Category: Management

An era comes to an end with the resignation of AOL-TW chairman Steve Case. Says WSJ: “The departure of Mr. Case, effective in May, represents a coda to America Online’s short-lived and unsuccessful reign over Time Warner. Initially heralded as a sign of the new Internet era, the deal quickly became a failure as America Online’s business badly stumbled and cultural clashes between the two companies led to severe infighting. The stock price of the combined company has plummeted, wiping out nearly $200 billion in market value in the past two years.”

The AOL-Time Warner deal in January 2000 was a defining moment in business history – an Internet company acquiring one of the world’s largest media conglomerates. It also made most CEOs and managers sit up and take notice of the New Economy (if they hadn’t already noticed the booming Net valuations by then!)

Things have changed a lot since then. The Internet has melded more in the background and there really isn’t a “New Economy” or an “Internet way of doing business”.

Case is only 44 years. So, it will be interesting to see what he does next.

Here, in celebration of the magazine’s 85th anniversary. Always nice to once in a while go down memory lane. History never fails to teach (if we are willing to learn).

An interesting article by John Steele Gordon traces the story of pioneers who “die broke”, even as “their imitators amass fortunes”.

Inventive geniuseshave a way of coming to bad ends, while
I used to like Forbes a lot more earlier than I do now (I prefer Fortune and Business Week for their tech coverage), but its still a good magazine.

Where B2B exchanges went wrong (News.com) talks about the differences between the two markets:

Breakthrough markets are every entrepreneur’s dream–a new, level playing field, created by technology, where the assumptions and strategies of existing players don’t help or can even prove to be a hindrance.

On the Net, eBay is one of the best examples of a breakthrough leader, Day and Fein say. Before eBay, there were few outlets for consumers to connect with other consumers to trade goods. Garage sales and flea markets are erratic and unreliable; eBay created a genuinely new marketplace with customer-centric features such as its “feedback” system for rating buyers and sellers.

In breakthrough markets, “a single-minded focus” is helpful, as is “the ability to continuously adapt while resisting the impulse to grow as quickly as possible.”

Re-formed markets use technology to adapt existing ways of doing business, rather than creating entirely new ways of doing business. Instead of creating genuinely new markets, the B2B exchanges were mainly about facilitating interactions and squeezing costs, but they didn’t change the basic structure and functioning of the existing markets.

So, new entrants in re-formed markets must look at existing leaders, not at other start-ups, as their true competition. “The odds favor the leading incumbents in markets being re-formed by the Internet and the first movers in breakthrough markets,” the study says.

I read CK Prahalad (and Gary Hamel’s) “Competing for the Future” in October 1994, just as I was struggling to come up with a plan for what I wanted to do next. And as I immersed myself in the book, I made jottings which later become the outline for IndiaWorld. His next book, expected in 2003, is tentatively entitled “Co-creating the Future”, according to FT.

Quotes from an FT interview with CK Prahalad:

The most fundamental convergence is between the role of producer and the role of consumer. The consumer goes from being a very passive person to being a very active co-creator of products, services and value.

Consumers can also help create value. Co-creation of value becomes a premise of the emerging economy.

We think about value being created through lower costs or improved processes. I am saying that we have to move to a consumer-centric view in which value is created through dialogue, collaboration and partnership [with customers].

We need to move beyond customisation to personalisation.

In future, companies will have to think of themselves as managing “experiences” for customers. Thus interaction between producer and consumer is not restricted to the point at which money changes hands. There are opportunities to exchange ideas when products are being designed, manufactured, or used long after the company ceases to have any warrantied responsibility.

Companies spent the 20th century managing efficiencies. They must spend the 21st century managing experiences.

Writes Wired News:

Marketer Marc Gobe, author of Emotional Branding and principal of d/g worldwide, said Apple’s brand is the key to its survival. It’s got nothing to do with innovative products like the iMac or the iPod.

“Without the brand, Apple would be dead,” he said. “Absolutely. Completely. The brand is all they’ve got. The power of their branding is all that keeps them alive. It’s got nothing to do with products.”

Gobe, who hails from France, formulated this view while researching his book, in which he tells how brands have established deep, lasting bonds with their customers.

Apple, of course, is the archetypal emotional brand. It’s not just intimate with its customers; it is loved. Other examples are automaker Lexus, retailer Target and outdoor clothing line Patagonia.

