With the stock market hitting new highs, some people have already forgotten about the Great Recession.  If you recall 2009, things looked pretty bleak economically.  But the outlook has changed dramatically in just 4 years.  And it has been a boon for investors, as even the safest indices have yielded a 250% return (>25% annualized compound return:)

Source: Bulls, Bears and the Ballot Box at Facebook.com

Meanwhile, trends have reversed direction with unemployment falling, and consumer confidence rising:

Source: Bulls, Bears and the Ballot Box at Facebook.com

Since this coincides with President Obama’s first term, I asked the authors of “Bulls, Bears and the Ballot Box,” (available on Amazon.com) which I reviewed in my October 11, 2012 column, to capture their opinions on how much Americans should attribute the equity upturn, and improved economic prospects, to the President as we enter his second term.

Interview with Bob Deitrick, co-Author "Bulls, Bears and the Ballot Box" (BBBB):

Q- Bob, how much credit should Americans give President Obama for today’s improved equity values?

BBBB – Our research reviewed American economic performance since President Roosevelt installed the first Federal Reserve Board Chairman - Republican Marriner Eccles.  We observed that even though there are multiple impacts on the economy, it was clear that policy decisions within each administration, from FDR forward, made a clear difference on performance. And relatively quickly. 

Presidents universally take credit when the economy does well (such as Reagan,) and choose to blame other factors when the economy does poorly (such as Carter.)  But there was a clear pattern, and link, between policy and financial market performance. 

Although we hear almost no one in the Obama administration taking credit for record index highs, they should.   Because the President deserves significant credit for how well this economy has done during his leadership. 

The auto rescue plan has worked.  American car manufacturers are still dominant and employing millions directly and in supplier companies.  Wall Street reform has been painful but it has re-instated faith amongst investors.  The markets are far more predictable than they were four years ago, as VIX numbers demonstrate greater faith and less risk. 

Even for small investors, such as thoughs limited to their 401(k) or IRA investments, the average annual compound return on stocks under President Obama has been more than 24% since the lows of March, 2009.  This is a better result than either Clinton, Reagan or FDR who were the prior winners in our book. 

Q- Bob, what policies do you think were most important toward achieving today’s new highs?

BBBB – Firstly, let’s review just how bad things were in 2009.  In 2000 America was completing the longest bull market in history. But by the end of President Bush's tenure the country had witnessed 2 stock market crashes, and the DJIA had fallen 58%.  This was the second worst market decline in history (exceeded only by the Great Depression,) and hence the term “Great Recession” was born.

In 2000, at the end of Clinton’s administration, the Consumer Confidence Index was at a record high 140.  By January, 2009 this index had fallen to an historic low of 25.3.  Comparatively, when Reagan took office at the end of the economically weak Carter years the Confidence Index was still at 74.4!  Today this measure of how people feel about the country is still nowhere near 2000 levels, but it is almost 3 times better than 4 years ago.

Significantly, in 2000 America had a budget surplus.  By 2009 surpluses were long gone and the country was racking up historic deficits as taxes were cut while simultaneously outlays for defense skyrocketed to cover costs of wars in Iraq and Afghanistan.  Additionally, banks were on the edge of failing due to unregulated real estate speculation and massive derivative losses.

Today the Congressional Budget Office is reporting a $200B decrease in the deficit almost entirely due to increased revenue from a growing economy and higher taxes on the wealthiest Americans.  The deficit is now only 4% of the GDP, down from over 10% at the end of Bush's administration - and projections are for it to be only 2% by 2015 (before Obama leaves office.)  America's "debt problem" seems largely solved, and almost all due to growth rather than austerity.

We can largely thank a fairer tax code, improved regulation and consistent SEC enforcement.  Also, major strides in health care reform - something no other President has accomplished - has given American's more faith in their future, and an increased willingness to invest.  

Q- To which President would you compare Obama’s economic performance?

BBBB- By all measures, President Obama has outperformed every modern President. 

The easiest comparison would be to President Reagan, who’s economic performance was superb.  Even though Obama's performance is better.

Reagan had the enormous benefit of two major factors:

1. a significantly better economy than Obama inherited, even if afflicted by inflation
2. and his two terms coincided with the highest performing demographic years of the Baby Boomer generation.

Few people think of Reagan as a stimulus addict.  Yet, his administration’s military build-up added $1trillion of stimulus to the national debt ($2.3trillion adjusted for inflation) - the opposite of what is happening during the Obama years.  Many like to think that it was tax cutting which grew the economy, but undoubtedly we now know that this dramatic defense and infrastructure (highways, etc.) stimulus had more to do with igniting economic growth.  Reagan's spending looked far more like FDR than Herbert Hoover!

Ronald  Reagan tripled the national debt during his tenure, creating what today's Congressional austerity advocates might have called "a legacy of unpayable debt for our grandchildren.” But, as we saw, later growth (during Clinton) resolved that debt and created a budget surplus by 2000.

