point where you could break it,’ said Scott E. Carson, the chief executive of Boeing Commercial Aviation. ‘It’s much harder to say, I’m sorry, we’re sold out.’ ”
“He added: ‘We have to communicate that openly with customers and suppliers to be sure they understand why this is good for the industry. The role of the industry leader is to demonstrate discipline and restraint in the marketplace.’ ”
Boeing made a tangible demonstration of this anti-bigness strategy when it cut in half the number of planes it offers and suppliers it uses. The company has also sharply reduced its workforce, outsourcing much of the plane manufacturing so it can focus only on the work of design and final assembly.
Building airplanes has always been a roller coaster industry. Hopefully flattening the peaks will also level-out the dips, and make for a longer and steadier ride. That's mature growth.
Link
November 17, 2006
Clear Channel goes for focus
Yesterday Clear Channel Communications – a longtime poster child for bigness and consolidation of the US radio industry – agreed to sell itself to a group of private equity firms in a $26.7 billion transaction. The first strategic move planned after the deal was announced: sell off one third of Clear Channel’s radio stations and all its TV ones.
This is just latest – and largest – example of media companies going private. Many, especially newspapers, originally were closely held, and issued stock to fund what often turned out to be uneconomical expansions. So moves like Clear Channel’s reflect an undoing of this strategy and a move back to their roots (although the intention of most private equity investors is to clean-up the clutter and take these businesses public again).
What all this illustrates is one form of the shift from bigness to focus. For folks who have been around the business world for a while, echoes of the LBO buyout boom of the 1980s are loud and clear.
Bigness is fueled by stock option-driven leaders in public companies. Consistent quarterly profit increases (something, as noted in Bigger Isn't Always Better, that defies the laws of economic gravity), ongoing incremental “water-torture” cost-cutting, emphasis on revenue increases, and unending pressures to expand are the hallmarks.
In contrast, the world of private equity is one of focus, spin-offs, sharp cost-cuts, short-term risk tolerance, and comfort from cash flow.
One model isn’t ultimately better than the other, just different. Both have serious flaws that can destroy real innovation and growth.
Ironically Clear Channel made itself more attractive to private investors by adopting a “less is more” approach to selling advertising 18 months ago. It reduced the total number of minutes devoted to commercials each hour on its radio shows and shortened their average length. Result: happier listeners, better ratings which led to more ad revenues for less air time, and constructive pressure on the advertisers to make their shorter commercials more engaging. Which led to more product sales for the advertisers – a win-win all around.
This is just latest – and largest – example of media companies going private. Many, especially newspapers, originally were closely held, and issued stock to fund what often turned out to be uneconomical expansions. So moves like Clear Channel’s reflect an undoing of this strategy and a move back to their roots (although the intention of most private equity investors is to clean-up the clutter and take these businesses public again).
What all this illustrates is one form of the shift from bigness to focus. For folks who have been around the business world for a while, echoes of the LBO buyout boom of the 1980s are loud and clear.
Bigness is fueled by stock option-driven leaders in public companies. Consistent quarterly profit increases (something, as noted in Bigger Isn't Always Better, that defies the laws of economic gravity), ongoing incremental “water-torture” cost-cutting, emphasis on revenue increases, and unending pressures to expand are the hallmarks.
In contrast, the world of private equity is one of focus, spin-offs, sharp cost-cuts, short-term risk tolerance, and comfort from cash flow.
One model isn’t ultimately better than the other, just different. Both have serious flaws that can destroy real innovation and growth.
Ironically Clear Channel made itself more attractive to private investors by adopting a “less is more” approach to selling advertising 18 months ago. It reduced the total number of minutes devoted to commercials each hour on its radio shows and shortened their average length. Result: happier listeners, better ratings which led to more ad revenues for less air time, and constructive pressure on the advertisers to make their shorter commercials more engaging. Which led to more product sales for the advertisers – a win-win all around.
