Telling It Like It Is

THE ENTERPRISE--Stay Loose!

THE ENTERPRISE

Topics for this week are varied--but then so is our country and world Let's tackle Energy, Labor, Brands and the Economy. How's that for a full plate?

First of all, a helpful hint for all of you Verizon Wireless users--one I discovered accidentally. Periodically you should "tell your Verizon phone to check for new tower locations and program them into its network memory." What? Right--I called and asked them, and they confirmed it. Simply dial *288 and when you can choose an option, choose menu Option 2...then wait (it will tell you to wait) for the tone that means your phone is now updated. The result: better network coverage for you.

---Labor
Big labor is coming apart. Unions have been useful in the past to keep workers from being abused by powerful employers. There are even some cases where Unions are useful today. BUT, in many more cases Unions are accelerating the loss of jobs for their members. How? By increasing indirect and direct labor costs (faster than productivity improvements can support) and limiting the flexibility of companies to react to market and competitive changes. Things happen really fast these days. Tom Peters once quoted an executive who predicted there would be only two kinds of companies in the 21st century--"The quick and the dead." Big labor has become what it was formed to fight--a bureaucratic behemoth wielding power without concern for the consequences. Look for its decline to continue.

--Energy
Want more electricity? Want it at reasonable prices? Sure. That's why nuclear power is making a HUGE comeback. The technology is more refined and safer than ever. Oil/gas/coal may be king for now, but watch nuclear power generation grow exponentially in the next two decades--both here and in China--and maybe later on, in India. Other than concerns about providing a source for nuclear weapons material, India needs nuclear power badly. China already has nukes and it is sucking up oil far faster than can be sustainable long term. Over the next 1-2 decades, the nuclear age will again become the rage, as it should. Solar, wind and other alternative power sources are clever, but cannot be commercialized at economic levels to do what rejuvenated nuclear power plant growth can do--take away the power of OPEC.

--Brands
In an era when differentiation is harder than ever to come by, and knock-offs get to the market on the heels of the originator, the power of strong brands can make the difference. There is a problem, however. Leading retailers are creating their own brands by hooking up with well-known designers. This puts immense pressure on the brands who exist in that same space. The message for them: Innovate or die--and do it fast. Remember the old "ready, aim, fire?" Now it is "aim quick, then fire, fire, fire."

Incumbent brands, like those on the recently published Top 100 Global Brands (Business Week August 1, 2005), must drive innovation faster and harder than ever. That means closely monitoring lifestyles of consumers, and listening to what customers, and especially end-user consumers want, think, feel, and will pay for. A few tidbits from that listing:
7 of the names are "new" led by UPS, Google, and the lightning fast-response Spanish retailer, Zara.
8 of the top 10 are still US brands, but the list is more "global" than ever.
9 are financial services companies thanks to consolidation after consolidation--"money still talks."
10 are car companies--NOT including GM or any GM brand--even Cadillac; but Hyundai made the list!

--The Economy
It's fine--for now--but just "for now." The Fed needs to pull back on the interest rate rises at 4%, or there is a danger it will have done too much. Short term yields and long term yields are going to be almost equal--and that is an decidedly unusual, and probably unhealthy situation. US housing is still a bubble that needs to be deflated before it bursts. Housing (and related materials/products) drives a lot of US production and is really overheated. PLus, the leading economic indicators have turned negative and stayed that way. Conclusion: the rest of this year is OK. Watch out for 2006. It will get delicate, and the economy could sour a bit--or worse--especially if the Fed keeps raising interest rates.

With that encouraging note, remember that smart managers manage all the time like they are facing dangerous times--because they are. Spend wisely and well, and stay real close to the market and customers. In the US, consumers and housing are keeping things going. If either slows down a lot, times will get tough--really fast. Stay loose. In this case, forewarned is forearmed.

Best, John

THE ENTERPRISE--A smorgasbord

THE ENTERPRISE

This week is a smorgasbord of topics that seem to be hitting the news, each of which earns a response by either its profound truth or nutty conclusions.

--UPS Earnings are UP--That's Good!
One of my bell-weathers to see how the US economy is doing is UPS (and now FedEx Ground, which is smaller than UPS but growing fast.) The fact that UPS is going strong and predicts that the strength will continue bodes well for the US economy in the near term. Having said that, one negative factor that is hitting all businesses is the oil-driven, fuel based increase in freight costs. These insidious costs sneak up on businesses that are not alert to them and hit the variance line with a resounding "THUD." Pay attention to the impact of freight costs--and at least be forewarned of an ugly "hit."

