“Short-term money markets remained in turmoil, heightening the likelihood the credit pullback may harm the broader economy.
“Inside markets that are hidden to most Americans -- the overnight Treasury repo market, the short-term commercial-paper markets and the floating-rate municipal bond markets -- action was unfolding that will soon affect how companies meet payroll, pay vendors and make investments.
“These markets allow companies with ample reserves to squeeze out a few extra dollars by investing the cash in securities with life spans of just days or weeks. All that cash helps keep the economy lubricated by distributing money to other firms that need short-term loans to buy inventory or meet payroll.
“Some distressing signs emerged Thursday from one of the most important of these marketplaces, the commercial-paper market, where companies borrow money for periods of just a day to up to a year. The market contracted by $61 billion in the week ended Sept. 24, its largest decline since August 2007, when investors fled over some of the first warning signs of the subprime-mortgage crisis. In the latest week, banks and other financial companies accounted for most of the decline, as they took $50.3 billion of paper off the market.
“The decline follows a $52.1 billion shrinkage in the week ended Sept. 17, which reduces the overall market to $1.702 trillion.”
(“Debt Market Distress Spreads; Commercial Paper Shows Signs of Tightening as Investors Flee.” Liz Rappaport and Anusha Shrivastava. Wall Street Journal: September 26, 2008. pg. C.1)
NOTHING ELSE MATTERS if markets cease to function. That is the end of capital-ism as we know it.
We have long put our trust in the notion that value and worth were established by the invisible hand of buyers and sellers exchanging in an efficient nexus of supply and demand.
If we see markets ceasing to establish reliable indications of value and worth, if market prices appear capricious and disconnected from reality, we lose confidence in the validity of the market mechanism. We hold back from participating; there is no market, and we can't see anything.
Once this unreliability and invalidity catch hold in the minds and hearts of those who otherwise would be market participants, markets seize-up and a market-based economy falters and halts.
If this occurs in money markets, then other markets likely will freeze too.
Faith, hope, belief, trust -- the eyes, ears, mind, heart, spirit and soul of our world.
Seizure
Perception Gap, Out of Touch, and Destroying Value
“Josh Silverman is on the defensive. As the head of eBay's Skype unit, he's happy to talk about his company's more than 330 million users and six straight quarters of profitability. But the topic he has been asked to address more frequently in his six months at the helm is how eBay could have so grossly overestimated Skype's value when in 2005 it paid more than $2.5 billion for the Internet calling service. ‘There is this perception gap related to eBay and what people thought eBay would do with Skype,’ Silverman says.
“The gap is more than just a matter of perception. Executives at eBay bet Skype's cheap and easy-to-use Internet calling tools would help eBay users land more sales. But it turns out many of the small business owners who market their wares on eBay had little time to sit by the phone to take questions, and in October, eBay was forced to concede it overpaid, recording expenses of $900 million.
“Silverman's task now is to ensure that Skype earns its keep, giving eBay executives reason to retain the business rather than sell it to the highest bidder. So far, eBay Chief Executive John Donahoe says he'll keep Skype. ‘We know Skype is a great stand-alone business’ … Donahoe said during a conference call with analysts earlier this year.”
(“At eBay, Is Skype There to Stay? To earn its keep at eBay, the Internet calling service needs to goose growth and gain traction on mobile phones. Otherwise, a sale may be in the offing.” Catherine Holahan. businessweek.com: September 15, 2008)
A COMMUNITY OF CUSTOMERS cries for our understanding. How can we ignore, assume away, or misperceive their ways? How can we be blind to how they will, or will not, use our service?
We are blind when we fall prey to mantras, the sweep of our times, or the lures of investment bankers drooling to make a deal.
Reach out; get in touch; listen for what to ask.
And if we must chant mantras, let it be, "Big, unrelated mergers destroy value -- certainly for owners, often for customers;" and, "Most synergies are synthetic and as illusory as our assumptions about customers and value."
