LETTERS FROM THE GLOBAL PROVINCE 2002 |
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2002 LETTERS GP24Dec: Dear Santa Claus Dear Santa. Everything is topsy turvy. We're
late in writing this year, what with an ice storm here, a drought there, an
Enron here, a Tyco there. This is the first time we've entrusted a note to
you to the Internet, but we thought, "Why not? Santa is using the web a lot
more." Not only can we chart your progress across the skies every year on
the NORAD website (www.noradsanta.org),
but there are a cluster of fine places to go now to find out what you are up
to. We just visited
www.claus.com, where we were able to check on the Naughty or Nice
ratings to get an idea whether you would be coming our way for Christmas. GP11Dec: Third World Economy; First-Rate Commonsense London Lurching. A couple of years back, some
banking acquaintances moved from Singapore to London. They had been
spoiled, because Singapore is an engine that purrs, greased by an ironfisted
autocracy that has its eye on the future and its hand on the levers of the
present. Except for the occasional python that may crawl out of the
Botanical Garden into your house, nothing untoward is ever allowed to happen
there. This island nation is proud of keeping gum off its sidewalks and
pursuing those who "outrage the modesty of ladies." GP4Dec: Optimism Unbounded Inspite of the Present Difficulties. A few
years back a chap at Oxford spent a decade putting together a global
collection of art prints he called “The Hope and Optimism Portfolio.”
Surely its values have held up much better than the hope and prayer tech
stocks of the 1990s. It’s named after a work by one of his Namibian
countrymen, John Muafangejo (see
www.btinternet.com/~hopeandoptimism/muafangejo.htm). The full name
is “Hope and Optimism Inspite of the Present difficulties.” If you can
exude optimism in the face of Africa’s AIDS epidemic, overwhelming hunger,
and insistent poverty, then you possess the stuff of heroism. The
spirit unbent. Three Quarters Full. The ultimate contrarian is
the optimist (not the pessimist) who just doesn't know how to fall down. In
some instances, rose-colored glasses are used to put a bloom on events. A
coterie of economists even now are telling us how good things are, no matter
our pain. Until this year, they could not quite admit the economy had hit a
speed bump. This year they are sort of saying we had a recession maybe but
that whatever it was is over. Scotty. A new book is out about James
Reston, who was for decades the powerful New York Times columnist and
Washington bureau chief and confidant of presidents, senators, and a host of
world leaders. The book is
Scotty: James B. Reston and the Rise and Fall of American Journalism.
It was during his tenure that the New York Times counted politically,
and it's never been as important since. He was civil, a middle-of-the-roader,
discreet enough to realize he did not have to tell all. For this he is
somewhat disparaged now. Throughout he was an optimist about the American
society in which he lived. Clearly no newsperson has come along who enjoys
the same power and influence. One of the uses of affirmation and optimism,
forgotten by the distrustful, catty scribblers of the present day, is that
it lets you sway history as well as report on it. Too clever, acerbic
journalists only strut at the margins of life well away from the playing
field. GP26Nov: The Dow Jones Is Average Attention Deficit.
Our friend Tom Davenport
just piped us a copy of
The Attention Economy, his must read for
anybody who wonders how you communicate in a 21st- century electronic
democracy. The title is a misnomer: he really is dealing with the
inattention that is one of the side effects of the Digital Age. He tells us
what we already know but choose to ignore. Modern technology is pouring a
garbled, gigantic stream of undigested information into our lives, making it
increasingly difficult to select and focus on the important, making it very
tricky to communicate deeply with one’s fellow man. If obesity threatens
the health and physique of 70% of Americans, attention deficit is the
disease of the intellect that has 100% of the populace in its thrall. Our
information machines are no different from the dragons in Spenser’s
Faerie Queen, disgorging a stew of meaningless printouts and treatises
that have made babble the new currency of discourse. The breakdown of
communication brought on by the panoply of new communication technologies is
at the essence of our own consulting practice where we strive to create
meaning and continuity. We tilt with a world where the irrelevant has
crowded out the important, and flashing signs have dimmed the luster of
eternal truths. GP13Nov: Fear Itself The Election of 2002. We’ve all heard a bunch of
Monday morning quarterbacking Best of the Week. Our thesis, then, is that
fears aplenty are driving people to strange On the Cheap. So there are all sorts of things
to do and investments to make and actions GP9Nov: Hiring Some Tough Old Coots Give Youth a Chance. We hear that some impudent asked Senator
Strom Thurmond about the advantages of turning 100. “Well,” he drawled, “You
don’t suffer much peer pressure.” Nor does he have to suffer many imitators
when he knocks off 25 push-ups on the floor of his Senate office. Obviously the old Dixiecrat is just getting plain mellow in his old age.