--The Chinese use a "head-fake" and let the Yuan slide--barely.
The Chinese have finally heard the lunatic fringe of American politics--represented by Senators Charles Schumer and Ted (me drunk?) Kennedy. Their bill to tack a 27.5% tariff on Chinese goods probably would have failed a straight up-down vote (remember those--before phony filibusters, those were called Senate votes). Even so, China was smart. It created a new mystery-market-basket of currencies to peg the Yuan and un-pegged the Yuan to the US Dollar--ever so slightly. 2% (or even if it becomes 5%) won't really affect anything except to cool the jets of the Congressional fanatics who still think you can control US jobs through wage-price controls, tariffs/protectionism, etc. (Weren't you guys around decades ago when that failed?) Chinese companies and US customers will eat the 2% and a 2% stronger Yuan will let the Chinese buy a smidgen better too. Remember Japan 20+ years ago? The more things change, the more they remain the same.

--John Roberts--Bush's Supreme Court Nominee--a "Hard Target"
President Bush finally set aside his macho cowboy persona and nominated someone who shouldn't be particularly offensive to either party's mainstream. Of course, the fact that Bush nominated him will make the NOP (New Obstructionist Party--formerly known as the Democratic Party and its leader, Howard "Arrrrrrggghh" Dean)--livid with rage. How dare a sitting President nominate anyone he wants to the Supreme Court? Really! And someone so young will tie up that seat for decades. That seems like an "Extraordinary" set of objections to many NOP radicals. It's time to toss the "coalition of 7+7 compromise" and force a straight up-down vote like the Constitution specifies. C'mon Dr. Frist--"just do it."

--What the hell do they expect? MORE! It's NUTS!
I read the earnings releases for Yahoo! and Google with confusion, then dismay, then disgust. Yahoo!'s sales were up from $832MM to $875MM a measly 5% on which its earnings soared from $112MM to $192MM, and increase of 71%. The stock dropped 10%. "Analysts were disappointed that it only met its estimate, and maintained its earlier guidance for future periods." What????
The next day Google reported that revenue rose from $700MM to $1.38B, a 97% increase and net income went from 79MM to 343MM, a 434% gain. "But the results failed to meet the lofty expectations of some investors, who were also concerned by the company's warning of a seasonal slowdown in growth." Oh, my God! Do those investors expect continued increases in revenues of 100% and in earnings of 400%. Can they run a calculator and then use their brains long enough to realize that this kind of thinking created the dot-com, Enron and WorldCom debacles.

--NOTE : If anyone wants a lengthy but can't-put-it-down mind-boggling book for a summer read, get CONSPIRACY OF FOOLS--A True Story, by Kurt Eichenwald. It isn't fiction. It's so bizarre that no one could have imagined how the Enron debacle unfolded from its unbelievable growth to its cataclysmic collapse. Its sub-title says it's "true," the the huge list of source materials leads one to believe it is TRUE. The only problem is that you know how it ends.

--The End of an Era
Finally, to end on a more positive note, I want to reflect about the end of another era. I watched the British Open a week ago Friday. It was the final round in a Major for Jack Nicklaus. He shot par 72 on The Old Course at St. Andrews--not too shabby for a 65-year-old with a pair of artificial hips. More important to me, and perhaps to you, too was Jack's career of over 40 years. I've met few top sports figures, but one was Jack--who I met for a brief walk on a new golf course under construction back in the early 1990's. Other than the same surprise everyone feels about his statute--he isn't a large man--and his small (but strong) hands, he was just what I hoped for. A decent guy just out doing his job (that day it was golf-course designer.)

Jack Nicklaus probably isn't perfect in many respects, but as a highly-visible professional athlete who was the top of his field for 2-3 decades, he was--and remains to be--a class act. I am near his age, so his retirement had a special impact on me. His comment "if I can't compete, I don't want to deny the place in the field to someone that can" just said so much about his character. And the fact that the Scotland, a country that is hard to impress except when it comes to golf, would put his likeness on its currency was also an impressive tribute. He was the greatest in his sport--in his era--and maybe in any era.

In an time when we have too few heroes, and when too many of them have values and character that are not nearly comparable to their professional prowess --in sports, entertainment, education, business or government--Jack Nicklaus stands out. And Jack made that last birdie putt too. It seemed fitting that Tiger Woods, the heir apparent won the tournament. Now if only he can live up to Jack's example.

