Category: Management

Rich Karlgaard (Forbes) writes:

Now that the economy is expanding again, stock markets like growth companies with higher multiples. What CEO or shareholder doesn’t want a higher multiple? So the pressure in boardrooms once more is for growth. At the same time, a new force this column has termed the Cheap Revolution (e.g., the combination of cheap technology, excess capacity and Internet-based pricing arbitrage) is exerting a powerful deflationary gravity.

I may be missing something, but I can see only two general ways out of this dilemma. Call them Low Disruption and High Disruption.

Low Disruption means leveraging the Cheap Revolution for all it’s worth to introduce products and services that are stunningly cheap yet make money because their cost basis is so low. Think Google. It’s ranked third in the world in Web pages served daily. The search engine’s IT infrastructure is built entirely from Linux software and computers that are so cheap they’re junked instead of fixed. Ravi Aron, a Wharton professor, thinks Google’s cost per Web page served is ten times below the industry average.

Low Disruption is the path favored–though not always–by entrepreneurs who nimbly figure out before their established competitors do just how to harness cheap tech and global resources. In 2003 such cheap tech includes throwaway servers; open-source software; Wi-Fi; voice-over IP; radio-frequency identification chips; Web services from Salesforce.com, RightNow or the new Siebel/IBM alliance; network applications from One Network Enterprise; utility computing from Mercury Interactive; “on-demand” computing from IBM; programmers working from India; engineers from China; and Web designers from Estonia–just to name some.

High Disruption is what BMW, Mercedes and Lexus did to Cadillac and Lincoln in premium automobiles (although Cadillac, under new leadership, has fought back impressively of late). It is what Miele did to Maytag in washers and dryers. It is what Pixar is doing to Disney in animation (even as those two companies remain connected). It is what NetJets is doing to commercial carriers in the battle for first-class business travelers.

High Disruption is the act of directing a premium product or service at today’s affluent customers.

HBS Working Knowledge has an article by Jonathan Byrnes, focused on bridging the gap between strategy and tactics to increase profitability. The key concept is that of the Magic Matrix:

The Magic Matrix is a spreadsheet chart with key products or services on one dimension, and key market segments or accounts on the other, both arranged in descending order by total revenues. Managers can populate the product-account cells with valuable information ranging from revenues to profitability to sales potential to differentiation. The Magic Matrix is a very powerful, intuitive, easy-to-use model of a company as it interacts with its markets. It enables a management team to look at a shared set of information on the key aspects of their company’s accounts, products, and operations, and to develop the most fruitful ways to improve performance.

The Magic Matrix shows a company’s managers where and why they are making money, and lets them identify the internal and external areas of high and low potential. They can use the Magic Matrix to frame and test different programmatic, coordinated “lines of attack” on the market. Once they agree on a direction, it provides a forum and format to align, and later adjust, their operating plans. They develop the shared viewpoints and cooperative culture that allows the company to reach its full profit potential.

The Magic Matrix gives managers a very powerful way to visualize their businesses. We favor extensive quantitative analysis because it facilitates precise fact-based decision making. But we have found that the easiest way for many groups to move into Magic Matrix-based integrated planning is with qualitative analysis.

The managers can gauge their company’s momentum relative to competitors in each cell, and denote it by an upward arrow, a blank, and a downward arrow. The team can quickly assess competitive vulnerabilities and weaknesses, with a strong sense of how the picture is changing over time. The detail is much greater than with a standard SWOT (Strengths, Weaknesses, Opportunities, and Threats) approach used by many companies.

Kevin Rollins is Dell’s president and the No. 2 person in the company. He is widely credited as having played a key role in making Dell the powerhouse that it is today. News.com has an interview with him. Some excerpts:

We still have a business model highly dependant upon the execution of our company every day. It’s not a model in which we develop a proprietary widget and sell it without worrying, because no one can catch us on the technology…
We have to do it every single day. So all customers have to have their needs met, products need to be shipped every day, the quality standards need to be met–just a whole series of to-dos. Therefore, it takes a lot of discipline to pull that off. We have to train a lot of people–because we grew this year between 15 percent and 20 percent in revenue, and we’ve got 41,000 employees worldwide. We’re adding new people every day, and none have ever worked at Dell. So they need to come in and understand how to execute every day. That’s really hard. It’s hard to keep that execution intensity at the level where you don’t ever make a mistake; you don’t ever upset a customer. And we do. We fail, but not very much–that’s the biggest challenge. It’s a very intense execution model.

We really have two areas [for future growth]. The No. 1 area is still the enterprise–storage, services and the notion of scale-out architectures, meaning buy just what you need, add incrementally and know you can scale out with your business. Scaling out means instead of buying a great big box and filling it up, you buy one box, add another one and add another one. You can buy $1,000 or $2,000 servers and put them together in a cluster and then just add capacity as you need it.