November 16, 2006
Small wonder
Poorly managed auto companies aren’t an American monopoly. Volkswagen – one of the companies I criticized in Bigger Isn't Always Better for strategic sprawl – has made several recent moves to start mending its ways. Its chief executive was replaced by Martin Winterkorn, the head of its Audi division. And Winterkorn’s first decision was to rethink the way VW groups its car units.
His plan is simple – often a good sign. Put the brands aimed at the high volume, mass market in one bucket (VW, Skoda and Seat), and those targeted toward luxury buyers (Audi, Bentley, Bugatti and Lamborghini) in another.
This adds a sense of customer focus to a company that had organized itself into “oil and water” combinations of Audi and Seat in one division, and VW and Bentley together in another. These illogical groups were a result of inward-facing factors: history, company politics, and attempts to share core competencies that really weren’t very shareable. They also reflected the model of General Motors in the 1920s – try to offer customers a broad choice of cars from cheap to luxury, all under one umbrella. It may have worked 75 years ago, but…
The new organization shows more willingness to group businesses according to common customer needs – always a good start down a path to real growth. VW was once the highly successful builder of the Small Wonder, my first car. Let’s hope this logic returns.
His plan is simple – often a good sign. Put the brands aimed at the high volume, mass market in one bucket (VW, Skoda and Seat), and those targeted toward luxury buyers (Audi, Bentley, Bugatti and Lamborghini) in another.
This adds a sense of customer focus to a company that had organized itself into “oil and water” combinations of Audi and Seat in one division, and VW and Bentley together in another. These illogical groups were a result of inward-facing factors: history, company politics, and attempts to share core competencies that really weren’t very shareable. They also reflected the model of General Motors in the 1920s – try to offer customers a broad choice of cars from cheap to luxury, all under one umbrella. It may have worked 75 years ago, but…
The new organization shows more willingness to group businesses according to common customer needs – always a good start down a path to real growth. VW was once the highly successful builder of the Small Wonder, my first car. Let’s hope this logic returns.
Loosing sight of what the business is really about
In yesterday’s Washington Post business columnist Steven Pearlstein used the experience of car rental giant Hertz to illustrate how the US car markers have been their own worst enemies, “careening from one strategic blunder to another for nearly three decades.”
His article is well worth reading. Here’s Steve’s bottom line:
Link
His article is well worth reading. Here’s Steve’s bottom line:
"The important lesson here, however, isn't about the cravenness of Wall Street investment bankers, or the shrewdness of private equity firms. Rather, it is a lesson about what happens to companies when they lose their focus and rely on game-playing and financial manipulation. While the Big Three were dickering around buying and selling car rental companies, or getting into and out of the defense business and consumer finance, companies like Toyota and Hyundai and Honda were eating away at their market share by delivering great cars and value to customers. And it is that, more than any other factor, that has brought the Big Three to their current crisis and the car guys to Washington."
Link
October 11, 2006
Growth involves subtraction, not addition
Lao Tzu said:
Expansion – the pursuit of bigness – is a lot like the pursuit of knowledge. Growth, however, has more to do with acquiring wisdom.
What needs to be chipped away from companies such as GM, Ford or Sony for them to them uncover the little jewels of wisdom that can drive their movement forward?
Philips, the Dutch electronics conglomerate, is still a work in progress in this regard. But it may offer some clues: it the past 15 years it has pared itself down from 30 divisions to 4 and been willing to walk away from market share in industries where it no long made sense to be.
“In pursuit of knowledge, every day something is acquired; in pursuit of wisdom, every day something is dropped.”
Expansion – the pursuit of bigness – is a lot like the pursuit of knowledge. Growth, however, has more to do with acquiring wisdom.
What needs to be chipped away from companies such as GM, Ford or Sony for them to them uncover the little jewels of wisdom that can drive their movement forward?