For my closing this week, I want to say, may God bless Jack (and Barbara--his "only" wife) with many years of health and happiness ... because true greatness in any endeavor is only revealed after the test of time.

Best, John

PS: For those who don't know, Jack & Barbara lost a grandson, his son and caddy Steve's 19 month-old-son died in a tragic pool accident this past year. I'm sure that sadness is still with the family.

THE ENTERPRISE--Cognitive Dissonance

THE ENTERPRISE

It's interesting how different sets of information lead to conclusions you neither expect nor find logical based on earlier beliefs. Just as we think we know something for a certainly--new information shakes our intellectual confidence.

---Cognitive Dissonance No. 1: Consider the following statements about two major countries:

Country A
1) The world's worst performing stock market--hitting an 8 year low, but the world's best performing bond market with 10 year bonds moving from 5.25% to 3.7%
2) Industrial production "rolling over" with weaker iron ore imports, weaker steel prices, weaker industrial production numbers...
3) Real estate activity declining (prime evidence is a major supplier of chiller tubes for air conditioners for apartments and office buildings reporting 25% drop in 2Q '05 orders and other suppliers doing worse than that.)..
4) Inflation has fallen from 5.3% to 1.8% in ten months, and the M1 money supply growth has dropped from +20% to +10% in the past year.
(Source: GaveKal Research Limited)

Country B
1) Personal consumption spending, which is 2/3 of GDP rose at annual rate of 3.6% in 1Q '05.
2) Consumer confidence jumped to 3 yr. high in May
3) Unemployment rate has declined steadily to a 4 yr. low.
4) Housing construction is booming, with another major increase in May.
5) The major index of manufacturing activity rose again, marking the 25th consecutive monthly increase
(Source US Commerce Dept. and Forecasts & Trends, Gary Halbert's Weekly E-Letter)

So who do you think the two countries are? I'll give you a clue. One of the countries is leaning on the other one to let its currency float, instead of being pegged. That's right. You guessed it. Country A is China. Country B is the USA. China is "eating the USA's lunch" industrially according to anyone you might ask. How can I reconcile these seemingly conflicting pieces of information?

---Cognitive Dissonance No. 2: Consider the following statements about the world's oil supply.
1) Four giant fields, operated by BP PLC, located under water off the coast of Louisiana are just beginning to pump oil, but are predicted to be able to produce 500,000 bbl. per day at peak output which is like moving a small Middle Eastern country like Yemen over here.
2) Thanks to the combination of higher prices, increased exploration and production spending, oil supplies are poised to grow at a much faster rate than they have in recent years, thus supply should exceed demand by 7 million bbl/day up from today's cushion of 1 million bbl/day..
3) New software running on super-computers could vastly boost recovery from known fields of oil.
4) Added new fields in Nigeria could produce 16 million bbs/day more oil by 2010.
(Source: Business Week "Is There Plenty of Oil?" July 11, 2005

As I filled up the car with $2.39 gas, and read how oil continues to flirt with $60/bbl. and the supply is strained, I wonder what to believe? How can I reconcile these seemingly conflicting pieces of information?

---Cognitive Dissonance No. 3: SAP is unbundling and increasing the modularity and flexibility of its software. Will wonders never cease? The German giant whose mantra was "achtung, you will do it the way we designed it--or else" is showing signs of "getting real" about the fact that one size does NOT fit all situations.

Cognitive Dissonance No. 4: the cover story for the July 11, 2004 Business Week screams "Too Much Money." I agree. There is too much money looking for places to be invested on a global basis. I haven't heard the term "frothy" used so often since I used to work at a soda fountain. (But then why can't I get my hands on more of it?)

OK, by now I hope I have scrambled your beliefs enough to get the message across. We must all do our own "due diligence" about what is true and what is not. My grandmother always said, "believe none of what you read and half of what you see." Perhaps in today's age of visual news media, she was wise before her time. And research has proven that instead of "believing what we see," we are also guilty of "seeing what we believe,"

Remember Will Rogers famous line: "It ain't what you don't know that gets you; it's what you thought you knew that ain't so." Maybe we all need to step back and reassess what we know--and what we know that ain't so.