He’s obviously decided to make way for the young fellows. Meanwhile, the
Democratic Party, quenching its thirst at the Fountain of Youth, has put
forward pink-cheeked kids such as Frank ADP Lautenberg (78) and
Fritz-the-Ambassador Mondale (74), hoping to get them off the streets. Even
a lot of politicians are out of work lately and feeling useless, terribly in
need of a government handout. In this one respect, they are in tune with
America. Halloween Day Surprise. Just in time for Halloween,
Execunet.com,
an online recruiting service, sent out a bulletin entitled “Executives
Haunted by the Economy,” where we learn that the white-collar unemployed are
now willing to settle for less to get back on the payroll. We ourselves are
receiving a flood of resumes--to include quite an assortment of chief
executives--from people seeking a new port in the storm. In October, too,
the economy lost jobs for the 2nd month in a row, with unemployment edging
up to 5.7%. Our scuttlebutt from economists tells us that major corporations
will be shaving another 4% from their payrolls over the next year in an
attempt to sustain profitability. With gas prices at the pump up markedly
from this time last year (see prices in yardsticks below), we can be assured
that the recession has legs and will be playing in the theaters for quite a
while to come. Time to Hire. But we would claim that this is a great time to hire
some sure winners. There’s lots of wonderful people out of work, just
awasting. And there are a flock of very competent, dispirited employees
inside enterprises who want to leave because they feel their enterprises are
going in exactly the wrong direction. Are they beached whales perhaps:
Churchills between the wars? Morale is in the tank almost everywhere. This
is opportunity time for business visionaries. While many fire and retire,
the strategically apt will hire quality people who are ready to tear out of
the starting gate again. My Losing Season. But who should you pick to put on your team if
it will take a few years for the good times to roll again? We heard the
answer on National Public Radio last week when a somewhat fatuous
interviewer queried Pat Conroy about his new book
My Losing Season. Conroy’s book has already been panned by a few
reviewers (we bought it on discount), and we must own up that it’s a little
long. In fact, he got to the heart of the matter more decisively and wittily
over the radio. What he needed was a good editor for his book. Two men, it seems, had a chance of ruining Conroy’s life. His tyrannical
father was memorialized in
The Great Santini, a novel later made into a very entertaining
movie. And then there was Coach Mel Thompson of the Citadel. This coach
broke the spirit of the 1966-1967 basketball team, relentlessly using
negatives and scorn to enable good players to play very badly. Oddly enough,
Conroy--judged to be almost the least talented of the team’s twelve
players--was voted the most sportsmanlike and most valuable player. Because
he stopped listening to Coach Mel. This all came to a head in New Orleans, inherently America’s most
hopeless city and yet its second most fascinating metropolis. After all, its
other name is Bon Temps Rouler. At halftime against Loyola, Thompson
lambasted the team again. Then and there, Conroy escaped into manhood: That’s what we’re looking for in our next employees. Those who have
discovered their own voice in the face of adversity. In business today and
for the foreseeable future, employees will get knocked off their feet by
imploding markets, unstable bosses, and incredible inertia throughout the
political realm. If you’re hiring, you’re looking for men and women who can
roll with the punches and who are sustained by an inner voice that keeps
them going, keeps them aimed at some distant goal selected by their own
powerful intuition. Voice of Experience. Of course, it helps mightily if that
intuition is tempered by experience. In good times, you want kids in charge
because they know no limits and will outrun old codgers. They are dumb
enough to try new things, fly in the face of experience, and make the
impossible happen. But in bad times, you want fifty, sixty, and seventy somethings who have
seen a bad time or two. They'll deal with the tough stuff, knowing that life
goes on, no matter the calamity. And there are plenty of oldsters around to
advise and act, since, as we've said before, the country is aging at a rapid
rate. There’s another reason for discriminating in favor of old guys and gals
who are motivated by an inner voice. Education. Education in these United
States has decayed so badly and so quickly that there’s a reasonable chance
