Indian River Consulting Group's shared items in Google Reader

Three Drucker Resolutions to Add to Your List

2011-12-31T02:05:04Z

For Peter Drucker, New Year’s resolutions came in August. Or least that’s when he liked to take a look back at the 12 months just gone by.

“I’ve learned to sit down with myself for two weeks in August and review my work over the past year,” Drucker revealed in Managing the Nonprofit Organization. “Where should I concentrate next year so as not only to give my best but also to get the most out of it?”

Over this past year, we here at the Drucker Exchange have presented a lot of Drucker’s notable insights on management, economics and politics, among other things. To usher in the coming year, we’d like to review three lesser-trumpeted but highly valuable Drucker tips that readers might consider incorporating into their own resolution lists. More

1. If you’re doing something really well, but it’s not really a fit with your values, ditch it.

“What one does well—even very well—and successfully may not fit with one’s value system,” Drucker wrote, in a passage flagged in Joe’s Journal earlier this year. “I was doing extremely well as a young investment banker in London in the mid-1930s; it clearly fitted my strengths. Yet I did not see myself making a contribution as an asset manager. . . . Despite the continuing Depression, I quit—and it was the right thing to do. Values, in other words, are and should be the ultimate test.”

2. Never forget that people, including your employees and bosses, often do not get what you’re saying. But talking to people in terms of their experience can help.

“Just as the human ear does not hear sounds above a certain pitch, so does human perception altogether not perceive what is beyond its range of perception,” Drucker noted in Management: Tasks, Responsibilities, Practices. (Misunderstandings were something we asked about early this summer—hoping we’d be understood .) “One can only communicate in the recipient’s language or altogether in his terms. And the terms have to be experience-based. It, therefore, does very little good to try to explain terms to people if the terms are not of their own experience.”

3. If an inside voice says “whoa there” after you’ve made some decision, then hang on—for a moment, at least.

Drucker said that wise executives know to heed the “inner voice, somewhere in the bowels, that whispers” a warning sound. “Nine times out of 10 the uneasiness turns out to be over some silly detail,” Drucker wrote in The Effective Executive. “But the 10th time one suddenly realizes that one has overlooked the most important fact in the problem, has made an elementary blunder, or has misjudged altogether.” Still, this was no excuse for inaction: “The effective decision-maker does not wait long—a few days, at the most a few weeks.”

What work-related resolutions do you plan for the coming year? (Please join the conversation here, and also take our rapid-fire Urtak survey below.)

Sonepar Canada to Acquire Dixon Electric

2011-12-21T01:00:00Z

Dixon will join Sonepar Canada's Ontario division.

Who Owns Your Customer Relationships: Your Salespeople or Your Company?

2011-12-21T17:03:31Z

Your R&D group develops a unique new product. Manufacturing produces it. Finance puts the systems in place to track the money coming in. Marketing designs the promotional campaign. Your sales force is ready to execute. "We own the relationships with customers," say your salespeople. "The company holds us accountable for revenues and expects us to develop and maintain the connections to drive sales. Just pay us our commissions and leave us alone."

A sales model that pays salespeople almost entirely on commission and gives them exclusive "ownership" of customers often works for a while for products in unsaturated markets. With seemingly unbounded opportunity, salespeople work hard to build relationships and create a book of business that drives their future financial success and creates fast market penetration for the company. But the "salesperson owns customer" model is a double edged sword. Three examples show the issues that can arise.

Sales force complacency and high new salesperson turnover: At an insurance company, tenured salespeople had amassed large territories and now "owned" so many high-potential accounts that they didn't have enough time to provide adequate service and coverage to all of them. These salespeople earned lucrative commissions on sales to current customers and had little incentive to hunt for new customers. With sales slowing, the company struggled to attract and retain new salespeople who couldn't build a book of business to earn a living. Annual first-year salesperson turnover was 60%. Sales leaders tried to realign accounts to help newer salespeople succeed while improving account coverage. But top earners who controlled important customer relationships pushed back. Leaders abandoned their plan to avoid losing top producers and their customers.

Runaway pay: A medical device company needs to cut sales force costs. As a startup, the company gave salespeople customer "ownership" and paid a 4% commission on sales. In the first year, salesperson pay averaged $125,000. As sales took off, management continued to "share the wealth." After several years, salespeople earned $650,000+ a year, resetting the pay scale for the entire industry. When competitors entered the market and customers became more price-sensitive, sales growth slowed, and the value that salespeople added no longer justified their pay level. Yet leaders were hard pressed to cut pay. Competitors were already poaching the company's salespeople, and lower commissions would prompt more to jump ship and take customers with them.