Q- Bob, President’s Obama detractors liken the Affordable Care Act (i.e. Obamacare) to an Armageddon on business, sure to kill economic growth and plunge the country back into recession.  Do you agree?

BBBB- To the contrary, ACA levels the playing field and will be good for economic growth.  Where previously only large corporations could afford employee health care plans, in the future far more employees will have far more equitable coverage.  Further, today employees frequently are unable to leave a company to start a new business because they would lose health care, which in the future will not be true.

One leading indicator of the benefits of ACA might be the performance of healthcare and biotech stocks, which are up 20-30% and leaders in the current market rally.

BBBB-  Obama needs to make the cornerstone of his second term creating new job growth.  That was the primary platform of his candidacy, and it is a platform long successful for the Democratic party.  If President Obama can do this and  govern effectively, this could be his real legacy.

The Dow Jones Industrial Average (DJIA) jumped to record levels - over 15,000 - today after a favorable U.S. jobs report showed 165K new jobs and a drop in unemployment to 7.5%.  Politicians, economists, business leaders and investors were buoyed by economic improvements and the hope for further growth.  A higher stock market is considered a great ointment for what has hurt America the last several years.

But there's a big, ugly fly in this ointment.  While the indices are rising, revenues at many very large, key component companies are actually declining.  And possibly worse, the revenue growth rate for large companies has been declining for at least 3 years.

Source: Marketwatch "The Tell" 5/3/13 Matt Andrejczak

As the chart shows, Caterpillar has led the revenue decline, dropping a whopping 17.5% year-over-year.  But noteworthy declines included JPMorganChase dropping 15.5%, Pfizer down 12.4% and Merck down 9%.  It's hard to imagine a great long-term bull market when revenues are distinctly going in a bearish direction for several stalwart companies.

It is also important to note that the rate of DJIA growth has declined markedly.  In 2011 first quarter growth was 11.4% over 2010.  But 2012 was only 9.4% over 2011 and 2013 came in only a paltry 3.8% over 2012.  Ouch!  Clearly, jobs growth will not be sustained if these organizations cannot put more money on the top line.

So why aren't these companies growing? 

For companies to grow they must invest in new products, new markets and the resources to sell and deliver these new products and new markets.  And that creates jobs.  Think about easy to identify revenue successes like Apple (iPads,) Samsung (smartphones,) Amazon.com, Netflix, Tesla, Facebook.  Proper investment leads to revenue growth opportunities.

But, unfortunately, America's leaders have reduced their investment in growth projects the last 15 years.  Instead, they've been giving more money to investors -- and increasingly dumping money into stock buybacks that manipulate price and help improve management bonuses!

Source: Business Insider 4/8/13; Sam Ro; Reproduced from Goldman Sachs Research

As the chart demonstrates, in 1998 42% of corporate cash was reinvested into the means of production - which creates growth.  Today this has declined to only about 1/3 of available cash; a whopping 25% decline!  Additionally, R&D investments which should lead to new products and higher sales, dropped from 16% of cash used a decade ago to a more meager 12%! 

Where has the money gone?  13% of cash was going directly to investors, who could then invest in other companies with higher rate of return growth projects.  That number has risen to 18%, which is inherently a good thing as we can hope a lot of that has been re-invested in other companies. 

But 13-17% used to be spent on stock buybacks, which create no revenue or economic growth.  All share buybacks do is exchange cash for shares, reducing the number of shares and changing metrics like earnings per share and thus the price/earnings (P/E) multiple.  It does not create any new investment.  That number has risen to a staggering 22-34% of revenues! 

Net/net, in the not too distant past America's leaders were putting 70-74% of their cash to work by investing in growth projects.  And 12% was going to investors for projects elsewhere.  By in the mid-1990s this reinvestment rate declined to 52-55%, ushering in the Great Recession.  After improving this rate has started declining again, and remains stuck no better than 60% of cash.  Coupled with the 5% increase in cash being robbed from growth projects to buy back stock,  the net reinvestment remains mired at 55%!

American's want jobs and a growing economy.  As do people everywhere!  We are excited when we see improvement.  But today, the ugly horsefly in the ointment is the lack of revenue growth - and the lack of investment in growth projects.  Until business leaders begin putting their corporate cash hoards into growth projects again the long-term outlook remains problematic, even if the market is hitting record DJIA highs.

JCPenney's board fired the company CEO 18 months ago.  Frustrated with weak performance, they replaced him with the most famous person in retail at the time. Ron Johnson was running Apple's stores, which had the highest profit per square foot of any retail chain in America.  Sure he would bring the Midas touch to JC Penney they gave him a $50M sign-on bonus and complete latitude to do as he wished.

Things didn't work out so well.  Sales fell some 25%.  The stock dropped 50%.  So about 2 weeks ago the Board fired Ron Johnson.

The first mistake:  Ron Johnson didn't try solving the real problem at JC Penney.  He spent lavishly trying to remake the brand.  He modernized the logo, upped the TV ad spend, spruced up stores and implemented a more consistent pricing strategy.  But that all was designed to help JC Penney compete in traditional brick-and-mortar retail. Against traditional companies like Wal-Mart, Kohl's, Sears, etc.  But that wasn't (and isn't) JC Penney's problem.

