October 19, 2007
Wal-Mart on the Wane?
Contrary to what FTC bureaucrats and the anti-business crowd would have us believe, size isn't everything. If anything, in today's competitive world, it may be a liability. Wal-Mart increasingly appears to be an example, along with Microsoft and IBM, to name just two other behemoths whose "dominance" engendered angst, "non-profit" political action committees, and antitrust suits in earlier days. The Wall Street Journal reports on the seeming end of the Wal-Mart era:
. . . Wal-Mart's influence over the retail universe is slipping. In fact, the industry's titan is scrambling to keep up with swifter rivals that are redefining the business all around it. It can still disrupt prices, as it did last year by cutting some generic prescriptions in the United States to $4. But success is no longer guaranteed.
Rival retailers lured Americans away from Wal-Mart's low-price promise by offering greater convenience, more selection, higher quality or better service. Amid the country's growing affluence, Wal-Mart has struggled to overhaul its down-market, politically incorrect image while other discounters pitched themselves as more upscale and more palatable alternatives.
The Internet has changed shoppers' preferences and eroded the commanding influence Wal-Mart had over its suppliers. As a result, American shoppers are increasingly looking for qualities that Wal-Mart has trouble providing. . . .
Read the rest of this extensive article here.
Posted by John at 6:17 AM | Comments (0) | TrackBackOctober 8, 2007
Chicken Little and the Lap of the Gods
Dallas Federal Reserve Bank President and CEO Richard Fisher, in remarks at the Greater Dallas Chamber Annual State of Technology Luncheon, offers a reminder of how robust--yet unpredictable--the pace of innovation is in the U.S. economy:
. . . We live in a time when it is fashionable to look at all glasses as half full. Chicken Little rules the roost of economic prognostication. The innovators in this room know differently. Heirs to Eli Whitney, Thomas Edison, Alexander Graham Bell and the Wright brothers, American entrepreneurs are accustomed to operating in an economy that is the crucible of innovation. Jack Kilby and Robert Noyce, Jeff Bezos, Larry Page, Mark Zuckerberg and, of course, Bill Gates sprang from the American landscape, not from Germany or France or China or India or anyplace else. Inventiveness is part of the American DNA, nurtured in an economic system that encourages innovation and rewards it handsomely. New products and new technologies find fertile soil here in Texas and throughout the United States, where they can be funded and brought to market, only to be challenged in due course by the next round of new products and new technologies.
A free enterprise system recognizes that innovation cannot be predicted or controlled. No part of the computer was invented with the computer in mind. The keyboard came from the typewriter, invented in the 1860s by Christopher Latham Sholes. The first program was written for Joseph Marie Jacquard's loom in 1801, a technology to avoid mistakes made by the weavers. Vacuum tubes and transistors were first associated with radio and then television. The microchip was invented for handheld calculators, not for computers per se. And the electricity that powers it all started out as a better way to light up dark rooms. Mix them all together and—voila—you have a computer, the unintended consequence of a series of separate inventions.
American technology will continue to march forward, as it has for generations. Skeptics have always been proved wrong. Charles Duell once ran the U.S. Patent Office. He would probably be forgotten by now if not for a few words he is purported to have uttered in 1899—after the introduction of telephones, electric lights and automobiles, but before the next wave of innovation that brought us airplanes, refrigeration, radios and my favorite great invention, the pop-up toaster. In 1899, amid the great burst of innovation, one that rivaled what we see today, Duell infamously proclaimed: "Everything that can be invented has been invented." If Duell had been right, the job of econometricians and monetary policymakers would have been made so much easier. They could have put everything on autopilot. And, as a nation, we would have gone into decline, deprived of the fresh energy of new technology. I'll return to my best buddy—Schumpeter. He knew better. He wrote that "we cannot reason about the future possibilities of technological advance, those [technologies] that are still in the lap of the gods may be more or less productive than any that have thus far come within our range of observation. ... There is no reason to expect slackening of the rate of output through exhaustion of technological possibilities."
We know not what marvels still sit in the "lap of the gods." But history tells us it is a fool's game to expect a slackening of the rate of technological accomplishment. Some of you may even play starring roles developing the future waves of technology. Your efforts and the fruits of your labor will fuel the incessant revolution of our economic system, making the work of central bankers more confusing and challenging. As sure as I am standing here, I know that your success will make my job harder. I ask only one thing of you:
Keep it up.
Fisher's complete remarks can be found here.
Posted by John at 5:55 AM | Comments (0) | TrackBackSeptember 10, 2007
Change, Change, Change for U.S. Business
A rapidly changing job market is the result of rapid change among employers. Chris Zook, director of global strategy at consulting firm Bain & Co., gives some signposts in an interview with Universia-Knowledge@Wharton:
Bain conducted an extensive analysis of change in the Fortune 500 over the past two decades. We found that 153 of the top 500 companies in 1994 either ended up in bankruptcy or were acquired and integrated into another company. An additional 130 had made fundamental changes in their core strategy. Only one in three survived intact.
Posted by John at 4:32 AM | Comments (0) | TrackBackOverall, the facts are quite sobering:
--Only 1 in 10 companies achieve sustainable growth over a 10-year period.
--Business life spans have plummeted to an average of 14 years.
--CEOs are leaving their jobs twice as often as in previous decades, with today’s average tenure only four years.
--The average period an investor holds a share of common stock has decreased from about eight years to eight months.