Be real. Stand alone.
One Word -- Panacea
“Making millions — or even a few billion — by managing a hedge fund has been a running dream on Wall Street in recent years. But suddenly even the masters of this $2 trillion universe are falling on hard times…
“Hedge funds, those secretive investment vehicles for the rich and, increasingly, the not-so-rich, are supposed to make money whether markets go up or down. But many of them are being swept up in the turmoil in the financial world.
“The funds’ investment returns are sinking, and so are those big paydays for their managers, whose riches have helped redefine modern notions of wealth and helped drive up the price of everything from Picassos to Manhattan penthouses.
“Several big funds have faltered in recent weeks, some of them spectacularly so...
“The dimming fortunes of the industry have implications far beyond the rarefied world of hedge funds. Over the last decade, the size of this industry grew fivefold, as public pension funds, corporate pension funds and university endowments poured billions of dollars into these vehicles, in hopes of market-beating returns.
“A prolonged downturn might prompt some investors to rethink these investments...
“‘Everyone is looking for a panacea, everyone is looking for a quick way to make money fast, and everyone is pinning their dreams on the backs of these hedge funds,’ said Dan McAllister, the treasurer and tax collector of San Diego County... ‘But maybe it’s time to be a little cautious, and it’s time to look at things with a more discreet eye.’”
(“Hedge Fund Glory Days Fading Fast.” Louise Story. nytimes.com: September 12, 2008)
NOT EVERYONE! We certainly hope, we hope with some certainty, that all of us are not so insecure as to chase feverishly after sure things, cure-alls, and that which will solve all problems and prolong life indefinitely.
When they tell us, "We've got it all figured out," or "It's a lock," or "Things are different this time," or "The (old) rules don't apply here..." either head for the hills, or cling nervously to your shaman.
Oh, what did you see, my blue-eyed son?
Oh, what did you see, my darling young one?
I saw a newborn baby with wild wolves all around it
I saw a highway of diamonds with nobody on it,
I saw a black branch with blood that kept drippin',
I saw a room full of men with their hammers a-bleedin'...
I saw ten thousand talkers whose tongues were all broken,
I saw guns and sharp swords in the hands of young children,
And it's a hard, and it's a hard, it's a hard, it's a hard,
And it's a hard rain's a-gonna fall.
(Dylan)
Turn, Turn, Turn
“The government's rescue of Fannie Mae and Freddie Mac may have averted a financial meltdown, but it could create other unintended problems.
“In the short term, auto makers and other troubled industries might use the move to argue that they, too, deserve a taxpayer lifeline. Some foreign governments will use Uncle Sam's generous backstop as justification for market controls that may not be quite so constructive. And the move might further fan the election-year populism that already has free-market advocates gnashing their teeth.
“The potential longer-term consequences may be more troubling. For one thing, unlike equity holders, debt holders in financial companies once again have been protected, as they were with Bear Stearns and others. That may lead these lenders to examine those companies less carefully, putting more burden on regulators to sniff out problems…
“In such regulatory soups new opportunities and risks are born. The Resolution Trust Corporation that ended the savings-and-loan crisis in the late 1980s led to a booming mortgage-securitization market that dumped buckets of cash on Wall Street. It also planted the seeds of the mess the government this weekend stepped in to solve.”
(“Ahead of the Tape.” Mark Gongloff. Wall Street Journal: September 9, 2008. pg. C.1)
THE SEEDS OF TOMORROW are planted in the excesses of today. As we create, we destroy. As we build, we tear down. As we win, we pay a price.
As in physics, so too in our lives -- for every action there is an equal and opposite reaction.