The problem in all of traditional retail is the growth of on-line.  In a small margin business with high fixed costs, like traditional retail, even a small revenue loss has a big impact on net profit.  For every 5% revenue decline 50-90% of that lost cash comes directly off the bottom line - because costs don't fall with revenues.  And these days every quarter - every month - more and more customers are buying more and more stuff from Amazon.com and its on-line brethren rather than brick and mortar stores.  It is these lost revenues that are destroying revenues and profits at Sears and JC Penney, and stagnating nearly everyone else including Wal-Mart. 

Coming from the tech world, you would have expected CEO Johnson to recognize this problem and radically change the strategy, rather than messing with tactics.  He should have looked to close stores to lower fixed costs, developed a powerful on-line presence and marketed hard to grab more customers showrooming or shopping from home.  He should have targeted to grow JCP on-line, stealing revenues from other traditional retailers, while making the company more of a hybrid retailer that profitably met customer needs in stores, or on-line, as suits them.  He should have used on-line retail to take customers from locked-in competitors unable to deal with "cannibalization."

No wonder the results tanked, and CEO Johnson was fired.  Doing more of the tired, old strategies in a shifting market never works.  In Apple parlance, he needed to be focused on an iPad strategy, when instead he kept trying to sell more Macs.

But now the Board has made its second mistake.  Bringing back the old CEO, Myron Ullman, has deepened JP Penney's lock-in to that old, traditional and uncompetitve brick-and-mortar strategy. He intends to return to JCP's legacy, buy more newspaper coupons, and keep doing more of the same.  While hoping for a better outcome.

What was that old description of insanity?  Something about repeating yourself.....

Expectedly, Penney's stock dropped another 10% after announcing the old CEO would return.  Investors are smart enough to recognize the retail market has shifted.  That newsapaper coupons, circulars and traditional advertising is not enough to compete with on-line merchants which have lower fixed costs, faster inventory turns and wider product selection. 

It certainly appears Mr. Johnson was not the right person to grow JC Penney.  All the more reason JCP needs to accelerate its strategy toward the on-line retail trend.  Going backward will only worsen an already terrible situation.

http://www.moneychoice.org/the-fall-of-apple/

The good folks at Wichita State (a final four contender as U.S. basketball fans know) and Purdue released their 2013 Airline Quality Rating.  United Airlines came in dead last.  To which United responded that they simply did not care.  Oh my.

Interestingly, this study is based wholly on statistical performance, rather than customer input.  The academics utilize on-time flight performance, denied passenger boardings, mishandled bags and complaints filed with the Department of Transportation.  It does not even begin to explore surveying customers about their satisfaction.  Anyone who flies regularly can well imagine those results.  Oh my.

So how would you expect an innovative, adaptive growth-oriented company (think like Amazon, Apple, Samsung, Virgin, Neimann-Marcus, Lulu Lemon) to react to declining customer performance metrics?  They might actually change the product, to make it more desirable by customers.  They might hire more customer service representatives to identify customer issues and fix problems quicker.  They might adjust their processes to achieve higher customer satisfaction.  They might train their employees to be more customer-oriented. 

But, United decidedly is not an innovative, adaptive organization.  So it responded by denying the situation.  Claiming things are getting better.  And talking about how it is spending more money on its long-term strategy.

United doesn't care about customers - and really never has.  United is focused on "operational excellence" (using the word excellence very loosely) as Messrs. Treacy and Wiersema called this strategy in their mega-popular book "The Discipline of Market Leaders" from 1995. United's strategy, like many, many businesses, is to constantly strive for better execution of an old strategy (in their case, hub-and-spoke flight operations) by hammering away at cutting costs. 

Locked in to this strategy, United invests in more airplanes and gates (including making acquisitions like Continental) believing that being bigger will lead to more cost cutting opportunities (code named "synergies".)  They beat up on employees, fight with unions, remove anything unessential (like food) invent ways to create charges (like checked bags or change fees), fiddle with fuel costs, ignore customers and constantly try to engineer minute enhancements to operations in efforts to save pennies.

Like many companies, United is fixated on this strategy, even if it can't make any money.  Even if this strategy once drove it to bankruptcy.  Even if its employees are miserable. Even if quality metrics decline. Even if every year customers are less and less happy with the product.  All of that be darned!  United just keeps doing what it has always done, for over 3 decades, hoping that somehow - magically - results will improve.

Today people have choices.  More choices than ever.  That's true for transportation as well.  As customers have become less happy, they simply won't pay as much to fly.  The impact of all this operational focus, but let the customer be danged, management is price degradation to the point that United, like all the airlines, barely (or doesn't - like American) cover costs.  And because of all the competition each airline constantly chases the other to the bottom of customer satisfaction - each  lowering its price as it mimics the others with cost cuts.

In 1963 National Airlines ran ads asking "is this any way to run an airline?" Well, no. 