Best, John

THE ENTERPRISE--Bad & Good Leaders

THE ENTERPRISE

-----Bad leaders
Having too much time to think can be dangerous. This is especially true when you are influenced by cover stories like FAST COMPANY'S "Is Your Boss a Psychopath?" I've had at least one and maybe two that either qualified based on the criteria in that story...or at least came close. What are the criteria? Here is a short recap, and you can find the whole article at http://www.fastcompany.com/magazine/96/open_boss.html

"Corporate psychopaths score high on Factor 1, the "selfish, callous and remorseless use of others" category. It includes eight traits: glibness and superficial charm; grandiose sense of self-worth; pathological lying; cunning and manipulativeness; lack of remorse or guilt; shallow affect (i.e., a coldness covered up by dramatic emotional displays that are actually playacting); callousness and lack of empathy; and the failure to accept responsibility for one's own actions."

Sound like any bosses you know or have known? Scary, huh?

While I started leading you to think about those psychopaths you have known and suffered under, how about shifting to a more positive mindset about leaders? I've been fortunate to know some great ones too. While I've written many articles on what made leaders great, I keep finding new and useful criteria.

-----Good leaders
Thinking about the characteristics of outstanding leaders is actually a good pastime. Such leaders and their characteristics provide a good mental model, and (I think) can cause both conscious and unconscious emulation--and that is a very good thing. Over a year ago, I had the good fortune to meet a wise man named John Brekke, who helps leaders understand how they work and how to be more effective. Somewhere along the way, he shared the list below with me, and I thought it was so good, I want to share it with you. Aside from the fact that it comes from research conducted by 4 prominent business schools, 7 business research firms and 4 executive placement firms--it also passes the litmus test of common sense--and that's why I especially like it.
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Leadership Characteristics

1. Strategic Thinking: The ability to see the big picture and create a well-understood vision for the future. In addition strategic thinking means that implication thinking influences the decision making process. Strategic thinking also assumes the ability to act on the strategies put in place.
2. People Relatedness: Management by walking around with the attendant ability to help employees feel challenged and cared for. Employees are expecting to see bosses on the employees' turf. Employees are also expecting to be remembered as individual contributors to the enterprise.
3. Urgency & Accountability: These attributes are inextricably linked. The fast paced nature of the workplace demands that decisions be made more quickly, at the appropriate level by people who are held responsible.
4. Cultural Attention: Employees are looking to the leadership to create an organization that is focused, provides opportunities for personal growth, demands excellence and is employee friendly. Cultural creation is seen as a conscious deliberate emphasis and activity.
5. Coaching: Not only do leaders need to be engaged as coaches, understanding coaching components and opportunities, leaders also need to foster opportunities for people at all levels to become more effective coaches. Coaching also mandates personal vulnerability and openness.
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Last, but certainly not least, I found some answers given by GE CEO Jeff Immelt in an interview with FAST COMPANY'S Editor John Byrne. The phrases that particularly resonated with me were these:

-----ON BUSINESS: "It's a marathon. It's not a sprint....You have to have a plan. You have to stick with it. [But] you have to modity it at times. It's the sustained ability to change that really counts."

Did Immelt just contradict himself? "...stick with the plan ...but change"? Not really. Well done plans are situational. When the situation changes, the plan has to adapt, but not really be discarded or ignored. It's a lot like calling audibles in football. You don't discard the playbook and the game plan, but when the competition changes its behavior, you'd better adapt, and do it fast.

---ON DEALING WITH TOUGH SPELLS: "It's a combination of dealing with reality while communicating the road out: 'Here's what we've got to do, but once we do it, there is a road out of here'."

Learning to change, but most of all, having an organization around you that knows how to adapt, evolve and change, but within the confines of a larger plan--that is the real winning combination. As one of my old collegues used to say, "you'd know what to do." And I'd answer him, "No, WE'D figure out what to do together." That's how it works.

-----Leadership & Experience in Tough Times
I'd like to close by retelling a story I've told before because it illustrates an important combination of leadership and experience:

A man was walking along the street and as he passed a construction zone, he fell in a deep hole, and he couldn't figure out how to get out. He yelled for help and the first passerby was a doctor, who asked if he was injured. After the man answered that nothing was broken but he hurt all over, he saw a prescription slip come floating down into the hole and the doctor was gone. The next passerby was a minister. After the minister asked if the man was alright and got the same answer, a prayer on a piece of paper came floating down into the hole. The third passerby was a friend. The man in the hole was jubilant--until the friend jumped into the hole with him. The man asked his friend, 'why did you do that'? Now we're both in the hole.  The friend answered "yes, but I've been down here before and I know the way out!”

Those psychopathic bosses wouldn't even understand that story--but YOU do. That is the combination of experience and leadership that gets "friends" --and companies--through tough times.

