Evolving Excellence

Bringing Down the House

2009-11-19T23:12:18-08:00

A while back I described a conversation, albeit one-sided, that I had with my mother in-law regarding desired features in a home. As is usually the case, I took the contrarian but obviously correct position (ahem!) that homes should have less storage space rather than more. More storage space simply leads to more… storage. Without that space you are forced to discern what is truly worth storing with the probable realization that very little is.

The recession is forcing home builders to take a similar approach, although not necessarily with storage. Well perhaps.

The other day, Ms. Bishop sketched a new Arden [a model home design] on tracing paper. She erased the rear staircase and flattened out the bay window. She cut the 94-square-foot pantry in half. She turned the mud and laundry rooms into a mud-and-laundry room. The three-car garage remained, but she redrew it so two cars now had to be parked bumper to bumper.

A smaller pantry? Smaller garage? Egads! Where oh where should all the stuff go? Perhaps to the food bank… how many of you have looked in your pantry recently? How much of that stuff has been sitting around for a few years? Oh that’s right… it’s in case of a natural disaster. Preparedness. Yeah, right.

Storage space isn’t the only thing being cut.

For the first time in four decades in the luxury-home business, executives at John Wieland builders are thinking the unthinkable: Maybe houses in the South don't really need a fireplace. They're also wondering whether new homes require 4,700 square feet of living space. Or private theaters with 100-inch screens. Or super-size-me foyers.

As they draw up blueprints for the house of the post-recession future, builders are struggling to distinguish among what home buyers need, what they want and what they can live without -- Jacuzzi by Jacuzzi, butler's pantry by butler's pantry.

Of course a primary motive is to cut cost. But that effort to reduce cost also create a focus on value as perceived by the customer.

"You have to keep taking things out until you hit a critical point where people reject your product," said Jeff Kingsfield, senior vice president of sales at Smyrna-based John Wieland Homes & Neighborhoods.

A few years ago my wife and I were casually looking at new homes and happened upon an Asian-inspired beauty surrounded by acres of vineyards. Cherry plank hardwood floors, decks galore, chef’s kitchen. What the heck, we made an offer and unfortunately at the time but fortunately in hindsight the negotiations could not get down to what we wanted to pay. It came close, but no cigar… or ball and chain. You see, it would have taken us from our current 2,600 square feet to over 4,000. Just my wife and I and a couple of cats. There would have been whole sections of the house we’d never see for months at a time. What a waste.

We’re better off where we are, especially since the value of that house took something of a dump. In fact, we’re now contemplating going in the opposite direction. You see, even in our current house we rarely set foot in nearly half of it and rely on the cats to tell us if anything’s amiss in those remote nooks and crannies. We’ve been busy getting rid of stuff… old clothes, books, nick-knacks, even sending boxes of old photos to be scanned. I’d personally like to downside to about half of where we are. A very nice but simple half, but still half.

Who really needs more? And what are the people in 3500 square foot (and up!) monsters trying to prove? Beats me.

"Lean Out" This, Boeing

2009-11-17T00:10:44-08:00

By Kevin Meyer

Several of us often comment, or lament, the term “lean and mean.” Real lean is definitely not mean, although we appreciate the desire of journalists and editors to create a snazzy article title… again and again.

There’s one other phrase that has been eating at me lately, and that’s “lean out.” Such as this article on none other than Boeing.

[Boeing VP of Business Strategy Mike] Bair called the Renton plant a “lean enterprise,” indicating Boeing plans to transfer the lessons learned to lean out the 737 production to Everett.

It’s unclear whether “lean out” was a term used by Mr. Bair or simply a figment of the journalistic process. In either case it is both a negative in terms of what lean is really about but also accurate in terms of how Boeing practices lean.

“Lean out” conjures the whack-a-human process that unfortunately most organizations consider to be “lean.” Truly LAME – lean as misguidedly executed – as our friend Mark likes to say. Reduce waste… including that obscene waste of excess hands... without realizing that there’s a brain connected to those hands.

That recognition of brainpower is what real lean is about. Leveraging, not minimizing, the second pillar of lean, respect for people. Leveraging the power of human experience, creativity, and knowledge. As one comment to the article puts it,

Boeing will soon have to start hiring - they are running out of people to lay off.

Yep, that’s understanding real lean. Not.

Motorola's Continued Downward Focus

2009-11-15T17:09:41-08:00

By Kevin Meyer

Boy those guys at Motorola really know how to run a business. Several months ago we told you about their “strategy” that included whacking R&D and then wondering why business suffered.

And if you're running a technology company that suffers from inferior products, what do you do? Cut R&D!

Motorola Labs, which developed at least two-thirds of Motorola's patents, has been cut from 1,000 to 600 researchers. Further reductions are expected this summer, according to people familiar with the matter, including 200 researchers to be laid off. Only 200 would remain in the group, the people said.

Well, they’re still wondering.

While others are looking to bulk up, Motorola is trying break up as it seeks a strategy to combat plunging sales. It has tried and failed for nearly two years to spin off its mobile-phone business, which has been in steep decline without a hit device.

