Category: Company Performance


The trouble with being SMART

January 30th, 2016 — 1:41am

2016 is here. Worldwide, managers are setting SMART – Specific, Measureable, Achievable, Relevant, and Timely – performance goals. Even though the underlying theory – Management by Objectives (MBO)– has lost credence, this catchy mnemonic, which George Doran coined in 1981, has not. The time is upon us to retire SMART for all managers and executives from whom we need discretionary effort.

MBO lost credence because “The boss knows best” paternalism no longer works well. Global companies are transforming structurally to free emerging businesses from top-down strictures. Open source communities, coordinated by respect for expertise, not central authority, are creating technologies and products. Innovative workplaces are giving employees time off the clock and free resources, and benefitting from their unmeasured, untracked tinkering. Such environments thrive on distributed leadership and decentralized, uncounted action, and SMART goals can’t add to, and inevitably subtract from, them.

The problems with SMART run deeper and can damage even organizations that don’t need to unbundle business units or use open source approaches. The business environment has fundamentally changed. Companies no longer compete individually, but as members of networks: Apple couldn’t create the iPhone, or Airbus the A350 aircraft, without collaborating with others. Network members may be located half a world away, and inevitably have their own strategies, processes and cultures. So, complexity, uncertainty, and ambiguity abound, which allow problems and opportunities flash across these networks with blinding speed, meaningfully affecting performance. SMART goals implicitly assume staid environments that are far removed from these realities and can keep executives from responding appropriately.

Problems with SMART arise from virtually all elements of the acronym. ‘Specific’ goals, clear-cut and definite, are easy to articulate and act on. They enable quick assessments of individuals’ successes. However, when used extensively, they reduce discretionary activity and limit broader action. I once facilitated a meeting between two groups of senior executives, each from a well-known global company, whose businesses had merged. One group described how its corporate values drove performance evaluation and gave it freedom to act. The other retorted that its values were the five tasks set for each by his/her boss; each manager could, and did, decline to work on any initiative unless specifically tasked to do so. Guess which company had acquired the other? Guess which one’s stock price has usually outperformed the other’s?

‘Measurable’ goals have become an unshakeable article of faith, commonly justified by physicist Lord Kelvin’s dictum, “If you can not measure it, you can not improve it.” Such goals make it is easy to decide not just whether someone has performed, but how well. In so doing, they implicitly emphasize efficiency (doing something optimally, even if it is the wrong thing) over effectiveness (doing the right thing, which may be hard to discern). To make this point, I often ask senior executives to identify a single factor whose absence would destroy their businesses. They inevitably – and quickly – converge on ‘Trust.’ They are right – how much would you get done if you had to personally check every single word you were told? I then ask, “How do you measure trust?” They don’t – and can’t: this critical driver of business success is immeasurable. Instead of spouting Lord Kelvin out of context, executives should internalize the words attributed, perhaps aphoristically, to Albert Einstein: “Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.”

Since ‘Achievable’ may produce inadequate outcomes, many companies set ‘Ambitious but achievable’ goals. Regardless, this criterion disregards our knowledge about human motivation. As Daniel Pink has brilliantly summarized in a YouTube video popular in business schools, carrot-and-stick approaches improve performance only when work is physical. Intellectual work benefits from allowing people to develop mastery in a field and giving them the autonomy to act therein. So, the quintessential carrot-and-stick nature of Achievable goals limits their relevance to managers. To drive supernormal performance, we should instead give people responsibility for accomplishment, and allow them to set their own targets consistent with organizational goals.

Goals are supposed to be ‘Relevant’ – not just to the organization, given its environment – but also to specific individuals and groups for whom they are set. The first criterion is undoubtedly reasonable, and on a prima facie basis, so is the second: why set a goal that isn’t applicable to, or deliverable by, the people in question? In reality, ‘relevance’ inevitably results in an enduring, widespread problem: organizational silos that hinder collaboration. For example, a sales team accountable for customer satisfaction is likely to have conflicts with a supply network team accountable for minimizing inventory. However, these silos would collaborate in their own interest if each was assessed (in part) on the other’s accountability – in effect measuring them for something that wasn’t relevant to their daily work.

How could ‘Timely’ not be legitimate? Very simply because it has become code for “as soon as possible.” We have made a virtue of speed to the exclusion of every other meaningful, and important organizational goal. Business textbooks assign critical importance to “first mover advantage” even though irrefutable examples of its falseness are readily available. When was the last time Apple launched a truly first-in-the world product? Was Google the first search company? Was Facebook the first social media offering in its niche? How are Chinese and Indian multinationals, Johnny-come-latelies to international markets, giving established Western firms a run for the money? When ‘timely’ equates to solely to speed, creativity, effectiveness and yes, even efficiency, suffer, sometimes irreparably.