We have got a secondary, which is now in the consumer electronics world. Because we’ve become No. 1 in PCs in the United States in the consumer arena, we’re finding there’s a whole new world of consumer electronics that have been digitized, meaning they’re based on the same components that go into computersand they work with a computer predominantly (and offer) movies, music.

So you’ve seen us come out with a systematic set of consumer electronics products and you’ll see more that will round out that product category and have Dell be a great brand name for the home, with the PC being the heartbeat, or the center, of that digital home.

The enterprise is still the big thing, but the digital home on the consumer side is the next big thing.

We don’t sit down and cogitate a lot about what could hit us out of the blue. What we do worry about is where are we weakest? Generally, you find if you are weak somewhere, that’s where you could be vulnerable to an attack of some sort.

We don’t look so much at what’s the bogeyman as we do as where’s the profit made. We have a fundamental belief that the businesses will follow the profits. We haven’t been too worried about someone that’s going to start a new business and catch us with our pants down, because in the digitization era, it’s pretty easy to replicate copy and accelerate quickly. Profit pools are a much riskier concern–and who owns the profit pools–than gosh is something going to come out of the blue that we haven’t seen so far. That hasn’t happened much.

Renee Hopkins has a compilation. I too am reading the book. Everyone just has to! Disruptive Innovations are a way of doing business, especially for the smaller companies.

Had an idea: it would be nice to have a weblog focused just on Christensen’s model for disruptive innovations, where people can give their problems (scenarios) that they are facing, and then readers can give suggestions on possible solutions. It would be built around Christensen’s terminology, so it would be easy to understand for anyone.

eWeek reports on comments made by SAP executive Claus Heinrich, who “stressed the importance of innovation and embracing new technologies”:

“Innovation is one of the key differentiators for the success of companies,” Heinrich said, adding that successful firms differentiate themselves by how well and how fast they can adapt technology to suit their business processes.

But such innovation really isn’t an option, he stressed.

“It’s no longer a question of can I innovate in order to become best in class, now it’s a question of can I innovate in order to survive,” Heinrich said.

The executive spoke of the real-time nature of business today and how business events can be accounted for right away, not having to wait until a nightly batch process is complete.

“You don’t have to model real-world data anymore,” Heinrich said. “The real world and the IT world are increasingly becoming one and the same.”

“The velocity and complexity of information have increased dramatically,” said Heinrich. “It’s not a threat, it’s an opportunity…to better serve customers.”

In the real-time, event-driven world, the RSS ecosystem can play a very important role.

Dell never ceases to amaze. Think of it was the Wal-mart of IT. It is now targeting revenues of USD 60 billion by 2006 (from the current USD 40 billion), maintaining a 15% growth rate. Business Week has more on the Dell Way:

Michael Dell expects everyone to watch each dime — and turn it into at least a quarter. Unlike most tech bosses, Dell believes every product should be profitable from Day One. To ensure that, he expects his managers to be walking databases, able to cough up information on everything from top-line growth to the average number of times a part has to be replaced in the first 30 days after a computer is sold.

But there’s one number he cares about most: operating margin. To Dell, it’s not enough to rack up profits or grow fast. Execs must do both to maximize long-term profitability. That means products need to be priced low enough to induce shoppers to buy, but not so low that they cut unnecessarily into profits. When Dell’s top managers in Europe lost out on profits in 1999 because they hadn’t cut costs far enough, they were replaced. “There are some organizations where people think they’re a hero if they invent a new thing,” says Rollins. “Being a hero at Dell means saving money.”

It’s this combination — reaching for the heights of perfection while burrowing down into every last data point — that no rival has been able to imitate.

Excerpts from a talk by Fast Company’s editor in chief, John Byrne, who also worked with Jack Welch on his book “Jack: Straight from the Gut”:

Fast Company believes that work is the ultimate expression of who we are. Work is not a 9-5 pursuit. It should be an extension of us. Leadership should be inspirational and not dogmatic. Organizations should be meritocracies.

During my 1,000 hours with [Jack Welch], here’s the person I saw and what I learned about leadership. I learned that you cannot be successful in life if you do not have an extraordinary focus on people. You can not create anything that will endure without the support of people who work on your behalf to get things done. How do you focus on people in a way that clears the crap out? Here’s what I saw in Welch. I saw a teacher, a mentor, and a relentlessly demanding boss. I saw a man who could just as easily praise you, hug you, and kiss you on the cheek — and just as easily tell you you were full of shit without any problem. I saw a person who spent 60% of his time with the people in his organization, another 30% on his customers, and another 10% on the crap you have to deal with when you lead anything.

The other thing I saw about Jack that was remarkable was passion. I love passion. I’m glad I work for a magazine about people who have passion. I hate people who don’t care. And that’s what Jack was all about: Passion. You could walk into a room and feel the energy. Passion was what Jack Welch is all about. It’s why two months before retirement he’s looking at refrigerator ads. It’s why every Friday he replies to an email memo. It’s why he took the afternoon to teach a leadership class every month for 20 years.

