Critical Success Factors

“Donald J. Trump says being known as a billionaire is ‘critical’ to his business, a major reason he's suing for libel over author Timothy L. O'Brien's TrumpNation: The Art of Being the Donald. That 2005 book suggested Trump was worth $250 million tops. Trump says he's now worth $7 billion (FORBES figures $3 billion). In a court filing Trump's lawyers contend his success ‘depends on the accurate recognition and appreciation… he is a billionaire.’

"O'Brien, New York Times Sunday business editor, and publisher Warner Books are fighting a New Jersey judge's order that O'Brien name the ‘three people with direct knowledge of Donald's finances… who had worked closely with him for years,’ the book's sole sourcing for the low valuation. Defendants argue a net worth estimate is merely unactionable opinion. Trump says his honesty was impugned by the entire book and its marketing, including O'Brien's comments at public appearances.”

(“Billionaire as a Job Title.” William P. Barrett. Forbes; October 29, 2007, Vol. 180 Issue 9, p. 38)

ONCE YOU KNOW who you are, you must carefully discern the factors that are critical for success in your domain. Doing all that you can to align the two is a dynamic balancing act that is never fully achieved.

What Matters Most

“Google is the elephant in nearly every corner of the Internet, from search and advertising to web-based e-mail, online mapping, and home-brewed video. With its share price setting new highs this fall, its market cap ($188 billion) is now large enough to buy the New York Times, the Washington Post, Gannett, and Time Warner -- twice. Or Facebook many, many times over.

“The problem is, Facebook's not for sale. And that's got Google running scared. It's an open secret in Silicon Valley that the company has been shopping around a nondisclosure agreement outlining its plan to create its own massive social network -- and asking anyone with a pulse to sign it.

“Google has to do something fast, because some of its best talent is starting to head for the exits. In July, Gideon Yu, finance chief at Google's YouTube, left for Facebook. Now other Google guys, stuck in the Googleplex and smelling a Facebook IPO that could turn early employees into early retirees, are also jumping ship. The latest defector: Benjamin Ling, the top engineer at Google Checkout, its online payment service. A Stanford comp-sci Ph.D., Ling will be overseeing Facebook's entire software platform. Losing finance types is one thing. But smart engineers are the lifeblood of a great tech company, and Ling was worth a pint, insiders say.”

(“Look Who's Worried Now.” Josh Quittner. Fortune: October 29, 2007. Vol. 156, Iss. 9; pg. 74)

YOUR BEST PEOPLE always have another offer, or they could. Growth and challenges, then relationships, and money far behind are the tipping points for most of your best.

Pick & Choose

“Stanley O'Neal's credibility just suffered a major blow. It isn't only that Merrill Lynch, the Wall Street firm he runs, took $7.9 billion of write-downs just on subprime mortgages and collateralized debt obligations for the third quarter, more than any of its peers. What is worse is that the hit is a lot larger than the $4.5 billion Mr. O'Neal recently warned of.

“How could things change so drastically? After all, the write-downs are tied to a specific point in time, Sept. 28, so market fluctuations since then shouldn't have changed anything. Merrill says it just decided to use ‘more conservative assumptions.’

“That might sound wise, but it actually raises concerns. It confirms market worries that investment banks are able to pick and choose how they price their assets -- and that could erode any tentative attempts to rebuild confidence in the market.

“More worrying for Merrill's investors, it reeks of dilettantish risk management. There have been more than enough signs this year that mortgage markets were cratering. And Merrill was arguably in a better position than most of its peers to judge the extent of the wreckage.

“After all, it owns a mortgage lender, First Franklin… The business -- especially its loan-servicing unit -- ought to have provided exactly the kind of information on the subprime market that Mr. O'Neal needed to stay ahead of the curve. Merrill also was the top CDO arranger in 2006 and is in second place this year. That should have given it a bird's eye view of the market…

“It seems irresponsible that Merrill wasn't much better prepared for the ensuing rush for the exits.

“Instead, it appears it was simply too deep into a market that its executives didn't fully understand.”


(“breakingviews.com / Financial Insight: Implausible Deniability?; Merrill and Mr. O'Neal Should Have Been Atop Credit-Market Problems.” Wall Street Journal: October 25, 2007. pg. C.14)

WE SEE what we choose to see. We read, and watch, and listen to that which comforts us in confirming what we want to believe. Deeper and deeper we dig into that until we may be over our heads. Watch out outward.

Tuition

“Microsoft Corp.'s $240 million investment in Facebook Inc. -- a three-year-old company with more promise than profit -- represents a huge bet that the online advertising boom will continue and the popular social networking site will be among the biggest beneficiaries.

“The software giant said yesterday that it will buy a 1.6% stake in Facebook, beating out Google Inc. after intense lobbying. The deal places a $15 billion valuation on the closely held Palo Alto, Calif., start-up. Facebook… expects to break even this year, on a cash-flow basis, with revenue of $150 million, according to people familiar with the company.

“The high valuation for Facebook is the latest sign of a renewed exuberance in Silicon Valley over Internet companies with lots of users -- even if those users haven't yet translated into much revenue -- and is reminiscent of the Internet bubble that ended in 2000. Microsoft and Facebook say the valuation is justified and that Facebook is starting to find ways to monetize its rapidly growing user base.

