Four Groups

Archive for November, 2008

Seth Godin picks up on the long established, death by a thousand cuts currently infiltrating the US newspaper industry. What is interesting about this piece is not so much the blow by blow account of the declining circulation and advertising figures, but the missed opportunities for leadership and innovation.

If anything, Seth’s piece highlights once again the strengths of an organisation’s values, as opposed to its processes or resources.

Of the 6 items detailed, three jump out at me;

Ten years ago, the paper knew what it had to do. They had a shot at inventing the future, but compromised their way to it instead of leading. Here are some simple ways they could think big instead of merely failing to defend the status quo:

Use their influence and brand to enable users to spread their content: Why, precisely, aren’t the Zagats guides a NY Times product? Or Yelp? That’s a quarter of a billion dollars worth of value that the paper with the most influential restaurant reviews page didn’t create. Why didn’t they build Wikipedia? Or a platform to influence the way politicians govern? Hiring and promoting David Pogue is a great example of expanding that base into the online world. Buying about.com was smart, but being afraid to put the Times name on it was an error… an opportunity for leverage, wasted.

Build a permission asset: Times readers are among the most informed cultural consumers in the world. They tend to have money to spend and are eager for new ideas. What an opportunity to build 10 or a 100 or ten thousand silos. Carefully focused free email newsletters, and then blogs, each with an editor and plenty of relevant and useful ads. Well-written ideas, delivered with authority, are as important as ever. The Times sat back and let hundreds of other micro-sites deliver this instead.

Keep score: The New York Times bestseller list used to matter a great deal. It became a self-fulfilling prophecy, because bookstores discounted and promoted the bestsellers, which helped them sell more. We still want to know what the bestsellers are, but the Times works hard not to tell us. There are literally a thousand categories of media that people want to know about (top blogs, top DVDs, etc.) and the Times abdicated their ability to keep score, to be the trusted referee and to drive the short head in almost every form of culture. Consider this for a moment: Oprah is able to sell ten times as many copies of a book than the New York Times can. The Times abdicated their role as the leader of the conversation about books.

Kim Warren has a wonderful expose of the current state of Starbucks and how they have ended up where they are now. The summary is that having focused very successfully on building a highly engaged and productive workforce which served to drive spectacular results, they’ve moved away from this formula with a reasonably predictable outcome.

I’ll let Kim take up the reigns;

I’ve blogged on Starbucks before, but just seen their results for y/e Sep08, with sales up $9.4>10.4bn but profits down $1.1>0.5bn. A pity, but what are they doing about it?

To see the 6-year path that brought them to this point , see their 07 Annual Report. Store numbers and revenues multiplied by ~2.5 – operating profits and earnings more than tripled ! How do you do that? – by squeezing more margin out, so operating margins up from 9.5>11.2% [but hit 12.3% in 05] .. and how do you do that by pushing prices or squeezing costs.

From the start, generous benefits and stock options even for new employees – called as ‘partners’ – pushed satisfaction levels to over 80%. Starbucks hit 2nd place amongst large US companies in the Fortune 2005 ranking of best places to work. Result – turnover rates way below industry averages at 70%-80% per year. And it’s not just direct staff benefits – the company spends more on employee training and development than on marketing.

It’s when these advantages impact on customers, though, that the real benefits show up. Staff get to know their customers, so visits to the company’s stores become a regular part of their lives. Some simple numbers show just what all this is worth. The company captured $10.4bn in revenue in 2008, so if the most loyal customer used a store only 10 times a month rather than the 18 times it often hits, then revenue would only have been $5.7bn. But then, with lower customer usage, many of the stores that have been opened over the years would never have been viable. So instead of the 15,000 outlets operating at the end of 2007, it would have been operating many fewer, and revenue would have been way less than that $5bn.

So how has Starbucks responded to the difficulties this year?

• “A re-architected cost structure to allow for long-term operating margin expansion
• A healthier store portfolio achieved through closure of underperforming stores
• A stronger value and rewards platform – consistent with Starbucks premium brand“

The killer is on the staffing issue – “… in the 4th quarter, general and administrative expenses … improved to 3.8 percent, from 5.1 percent for 2007. The favorability was primarily due to lower payroll-related expenses.” [emphasis added]

Now… ask what this will likely do to the very special staff culture in the stores, and what that might then do to customers’ experience, and what that might then do to sales in FY 2009? I don’t have time to do the numbers in detail, but those savings would be worth about +$130m in operating profits for a full year. You can do a heck of a lot of training and staff development with that kind of money, even with Starbucks’ staff numbers.

Michael McKinney points to a piece in the FT, ‘Lunch with Tom Peters‘. I haven’t read the full interview, but a choice extract made me stop and think.

Few have criticized what [Tom Peters] does for a living as ferociously as Peters himself. “I say to people, ‘You got a bad deal, paying money to see me,’” he tells me. “I have utterly nothing new to say. I am simply going to remind you of what you’ve known since the age of 22 and in the heat of battle you forgot.