Unbelievable isn’t it? I wonder what wondrous biz school taught them that “strategy.” Hey why not try spinning off another profitable piece of the company…

Motorola Inc. is exploring the sale of its biggest business unit as it seeks to split itself apart, the latest sign of the once-mighty technology giant's declining ambition in the convulsive world of telecommunications.

The division, which makes television set-top boxes and networking gear, could fetch $4 billion to $5 billion, according to people familiar with the matter.

So $4 billion or so. Not a bad sum…

The set-top-box division, which had sales of $10.1 billion last year, was built largely from Motorola's 2000 acquisition of General Instrument Corp. for roughly $17 billion. The unit's biggest competitor is Cisco, which acquired rival Scientific-Atlanta in 2005.

Oops. But presumably that division is dragging the company down.

Handsets were long Motorola's marquee business. But this year, it has been surpassed by the set-top box unit, which is called the home and network mobility division.
That business has also been hit by the economic downturn, with sales falling 15% in the third quarter from a year earlier, to $2 billion. Still, the unit remains profitable, posting operating earnings of $199 million in the period. That strong cash generation is likely what has attracted the interest of private-equity firms. TPG and Silver Lake Partners declined to comment.

Ok… Must be that strategy thing again. Buy high, sell low, right? Spin off the profitable parts of the business to create funds to support the unprofitable part.

I’m sure it makes sense to someone.

Fun With Statistics - Wine Ratings Edition

2009-11-14T11:09:14-08:00

By Kevin Meyer

I consider myself lucky in many respects, not the least of which is the fact that I live in one of California's premier wine-producing regions with over 220 wineries within 30 miles. Over the last several years I've been able to partake of many of their products and have refined my taste down to a very small subset. Those of you that follow us on Twitter occasionally get to hear of my new favorites.

One tool that many vinophiles use is the 100 point wine scale, especially the one developed by Robert Parker. The scale has an illustrious history.

It was in this climate that in the 1970s a lawyer-turned-wine-critic named Robert M. Parker Jr. decided to aid consumers by assigning wines a grade on a 100-point scale. Today, critics like Mr. Parker exert enormous influence. The medals won at the 29 major U.S. wine competitions medals are considered so influential that wineries spend well over $1 million each year in entry fees. According to a 2001 study of Bordeaux wines, a one-point bump in Robert Parker's wine ratings averages equates to a 7% increase in price, and the price difference can be much greater at the high end.

Pretty impressive how much power that dude has. But I'm sure many of our more statistically inclined readers are already starting to wonder how something as subjective as taste and bouquet can be accurately determined, repeatably, to single percentage points.

But what if the successive judgments of the same wine, by the same wine expert, vary so widely that the ratings and medals on which wines base their reputations are merely a powerful illusion? That is the conclusion reached in two recent papers in the Journal of Wine Economics.

Houston (or Napa), we have a problem. Who is this heathen that dared question Robert Parker and his ilk?

Both articles were authored by the same man, a unique blend of winemaker, scientist and statistician. The unlikely revolutionary is a soft-spoken fellow named Robert Hodgson, a retired professor who taught statistics at Humboldt State University. Since 1976, Mr. Hodgson has also been the proprietor of Fieldbrook Winery, a small operation that puts out about 10 wines each year, selling 1,500 cases.

He started off with a statistical analysis of judges and the judging process.

In his first study, each year, for four years, Mr. Hodgson served actual panels of California State Fair Wine Competition judges—some 70 judges each year—about 100 wines over a two-day period. He employed the same blind tasting process as the actual competition. In Mr. Hodgson's study, however, every wine was presented to each judge three different times, each time drawn from the same bottle.
The results astonished Mr. Hodgson. The judges' wine ratings typically varied by ±4 points on a standard ratings scale running from 80 to 100. Mr. Hodgson also found that the judges whose ratings were most consistent in any given year landed in the middle of the pack in other years, suggesting that their consistent performance that year had simply been due to chance.

Uh oh. So then what? He took on the medal process.

This time, from a private newsletter called The California Grapevine, he obtained the complete records of wine competitions, listing not only which wines won medals, but which did not. Mr. Hodgson told me that when he started playing with the data he "noticed that the probability that a wine which won a gold medal in one competition would win nothing in others was high." The medals seemed to be spread around at random, with each wine having about a 9% chance of winning a gold medal in any given competition.
To test that idea, Mr. Hodgson restricted his attention to wines entering a certain number of competitions, say five. Then he made a bar graph of the number of wines winning 0, 1, 2, etc. gold medals in those competitions. The graph was nearly identical to the one you'd get if you simply made five flips of a coin weighted to land on heads with a probability of 9%. The distribution of medals, he wrote, "mirrors what might be expected should a gold medal be awarded by chance alone."

Now that a substantial part of the framework of our polite society has come crashing down, what should we do?