Philips, the Dutch electronics conglomerate, is still a work in progress in this regard. But it may offer some clues: it the past 15 years it has pared itself down from 30 divisions to 4 and been willing to walk away from market share in industries where it no long made sense to be.
September 24, 2006
Interview on tompeters.com
Have your ever finished a good conversation, gone on to something else, and then immediately realized there was something important you forgot to say? That’s exactly how I felt a few days ago when I was interviewed for the “Cool Friends” portion of Tom Peter’s web site (thanks Tom!).
We got into quite a discussion of Harvard Business School’s Michael Jensen, and how he provided the intellectual underpinnings used to justify mega stock option grants and myopic focus on shareholder value. Both of these badly abused management practices are behind many companies getting bigger without the economic benefits they hoped would accompany size.
Jensen is a key character in the first part of Bigger Isn't Always Better where I lay out the downsides of bigness. But the real hero of that chapter is a lesser-known Vanderbilt economist, Margaret Blair. She had the courage, at a time when maximizing shareholder value seemed to be everybody’s mantra, to write about why a bigger stock price does not necessarily make for a better company. Next interview, she gets top billing.
Link
We got into quite a discussion of Harvard Business School’s Michael Jensen, and how he provided the intellectual underpinnings used to justify mega stock option grants and myopic focus on shareholder value. Both of these badly abused management practices are behind many companies getting bigger without the economic benefits they hoped would accompany size.
Jensen is a key character in the first part of Bigger Isn't Always Better where I lay out the downsides of bigness. But the real hero of that chapter is a lesser-known Vanderbilt economist, Margaret Blair. She had the courage, at a time when maximizing shareholder value seemed to be everybody’s mantra, to write about why a bigger stock price does not necessarily make for a better company. Next interview, she gets top billing.
Link
September 23, 2006
Success is fleeting
Good growers – like Apple’s Jobs & company – are often very intense folks. They are intense because they have a mindset that tells them nothing lasts forever. This includes today’s success and yesterday’s failure.
At Apple there is an appreciation that triumphs are usually fleeting. They know this - in ways that are way over the heads of many of their success-only, momentum-driven rivals - because they’ve lived this.
Take a look at David Pogue’s blog. He nicely summarizes the way most journalists saw Apple’s future in the dark years just prior to the second coming of Steve Jobs.
Of course, as you’ll see when you read Pogue, these press accounts are less about Apple than how we all tend to perceive (and misperceive) future possibilities.
Link
At Apple there is an appreciation that triumphs are usually fleeting. They know this - in ways that are way over the heads of many of their success-only, momentum-driven rivals - because they’ve lived this.
Take a look at David Pogue’s blog. He nicely summarizes the way most journalists saw Apple’s future in the dark years just prior to the second coming of Steve Jobs.
Of course, as you’ll see when you read Pogue, these press accounts are less about Apple than how we all tend to perceive (and misperceive) future possibilities.
Link
September 22, 2006
Setting the context
Lest my last post be misunderstood – it was not meant in any way to minimize the incredible contribution Steve Jobs has made to Apple, but only to underscore that Apple is not a one-man band. Jobs' most important role, from where I sit, is to set the context where people like Ive and the Johnsons can thrive, and Apple can get the most from their great talents. Jobs does this masterfully. And his reach goes beyond Apple. His speech at the 2005 Stanford Commencement should be required reading for every college graduate.
Growth leaders set the right context by focusing people on what really matters. Which generally has nothing to do with shareholder value or earnings per share. That’s what his speech is all about.
Link
Growth leaders set the right context by focusing people on what really matters. Which generally has nothing to do with shareholder value or earnings per share. That’s what his speech is all about.
Link
September 21, 2006
Apple’s under-sung heroes
My previous post mentioned Jonathan Ive, Apple Computer’s industrial design guru. “Jony,” as he’s called at Apple, is the creative force behind the look of the iMacs, iPods and the Titanium Powerbooks. He’s been doing his thing there since 1992.