Success today - everywhere, not just airlines - requires more than operational focus.  Constantly cutting costs ruins the brand, customer satisfaction, eliminates investment in new products and inevitably kills profitability.  The litany of failed airlines demonstrates just how ineffective this strategy has become.  Because operational improvements are so easily matched by competitors, and ignores alternatives (like trains, buses and automobiles for airlines) it leads to price wars, lower profits and bankruptcy.

Nobody looks to airlines as a model of management.  But many companies still believe operational excellence will lead to success.  They need to look at the long-term implications of this strategy, and recognize that without innovation, new products and highly satisfied new customers no business will thrive - or even survive.

The iPad is now 3 years old.  Hard to believe we've only had tablets such a short time, given how common they have become.  It's easy to forget that when launched almost all analysts thought the iPad was a toy that would be lucky to sell a few million units.  Apple blew away that prediction in just a few months, as people demonstrated their lust for mobility.  To date the iPad has sold 121million units - with an ongoing sales rate of nearly 20million per quarter.

Following very successful launches of the iPod (which transformed music from CDs to MP3) and iPhone (which turned everyone into smartphone users,) the iPad's transformation of personal technology made Apple look like an impenetrable juggernaut - practically untouchable by any competitor!  The stock soared from $200/share to over $700/share, and Apple became the most valuable publicly traded company on any American exchange!

But things look very different now.  Despite huge ongoing sales (iPad sales exceed Windows sales,) and a phenomenal $30B cash hoard ($100B if you include receivables) Apple's value has declined by 40%! 

In the tech world, people tend to think competition is all about the product.  Feature and functionality comparisons abound.  And by that metric, no one has impacted Apple.  After 3 years in development, Microsoft's much anticipated Surface has been a bust - selling only about 1.5million units in the first 6 months.  Nobody has created a product capable of outright dethroning the i product series.  Quite simply, there have been no "game changer" products that dramatically outperform Apple's.

But, any professor of introductory marketing will tell you that there are 4 P's in marketing: Product, Price, Place and Promotion.  And understanding that simple lesson was the basis for the successful onslaught Samsung has waged upon Apple in 2012 and 2013. 

Samsung did not change the game with technology or product.  It has used the same Android starting point as most competitors for phones and tablets.  It's products are comparable to Apple's - but not dramatically superior.  And while they are cheaper, in most instances that has not been the reason people switched.  Instead, Samsung changed the game by focusing on distribution and advertising!

 
Chart courtesy Jay Yarrow, Business Insider 4/2/13 and Horace Dediu, Asymco

The remarkable insight from this chart is that Samsung is spending almost 4.5 times Apple - and $1B more than perennial consumer goods brand leader Coca-Cola on advertising! Simultaneously, Samsung has set up kiosks and stores in malls and retail locations all over America.

Can you imagine having the following conversation in your company in 2010?:

"As Vice President of Marketing I propose we take on the market leader not by having a superior product.  We will change the game from features and function comparisons to availability and awareness.  I intend to spend more than anyone in our industry on advertising - even more than Coke.  And I will open so many information and sales locations that our products will be as available as Coke.  We'll be everywhere.  Our products may not be better, but they will be everywhere and everyone will know about them."

Samsung found Apple's Achilles heel.  As Apple's revenues rose it did not keep its marketing growing.  SG&A (Selling, General and Administrative) expense declined from 14% of revenues in 2006 to 5% in 2012; of course aiding its skyrocketing profits.  And Apple continued to sell through its fairly limited distribution of Apple stores and network providers.  Apple started to "milk" its hard won brand position, rather than intensify it.

Samsung took advantage of Apple's oversight.  Samsung maintained its SG&A budget at 15% of revenues - even growing it to 24% for a brief time in 2009, before returning to 15%.  As its revenues grew, advertising and distribution grew.  Instead of looking back at its old ad budget in dollars, and maintaining that budget, Samsung allowed the budget to grow (to a huge number!) along with revenues. 

And that's how Samsung changed the game on Apple.  Once America's untouchable brand, the Apple brand has faltered.  People now question Apple's sustainability. Some now recognize Apple is vulnerable, and think its best times are behind it.  And it's all because Samsung ignored the industry lock-in to constantly focusing on product, and instead changed the game on Apple.

Something Microsoft should have thought about - but didn't.

Of course, Apple's profits are far, far higher than Samsung's.  And Apple is still a great company, and a well regarded brand, with tremendous sales.  There are ongoing rumors of a new iOS 7 operating system, an updated format for iPads, potentially a dramatically new iPhone and even an iTV.  And Apple is not without great engineers, and a HUGE war chest which it could use on advertising and distribution to go heads up with Samsung.

But, at least for now, Samsung has demonstrated how a competitor can change the game on a market leader.  Even a leader as successful and powerful as Apple.  And Samsung's leaders deserve a lot of credit for seeing the opportunity - and seizing it!