One answer would be to do more experimenting, and to be more price-sensitive, refusing to pay for medals and ratings points. Another tack is to continue to rely on the medals and ratings, adopting an approach often attributed to physicist Neils Bohr, who was said to have had a horseshoe hanging over his office door for good luck. When asked how a physicist could believe in such things, he said, "I am told it works even if you don't believe in it." Or you could just shrug and embrace the attitude of Julia Child, who, when asked what was her favorite wine, replied "gin."
As for me, I have always believed in the advice given by famed food critic Waverly Root, who recommended that one simply "Drink wine every day, at lunch and dinner, and the rest will take care of itself."

Bottom line: just try some wines. Preferably a lot of different wines. And figure out what you like and dislike. Then buy more of it. Who cares about points and medals and especially the supposed value correlation with high price? Just enjoy.

When The Neck Bone Isn't Connected To The Head Bone

2009-11-12T16:50:28-08:00

by BILL WADDELL

James Weldon Johnson was quite the Renaissance man, if ever there was one. A poet and a lawyer, a politician and a songwriter, and a first rate educator. We would be a lot better off had his best known bit of songwriting found its way into the curriculum at the business schools. At the start of every class at the Harvard Business School they should have all the students stand up and sing a rousing chorus of "Dry Bones":

The toe bone connected to the heel bone,
The heel bone connected to the foot bone,
The foot bone connected to the leg bone,
The leg bone connected to the knee bone,
The knee bone connected to the thigh bone,
The thigh bone connected to the back bone,
The back bone connected to the neck bone,
The neck bone connected to the head bone,
Oh, hear the word of the Lord!

The other day I wrote about the wholesale abandonment of manufacturing in the elite academic circles. I think it was in large part an unintended consequence of the whole theory of Core Competence, first proposed by Michael Porter from Harvard, then picked up by a couple of guys named Prahalad and Hamel from Michigan and the London Business School, respectively.

Prahalad and Hamel don't seem to have anything against manufacturing - in fact a big part of their article is written around using manufacturing as a competitive weapon even without much of a brand. But their basic premise is that the business is a bunch of chunks, and some are good and some are not, and that you ought to keep the good chunks and toss the bad ones aside.

Again, Porter, and the other two were not anti-manufacturing, but they created an easy out for managers in a tough business environment. In the 1980's Toyota, Sony, NEC and a lot of other Japanese companies were running roughshod through America manufacturing and everyone was peddling as fast as they could to figure out how they were doing it and what to do about it. There was a serious challenge to the American business community, then along came the notion of 'core competence' and there was the easy path out of the fire: Simply decide that manufacturing was not a core competence and, voilà!, problem solved.

Just decide that what we are really good at is R&D and marketing, and finance and strategy of course, but that manufacturing is dirty, pedestrian stuff that is not really critical. They could give up on solving the tough manufacturing challenge and couch quitting in a high-fallutin' explanation about focusing on core competencies - and that was cutting edge Harvard Business School stuff - no mere buzzword. And it worked.

Now there is a bit of a problem. If you go over and cruise the current writing from the big brain guys, they are wringing their hands over the loss of the 'industrial commons". Says Gary Pisano from Harvard, "The culprit is the outsourcing of development and manufacturing work to specialists abroad. The result: a damaging deterioration in the collective capabilities that serve high tech. This industrial commons includes not just suppliers of advanced materials, production equipment, and components, but also R&D know-how, advanced process development and engineering skills, and manufacturing competencies."

"Industrial commons" is academicspeak for all the bones they disconnected from the head bone.

Oops! You mean when we were quick to globalize manufacturing, all of that other stuff went with it and now it is really hard to innovate without any of the know how about whether those innovations can actually be made into products? You mean that manufacturing engineering and supplier capabilities are important ingredients in new product development? And you mean that when all of you guys were shoving manufacturing to China as fast as you could get rid of it you expected the suppliers to stay in business just in case one of the multi-nationals had a technical question for them? And you thought they would keep all of their manufacturing and process engineers on the payroll even though manufacturing was gone? And you thought all of the machine builders would go on in this country as if nothing had happened?

Or do you really mean that you had no idea that businesses can no more be carved up into chunks than Harvard professors? C'mon - you guy's core competence is your brains, but that doesn't mean its a good idea to cut off your feet to save the price of shoes.

Said another Harvard boy by the name of Willy Shih, "Even though the Kindle's key innovation — its electronic ink — was invented and is being made, at least for now, in the U.S., Asian manufacturers are capturing the vast majority of the value added by manufacturing the e-reader itself. Even more worrisome, the U.S. is almost certain to lose control of the e-paper display technology and the future innovations that spring from it."

Yep, Willy. The big thinkers thought they could keep the head bone here and declare the rest of 'dem bones' unimportant. Now they are shocked to find that the head bone isn't much good without the rest of them. Old James was right - all 'dem bones' are very much connected.

There's a reason why the best manufacturers tend to be pretty vertically integrated. They take 'core competence' to mean everything in the chain of creating value for their customers - not everything that is easy or cheap.