“Executives say they are harnessing a new Web tool, called prediction markets, to transform the idea pipelines inside their companies. Companies like the InterContinental Hotels Group, General Electric and Hewlett-Packard are using prediction markets to try to improve forecasting, reduce risk and accelerate innovation by tapping into the collective wisdom of the work force.
“Like blogs and wikis, prediction markets can spur communication and collaboration within a company. Yet they add rigorous measurement to business forecasts, like estimating the sales of a new product or the chances that a project will be finished on time.
“Corporate prediction markets work like this: Employees, and potentially outsiders, make their wagers over the Internet using virtual currency, betting anonymously. They bet on what they think will actually happen, not what they hope will happen or what the boss wants. The payoff for the most accurate players is typically a modest prize, cash or an iPod.
“The early results are encouraging. ‘The potential is that prediction markets may be the thing that enables a big company to act more like a small, nimble company again,’ said Jeffrey Severts, a vice president who oversees prediction markets at Best Buy…
“For years, public prediction markets have been used for politics, like the Iowa Electronic Markets and Intrade, where buyers and sellers bet on which candidate will win a particular race. And there are prediction markets where people place bets on news events (Hubdub, among others), video game sales (simExchange) or movie box-office receipts (Hollywood Stock Exchange).
“These markets have often been more accurate than professional pollsters or market researchers. The idea is that the collected knowledge of many people, each with a different perspective, will almost surely be more accurate than an individual or small group or even experts…
“Today, analysts say, there are dozens of major corporations testing these markets. The companies include Google, Cisco Systems, GE Healthcare, General Mills, ArcelorMittal, the world's largest steelmaker, and Swisscom, a large telecommunications company.”
(“Betting to Improve the Odds.” Steve Lohr. The New York Times. April 9, 2008. pg. 1)
ILLUSIONS OF RIGOR now haunt credit markets. Swelling confidence led to a confidence crisis, a confidence game.
Grow very, very wary when they tell you they have it all figured out.
Communication and Collaboration, Yes. But Rigor... ?
Can You Relate?
“Compared with other forms of human interaction, online social networking is really not all that social.
“People visit each other's MySpace pages and Facebook profiles at various hours of the day, posting messages and sending e-mail back and forth across the digital void. It's like an endless party where everybody shows up at a different time and slaps a yellow Post-it note on the refrigerator.
“Now a new wave of Silicon Valley companies is bringing live socializing back into a medium that has, in the parlance of the technologists, grown overly asynchronous.
“Vivaty, a start-up based in Menlo Park, Calif. , is creating 3-D virtual chat rooms that people can add to the Web pages and social networking profiles on the sites where they spend most of their Internet time…
“With videogame-like precision, they can then navigate that virtual space, which may feature their Facebook photos hanging from the walls and a YouTube video playing on a widescreen TV. Up to 15 others can choose avatars and enter the same room at the same time for text-based live socializing…
“Similar online services like Second Life and games like World of Warcraft have existed for years. But they are not accessible through a Web browser. Instead they require users to install large and cumbersome programs and have plenty of Internet bandwidth for a satisfyingly immediate experience…
“The entrepreneurs and investors behind… ‘live Web’ companies say that the intermittent socializing on most Web sites ignores the primal human instinct that once drove people to the town square and now brings them into real-world social groups to watch the Super Bowl or the latest episode of ‘Battlestar Galactica.’
“‘A lot of basic human communication needs have been lost in this age of siloed, one-to-one communications,’ said Roelof Botha, a partner at the venture capital firm Sequoia Capital. ‘At the end of the day, we are a social species.’ …
“[Keith] McCurdy from Vivaty said he did not expect these live services to travel far across the generational divide. The younger video-game generation ‘has more craving for contact,’ he said. ‘They are using their computers for emotional experiences, and a video-game experience is more emotional than looking at a blue and white Facebook page’.”
(“Online Chat, As Inspired By Real Chat.” Brad Stone. The New York Times. March 31, 2008. pg. 1)
TOUCH IS A KEY SENSE in managing strategically. When we are in touch with others, we develop a sense of feel that unlocks insight and understanding.
See them think. Hear them breathe. Connect with them in person.
Ephemeral Data, Real Need?