--Market leaders are more quickly losing their lead positions.
--Product lifecycles in many industries have shrunk by 70% or more.
In the next decade, we expect the survival rate to approach only one-in-four, as major global forces accelerate the pace of change. . .
. . . Three decades ago, only about 20% of industries could be described as turbulent. Today we estimate it to be 62% . . .
June 23, 2007
Charles Koch on Success
C.S. Hayden has an interview with Charles Koch, Chairman and CEO of Koch Industries, which bought Georgia Pacific a little over a year ago. Several of Koch's comments stand out, including one on how studying business in school is "way overrated", while "understanding reality and having good values" enables you to "create real value".
Koch's comments on success are wise words for any company management and explain his company's growth and prosperity:
Posted by John at 4:17 AM | Comments (0) | TrackBackQ: What is your definition of success?
Mr. Koch: It goes back to the philosophy of happiness derived from Aristotle. Fully develop your capabilities and use them to make the maximum contribution possible. This is an ongoing process since things always change.
Being successful requires the process of trial and error. As Hayek says, the market economy is experimental. This means we are going to fail; we can never be sure about outcomes. You must not set yourself up to avoid all failure on specific initiatives, as this is the cause of overall failure. You must innovate and improve faster than your competitors. Otherwise, you are liquidating yourself, perhaps without realizing it. Consider this scenario: You and your competitor both have a 10% return, during the next year your competitor improves by 10% in every area and maintains only a 10% return, and you don't improve at all; what is your return? Zero! We must not only improve, but improve faster than the competition.
February 25, 2007
Bill Gates on Innovation
From the Washington Post: the title is “How to Keep America Competitive”, and Gates’ answer lies in innovation and the people which drive it.
Posted by John at 12:47 PM | Comments (0) | TrackBackFebruary 19, 2007
Toyota's Long View
The New York Times Magazine has an extended profile of Toyota which is worth a close reading; the excerpt below is only one selection you could pull from the article to illustrate the difference between how Toyota and the Detroit-based auto companies have operated:
. . . the most obvious example of Toyota’s long view is the Prius hybrid. [Toyota Motor North America President Jim] Press said he believes that every automobile in the U.S. will eventually be a hybrid. I asked how soon. Not in five years, he replied, “but I think at some point in the not-too-distant future.” I asked whether Toyota developed and marketed the technology years ahead of the other major automakers because it possessed better technical skills. Press instead framed the issue as a matter of philosophy. Ten years ago, he said, at about the same time the Prius made its debut, Ford rolled out the huge S.U.V. franchise. “Both of us had the same tea leaves, the same research,” he said. “One of us bet on hybrid, one of us bet on big S.U.V.’s.” In his view, the wisdom of making big S.U.V.’s — Press left unacknowledged that Toyota eventually brought out its own line of S.U.V.’s — seemed dubious: “First of all, long term, is fuel going to get cheaper or more expensive? Is oil going to become more plentiful or less plentiful? Is the air going to become cleaner or more polluted? And so, do you do something proactive and innovative, to be in tune with where society is going? Or do you hold on to where it has been, and then don’t let go, to the bitter end?” It was never a matter of altruism, he seemed to be saying, but an example of how corporations survive in society. “What’s the right thing to do to sustain the ability to sell more cars and trucks?” he asked. The Prius was not about a fast return on investment. It was about a slow and long-lasting one.
By the way, the article also points out some of Toyota’s failures, including its effort over the years to introduce a full-size pickup which captures the fancy of America’s hardcore truck buyers.
Posted by John at 8:52 PM | Comments (0) | TrackBackFebruary 15, 2007
Government's Higher Calling: Fostering Competition
Nobel Prize winner Edward Prescott offers a terrific Wall Street Journal commentary which explains why government's "higher calling," as he puts it, is to foster competition, not inhibit it with protections of business:
Of all the thankless jobs that economists set for themselves when it comes to educating people about economics, the notion that society is better off if some industries are allowed to wither, their workers lose their jobs, and investors lose their capital -- all in the name of the greater glory of globalization -- surely ranks near the top. This is counterintuitive to many people (politicians among them), because they view it the government's economic responsibility to protect U.S. industry, employment and wealth against the forces of foreign competition. If the government has any economic role at all, surely this must be it.
Actually, no. Government has a higher calling in this country (and others like the United States), which is to provide the opportunity for people to seek their livelihood on their own terms, in open international markets, with as little interference from government as possible. That doesn't mean we shouldn't provide short-term social insurance policies to aid those displaced by foreign competition, but the purpose of that aid should be to prepare workers, not protect them.
Also, just because a country is open to international competition doesn't mean that it won't meddle in international markets. Complexities (and hypocrisies) abound when countries establish international trade agreements. In this regard, the U.S. and its free-trade friends are deserving of no small amount of shame. But broadly speaking -- and these broad operating principles matter -- those countries that open their borders to international competition are those countries with the highest per capita income. . .
Read the remainder of Prescott's thoughtful commentary.
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December 13, 2006
Thriving Manufacturers in Developed Economies Establish Global Links
The conventional wisdom that all manufacturing in Western countries is destined to end up in lower cost labor markets like China and Vietnam is just plain wrong. While manufacturers who cannot adapt to rapidly changing global trends have found it tough to survive, the Financial Times, after extensive groundwork and interviews, found a number of forward-thinking companies who are thriving.