Ron Johnson is another of Apple’s under-sung heros. He’s the person behind the incredible success of its growing web of retail stores. There are 147 of these now and 40 new locations planned. These spare looking stores outsell the cluttered big boxes of Best Buy ($2459 revenue/square foot vs. Best Buy’s $971). Johnson likes to staff the stores with Mac-users; a practice some wags thought would limit their growth. Not so; 5000 of them applied for the 300 openings Johnson had when he launched his 5th Avenue shop in Manhattan.
Some key contributors to Apple’s growth don’t even work for the company. Another person named Johnson – this one’s first name is Gary – is the source of the chips and software that makes the iPod do what it does. He works at PortalPlayer Inc.
When I researched growers to write about for Bigger Isn't Always Better, I found (to my surprise), many of the key players weren’t the CEOs of their organizations. Some of those who had the biggest impact on their business’ future toiled in the middle or margins of their company’s hierarchy. This contradicts the impression a reader of most business magazines gets – that all success is the result of the wisdom of the person on top (and most failure results from everyone eles’s inability to “execute”).
This conventional wisdom doesn’t hold up under close scrutiny. I had a lot of fun in Bigger Isn't Always Better highlighting the MO’s of the real driver’s of organic growth. The practices of these under-sung heroes – Al Bru, Bill Greenwood, Jane Friedman, Debra Henretta, Darcy Winslow – offer more lessons about how to make growth happen than the more hyped stories of the Gerstners and Welches.
Ron Johnson is another of Apple’s under-sung heros. He’s the person behind the incredible success of its growing web of retail stores. There are 147 of these now and 40 new locations planned. These spare looking stores outsell the cluttered big boxes of Best Buy ($2459 revenue/square foot vs. Best Buy’s $971). Johnson likes to staff the stores with Mac-users; a practice some wags thought would limit their growth. Not so; 5000 of them applied for the 300 openings Johnson had when he launched his 5th Avenue shop in Manhattan.
Some key contributors to Apple’s growth don’t even work for the company. Another person named Johnson – this one’s first name is Gary – is the source of the chips and software that makes the iPod do what it does. He works at PortalPlayer Inc.
When I researched growers to write about for Bigger Isn't Always Better, I found (to my surprise), many of the key players weren’t the CEOs of their organizations. Some of those who had the biggest impact on their business’ future toiled in the middle or margins of their company’s hierarchy. This contradicts the impression a reader of most business magazines gets – that all success is the result of the wisdom of the person on top (and most failure results from everyone eles’s inability to “execute”).
This conventional wisdom doesn’t hold up under close scrutiny. I had a lot of fun in Bigger Isn't Always Better highlighting the MO’s of the real driver’s of organic growth. The practices of these under-sung heroes – Al Bru, Bill Greenwood, Jane Friedman, Debra Henretta, Darcy Winslow – offer more lessons about how to make growth happen than the more hyped stories of the Gerstners and Welches.
September 20, 2006
Dispatches from the front
Fortunately not all enterprises succumb to the quest for bigness. Here are some reports from organizations trying to sustain past successes or turn-around bigness problems.
Microsoft is in the turn-around mode. Ray Ozzie, its new technology czar, says:
It will be interesting to see how he addresses what gets called the core Windows problem. According to Michael Cusumano, a professor at the Sloan School of Management at the Massachusetts Institute of Technology: “Windows is too big and too complex."
The MIT prof thinks that fixing windows will take a radical approach, a willingness on the part of Microsoft to walk away from its legacy.
Apple did this in 2000 when it walked away from OS 9, and again this year when it switched to an Intel-based processor.
(For more detail, see: New York Times March 27, 2006 “Windows Is So Slow, but Why?” by
Lohr and John Markoff)
Apple, whose legacy was not as massive as Microsoft’s, had an easier time walking away. Its big challenge now is sustaining its momentum. Apple’s Jonathan Ive has an interesting take on what’s been behind the company’s success:
Focus on a few things. Care about them a lot. Not a bad strategy for growth.
