Category: Management

Business Week analyses IBM’s acquisition of PriceWaterhouseCoopers Consulting about 16 months after the deal, suggesting that even though there are challenges at present, it will pay off in the long-term:

Big Blue’s big push into strategic consulting is proving to be one of the thorniest challenges in the young tenure of Chief Executive Samuel J. Palmisano. While Palmisano and his top lieutenants have managed much of the PWCC acquisition smoothly, they’ve been confronted with a consulting industry that’s more troubled than most anyone anticipated it would be two years after the U.S. recession officially ended. A glut of capacity and the rise of offshore competitors have led to brutal competition. The result is that many IBM consultants are sitting on the bench, dragging down revenues and profit margins. “They’re probably a little bit behind where they were hoping to be,” says analyst John B. Jones Jr. of Soundview Technology Group.

Even as tech demand recovers, Palmisano will need to move IBM up the food chain faster than rivals nibble away at the bottom. Competitors from India and elsewhere are aggressively moving into services like call centers and maintenance that IBM has long offered. At the same time, players such as Hewlett-Packard Co. and Accenture Ltd. are stepping up their capabilities in traditional IBM strongholds like outsourcing. Rivals openly question whether the PWCC deal will offer IBM any competitive advantage. “Time will tell with that acquisition. So far, they’ve had virtually no growth,” says Carleton S. Fiorina, CEO of Hewlett-Packard, which considered acquiring PWCC before IBM did. “Relationships are nice, but in the end, do they bring business in the door?”

So will the PWCC deal pay off? The evidence suggests that it will, over the long term, though 2004 will be challenging. Already, the collaboration between PWCC’s consultants and IBM’s techies is resulting in a range of high-end services that rivals will be hard-pressed to match. More than ever, the company’s consultants are helping top execs plot strategy and plan business initiatives — and then offering the services and gear to make it happen. “Having started from nowhere, we’ve made a lot of progress,” says Virginia M. Rometty, head of the BCS group.

Whether Rometty’s group thrives will depend in large part on how it performs in the market for what’s called “business process outsourcing.” In these deals, companies hand over management of an entire corporate function, like finance, to an outsider. IBM’s strategy is to develop expertise in four processes — human resources, customer care, procurement, and finance and accounting. It has attracted an anchor customer in each segment, and now it’s marketing its skills to other corporations.

News.com (from McKinsey Quarterly) writes about the coming M&A boom (of which we are already starting to see examples – eg. Juniper buying NetScreen):

Technology is a huge sector composed of many industries and markets. The pressures on companies are mounting fast, though the ghost of consolidation won’t haunt each of them equally. Indeed, some segments have already consolidated. Where once there were a fair number of operating systems for PCs, midrange computers and mainframes, for instance, now there are only a few. The database software industry has gone the same way. But other industries, by the very nature of the value propositions their niche companies provide, will probably remain fragmented. Vertical-specific applications are an example.

We found strong signs of impending restructuring in 11 of the industries we analyzed . These hot spots account for more than two-thirds of the sector’s revenue-a fact that speaks volumes about its ripeness for consolidation. In IT services, for example, professional and outsourcing services seem to be poised for an across-the-board restructuring. Software is vulnerable in particular areas, such as enterprise applications; storage; network and systems management and security; middleware; and software for application servers. In hardware the targets are PCs and notebook computers, networking gear and storage systems; in semiconductors they are logic, memory and semiconductor equipment.

While economic forces take effect, companies will jockey for increased scale, scope or some combination of both. As in any sector, scale-driven mergers, to streamline fixed costs over greater volumes and to satisfy the demand for bigger and more stable suppliers, will mostly take place between companies competing in the same industry.

Customers’ needs will also influence mergers undertaken for advantages of scope. Indeed, deals of this nature have already been done: in response to financial pressures and to the clamor of capital markets, companies that manufacture technology products have been acquiring service firms. We expect such mergers to proliferate as companies expand their breadth of product or service offerings to position themselves as preferred suppliers for big customers, to chase new profit streams, and to hunt for cross-selling and multichannel synergies.