For example, some of these companies have found success in utilizing their plants in higher wage locales to develop specialized products for local markets.
The whole story is worth your close attention if you have an FT subscription, but here's a short blurb on just one of the companies mentioned in the article, Germany's Putzmeister:
Posted by John at 7:18 PM | Comments (0) | TrackBackOne company that has adapted the hybrid model of manufacturing in a particularly advanced way is Germany's Putzmeister, the world's biggest maker of giant concrete pumps - high-tech machines used in construction sites to shoot concrete through pipes hundreds of metres long. Putzmeister's sales in 2006 are expected to climb 20 per cent to about €900m, with 90 per cent of the revenues coming from outsideGermany.
The Stuttgart-based company has opened a plant in Shanghai but - because demand from China is so strong - this is occupied mainly in making machines and components for local use rather than supplanting production in Germany, where its staff of 1,600 are up 300 from two years ago.
Erwin Ruff, finance director, says the company has been affected to some degree by China-based competitors selling equipment similar to Putzmeister's but at lower prices. "We can counter this competition most of the time through offering more sophisticated machines that many customers prefer, even if they have to pay more," says Mr Ruff.
"On the whole, in analysing the bigger part that China has played in the world economy, I feel Putzmeister has gained more than it has lost."
September 1, 2006
U.S. Manufacturing Job Losses: Blame the Machines
IndustryWeek has an extended analysis of the role of technologies such as robotics in enhancing productivity and competitiveness in U.S. manufacturing:
. . .In 2006 China's cumulative investments in machine tools since 1998 will exceed that of the U.S., [President of the Association of Manufacturing Technology John] Byrd notes. In 2005 China invested more in machine tools than the U.S. -- $10.9 billion vs $5.8 billion. (China consumes 21% of the world's machine tool production, according to the AMT.) . . .
China's embrace of the latest production technology challenges the traditional U.S. job loss discussion. "Jobs are not going to China simply because of cheap labor," Byrd points out, arguing that global competition via technology driven productivity is the new job-loss factor.
Byrd refers to a fundamental transition that is accelerating among U.S. manufacturing's top performers. "Manufacturing employment has fallen some 20% over the last two decades. The reason is the tremendous, continuing rise in productivity, allowing fewer workers to produce more goods, faster and at lower cost."
In that evolving scenario, technological innovation -- not local wage rates -- determines competitiveness via productivity. Reducing labor content becomes an important competitive tool and he who plays technology best wins, adds Byrd. Low labor cost countries are not always the competition, adds Donald A. Vincent, executive vice president, Robotic Industries Association, Ann Arbor, Mich. In China, that kind of job loss is celebrated for the performance attributes it implies -- lower cost and increased capacity. The added productivity increases China's capacity to satisfy burgeoning demand. . . .
As this article observes elsewhere (and as we've mentioned here and here), the health of U.S. manufacturing is quite strong. One of the reasons, as this article explains, is that manufacturers have been reducing the labor component of their cost structure. This reduction has clearly been a function of technology, not outsourcing.
In the article, AMT's Byrd questions, given increasing worker shortages in manufacturing, whether future advances in manufacturing technology will be fast enough!
Posted by John at 5:29 AM | Comments (0) | TrackBackJune 27, 2006
Thriving in the Shadow of Wal-Mart
The Detroit News profiled several independent specialty stores which are surviving and even prospering--in spite of, and often because of, the competition from big-box retailers like Wal-Mart:
. . . Independent specialty stores, boutiques and cafes are surviving -- and even thriving -- in the shadow of the retail giants through a mix of personal service, specialized skills and unique products. They fend off the mega-stores by catering to a specific clientele or carving out a niche that's small enough to keep the big retailers out.
A 2005 survey of small-business owners found that 52 percent of those already in business changed their tactics and either retained their market share or actually increased business when a Wal-Mart, Target, Kohl's or other "big box" retailer opened nearby, according to DollarDays International Inc. of Scottsdale, Ariz., an Internet-based wholesaler to small businesses. . . . [emphasis mine]
"If a store has a niche that means they are highly specialized, and the big guys can't compete," said Bruce Wood, a retail analyst with Farmington Hills-based Kenneth J. Dalto and Associates.
One tactic small operators can take is to avoid competing with the powerhouses altogether and focus instead on offering service and merchandise that the big businesses can't. In some cases, a small business can ride the big stores' coattails, such as servicing items sold by the big-box stores.
"You can go to Wal-Mart and get a clock and it does the same thing, but they can't do what we do," explained Mai Pin, whose family runs the 30-year-old Roseville Clock Shop. The store -- within a mile of a Wal-Mart -- sells clocks ranging from $20 to $2,000, but 80 percent of its business is repairing and servicing broken clocks.
Besides the low-price outlets, Pin's shop also has to compete with big furniture chains, such as Art Van and Gardner White. They sell some of the same grandfather clocks as Roseville Clock, but nobody at the furniture stores can repair the massive time pieces.
Customers have been coming to the store for years and tell their friends about the service the shop offers. Repairmen are called out as far as Port Huron and Ann Arbor to fix broken clocks, Pin said.
That's why Leo Festian of Clinton Township has been bringing his clocks to the store for the past 15 years. He recently brought his mother's antique mantel clock to the store after it fell off a table and the pendulum broke off.
"You're friend or neighbor can't fix it," Festian said. "Department stores can't help you, but they'll sell you a new one."