The Icarus Paradox Once More
“Within hours of Warner Bros.'s decision to postpone the release of ‘Harry Potter and the Half-Blood Prince’ to next July, hate mail began to pour into the studio. An online petition expressing fans' disgust with the decision garnered more than 45,000 signatures. The studio says it even received death threats. ‘I hope you choke on your own saliva,’ snarled one fan in an email…
“Warner Bros. is in some ways a victim of the same forces that drove its success. The five prior Potter films have grossed almost $4.5 billion in world-wide box-office revenue, making the series the biggest franchise in history. In the past, Warner Bros. has invited staffers of Potter fan Web sites to movie premieres to help whip up hysteria ahead of upcoming movie releases. With its transgression, Warner Bros. inadvertently unleashed this powerful force against itself…
“Many fans felt Warner Bros.'s stated reason for the delay -- that the film would make a bigger splash in the middle of summer -- was a crass admission that the studio cares only about bigger box-office returns. ‘YOU just slapped the face of EVERY Harry Potter Fan and told us you don't care what we want -- you only want our money!’ stormed Natalie DeGennaro, a 50-year-old electronic-design engineer who lives in Hillsborough, N.C., in an email she sent to Time Warner Chief Executive Jeffrey Bewkes, Warner Bros. Chairman Barry Meyer and other executives…
“Some think the outsized reaction could actually be a boon for the studio. Steve Sansweet, who runs fan relations for George Lucas's Lucasfilm Ltd., says ‘Warner Bros. should be delighted. Sure, they have a problem on their hands, but they are also seeing the passion of their fans. The real problem comes when you have fans that don't give a damn.’
“The fans, however, are still angry. Many are still signing petitions planning protests and uploading angry videos to YouTube. Ms. Fink, the artist and administrative assistant, recently stood outside Warner Bros.'s Burbank lot with a large sign. ‘Dear Mr. Horn," she scrawled in red marker. ‘You will forever be known as ‘The man who changed Harry Potter's release date.’ Are you happy now?’”
(“Voldemort Hath No Fury Like Angry Harry Potter Fans; Studio Delays Movie, Gets Death Threats; 'I Hope You Choke on Your Own Saliva'.” Lauren A.E. Schuker. Wall Street Journal: September 8, 2008. pg. A.1)
THE VERY THING that allows us to soar can unexpectedly become the cause of our downfall and destruction. Whipping up fervor is the sister of whipping up hysteria is the sister of whipping up a mess.
As in both the yin and the yang, the seed of reversal lies at the heart of our strongest motions.
In order to work at the cutting edge, in order to play with fire, we must develop that fine sense, that delicate balance, that only comes through being in close touch with our constituencies.
Non-Strategic Management: Sizzle Fizzles
“Barry Diller hoped breaking up IAC/InterActiveCorp would eliminate the ‘Diller discount’ that had bedeviled the shares. It's early… but so far the split-up hasn't exactly set the world on fire.
“On Aug. 20, the e-commerce company split into five: Ticketmaster; lending business Tree.com; home-shopping company HSN; Interval Leisure, a time-share provider; and a slimmed-down IAC, a collection of Internet properties…
“The new IAC, which Mr. Diller will continue to run. It was designed as a pure Internet portfolio whose stock, freed of the weight of underperformers, would soar.
“Instead… Wall Street is valuing the operating businesses at barely $1.1 billion, or an undemanding multiple of 5.5 times Ebitda. Google enjoys a multiple of 11.6; Amazon.com, 18.7; and slower-growing eBay, 7.4, says Cowen & Co.
“IAC is hardly set to expand at Internet speed. Sanford Bernstein estimates revenues will increase 11.5% in 2009 compared with 16.1% at eBay….
“Then there is the Diller factor.
“The onetime Hollywood executive, who once brought ‘sizzle’ to stocks with which he was associated, has taken a company that began in the mid-1990s as a collection of TV stations and HSN through a series of dizzying strategic twists and turns to end up where it is today.