“The digital revolution has spawned billions upon billions of gigabytes of data… By 2011 the digital universe of ones and zeros will be 10 times the size it was in 2006.
“But the downside is that much of this data is ephemeral, and society is headed toward a kind of digital Alzheimer's…
“Data is ‘the natural resource for the Internet age,’ said Francine Berman, director of the San Diego Supercomputer Center... But, she added, ‘digital data is enormously fragile.’ …
“For all their qualities, electrons can seem awfully feeble when compared with a good old-fashioned book. ‘With the right kind of paper and the right kind of stewardship,’ Dr. Berman said, ‘you can keep a book for 100 years or more.’ The interface is as simple as it gets: open the book and look at the page...
“No one is suggesting that we try to hold on to every bit of data lingering in every obsolete corner. Choices must be made about the kind of material that should be kept fresh and accessible for 5 years, or 50, or 1,000 …
“Dr. [Brian] Lavoie said… ‘you can have the most elegant technological solution to the digital-preservation problem, but if there's no economics underpinning it, then there's no solution at all.’ …
“Dr. [Margaret] Hedstrom said, ‘the issue is about losing the ability, in a systematic way, of being able to preserve anything.’ … People think that because the cost of storage is dropping ‘we can save everything,’ she said. ‘But that's based on a naive view of what 'everything' actually is.’ …
“She said she was thrilled, therefore, to see serious projects coming from the National Science Foundation and heartened that many approaches were being considered. ‘If everybody's doing the same thing, we might all be making the same mistake’.”
(“In Storing 1's and 0's, The Question Is $” John Schwartz. The New York Times. April 9, 2008. pg. 1)
SEE A GAP. Fill a need. Be distinctive.
What's Good? What's Bad?
“More chief executives are spurning bonuses earned for fiscal 2007. Their voluntary cutbacks, most common among financial companies affected by the mortgage meltdown, don't always assuage demoralized staffers and unhappy investors. And they can stoke anger about other executive-pay practices.
“The heads of at least eight major U.S. companies -- ranging from Bear Stearns Cos. to Zions Bancorp -- turned down last year's bonus, while a ninth requested a shrunken one…
“It isn't unusual for bosses to slash their rewards when business sours. But a sacrifice by otherwise well-paid chiefs rarely impresses the rank and file, says Edward Lawler, director of the Center for Effective Organizations… In some cases, it ‘lowers the credibility of the CEO,’ he says. Corporate leaders are more likely to win favor when they insist their bonuses be shared with troops…
“Warner Music Group Corp. CEO Edgar Bronfman Jr. refused a bonus for the year ended Sept. 30, after receiving a $6 million bonus the prior year. He asked the board pay panel to put the funds into the bonus pool ‘for employees other than executive officers,’ its latest proxy said. Warner swung to a loss for the year. Its shares declined more than 60%.
“Mr. Bronfman turned down between $1.35 million and $1.8 million, based on the range of bonuses awarded to fellow top officers. Warner's compensation committee said in its proxy that it offered bonuses despite the poor results because of ‘unexpectedly challenging conditions in the recorded music industry.’ Will Tanous, a Warner senior vice president, says the company's operating performance was strong, with U.S. sales increasing even as overall industry sales fell 10%.
“Mr. Tanous says some employees viewed Mr. Bronfman's gesture as ‘a morale booster’ …
“Declined bonuses don't always please disgruntled investors. That was clear at Washington Mutual… where CEO Kerry Killinger was eligible for a $1.19 million bonus last year. He told analysts that he wouldn't accept the bonus because of the company's poor results…
“Mr. Killinger was eligible for 32.6% of his bonus, because the company achieved 32.6% of its 2007 goals for certain earnings, expenses and customer-loyalty measures… The foregone award will count toward Mr. Killinger's post-retirement benefits, because he earned the money.
“That's ‘a bait and switch,’ insists Richard Clayton, research director of CtW Investment Group.”
(“Theory & Practice: More CEOs Are Saying No (Voluntarily) to Bonuses; Mortgage Crisis Spurs Wave of Turndowns; Not Everyone Is Happy.” Joann S. Lublin. Wall Street Journal: April 7, 2008. pg. B.6)
WHERE ARE OUR EYES? What performance criteria are we watching? What is excellent performance? Is it unidimensional? What is reward-worthy? What is to be incentivized?