Inability to adapt: As the product line at a technology company broadened to meet the needs of customers seeking comprehensive business solutions, sales leaders planned to expand the company's sales force by adding specialists who could bring technical product expertise to customers. When the company's salespeople learned that this would require them to give up exclusive "ownership" of their customers, they vehemently objected. Leaders lacked the will and courage to make the needed change, resulting in an undersized sales force with inadequate expertise to meet customer needs.

The issue of who owns customers—salespeople or the company—is really a question of who and what the sources of customer value are. In the examples, customers perceive the salesperson as the primary value source—the one who listens, assesses needs, provides solutions, and delivers continuing service. But when the situation changes—due to factors such as customers' need for more complex solutions, market saturation, new competition, or a broadening product line—a salesperson alone no longer delivers adequate value. These sales organizations can better position themselves for long-term success by adapting their go-to-market approach to create multiple customer value sources. Some ways to do this include:

1.Multiplexing to give customers many meaningful connections to the company: For example, an account manager maintains the customer relationship, specialists provide technical assistance, and service people keep the solution working. All are sources of customer value.

2.Creating tools and programs that add value throughout the sales process: For example, a web site makes the purchasing process efficient, or tools provide salespeople insights about a customer's business. The sales and fulfillment process itself becomes something the customer relies upon.

3. Capturing account information using a CRM or other system: That way, people throughout the company, not just one salesperson, can learn the needs and history of each customer. If a salesperson leaves the company, customer knowledge is not lost.

4.Creating a team-oriented sales force culture: Hire salespeople who are team-players. Establish systems and processes that encourage teamwork and best practice sharing among salespeople. Reduce commissions and other short-term incentives and offer more salary or even stock options that reward for longer-term sustained performance. Track team-based metrics and recognize salespeople not only for quarterly quota attainment, but also for making lasting contributions, say by working together to pursue business development opportunities with long-term payback.

When you create multiple sources of customer value, customers will rely on several people from your company and on the tools and processes that support those people in meeting customer needs.

Making the transition to a multiple value source approach is not easy. Companies are more likely to succeed when they use events that create an expectation of change (a merger, new leadership, a new product launch, a missed financial goal) as catalysts for enabling the transformation.

Retailers Beware: Markets Punish Stores with Too Much Inventory

2011-12-19T18:19:16Z

This post is part of the HBR Forum, The Future of Retail.

In all my years of studying and interacting with retailers, I have yet to meet one who doesn't worry about the optimal level of aggregate inventory that their firm should carry. Since there's evidence that inventory levels are predictive of sales and earnings surprises, and sophisticated investors are increasingly looking at firms' inventory levels, it's something that retailers should worry about.

Benchmarking Inventory Levels

There are a number of metrics that can be used to benchmark a retailer's inventory levels. A common one is inventory turns (cost of sales divided by inventory) or its inverse, days of inventory. But I think it's inadequate. Inventory turns vary substantially across similar firms in a given year and for a firm over time. For example, during 1987-2000, the annual inventory turnover at Best Buy Stores, a consumer electronics retailer, ranged from 2.85 to 8.53. It varied similarly at three peer retailers during the same period: at Circuit City Stores from 3.97 to 5.60, at Radio Shack from 1.45 to 3.05, and at CompUSA from 6.20 to 8.65.

Comparing inventory turns over time for a single retailer can also be difficult. During 1985-2000, inventory turns at the Gap fluctuated between 3.6 and 6.3, while Wal-Mart's fluctuated between 4.9 and 7.2. Any attempt to use inventory turns to benchmark inventory levels — across retailers or over time for a specific retailer — would have to be done with caution and judgment.

With a little bit of effort, though, inventory turns can be modified to derive a better benchmark: adjusted inventory turns. It is derived by adjusting for changes in gross margin, capital intensity (fixed assets as a proportion of total assets), and positively for sales surprise (the degree to which actual sales exceeds or falls short of forecast).

Consider the following example that Vishal Gaur of Cornell, my frequent co-author, shared with me. Between 1995 and 2005, Wal-Mart's inventory level surged from less than 5 to over 7, while Target's inventory turns stayed reasonably flat around 6. Using inventory turns alone would suggest that Wal-Mart's inventory productivity improved dramatically, and would also suggest that by 2005, Wal-Mart was substantially better than Target at managing its inventory. On the other hand, adjusted inventory turns during the same period provides a statistical dead heat between the two. In fact, the growth in Wal-Mart's inventory turns was complemented by a reduction in its gross margin.

Practitioners have long recognized the limitation of using inventory turns to evaluate inventory productivity. In industry parlance, retailers are often classified as "earns retailers" (those with high gross margins as a percentage of sales) or "turns retailers" (those with high inventory turns). Retailers typically acknowledge that earns retailers tend to have low inventory turns and turns retailers tend to have low gross margins.