The mass-merchandising approach of the mega-retailers also creates opportunity for small stores, noted Charlie Owens, Michigan director for the National Federation of Independent Businesses.
"The weakness of big boxes is that they carry standard products," Owens said. "Nothing is specialized." . . .
The article goes on to offer tips, from the book The Secrets of Retailing, or How to Beat Wal-Mart!, for small retailers as they compete against larger chains:
Think small: While large chains can buy in very large quantities, they can't buy in small quantities. They can't benefit from the true closeouts, which are broken lots or left-over goods that a manufacturer needs to unload.
Go unique: There are many new products that, because the supply is limited, chains pass over.
Find small manufacturers: Many small manufacturers will not sell to chain stores because one year the chain may gobble up most of their production, and the next year the chain will take that item and make a knock-off overseas.
Overhead cost: Instead of teams of buyers, batteries of lawyers and layers of accountants, an independent business can be run by a true entrepreneur and their trusty staff.
Simpler shopping: A store that is 2,000-5,000 square feet is much easier to shop than a 100,000 square foot giant.
Location, location, location: Under-served neighborhoods are an opportunity for independent stores to thrive where the giants are not.
Personal attention: People like to shop where they feel comfortable, where they feel the owner cares about their wants and needs.
Incidentally, I went to the Roseville Clock Shop website and saw that they make house calls. See if you can get Wal-Mart or your local department store to do that.
Posted by John at 9:42 AM | Comments (0) | TrackBackJune 26, 2006
Competition for Your Family Doctor
With chains such as Wal-Mart, Target, and CVS opening in-store medical clinics, doctors are having to respond to the competition with faster service and flexible scheduling, reports the New York Times:
. . . doctors know that as walk-in medical offices and retail-store clinics pose new competition, and as shrinking insurance benefits mean patients are paying more of their own bills, family care medicine is more than ever a consumer-service business. And it pays to keep the customer satisfied. . . .
Professional societies for family doctors and internists are urging their members to break with tradition by making it easier to schedule appointments — or even making appointments unnecessary in the case of walk-in patients who need immediate attention.
"It's a big trend," said Amanda Denning, a spokeswoman for the American Academy of Family Physicians, which has about 94,000 members.
Posted by John at 3:53 PM | Comments (0) | TrackBackThe academy is spending $8 million on consultants who visit doctors nationwide to suggest improvements in patient care. The advice is meant to "keep them from going to an in-store clinic," Ms. Denning said, while also benefiting doctors by making office procedures more efficient.
Meanwhile, the 119,000-member American College Of Physicians is promoting "patient-centric care," which it made the focus of a policy paper this year, calling for more consumer-friendly scheduling, electronic medical records and electronic prescriptions, among other measures.
In [Texas-based] Dr. [Melissa] Gerdes's office, the innovations include daily clinics at lunchtime called QuickSick, in which patients who have phoned up that morning can come in for routine problems requiring immediate attention, like an upper respiratory infection, and are guaranteed they will be examined, treated and on their way within a half-hour.
After a nurse checks the patient's temperature and blood pressure and types the symptoms into a computer, the doctor follows up with a brief exam. If medication is warranted, Dr. Gerdes can e-mail a prescription that will be ready when the patient arrives at the pharmacy.
"I can see three patients with acute needs every 15 minutes," she said.
The charge is $52 to $60, which is coverable by insurance and similar to prices at many of the new clinics springing up in places like CVS pharmacies and retail chains like Wal-Mart.
According to various polls, cost is a high priority for most patients. "People will change physicians for differentials of $10 or $15 in a co-pay," said Dr. Anne B. Francis, a pediatrician in Rochester and spokeswoman for the American Academy of Pediatrics.
But convenience also ranks high. That is one reason about 20,000 of the 59,000 actively practicing members of the American Academy of Family Physicians now use electronic health records. Being highly computerized can let doctors offer Web-based scheduling that enables patients to book their own appointments.
Many of those doctors also offer what Dr. Larry S. Fields, the academy's president, refers to as "open scheduling" — setting aside certain hours each day for seeing previously unscheduled patients.
"We try to cut down on the waiting time," Dr. Fields added. "We need to be more conscious of patients' time.". . .
May 5, 2006
Nucor and Its Culture: An Example for the Rest of U.S. Manufacturing
BusinessWeek has a terrific profile of Nucor, the country's largest steelmaker. Consider Nucor's practices and successes in light of Ford, for example, and it's hard not to come to the conclusion that the difference between the two comes down to one thing, management:
Posted by John at 5:25 AM | Comments (0) | TrackBackAt Nucor the art of motivation is about an unblinking focus on the people on the front line of the business. It's about talking to them, listening to them, taking a risk on their ideas, and accepting the occasional failure. It's a culture built in part with symbolic gestures. Every year, for example, every single employee's name goes on the cover of the annual report. And, like Iverson before him, DiMicco flies commercial, manages without an executive parking space, and really does make the coffee in the office when he takes the last cup. Although he has an Ivy League pedigree, including degrees from Brown University and the University of Pennsylvania, DiMicco retains the plain-talking style of a guy raised in a middle-class family in Mt. Kisco, N.Y. Only 65 people -- yes, 65 -- work alongside him at headquarters.