Johnnie points out a piece by Penny, both of whom talk about collaboration in its various forms. Penny sets the scene with the idea that;

By recognising the nature of the interactions, we can better understand the restrictions of, and relationship between, the associated behaviours. We can then focus more sharply on initiatives which (i) improve controls and efficiency, or (ii) add value through creativity and innovation, or more ambitiously (iii) both!

And whilst it’s a question of ‘when’ rather than ‘if’ companies introduce social tools, having a clear view of the driver for their introduction (i.e. tending towards efficiency or value-added/innovation) will ensure the appropriate technologies are implemented and organisational behaviours nurtured.

Johnnie then wraps things up with;

I’m wary of definition deckchairs, but I liked the idea of seeing a difference between collaboration and mere co-ordination. For me, collaboration involves something richer, more complex (so also messy), getting diverse groups to create things together. Co-ordination is more about getting everyone to stick to someone’s plan.

Preaching to the converted here guys, especially with regards to the debates about what consitutites collaboration and how it mingles with and differs from control

George Ambler explores the language around strategy, analysis, decision making and action. There are plenty of salient points including ‘Analysis Paralysis‘ and ‘The Paradox of Choice‘. George wraps things up by saying

The underlying principle is that: Simplicity allows people to act. A set of clear rules and principles to guide action towards the vision provide the necessary simplicity require to move people from vision to action…

My own feeling is that language is one component of action, but others may well include, but not be limitied to;

• Opportunity cost
• Specific relationships
• Broader context and memes
• Individual expectations

Naturally, I’ll deliberately leave econometrics off the list

Nick Carr has been writing plenty on computing and the move towards a new approach called cloud computing. A recent piece from Nick seeks to compare Google with Microsoft and their respective attempts to win business customers for their respective ‘cloud’ offerings e.g. wordprocessing and spreadsheet on the internet and in the browser, as opposed to the desktop.

‘But I thought google did search and ads, not word processing and spreadsheets..?’ Exactly!

While Google has a near monopoly with its excellent search and advertising business model, I imagine that stretching this to office like applications and meeting the needs of business users will be a serious challenge. This is not just because the two markets and models are arguably very different (the job I am doing as the end user/customer in both differs dramatically!) but that in Google’s case, having had such success with its first business model, translating that into a second may just stretch its processes and values too far…

Nick captures this succinctly when he writes;

And this is one of the big questions that remains to be answered about Google and its ability to sell to big companies: Is it going to be able to see the world through the eyes of its potential customers, even if that view does not coincide with its own philosophy?

Time of course will tell, but as a third party observer, I’d say that delivering a new business model against the values and philosophies of a currently successful one will be impressive to say the least. (This of course neatly side steps Microsoft’s own circumstance of partially or completely shifting its own business from desktop to the internet, but that is a discussion best saved for another day!)

Psychometrics says Paul Wilmott! Surely not!

I doubt whether it will catch on, sadly, but I’ve also been advocating for years that there should be a process of psychometric testing, along the line of Myers-Briggs, for fund managers. This is actually not uncommon in other business scenarios involving large loans, buyouts, etc. and ought to be standard practice for any position of serious responsibility.

Katherine Jones points us to two gaps in the HR and talent space, via research from Hewitt and the Human Capital Institute.

1. 88% of businesses hold executives responsible for results, while only 10% hold the same group accountable for developing their direct reports
2. 26% (of 700 organisations) believe that their managers have the capability to grow people ‘considerably’ while only 5% of organisations believe their managers show this ability consistently

SWOT that then for an opportunity!

What happens when human values and financial values are seriously misaligned at the operational level? Keysha Cooper once of Washington Mutual reveals all to the New York Times.

“If a loan came from a top loan officer, they didn’t care what the situation was, you had to make that loan work,” she says. “You were like a bad person if you declined a loan.”

One loan file was filled with so many discrepancies that she felt certain it involved mortgage fraud. She turned the loan down, she says, only to be scolded by her supervisor.

“She told me, ‘This broker has closed over $1 million with us and there is no reason you cannot make this loan work,’ ” Ms. Cooper says. “I explained to her the loan was not good at all, but she said I had to sign it.”

The argument did not end there, however. Ms. Cooper says her immediate boss complained to the team manager about the loan rejection and asked that Ms. Cooper be “written up,” with a formal letter of complaint placed in her personnel file.

Ms. Cooper said the team manager told her to “restructure” the loan to make it work. “I said, how can you restructure fraud? This is a fraudulent loan,” she recalls.

We’ve written before about the links between human and financial values but its interesting to see the contrast recounted first hand given the extreme circumstances.

Miki Saxon tells us that she’s no fan of the cult of individual leadership. Likewise we’d also agree with the following when Miki says;

‘Leader’ and ‘leadership’ lost their meaning when the media latched on and started using them as shorthand for what the guy at the front (leader) thinks should be done to move forward (leadership).

(while revelling in the subjectivity of the language around leadership!)