It is an unfortunate fact that small businesses fail at a higher rate than large businesses.  While we've come to accept this, it somewhat flies in the face of logic.  After all, small businesses are run by owners who can achieve entrepreneurial returns rather than managerial bonuses, so incentive is high.  Conventional wisdom is that small businesses have fewer, and closer relationships to customers (think Ace Hardware franchisees vs. Home Depot.)  And lacking layers of overhead and embedded management they should be more nimble.

Yet, they fail.  From as high as 9 out of 10 for restaurants to 4 out of 10 in more asset intensive business-to-business ventures.  That is far higher than large companies.

Why?  Despite conventional wisdom most small businesses are run by leaders committed to a single, narrow success formula.  Most are wedded to their core ideology, based on personal history, and unwilling to adapt until the business completely fails.  Most reject new technologies and other emerging innovations as long as possible, trying to conserve  cash and wait for "more proof" change will pay off.  Additionally, most spend little time investing time, or money, in innovation at all as they pour everything into defending and extending their historical business approach. 

Take for example the major trend to digital marketing.  Everyone knows that digital is the only growing ad market, while print is fast dying:
Chart republished with permission of Jay Yarow, Business Insider 3/19/2013

Yet AdWeek reported a new Boston Consulting Group study reveals that a mere 3% of small business ad dollars are in digital!

Digital marketing is one of the few places where ads can be purchased for as little as $100.  Digital ads are targeted at users based upon their searches and pages viewed, thus delivered directly to likely buyers.  And digital ads consistently demonstrate the highest rate of return.  That's why it's growing at over 20%/year!

Yet, small businesses continue to put most of their money into local newspapers and direct mail circulars.  The least targeted of all advertising, and increasingly the least read!  While print ad spending has declined over 80% the last few years, to 1950 levels (adjusted for inflation,) smarter businesses have abandoned the media.  At large companies in 2012 38% of advertising is on digital, second only to TV's 42% - and rapidly moving into first place!

A second major trend is the move to mobile and app usage.  In the last 2 years mobile users have grown and shown a distinct preference for apps over mobile web sites.  App use is growing while mobile web sites have stalled:
Chart republished with permission of Alex Cocotas, Business Insider 3/20/13

Even though there are over 1million apps available for iPhone and Android users, the vast majority of small businesses have no apps aligned with their business and customers.  Most small businesses, late to the game in digital marketing, are content to try and add mobile capability to their already existing web site - hoping that it will be sufficient for future growth. Meanwhile, customers are going directly for apps in accelerating numbers every month!
Chart republished with permission of Alex Cocotas, Business Insider 1/8/13

Rather than act like market leaders, using customer intimacy and nimbleness to jump ahead of lumbering giants, small business leaders complain they are unsure of app value - and keep spending money on historical artifacts (like their web site) rather than invest in higher return innovation opportunities.  Many small businesses are spending $20k+/year on printed brochures, coupons and newspaper or magazine PR when a like amount spent on an app could connect them much more tightly with customers, add higher value and expand their base more quickly and more profitably!

The trend to digital marketing - including the explosive growth in mobile app use - is proven.  And due to very low relative up-front cost, as well as low variable cost, both trends are a wonderful boon for small businesses ready to adopt, adapt and grow.  But, unfortunately, the vast majoritiy of small business leaders are behaving oppositely!  They remain wedded to outdated marketing and customer relationship processes that are too expensive, with lower yield! 

The opportunity is greater now than during most times for smaller competitors to be disruptive.  They can seize new innovations faster, and leverage them before larger competitors.  But as long as they cling to old practices and processes, and beliefs about historical markets, they will continue to fail, smashed under the heal of slower moving, bureaucratic large companies who have larger resources when they do finally take action.

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Small Businesses are Missing from Digital Ads Marketplace

Marissa Mayer created a firestorm this week by issuing an email requiring all employees who work from home to begin daily commuting to Yahoo offices.  Some folks are saying this is going to be a blow to long-term employees, hamper productivity and will harm the company. Others are saying this will improve communications and cooperation, thin out unproductive employees and help Yahoo.

While there are arguments to be made on both sides, the issue is far simpler than many people make it out to be - and the implications for shareholders are downright scary.

Yahoo has been a strugging company for several years.  And the reason has nothing to do with its work from home policy.  Yahoo has lacked an effective strategy for a decade - and changing its work from home policy does nothing to fix that problem.

In the late 1990s almost every computer browser had Yahoo as its home page.  But Yahoo long ago lost its leadership position in content aggregation, search and ad placement.    Now, Yahoo is irrelevant.  It has no technology advantage, no product advantage and no market advantage.  It is so weak in all markets that its only value has been as a second competitor that keeps the market leader from being attacked as a monopolist! 

A series of CEOs have been unable to develop a new strategy for Yahoo to make it more like Amazon or Apple and less like - well, Yahoo.  With much fanfare Ms. Mayer was brought into the flailing company from Google, which is a market leader, to turn around Yahoo.  Only she's been on the job 7 months, and there still is no apparent strategy to return Yahoo to greatness. 