At times, workers and managers exhibit a level of passion for the company that can border on the bizarre. Executive Vice-President Joseph A. Rutkowski, an engineer who came up through the mills, speaks of Nucor as a "magic" place, representing the best of American rebelliousness. He says "we epitomize how people should think, should be." EVP Ferriola goes even further: "I consider myself an apostle" for the gospel of Ken Iverson. "After Christ died, people still spread the word. Our culture is a living thing. It will not die because we will not let it die, ever."
Unusual? No Doubt. But Vijay Govindarajan, a professor at Dartmouth College's Tuck School of Business, teaches Nucor as an example of outstanding strategic execution, placing it alongside highfliers such as JetBlue Airways and eBay. "My students say: 'I thought Nucor created steel.' And I say: 'No. Nucor creates knowledge."'
April 18, 2006
In the Auto Business, Whose Success Would You Rather Bet On?
Ford Chairman William Clay Ford, Jr.: Ford "can compete with Toyota, but we can't compete with Japan." (Quoted here)
Nissan Chairman Carlos Ghosn: "Auto makers can either sell cars without passion and struggle with shrinking production, or they can sell cars with passion." (Quoted here)
Posted by John at 9:26 PM | Comments (0) | TrackBackMarch 27, 2006
American Firms: Suited to Compete
Acknowledging that many don’t see it same way, the Washington Post’s Sebastian Mallaby has some interesting rationale on why he sees U.S. business in the middle of a golden period:
. . . America's business culture is peculiarly well-suited to contemporary challenges. American business is not especially good at coaxing productivity out of factory workers: The era when this was all-important was the heyday of Germany and Japan. But American business excels at managing service workers and knowledge workers: at equipping these people with technology, empowering them with the right level of independence and paying for performance. So the era of decentralized "network" businesses is the American era.
Moreover, America's business culture is perfectly matched to globalization. American executive suites and MBA courses are full of talented immigrants, so American managers think nothing of working in multicultural firms. The immigrants have links to their home countries, so Americans have an advantage in establishing global supply chains. The elites of Asia and Latin America compete to attend U.S. universities; when they return to their countries, they are keener to join the local operation of a U.S. company than of a German or Japanese one.
So the shift from manufacturing to services; the gallop of globalization; and the rise of information technology that flattens corporate hierarchies: All these forces come together to create an American moment. . . .
Read the complete article; there’s more meat there.
Posted by John at 9:32 PM | Comments (0) | TrackBackFebruary 2, 2006
Tackling All the World Economy is Dealing May Overwhelm Some Large Companies
Ian Davis and Elizabeth Stephenson of McKinsey offer, in the latest McKinsey Quarterly, ten trends to watch in 2006. For the most part there are no searing new insights here:
1. Centers of economic activity will shift profoundly, not just globally, but also regionally.
2. Public-sector activities will balloon, making productivity gains essential.
3. The consumer landscape will change and expand significantly.
4. Technological connectivity will transform the way people live and interact.
5. The battlefield for talent will shift.
6. The role and behavior of big business will come under increasingly sharp scrutiny.
7. Demand for natural resources will grow, as will the strain on the environment.
8. New global industry structures are emerging.
9. Management will go from art to science.
10. Ubiquitous access to information is changing the economics of knowledge.
My thought, after reading the article, was that taking all these trends on at one time will overwhelm more than a few large companies. Most of these trends involve some variation on the theme "rapid," a word not usually associated with multinational enterprises with layers of bureaucracy.
Indeed, one of the factoids accompanying the article notes that the probability that a company in an industry's top revenue quartile will not be there in five years is about 30 percent. Looking ahead, that estimate may prove low.
Posted by John at 10:25 AM | Comments (2) | TrackBackNovember 18, 2005
The Fertilizer of Small Business
The New York Times looks to Manitowoc, Wisconsin, and finds that the Internet is helping small retailers find a place to compete and thrive in a world purportedly dominated by Wal-Mart and their ilk:
In the newest era of this city's history, the Internet is propping up bricks and mortar downtown, acting as a mainstay for the stores that have helped Manitowoc establish what development specialists call a "recreational" shopping experience. Indeed, besides generating sales for giants like Amazon, the Internet is allowing small stores, here and around the country, to develop the niche products that shield them against big-box retailers.
Beyond the revenue from online sales, Manitowoc's merchants say the biggest benefit of e-commerce is that it enables them to turn over their inventory much more quickly, so owners can add more products and variety to their sales floors. That, in turn, encourages more interest and customer traffic, diversifies the revenue stream and contributes to downtown street life here and in other small cities. . .
At Eighth Street is the kitchen supply retailer Cooks Corner, which occupies a 20,000-square-foot store that was once a Kresge's. The company, which is 11 years old, employs 35 people and stocks 15,000 gadgets and appliances; its Web site, cookscorner.com, accounts for a third of the company's revenue. Of the 1,000 customers who visit the site each day, roughly 200 place a digital order, said Peter Burback, the company's owner and founder with his wife, Cathy. The site has also elevated Cooks Corner to regional and national attention. Mr. Burback keeps a customer log of cash-register receipts totaling 170,000 people who visited the store last year. "We're the No. 1 tourist draw in the city," he said. . . .
Former General Electric CEO Jack Welch once said that the Internet was the "Viagra of Big Business." It's also the fertilizer of small business, too.
Posted by John at 4:58 AM | Comments (0) | TrackBackAugust 11, 2005
Chinese Companies Buying in America: Competition is a Good Thing
University of Chicago Business School Professor and Hoover Senior Fellow Gary Becker, along with his colleague over at Chicago’s law school, Richard Posner, run the Becker-Posner Blog, a point-counterpoint format which is quite meaty in its content and ideas.