“‘We're pleased with the economics of this deal,’ said Kevin Johnson, president of platform and services at Microsoft, adding that Microsoft and Facebook have ‘both learned a lot’ from their experience with Facebook ads.

“The deal is rooted in an online-advertising boom that has turned Facebook into the newest Internet darling…

“Winning Facebook's hand could help lift morale at Microsoft's struggling online business. Over the past four years the software giant has invested heavily into building its own Internet search and online advertising services but has failed to keep pace with the growing online ad market and its leader Google.

“Microsoft fought hard and lost to Google a string of deals with companies including Time Warner Inc.'s AOL unit and DoubleClick Inc., which Google earlier this year agreed to buy for $3.1 billion. Those losses and the steady growth of Google's share of online advertising have irked Microsoft Chief Executive Steve Ballmer, say people familiar with the company.

“As a result, Microsoft scrambled to keep Facebook from falling into Google's hands.”

(“Microsoft Bets On Facebook Stake And Web Ad Boom.” Robert A. Guth, Vauhini Vara and Kevin J. Delaney. Wall Street Journal: October 25, 2007. pg. B.1)


"BET... EXUBERANCE... REMINISCENT... valuation... economics... darling..." The rules have changed? Things are different this time?

Yang and Yin?

“The gap between No. 1 and No. 2 in a company is often bigger than many realize. CEOs not only perform different tasks from their second-in-commands -- who commonly focus on running operations -- they have to act differently, too. That means the two roles often demand very different personality traits, say people who have been there.

“CEOs talk about getting acclimated to the limelight. Longtime chief operating officers say they are used to working behind the scenes and submerging their egos. Their jobs focus them inward on the company's problems, while CEOs spend much of their time convincing outsiders of the company's strengths.

“The very talents that make a great chief operating officer -- like finicky attention to detail -- can get in the way when you are in the top seat. CEOs are supposed to strategize, not micromanage…

“The Chief Operating Officer Business Forum… this month discussed with its members the pros and cons of moving up to CEO. About half of the 40 members present at the discussions said they didn't ‘want the headache’ of the top post, says William E. Shepard, founder of the Forum…

“As CEO, ‘you have to have the fearless willingness to put yourself out there. Some people said, I don't want to do that. It's not who I am’ …

“CEOs and operating officers can, of course, have traits in common. Both jobs call for a high degree of leadership skills, intelligence and business smarts. A company might work to make the two jobs more in sync, to smooth the way for a move up the ladder.


“In that case, the deputy executive would be given the kind of strategy-setting responsibilities more commonly associated with CEOs, and pushed into external roles, talking to the company's board and investors. That was the case with Autodesk's [Carl] Bass, who became operating chief in 2004.

“But even Mr. Bass says he didn't covet the CEO role before he was tapped… He tends to be more interested in products than public relations, yet he must be a cheerleader for the company in front of analysts, shareholders and the community. It's vital that a CEO consistently project a positive attitude to help keep up morale. In the No. 2 role, it was OK ‘to be more curmudgeonly,’ he says.”

(“A Different Animal Seeks the No. 1 Post; Often, It's Not No. 2.” Phred Dvorak. Wall Street Journal: October 22, 2007. pg. B.1)


HOW DO YOU balance strategy and operations, public and private, cheerleader and curmudgeon, in your development? Perhaps we can work toward bringing together both sides...

From Psuedo-science to Gospel

“Counterfeit and pirated goods are a big problem for global business, costing hundreds of billions of dollars, according to manufacturers and trade groups. But their estimates tell more about how difficult it is to assign a value to lost sales than about the actual size of the counterfeiting problem.

“Washington business groups such as the U.S. Chamber of Commerce and the International AntiCounterfeiting Coalition calculate that global counterfeit sales equal $600 billion to $650 billion a year -- numbers parroted in news releases by companies claiming to fight piracy. They build on the often-cited claim that counterfeit goods represent 5% to 7% of all world trade. That claim got its official launch in a 1997 report by the International Chamber of Commerce, which cited these percentages as only a ‘general assumption.’

“‘It is virtually impossible to find accurate statistics to substantiate these perceptions’ that counterfeiting is on the rise, the ICC author wrote.

“The barriers to accurate data on piracy are clear: It's a shadowy business run by criminals.

“Yet from these shaky foundations, a new gospel was born: 5% to 7% became the ubiquitous estimate. It was used in a 1998 report by the Organization for Economic Cooperation and Development and is often attributed to that group – ‘unfortunately,’ OECD Deputy Director for Science, Technology and Industry John Dryden wrote earlier this year, because the number is based on methodology that is ‘not clear’ …

“The OECD's recent attempt to improve on the guesstimate put all counterfeit trade… at $200 billion at the high end, extrapolating from customs seizures and guessing at how many illegitimate goods are missed at border patrols. But the OECD acknowledges in a report to be published soon that the number is based on incomplete information. Researchers asked countries to submit data on seizures of counterfeit goods; just 45 countries did, and only 15 of those offered details beyond broad categories about which products were fakes.