Instead, Ms. Mayer has delivered to investors a series of tactical decisions, such as changing the home page layout and now the work from home policy.  If tactical decisions alone could fix Yahoo Carol Bartz would have been a hero - instead of being pushed out by the Board in disgrace. 

Many leading pundits are enthused with CEO Mayer's decision to force all employees into offices.  They are saying she is "making the tough decisions" to "cut the corporate cost structure" and "push people to be more productive." Underlying this lies thinking that the employees are lazy and to blame for Yahoo's failure. 

Balderdash.  It's not employees' fault Yahoo, and Ms. Mayer, lack an effective strategy to earn a high return on their efforts. 

It isn't hard for a new CEO to change policies that make it harder for people to do their jobs - by cutting hours out of their day via commuting.  Or lowering productivity as they are forced into endless meetings that "enhance communication and cooperation." Or forcing them out of the company entirely with arcane work rules in a misguided effort to lower operating costs or overhead.  Any strategy-free CEO can do those sorts of things. 

Just look at how effective this approach was for

• "Chainsaw" Al Dunlap at Scott Paper
• "Fast Eddie" Lampert at Sears
• Carol Bartz at Yahoo
• Meg Whitman at HP
• Brian Dunn at Best Buy
• Gregory Rayburn at Hostess
• Antonio Perez at Kodak

The the fact that some Yahoo employees work from home has nothing to do with the lack of strategy, innovation and growth at Yahoo.  That failure is due to leadership.  Bringing these employees into offices will only hurt morale, increase real estate costs and push out several valuable workers who have been diligently keeping afloat a severely damaged Yahoo ship. These employees, whether in an office or working at home, will not create a new strategy for Yahoo.  And bringing them into offices will not improve the strategy development or innovation processes. 

Regardless of anyone's personal opinions about working from home, it has been the trend for over a decade.  Work has changed dramatically the last 30 years, and increasingly productivity relies on having time, alone, to think and produce charts, graphs, documents, lines of code, letters, etc.  Technologies, from PCs to mobile devices and the software used on them (including communications applications like WebEx, Skype and other conferencing tools) make it possible for people to be as productive remotely as in person. Usually more productive removed from interruptions.

Taking advantage of this trend helps any company to hire better, and be more productive.  Going against this trend is simply foolish - regardless the intellectual arguments made to support such a decision. Apple fought the trend to PCs and almost failed.  When it wholesale adopted the trend to mobile, seriously reducing its commitment to PC markets, Apple flourished.  It is ALWAYS easier to succeed when you work with, and augment trends.  Fighting trends ALWAYS fails.

Yahoo investors have plenty to be worried about.  Yahoo doesn't need a "tough" CEO.  Yahoo needs a CEO with the insight to create, and implement, a new strategy.  And a series of tactical actions do not sum to a new strategy.  As importantly, the new strategy - and its implementation - needs to augment trends.  Not go against trends while demonstrating the clout of a new CEO. 

If you've been waiting to figure out if Ms. Mayer is the CEO that can make Yahoo a great company again, the answer is becoming clear.  She increasingly appears very unlikely to have what it takes.

Forbes republished its annual "Most Miserable Cities" list.  It looks at employment/unemployment, inflation, incomes and cost of living, crime, weather, commute times - a pretty good overview of things tied to living somewhere.  Detroit ranked first, as the most miserable city, with Flint, MI second.  And my home-sweet-home Chicago came in fourth.  Ouch! 

There is an important lesson here for every city - and for our country.

Detroit was a thriving city during the industrial revolution.  Innovation in all things mechanical led to the modern automobile; a marvelous innovation which, literally, everyone wanted.  As demand skyrocketed, Henry Ford's management team developed the modern assembly line which allowed production volumes to skyrocket as well.  Detroit was a hotbed of industrial innovation.

This fueled growth in jobs, which led to massive immigration to Detroit.  With growth the tax base expanded, and quickly Detroit was a leading city with all the best things people could want.  In the 1950s and 1960s Detroit reaped the benefits of the local auto companies, and their suppliers, as ongoing innovations drove better cars, more sales, more revenue taxes, higher property values and higher property taxes.  It was a glorious virtuous circle.

But things changed.

Offshore competitors came into the market creating different kinds of autos appealing to different customers.  Initially they had lower costs, and less expensive designs.  Their cars weren't as good as GM, Ford or Chrysler - but they were cheap.  And when gasoline prices took off in the 1970s people suddenly realized these cars were also more fuel efficient and cheaper to maintain.  As these offshore competitors gained more sales they invested in making better cars, until they had quality as good as the Detroit companies, plus better fuel efficiency.

But the Detroit companies had become stuck in their processes that worked in earlier days.  Even though the market shifted, they didn't.  What passed for innovations were increasingly simple appearance changes as bottom-line focus reduced willingness to do new things, and offered fewer new things to do.  GM and its brethren didn't shift with the market, and by the 1980s the seeds of big problems already were showing.  By the 1990s profits were increasingly variable and elusive.