Posner examines the question whether Chinese companies should be allowed to own American companies, such as the aborted attempt the China National Offshore Oil Company (CNOOC) made to acquire Unocal. He finds multiple reasons why such purchases should be allowed, including the benefits to the U.S. economy and consumers of increased competition:
. . . the US is better off when it allows foreign companies, including those from China, to bid for American companies. If they are high bidders, either they would overpay for the assets-called the "winners curse" in auction theory- or they are more efficient managers. The US benefits even in the second case because it raises overall productivity of the American economy, and sets a good example for competitors. The American auto industry is more efficient (and much smaller) than in the past in part because they had to compete with cars made in the US by efficient Japanese and German auto manufacturers. American car owners are also getting much better cars at lower prices than they would have had without foreign-owned auto companies in the US.
One of my recommended books, Barriers to Riches by Stephen Parente and Edward Prescott, is a well-researched examination of the whole subject of competition and the health it bestows on an economy. One of the book’s central arguments is that the United States has prospered because it has fostered a competitive economy. In fact, the "barrier to riches" which Parente and Prescott refer to are regulations, tariffs, and other protections which inhibit competition but also stunt a nation’s development potential.
Posted by John at 5:32 AM | Comments (0) | TrackBackJuly 21, 2005
China: Just the Latest in a Long Line of Boogiemen
Author and enthusiastic reinvention advocate Tom Peters interviewed management professor Donald Sull about his new book Made in China: What Western Managers Can Learn from Trailblazing Chinese Entrepreneurs.
During the interview, Sull identified the trend in U.S. business to come up with a “boogiemen” to blame their troubles on:
. . . every 10 years, U.S. managers come up with a boogieman that strikes terror into the hearts of all responsible managers. So now it's China; in the '90s it was the dot.com; in the '80s it was Japan, Inc; in the '70s it was OPEC; in the '60s it was the Soviet Union; in the '50s it was U.S. Steel. Let's look at that list. The dot.coms, yes, they have been important, but nothing like folks were afraid of. Japan has been a flatliner for a decade. OPEC is back, okay, fair enough. The Soviet Union has dissolved, and U.S. Steel is effectively bankrupt.
I think people get into this sort of panic mode and stop thinking sensibly when these boogiemen are invoked; and China is the current boogieman. . .
It’s much easier to find a boogeyman to blame than to get about the business of reinventing your business in reaction to competition that is inevitable, whether it comes from China, India, or a company just up the street.
I want to read Sull’s book after reading Peters’ interview. His book sounds interesting since it is not just a series of hagiographies of Chinese entrepreneurs; it contrasts failures along with the successes.
July 1, 2005
Lessons from "Nimble" Terrestrial Radio
In a manifesto (pdf) published by ChangeThis, media consultant Fred Jacobs examines the problem with radio, which, in case you missed it, goes way beyond the threat from satellite radio:
The bigger threat to terrestrial radio may be embedded in the Internet. As broadband proliferates, it has become increasingly easier to access online “radio stations” from companies like AOL and Microsoft, or hundreds of outlets around the world that provide streaming entertainment, often at no charge. As listeners become more comfortable accompanying their computer activities with audio, most commercial radio stations are left in the dust because few have invested in streaming technology.
Terrestrial radio stations have to get more personality, get less predictable, and be more responsive to their audience, says Jacobs. They must treat their audience as consumers, not as a "demographic." He mentions the experience of one station in San Diego:
FM 94/9 in San Diego is winning this way, too. Like KQMT, its "alternative" playlist is hype-free, depth driven, anti-corporate, and hosted byDJs who have the freedom to call musical audibles. For two years, FM 94/9 has demonstrated that solid listener relationships, depth, variety, andan independent spirit produce results. The station has neutralized its key competitor. An industry trade publication named it "AlternativeStation of the Year." With this new approach, revenues have climbed seventy percent.
It’s worth noting that FM 94/9 is owned by Jefferson Pilot, a multi-billion dollar insurance giant. For a company whose industry is all aboutmitigating risk, Jefferson Pilot’s experiment is not without some irony. But its executives understand the value of standing naked on the leadingedge — the station sounds vastly different than its competitors. . . .
The people behind stations like . . . FM 94/9 have standards, values, and guts. They take risks and authentically care about the opinions oflisteners. Instead of broadcasting to the masses, NeoRadio stations play to their base by valuing listeners as individuals and their needs. It’snot "a format in a box." . . .
As the technology develops and becomes more widespread, Internet radio is indeed a tremendous threat to terrestrial radio. (It’s also a threat tothe satellite radio companies, but that’s another story.) At the same time, however, the Internet offers a tremendous opportunity for terrestrialradio—if it acts nimble, not corporate—to undergo a renaissance.
Here's a personal example: I love KHYI 95.3, "The Range," in Plano, Texas. (This station features country musicundoctored by Nashville slicksters.) I often listen to this station in the mornings as I read and write; thousands of other people must do so aswell, because I understand KHYI is one of the most popular terrestrial radio stations available on the Internet.