(For more on Ive see: Business Week September 25, 2006 IN pp. 27-33)
Microsoft is in the turn-around mode. Ray Ozzie, its new technology czar, says:
"Complexity kills. It sucks the life out of developers, it makes products difficult to plan, build and test, it introduces security challenges and it causes end-user and administrator frustration."
It will be interesting to see how he addresses what gets called the core Windows problem. According to Michael Cusumano, a professor at the Sloan School of Management at the Massachusetts Institute of Technology: “Windows is too big and too complex."
The MIT prof thinks that fixing windows will take a radical approach, a willingness on the part of Microsoft to walk away from its legacy.
Apple did this in 2000 when it walked away from OS 9, and again this year when it switched to an Intel-based processor.
(For more detail, see: New York Times March 27, 2006 “Windows Is So Slow, but Why?” by
Lohr and John Markoff)
Apple, whose legacy was not as massive as Microsoft’s, had an easier time walking away. Its big challenge now is sustaining its momentum. Apple’s Jonathan Ive has an interesting take on what’s been behind the company’s success:
“We don’t make very much stuff. That’s a very important part of our approach to what we do, which is not to do a lot of unnecessary stuff but just to focus and really try very sincerely to care so much about the few things that we do.”
Focus on a few things. Care about them a lot. Not a bad strategy for growth.
(For more on Ive see: Business Week September 25, 2006 IN pp. 27-33)
September 18, 2006
A land of bigger is always better (?)
It’s great to know Bigger Isn’t Always Better is selling in Thailand (see August 22nd post). But I’m wondering whether it will be a big hit in Russia. A recent New York Times article called Russia a country where bigger is always better.
The article comments on President Vladimir Putin’s plans to create giant enterprises as a way to revive the country’s strategic industries. First step – next month’s rollout of the world’s largest aluminum company.
A few observers, however, are less sure about the logic of this strategy:
Market capitalization seems to be Russia’s new standard of comparison with the West, though, as I pointed out in Bigger Isn't Always Better, it can be a counterproductive goal.
When otherwise smart business people go after not-always-economic-goals, there’s often something psychological going on. The Times article may have nailed it:
Link
The article comments on President Vladimir Putin’s plans to create giant enterprises as a way to revive the country’s strategic industries. First step – next month’s rollout of the world’s largest aluminum company.
A few observers, however, are less sure about the logic of this strategy:
“Some Russians, recalling the Soviet boasts of having the biggest rockets, the biggest steel mills, the biggest ice-breakers, were cynical. ‘We had a joke in the 1980’s that our microchips were the biggest in the world,’ said Aleksei Venediktov, the editor in chief of Echo of Moscow Radio. ‘It’s that mentality of greatness, in the sense of size, even if it doesn’t make sense.’ “
Market capitalization seems to be Russia’s new standard of comparison with the West, though, as I pointed out in Bigger Isn't Always Better, it can be a counterproductive goal.
When otherwise smart business people go after not-always-economic-goals, there’s often something psychological going on. The Times article may have nailed it:
“The Kremlin is clearly hoping to sell the new gigantism not just as a business strategy, but as a balm for the wounded pride of Russians who endured the economic disasters of the 1990’s.”
“Mr. Venediktov of Echo of Moscow radio explained it this way: ‘We need to say we are the greatest somewhere, in something. Russia is suffering post-imperial syndrome, like England in the 40’s or France in the 50’s. But ah-hah! We are still the best someplace. We win more gold medals in gymnastics. And now in this: We passed America in aluminum.’ “
Link
August 26, 2006
Dell digs deeper
Knowing when and how to let go may be an acquired taste. It’s certainly one a number of once-stellar-performing companies, like Dell, have yet to acquire.