What should executives do? They should reserve SMART goals solely for people who have limited discretion. For everyone else, they should begin goal setting with non-specific, qualitative, “can’t be done” diffuse and “time is one of several criterions” goals that give people autonomy and mastery. Indeed, they should urge them to propose goals for themselves. They should add SMART goals, only where they are truly unavoidable, and there too, with enough fudge-factors to ensure they don’t become limiting or constraining.

In effect, throughout the goal setting process, they should ask themselves: Am I paying attention to issues that truly matter? Am I truly leading an organization of people, or am I merely checking boxes to show that my job matters? Being SMART is easy, but that doesn’t make it right.

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A shorter version was published by Forbes on January 12: http://www.forbes.com/sites/forbesleadershipforum/2016/01/12/it-may-be-time-to-get-rid-of-smart-management/#2715e4857a0b6e160d5e3bbc

Comment » | Business Tools, Company Performance, Corporate Culture, Leadership

The Joys and Perils of Dancing on a Knife’s Edge

February 25th, 2011 — 11:09am

The tumultuous crowds that brought down a dictator in Egypt had an unintended impact far from their homeland: they drowned out – rightfully! – the announcement of a strategic partnership between Nokia and Microsoft. I admire the Nokia I researched; yet I acknowledge it is currently in deep trouble. I have long disdained Microsoft for its product quality and its reliance on monopolistic power instead of innovation (sole exceptions: Xbox and Kinect; and yes, I admit that Office 2011 for the Mac is far better than iWorks!). So, what do I think of this alliance?

A key “prerequisite” question is: Do I still believe the ideas in The Spider’s Strategy? Absolutely! Toyota’s “unexpected acceleration” fiasco and its resultant recalls of millions of cars didn’t discredit Lean Enterprise. Why then, should Nokia’s recent challenges discredit Networked Organizations? Indeed, Nokia got into trouble because in the key area of product innovation, it stopped applying the ideas that powered its 17% compounded annual organic growth rate (in revenues and operating profits) from 1995 to 2006.

Nokia violated a subtle rule embedded in my third Design Principle, “Value and nurture organizational learning.” It used to learn rapidly by setting seemingly impossible targets that demanded the periodic reinvention its business model. Simultanneouly, to keep control, it insisted its managers follow a “no surprises” policy. This brilliant rule is the proverbial knife’s edge. Balance well, and you can pull off miracles. Tilt toward “big risk” and you can lose your shirt. Tilt toward “no suprises” and you will bring innovation to a screeching halt. As it grew, Nokia made the mistake many other large companies have: it tilted toward “no surprises.” So, unlike Apple, it didn’t build a network of complementary product makers to buttress its proprietary Symbian software. Unlike Google, it didn’t attract a different type of sustaining network by making Symbian open source – until it was too late.

The alliance with Microsoft was in the cards from the day Nokia’s Board appointed Stephen Elop CEO. Nokia’s press release spoke of a strategy to “build a new global mobile ecosystem” with Windows Phone software at its core; “capture volume and value growth to connect ‘the next billion’ to the Internet in developing growth markets;” and make “focused investments in next-generation disruptive technologies.”

The second element – a continued focus on markets like India and China – is an key, though the notoriously developed-world-focused financial analysts may not care. Apple has ignored these markets and Windows still has a true monopoly among operating systems. These facts, plus Nokia’s still dominant marketshare there, give the alliance a strong base on which it can build; Nokia can instantly create volume for the Windows Phone and a seemless integration with Wintel computers may give it an edge over low cost Chinese phone makers. At the very least, this element will buy the alliance time; at best, the “next billion” is a huge market. That’s where the first element is also critical.

To bring the alliance value, the goal of building a mobile ecosystem must truly assimilate the lesson of a recent The New York Times story about a start-up company that hoped to build a business around enabling group dates. The founders noted that the site’s users were mostly South or East Asians, but filed that fact away as “Interesting, but Unimportant.” Success came only when they reluctantly acknowledged that group dating wouldn’t fly in the US and shifted their focus to India. The world, as Thomas Freidman said, is flat. But that doesn’t mean people’s needs are the same everywhere. That’s why the word “global” in the language of this strategic element is troubling. Its use may seduce financial analysts, but unless an ecosystem to specific markets, it won’t amount to a hill of beans. At one time Nokia knew this lesson; it had had anthropologists in Indian villages whose work strengthened its market position there. Does it still remember that lesson and can it convince a monopoly to learn it too?