The world of consumer electronics is set for an upheaval with the arrival of the computer companies. How will the likes of Sony respond to competition from the brigade led by Dell? NYTimes writes:

A few years ago, Sony would have sniffed at a low-cost computer maker like Dell producing flat-panel television monitors or a cellphone manufacturer like Nokia making hand-held video games. Not anymore. Sony executives know that these newcomers to the home-entertainment business can produce what they say they will, and do it for less than any company in Japan. Apple Computer’s success with iPod, the digital music recorder, is also a reminder that Sony no longer has a monopoly on tech cool.

Sony, of course, has been under attack before, and often has rebounded in ways that few analysts had expected. Rarely, though, have so many competitors joined the home-entertainment market at once. Thanks to the commodification of the electronics industry, companies can buy components easily from suppliers in Taiwan, South Korea, China and even Japan. Having honed their cost-cutting skills, these companies can often produce products faster and more profitably than Sony can.

Having been upstaged by Apple, Samsung and others in certain product categories, Sony is taking action. Mr. Ando is one-half of a two-man team heading the company’s ambitious, multipronged strategy, called Transformation 60. It is an effort to bolster profits, revamp the company’s product lineup and repair what many critics see as a damaged reputation. To be completed by Sony’s 60th anniversary, in 2006, the plan includes eliminating 20,000 jobs, cutting billions of dollars in expenses and quadrupling operating margins, to 10 percent.

The other major pillar of the plan is to design a new generation of products that will allow Sony to fend off challenges from Hewlett-Packard, Intel and others that are trying to put personal computers, not the television, at the center of home entertainment. Ken Kutaragi, whose is best known for creating the PlayStation video game console, is spearheading the development of these products.

To vault past the competition, Sony is joining hands with outsiders in some product areas. The company will spend $2 billion to produce next-generation liquid crystal displays with the Samsung Corporation of South Korea. Sony is also working with the Toshiba Corporation and I.B.M. to develop CELL, a high-powered chip that will become the centerpiece of an array of new digital gadgets. Last week, Sony said it would spend 120 billion yen ($1.14 billion) this year alone on building these chips. In other areas, most notably video games, Sony will try to blend its electronics and content businesses to produce the long-sought-after “digital convergence,” the integration of software and hardware.

HBS Working Knowledge has an interview with Robert Kaplan and David Norton who have authored a book “Strategy Maps: Converting Intangible Assets into Tangible Outcomes.” Excerpts from the interview:

A strategy map provides a visual representation of the organization’s strategy. This is truly an example of how one picture is more powerful than 1,000 words (or even twenty-five ad hoc performance measures). The financial and customer objectives describe the outcomes the organization wants to achieve; objectives in the internal and learning and growth perspectives describe how the organization intends to achieve these outcomes. The discipline of creating the strategy map of linked objectives in the four perspectives engages the executive team, and often promotes much greater clarity and commitment to the strategy.

Once created, the strategy map is a powerful communication tool that enables all employees to understand the strategy, and translate it into actions they can take to help the organization succeed.

Most organizations identify a single person to be the steward or organizer of the strategy map. This person ensures that data are continually fed into the map and Balanced Scorecard to keep them refreshed, organizes the monthly report distributionusually electronicallyand sets the agenda for the monthly management meeting to discuss performance against the strategy.

[Michael] Porter argues that strategy is determined by a unique combination of activities that deliver a different value proposition than competitors or the same value proposition better. The strategy map framework allows companies to identify and link together the critical internal processes and human, information, and organization capital that deliver the value proposition differently or better. Thus, the process of creating a strategy map and Balanced Scorecard translates the formulated strategy into specific objectives, measures, targets, and initiatives in the four inter-related perspectives.