This weeks’ Business Week searches for the causes of Dell’s recent market decline:
A Dell competitor is quoted saying:
Bigger Isn't Always Better describes how size and success conspire to do in many companies that reach the top spot in their industries. In Dell’ case, the same operational focus that made it so formidable when it was at the top of its game is getting in the way of finding its next big thing. Instead of cultivating imagination, the stock-in-trade of every successful grower, Dell seems addicted to the fixer’s strategy of ever improving execution.
Former Dell managers say that ideas that break from the "Direct from Dell" business model are discouraged. When your market has changed, doing more of the same with greater intensity usually digs you deeper into the hole you don’t want to be in.
Link
This weeks’ Business Week searches for the causes of Dell’s recent market decline:
“… its predicament may be intractable. Dell remained slavishly loyal to its core idea of ultra-efficient supply-chain management and direct sales to consumers, even as rivals have stepped up their game and markets have shifted to take away some of Dell's key advantages. Instead of adapting, critics say, Dell cut costs in ways that compromised customer service and, possibly, product quality.”
A Dell competitor is quoted saying:
"They're a one-trick pony. It was a great trick for over 10 years, but the rest of us have figured it out and Dell hasn't plowed any of its profits into creating a new trick."
Bigger Isn't Always Better describes how size and success conspire to do in many companies that reach the top spot in their industries. In Dell’ case, the same operational focus that made it so formidable when it was at the top of its game is getting in the way of finding its next big thing. Instead of cultivating imagination, the stock-in-trade of every successful grower, Dell seems addicted to the fixer’s strategy of ever improving execution.
Former Dell managers say that ideas that break from the "Direct from Dell" business model are discouraged. When your market has changed, doing more of the same with greater intensity usually digs you deeper into the hole you don’t want to be in.
Link
August 22, 2006
Tom Peters on Bigger Isn't Always Better
It’s nice to know that Bigger Isn’t Always Better is available in airport bookshops half a world away in Bangkok. But it’s even nicer to hear that Tom Peters saw it there, picked up a copy, and made some much appreciated comments about it in his blog:
I feel especially honored by Tom’s comments. He is a pioneer business-consultant-turned-business-book-writer who paved the way for many consultants (me included) to try our hands at reaching audiences beyond those who commissioned our reports and watched our powerpoints. His incredible success with In Search of Excellence convinced many book editors (including mine) to give us rookie writers a crack at getting published.
Read his entire blog entry. He makes some great points about the futility and foolishness of building something to last. Knowing when to let go and how to share the wealth are much worthier tasks.
Link
"Now consider this from Simone de Beauvoir: 'Life is occupied in both perpetuating itself and in surpassing itself. If all it does is maintain itself, then living is only not dying.' I scrounged this marvelous [Marvelous = Abets my Life's Argument] quote from a marvelous book I picked up in the airport in Bangkok. It's Robert Tomasko's BIGGER Isn't Always Better."
"Tomasko makes a reasoned, data-rich argument that echos Simone Beauvoir. He does not, for instance, dismiss big mergers out of hand, but provides a strict definition of the few that work. This wee saving remnant uses the merger to help the enterprise perhaps "explode in a new frenzy of value creation," to paraphrase Nordström and Ridderstråle. (Immelt's unabashed aim at GE.) Tomasko, however, devotes the lion's share of the book to strategies and tactics for keeping energy and excitement going and growing in a corporation—this rarely or never encompasses growth-for-growth's sake or bigger-ness for bigger's sake. (Think Bo Burlingham's Small Giants, much praised in this Blog.) Typical chapter titles are: 'Growth Is About Moving Forward' and 'Are You a Fixer or a Grower?' "
I feel especially honored by Tom’s comments. He is a pioneer business-consultant-turned-business-book-writer who paved the way for many consultants (me included) to try our hands at reaching audiences beyond those who commissioned our reports and watched our powerpoints. His incredible success with In Search of Excellence convinced many book editors (including mine) to give us rookie writers a crack at getting published.