The third element is critical for the long term and most troubling: Will two companies who haven’t created any disruptive technology recently be able to do so in the near future? Nokia’s Chairman Jorma Ollila had championed the Networked Organization philosophy and as CEO, had managed its phenomenal growth. I could make a cogent case that he and the Board had no choice but to create the alliance with Microsoft. (Which would explain why they pursued Mr. Elop in the first place.) Now, he must ensure that Mr. Elop realizes that his most critical tasks are (1) putting into leadership positions those within Nokia who are still capable of dancing gracefully on a knife’s edge and (2) using his deep knowledge of Microsoft to convince Mr. Ballmer to do the same. Then, and only then, will the alliance succeed. If so, I may one day become once again an enthusiastic customer of both companies.

Comment » | Business Environment, Company Performance, Corporate Culture, Leadership

Better on a Camel?

June 9th, 2010 — 3:54pm

It has been exactly 99 days since I last posted. Hadn’t meant all this time to pass, but life intervened. So, I’m going to welcome myself back by first looking back 40 years.

If you are old enough – or have an deep interest in commercial flying – you might know that long ago, British Airways used to be British Overseas Airways Corporation. During those days of genteel competition, airlines’ acronyms often became amusing nicknames. BOAC was “Better on a Camel;” industry insiders used this moniker affectionately. Decades later, however, one would truly be better off on a camel than on British Airways.

Why? Three words: People, people, people. BA and its employees are constantly at war. Their mutual acrimony routinely spills over into public and affects passengers. Both sides seem to loath the customers who keep them employed.

In the late 1990s, BA put up signs at Heathrow, threatening to prosecute passengers who were discourteous to its employees. It neglected to tell its employees that they too needed to be polite. And with that omission, they unleashed trouble. At a check-in counter once, I expressed mild irritation that I was not given the seat I had reserved. Red Queen style, the agent literally turned crimson with fury. How dare I complain, he asked? If I didn’t like the seat he was giving me, I didn’t have to fly.

Fast forward a few years to an ever lengthening Business Class check-in line. One of the two agents designated to attend to it was enjoying a long, uproariously funny phone conversation. A passenger left our line and requested him politely to terminate what was clearly a non-urgent call. The agent followed the man back to the line and as the rest of us stood around stunned, began screaming, “Who are you to tell me what work I must do?” His rant lasted a couple of minutes and then, he went back to his call.

Fifteen minutes later, he was still on his call and the line was becoming ever longer. Another passenger screwed up his courage and asked a passing agent to summon a manager. This one also became Red Queen incarnate, “You’re telling me to do something? Who are you to tell me what I should do?” He hadn’t heard the “please” the rest of us did and felt it was completely appropriate to abuse a premier passenger.

I’m not making these up! More recently, a business class counter at Brussels was open, but the BA agent was missing. I chatted with a couple of other waiting passengers. Each of us had multiple such horror stories. One called me “lucky” since I only had to fly to London, while he was stuck with BA till Sydney.

This is one sad, sad airline whose service is worse than even the deficient service (by Asian standards) available in the US. As I am writing this, BA cabin crew are finally on the strike that judges had forbid twice before. Once was last December, but by the the time the judicial edict came down, they had hurt thousands of vacationers during the Christmas holiday period. Another time was last April. I was on a round the world business trip that began in Europe and I actively avoided all BA long-haul flights even though they were theoretically the most convenient. Unable to avoid a short Madrid-to-London flight, I waited with bated breath for signs of trouble. Fortunately, I wasn’t affected.

Some readers might blame such behavior on the presence of unions. Maybe so, but they are, at worst, only partly at fault. To me, the clear onus for such disregard for customers must be placed on management. BA management, it seems, has long believed that “service” means more amenities. BA has generally been among the leaders in introducing new technology – like flat bed seats in business class. But in the far more difficult area of creating a more positive corporate culture, in well over a decade, its management has failed – miserably, in my opinion. Nor has their approach to management created much value for their shareholders. Which raises the question: Why do they still have their jobs? (I know, Richard Branson’s been asking this for a long time.)

Economists point to the virtues of free markets; if enough people felt like me, they say, we could take our business elsewhere and punish BA. In a world of networks, however, that is not true; BA is a key member of the One World alliance and as long as I choose to fly One World, I will have to put up with BA, at least occasionally.

Sometimes, good things have very bad consequences.

Comment » | Company Performance, Corporate Culture

The Michael Crichton Strain

January 29th, 2010 — 11:01am

Michael Crichton was the author who ensured that English speaking children know – and can perfectly pronounce – the names of at least ten dinosaurs. I read the first of his 26 novels, The Andromeda Strain, in 1976 and several others – including the ones about dinosaurs, Jurassic Park and The Lost World – in subsequent years. He also created the extremely popular TV show ER; I didn’t see even a single episode of the show. He passed away in November 2008.

I liked reading his books because many, if not all, of them dealt with the complexities of a world I knew well: the intersection of advanced technology and business. However, I am definitely not a “Crichton groupie;” I stopped reading him in the early 1990s, because I felt that his 1992 book, Rising Sun, had racist undertones. This decision means that Mr. Crichton may well have held positions about which I know absolutely nothing.