that you'll be hiring a more agile brain in the over-50 crowd, even if many
oldsters are a bit illiterate digitally. The seniors got their grades in
school by writing grammatically, doing their arithmetic on paper, and
learning that history did not begin sometime after World War II. Rampant
grade inflation mingled with muddled educational thinking from sea to
shining sea, from Harvard to UC-Berkeley, have given today’s students fast
fingers and slow brains. In other words, now’s the time to look for very
self-motivated, literate seniors who still have enough get-up-and-go to add
zest to your enterprise. Best of the Week. On Halloween, last Thursday evening, the French
suffered a tremendous loss. Lionel Poilane, who built a multibillion French
bread empire, crashed into the sea, the helicopter he piloted downed on the
way to his second home at Ile des Rimains. His very special bread combined
tremendous quality with quantity, as his factories churned out 15,000 loaves
a day. In part, his success stemmed from the fact that he talked with
10,000-plus bakers in the 1980’s: this marvelous piece of market research
meant that he got his bread right. Quality, and his success, came from
tapping into very experienced people in his trade. As he said, “The man with
the best future is the one with the longest memory.” Poilane baked together
intuition and experience, very much what we need in the present day--surely
the recipe which will let the good times roll again in a world which is
currently running in place. We will have more to say about this astute
pilot on the Global Province in future weeks. GP30Oct: Falling Off the Map Falling off the Map. Perhaps the best and
certainly the most original travel writer of our day is Pico Iyer.
Published in 1993, his
Falling off the Map: Some Lonely Places of the World took us to such
out-of-the-way spots as North Korea, Bhutan, and Paraguay, not the usual
fare of even the more adventurous denizens of our planet. “Lonely Places,
then, are the places that are not on international wavelengths, do not know
how to carry themselves, are lost when it comes to visitors.” We think Iyer
is not only a fine writer, but also a prophetic traveler who sees tomorrow
in unseen places. It’s in some of these spots, which run-of-the-mill
mortals conspicuously ignore, that we occasionally discover local pioneers
who are inventing the future. Countries at the Margin. It’s self evident to
those not afflicted by denial that the economies of all the major countries
of the world are severely troubled, with perhaps the single exception of
China, which still manages to grind out extraordinary growth somewhere in
the 6-8% range. As importantly, the leading countries are all caught up in
political deadlock, unable to advance agendas that will take them into the
21st century. This political impasse we suspect has
as much to do with our present economic distress as the lack of commercial
vitality evidenced by captains of industry. Somehow this reminds us that
President Clinton talked up the 21st century in his convention speeches but
that his political success stemmed so much from his ability to cling to the
20th, as he sensed that he was not dealing
with a country that wanted to move on. At any rate, the gridlock is
pervasive and acute. The interesting countries--post Cold War--are little
giants who have advanced while we weren't looking. In 2001, they often
showed handsome growth rates of better than 3% (as in Ireland, Luxembourg,
Greece, Ireland, Ecuador, South Korea, and Qatar) and sometimes had striking
GNPs per capita (as in Finland, Iceland, South Korea, Australia, and Qatar). This vibrant economic activity suggests that the action
has shifted from the name-brand countries, post 2000, to the lesser known
upstarts. Incidentally, this ascendance of the new kid on the block is seen
as well in the world of commerce, where outsider brands ranging from budget
airlines (i.e. Southwest, JetBlue, Ryan, and Easyjet) to newish alcoholic
drinks (i.e. Corona, Grey Goose, and Christiana) are toppling the kings of
the hill. Systems of all sorts have been so destabilized that new
competitors can push to the head of the line and change the rules of the
game. Iceland. Certain off-the-map countries are
getting terribly interesting and compel our attention because they are
inventing the future while the big countries are mired in the past. Iceland
may still be very dependent on fish for the bulk of its exports, but it’s
also active in biotechnology, with the gene pool of its whole population
having been mapped and with the large prospect of health and drug
discoveries. 70% of its people are on the Internet, 80% of its population