Impact of Excess Inventory on Future Sales and Earnings

Excess inventory is the difference between the inventory carried by the retailer and the amount it should carry. In a paper that Saravanan Kesavan, Vishal Gaur, and I wrote , we offer a sophisticated methodology that relies on past sales, margin, and inventory data to determine the amount of inventory a retailer should carry in a particular year.

We have discussed this relationship with many retailers and investors, who agreed that the relationship is quite reasonable. Excess inventory in a particular year leads to the inventory becoming stale in the subsequent year — a fashion retailer might have stock of the previous year's fashion, for example.

We have used data from many years and many firms to examine if over-inventoried retailers on average fall short of analysts' sales and earnings expectations. The answer: yes! A year prior, equity analysts overestimated sales for over-inventoried retailers by roughly 3% on average.

Even more surprising, we found that under-inventoried retailers exceeded analysts' sales and earnings expectations. A year prior, equity analysts underestimated sales for under-inventoried retailers by roughly 2% on average. Similarly, Saravanan Kesavan and Vidya Mani of the University of North Carolina found (pdf) that analysts overestimated by far more earnings for over-inventoried retailers. In other words, being over- or under-inventoried can help predict the bias in analysts' earnings forecast.

Inventory as the Basis of a Trading Strategy

If inventory levels are predictive of sales and earnings surprises, could one invest based on inventory turns and beat the returns one gets in the market? This question has been rigorously studied by Yasin Alan, George Gao, and Vishal Gaur of Cornell. They examined more than 20 years of data from a large number of retailers, looked at their performances each year, and ranked them on a number of inventory-related metrics. Their finding: Retailers with the highest inventory turnover (or least inventory) statistically outperformed those with low inventory turnover (or high inventory). Based on these results, the three designed an investment strategy that handily outperforms the market even after controlling for factors like risk and size of firm.

So What?

Retailers beware! Investors whom we've studied, like hedge-fund manager David Berman, are watching inventory closely and will increasingly penalize retailers for carrying too much inventory on their balance sheets. Retailers need to prepare for these investors by planning their aggregate inventory more carefully. This blog — and the papers referenced in it — attempt to give them some tools to do so.

Chinese corruption: no more cash

2011-12-09T14:20:38Z

In China, cash is king – but maybe not for much longer. In a bid to fight corruption, the finance ministry this week forbade public employees from using cash to pay for certain offices expenses. Instead, they must use office-issued credit cards to pay for things like entertainment, transport, training and consulting fees. Official corruption...

TruckPro Sold to Harvest Partners

2011-12-01T09:00:00Z

TruckPro, previously owned by Oaktree, is an MRO distributor to the heavy-duty vehicle market.

Adam Smith Was Not Schizophrenic

2011-12-01T13:20:31Z

Despite the recent crackdowns in New York and Los Angeles, it's not surprising that the Occupy Wall Street movement has exploded into 900 chapters. The Occupy movement — as well as The Tea Party — are both "mad as hell" about the current state of affairs. Both sides share a general dissatisfaction with our current capitalist system. The left wants to end capitalism. The right says if we could just get the government out of the way, then the capitalist system would work.

I think both groups' conception of capitalism is off the mark. To gain some clarity, we need to consult Adam Smith.

Adam Smith, the father of modern economics, was the first to assert the concept of free market capitalism. In his most popular work The Wealth of Nations he wrote about the oft-quoted "invisible hand." But in his first work, The Theory of Moral Sentiments — which he considered his most meaningful contribution — he writes about our duty to fellow members of society. Pundits on either end of the political spectrum quote whichever work suits their argument. Predictably, the right quotes Wealth of Nations and the left quotes The Theory of Moral Sentiments. Given the gap between modern capitalism and the morals-based approach from his first book, one can't help but wonder if Smith was an intellectual schizophrenic, essentially promoting two competing theories.

I don't think he was. In fact, I see his two preeminent works amounting to a unified theory, a blueprint for a more stable and sustainable version of capitalism; a conscious capitalism. The Wealth of Nations presupposed actors in the capitalist system operating on the moral framework he laid out in the Theory of Moral Sentiments. The free market has no conscience of its own: it is made up of billions of people transacting. Though Smith asserts that each of these people are guided by their self interest, he presupposes that each of the actors in the marketplace are guided by some internal morality and an awareness of one's place within the broader context of his community — locally and globally.

The current version of capitalism is not the one envisioned by Smith at all. He was seeking to create a system defined by efficient allocation of resources driven by self-interest, but guided by self-restraint. This is conscious capitalism.

The current version of capitalism's guidance from self-interest in the corporate world is evidenced in the legal duty to maximize shareholder value, which opens directors up to a lawsuit from their shareholders if they make a decision that fails to make the highest possible profit for their shareholders. Thus, the duty to maximize shareholder value handcuffs directors that want to make decisions that seek to create benefit for people and planet as well as financial returns.