[via Fast Company] Dave Pollard outlines what he believes were the most important ideas in 2003 in the world of business:

– Profit needn’t be the bottom line
– Bigger is worse
– New Market Disruptions could slay today’s business giants
– Viral marketing is soaring in importance as trust in business tanks
– A business is nothing more than the sum of its people’s productive efforts
– Innovation only flourishes in an environment that is open, collaborative and agile
– Stories are subversive, and far more persuasive than presentations, prescriptions and reports
– Business will evolve into a World of Ends, with federations of small, specialized, networked enterprises replacing hierarchical, vertically-integrated conglomerates
– When a business’ relationship with its customers is adversarial, it’s in its death throes
– Developing ‘Purple Cows’ – Innovations that are truly remarkable, is the best way to break out of the pack

[via CapitalIdeasOnline and Yuvaraj] Robert Cialdini has a book on “Influence: The Psychology of Persuasion” which is a must-read. This interview from 1999 lays out his key ideas: “I really want to talk about a practice of influence. How it is that one person can arrange more successfully to get another person to say yes to a request. And I realize that the way to do that was to go beyond my university environment, where I currently work, and get into the world where the influence wars are being fought all around us, everyday. And it seemed to me that there were professions and practitioners within those professions whose business it is, after all, to get others to yes to them. Whose business, whose economic livelihood depends on the success of the strategies they use to influence others in their direction.” The six strategies discussed by Cialdini are: Scarcity, Likeability, Social Proof, Reciprocation, Authority, and Commitment and Consistency.

Washington Post looks at the two contrasting approaches taken by eBay and Amazon:

EBay raised its prices this month for the fourth year in a row, while Amazon renewed its pledge to keep cutting prices even if it means lower profits. The contrast reflects how much more power the highly profitable eBay wields than Amazon.com, which reported its first-ever annual profit this week. Their business models differ, too, since eBay owns no inventory and its prices are commissions charged to sellers. But their diverging strategies also suggest a difference in attitude that may bode well for Amazon and ill for eBay.

Starting next week, an item selling for $150 on eBay will cost a seller $7.15 in fees, or about 5 percent of the sales price. And that doesn’t count payment processing fees eBay collects from many sellers through PayPal, its payment subsidiary. You have to wonder how long eBay can sock it to sellers in the form of annual price increases before small sellers start fleeing to rivals such as Yahoo and Amazon.

It’s interesting to watch eBay and Amazon marching toward some middle ground in retailing after each started in opposite corners. For years, eBay was home to small merchants who sold mostly used goods at auction prices. It has since added loads of big retailers who sell new merchandise, some at fixed prices. At the same time, Amazon started as a direct seller of new books and subsequently invited other merchants to sell both used and new merchandise on its site. Amazon collects commissions on those third-party sales, just like eBay does, which yields higher profits for Amazon in part because it doesn’t have to buy those goods.

HBS Working Knowledge looks at learnings from companies in the emerging markets, and “how three businesses in developing countries overcome a lack of resources to succeed.” The companies: CEMEX (Cementos Mexicanos), the Mexican cement giant; Natura, a leader in Brazil’s cosmetics arena; and China’s Haier, which sells appliances in one of the world’s most demanding markets.

Know your customers’ mindsetsintimately: Employees of China’s Haier, for example, discovered through visiting rural customers that they frequently used their washing machines not only to launder clothes but also to clean vegetables. By making a few minor modifications to the washers they manufactured, Haier was able to market the machines as versatile enough to wash both clothing and vegetables, and rapidly became the market leader in rural areas of its home country.

Innovate aroundrather than throughthe technology: Consider the challenge of delivering ready-mix concrete. Contractors often change their orders at the last minute, but CEMEX found that, on average, it took three hours between the time when a change order was received and when the order could be delivered. To decrease turnaround time in its Mexican market, CEMEX equipped most of its fleet of concrete mixing trucks with global positioning satellite (GPS) locators, allowing dispatchers to arrange deliveries within a twenty-minute window, versus the three hours CEMEX’s competitors require. This systemwhich did not emerge from a central R&D lab but rather from CEMEX’s internal innovation efforts, as described belowhas allowed CEMEX to increase its market share, charge a premium to time-conscious contractors, and reduce costs resulting from unused concrete.