Best, John

THE ENTERPRISE--Lessons

THE ENTERPRISE

As we celebrate our independence on this Fourth of July weekend, let's all take a moment and say a silent prayer of thanks for all those Americans who gave their all to keep us free--some of whom are still doing so. I try to make a point of saying thank you to every Armed Services person I meet these days. I think they appreciate it. I certainly appreciate what they do for us.

That said, I'd like to ask a favor of all those who pass on THE ENTERPRISE to their friends, family and associates to send me a note, estimating how many people read it "downstream." I am discussing the prospect of doing some writing for a print publication or two, and I realized that I know how many people are on my direct mailing lists, but not how many are "downstream readers."

Lessons Learned
For today, there are three lessons that struck me this past week, so I am sharing them here.

"The Engine That Could"---The Hemi
Has anyone noticed the huge success that DaimlerChrysler is having with its Hemi engine. Here is a lesson in differentiation based on what consumers want--and will pay dearly to have. The Hemi isn't even a "new technology" engine--it's a throwback to an earlier era of engine designs. The Hemi is an old pushrod V-8, but with three important features:
1--The hemispherical combustion chamber head (hence the name)--which is believed to offer better performance by allowing more air-fuel mixture into the cylinder to be burned and therefore generate more horsepower and torque.
2--A new feature which allows half of the cylinders to be shut down at highway cruising speeds, where they are not needed, thus improving fuel economy.
3--The Chrysler plant in Mexico that makes the Hemi has a cost that is actually 5-10% lower than a modern dual overhead cam V-8 which has more parts and more assembly.
Additionally, Chrysler prices the highly desirable Hemi at almost a $1000 premium, and includes other profitable options with the Hemi packages (leather seats, premium stereo, etc.) to further raise the profit of Hemi equipped models.

Lesson: Price has little to do with costs, especially when consumers believe there is a desirable value and are willing to pay for it. (Similar concept: Motorola Razr thin phones)

A Marine Corps. Leader's Advice
Most people perceive the Marines to be the US premier fighting force. General Peter Pace is vice chairman of the Joint Chiefs of Staff, and he is featured in "How I Make Decisions" (FORTUNE 75 6/22/2005 p. 108). His advice, aimed at the battlefield is equally wise in many settings.

..."When you have the responsibility to make decisions, make them."...

..."On a battlefield, you don't have time to gather a lot of opinions. You have to assess the environment and make a decision based on your experience and training. ... If you're collaborative when you can be, it builds trust, so that when you have to decide right now, folks are more likely to trust your decision."

..."One thing the Marine Corps teaches is that it's better to be doing something than doing nothing. If you stay where you are, you're in the position where your enemy wants you to be. If you start doing something, you are changing the rules of the game."

..."The most effective decision may be the least predictable one. ...If you work together quickly--and start talking about what the possibilities are--you can come up with a solution."

Finally, a short and to the point statement that is also right on target:
..."Some things today--cell phones and e-mail--are not healthy for growing leaders. Before cell phones, if the boss was away, the next person in line had to make a decision. It was either right or wrong, but you had to accept responsibility. You learned and grew from that. Now it's too easy to call for advice. Senior leaders have to start saying, 'Look, if it's not dying or burning, don't call me'."

Lesson: Get informed, get prepared and when a decision is required, make one.

The Wisdom of Dumb Questions
In that same issue of FORTUNE, Geoffrey Colvin writes about The Wisdom of Dumb Questions. A few excerpts are worth noting.
"...consider the most famous dumb question in all of business, created by Peter Drucker more than 50 years ago. What business are you in?"

"So here's how you do it. Don't apologize in advance or allow as how this is probably unimportant or say any of the other things that sap the dumb question of its power. Just step up and ask it. The shorter the better. Don't be intimidated by the stunned silence that follows. Wait it out. The payoff is on the way."

Lesson: There is no such thing as a dumb question. (Unless its the one you've asked and had answered multiple times before.)

My personal dumb question, which I ask on nearly every consulting assignment I take (here I go, giving away my "secrets" again) is: Why do you deserve to be in business? Well....I'm waiting.

Best, John

PS: The economy is fine, but when the average American has to pay (charge?) $30-50 each time they fill up their SUV, that money comes right out of their disposable income. Thus they have less money to spend at stores, on services, entertainment or anything. This is approaching a 50% premium to what it cost just a couple of years ago, and there is no real relief in sight. (and that goes for freight fuel surcharges too.) That kind of hit will "take the wind out of anyone's sails"...or at least make them think twice.