A particular delight is Bruce Kidder, the station’s Program Director who also serves as theweekday morning DJ. Bruce unfailingly delivers his own personality—-not some cheesy, made-up persona—-every morning. His interchanges withlisteners as he takes live call-in requests (for example: "let me hear some 'jump suit Elvis' this mornin', Bruce") are classic. His style, andthat of KHYI on the whole, fits the "hard country radio" format flawlessly. When he plays Heather Myles singing "Nashville's Gone Hollywood," it's no act.
KHYI is guerilla, not corporate. It's authenticity. It’s edgy,not smooth. It’s personality, with flaws and all on clear display. The station Jacobs mentions in San Diego is clearly similar.
Neither 94/9 or "The Range" are playing it safe. They apparently don’t have to; they don’t have a major market share or multi-million dollarinvestment to defend.
That’s the larger moral to Jacob’s fine analysis which cuts across all business sectors: playing it safe in order to survive is actually one ofthe best ways to be nibbled to death by agile, low cost, close -to-the-customer rivals.
June 12, 2005
A U.S. Manufacturer With Half Its Sales in Exports to China
As we’ve noted before, small companies often have to show their larger peers what’s possible.
Tramco Inc., a manufacturer of conveyor systems, exports to China, Guatemala, and Mexico, in addition to over 50 other countries. (Yes, those "cheap labor" countries.) Last year, according to a U.S. Chamber of Commerce profile (pdf), half of the company’s total sales last year were exports to China.
Tramco has about 100 employees in the United States, and was just awarded the President’s "E" award for excellence in exporting by the U.S. Chamber of Commerce.
In accepting this award, Tramco CEO Leon Trammell said, "Higher duties result in added expenses and lost business. Anytime we can reduce duties we expand opportunities. Free trade is always beneficial."
Posted by John at 8:52 AM | Comments (0) | TrackBackJune 7, 2005
Small is Beautiful, Essential, Liberating, Flexible, Profitable. . . . .
For a seemingly indefinite period in "Tidbits" (both in our old email-only version and now in our blog) we’ve been arguing that small has indeed become beautiful, made so by a stew which includes ingredients like the Internet, plunging telecommunications costs, globalization, and the desire of individuals to get out of the corporate.
We’ve argued the point specifically hard when it comes to banks, an area in which we have a significant investment interest. This trend, however, applies to virtually all industries. Every one of our private investments, without exception, has the element of "small" as part of our investment rationale.
Author and marketing guru Seth Godin has just added two terrific posts on this subject to his blog, “Small is the new big” and “More on Small.” Run, don’t walk, to read both of these excellent pieces. Here’s a short excerpt to motivate you to read more:
Today, little companies often make more money than big companies. Little churches grow faster than worldwide ones. Little jets are way faster (door to door) than big ones.
Today, Craigslist (18 employees) is the fourth most visited site according to some measures. They are partly owned by eBay (more than 4,000 employees) which hopes to stay in the same league, traffic-wise. They’re certainly not growing nearly as fast.
Small means the founder makes a far greater percentage of the customer interactions. Small means the founder is close to the decisions that matter and can make them, quickly.
Small is the new big because small gives you the flexibility to change the business model when your competition changes theirs.
Small means you can tell the truth on your blog.
Small means that you can answer email from your customers.
Small means that you will outsource the boring, low-impact stuff like manufacturing and shipping and billing and packing to others, while you keep the power because you invent the remarkable and tell stories to people who want to hear them.
A small law firm or accounting firm or ad agency is succeeding because they’re good, not because they’re big. So smart small companies are happy to hire them.
A small restaurant has an owner who greets you by name.
A small venture fund doesn’t have to fund big bad ideas in order to get capital doing work. They can make small investments in tiny companies with good (big) ideas. [My comment: I especially like this one!]
A small church has a minister with the time to visit you in the hospital when you’re sick.
Is it better to be the head of Craigslist or the head of UPS?
Here’s a few of my own contrasts of small and big:
Small means staying within your circle of strengths. Big is the idea that your size makes you smart.
Small means flushing mistakes without hesitation and moving on. Big means worrying about what Wall Street might think.
Small is coming up with new ways to measure your progress. Big means using a peer group of similarly sized companies in your industry to compare yourself against.
Small means selecting good people and focusing on internal growth. Big means making lots of acquisitions for stock.
Small means being able to experiment. Big means being afraid to invest (e.g. corporate America currently hoarding record levels of cash.)
Small means not having a large legacy IT system to care and feed. Big means the IT department specializes in patches and plugging “leaks.”
Small means being able to say “no” to a bad piece of business without worrying about next quarter’s earnings. Big means doing whatever you can to make this quarter’s number.
Small means tiny successes have a big impact on the company. Big doing a major acquisition to avoid having to admit the company’s internal growth is abysmal.
Small means dealing with employees individually and in small groups. Big means an auditorium full of employees (with thousands of others tied in by video feed) hearing the latest “pep talk” from the CEO.
Small is liberating. Big is suffocating.
Posted by John at 7:44 AM | Comments (1) | TrackBackJune 3, 2005
Lessons From Automakers' Manufacturing Efficiency
Harbour Consulting, a consulting firm focused on manufacturing competitiveness, has released its annual study of the efficiency of North American automobile manufacturing.
Toyota spends the fewest hours per vehicle manufacturing its cars, 27.9 hours, while Ford, the worst performer in the survey, spends an average of 36.9 hours per vehicle in manufacturing time. Toyota’s labor productivity lead on its North American competition, Harbour reports, amounts to $350 to $500 per vehicle.