Mr. Crichton’s writings introduced me to an extraordinarily powerful idea: humans are creating ever more complex technological systems without truly understanding their implications. They think they can completely control these, but the reality is they can’t. For example, consider the following extract from a speech on environmentalism, as it is reported on “Michael Crichton, The Official Site”: “Most people assume linearity in environmental processes, but the world is largely non-linear: it’s a complex system. An important feature of complex systems is that we don’t know how they work. We don’t understand them except in a general way; we simply interact with them. Whenever we think we understand them, we learn we don’t. Sometimes spectacularly.”

I couldn’t help but be reminded of this idea when the news about Toyota’s ever-expanding recall came into the public spotlight. How could a company so admired and emulated falter so badly? One explanation is that the Company’s relentless pursuit of growth over the last decade caused it to take its eye off quality. Toyota’s new CEO, Akio Toyoda, shares this view; when he got the job in October 2009, he apologized profusely in public for the quality problems that Toyota had experienced. As time would tell, those were nothing compared to what’s happening right now. (I will return to this explanation in a future post.)

A second possible explanation drove me to introduce Michael Crichton here: we are building cars so complex that we really don’t understand how they function and why they do what they do. So far, no one knows what ails the Toyotas. Is it a mechanical problem with the accelerator pedal made by the US company CTS? These pedals are being replaced not just on Toyota but also on other cars. But even Toyota doesn’t think this is the key explanation. Mechanical problems are generally easy to diagnose because we can actually see what’s wrong. The “improper floormats” explanation is also, at best, a secondary one. Right now, the focus seems to be on the electronics that control acceleration – and possibly, even the embedded software. Yet no one has yet figured out what this problem is. So, unless the real story has not been made publicly available (which is always possible), this explanation is still speculation; perhaps informed speculation, but speculation nevertheless.

Many years ago, I had started writing – and then abandoned – a book on manufacturing. In that effort I had assailed the belief that some software companies popularized in the 1990s: “Get it 80% right and ship.” Customers will tell you what is wrong – and you can fix it then. An incredibly simplistic belief in the power of being first to market drove this view. I hope it gets buried soon, for Apple is only the latest company to show that first mover advantages are highly overrated.) Couple this view with Mr. Crichton’s lesson and the dangers of following it become immediately obvious.

In 2006/2007, I was writing The Spider’s Strategy. I pointed out that the holy grail of modern product development – “make it modular” – had major limits. Companies like modularity because it gives (1) the flexibility to use the same parts in different places and (2) the ability to outsource design and manufacturing work in discrete chunks. I cited examples of product failures that had afflicted some of the best known brands in the world, including Toyota and argued that the weakness of this thinking lay in the electronics and software. This limitation made it essential for companies to collaborate closely with their design and manufacturing partners.

Toyota understood this fact better than most other companies. This is why it focused on building strong partnerships with its suppliers. Those partnerships had helped it make the jump from a Lean company to a networked company. It is truly sad that along the way somehow its management unlearnt this critically important lesson.

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What Took You So Long, Mr. Whitacre?

December 9th, 2009 — 2:40pm

Edward Whitacre, the Chairman of the Board of GM, has been very active during the last few days. On December 1, he – formally GM’s Board – fired CEO Fritz Henderson. An Associated Press article in The New York Times reported on opinions expressed by two – unnamed – people who were close to Mr. Henderson. It noted that “…the board upset that the automaker’s turnaround wasn’t moving more swiftly and Henderson frustrated with second-guessing …” The same people also suggested that “[Henderson has] was frustrated from the beginning by the board and government push for faster change and other questions about his decisions.” Mr. Whitacre has taken on the task of interim CEO while the Board searches for a replacement. In all likelihood, he/she will be from outside the industry.

Three days after making this decision, Mr. Whitacre appointed a new management team. He reached down into the senior middle management cadre and appointed Mark Reuss, a recent GM for Australia and a newly appointed VP for Engineering, GM for North America. He expanded the responsibilities of three women executives and sidelined Robert Lutz, the Vice Chairman who ran product development and who had hinted publicly that he would be replacing Mr. Henderson. In a public statement about these decisions, Mr. Whitacre noted that GM’s top heavy management was stifling good mid-tier managers, and he wanted to “… give people more responsibility and authority deeper in the organization, and hold them accountable.”