“Moreover, the data were extrapolated to the countries that didn't respond. Researchers then guessed at a factor that would reflect the rate of counterfeiting for the most-pirated goods in the most-pirate-prone countries. They decided 5% was the most likely figure, but they were seeking a ceiling, so they doubled it, got a total of $100 billion, and doubled that again to account for ‘statistical variability’ in their model…

“Such numbers fill a vacuum.”

(“The Numbers Guy: Efforts to Quantify Sales of Pirated Goods Lead to Fuzzy Figures.” Carl Bialik. Wall Street Journal: October 19, 2007. pg. B.1)


WE FEEL COMPELLED to rely on numbers. So, in the absence of validity, we manufacture phony numbers, purge them of assumptions, instill them with authority through repetition, and now know the unknowable.

Distinctive Competence

“One new start-up airline offers in-flight music videos, purple and pink mood lighting and flight attendants clad in chic all-black outfits. Another rolls up staircases to planes instead of covered jet- bridges, charges for water and puts its flight attendants in T-shirts advertising destinations.

“Together, high-brow Virgin America Inc. and low-brow Skybus Airlines Inc. show how the low-cost airline industry is maturing in the U.S. Once, start-up airlines all tried to fly a similar path: just copy Southwest Airlines Co., with its short, frequent flights, open seating, simple pricing and friendly staff. But now being a Southwest clone isn't enough.

“Like the retail industry, discount airlines are getting more specialized, trying to find niches that appeal to a certain type of customer, not to all customers. If Southwest is the Wal-Mart of the skies, new competitors now try to be the dollar store or wholesale club undercutting Wal-Mart. Others want to outdo Wal-Mart by being higher quality, like Target or Kohl's. Bottom line: It's creating more choice for consumers.

“‘Low-cost or new business models can come in amazing different variations and forms,’ says airline consultant Patrick Murphy, a former senior Transportation Department official. ‘I think there will be lots of new variants we haven't seen yet, for domestic and international service.’

“Low-cost airlines now carry more than 30% of domestic traffic in the U.S., and Mr. Murphy notes their growth rate has accelerated since 2000…

“With so much discount-airline capacity in the skies, new entrants have to find a way to stand out -- either by offering fancy service at relatively cheap prices, or bare-bones service at ridiculously cheap prices.

“‘You either need to compete on price or compete on product. You can't do both,’ says B. Ben Baldanza, chief executive of Spirit Airlines.”

(“The Middle Seat -- From Luxury to Bare-Bones: Discount Airlines Specialize; Travelers' Choices Multiply As Carriers Carve Out Niches; Meal Orders on Touch-Screens.” Scott McCartney. Wall Street Journal: October 16, 2007. pg. D.1)


TO BECOME OUTSTANDING, you must stand out. To become distinguished, you must become distinctive. To become competent, you must focus. There are no two ways about it.

Better Before Bigger

“At lunch time on a recent day here, Khamzat Khasbulatov sat in the world's second-busiest McDonald's and watched as dozens of people lined up at its 26 cash registers.

“‘I have too many customers,’ said Mr. Khasbulatov, chief executive of McDonald's Russia, as workers scrambled to assemble Big Macs and stuff french fries into red cartons.

“Of the 118 countries where McDonald's Corp. does business, none can boast more activity than Russia. On average, each location serves about 850,000 diners annually -- more than twice the store traffic in McDonald's other markets.

“That has presented the world's largest restaurant chain with an unusual dilemma. Russia, with its burgeoning middle-class and consumer appetites for all things American, is a jewel in the McDonald's system. But the company is being prudent about expansion here…

“Aggressive growth plans at McDonald's backfired badly in the past. During the 1990s, the company was fixated on adding restaurants throughout the chain -- as many as 2,500 stores a year. But by 2000, the condition of its existing locations, as well as the appeal of certain menu items, deteriorated. Two years later, the company's flawed expansion strategy was hammering its profits and stock price.

“Aiming then to be ‘better, not just bigger,’ the Oak Brook, Ill., company reined in expansion. In 2003, when McDonald's reported its first-ever quarterly loss, it opened a net of 21 new stores -- down from 1,015 in the previous year.

“New emphasis was placed on improving signature products… Executives also called for an aesthetic overhaul, using more muted colors and lighting schemes in the stores. The changes helped lift sales and profits, ushering in one of the company's most successful performance streaks to date. In the past twelve months, McDonald's shares have shot up 33%.

“Now that the company has improved operations, it is preparing to gingerly pick up the pace of store building.”


(“Steady Diet: As Burgers Boom in Russia, McDonald's Touts Discipline; To Maximize Potential, Chain Rations Growth; Trimming Wait Lines.” Janet Adamy. Wall Street Journal: October 16, 2007. pg. A.1)

BECOME YOUR BEST where you are today, then strive to grow. As we reach into new domains, we will naturally lose focus on what allowed us to move there in the first place. Return, refresh, renew -- grow and then recycle. This is nature's way.

Who Saw It Coming?

“Your money is at risk… Anyone who would tell you otherwise is either a fool or a huckster. Then there are those who do warn of risk but package it into a simple numerical measure that seems to put it within manageable bounds. They're even more dangerous.

