“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)
It's Not Rocket Science
“Sales remain anemic, and Gap needs to get people excited about its clothes again even as consumers pull back and the competition heats up. The man largely responsible for making that happen is design chief Patrick Robinson... Since his appointment 14 months ago, Robinson, 41, has pushed Gap to reconnect with its roots: classic American apparel with a modern twist...
“When Gary Muto, who oversees adult apparel for Gap, opened Robinson's portfolio, he saw what he was looking for: the ability to create a cohesive look for everything from belt buckles to blouses, a skill Gap had lost in recent years. ‘If you look at his work,’ says Muto, ‘there is a consistent handwriting and point of view.’ Beyond bringing clarity to the brand, Gap's aim is to allow shoppers to mix and match garments and come up with different looks that make them feel individual. The hope, of course, is that Jane or Joe Consumer will buy several items per visit.
“Beyond that, Robinson had a pretty good idea of what ailed Gap. It was targeting too young a customer (18- to 24-year-olds), stocking poor quality clothes, and imitating Uniqlo, H&M, and Zara, which have transformed the industry with their focus on fast fashion -- rapid-fire mini-trends. ‘It wasn't being Gap,’ says Robinson, who was determined to get off the trend treadmill and revive the signature classics that he wore growing up in California...
“Gap, under former Disney executive Paul Pressler, relied heavily on focus groups and spent little time in the stores. Early on, Gap North American President Marka Hansen encouraged Robinson to have breakfast with store managers... ‘It was eye-opening,’ says Robinson of the meeting with store managers. ‘They are the only people who don't have a motive except to sell product. I've said to every designer, ‘Get into the stores and talk to the salespeople’.’”
(“A Fashion Guy Gets Gap Back To Basics; Charged with reviving the ailing brand, Patrick Robinson is putting a modern spin on classics.” Jane Porter. Business Week: August 18, 2008. pg. 56)
IT CERTAINLY DOESN'T TAKE A GENIUS to know who they are, what they do best, who they serve, and what not to do.
Focus on the primary questions: Who are we? Why? What is our core? What makes us distinctive? What are we good at that others will value? What do our workers see? And, how does our customer feel?
And remember, imitation may be flattering, but it surely makes for poor strategy.
That's it.
Your Attention Please
“Swiss banking giant UBS AG has for years trumpeted the idea that melding an aggressive investment bank and wealthy-client private bank would create a revenue machine. On Tuesday, UBS conceded it had all been a bad idea.
“In an effort to scale back ambitions and take on less risk, UBS says it now plans to apply a little tough love to its investment bank...
“The moves are another blow to the cause of ‘universal banking,’ a concept that came in vogue during the 1990s positing that banks could cram a range of different products and services under one, cheaply-funded, banking umbrella. The idea has crumbled amid the credit- markets crunch, leaving the likes of Citigroup and UBS grasping for new directions.
“While UBS will continue pushing the private bank and investment bank to share clients, internally their separation was seen as a dramatic and disappointing capitulation.
“Chairman Peter Kurer says the old structure was the wrong one to run a big, global bank in Zurich, London and New York.
“‘Agility -- we want to get that back,’ Mr. Kurer said Tuesday.”
(“UBS Gets Tough on Its Investment Bank In a Retreat From 'Universal' Concept.” Carrick Mollenkamp and Katharina Bart. Wall Street Journal: August 13, 2008. pg. C.1)
FOCUS -- What do you know best? Focus -- What do you do best? Focus -- Who can you serve best?
There is little room for those who are not at their best. Without focus, the world will eat you up.
Get rid of the vogue -- stop watching and listening to others -- and learn the agility of focus.
It's So Easy
“Ronald E. Hermance Jr. is something of an oddity these days. He is a banker who has not been battered by the credit crisis.
“Hudson City Savings Bank, where he has served as chairman and chief executive for 11 years, never issued a subprime mortgage or sold a collateralized debt obligation. It did not hopscotch into faster-growing markets offering easy money, nor did it plunge into making risky construction loans...
“‘It seems dull and boring,’ Mr. Hermance said, flashing a grin in a recent interview. ‘But it happens to have made a lot of money over the past year.’ ...
“As many of the nation's lenders widened their loan offerings, Hudson City stuck to collecting deposits and issuing mortgages, preferring to operate as a mom-and-pop boutique instead of a financial department store. It continued to screen borrowers carefully, since it planned to hold their loans instead of selling them to outside investors. And it steered clear of complex investments its executives could not value...