Of course I cheered! In this blog, last December (“What’s Good for General Motors is Good for America”) I wrote, “… this company cannot be trusted to reform itself …” and listed five conditions that the US government should ask for in return for bailing out GM. These included: “Mr. Wagoner and his top lieutenants must resign in an orderly fashion …;” “ … over the next five years GM … must be reduced in size, so they are no longer ‘too big to fail.’ This will require mandatory spin-offs of relatively independent businesses …;” and “…no one in the top spots in any of the restructured companies should come from the senior-most ranks of these companies …”

Then, in January (“Marie Antoinette’s Soulmate”), I tore into Mr. Lutz: “If anyone has any doubts about why GM is really flirting with bankruptcy, Mr. Lutz comments (during an NPR interview) should have clarified the issue. The Vice Chairman of a company which went with a begging bowl to Congress acted as if he was Marie ‘Let them eat cake’ Antoinette’s soul mate. CEO Rick Wagoner and GM’s Board should have repudiated his statements by publicly firing him …” I also opined that a pre-arranged bankruptcy would not solve GM’s core problem. During the negotiations, I said, “No one will be focusing on changing the culture that allow people like Mr. Lutz to be top dogs. And without changing culture – encouraging collaboration, being open to others’ ideas, being willing to take considered risk, managing learning every day, etc. – these companies will stumble from one disaster to another. Changing culture takes great effort, committed leadership and time. All three will be in short supply during the negotiations …” I added, “I would like to see … an orderly departure of people like Rick Wagoner and Bob Lutz, and a shifting of power to less jaded executives running smaller companies created by splitting up the behemoths.”

Then in April (“The King is Dead! Long Live the King”), I challenged the criticism made of the firing of Rick Wagoner: “Imagine, for a moment, that a President of the US (… ‘POTUS’) was at the end of an eight year tenure and he … had not been able to turn around the economy. Would you call him a failure? Sure you would! Mr. Wagoner has been CEO for 8 years; prior to that he was GM’s CFO, President of North American Operations, and COO. A comparable track record in US national politics would have been Secretary of Treasury, (a hands on) Vice President and then POTUS. In effect, Mr. Wagoner had many more then 8 years to fix GM. Under the circumstances, the fact that he might have ‘made progress,’ is simply not good enough!” I ended that post with, “The King is dead. I hope the new King – or kings, as I have argued earlier – come from middle ranks or better yet, from outside the industry.”

So, Mr. Whitacre has made many of the executive changes I wanted. Hopefully, the new blood will transform GM’s ossified culture and structure and take the strategic steps I suggested. As long as Mr. Henderson was the CEO, there was no hope of this happening. His concern that the Board was pushing too hard indicates that he, like Mr. Wagoner, would have found eight years too short for reforming GM.

Now there is hope that at least some of the money the US government used to bail out GM will be returned.

Comment » | Company Performance, Corporate Culture, Leadership, Organizational structure, Politics

“Stargazer, you with your head in the heavens …”

November 28th, 2009 — 2:05pm

Around this time every year, American manufacturers and retailers fill the airwaves with countless advertisements. A couple of days ago, I saw many from Toyota, touting the legendary quality of its cars. But for the first time in a long while these sounded hollow. Toyota has just announced yet another recall – affecting four million cars – for possible uncontrollable acceleration. The problem has resulted in a few deaths. I immediately told my wife, “This is Toyota’s “Audi moment.”

In the 1980s, Audi’s slogan was “The art of engineering” and its cars were doing very well in the premium/luxury segment. One year, some customers complained about accidents at start up; the cars moved before the drivers wanted to, often causing accidents. Audi denied the problem and blamed driver error. The media picked up the story and ultimately, the US government mandated a new safety feature for all cars: one cannot shift the gear to ‘Drive’ or ‘Reverse’ without having a foot on the brake. But by that time, Audi’s sales had plummeted – if I recall correctly – from about 50,000 a year to under 10,000. Audi’s reputation didn’t recover for many years.

I have long admired Toyota’s management prowess, and praised some of its policies and experiences in The Spider’s Strategy and in this blog. However, Toyota has clearly not learnt from Audi’s experiences. It first denied the problem and then blamed its customers. When it – very belatedly – acknowledged the issue, it said that the accelerator pedal was getting stuck on the mat and said that it would retrofit the existing pedals.

Toyota’s response is far from appropriate. It won’t be able execute the retrofitting till April 2010. What are the legions of Toyota customers supposed to do till then? Help slow global warming by not driving? Moreover, not everyone is convinced that the pedals are at fault; many blame a software malfunction. (This isn’t far fetched; in The Spider’s Strategy, I described earlier software problems in Toyota – and other high end cars – as one of the motivations for networked companies.) Toyota disagrees sharply – but nevertheless, is changing the software in some cars.