The company lost money; shareholders lost 60% of their holdings, yet a sales increase is trumpeted. And for facing challenging conditions a CEO should be rewarded? Or, for yielding a bit a CEO thinks to be heroic?
How disingenuous are they? How distracted are we?
Good News for the Fearful & Brave
“With $39 billion on hand from the sale of Alcon Inc., Nestle SA will be in the market for acquisitions as part of its strategy to bulk up its fast-growing nutrition business…
“It is a tough time to be running a food company. Commodity prices have been rising, the competition for shelf space at retailers is brutal, and as the economy sours, consumers pull back on their spending. So far, Nestle has been navigating well; it recently raised its 2008 sales forecast and said its cost-cutting programs and large size were helping it weather current conditions.
“Dealmaking to adjust Nestle's portfolio of brands has been a hallmark of Mr. Brabeck's decade as CEO. He has been cutting products and brands that don't meet his profit and sales expectations. He shed lower-margin staples like some frozen foods and purchased more premium brands like Dreyer's ice cream. He has also pushed Nestle aggressively to develop foods that have nutritional elements, viewing those as commanding higher prices at retail and also benefiting from demographic trends like aging consumers.
“The cash from the Alcon deal gives Nestle firepower to finance any future acquisitions at a critical time: The global financial crisis has made credit harder to come by, even for investment-grade-rated companies like Nestle. Nestle's strategy is the latest evidence that some corporations, known as strategic buyers, see opportunity in the turmoil in the mergers and acquisitions market. For companies that can ride out the financial and economic storm, there may be opportunities to pick up businesses from struggling rivals on the cheap, at a time when once-fierce competition from private-equity buyers has disappeared.”
(“Cash May Feed Deal Appetite at Nestle.” Dana Cimilluca and Jeanne Whalen. Wall Street Journal: April 8, 2008. pg. B.1)
REMEMBER WARREN THE WEALTHY: “Be brave when others are fearful, and fearful when others are brave.”
Are we prepared to move forward? Or, are we forced into retreat?
Our world is a construction of our choices.
Seeing Anew
“In the early days, fortunes changed swiftly for Autodesk... Indeed, the San Rafael company has been on a roller coaster for much of its quarter-century history. The low point of Autodesk's ride occurred during the height of the Internet boom, when it embarked on a fateful shift in sales strategy. The company turned its back on the so-called channel partners that had long sold its engineering software and instead branched out into selling new services online. The lure of selling without the support of resellers turned out to be wrong for products as sophisticated as those in Autodesk's portfolio...
“Then Autodesk made a move that sent it on a climb that has lasted five years. The company found and nurtured a hidden asset that would reverse its fortunes and cause the top line to grow from $824 million in 2003 to $2.17 billion in 2008 with profitability growing more than 10 times...
“Autodesk is among a handful of companies that have been able to revive a core business by discovering and harnessing hidden assets -- in this case, undervalued customer segments… Making the most of hidden assets is an approach that has worked as successfully for companies nearing their natural limits to growth, as it has for companies that need a new strategy. In addition to discovering an undervalued customer segment, companies can find hidden customer assets by discovering an untapped influence they may have over a specific group of customers or reevaluating proprietary information that can be used to alter, deepen, or broaden the customer relationship...”
(“Autodesk's Turnaround Secret; How the CAD software maker reinvented itself by refocusing on its customer segments, product differentiation, and a new sales model.” Chris Zook and George Cogan. BusinessWeek.com. April 1, 2008)
WHAT LURES US away from the heart of our work? What tempts us to turn our back on our home base?
How can you see that which has been overlooked?
Periodically, return to your original foundations. Question your current assumptions. And see if you may have wandered away from seeing clearly.
Conventional Wisdom or Distinctive Differentiation?
“Autodesk represents one of the most dramatic examples of how a company has made the most of a hidden customer asset. In the late 1990s, Autodesk made a series of moves it would live to regret. The company decided to expand beyond the design tools that had been the keystone of its success and instead add services and products that were neither part of its core business nor natural adjacent businesses. Autodesk also decided it could save on costs by selling to its customers directly and over the booming Internet, instead of through its network of resellers. ‘The company had adopted a Hail Mary strategy, trying lots of new and different things, often throwing business analysis and [proven] practices to the wind,’ says CEO Carl Bass.