To emphasize, we’re talking labor productivity, not labor costs. The problems GM and Ford are having relative to automakers like Toyota, unlike what the headlines (and GM executives) would have you believe, are not just related to health care costs. Toyota’s manufacturing process alone gives it a competitive advantage.
Harbour Consulting President Ron Harbour shared with the Detroit Free-Press what in my mind is the most interesting part of his study:
Ironically, Toyota is one of the few automakers that still assemble many car parts internally at their own plants, Harbour said. While many automakers seeking lower labor costs have outsourced the assembly of some car parts, such as the instrument panel, Toyota's high quality and productivity make building parts internally more profitable, Harbour said.
"They insist, with their quality and their ability to manufacture better than their suppliers, why change? It's interesting when you look at these numbers, that, as good as Toyota is, they may actually be better than that," he said.
Quite simply, part of Toyota’s advantage in North America seemingly comes from insourcing.
Harbour goes on to tell the Free-Press:
Harbour said Toyota plants make hundreds of small improvements each year to increase productivity, and he praised the company for continuing to do so even though they're already on top.
"It's a tribute to their process and their mentality," he said. "They have convinced themselves that they're paupers."
Doesn’t that really sum up the difference between Toyota and the Detroit-based automakers? Toyota has always "run scared," in spite of the advantages they’ve built relative to their competitors. In contrast, managements at GM and Ford have relaxed when they thought they owned the market. For example, their arrogance in the 1960s and 1970s allowed Toyota and other Japanese companies a wide open entrée into the U.S.
There’s a lesson here—one from Toyota, one from GM and Ford—for all companies.
Posted by John at 1:18 PM | Comments (0) | TrackBackMarch 7, 2005
A Change at Sony
Welshman Howard Stringer, who holds dual British-U.S. citizenship, today was named as Chairman and CEO of Sony Corporation, the first foreigner to head the company in its near 60 year history.
Sony, once arguably the most trusted consumer electronics brand name on the planet, has been losing out to companies like Sharp and Matsushita in flat panel TVs and Apple in portable music players.
Sony was co-founded by Akio Morita, who instituted a management policy of shared responsibility for the company’s fate between management and workers. Management, according to Morita’s philosophy, had to run the company as stewards for all employees, not just the top people. Part of the Sony culture was lifetime employment, which was designed to foster long-term thinking.
Sony’s cultural history is not unlike that of IBM. Founder Thomas Watson, Sr. laid out three principles called the “Basic Beliefs”: respect for the individual, the best customer service, and the pursuit of excellence.
As current IBM CEO Sam Palmisano noted in the December 2004 interview with the Harvard Business Review, these tenets morphed perilously:
Unfortunately, over the decades, [IBM founder Thomas] Watson’s Basic Beliefs became distorted and took on a life of their own. “Respect for the individual” became entitlement: not fair work for all, not a chance to speak out, but a guaranteed job and culture-dictated promotions. “The pursuit of excellence” became arrogance: We stopped listening to our markets, to our customers, to each other. We were so successful for so long that we could never see another point of view. And when the market shifted, we almost went out of business. . . .
Success is indeed a very dangerous business narcotic, which dulls the sense of paranoia necessary to survive in a competitive marketplace.
Posted by John at 8:25 AM | Comments (0) | TrackBackMarch 6, 2005
Only the Paranoid Survive at Nippon Steel
Over the last two decades, Nippon Steel has fought the negative effects of the yen’s climb against the dollar and an aggressive competitive threat from South Korean steelmaker Posco, whose exports were tied to the weak dollar. As detailed ($) in the Wall Street Journal, Nippon Steel was forced to take a series of restructurings which removed over $12 billion in costs over that time period.
The lesson?
. . . ."The biggest danger is complacency. "I'm constantly afraid," says Nippon Steel's chief financial officer, Nobuyoshi Fujiwara. "I have learned that no matter how well things are going, it can all change in an instant."
"We have learned that restructuring is not a one-time thing," says Akio Mimura, Nippon Steel's president. To survive, "it has to be a way of life."
Whether it’s currency fluctuation, heightened competition, inflation of raw materials prices, labor pressures are only a few of the hundreds of variables that constantly seek to knock a business off-kilter. To thrive, as Nippon Steel as demonstrated, it’s vital to remember your Andy Grove.
Posted by John at 10:28 PM | Comments (0) | TrackBackFebruary 22, 2005
Lowe's: Needing Home Depot to Survive
Bob Tillman just retired as CEO of Lowe’s, and in doing so, graciously gave some credit for Lowe’s success to his principal rival:
. . . Home Depot's nationwide growth binge in early 1990s forced North Carolina-based Lowe's to rethink its strategies or drop out of the race, says Robert Tillman, who steps down today after 42 years with the company.Lowe's overhauled its stores, enlarging and designing them to appeal to women. It grew from a regional operator to the nation's No. 2 home improvement chain, behind Home Depot.
"We got a little lucky," said Tillman in a phone interview from his office at Lowe's headquarters. "As much as they aggressively wanted to put Lowe's out of business, they helped us survive." . . .
Competition is good not just for customers, but for good companies and their shareholders. The best companies quickly learn from their threats and adapt to them, saving jobs and shareholder wealth over the long haul. Companies operating without strong rivals, however, inevitably become the corporate version of a wildebeest, an ungainly pack animal ripe for the picking by more lithe competitors.
Posted by John at 10:23 AM | Comments (0) | TrackBack