There is debate whether this duty exists, but it is such a dominant perception among directors that it is the practical reality. In order for corporations to be free from the shackles of maximizing shareholder value, the fiduciary duties must be broadened.

Fortunately, many state legislatures in the United States are seeing the need for a new legal structure that embraces conscious capitalism by broadening the fiduciary duty from maximizing shareholder value to maximizing stakeholder value — the legal mandate to take make decisions that pursue not only a positive benefit on the bottom line of the shareholders, but also the community, environment, employees and suppliers. This broadening of fiduciary duty is a fundamental shift at the very core of the corporation. This new type of corporation that embraces conscious capitalism by broadening fiduciary duty is known as a Benefit Corporation.

The Benefit Corporation embodies the theories of both The Wealth Nations and the Theory of Moral Sentiments, and ushers in a version of conscious capitalism that promotes both self-interest and the benefit of society. Adam Smith would be proud.

Can the last branding expert leaving please switch off the lights?

2011-11-16T10:00:00Z

By Angelo Bellandi, Creative Director
New York

It’s an amazing time to work in our industry not knowing what’s next for brand. Brand as we knew it is over. Brand. What does that word mean today? Other than sounding like something you did on the farm. Industry leaders are talking about their company's vision of what brand means—who is right? Them? Us? You? Does anyone have the answer? Or is it a collection of brand statements all competing for the same space. Brand is reinventing itself and we are unsure of what's next.

New brand is going to change how we do business. How we create brand and how we deliver it. Our working environments will change to be more collaborative, spontaneous, breaking free from systematic models that restrict creativity and radical thinking, which new brand requires. New brand won’t have titles and systems, directors, account managers, and creatives. What are these roles in the future? All agencies will fiercely defend their territory and why their agency is better than most, but use the same systematic business model to generate outcomes. We’re moving from complex to simple, many to one, but is there anyone out there brave enough to take that first step?

Have things really changed in our industry or are we just continually blindsiding everyone? We are lead to believe logo is no longer important and are continually reminded that brand is experience. If that’s really true, why do agencies to this day launch a "new brand" with new logo? Which for most part has people divided—surely the last thing to launch would be the logo? Does the employee really care if their company has a new logo and some low engagement program trying to help them understand their new brand? The logo should be the last thing changed, if at all. If a major league soccer team were under-performing would you change the club badge first? No, you’d change tactics, the formation, and players, to get the team to improve their game, and not give the club badge a second thought. Does the world need another new logo called a rebrand? New brand needs to work inside out first—not the other way around. Lets create long-term brands with context for employees and consumers, having people drive their understanding of what’s new, not just presenting an after thought or something that just looks cool today, wrapped up in experience, which is then bolted onto their exciting brand model. True brands of the future may not launch new logos and call it rebrand. Brand is not measured on short-term impact; a truly great brand in our modern world is one that continually creates impact year upon year through platforms created by agency/client/employee/consumers.

Brand isn’t one company’s vision written down or shown, brand is action and purpose for clients, employees and consumers on both sides of the fence. Brands in the future or even now will be built with openness; both with client and brand agency, embracing a single thought and idea, which organically grows for both employee and consumers alike. Not a single "big idea," which runs out of steam a few months down the road. A new brand is togetherness, conversation, social, and co-creation. An interesting point about modern branding agencies today is they react to what happens in the world. They wait for the world to change then try and catch up. This is old thinking and short-term value for business growth in our industry, for clients, and the world at large.

The factory line is closed. The sign went up some time ago, but most chose not to read it.

Thai floods reach Hackensack, NJ

2011-11-15T08:25:15Z

After working its way down the computer supply chain for weeks, the impact of Thailand’s disastrous floods has reached one distant end point: the US consumer. As Americans prepare to go holiday shopping, at least one Costco store in New Jersey is restricting sales of hard disk drives due to the “significant supply reduction”...

Mobile money: A game changer for financial inclusion

2011-11-11T19:43:20Z

Analysts predict that by 2012, there will be over 6 billion mobile phone connections worldwide, with developing markets driving the growth; by 2015, Africa alone will have 265 million mobile phone subscribers.¹ The mobile phone started as a tool for the elite. Within a decade it morphed into a household item and became one of the most powerful weapons in the fight against poverty. In Africa, mobile phone penetration has reached 52 percent—almost equivalent to one phone per adult—and the region is experiencing the fastest growth in the world. At the same time, access to basic financial services remains a major constraint to economic growth and poverty reduction. Only 20 percent of people in developing countries can access some form of financial services.² Imagine if everyone who had a cell phone could also have access to financial services, and was able to save and send money safely, no matter where they were located.