“Your mutual fund's annual report, for example, may contain a measure of risk (usually something called beta). It would indeed be useful to know just how risky your fund is, but this number won't tell you. Nor will any of the other quantities spewed out by the pseudoscience of finance: standard deviation, the Sharpe ratio, variance, correlation, alpha, value at risk, even the Black-Scholes option-pricing model.

“The problem with all these measures is that they are built upon the statistical device known as the bell curve. This means they disregard big market moves: They focus on the grass and miss out on the (gigantic) trees. Rare and unpredictably large deviations like the collapse of Enron's stock price in 2001 or the spectacular rise of Cisco's in the 1990s have a dramatic impact on long-term returns – but ‘risk’ and ‘variance’ disregard them.

“The professors who live by the bell curve adopted it for mathematical convenience, not realism. It asserts that when you measure the world, the numbers that result hover around the mediocre; big departures from the mean are so rare that their effect is negligible. This focus on averages works well with everyday physical variables such as height and weight, but not when it comes to finance…

“Today Google grabs much Internet traffic, and Microsoft represents the bulk of PC software sales. Out of a million submitted manuscripts, a handful account for the bulk of book sales. One percent of the U.S. population earns close to 90 times what the bottom 20% does, and half the capitalization of the stock market (close to 10,000 companies) is in fewer than 100 corporations…

“The economic world is driven primarily by random jumps. Yet the common tools of finance were designed for random walks in which the market always moves in baby steps. Despite increasing empirical evidence that concentration and jumps better characterize market reality, the reliance on the random walk, the bell-shaped curve, and their spawn of alphas and betas is accelerating, widening a tragic gap between reality and the standard tools of financial measurement.”


(“How the Finance Gurus Get Risk All Wrong.” Benoit Mandelbrot, Nassim Nicholas Taleb. Fortune: July 11, 2005. Vol. 152, Iss. 1; pg. 99)

LULLED BY THE CONVENTIONAL, dulled by the narcotic of normal science, trapped in the norm, we should have seen this meltdown coming. Blinded in the fluorescent light of hopeful greed, it is so easy to be seduced by the dominant illogic of analysis without thought. (See Andy Grove below... )

Ancient or New Sophism?

“Twenty years ago, investors relied on what they considered to be sophisticated strategies to try to avoid big stock-market losses. On ‘Black Monday,’ as the stock market plunged 22.6%, they found their safety nets had huge holes.

“Today, investors can much more easily and effectively hedge their exposure to the market. ‘With each successive crisis, the industry gets better and better; it's significantly better prepared than before 1987,’ says Pavandeep Sethi, global head of volatility trading at Chicago's Citadel Investment Group… ‘Risk management is more sophisticated, and good managers have a game plan’ to prepare for deep jolts to the market.

“But some worry that today's improved and sophisticated hedging techniques have created a false sense of security among investors, and that a dramatic market collapse is still possible if issues arise in areas where there is little transparency, such as the world of derivatives.

“Although there is a ‘richer menu’ of tools for investors to hedge their portfolios, there remains the possibility of ‘the same cascading effect as the sellers of the hedge have to move to protect themselves from a falling market, and everyone runs for the door at the same time,’ says Robert Glauber, a former U.S. Treasury undersecretary for finance…

“In many ways, risk management and hedging techniques have improved since 1987, and larger investors have many more-sophisticated tools available, analysts and academics say. For example, credit-default swaps, which essentially are insurance policies that pay off if a company looks more likely to default, give investors a way to hedge their exposure to specific companies and sectors.

“But many of the hedging products are new and relatively opaque, raising questions about how they will hold up in a market crisis…

“Recent losses also demonstrate that even large investors continue to be caught off guard by market moves, raising questions about their ability to hedge their risks…

“‘People have been lulled,’ says Nassim Nicholas Taleb, a former trader who made big money in 1987 and is the author of ‘The Black Swan’."


(“The More Hedges the Better, Right?; Blind Spots, Bottlenecks Lurk Among New Ways Of Preventing a Crash.” Gregory Zuckerman. Wall Street Journal: October 17, 2007. pg. C.1)

ANCIENT GREEKS saw Sophists as Wisdom's elite. Today we generally equate sophistry with trickery and deceit. When I dine from a "rich menu" of sophisticated delights, I normally walk away with a bad case of indigestion and regret. (Are we reminded of Enron's market magicians -- "The Smartest Guys in the Room"?)

Opposites -- Upside-down & Inside-out

“Classical music hardly seems like a growth business. We're forever reading about how concert audiences are graying, and new artists must flounce around fiddling in tank tops and platform heels to get attention… In fact, classical music is doing a lot better than you might think. Although total sales in all music categories… fell 5 percent last year, classical sales grew by a whopping 22 percent. ‘When I talk to people in the industry, everyone is making money,’ says Klaus Heymann, chairman of Naxos, the world's biggest independent classical-music company, based in Hong Kong.

“Why are Heymann and his peers singing such a different tune? Because classical retailers have been the best at exploiting the potential of online revenue. The biggest companies of the classical genre are now earning about 20 percent of sales from digital music, double or triple the average for other categories. This is a tremendous advantage for them, since selling music in the digital format can be twice as profitable as it is offline due to the extremely low costs of digitally producing, storing and distributing music. The bottom line: while this may well be one of the worst years for music sales in general since charts were started in the 1960s, most classical labels expect revenue to continue to rise.