“Now, the bank that flew under the radar screen … has been on a tear. Shares have risen more than 51 percent since the credit crisis began last August …
“‘They have stuck to their markets. They have stuck to their loan product, and they didn't chase,’ said Tom Alonso, a banking analyst at Fox-Pitt Kelton. ‘Now, they are sort of the last man standing.’ …
“Founded 140 years ago by immigrants in Jersey City, N.J., the bank never strayed from its roots as a community lender. Mr. Hermance is fond of describing Hudson City as an old-fashioned bank…
“Hudson City [has] remained focused with a simple business model... And it kept its costs more than 50 percent lower than its big banking peers by offering fewer products and frills at its branches, while maintaining a relatively small back-office staff.
“‘This is not a black box,’ Mr. Hermance said. ‘This is a glass box. You see how everything operates.’”
(“Caution Pays For a Lender In New Jersey.” Eric Dash. The New York Times: August 14, 2008. pg. 1)
A CLEAR MIND and a steady heart make everything so much simpler. Simplicity separates the wheat from the chaff, and demystifies the way things work. Distractions and foolish enticements are eliminated. And focus becomes a real power.
What are the two or three factors upon which success hinges in your field? Can you explain it clearly to your grandmother in one sentence?
What is the core of delivering value to your customers? to your employees?
Sell stuff for more than it cost you.
Greater Fools?
“In Charles Dickens's ‘Great Expectations,’ Miss Havisham lives a life stopped in time by her canceled wedding. Floating around her house in a tattered wedding dress, with a marital feast decomposing on the table, she pretends that life never changed.
“Miss Havisham may well be the model for companies that launched quixotic, failed bids to take over rivals. The executives of two of those companies -- Microsoft Corp. and Blockbuster Inc. -- have described a future in which they gained all the advantages of an acquisition without actually doing one.
“Blockbuster Chief Executive Jim Keyes argued to investors on Thursday that his company is just as well off after dropping its $1.35 billion bid for Circuit City Stores Inc. as it would have been if it had done the deal...
“Of course, that result must only make investors wonder why Blockbuster offered a hefty 58% premium for Circuit City back in April, with no knowledge of its target's finances...
“Even as Blockbuster barreled forward, the market dragged down Blockbuster's stock. Investors feared a big acquisition would be a distraction to Blockbuster's turnaround, take the video-rental company far afield of its business model and use up financing that could be devoted to other purposes.
“The same pattern could be detected in Microsoft's bid for Yahoo Inc.
“The unsolicited offer… defied any predictable takeover strategy. Microsoft argued that an acquisition of Yahoo would improve its standing in the search business.
“Investors weren't quite so sure about the deal, which would have been a radical strategic move for Microsoft.
“Microsoft's shares sank on the fear that a large acquisition with a lightly thought-out integration would only drag down the software giant and denude its strong cash position.
“When Microsoft finally said it would drop its bid, it disavowed its aggressive pursuit and adopted a ‘Yahoo who?’ stance. ‘Yahoo was never the strategy we were pursuing,’ Chief Executive Steve Ballmer said.”
(“Deal Journal / Breaking Insight From WSJ.com” Heidi N. Moore. Wall Street Journal: August 11, 2008. pg. C.3)
DISINGENUOUS, dissembling, dissimulating -- look them up in the dictionary, and you'll see pictures of Jim Keyes, Steve Ballmer, and the whole gang.
Say what you mean; mean what you say. Or, try to have it both ways. We are taken for fools.
Idiot wind, blowing through the buttons of our coats,
Blowing through the letters that we wrote.
Idiot wind, blowing through the dust upon our shelves,
We're idiots, babe.
It's a wonder we can even feed ourselves.
(Dylan)
Icarus, Einstein & Commitments
“In 1991, General Motors posted a then-amazing, full-year loss of $4.45 billion, and 10 months later CEO Robert Stempel was out. Last week, GM reported a $15.5 billion loss for just one quarter, and GM's board this week reaffirmed its support for CEO Rick Wagoner. GM's loss easily eclipsed the quarterly loss of $8.7 billion announced by Ford just a week earlier. As for Chrysler, pick a number. The company is owned by private-equity firm Cerberus Capital Management, and thus its results aren't public…
“Should Detroit have seen this disaster coming? Yes. Gasoline prices have been climbing steadily for more than three years now...
“But the Detroit Three stuck with a business model based on leasing SUVs for way too long...