“Mr. Diller has thrown hundreds of millions of dollars at a series of forgettable acquisitions, including Precision Response Corp., Styleclick and Cornerstone. More memorable, and painful, for investors is Lending Tree. IAC paid about $700 million for the lending concern in 2003. Tree.com's stand-alone stock-market value is now roughly $75 million…
“Even after the recent split, IAC remains a complex mix of businesses. The best chance for IAC shareholders to realize the true value of the assets is for Mr. Diller to take the next step and sell off the remaining pieces of his empire.”
(“IAC Story Not as Planned; Multiple Spinoffs Haven't Eliminated A 'Diller Discount'.” Martin Peers. Wall Street Journal: September 3, 2008. pg. C.18)
"FORGETTABLE" ACQUISITIONS? Hardly! Destroying $625 million seems pretty darned memorable we might think.
Perhaps the heart of our problems is in our forgetting, or trying to forget, foolishness of the past. Just because a seeming "strategy" worked once upon a time, should we continue to whip that dog into oblivion... ?
Can't we teach an old dog the (old) lesson -- synergies are mightily elusive, and mergers generally do destroy wealth!?
Strategic Priorities
“Ben Verwaayen, Alcatel-Lucent SA's newly appointed chief executive, said Tuesday that the telecom-equipment company would focus on developing new technologies as a way to fight competition from low-cost rivals.
“‘We must rethink very efficiently where we are going to put our money and our best brains,’ Mr. Verwaayen told reporters… alongside the company's new chairman, Philippe Camus. The men… said they would both get to work smoothing cultural tensions that have bogged down the French-U.S. firm for two years. But neither gave any indication as to when Alcatel-Lucent might turn a profit again…
“Analysts have long said that Alcatel-Lucent has squandered research and development funds by investing in too wide an array of technologies…
“Messrs. Verwaayen and Camus are taking over at a tough time. When Alcatel and Lucent merged, executives thought their combined strengths would help the new company weather the ascent of new, low-cost rivals from Asia.
“But integration was slow, partly because the company tried to balance U.S. and French interests by dividing up its top positions by nationality. Alcatel-Lucent was left with a high cost base at a time when the price of telecom equipment was free-falling. The company has lost nearly two-thirds of its market value since the merger.”
(“Corporate News: Alcatel CEO Covets New Technology to Ward Off Rivals.” David Gauthier-Villars. Wall Street Journal: September 3, 2008. pg. B.3)
FIRST THINGS FIRST! When we forge a strong, clear culture, then we can see clearly enough to focus on those core competencies that are valued by the market.
Only then should we play the "technological innovation is the panacea" (???) card. A coherent heart and soul will unleash our "best brains."
Wall Street will be much more appreciative when they see that we have got our act together before proclaiming great initiatives.
Intellectual Inheritance
“Each night during a recent sales trip to Rio de Janeiro, Black & Veatch Senior Vice-President Michael Perry would review the day's progress over dinner with several junior staffers accompanying him. After watching Perry in action, they had plenty of questions: Why had he worked toward a compromise when the Brazilian client clearly wasn't going to budge? How was he accounting for the different cultural perspectives of the British, Japanese, and South Korean businessmen who were potential partners in the deal? …
“The 59-year-old executive had done something that will probably prove even more valuable for the company in coming years, after his retirement: He instilled some of his specialized negotiating skills in his would-be successors.
“Knowledge handoffs like this are becoming more common at companies, motivated by the concern that droves of retiring baby boomers will mean huge losses in irreplaceable intellectual capital. ‘When people leave organizations today, they are potentially taking with them knowledge that's critical to the future of the business,’ says David DeLong, a business consultant...
“Meeting periodically over a nine-month period, representatives from Black & Veatch, American Express, Procter & Gamble, and six other companies compared notes on the best ways to facilitate a knowledge handoff from one generation of workers to the next.
“Many companies realize that they are on the verge of losing stores of knowledge but don't know where to begin efforts to retain it. ‘Focus on specific business needs,’ says Kent Greenes… an independent knowledge-management consultant who has worked with companies like Hess and Northrop Grumman…
“Experts agree that, over the coming years, companies that have these programs in place somewhere in their organization will gain a competitive edge. ‘Leveraging the collective knowhow of organizations is really going to pay for itself now, as we're approaching complex problems and going into new markets and working globally,’ says Greenes. ‘Wherever it has been difficult to do things, that's when you're going to see knowledge management come to the fore.’”