“Musically speaking, the classical genre has proved to be ideal for a digital era. The classical customer is technologically savvy and more likely to buy in bulk, and the viral nature of the Net has allowed the music to be heard by new audiences, fueling overall sales. ‘The classical-music sector has done a very good job of maximizing the opportunity of the Internet,’ notes Mark Mulligan, a digital-music analyst at Forrester Research.

“It's a great example of how companies are putting the ‘long tail’ theory of cybercommerce into action. In his 2006 best-selling book ‘The Long Tail,’ Wired magazine editor Chris Anderson explored how the Web helps some industries boost revenue by selling a few units of many things. That strategy is a sharp contrast from the traditional ‘big hits’ model common in the publishing, movie and music businesses. When 80 percent of revenue comes from 20 percent of inventory, media companies rightly focus on their hits; that's why record labels generally push a few artists very hard…

“The lesson for labels is that prepackaging global pop stars isn't the only way to profitability.”

(“Beethoven Goes Digital; Classical music is making money again, thanks largely to online downloads. It's a great example of how the 'long tail' theory is changing an industry.” Alexandra A Seno. Newsweek: September 17, 2007. Vol. 150, Iss. 12; pg. E.22)


PUT IT ON THE AGENDA. Consider doing just the opposite of what has worked for years. “When everyone knows something to be true, nobody knows nothin’.” (Andy Grove) To be outstanding, you must stand out.

A Trend Too Far

“When Univest Chief Executive William Aichele wants advice, he doesn't call consultants or read management guru Peter Drucker. Instead, he visits an 18th-century farmhouse in Bedminster, Pa., and chats on a sun porch with his financial-service company's oldest director: 93-year-old Charles Hoeflich.

“In popular culture, we adore elderly mentors. Look at movies such as ‘The Karate Kid’ or almost anything with Morgan Freeman in it. Or consider ‘Tuesdays With Morrie,’ the best-selling book about a sportswriter's reunions with a dying college professor.

“But in boardrooms these days, it is rare -- perhaps too rare -- for old-timers' voices to be heard. Many boards now require directors to retire at age 70 or 72. The Corporate Library, a Portland, Maine, research group, recently calculated that the average American director's age has dropped to 59, down from 61 just four years ago. As modern directors get swept up with late-night conference calls, torrents of email and six-hour audit-committee meetings, it is easy to see why youthful stamina is prized.

“Among the experts who think this antiseniority trend has gone too far is R. Glenn Hubbard, the 49-year-old dean of Columbia Business School in New York. ‘There are so many retired CEOs aged 72 to 80 with all this experience,’ he says. ‘What's more, they've got time available, which active executives don't. It's a shame to lose their expertise’."

(“Business: Recognizing the Value of Older Directors.” George Anders. Wall Street Journal: October 10, 2007. pg. A.2)


TRENDS and trendy: To discern a trend, one needs perspective. To forge a new trend, one may call upon the trendy. The wisdom of the ages; the vigor of youth.

Vision and Discernment

“The contract agreement the United Auto Workers struck with General Motors Corp. after a two-day strike last month freezes union members' base pay for four years. It shifts $51 billion in health-care obligations for retirees from GM to a union-run trust fund. And it pays new UAW workers lower wages for the same work as veterans.

“Yet, to Dave Green, a local union leader at GM's Lordstown, Ohio, plant, this deal for lower pay and higher risk is ‘awesome.’ It's ‘huge.’ It ‘sells itself.’ …

“That willingness to exchange ever-expanding wages and benefits for job security is the culmination of a two-year effort by Ron Gettelfinger, the UAW's president, to set realistic expectations for members on a new contract amid mounting financial woes at Detroit's Big Three auto makers.

“In the summer of 2005, as GM was spiraling toward a $10.6 billion loss, former UAW President Doug Fraser warned Mr. Gettelfinger and other leaders in a speech at a union celebration that the problems facing unionized U.S. auto makers were deep-seated and not the result of cyclical forces soon to change…

“Mr. Gettelfinger seized on the idea, according to people familiar with the events, and made it a theme of his effort to move the UAW's 180,000 members toward agreements that would allow auto makers to be more competitive with foreign rivals…

“The problems at Detroit's auto makers were worse than the union had ever seen, Mr. Gettelfinger said. The Big Three ‘faced a structural change, not a cyclical one ... which could require far-sighted solutions by our membership,’ he said, echoing Mr. Fraser's words.

“The terms ‘structural change’ and ‘far-sighted solutions’ were picked up by UAW local leaders in the run up to this year's contract talks.”

(“How Less Pay, More Risk 'Sells Itself'; Job-Security Promises Have Auto-Workers Union Poised To Ratify GM Deal Today.” Mike Spector in Lordstown, Ohio, and Jeffrey McCracken and John D. Stoll in Detroit. Wall Street Journal: October 10, 2007. pg. B.1)


A GENERATION is often required to pass before new paradigms are fully adopted -- true in technology, true in society, true in our institutions. The strategic leader helps us detect discontinuities ("Is this shift structural or is it cyclical?") by disrupting our thinking.