“The strategy backfired. Not only were the new offerings unsuccessful, but the company also learned -- the hard way -- that its resellers were better at selling its products than Autodesk was. Performance plummeted, and Autodesk knew it needed to change. But the how-to wasn't obvious. Like many other companies, Autodesk didn't know where it was falling short with its customers and where it could differentiate itself by developing new products and services.
“In a 2004 survey of 259 executives worldwide, Bain & Co. found that for many, there is a huge gap between perception and reality when it comes to serving customers. Among respondents, 80% of executives thought they were doing a good job of delivering ‘very differentiated’ products and services. But when we compared this belief with a similar sample of their customers, only about 8% said they thought their suppliers were highly differentiated. “
(“Autodesk's Turnaround Secret; How the CAD software maker reinvented itself by refocusing on its customer segments, product differentiation, and a new sales model.” Chris Zook and George Cogan. BusinessWeek.com. April 1, 2008)
TO BE OUTSTANDING, we must stand out.
When everybody knows something... where do you go?
oops!
“FairPoint Communications Inc. completed its purchase of Verizon Communications Inc.'s wired telephone lines and high-speed Internet service in northern New England, and was promptly punished by investors.
“FairPoint's stock fell 12%, or $1.24, to $9.02 in 4 p.m. composite trading on the New York Stock Exchange.
“Goldman Sachs analyst Jason Armstrong added FairPoint to his ‘sell’ list and said the multibillion-dollar deal will push risk ‘materially higher.’
“Wall Street's reaction came as FairPoint CEO Gene Johnson touted the deal's closing in New York as catapulting the North Carolina-based phone company into one of the nation's largest.
“‘This is a great day in our progression. Many dedicated employees have worked tirelessly to achieve this milestone and I am ever grateful,’ Mr. Johnson said. ‘The result of our efforts is the creation of the eighth-largest telephone company in the United States’."
(“FairPoint Closes Verizon Deal and Sees Shares Fall.” Wall Street Journal. April 1, 2008. pg. B.2)
RISK not only comes with increased leverage in a slowing market, but with complexities heretofore not perceived.
Not My Fault!
“Citigroup Inc., as it unveiled the final in a flurry of internal organizational changes, appears to be getting started on a restructuring of its board.
“The banking giant said in a statement on its Web site that its board ‘is actively seeking new directors’ and is placing a ‘particular emphasis on expertise in finance and investments.’
“The board has been criticized by shareholders and, in private, by some Citigroup executives. They are frustrated with the board's failure to sound the alarm as the bank piled up big risks in the years before the credit crunch hit, saddling Citigroup with more than $20 billion in losses since last summer.
“The board has few members with experience in financial services. Only two outside directors -- Richard D. Parsons, Time Warner Inc.'s chairman, who ran a New York thrift in the early 1990s, and Robert L. Ryan, who was a Citibank vice president from 1975 to 1982 -- have any banking background. Mr. Ryan, Medtronic Inc.'s chief financial officer, joined the board last year.
“Citigroup spokeswoman Christina Pretto said the board ‘has diligently carried out its responsibilities, including with respect to issues surrounding mortgage-related exposures.’ She added that the board is ‘highly experienced with a unique knowledge of the company, and regularly reviews and unanimously supports’ Citigroup's planning process and Chief Executive Officer Vikram Pandit's strategy.
“Robert E. Rubin, the former Treasury secretary who is chairman of Citigroup's executive committee, has been singled out for sharp attacks. Some investors and executives say Mr. Rubin, who was the chief advocate of naming Mr. Pandit as CEO in December, deserves blame for Citigroup's larger appetite for risk-taking in recent years...
“Mr. Rubin, however, is unlikely to step down from the board anytime soon, said a person familiar with the matter. He has defended his role by noting that he isn't responsible for any risk-management or trading functions at Citigroup.”
(“Citi Seeks Finance-Savvy Directors.” David Enrich and John Flowers. Wall Street Journal. April 1, 2008. pg. C.3)
WELL, WE MIGHT FEEL REASSURED that board decisions are unanimous (in support of strategies with which they have no experience).