Read his entire blog entry. He makes some great points about the futility and foolishness of building something to last. Knowing when to let go and how to share the wealth are much worthier tasks.
Link
July 31, 2006
Keep it simple. Stay focused. Avoid cross-selling.
Bigger Isn't Always Better is the second book I’ve written that lauds the ING Group. Based in Amsterdam, it’s the largest bank in three of Europe’s smaller countries – Belgium, Luxembourg and the Netherlands.
When ING expanded operations to the US in 2000, it didn’t open a network of branches (or buy somebody elses). Instead it started ING Direct, a high-yield internet-only savings bank. In a June 3rd New York Times interview, Michel Tilmet, ING’s chairman, shared his formula for bloatless-growth:
The Times interviewer was surprised to hear a banker coming out against cross-selling:
Keep it simple. Stay focused. Two good ways to avoid the bigger-is-better trap. Going after smart customers isn't a bad move, either.
Link
When ING expanded operations to the US in 2000, it didn’t open a network of branches (or buy somebody elses). Instead it started ING Direct, a high-yield internet-only savings bank. In a June 3rd New York Times interview, Michel Tilmet, ING’s chairman, shared his formula for bloatless-growth:
“In every country where we are, we have competitors offering higher rates than we offer. But you've got to be very careful, because, you know, consumers are smart. We have a product offering that has no commissions, no minimum, no tricks. Does the competition offer any tricks, like ties to something else that you have to do to be there, or a minimum balance, or a minimum usage? We have to be better than the next most comparable alternative.”
“For us, cross-sell is not what we want to do, because we want to keep it simple. We know that out there, the largest pool of earnings in the retail banking world comes from savings and mortgage — those are the only two things that we want to do. If you try to cross-sell too many products, you confuse the clients about what you are and your costs escalate exponentially.”
The Times interviewer was surprised to hear a banker coming out against cross-selling:
“Well, it's unorthodox, yes, because when you talk about banking, you think about branch networks. And branch networks add a cost that can only be justified by cross-selling. But we have chosen another distribution alternative, which is much more cost-efficient but also requires that we focus on what we try to do.”
Keep it simple. Stay focused. Two good ways to avoid the bigger-is-better trap. Going after smart customers isn't a bad move, either.
Link
June 03, 2006
Frank Gehry and Jeffrey Skilling
From a Washington Post review of Sidney Pollack’s new documentary about one of my favorite architects, Frank Gehry:
Real growth questions traditional assumptions.
Real growth embraces innovative solutions.
Real growth is more than technique, though. It’s something that takes places in a particular context and is driven by particular values. Gehry’s context and values have little to do with Skilling’s, just as businesses concerned with progress and forward movement have little in common with Enron’s quest for bigness and bubbles.
Link
“Here's a quote not in the film: ‘The uniqueness of Frank Gehry's work is the blending of the functional with the artistic to create an innovative product.’ “
“That was Jeffrey Skilling, Enron president and CEO, in 2001 -- when Enron was funding a huge Guggenheim show devoted to Gehry. Skilling, now a convicted felon, went on: ‘This is a quality Enron relates to every day as we question traditional business assumptions and embrace innovative solutions. We are pleased to help showcase Frank Gehry's genius.’ “
It's not fair to do guilt by association. The point is, Skilling's description of Enron parallels Gehry's architecture very closely. It always questions traditional assumptions; it always embraces innovative solutions. And to some, it suggests a giddiness that seduced many Enron investors: It seems to stay up, as if by magic, hiding its inner structure, glistening on the outside, exuberant and strong.
Real growth questions traditional assumptions.
Real growth embraces innovative solutions.
Real growth is more than technique, though. It’s something that takes places in a particular context and is driven by particular values. Gehry’s context and values have little to do with Skilling’s, just as businesses concerned with progress and forward movement have little in common with Enron’s quest for bigness and bubbles.
Link