has mobile phones, and everyone is literate. It is active in geothermal
power. A while back, one of the smartest investors in the U.S., who often
makes currency bets, began his round-the-world journey in Iceland. We can
understand why. This country has seriously leveraged its homogeneity. Finland. The Finns have taken hits in the
current recession, but their Nokia stays on top of the world cellular
market. Like many Finnish firms, it started a long time ago as something
else altogether, then sold off its traditional businesses and completely
remade itself into a telecommunications company. This capacity of old
enterprises to completely reinvent themselves may be a Finnish national
trait, for they are a creative lot. As Finns will remark to you, “We invent
it, and then the Swedes sell it,” alluding, for instance, to the sauna,
which started Finnish and is billed as Swedish. Finland has a remarkable
design capacity, exhibited in its wares and architecture, that gives it
terrific impact beyond its shores. High literacy coupled with government
institutions that are intensely supportive of commercial activity has earned
this nation high marks with those who rate global competitiveness. Qatar. Right beside Saudi Arabia, it is mighty
different. First off, it has a vibrant economy, with a 5.6% growth rate in
2001, while the Saudis have slowed under the weight of a feudal,
sort-of-theocratic government. In 1995, it got a new 45-year old monarch
who established a legislature, opened the Al Jazeera satellite-TV station,
and even permitted a Christian church to be built. More importantly, women
can now vote and run for office. Women’s rights constitutes the “tipping
point” in Arab society, and is the means by which it can enter modernity and
leave its somnolent past behind. Here women are not invisible, and since
they constitute the majority of voters, they will eventually transform this
country and the nations around it. Greece. Economic growth has been pushing 4% a
year. Who would have thought this could ever happen to this sick man. But
tensions have simmered down in the Balkans, and relations with the Turks are
even relatively placid. Now part of the Euro Zone, its growth rate is twice
the European Union average. With tourism accounting for 15% of the economy,
we can hardly claim that this is one of Iyer’s Lonely Places, but now
visitors will go much further afield as the economy opens up parts of the
country where travelers formerly did not adventure. Interestingly, the
Olympics are coming in 2004, a talisman--as in China--that Greece is
spreading its commercial wings. Equipped with a poor educational system and
traditions that favor the aging, the young people have gone abroad in vast
numbers to study, and they will surely remake the country as they return in
force. Of course, a worry is that there are simply not enough young people;
with low fertility rates, the population is getting as old and decrepit as
Greek monuments (in fact, more so, since many of the monuments have been
restored). Just like Ireland, Greece is a shining example of the leavening
effects of the European Union. But, as significantly, it has benefited
mightily from its large immigrant community, perhaps 10% of the population,
which probably has added 1% to the economic growth rate as well as helping
Greece forge productive links outside its borders, setting aside some of
yesterday’s antagonisms. Looking for Growth in All the New Places. If
economic growth, innovation, relative political stability, and a thirst for
progress are facets of life in asymptotic, off-the-chart kind of places,
then companies and investors must be a bit more reflective about where they
plant the flag next. Pollo Campero, a Guatemalan chicken chain, first
spread throughout Central America and then came to the United States. But
next, as you will read on the Global Province in coming weeks, it is
targeting Poland, Portugal, and Spain, not going for Europe’s biggest
economies. It’s not self evident where you put your next office, factory,
or retail outlet, because all the usual major suspects are swimming in and
out of recession and offer mixed prospects for new businesses. Pico Iyer
was right in the 90s to look at all the places people avoided, because this
decade has seen the mighty fall, and the obscure flowering. Best This Week. Oh, to be in Giverny. If you
have wanderlust, we are recommending you go to offbeat places, the ones that
are a bit isolated from the world’s conflicts and are often somewhat immune
to the viruses sweeping through the global economy. Perhaps, too, when you
do go to the nameplate countries, you should speed through the capital and