(“The Knowledge Handoff; How corporations are scrambling to tap the expertise of baby boomers before they retire.” Douglas MacMillan. businessweek.com: August 27, 2008)
IMPLICIT, INTANGIBLE, INHERENT in the touch, sense and feel of the experienced leader lie insight and understanding.
Can that be transferred? Will they listen? Will they hear? Can they comprehend beyond their years? Will we connect?
Touch the heart; reach the mind. Endow the future.
Mania-Depression: Naturally Yang then Yin
“India's expected retail boom hasn't taken off, leaving companies large and small to rethink their expansion plans.
“Wal-Mart Stores Inc., which unveiled plans to enter India with a joint-venture partner two years ago amid great fanfare, will open its first wholesale store next year, but it won't comment on future plans. Three Build-A-Bear Workshop Inc. franchises in India opened by Murjani Group have closed. Straps, a chain run by India's Oswal Group that featured Wonderbra lingerie from U.S.-based Hanesbrands Inc., has closed its more than 20 stores. Big German retailer Metro AG, after five years here, operates only four wholesale stores; the company says it is taking its time developing its Indian business...
“Just three years ago, an explosion of conferences, analyst reports, Web sites and magazines predicted the arrival of a new Indian consumer who would change the global retail landscape. The first modern retail stores here were so popular that many entrepreneurs thought people would buy almost anything at any price. They were wrong, as both large and small retailers are discovering. For some, the forecast retail boom that promised jobs for Indians and a new market for global retail giants is already a bust.
“‘I was an eternal optimist; now I have become a realist,’ says Kishore Biyani, chairman of Pantaloon Retail India Ltd., India's largest retailer by sales, which has revamped its expansion plans as it discovered more about Indian consumers. ‘Everybody has miscalculated.’ …
“Many outlets discovered that consumers didn't really want their products. And unlike shoppers in Asia's other booming economy, China, Indians are rarely willing to pay three to 10 times more for an international brand than for its domestic equivalent...
“Ritu Sureka opened her home-furnishings store ‘All Living’ in the Grand Sigma Mall, Bangalore's newest, in 2005. She was sure the Indian tech capital's programmers and call-center workers would spend their rising salaries on stylish lamps and pillows for their new homes. Now she [says], ‘I think this retail thing has been a failure.’”
(“Retailers Take a Slower Road in India -- Coping With Competition, Tepid Growth; 'Everyone Has Miscalculated' the Pace.” Eric Bellman. Wall Street Journal: August 26, 2008. pg. B.1)
ALMOST ANYTHING at any price? Who would buy that?
Some pretty sorry people, I guess. Now they are paying the price for trying to strategize at the cutting edge.
Nature's balance: The more rapid the ignition, the more spectacular the flame out. Explosion-implosion, a classic yang and yin in the real world.
Think -- re-think.
Philosophy, Identity, Commitment & Flex
“During the glory days of big pickups and sport utility vehicles, one automaker steadfastly refused to join the party.
“Despite the huge profits that its competitors were minting by making larger vehicles, Honda Motor never veered from its mission of building fuel-efficient, environmentally friendly cars like its Accord sedan…
“In today's fuel-conscious automotive market, Honda is reaping the rewards for its commitment. No major automaker in America is doing better than Honda...
“While competitors are scrambling to shift their product lineups to build more small vehicles and slash their bloated inventories of trucks, Honda can barely keep up with demand, particularly in the subcompact category…
“Honda's larger Japanese rival, Toyota, is hustling to adjust to the rapidly changing United States market. Toyota dedicated its latest American assembly plant in Texas to building full-size pickups. Honda's newest factory, in southern Indiana, is set to begin production of Civic compact cars this fall.