That vision has become a reality in Kenya, and other emerging economies will soon follow. In 2007, Safaricom, Kenya’s leading mobile phone operator, launched M-Pesa (“M” for mobile and “pesa,” the Swahili word for “money”), which has become the world’s leading example of mobile money. Mobile money, which allows cash to travel as fast as a text message, is not an extension of banking. It is a new form of banking, just as cell phones are a new form of telecommunication rather than an extension of landlines. Unlike mobile banking, mobile money does not necessarily need a banking infrastructure.

Kenya now has 25.3 million mobile subscribers, which is more than the total adult population, and 17.3 million registered mobile money users³, more than 14 million of which are M-Pesa customers. M-Pesa conducts an estimated US $ 650 million per month in transactions, and according to World Bank and Safaricom projections, M-Pesa moved more than US $7 billion in 2010 and could reach up to US $10 billion in 2011.

Today, there are 30 million to 35 million mobile money users in the world, which means that every second person who sends money over a cell phone is a Kenyan. Mobile money is the rare case in which a poor African country is the world market leader and an exporter of innovation.

In Kenya, mobile money was the game changer in bringing financial services to the middle class and the poor. In 2006, before the advent of mobile money, only 20 percent of Kenyan adults had access to financial services. By the end of 2010, three years after the introduction of mobile money, that share had jumped to 75 percent (see figure 1).

Figure 1: The fastest expansion of access to finance in the world

Source: Kenya Economic Update, December 2010 (World Bank)

According to a recent World Bank study⁴, mobile money expanded differently than initially expected. M-Pesa was intended to be a product for sending money home, for connecting the “middle of the pyramid,” which included many workers in Kenya’s cities, with their relatives in rural areas. In reality, mobile money was initially used by the wealthier groups of Kenya, especially in urban areas, but then spread rapidly into the middle and the bottom of the wealth pyramid. The clearest and most direct benefits of mobile money are greater convenience, far greater speed, and generally lower cost of transferring funds. In Kenya, mobile money enables traders and small businesses to reach wider markets thanks to its accessibility (there are currently 32,000 M-Pesa agents spread across Kenya), low cost, security, and convenience. M-Pesa has also empowered Kenyan women, giving them an independent place to store and manage funds. In addition, mobile money has improved personal security because thieves have learned that few people now carry large amounts of cash; most local businesses and street vendors convert their cash to M-Pesa at the end of the day for safekeeping.

Can mobile money work outside Kenya?

As a relatively poor country with a problematic governance environment, Kenya is an unlikely leader in the mobile money revolution. Many wonder why no other country has successfully replicated a mobile money system (with Philippines being the only partial success). Three main reasons explain why M-Pesa has worked well in Kenya.

First, Kenya had a large mobile money access gap. Almost everyone had a phone, but only a few Kenyans had a bank account in 2007. Kenya also had a high percentage of families living in different parts of the country, which fueled the demand for domestic transfers. In addition, the alternatives for sending and receiving money were unreliable and prone to leakage (sending via bus drivers and friends) or expensive (using money transfer services or the Kenyan Post Office).

Second, M-Pesa was conceived as a way to build a brand, not make money. It was part of Safaricom’s long-term strategy to retain its position as the dominant mobile operator in Kenya. There was an early understanding at senior management level that M-Pesa could not be an add-on product for just one segment of customers. There was 100 percent support to M-Pesa at the highest level of management and without this commitment it would have not happened. To be successful, it had to be rolled out at scale using Safaricom’s vast and expanding network of agents. Today, M-Pesa has reached a critical mass, with a huge network of both agents and users, which reinforces customer loyalty and reduces churn.

Third, Kenyan regulators took the objective of financial inclusion to heart and allowed regulation to follow innovation. M-Pesa developed outside traditional banking regulations. This approach permitted the growth of innovation with minimal barriers to entry. Today, mobile money makes it easier for the Central Bank of Kenya to manage the money supply and the economy because the bank can now monitor money that used to be kept under the mattress. The Central Bank credits mobile money as a driving force for the declining velocity of Kenya’s currency.⁵

How mobile money can change the world

Mobile money can change the world the way cell phones have already changed lives in most emerging economies. Mobile money has achieved what decade-long experiments with microsavings have failed to achieve: rapid financial inclusion for large parts of the population in poor countries. The difference is a low-cost transaction platform, which M-Pesa can provide. As with other innovations, succeeding replication will be easier and could also result in variations of the original model. In 2012, we may likely see a global tipping point for mobile money as many countries are introducing it.