head to the provinces. In France, this might just mean going to Giverny. We
thought about this recently when we came on
www.giverny.org., a wonderful website that leads you into
Monet’s idlyllic surroundings. Here Monet created art that not only charged
up a 19th-century creative moment, but also, in his later work, set the
stage for abstraction and other tendencies of the 20th. We’ll be talking
more about Giverny.org on Global Province in the future, claiming that it
should be instructive to civic boosters the world over who need to use
similar magic to trumpet their own regions. Suffice it to say, this site takes you into the sort
of landscape that made Impressionism flourish. Even American painters
flocked there (and they are mentioned on the website) and nurtured an
American Impressionism, which is now little remarked on in the United States
even though we know collectors of their very pleasant work. To Giverny you
should go to learn how a different theory of light led to such radiant
paintings, which never fail to illuminate even the dreariest of museums. Out in the provinces, in marginal countries well away
from global cities, you will not only find 21st century innovation and
surprising economic growth, but you will also discover a coherent life style
and even some freedom from the anxieties that pollute the mainstream world.
Who says escapism isn't a better way to go? Discover, says the travel
brochure we will write someday, Iceland’s homogeneity, Finland’s industrial
re-inventiveness, Qatar’s emancipated women, Greece’s immigrant power, and
Giverny’s warming Impressionism. GP16Oct: Breakdowns Don't Work Best This Week. Seabiscuit, champion racehorse
of the 1930s, already has found a place on the Global Province in our
section entitled Gods, Heroes, and Legends. But we have just learned it
takes a heroine to write about a hero. That is, Laura Hillenbrand, who wrote
the 2001 bestseller about Seabiscuit, reclaiming him for posterity, is
herself a tale untold. Confined to her Washington D.C. apartment by a
chronic, mysterious ailment, Ms. Hillenbrand used the computer and a network
of acquaintances to research how a discarded horse seized both the national
imagination and strident pre-eminence on the track. In coming weeks, we’ll
have more to say about her. Marion, the Opportunist. Hillenbrand’s own
victory as an author against all odds reminds us, curiously enough, of
Marion Harper, the advertising impresario. Now forgotten, he’s the chap who
made advertising a big business, putting McCann Erickson into the big
leagues reincarnated as a multi-agency, multi-disciplinary Interpublic (NYSE:IPG;
www.interpublic.com). One Monday back then an agency executive came into see
him, moaning, “Marion, Marion, we have terrible problems.” “There are no
problems, only opportunities!” was Harper’s rejoinder. From then on, agency
wags would jest, “We just had another 150 insurmountable opportunities last
week.” Ms. Hillenbrand, let it be said, has mounted the insurmountable. Harper, incidentally, was brought low by a palace coup,
his close colleagues worried by his free-spending ways. As we remember, he
lived out his life in obscurity with his mother back in Oklahoma, far from
Madison Avenue. We cherish as well one of his very prophetic lines, “I have
been captured by what I chased.” Clearly he was put out to pasture too soon. From Disabled to Enabled. Gone he may be, but we
need some of Marion’s boundless optimism now in order to build a new social
contract to break out of the policy impasse that has all our political
parties going nowhere. The numbers of people out of the swim--sick and
disabled, the unskilled underclass, the imprisoned, retirees--have grown so
huge that society is gasping under the load. Some want to offer them
support; others want to cut them off. Neither is a sustainable course of
action in this country or in the other advanced industrial nations, which
are all creaking under similar burdens. These liabilities must be converted to assets,
resource-users turned into resource-generators. Not all can write a
bestseller like Ms. Hillenbrand, but surely she has shown the way. Just like
Ms. Rowley--a welfare mother before she penned Harry Potter--who
climbed out of despair. Can we give such guts and willpower in other people
adequate outlet? Prematurely Retired. Right now awesome numbers
of our brethren on earth are entering second childhood, otherwise known as
old age. Not a day passes where we don’t have a conversation with someone
who is on the shelf who shouldn’t be. Corporate CEOs in their 70s who could
do a better and more strategic job now than they did 20 years ago.