The formerly weak and small competitors now were more competitive in a changed market favoring smaller cars with more, and better, technology.  The market had changed, but the big American auto companies had not.  They kept doing more of the same - hopefully better, faster and striving for cheaper.  But they were falling further behind.  By the 2000s decade failure had become the viable option, with both Chrysler and GM going bankrupt.

As this cycle played out, the impact on Detroit was clear.  Less success in the business base meant fewer revenue tax dollars from less profitable companies.  Cost reductions meant employment stagnated, then started falling.  Incomes stagnated, and people left Detroit to find better paying jobs. Property values began to fall.  Income and property taxes declined.  Governments had to borrow more, and cut costs, leading to declines in services.  What had been a virtuous circle became a violently destructive whirlpool.

Detroit's business leaders failed to invest in programs to drive more new jobs in non-auto, non-industrial, business development.  As competitors hurt the local industry, Detroit (and Michigan's) leaders kept trying to invest in saving the historical business, while the economy was shifting from an industrial base to an information one.  It wasn't just autos that were less valuable as companies, but everything industrial.  Yet, leaders failed at attracting new technology companies.  The economic shift - the market shift - was unaddressed, and now Detroit is bankrupt.

Much as I like living in Chicago, unfortunately the story is far too similar in my town.  Long an industrial hub, Chicago (and Illinois) enjoyed the benefits of growing companies, employment and taxes during the heyday of industrialism.  This led to well paid, and very well pensioned, government employees providing services.  The suburbs around Chicago exploded as people migrated to the Windy City for jobs - despite the brutal winters.

But Chicago has been dramatically affected by the shift to an information economy.  The old machine shops, tool and dye makers and myriad parts manufacturers were decimated as that work often went offshore to cheaper manufacturers.  Large manufacturers like Western Electric and International Harvester (renamed Navistar) failed.  Big retailers like Montgomery Wards disappeared, and even Sears has diminished to a ghost of its former self.  All businesses killed by market shifts. 

And as a result, people quit moving to Chicago - and actually started leaving.  There are now fewer jobs in Illinois than in the year 2000, and as a result people have left town.  They've gone to cities (and states) where they could find jobs in growth industries allowing for more opportunity, and rising incomes. 

Just like Detroit, Chicago shows early signs of big problems.  Crime is up, with an unpleasantly large increase in murders.  Insufficient income and property tax revenues led to budget crises across the board.  Dramatic actions like selling city parking meters to shore up finances has led to Chicago having the most expensive parking in the country - despite far from the highest incomes.  Property taxes in suburbs have escalated, with taxes in collar Lake county higher than Los Angeles! Yet the state pension system is bankrupt, causing the legislature to put in place a 50% state income tax increase!  Meanwhile the infrastructure is showing signs of needing desperate work, but there is no money. 

Like Detroit, Chicago's businesses (and governments) have invested insufficiently in innovation.  Recent Chicago Tribune columns on local consumer goods behemoth Kraft emphasized (and typified) the lack of new product development and stalled revenue growth.  Where Bay Area tech companies expect 50% of revenues (or more) from new products (or variations), Kraft has admitted it has relied on stalwarts like Velveeta and Mac & Cheese so much that fewer than 10% of revenues come from anything new. 

Culturally, too many decisions in the executive suites of both the companies, and the governments, are focused on what worked in the past rather than investing in innovation.  Even though the vaunted University of Illinois has one of the world's top 5 engineering schools, the majority of graduates find they leave the state for better paying jobs.  And a dearth of angel or venture funding means that start-ups simply are forced coastal if they hope to succeed.

And this reaches to our national policies as well.  Plenty of arguments abound for cutting costs - but are we effectively investing in innovation?  Do our tax policies, as well as our expenditures, drive innovation - or constrict it?  It was government programs which unleashed nuclear power and gave us a rash of innovations from putting a man on the moon.  Yet, today, we seem obsessed with cutting budgets, cutting costs and doing less - not even more - of the same. 

Growth is a wonderful thing.  But growth does not happen without investment in innovation.  When companies, or industries, stop investing in innovation growth slows - and eventually stops.  Communities, states and even nations cannot thrive unless there is a robust program of investing for, and implementing, innovation. 

With innovation you create renewal.  Without it you create Detroit.

Michael Dell has put together a hedge fund, one of his largest suppliers and some debt money to take his company, Dell, Inc. private.  There are large investors threatening to sue, claiming the price isn't high enough.  While they are wrangling, small investors should consider this privatization manna from heaven, take the new, higher price and run to invest elsewhere - thankful you're getting more than the company is worth.

In the 1990s everybody thought Dell was an incredible company.  With literally no innovation a young fellow built an enormously large, profitable company using other people's money, and technology.  Dell jumped into the PC business as it was born.  Suppliers were making the important bits, and looking for "partners" to build boxes.  Dell realized he could let other people invest in microprocessor, memory, disk drive, operating system and application software development.  All he had to do was put the pieces together. 