Captivating -- Liberating

“A growing number of employers, including U.S. Cellular, Deloitte & Touche and Intel, are imposing or trying out ‘no email’ Fridays or weekends. While the bans typically allow emailing clients and customers or responding to urgent matters, the normal flow of routine internal email is halted. Violators are hit with token fines, or just called out by the boss.

“The limits aim to encourage more face-to-face and phone contact with customers and co-workers, raise productivity or just give employees a reprieve from the ever-rising email tide...

“And one-third of users feel stressed by heavy email volume, according to a 2007 study… by the University of Glasgow and Paisley University in Scotland. Many check email as often as 30 to 40 times an hour, the study showed.

“Managers complain that rather than confronting problems, employees use email to avoid them by passing issues back and forth in long message strings, like a hot potato. Email reduces face-to-face contact among co-workers and clients; terse, poorly phrased messages further strain those relationships. And it is spilling into weekends, chaining employees to computers when they should be relaxing.”

(“A Day Without Email Is Like...” Sue Shellenbarger. Wall Street Journal: October 11, 2007. pg. D.1)

WITHOUT email, without Blackberry, without IM, without chat, without iPods, cell phones, text messaging, all we would have is human touch. Go for a visit; look them in the eye; hear them breathe. Peace. Be still. Listen.

Connectivity & De-integration

“Back in 2000, Steve Ballmer, Microsoft's chief executive, described a grand vision for the future of health care. One day, he said, everyone would have a secure and private website on the internet on which their doctors could post their 'scans, lab results, test results, visit minutes' and the like, and to which the owner could grant certain people access, to view some or all of that information.

“His ideas met with guffaws from the old lags of the industry, who have seen many fancy schemes for electronic medical records fall flat. America's health sector is simply too balkanised and too paper-based to stitch together easily in digital form. Google, Intel, Revolution (a firm started by Steve Case, a founder of AOL) and other Silicon Valley firms have all tried to do this, with little success. Even Mr Ballmer conceded back then that he was searching for the "holy grail" of healthcare.

“And yet, after years of frustration and furious development work, Microsoft now believes it has realised Mr Ballmer's dream. On October 4th… the software giant was poised to unveil its new health-information product at a big event in Washington, DC. It is called the Health Vault, in keeping with Microsoft's promise to make storing data on the internet just as secure as keeping it in a bank.

“Health Vault will store all its customers' health data, ranging from test results to doctors' reports to daily measurements of weight or blood pressure, online. Individuals then have access to those records any time, anywhere, via the internet--a great boon for those who travel a lot. Medical offices and hospitals who sign up for the service could easily send test results in digital form to the vault, and patients could authorise them in turn to have access to various, carefully circumscribed bits of their personal data.

“Microsoft was also set to announce this week that several dozen manufacturers, hospitals and charities have signed up for Health Vault. Big names including the American heart, diabetes and lung associations, the New York-Presbyterian Hospital, and Omron and Texas Instruments, in addition to various firms devoted to the craze for ‘wellness,’ are all now on board, and are expected to announce products and services shortly.”

(“Business: The vault is open; Health care.” The Economist: October 6, 2007. Vol. 385, Iss. 8549; pg. 89)


PARADOXICALLY, as linkages proliferate, independence and atomization are unleashed through a web of networked interdependence. Information is the latch; insight is the lock, and wisdom is the treasure. People are the key.

Logically Contrary

“We hate to be the bearers of good news, but someone's got to do it: The Congressional Budget Office has released its preliminary estimates for Fiscal Year 2007 that ended September 30, and the federal budget deficit fell again, this time by 35% to $161 billion.

“There's more to applaud, if you can stand it: Since 2004, deficit spending has tumbled by $251 billion, which is one of the most rapid three-year declines in U.S. history. The deficit as a share of the economy is down to 1.2%, or about half the average of the last 50 years. This improvement is especially remarkable given the $150 to $200 billion a year of post-9/11 expenses for homeland security and the wars in Iraq and Afghanistan.

“Americans coughed up a record $2.568 trillion in taxes to the IRS in 2007, or 6.7% more than in 2006. This means federal receipts have climbed by $785 billion since the 2003 investment tax cuts, the largest four-year revenue increase in U.S. history. Income, dividend and capital gains tax rates were all cut in 2003, but individual income tax receipts have soared by 46.3% in four years, with payments by the wealthy accounting for most of the windfall. Last year's increase in individual income payments was 11.3%, or more than double the rate of growth in nominal GDP…

“Overall federal revenue is now 18.8% of GDP, compared with the 18.2% average of the past 40 years…

“The overriding lesson here is that the best antidote for deficits is faster growth, not tax increases. The budget deficit has declined more rapidly this decade in the wake of the Bush tax cuts than it did in the 1990s in the wake of the Clinton tax increases.”

(“The Shrinking Deficit.” Wall Street Journal: October 9, 2007. pg. A.16)


CONVENTIONAL MATH is trumped by human behavior just as conventional wisdom is upended by simple facts. How yin and yang!

Light & Truth

“Confession isn't just good for the soul; it's good for the share price.