Mobile money presents an unparalleled opportunity to deliver a basic suite of modern financial services to the “unbanked” millions across the world. The World Bank predicts that by 2020, mobile money could impact the lives of some 2 billion people in developing countries, heralding a new era of financial services where banking will no longer be the privilege of a small upper class. The mobile revolution, which has already reached millions of the poor, may well be the vehicle that that helps lifts them out of poverty as new and affordable financial products are rolled out in the next phase of development.

¹“Getting the right numbers,” Africa Confidential, 2011, Volume 52, Number 20.
²Access to Finance in Africa, Consultative Group to Assist the Poor (CGAP).
³Quarterly Sector Statistics Report, Communication Commission of Kenya, Fourth Quarter, April–June 2010/2011.
⁴Kenya Economic Update: Kenya at the Tipping Point? With a special focus on the ICT Revolution and Mobile Money, World Bank, December 2010.
⁵Keynote address by Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya, at the 5th Joint CMA/CBK/RBA/IRA Board Members retreat (13 October 2011).

[video] Made in China no longer the cheapest

2011-10-31T08:46:50Z

China’s status as the workshop of the world is under threat. Rising wage demands are increasing costs and other Asian countries such as Vietnam and Bangladesh are now cheaper. At the Canton Fair in Guangzhou, the FT’s Rahul Jacob talks to buyers and suppliers to find out whether China is now in decline as the …Continue reading:...

What's Really Next for Apple in Television - NYTimes.com

2011-10-30T14:40:42Z

While Apple is exploring a full-fledged television, expect Siri, the company's new artificial intelligent software, to control the TV.

If You Don’t Have a Steve Jobs Personality, Don’t Fret

2011-10-29T02:01:21Z

What makes an “ideal chief executive officer”?

That’s the provocative question that University of Chicago business professor Steven N. Kaplan considered this week in a piece for Bloomberg.

Are the best CEOs pleasant and humble? That is, do they possess wonderful “soft skills”? Or are they demanding and mercurial? In other words, are they all a little like Steve Jobs?

To figure it out, Kaplan and two colleagues took a look at 300 executives and analyzed their traits systematically. What did they find?

“Execution-related skills were the most important,” Kaplan explained. “The most successful CEOs were those who were persistent, efficient and proactive.”

Graciously, Kaplan noted that Peter Drucker had said pretty much the same thing more than 40 years ago in The Effective Executive (proving that, oftentimes, we’re not really wiser than before; we’re just rediscovering what we already knew).

Illustration credit: Thomas James

The bottom line: For those of us who worry about whether we have the “personality” to lead and be successful, take heart.

“Among the effective executives I have known and worked with, there are extroverts and aloof, retiring men, some even morbidly shy,” Drucker recalled in that book. “Some are eccentrics, others painfully correct conformists. Some are fat and some are lean. Some are worriers, some are relaxed. Some drink quite heavily, others are total abstainers. Some are men of great charm and warmth, some have no more personality than a frozen mackerel.”

And those were only some of the variations. “Effective executives . . . differ as widely as physicians, high-school teachers or violinists,” Drucker wrote. They are “indeed indistinguishable from ineffectual executives in type, personality and talents.”

So what’s the uniting quality? “What all these effective executives have in common is the practices that make effective whatever they have and whatever they are,” Drucker wrote.

He then ticked off five practices in particular that the most able leaders have acquired and turned into habits:

1. They know where their time goes.

2. They focus on outward contribution and “gear their efforts to results rather than to work.”

3. They build on strengths.

4. They concentrate on the few major areas where superior performance will produce outstanding results.

5. They limit themselves to relatively few decisions and approach them systematically.

From what you’ve seen in your own career, how would you rank these five practices in terms of both importance and difficulty?

Platinum Equity, Maxim Crane Owner, Acquires NESCO

2011-10-28T21:47:00Z

Platinum Equity and Hammond, Kennedy, Whitney & Co. jointly announced that Platinum Equity has acquired NESCO Sales & Rentals from an investor group led by HKW. Platinum Equity also owns Maxim Cranes.

Lead Bullets

2011-10-26T19:01:55Z

Yet our best trained, best educated, best equipped, best prepared troops refuse to fight. As a matter of fact, it’s safe to say that they would rather switch than fight.
—Public Enemy (sampled from Thomas Todd), Fight the Power

Early in my tenure as product manager for the web servers at Netscape, we faced a terrible crisis. We just got our hands on Microsoft’s new web server, Internet Information Server (IIS), and benchmarked against our product. Microsoft’s IIS had every feature that we had, was five times faster and we knew that they were going to give it away for free. This might not sound so bad, but we had just gone public three months earlier with a story to Wall Street that said, “Don’t worry about Microsoft giving away the browser because we will make money selling servers.” Oh snap.