Dell was the rare example of a company that was built on nothing more than execution.  By marketing hard, selling hard, buying smart and building cheap Dell could produce a product for which demand was skyrocketing.  Every year brought out new advancements from suppliers Dell could package up and sell as the latest, greatest model.  All Dell had to do was stay focused on its "core" PC market, avoid distractions, and win at execution.  Heck, everyone was going to make money building and selling PCs.  How much you made boiled down to how hard you worked.  It wasn't about strategy or innovation - just execution. 

Dell's business worked for one simple reason.  Everybody wanted PCs.  More than one.  And everybody wanted bigger, more powerful PCs as they came available.  Market demand exploded as the PC became part of everything companies, and people, do.  As long as demand was growing, Dell was growing.  And with clever execution - primarily focused on speed (sell, build, deliver, get the cash before the supplier has to be paid) - Dell became a multi-billion dollar company, and its founder a billionaire with no college degree, and no claim to being a technology genius.

But, the market shifted.  As this column has pointed out many times, demand for PCs went flat - never to return to previous growth rates.  Users have moved to mobile devices such as smartphones and tablets, while corporate IT is transitioning from PC servers to cloud services.  iPad sales now nearly match all of Dell's sales.  Dell might well be the world's best PC maker, but when people don't want PCs that doesn't matter any more.

Which is why Dell's sales, and profits, began to fall several years ago.  And even though Michael Dell returned to run the company 6 years ago, the downward direction did not change.  At its "core" Dell has no ability to innovate, or create new products.  It is like HTC - merely a company that sells and assembles, with all of its "focus" on cost/price.  That's why Samsung became the leader in Android smartphones and tablets, and why Dell never launched a Chrome tablet.  Lacking any innovation capability, Dell relied on its suppliers to tell it what to build.  And its suppliers, notably Microsoft and Intel, entirely missed the shift to mobile.  Leaving Dell long on execution skills, but with nowhere to apply them.

Market watchers knew this. That's why  Dell's stock took a long ride from its lofty value on the rapids of growth to the recent distinctly low value as it slipped into the whirlpool of failure.

Now Dell has a trumped up story that it needs to go public in order to convert itself from a PC maker into an IT services company selling cloud and mobile capabilities to small and mid-sized businesses.  But Dell doesn't need to go private to do this, which alone makes the story ring hollow.  It's going private because doing so allows Michael Dell to recapitalize the company with mountains of debt, then use internal cash to buy out his stock before the company completely fails wiping out a big chunk of his remaining fortune.

If you think adding debt to Dell will save it from the market shift, just look at how well that strategy worked for fixing Tribune Corporation. A Sam Zell led LBO took over the company claiming he had plans for a new future, as advertisers shifted away from newspapers.  Bankruptcy came soon enough, employee pensions were wiped out, massive layoffs undertaken and 4 years of legal fighting followed to see if there was any plan that would keep the company afloat.  Debt never fixes a failing company, and Dell knows that.  Dell has no answer to changing market demand away from PCs.

Now the buzzards are circling.  HP has been caught in a rush to destruction ever since CEO Fiorina decided to buy Compaq and gut the HP R&D in an effort to follow Dell's wild revenue ride.  Only massive cost cutting by the following CEO Hurd kept HP alive, wiping out any remnants of innovation.  Now HP has a dismal future.  But it hopes that as the PC market shrinks the elimination of one competitor, Dell, will give newest CEO Whitman more time to somehow find something HP can do besides follow Dell into bankruptcy court.

Watching as its execution-oriented ecosystem manufacturers are struggling, supplier Microsoft is pulling out its wallet to try and extend the timeline.  Plundering its $85B war chest, Microsoft keeps adding features, with acquisitions such as Skype, that consume cash while offering no returns - or even strong reasons for people to stop the transition to tablets. 

Additionally it keeps putting up money for companies that it hopes will build end-user products on its software, such as its $500M investment in Barnes & Noble's Nook and now putting $2B into Dell.  $85B is a lot of money, but how much more will Microsoft have to spend to keep HP alive - or money losing Acer - or Lenovo?  A billion here, a billion there and pretty soon it adds up to a lot of money!  Not counting losses in its own entertainmnet and on-line divisions.  The transition to mobile devices is permanent and Microsoft has arrived at the game incredibly late - and with products that simply cannot obtain better than mixed reviews.

The lesson to learn is that management, and investors, take a big risk when they focus on execution.  Without innovation, organizations become reliant on vendors who may, or may not, stay ahead of market transitions.  When an organization fails to be an innovator, someone who creates its own game changers, and instead tries to succeed by being the best at execution eventually market shifts will kill it.  It is not a question of if, but when.

Being the world's best PC maker is no better than being the world's best maker of white bread (Hostess) or the world's best maker of photographic film (Kodak) or the world's best 5 and dime retailer (Woolworth's) or the world's best manufacturer of bicycles (Schwinn) or cold rolled steel (Bethlehem Steel.)  Being able to execute - even execute really, really well - is not a long-term viable strategy.  Eventually, innovation will create market shifts that will kill you.

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