“Let's acknowledge that it's human nature to resist changing behavior that has been successful, as SUVs were for two decades. If Detroit is Exhibit A, then Exhibit B surely must be the newspaper and magazine industry. It has been equally clear for most of this decade that the business models of print publications, which are based on selling advertising, were becoming as obsolete as big SUVs…
“Not many journalists saw this sea change coming, much less acted on it, in their own business. The stock of McClatchy, one of the nation's largest newspaper chains, has plunged from nearly $75 a share to around $4 a share in the last three years, a 94% collapse that exceeds even the 89% nosedive in GM's stock since the beginning of this decade…
“Detroit's fight for survival doesn't threaten economic doomsday for America, but it's incredibly sad nonetheless. The three companies, and General Motors especially, once symbolized the bedrock strength of American capitalism….
“Motor City residents must be regretting the message on a T-shirt popular in their town for years – ‘Detroit. Where the Weak are Killed and Eaten.’ Let's hope it wasn't a prophecy about General Motors, Ford and Chrysler.”
(“Can America's Auto Makers Survive?” Paul Ingrassia. Wall Street Journal: August 7, 2008. pg. A.13)
ICARUS LEARNED TOO LATE that the very thing that allows us to soar can become the cause of our downfall and destruction.
Einstein noted that doing the same thing over and over again and expecting different results is insanity.
Liberation from a failing course of commitments requires a paradigm shift away from risk aversion, the enshrinement of consistency, and a culture of defensiveness toward trust in experimentation and learning that challenge orthodoxy. It requires genuine, reality-based humility.
Strategy's Heart & Soul
“There's no question what Wall Street thinks about Motorola's new co-chief executive, Sanjay Jha. The communications conglomerate's shares jumped 11% to nearly $10 on Aug. 4 after announcing the former Qualcomm chief operating officer would take the reins of Motorola's mobile-phone business. Jha brings loads of industry experience and extensive familiarity with wireless investors, ending the Schaumburg, Ill. company's five-month search for an executive to head the troubled cell-phone unit. ‘He is the perfect guy for Motorola,’ says Mark McKechnie, an analyst with American Technology Research... ‘If anyone can turn this handset division around, it's Sanjay Jha.’
“Still, for all of Jha's experience, he faces one huge challenge: Motorola's corporate culture. For the cell-phone unit to recover, Jha will have to fully cleanse Motorola of its sluggish, bureaucratic ways and teach a company that has long let engineers drive product development to think more like marketers, in tune with consumer tastes. It's a challenge that has proved insurmountable for several top Motorola executives…
“Every CEO who has run the company since Gary Tooker took over in 1993 has attempted to infuse the company with more entrepreneurial DNA. Under Edward Zander, who left in December, Motorola managed to hasten the production of a new slim phone, which became the spectacularly successful Razr. But leadership could not keep pace when consumers turned their attention away from hardware to an increasing focus on the software that bestows new functionality on phones...
“Jha, an engineer by training, sounds hesitant to overhaul the company's deep-rooted engineering culture, however. ‘I think the engineering culture is a tremendous asset to Motorola,’ he told BusinessWeek in an interview. ‘I think the challenge is to make that culture stay in tune with the marketplace. When it's a problem is when it gets disconnected with the marketplace. And my job is to keep it connected.’”
(“Motorola: The New CEO's Real Challenge; Co-CEO Sanjay Jha has strong experience in wireless, but his most important task is dismantling the mobile-phone unit's bureaucratic culture.” Roger O. Crockett and Olga Kharif. businessweek.com: August 5, 2008)
ALL ACTION, ALL CHANGE, all strategy comes from our foundational beliefs about the way things are and the way things work, and from our values and priorities.
When shared norms exist around these beliefs and values, there will be either inertia or potency, recalcitrance or revolution, momentum or initiative.
But it all begins in the heart and soul of the firm, begging the question, "Is the CEO in touch?"
Perceptions and Icarus
“Investors have sharply cut the stock price of Whole Foods Market Inc. in the past year, pushing shares into the low $20s from more than $50…
“A big part of the company's problems stem from its success. After branding itself as a high-end shopping experience, it's now contending with an apparent misperception among consumers that it's expensive.
“While Whole Foods is ostensibly a consumer staple (a company that performs in a down economy because consumers must shop for food), the reality is that ‘the shares actually trade like a consumer discretionary stock,’ says Mark Miller, at William Blair & Co. Stock analysts who have done apples-to-apple comparisons report that Whole Foods, despite its image, is competitive on prices. The chain doesn't sell the down-market brands its peer do, but where products overlap, and with its well-regarded private-label brand, Whole Foods is often as a good a deal or better than traditional grocers. But shoppers often stuff their carts with pricier items that fatten their bills, leading to the impression that the chain is a luxury.”