Toyota’s advertisements, reminded me of a Neil Diamond song: “Stargazer, you with your head in the heavens / You’ll never get by walkin’ that high off the ground / Moon dreamer, I’ve been around and I’ve seen it / The higher you get – the harder they let you down / You pay your dues, it seems forever /And if you’re clever you may be in for a while / Then you’re out of style/” I wondered why its executives didn’t realize that since quality is their claim to fame, a plausible challenge of that capability can be devastating. I also mused about the appropriateness of focusing advertisements on quality while a major recall is the lead news item on the evening news. Finally, I pondered why good executives don’t understand that blaming large numbers of customers is always a losing strategy in a crisis. Perhaps it is because they forget – with their “head in the heavens” – that they can’t afford to be “walkin’ that high off the ground.”

Only time will tell if Toyota is “out of style” now, having been “in for a while” because of its earlier “cleverness.” Recently, its new CEO, Akio Toyoda, apologized abjectly to shareholders and customers for Toyota’s many recent failings and vowed to return to policies that had made it one of the most admired companies in the world.

Great (Adaptive) companies do make mistakes, just like lesser ones. What distinguishes them is what they do next. They acknowledge their mistakes, quickly correct them and determine how to obviate the entire class of such mistakes in the future. Mr. Toyoda, the ball’s in your court.

1 comment » | Company Performance, Corporate Culture, Leadership

Time to Re-read “What is Strategy?”

July 22nd, 2009 — 4:45pm

For the uninitiated, “What is Strategy?” is the name of a best-selling Harvard Business Review article that Michael Porter, a “University Professor” (i.e., the highest of the high) at the Harvard Business School and the Grand Poobah of Strategy, wrote in 1996. I will address only one of its many ideas in this post. I thought of it because of a recent visit to an upscale mall – and an announcement by a major company.

The visit was to an Apple retail store. I needed to connect my Mac to our Sony plasma TV, but could not remember the exact pin-configuration of the TV’s socket. The Apple employee helping me suggested that I ask at the Sony Style retail store located nearby and so, there I went.

You may recall that Sony began opening these stores when Apple started eating its lunch. The stores would make the vast array of great Sony products accessible to consumers. The moment I told a salesperson – who looked like a supervisor – that I was there for information, not to buy, he visibly lost interest in me. Not that the store was busy; you might have been able to hear a pin drop if you cupped your ear. Undeterred, I asked my question. The salesperson responded, “Do you have internet access at home?” “Yes,” I said, “But how does that help me now?” “Well,” he replied, “When you go home, look up the answer on our website.” “You can’t do that here?” I asked. “No,” he said, walking away. The ludicrousness of the idea that I would search their website instead of looking at the back of my TV did not even occur to him. And he is supposed to convince affluent consumers how to spend their money? In the time he spent losing a once and future customer – perhaps for ever – my teenager used my iPhone to get the information.

At the Apple store, the same salesperson greeted me again. He apologized for not thinking of going online and gave me the cable I needed. My wife asked for his help in selecting a graduation gift for my niece, who was finishing her high school. He showed us several fun software, but my wife picked up an expensive productivity program. “Oh gee,” he said sarcastically, “I just finished school and in the Fall, will start college. And my aunt gets me a productivity software! How nice!” We laughed, saw his point and decided to defer the purchase. He lost an immediate sale, but he reinforced the link between Apple and me.

Porter’s article says that strategy is about “fit.” Multiple small, individually inconsequential items must work together seamlessly for a strategy to be successful. The reason why Apple’s retail stores work – one in two purchaser of a Mac in an Apple store is new Apple customer – is that they are a seamless part of Apple’s corporate strategy. From the Genius Bar to the highly knowledgeable, non-pushy employees, everything fits together perfectly, just like the components of any Apple product. (Even the employees’ clothes match those of the Steve Job-like pitchman on its highly effective advertisements, “Hello, I’m a Mac” “And I’m a PC.”)

Sony once knew this lesson, but has forgotten it. Retailers speak of “location, location, location.” Sony’s location did not help it seal a relationship with me.

It is in this context I have been waiting to see how Microsoft’s newly announced retail stores will turn out. So far, this venture has been defined by location: the stores will be near Apple stores to give consumers non-Apple options. This is strategy?

For the sake of Microsoft’s shareholders (of which, regretfully, I’m one), I hope that the people in Redmond have thought this out a bit more. And if they haven’t, they should take this opportunity to first read Chan Kim and Reneé Mauborgne’s book, “Blue Ocean Strategy.” The essential thesis of this book is that too often, companies compete head to head with each other, leaving blood in the waters (“Red Ocean”) instead of seeking “Blue Oceans” where there are no established competitors. The Redmond strategists should also remember Porter’s message about fit: business history is full of examples of companies which tried to copy an effective strategy of a competitor, but failed miserably. The copying was typically superficial and small, seemingly inconsequential elements did not fit together. The Sony Style stores are a great example. Oh wait, Wintel machines and Windows Vista are even better ones.

1 comment » | Business Environment, Business Tools, Company Performance, Corporate Culture

The King is Dead! Long Live the King!