“Honda's focus on fuel efficiency and the environmental impact of its vehicles dates back to the Clean Air legislation of the 1960s and 1970s. [Ben] Knight, the head of Honda engineering in North America, recalled how Honda adopted an internal motto – ‘Blue skies for our children’ -- as a guideline for future vehicle development. ‘The discussions inside the company have always been consistent,’ said Mr. Knight, who joined the company in 1976...
“‘Honda is a philosophy-driven company,’ said Tetsuo Iwamura, president of Honda North America. ‘Even when the large S.U.V.'s and trucks were big sellers, they did not fit with our philosophy.’ …
“Unlike many other automakers, Honda has been able to capitalize on the switch in demand to cars because of the flexibility of its assembly plants. At Honda's plant in East Liberty, Ohio, for example, the assembly line can switch almost seamlessly from Civics to CR-Vs.”
(“Honda Stays True to Efficient Driving.” Bill Vlasic. The New York Times: August 26, 2008. pg. 1)
START WITH THE BIG QUESTIONS -- Who are we? Why do we exist? Discover foundational truths. Establish good, clear values. Act with integrity, true to these core principles.
Thus centered and grounded, we are able to move forward through chaos, change and complexity all around us. We will pass by those who are unbalanced without center or ground.
Paradoxically empowered, we can be appropriately strong, straight and flexible.
The Who?
“Chrysler, inventor of the minivan (one of the best-selling ideas in automotive history), is starting to turn itself into a marketer and contract manufacturer of other people's cars. To plug gaping holes in its truck-heavy lineup, the U.S. automaker already plans to stick a Chrysler badge on a restyled Nissan Motors Versa subcompact. Now comes word that it is negotiating with the Japanese company to start selling a version of the Altima family sedan. Plus, to pick up the slack at its underutilized truck and minivan plants, Chrysler aims to become an assembler-for-hire for any maker that needs those vehicles.
“This plan did not spring from the brain of a car guy. It smells of the moneymen who are now deeply nested in Chrysler's operations. Cerberus Capital Management paid $7.4 billion for 80% of the company and, having underestimated the difficulty of turning it around, is looking to cut costs and conserve cash. Chrysler and Cerberus say they will save hundreds of millions or even billions of dollars in development costs for small cars and family sedans. And far better to share their factories, they say, than to lose money on them. Yes, it makes a strange kind of sense, but it virtually assures that Chrysler may never thrive as a standalone company…
“It steers Chrysler into me-too land and away from its roots as an innovator. The company has often risen Phoenix-like from a crisis with innovations such as the minivan or early SUVs such as the Jeep Grand Cherokee. Design breakthroughs like the Dodge Ram pickup and the PT Cruiser during the 1990s earned billions. More recently, the 300 sedan was a big, if short-lived, hit…
“A deepening partnership with Nissan means Chrysler is less likely to go it alone. This company will end up on the block again. The only question is when.”
(“A Strange Detour For Chrysler; Why turning into a marketer and contract manufacturer of other companies' cars is risky.” David Welch and David Kiley. Business Week: August 25, 2008. pg. 28)
HERE'S AN IDEA - Let's cost-cut our way to greatness! Oh no, sorry... all we want to do is hang on and milk the cow.
When it comes to the point where all we have (barely) is our name, and our identity is dubious, maybe we can figure out who we are by looking into someone else's mirror in lieu of reflecting deeply on our selves...
I used to check my reflection
Jumping with my cheap guitar
I must have lost my direction, cause I ended up a superstar
One night I was in the boardroom
Affected by the human race
You can learn from my mistakes, but you're posing in the glass again.
Well, who are you? Who are you? Who, who, who, who?
I really wanna know Who are you? Who, who, who, who?
Tell me, who are you? Who are you? Who, who, who, who?
'Cause I really wanna know Who are you? Who, who, who, who?
(Pete Townshend)