Another thing I saw with Jack was a terrific ability to communicate. He was able to take complex ideas and communicate them in simple ways through an entire organization. We’re going to be #1 or 2 in a market. If we’re not #1 or 2, we’re going to fix it or close it. Simple as that. Simple, clear, perfect. That’s what strategy should be.

The Economist has a survey of corporate leadership. From the introduction:

The task of a corporate leader has never been more demanding. This is partly because of changing corporate structures. Big companies often operate in many countries or product markets, and joint ventures, outsourcing and alliances add further complexity. Layers of middle management have gone, so that more divisions report directly to the person at the top. The pace of innovation is quicker, new technologies have to be applied faster and product life-cycles have become shorter.

Corporate leaders are struggling to keep up momentum in their businesses when economic activity is sluggish. They also need time to spend with the people they lead: for more and more businesses, the abilities of a relatively small number of people are thought to be the key to success, and retaining and developing their talents is vital. Swamped with e-mails (which some of them answer themselves), voicemails and demands for appearances on breakfast television and at grand dinners, many corporate leaders find it harder and harder to make time to think.

In addition, for anyone in charge of a large quoted company, the level of outside scrutinywhether by government, consumer groups, the press or the financial marketsis far beyond anything a corporate leader would have been subjected to in the past.

This survey will concentrate mainly on leaders at the top of the corporate tree. It will look at the forces that shape them, at the way they are chosen, and at what happens when they fail. It will argue that having a grand vision is often less important than getting things done. But because these leaders set the ethical tone in their business, they can play a big part in helping to regain the public trust that has been lost in recent years. Capitalism depends on trust, so this is a truly important job.

From one of the articles comes a list of ten commandments to run a company well (wish it were that simple!):

1. A sound ethical compass
2. The ability to take unpleasant decisions
3. Clarity and focus
4. Ambition
5. Effective communications skills
6. The ability to judge people
7. A knack for developing talent
8. Emotional self-confidence
9. Adaptability
10. Charm

Inc writes about an activity we do all the time and suggests some ways to make it better:

Psychologist Paul Paulus has delved into the science behind eurekas, staging more than 1,000 brainstorming sessions, varying the conditions, and measuring the results. Want to know whether it’s better to write ideas down or say them out loud during a session? Paulus has tested it, and knows the answer. (Write it down.) How many breaks should the ideal brainstorm entail? (Plenty.) Do the best ideas come at the beginning of a brainstorm or at the end? (The end.)

Paulus’s first piece of advice will strike most as surprising, if not heretical: The group is not God. Group brainstorming, used day in and day out by countless business owners, really doesn’t work that well, according to Paulus. You’re almost always better off directing your employees to brainstorm individually.

On the other hand, there’s no doubt that group brainstorming is an important exercise in team-building. The trick is to capture the efficiencies of an individual while making the most of the bonhomie and synergy of a group brainstorm. Two strategies have been found to yield the best results. The first is to alternate individual brainstorming with group sessions. Then there’s what experts call “brainwriting.” Rather than staging a face-to-face group, direct participants to write their ideas down on a piece of paper or electronically. One member of the group writes an idea, another reads it, adds feedback and his or her own ideas, and so on. This overcomes a lot of the problems of the group, says Paulus. Plus, it gives people more time to think about, and respond intelligently to, their colleagues’ ideas. He’s found that brainwriting exercises generate about 40% more ideas than individuals brainstorming alone.

Whether alone or in a group, the most important thing in brainstorming is how you define the problem. You need to be focused enough so that the task is not too daunting (How can we reinvent our industry?), but not so narrow that it discourages creativity (What color should we paint the office?). It sounds easy enough, but most business brainstormers screw this up, observes James D. Feldman, a Chicago-based consultant who works with small companies. “Most people do not identify their problem correctly,” he says.

WSJ writes about the challenges facing Sun, pointing out some of the fundamental changes that are taking in the computer industry:

Standard chips made by Intel Corp. have caught up to Sun’s specialized models in performance, turning low-priced computer makers such as Dell Inc. into Sun rivals. Likewise, relatively cheap software from Microsoft Corp. and free Linux software allow corporate users to perform tasks that once required Sun’s pricier programs.

Sun appears to be the latest casualty of the rising tide of tech standardization, led by Intel and Microsoft. Many companies in the history of high-tech — Digital Equipment Corp. and Apple Computer Inc., among others — believed they could resist standard designs and thus ultimately charge a premium for their products. In the end, a lot of these companies were either acquired or hang on in the industry as smaller players.

In the end, Sun faces a changed tech landscape that no amount of remaking may be able to fix.

Continue reading Sun’s Eclipse