April 1st, 2009 — 9:51am

Night before last, I was watching AC 360, the Anderson Cooper news show on CNN. Anderson asked David Gergen, the former advisor to four presidents and current member of CNN’s team of political analysts, and two others, about the summary dismissal of Rick Wagoner. Mr. Gergen was generally supportive of the government’s position, but was critical of the fact that the government had forced Mr. Wagoner out, given that he had made progress in transforming GM.

Well, readers of this blog probably anticipate my reaction well: Firing Mr. Wagoner was not only necessary, but essential. So, let me take on the David Gergen’s argument. Imagine, for a moment, that a President of the US (whom I’ll henceforth refer to by the customary acronym POTUS) was at the end of an eight year tenure and he (think of Mr. Obama for now) had not been able to turn around the economy. Would you call him a failure? Sure you would!

Mr. Wagoner has been CEO for 8 years; prior to that he was GM’s CFO, President of North American Operations, and COO. A comparable track record in US national politics would have been Secretary of Treasury, (a hands on) Vice President and then POTUS. In effect, Mr. Wagoner had many more then 8 years to fix GM. Under the circumstances, the fact that he might have “made progress,” is simply not good enough! He has not delivered on the most important issues – GM’s culture, organization and strategy – and indeed, according to published reports chose to bypass these fearing that they would keep him from improving GM’s cost structure.

One of the other guests on the CNN program, an economist who supported the firing, pointed out that GM and Chrysler are so large that they account for almost 2% of America’s GDP. Consider this data point from a different perspective. We want our POTUS to turn around 100% of the GDP (while battling non-economic problems like wars, natural disasters,) and — by recent public criticism — do it in his first 100 days. Yet, we are OK with a very highly paid executive not being able to turn around a company in eight years that is only about 1% of the GDP?

Focusing an 8+ year role at the top on labor costs is leadership? Not in my books. Labor accounts for only about 8% of the cost of a car and on a global basis, as economist and journalist Ben Stein has pointed, even this cost is not wildly uncompetitive. But wait, he hired Bob “Mary Antoinette’s Soulmate” Lutz as Vice Chairman for Product Development and they turned out a few good cars, did they not? A few cars among how many? And what did GM do on core new technology? Oh yes, it caterwauled about unreachable mileage standards. Surely they were producing cars for Europe, where generally the laws are tougher and an End of Vehicle Life law already exists demanding near total recyclability?

No, the issues Mr. Wagoner chose to bypass – GM’s culture, organization and strategy – are the ones which could have saved the company. Had he broken down the Not Invented Here silos that existed within geographic and brand specific fiefdoms, he would have transferred innovations faster. Heck Saturn’s “no haggling” policy could have transformed the industry, instead of remaining a niche strategy. But that would have meant engaging with GM’s vast network of dealers in a new way. Think this does not matter? Then consider this: a couple of months back Hyundai came up with a brilliant idea to stimulate sales by addressing the fear consumers have about the economy. About the same time, I articulated a similar strategy in a radio interview I did that aired in the Boston market. How long did it take GM to do something similar? Until earlier this week!

The King is dead. I hope the new King – or kings, as I have argued earlier – come from middle ranks or better yet, from outside the industry. Ford’s Alan Mulally, after all, has been making faster progress and has so far, not had to reach for the begging bowl.

Comment » | Business Environment, Company Performance, Corporate Culture, Financial crisis, Leadership, Organizational structure, Politics

“I Wonder What the Ostrich Sees …”

March 13th, 2009 — 3:45pm

“… when he pulls his head from the sand? Probably a transport barreling towards him on the highway that was built while he wasn’t paying attention.” The Internet tells me that Stephanie Martin-Smith crafted this brilliant observation about the last US elections. It is an equally brilliant descriptor of Fortune magazine’s latest “The World’s Most Admired Companies.” Here’s why: 9 of the top 10, 19 of the top 20, 28 of the top 30 and 41 of the top 50 companies are … American!

I actually think very highly of many of the American companies on the list. I currently work with two of the top ten, and help (or have recently helped) several other companies – which rank high on the industry specific lists. I used to work for American Express and in my book, have praised Hewlett-Packard. But in the eighth year of the 21st century, to think that America has a monopoly on good management is short-sighted, if not ridiculous.

All such surveys have methodological biases. So I checked that out. Fortune essentially started with a list of 1000 large US companies and 400 large non-US companies. A bias no doubt, but minor. Then it asked “executives, directors, and analysts to rate companies in their own industry on nine criteria, from investment value to social responsibility.” This became the basis of the industry specific rankings. Finally, to create the list of the 50 most admired, it asked “4,047 executives, directors, and securities analysts who had responded to the industry surveys … Anyone could vote for any company in any industry.” Here’s one major possible source of bias: who ranked these companies? I could not find any description of their nationalities or domiciles or global experiences.