“Friday, Merrill Lynch said it would take a third-quarter loss after writing down $5.5 billion tied to mortgage investments and leveraged buyout commitments. Washington Mutual said its third-quarter income would fall by 75% after taking a $975 million loan-loss provision. Merrill Lynch shares rose $1.89, or 2.5%, to $76.67. Washington Mutual rose 79 cents, or 2.2%, to $36.07. Last Monday, Citigroup said that its third-quarter results would get hit by $5.9 billion in write-downs and charges. Its stock jumped and finished the week with a 3.5% gain.

“Given last week's experience, maybe other companies should follow suit. U.S. car companies could come out and say that they're so far behind in the innovation race that they don't see how they can catch up. Microsoft CEO Steve Ballmer could publicly relent and allow his kids to scrap their Zunes for iPods. Retailers could say that despite ideal weather, sales have been weak.

“What makes financial companies like Merrill and Citigroup different from other companies is that they are naturally more opaque. You can get on a subway and see how many Zunes you can spot, and you can walk through malls to see how the stores are doing. But trying to figure out what's going at a financial company, where positions are constantly shifting and valuations and default possibilities are based on assumptions, is much tougher. It's one reason that financial company shares carry lower valuations than other stocks.”

("Ahead of the Tape.” Justin Lahart. Wall Street Journal: October 8, 2007. pg. C.1)

HOW CAN TRANSPARENCY open doors for you to stand out from the crowd? Courage is not the absence of fear, but acting on principle in the face of fear and uncertainty. Do not wait for the crowd to move; let the light of truth lead into what may appear to be dark today.

Pandora & Forrest Gump

“Last month executives at shoemaker Adidas AG got a shock when they read the latest blog entry from their star endorser, pro basketball player Gilbert Arenas. He had seen the design of his second Adidas signature shoe -- which had yet to be revealed to the public -- and he wasn't impressed.

“‘I'm sitting there looking at the shoe like: I hope you guys aren't serious. Because I'm not going to wear this shoe… Nobody is going to wear this shoe,’ said the blog post from the Washington Wizards guard. He said parts of it reminded him of a ‘ballerina.’

“Adidas executives learned that day what an increasing number of marketers have found -- that pitchmen armed with a blog can be tricky. Blog posts are typically candid and breezy, not the kind of safe, stock answers that athletes are often advised to give in postgame interviews…

“Mr. Arenas has also complimented certain sneaker styles by Nike Inc. and Starbury, the line endorsed by the New York Knicks' Stephon Marbury -- despite his own endorsement deal with sneaker competitor Adidas.

“His criticism of Adidas' new signature shoe created an even bigger issue. Adidas, which wasn't ready to talk about the design, wasn't happy with Mr. Arenas's criticism, according to Adidas spokesman Travis Gonzolez. But ‘we all took a step back. We said, it's Gil being Gil and there's not a lot we can say. We don't want to affect what he writes,’ says Mr. Gonzolez…

“These incidents have given Mr. Arenas's marketing partners pause; they say they realize they can't control what he says and that he might criticize them. Jordan Edelstein, marketing director at EA Sports, says the company debated Mr. Arenas's blogging style before the company chose him for the cover of the game.

“‘We knew if there was something he didn't like, he would say so -- probably to everyone,’ Mr. Edelstein says. Ultimately the company decided that Mr. Arenas's honesty was a plus: ‘That's why his fans respond to him… We felt it was worth the risk’."


(“Companies Try to Score With Athletes Who Blog.” Stephanie Kang. Wall Street Journal: October 4, 2007. pg. B.1)

OPEN THE BOX, and you never know what you're going to get, and technology often produces the opposite of its intended purpose. Hold on tight, and let loose...

I Me Mine

“By a nearly two-to-one margin, Republican voters believe free trade is bad for the U.S. economy, a shift in opinion that mirrors Democratic views and suggests trade deals could face high hurdles under a new president.

“The sign of broadening resistance to globalization came in a new Wall Street Journal-NBC News Poll… Six in 10 Republicans in the poll agreed with a statement that free trade has been bad for the U.S. and said they would agree with a Republican candidate who favored tougher regulations to limit foreign imports…

“The new poll… posed two statements to voters. The first was, ‘Foreign trade has been good for the U.S. economy, because demand for U.S. products abroad has resulted in economic growth and jobs for Americans here at home and provided more choices for consumers.’

“The second was, ‘Foreign trade has been bad for the U.S. economy, because imports from abroad have reduced demand for American-made goods, cost jobs here at home, and produced potentially unsafe products.’

“Asked which statement came closer to their own view, 59% of Republicans named the second statement, while 32% pointed to the first…

“Julie Kowal, 40 years old, who works in a medical lab and is raising five children in Omaha, Neb., said she worries that Midwestern producers face obstacles selling beef and autos abroad. ‘We give a lot more than we get.’ she said."

(“Republicans Grow Skeptical On Free Trade.” John Harwood. Wall Street Journal: October 4, 2007. pg. A.1)


EGO-CENTRIC or holistic? Short-term or long-term? Particulars or principles? What drives your view?