And we are reassured that a former U.S. Treasury Secretary has nothing to do with "risk-management or trading functions." We wouldn't want him gumming up what we really want to do.
Why?
“A sweeping five-month investigation into the collapse of one of the nation's largest subprime lenders points a finger at a possible new culprit in the mortgage mess: the accountants.
“New Century Financial, whose failure just a year ago came at the start of the credit crisis, engaged in ‘significant improper and imprudent practices’ that were condoned and enabled by auditors at the accounting firm KPMG, according to an independent report commissioned by the Justice Department...
“Some of its accusations echo charges that surfaced about the accounting firm Arthur Andersen after the collapse of Enron in 2001.
“E-mail messages uncovered in the investigation showed that some KPMG auditors raised red flags about the accounting practices at New Century, but that the KPMG partners overseeing the audits rejected those concerns because they feared losing a client…
“Mr. Missal drew an analogy to Enron and said there was evidence that KPMG auditors had deferred excessively to New Century.
“‘I saw e-mails from the engaged partner saying we are at the risk of being replaced,’ Mr. Missal said in a telephone interview about a KPMG partner working on the audit of New Century. ‘They acquiesced overly to the client, which in the post-Enron era seems mind-boggling.’ …
“In one exchange in the report, a KPMG partner who was leading the New Century audit responded testily to John Klinge, a specialist at the accounting firm who was pressing him on a contentious accounting practice used by the company…
“[New Century’s] three founders together made more than $40.5 million in profits from selling shares in the company from 2004 to 2006.”
(“Inquiry Assails Accounting Firm In Lender's Fall.” Vikas Bajaj. The New York Times. March 27, 2008. pg. 1)
WHAT SEPARATES these folks from me? from you? What triggers foolishness in each of us? What are we watching out for?
Cool Niche or Warm Touch?
“On March 6 Apple announced new features for the iPhone, including some that will make it possible for people to fetch Microsoft Exchange e-mail with this device. In the overhyped, ever-breathless world of Silicon Valley this routine announcement got the kind of reception you might expect for the discovery of life on Mars. Apple is invading corporate America! Game over!
“Or maybe not. Apple has done a great job selling the iPhone to consumers, but tapping into the corporate market will take more than just supporting Microsoft e-mail and adding a few security features...
“The way to get corporate business is to create a product so appealing that people begin using it at work even though it's forbidden; then they force their IT department to accommodate them...
“However... hurdles stand in Apple's way. Research In Motion has 14 million BlackBerry subscribers worldwide, about two-thirds of them in corporate accounts. Those companies won't be in a hurry to tear out their BlackBerry systems, nor will they be eager to support two systems instead of one, no matter how sexy that new device may be...
“Businesses also value close relationships with vendors. ‘RIM has had a direct sales force meeting with Global 2000 companies for years,’ says Robert Laikin, chief executive of Brightpoint... ‘They have a reputation for security and a track record. They have deals with all the major carriers in the United States, who have trained their sales forces to sell the RIM product.’
“Apple, in contrast, has some really cool ads, snazzy stores and an exclusive deal with AT&T, which could put off enterprise customers who prefer a choice of carriers...
“Apple also has a history of creating new products that are not compatible with their predecessors, something consumers might put up with but businesses can't tolerate. It also helps explain why Apple computers are so rarely used at corporate sites despite being better in almost every way than Windows PCs...
“‘We think the iPhone will continue to appeal to a niche willing to pay for the sizzle of leading-edge technologies,’ says Sean Magee, senior vice president of information technology at Ricoh Americas Corp. ‘While the touchscreen, overall presentation, data management and navigation are cool, at the end of the day it is just an overpriced PDA with a lot of challenges in front of it.’”
(“Tough Customers; The earth shook. Mountains trembled. The world momentarily stopped turning on its axis.” Daniel Lyons. Forbes; April 7, 2008, Volume 181 Issue 7. pg. 54)
GOOGLE APS TOO, in spite of their cool tech and public sizzle, largely are not penetrating the corporate world.
The utility of an old-fashioned, well-entrenched behemoth -- technically inferior though it may be -- often trumps the latest fashion. Until the behemoth gets that idea too far into their head for too long. Then, watch out!