Scour the globe for good ideas: Recognizing that the company could never compete on technical innovation with global competitors such as Procter & Gamble, Este Lauder, and Shiseidoall of which spend hundreds of millions of dollars on R&D every yearNatura’s executives have developed close connections with universities in France and the United States, and license technology from universities and research centers around the world. Says Philippe Pommez, Natura’s R&D director, “The hard part is not finding the new technology; it is knowing what you are looking for. This is where our conceptualization of new products and new lines that serve local needs becomes indispensable.”

Dave Pollard writes that businesses are once again starting at look at innovation as a way to grow, and discusses a survey by the Boston Consulting Group:

In what I think is the most useful section of the article, several innovation ‘traps’ are outlined:

The Denominator Trap — believing an innovation can capture 100% of an existing product’s market from competitors

The Sustainability Trap — underestimating the costs of sustaining market share for the product in years after the initial launch

The Substitution Trap — not anticipating how an innovation can cannibalize the market for the company’s existing products

The Uniformity Trap — not treating every new product launch as unique, requiring different approach and sustenance

The Tactical Trap — short range thinking, not assessing the strategic impact of the new product, competitors’ likely response, and the ‘fit’ of the product with the rest of the company’s line, image etc.

Some additional ideas that I suggest in my Innovation Incubator process:

Consider having your core innovation team in a separate, autonomous business unit or company. Creative minds are often very entrepreneurial, and flourish when they are relatively free from bureaucracy, and when they have some of their own skin in the game.

Use ‘pathfinder’ customers on your advisory team — the select few existing customers who always seem to be a step ahead of the pack, open to new ideas, but solidly aware of marketplace realities

Learn the process of ‘thinking customers ahead’. Through scenarios, iterative ‘what if’ exercises, future state visioning and other practices, you can help your customers imagine where their own business will be and could be three or five years from now, and hence what they might want to buy from you by that time to stay ahead of the competition.

Don’t leave valuable knowledge on the table. An understanding of how consumer tastes are changing in completely different areas from those in which your business operates, an understanding of where the economy is going, and an understanding of demographic changes can provide enormous insight into the potential market for your innovations.

In assessing ideas, don’t overlook aspects other than customer enthusiasm: deliverability, quality assurance, sourcing of materials, strategic ‘fit’ with your other products, your company’s image and your corporate ‘culture’, the ‘packagability’ of the product (easy to explain, distribute and use), possible alternatives, and possible conflicts (competing with your customers, regulatory hurdles). Some wonderful ideas have crashed and burned for reasons that had nothing to do with market acceptance.

There’s no such thing as too much testing. Small, continuous testing of every aspect of your innovations — checking and rechecking the market, product quality, timing, ease-of-use, perceived value, life cycle, competitors’ offerings, and many other things will allow you to ‘fail fast and fail early’, so that the probability of a successful launch is maximized.

Joel Spolsky provides some tips:

Proofread everything a hundred times and have one other person proofread it. Someone who got really good grades in English.

Write a personal cover letter that is customized for the job you are applying for. Try to sound like a human in the cover letter. You want people to think of you as a human being.

Study the directions that are given for how to apply. They are there for a reason. For example our website instructs you to send a rsum to jobs@fogcreek.com. This goes into an email folder which we go through to find good candidates. If you think for some reason that your rsum will get more attention if you print it out and send it through the mail, that you’ll “stand out” somehow, disabuse yourself of that notion. Paper rsums can’t get into the email folder we’re using to keep track of applicants unless we scan them in, and, you know what? The scanner is right next to the shredder in my office and the shredder is easier to use.

Don’t apply for too many jobs. I don’t think there’s ever a reason to apply for more than three or four jobs at a time. Rsumspam, or any sign that you’re applying for 100 jobs, just makes you look desperate which makes you look unqualified. You want to look like you are good enough to be in heavy demand. You’re going to decide where you want to work, because you’re smart enough to have a choice in the matter, so you only need to apply for one or two jobs. A personalized cover letter that shows that you understand what the company does goes a long way to proving that you care enough to deserve a chance.