There are several reasons why this matters, but I’ll stick to the most important: Such biases give us a false sense of security about the quality of our businesses. While I think highly of many of the companies on the list, others simply don’t belong there. When one of them gets wiped out, the deliverer of the blow will be a foreign company whose position it had usurped. The wipe out will be a big surprise to many people because the judges, the editors and the companies themselves were not paying real attention to the lessons of Friedman’s Flat World or Zakaria’s Post American World. Think I’m exaggerating? Remember what Toyota and Datsun did to the US auto industry in the 1980s?

Convince yourself if you don’t believe me. If you are a world traveler and have stayed in top tier (highly profitable, innovative, socially responsible, high quality … use Fortune’s nine criteria) hotels, make your own list of the top five chains. If you fly around the world a lot, try ranking airlines. If you know much about the IT industry, do the same. You’ll end up with several European, or Asian companies (I confess I don’t know much about African or South American ones) that do not appear on Fortune’s lists. Your analysis won’t be statistically rigorous, but it will probably give you greater insights than Fortune’s will.

Comment » | Business Environment, Company Performance

Marie Antoinette’s Soul Mate

January 20th, 2009 — 6:41pm

I’m back! I hadn’t meant to be away for five weeks, but life intervened. In my defense, I didn’t notice anyone actually breaking my door down asking about my whereabouts …

I am wondering if you heard the recent Robert Siegel interview of GM Vice Chairman Bob Lutz on NPR’s All Things Considered a few days ago. If not, it is definitely worth listening to (http://www.npr.org/templates/story/story.php?storyId=99253055), for it gives a unique insight into the travails of the US auto industry.

Mr. Lutz showed great restraint; he waxed eloquent about the stupidity of the average consumer, without actually using the word. GM produces great cars, he said, but only a handful of experts really know this. It will take time for the experts’ opinion to filter down to the great unwashed masses and GM had no choice but to wait this out. Asked about the effect of the government bailout on the workings of his company, he said, “I’ve never quite been in this situation before of getting a massive pay cut, no bonus, no longer allowed to stay in decent hotels, no corporate airplane. I have to stand in line at the Northwest counter. I’ve never quite experienced this before. I’ll let you know a year from now what it’s like.”

If anyone has any doubts about why GM is really flirting with bankruptcy, Mr. Lutz comments should have clarified the issue. The Vice Chairman of a company which went with a begging bowl to Congress acted as if he was Marie “Let them eat cake” Antoinette’s soul mate. CEO Rick Wagoner and GM’s Board should have repudiated his statements by publicly firing him, but in my heart of hearts, I knew that my life would long be over before any good sense emanated from those quarters. But hope is what keeps the world spinning, does it not?

So, did Mr. Lutz change my mind about the auto industry bailout? No! If anything, his words are proof that the bailout is needed to preserve the company until more drastic steps can be taken.

An argument – also made by a handful of others – is that without the bailout, the industry’s second and third tier companies will be irreparably weakened. This will harm the broader industry’s stronger companies, for they rely on many of these companies too. Ideologues don’t understand this is the unfortunate logic of networks: As I’ve written elsewhere, it is hard to succeed if your network is failing.

The more important, and thus far unmade, argument is: bankruptcies will not reform these companies. In the best case scenario, they would file for pre-packaged bankruptcies (in which creditors back the financial restructuring plan) without scaring customers (even though buying a consumer durable is a riskier bet than buying a ticket from a bankrupt airline). Who will manage GM through this process? People like Mr. Lutz will represent the companies. Across the table from them will be their creditors. What will the negotiations focus on? The executives will argue they can fix the problems – if everyone else makes large concessions. The creditors – rightfully – will be trying to get back their money as quickly as they can. No one will be focusing on changing the culture that allow people like Mr. Lutz to be top dogs. And without changing culture – encouraging collaboration, being open to others’ ideas, being willing to take considered risk, managing learning every day, etc. – these companies will stumble from one disaster to another. Changing culture takes great effort, committed leadership and time. All three will be in short supply during the negotiations and during the tightly choreographed marches towards tough milestones that will follow.

I hope the Obama administration’s Auto Czar, backed by the bills that Congress must pass (to provide additional funding) by March, will be able to force change. As I wrote in an earlier post, I would like to see appointees to the Boards, an orderly departure of people like Rick Wagoner and Bob Lutz, and a shifting of power to less jaded executives running smaller companies created by splitting up the behemoths. The ideologues will probably not let this happen, but extraordinary times call for extraordinary steps. Nevertheless, I’ll even take smaller steps along the lines I have proposed while hoping for more. Hope, as I said, is what keeps the world spinning, does it not?

Comment » | Business Environment, Company Performance, Corporate Culture, Financial crisis, Leadership, Organizational structure, Politics

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