“Apple is about imagination, design and innovation,” Gobe said from his office in New York. “It goes beyond commerce. This business should have been dead 10 years ago, but people said we’ve got to support it.”

Apple connects with people – it has become an “emotional brand”. Adds Wired:

According to Gobe, emotional brands have three things in common:

The company projects a humanistic corporate culture and a strong corporate ethic, characterized by volunteerism, support of good causes or involvement in the community. Nike blundered here. Apple, on the other hand, comes across as profoundly humanist. Its founding ethos was power to the people through technology, and it remains committed to computers in education. “It’s always about people,” Gobe said.

The company has a unique visual and verbal vocabulary, expressed in product design and advertising: This is true of Apple. Its products and advertising are clearly recognizable. (So is Target’s, or even Wal-Mart’s, Gobe said).

The company has established a “heartfelt connection” with its customers. This can take several forms, from building trust to establishing a community around a product. In Apple’s case, its products are designed around people: “Take the iPod, it brings an emotional, sensory experience to computing,” Gobe said. “Apple’s design is people-driven.”

Gobe noted that Apple has always projected a human touch — from the charisma of Steve Jobs to the notion that its products are sold for a love of technology.

“It’s like having a good friend,” Gobe said. “That’s what’s interesting about this brand. Somewhere they have created this really humanistic, beyond-business relationship with users and created a cult-like relationship with their brand. It’s a big tribe, everyone is one of them. You’re part of the brand.”

Fro m Fortune:

Even as [Cisco CEO John] Chambers widens the company’s lead over smaller rivals and knocks on new doors, other competitors smell blood–most notably Dell, which has already sold more than 100,000 low-end switches. Even more fearsome than having Dell as a competitor is the change its arrival signals: Commoditization has come to the networking market. For now, Dell’s market share is so small that it doesn’t even register in surveys, but Cisco is worried enough that this past summer it banned Dell from selling Cisco products. Huawei, a $3-billion-a-year, privately owned Chinese company, is causing a similar stir in Cisco’s China operation by developing and selling its own switches.

Cisco likely has some time before Dell-ification starts eating at its margins. But the mere mention of the Austin PC giant sends Volpi to the whiteboard in his office to scribble an illustration of why Dell won’t succeed. His argument is that, unlike players in the markets for PCs and servers, Cisco controls the router and switch game from start to finish. In computers, Intel makes the chips, companies like IBM, HP, and Dell assemble the machines, Microsoft makes the operating system, and hundreds of companies make applications. Industry standards help the products interact, but often force companies to compete on price alone. In networking, by contrast, Cisco owns the hardware, the operating system, and the applications. Any company that wants to compete has to start anew. “For anything to become a commodity, it has to be sufficiently simple that you could send your mom out to fix it,” says Jim Reese, who runs the network at Google, the search-engine company. “Networks just aren’t there yet.” For its part, Dell says that commoditization is coming faster than Cisco believes.

Success and Failure are two sides of the same coin in business. A fine line separates the two. Failure too can be a great teacher – if we are preared to learn. Writes Michael K. Tanner of The Chasm Group:

To start your thinking about failure, Id like to suggest a process. There are at least nine operational activities that require alignment for any new successful business or product launch to occur. At each step below there are infinite modes of failure. But as you think through your own experiences, try and be specific and honest with yourself about not just what worked, but what didnt work. Here are the 9 activities:

1. Fact-finding taking the time and effort to base planning on real data
2. Insight applying out-of-the-box thinking to understand what the facts are telling us
3. Strategy defining the high level filter that business decisions will be made to
4. Organization making sure the structure is suitable to the strategy (and visa-versa)
5. Resource identifying and assembling both the right quantity and quality
6. Alignment creating deep understanding in the organization about expectations, a uniform culture and norms
7. Accountability putting roles and responsibilities in place and identifying owners
8. Measurement specific, measure-able, realistic and time-bound goals
9. Management putting systems and processes in place and providing oversight

Write Geoffrey Moore and Paul Wiefels in Optimize (link via Abhay Bhagat):

Your IT strategy should be linked to changing business models dictated by early-warning signs of deteriorating competitive position such as:

The product category you represent has diminished prospects in the near or long term.