Our Day Will Come

“The Wal-Mart Era, the retailer's time of overwhelming business and social influence in America, is drawing to a close…

“Wal-Mart's influence over the retail universe is slipping. In fact, the industry's titan is scrambling to keep up with swifter rivals that are redefining the business all around it…

“Rival retailers lured Americans away from Wal-Mart's low-price promise by offering greater convenience, more selection, higher quality, or better service. Amid the country's growing affluence, Wal-Mart has struggled to overhaul its down-market, politically incorrect image while other discounters pitched themselves as more upscale and more palatable alternatives. The Internet has changed shoppers' preferences and eroded the commanding influence Wal-Mart had over its suppliers…

“The company's unquenchable thirst for scale has been the secret to its market-changing power… But that very focus on scale is now a weakness, for the world has changed on Wal-Mart. The big-box retailing formula that drove Wal-Mart's success is making it difficult for the retailer to evolve. Consumers are demanding more freshness and choice, which means that foods and new clothing designs must appear on shelves more frequently. They are also demanding more personalized service. Making such changes is difficult for Wal-Mart's supercenters, which ascended to the top of retailing by superior efficiency, uniformity and scale…

“Business history is littered with companies that grew to enormous size and used their girth to re-arrange the world to fit their strengths. Think International Business Machines Corp. in the mainframe business, General Motors Corp. in autos, or Microsoft Corp. in personal computers. For a time, their success bred an ecosystem that sustained their status…

“Such orchestration can produce solid growth for decades. But it can also produce corporate blinders. Over time, IBM's grip on the corporate data center left it unable to anticipate the decentralizing effects of personal computing. GM's knack at brand creation and frequent model changes left it vulnerable to the incremental quality approach of Japanese auto makers. Microsoft was so busy cramming features into its Windows operating software that it lagged others in the shift to the Internet…

“Wal-Mart's great insight was perfecting the so-called ‘value loop’ in retailing… But the value loop is beginning to unravel…

“In some ways, Wal-Mart's loss of clout is a reflection of a more fragmented world. Retailing is a mirror to how we live and work. Big-box stores thrived by selling highly recognizable national brands…

“But the Internet is transforming the retail definition of scale. The once-stunning compilation of 142,000 items found in a Wal-Mart supercenter doesn't seem so vast alongside the millions of products available on the Internet. At the same time, the cost of creating and sustaining a national brand is rising because of media fragmentation. Niche brands, created by Internet word of mouth, are winning shelf space and sapping profits required to fund big brands' advertising.”

(“Wal-Mart Era Wanes Amid Big Shifts in Retail; Rivals Find Strategies To Defeat Low Prices; World Has Changed.” Gary McWilliams. Wall Street Journal: October 3, 2007. pg. A.1)


GREAT STRENGTH requires focus, maybe even single-minded focus. Broad impact requires connectivity and orchestration. Combine single-mindedness with deep ties, and we will steadily trap ourselves in our own suceess. The more successful we are, the more we need to consider possibly approaching our world from the opposite direction. At least put it on our agenda.

An Extremely Valuable Asset

“When eBay Inc. purchased Skype for $2.6 billion in 2005, Wall Street wondered how the Internet-calling company could be worth so much. The skeptics appear to be proven right.

“Acknowledging that its largest-ever acquisition hasn't lived up to expectations, eBay yesterday said it would take a $1.4 billion third-quarter charge related to Skype. It also announced a management reshuffle, with Skype co-founder Niklas Zennstrom stepping down as chief executive of the unit…

“Companies such as Skype… generate tremendous consumer loyalty, [yet] they can't always turn users into profits. It's just the latest of many innovative technologies -- such as social networking, online music and digital video -- that inspire legions of followers but don't necessarily turn into a profitable and sustainable business…

Analysts were so uniformly negative at the time of eBay's acquisition of Skype that the news yesterday was greeted with shrugs. EBay shares rose 64 cents to $39.66 in Nasdaq Market trading yesterday.

“‘We had concerns at the time of the acquisition that eBay was overpaying for an unproven technology and expecting a lot of synergy that didn't seem plausible,’ says Derek Brown, an analyst at Cantor Fitzgerald…

“It's also a setback for eBay Chief Executive Meg Whitman and her strategy to rev up the San Jose, Calif., company's growth through acquisitions…

“EBay acknowledged that Skype has been disappointing, with spokesman Hani Durzy noting that the business ‘hasn't performed as well as we'd expected.’ But he added that Skype remains an ‘extremely valuable asset.’

“EBay bought Skype two years ago knowing that Internet calls made from one computer user to another would generate little or no revenue. But it hoped to entice more people to join the Skype network and eventually make money through other services…

“In an interview yesterday, Mr. Zennstrom, 41 years old, says he always planned to leave Skype at some point.”


(“Sorry, Wrong Number, eBay Says on Skype; A $1.4 Billion Write-Down Shows the Pitfalls Plaguing Some Internet-Phone Services.” Mylene Mangalindan and Christopher Rhoads. Wall Street Journal: October 2, 2007. pg. B.1)

INTANGIBLE SYNERGIES are a very real trap -- trapping us mentally, emotionally, culturally, operationally, and certainly financially. When we think that we have run out of ways to create real value within existing operations, it may be time to revisit and re-view our foundational premises.