I immediately went to work trying to move the playing field and pivot the server product line to something that we could sell for money. The late, great Mike Homer and I worked furiously on a set of partnerships and acquisitions that would broaden the product line and surround the web server with enough functionality that we would be able survive the attack.

As I excitedly reviewed the plan with my engineering counterpart, Bill Turpin, he looked at me as though I was a little kid who had much to learn. Bill was a long-time veteran of battling Microsoft from his time at Borland and understood what I was trying to do, but remained unconvinced. He said: “Ben, those silver bullets that you and Mike are looking for are fine and good, but our web server is five times slower. There is no silver bullet that’s going to fix that. No, we are going to have to use a lot of lead bullets.” Oh snap.

As a result of Bill’s words, we focused our engineering team on fixing the performance issues while working the other things in the background. We eventually beat Microsoft’s performance and grew the server line to become a $400M business and we would never have done it without those lead bullets.

I carried that lesson with me for many years. Six years later, when I was CEO of Opsware, our toughest competitor Bladelogic started to consistently beat us in large deals. We were a public company and the losses were all too visible. To make matters worse, we needed to win those deals in order to beat the Wall Street projections, so the company felt tremendous pressure. Many of the smartest people in my company came to me with ideas for avoiding the battle:

“Let’s build a light-weight version of the product and go down market.”
“Let’s acquire a company with a simpler architecture.”
“Let’s focus on service providers.”

The issue with their ideas was that we weren’t facing a market problem. The customers were buying; they just weren’t buying our product. This was not a time to pivot. So I said the same thing to every one of them: “There are no silver bullets for this, only lead bullets.” They did not want to hear that, but it made things clear: we had to build a better product. There was no other way out. No window, no hole, no escape hatch, no backdoor. We had to go through the front door and deal with the big, ugly guy blocking it. Lead bullets.

After nine months of hard work on an extremely rugged product cycle, we regained our product lead and eventually built a company that was worth $1.6B. Without the lead bullets, I suspect we would have ended at about 1/10^th that value.

There may be nothing scarier in business than facing an existential threat. So scary that many in the organization will do anything to avoid it. They will look for any alternative, any way out, any excuse not to live or die in a single battle. I see this often in start up pitches. The conversations go something like this:

Entrepreneur: “We have the best product in the market by far. All the customers love it and prefer it to competitor X.”
Me: “Why does competitor X have five times your revenue?”
Entrepreneur: “We are using partners and OEMs, because we can’t build a direct channel like competitor X.”
Me: “Why not? If you have the better product, why not knuckle up and go to war?”
Entrepreneur: “Ummm.”
Me: “Stop looking for the silver bullet.”

There comes a time in every company’s life where it must fight for its life. If you find yourself running when you should be fighting, you need to ask yourself: “If our company isn’t good enough to win, then do we need to exist at all?”

Rouse Analytics Offers Rental Metrics Benchmark Service

2011-10-26T21:01:00Z

Rouse Analytics is launching a Rental Metrics Benchmark Service, providing rental companies of all sizes with a comparison of their own key performance metrics relative to the aggregated performance metrics of the industry. Initial participants in the service include industry leaders United Rentals, Hertz Equipment Rental Corp., H&E Equipment Services, Ahern Rentals, NES Rentals and Neff Rentals.

Form and function

2011-10-24T09:03:00Z

When the form changes, so does the underlying business model, which of course changes the function as well.

Mail ---> email

Books ---> ebooks

DVD ---> YouTube/Netflix

1040 ---> Online taxes

Visa ---> Paypal

Open outcry ---> Electronic trading

Voice call centers ---> forums and online chat

Direct mail ---> permission marketing

In each case, the original players in the legacy industry decided that the new form could be bolted onto their existing business model. And in each case they were wrong. Speed and marginal cost and ubiquity and a dozen other elements of digitalness changed the interaction itself, and so the function changes too.

The question that gets asked about technology, the one that is almost always precisely the wrong question is, "How does this advance help our business?"

The correct question is, "how does this advance undermine our business model and require us/enable us to build a new one?"

There are projects that are possible with ebooks or Kickstarter or email that could never have worked in an analog universe. Most of the money made in the stock market today is via trading approaches that didn't even exist thirty years ago.

When a change in form comes to your industry, the first thing to discover is how it will change the function.

Pricing Challenge – US Postal Service

2011-10-23T13:04:34Z

The US Postal Service is back in the news. Estimated to lose billions of dollars this fiscal year, the folks in Washington are trying to find a way to keep the Post Office from going bankrupt. Both the President and Congress have decided to focus their efforts on improving the service’s cost model–allocating x for letters, y for magazines and z for junk mail. The problem with this is that these costs are not real; but rather they are simply allocations that don’t have much to do with the reality of the Postal Service’s huge fixed cost structure.