A competitor has changed the category dynamics by launching a highly successful product.

Customers are spending less time in your stores and more on the Internet.

An archrival’s IT platform can support new customer-enabling or supply-chain capabilities that you can’t.

Because such negative surprises are public knowledge, they can quickly cause your revenue and margins to degrade and your share price to suffer. Even if you have a sizable head start over your competitors, investors want to know whether you can hold onto your lead, and for how long. They want to understand how much weight to assign to the future years of your earnings forecast in determining your present value. We call this projected interval the competitive-advantage period, or CAP. Because length of CAP is a measure of sustainability, it belongs to the domain of discount for risk. It’s here that companies most often lose their way and diverge from investors’ expectations.

A company’s ability to sustain its competitive advantage is a function of its position and status in its product category, and the status of that category relative to others. The stronger it is in access to customers, barriers to competitive entry, brand position, market share, and switching costs, the more inertia there’s likely to be among customers, and the better the chance of sustaining its lead.

Writes Thomas Stewart in Business 2.0 (link via Abhay Bhagat):

Fred Smith brushed aside the C he received on the college economics paper in which he outlined his idea for an overnight delivery service. His gut told him it would work anyway. (Besides, the Federal Express (FDX) CEO later explained, “a C was a very good grade for me.”) Howard Schultz had his eureka moment in Milan, Italy, when he realized that the leisurely caffeine-and-conversation caffe model would work in the United States too. Market research might have warned him that Americans would never pay $3 for a cup of coffee. But Schultz didn’t need research. He just knew he could turn Starbucks (SBUX) into a bigger business, and he began, literally, shaking with excitement.

Businesspeople retell these parables to refresh their faith in sturdy virtues like risk-taking and creativity. But to researchers who study how managers think, the tales carry an obvious moral: The most brilliant decisions tend to come from the gut. While that observation is not new, it is now backed by a growing body of research from economics, neurology, cognitive psychology, and other fields. What the science suggests is that intuition — or instinct, or hunch, or “learning without awareness,” or whatever you want to call it — is a real form of knowledge. It may be nonrational, ineffable, and not always easy to get in touch with, but it can process more information on a more sophisticated level than most of us ever dreamed. Psychologists now say that far from being the opposite of effective decision-making, intuition is inseparable from it. Without it we couldn’t decide anything at all.

The practical implications of all this are profound. People who make decisions for a living are coming to realize that in complex or chaotic situations — a battlefield, a trading floor, or today’s brutally competitive business environment — intuition usually beats rational analysis. And as science looks closer, it is coming to see that intuition is not a gift but a skill. And, like any skill, it’s something you can learn.

I would agree – the “gut feel” or intuition is what a lot of entrepreneurs rely on for decisions. Many times, one does not have all the facts on hand necessary to make a decision on an analytical basis. That is where a call has to be made – a call from the gut.

I have made many such calls – when I started with the development of an image processing product in the early 1990s (didn’t work), with IndiaWorld in 1994 (worked) and now with Emergic (still too early to say). But the gut in at least the last two cases has been complemented with a lot of reading and thinking. (And in the case of Emergic, a lot of blogging!)

Amazon Prospers on the Web By Following Wal-Mart’s Lead (WSJ):

Retailers face two choices, Amazon founder and Chief Executive Jeffrey Bezos said in a conference call earlier this year: Work hard to raise prices or to lower them. Amazon, he says, has “decided to relentlessly follow the second model.”

Amazon’s surprising formula is exactly what helped ruin many other online businesses and once added to the gush of red ink at Amazon itself: aggressive discounting and free shipping. To pay for those goodies, Amazon is behaving like every other successful mass retailer and slashing its costs wherever it can. A smarter system of processing orders means fewer errors. It has cooked up imaginative ways to cut shipping fees by consolidating orders. And it has a lucrative new business selling new and used goods online on behalf of other merchants. Amazon collects commissions on those third-party sales without the risks and costs of owning the inventory.

Discount retailers such as Wal-Mart Stores Inc. continually lower prices by squeezing inefficiencies from their operations, sacrificing fat profit margins on products in favor of selling in high volumes. By adopting this strategy, Amazon appears finally to be doing what industry officials have long said the Internet would allow retailers to do — drive down prices aggressively for consumers.