(“Ahead of the Tape.” Jeff D. Opdyke. Wall Street Journal: August 5, 2008. pg. C.1)
THE VERY THING that allows you to soar can become the cause of your downfall and demise...
...especially to the degree that our world of action is founded upon a world of decisions founded in a universe of perceptions, images and impressions.
We weave our realities as our eyes, minds and hearts filter what is being filtered by others' eyes, minds and hearts.
The New Ball & Chain
“Should a [CEO] use a computer? … Are there jobs that are too important for the office holder to be spending the day deleting spam or closing pop-up windows in a browser? …
“It's a fair question to ask: Can someone who never touches a computer truly be in touch with what is happening in the world? The computer industry has worked very hard over the past few decades to cause us to suspect as much. But what about the opposite question: Does anyone who spends all day in front of a PC, forging a river of data posing as information, have any time to think?
“A group of technology reporters once received the CEO of a midsize, low-tech company eager to impress his listeners with his connectedness. He described his day as one long session checking emails and news alerts, save for the occasional interruption of a staff meeting or a sales call.
“All this was related with pride, as though it was what modern executives were doing. His listeners, though, were struck by how he seemed to have no time left in the day to think, which was surely why he had yet to realize that he was spending his day consuming the information version of junk food…
“A computer, far from making you more productive, instead loads you down with things to do, and it's important for the machine to know who is boss…
“For a [CEO], a computer can be a … distraction. Sure, he could spend five minutes reading an especially insightful blog post from one of his core constituencies. But it would be better for him to be spending the time having coffee with the person thinking the thoughts that the world will be blogging about a week or a month hence.
“With the world at his beck and call, a [CEO] is one of the few people lucky enough to be able to learn more off-line than he would chained to a keyboard.”
(“Technology; Portals: Note to Next President: Avoid Computers.” Lee Gomes. Wall Street Journal: July 30, 2008. pg. B.6)
LOOK 'EM IN THE EYE. Listen to them breathe. See them think. Hear their hearts beating. Get in touch. Connect.
Connected strategists turn off the workplace version of the boob tube, leave their offices behind, and listen, watch and connect on the shop floor and out in the field.
That's the real world; that's the real deal. There is real insight.
My World, The World
“Many newspaper readers, recalling what they read at the beginning of this year, must be rubbing their eyes. How can the economy still be functioning despite the perfect storm of recession and housing collapse that was supposed to engulf it?
“Although markets are volatile and segments of the country are having a hard time, the national output is up, not down, this year. How has the economy pulled this off? Is there something the pessimists were missing?
“The answer is yes, and here's why. People tend to anthropomorphize the world around them, and not just in economics. We look at the outside world and assume that it is governed in the same way as our own lives…
“The same parochial streak in human nature is rife in economic commentary. In the context of a household or a business, debt is a burden and can become a threat. But for society as a whole, debt finance is a prime means of capitalizing production and growth.
“It's extraordinary, then, that in national debate the narrow view drowns out the broad…
“What's excessive now is fear, not debt: Fears of insolvency and private-sector indebtedness are misplaced and harmful. They place obstacles in the way of ill-used capital that seeks to move toward safer and more profitable employment. They plunge the stock market into turbulence. They push government into hasty actions that intrude more aggressively into private choices and decisions. They undercut the market-price system, without which the economy cannot allocate resources productively. Last but not least, these fears trigger the proverbial false alarm in a crowded theater, sending everyone stampeding for the exits…
“We shouldn't expect forecasters to shrug off the depressing effects of what's happening in their own back yards. This is human nature. We just need to keep things in perspective when we listen to them. A more objective diagnosis is especially needed during an election year, in which many unfounded fears are broadcast and amplified by the media…
“Failure to recognize this endangers the mental health of our society. We create a far bigger tragedy when we lose heart, change the rules of the game, or act recklessly with quick fixes.”
(“Economics as Metaphor.” David Ranson. Wall Street Journal: July 25, 2008. pg. A.15)
EYES, MIND, HEART, actions. That is the universal pattern of managing strategically.
Objective business and social realities are constructed out of millions of perceptions, interpretations and feelings weaving together through time. So, the way things are may not match the way things ought to be; but still, that is indeed the way things are.
Our real challenge then is to remain clear-eyed, open-minded, and true-hearted through the bobbing and weaving of our times.