Bill Waddell over at Evolving Excellence–experts in the field of lean accounting and common sense in general–has an excellent essay regarding this fallacy.

When someone says the cost of a first class letter is X, while the cost of a piece of junk mail is Y, the only way they could have arrived at those numbers is to have made a bunch of allocations. The actual cost of delivering a letter is pretty close to $NADA. The cost of opening up all of those post office doors and firing up all those trucks, however, is astronomical. They get to the cost of each type of item by going through some undoubtedly very clever arithmetic that ends up telling them x.xxx% of funny truck expense is assigned to letters and y.yyy% is assigned to magazines. Just because someone conjured up a slick equation, and has some pretzel logic to justify the math doesn’t make it so, however. The cost of the truck does not in any way shape or form depend on what sort of stuff it is being used to deliver on any given day. It is simply the cost of the truck and trying to make it into the cost of anything else leads nowhere other than to bad decision making.

Both the President and the Congress are advocating solutions that continue to try to solve the problem of allocated costs by “giving USPS the ability to better align the costs of postage with the costs of mail delivery.” Translation – allow the postal service to raise prices on those products (i.e. junk mail) where allocated costs (that have no relation with the actual cost of delivery) are deemed too high relative to the actual postage. This is the wrong approach.

The reason the post office lost $8.4 billion last year is not because their prices were too low on some products. It is because they have a huge installed capacity (and the associated fixed costs) that was grossly under-utilized. The solution is greater volume. No matter what the price charged for the volume, since the direct cost is zip, any revenue they get for the additional volume will help to cover the fixed costs. That being the case, the key to increasing volumes is not to raise prices – it is to lower them.

No fan of artificial cost allocations, the author takes a strong stance (to say the least) against the practice:

Cost allocating is sending the Post Office down the drain – and a whole lot of our money with it. Pricing has nothing to do with cost. It is set by the market as a function of the value created relative to the value proposition of the competition. It is destructive thinking to believe that COST + PROFIT = PRICE. So long as the government institutionalizes the wrong formula, the Post Office is doomed.

Allocating costs leads to silly conclusions like believing delivering magazines is unprofitable, which leads to price increases, which leads to lower volumes, which leads to allocating the same fixed costs over smaller volumes, which leads to cost increases, which leads to further price increases … you get the picture.

The are no easy fixes to the postal service’s financial dilemma, but the first step needs to be a realization by its stakeholders that the problems are far deeper than to be dismissed simply as pricing issues. And to make matters worse, the Postal Service’s reliance on using (artificially) allocated costs as a proxy for pricing criteria is accelerating the organization’s downward spiral.

Here’s the takeaway: Let the market (not cost) determine price.

Don’t miss a post (3,400+) – Subscribe to our RSS feed and join our Innovation Excellence group!

Patrick Lefler is the founder of The Spruance Group – a management consultancy that helps growing companies grow faster. He is a former Marine Corps officer; a graduate of both Annapolis and The Wharton School, and has over twenty years of industry expertise.

Pricing Challenge – US Postal Service

2011-10-23T14:32:30Z

Bill Waddell over at Evolving Excellence–experts in the field of lean accounting and common sense in general–has an excellent essay regarding this fallacy.

No fan of artificial cost allocations, the author takes a strong stance (to say the least) against the practice:

Here’s the takeaway: Let the market (not cost) determine price.

Don’t miss a post (3,400+) – Subscribe to our RSS feed and join our Innovation Excellence group!

Making Reading More Dramatic

2011-10-23T12:53:25Z

Sound transformed movies in the 1920s and sparked a golden age for Hollywood. Now it’s putting the ‘SO’ of SISOMO (Sight, Sound, Motion) into e-books, mashing together the joy of reading with the emotional pulling power of sound. This is thanks to a new venture called Booktrack, the brainchild of New Zealand brothers Mark and Paul Cameron, which adds soundtracks to stories, intensifying the reading experience by multiplying imagination and emotion. Booktrack supplies both moving music and ambient sound, artfully introduced and shifting mood at the right time based on your reading speed.

Great books are already irresistible; this feels like it could take reading to another place, with the right balance of suggestive sound and the power of the mind. I’m interested in the creative response – will authors work more “aural imagery” into their writing? Will favorite e-book composers emerge? Will consumers create their own soundtracks for titles close to their hearts and share them with their friends? Let’s hope Booktrack turns a new leaf for e-books.

Image credit: Booktrack

Don’t miss an article (3,400+) – Subscribe to our RSS feed and join our Innovation Excellence group!

Kevin Roberts is the CEO worldwide of The Lovemarks Company, Saatchi & Saatchi. For more information on Kevin, please go to www.saatchikevin.com. To see this blog at its original source, please go to www.krconnect.blogspot.com.