Technicians out of transit systems and utilities who could avert the
meltdown these enterprises are experiencing today. There’s a senior circuit
for professional golfers somewhat past their prime--let’s have a senior
circuit for everybody. What we have on our hands is a Social Security System
that will be running dry (about 2025 or so) and a health system that is
overwhelmed by the diseases of the aging. And we have not yet invented the
second careers for sixty- and seventy-year olds who truly do have wisdom and
discipline that can be passed on to the wet-behind-the-ears. We have
enforced idleness, allowing productive people to become a drag on the body
politic. In other words, with seniors (or with prisoners, the
sick, the unskilled, etc.) we can argue that we need to keep a comfortable
percentage of them working until they drop or plain want to quit, probably
in new kinds of jobs. But it needs to be work of a serious sort born in a
legal context where employers are incentivized to hire the aged and the
temporarily disadvantaged. Why should our seniors just be ushers at church
on Sunday? We must view them as permanent contributors, not consignees to
the dustbin of history. We must want everybody to die with their boots on.
Maybe we can get retired Senator Monyihan to come back to work, since he,
above all, understands the problems and opportunities that abide in our idle
millions. Obsolescence Revisited. In past weeks, we have
theorized that obsolescence is no longer a valid economic strategy. As Yogi
Berra might say, “Breakdowns don’t work.” Then we were talking about
products, systems, and the things we build. But it applies as well to human
beings. Societies that marginalize large segments of their populations, even
for the most charitable of reasons, must become extraneous themselves. An
ethic that salutes lethargy will surely lead to a nation that becomes
comatose. If John Kennedy were re-writing
Why England Slept these days, he would call it Why the West Slept. Turning the Corner. At least in relation to
oldsters, we are making some headway. For years advertisers have geared
their giddy pitches to young people, not realizing that the disposable
income of the young set might be shrinking and that the oldster pool was
expanding. Now the old are coming into view, and not just in Viagra
advertisements. The New York Times Magazine (October 13, 2002,
p. 58ff) explains “The Myth of ‘l8 to 34,’” letting us know that ad agencies
and TV networks are dumb to have locked in on such a limited demographic. In
a few years, we may surmise that the adpack will be flocking to Mrs.
Fletcher and the like. In other words, marketers are waking up to the pocket
power of those over 50. Now, in the decade to come, we can hope that policy
makers will treat seniors like adults, rather than hapless, helpless
pensioners. To get anywhere, we have to overcome an “attitude problem” that
treats people like a problem. More with Less. It’s obvious, even in these
United States, that there’s not enough gold around to support our defense
expenditures, our health system (now 17% of GNP), and our retirement
bonanza, etc. etc. It’s said that citizens will tolerate and governments can
profitably use taxes that chew up about 20% of income. But the USA figure
seems to have sailed up to 30% or more, a level at which waste mounts and
disillusionment flourishes. That means we need to sharpen our pencils and
figure out what has to go. And we will have to tap into the abilities of
those sitting on the sidelines. Black and White and Read All Over. Do you
remember the riddle about what’s black and white and read all over? The
answer: the newspaper. Now newspapers have become full color and are read less
by fewer people. That brings us to the Saturday New York Times. It’s
thinner and better than Sunday through Friday: you will encounter there a
succinct treatment of the news, provocative sketches of some interesting
cultural figures such as a writer of detective fiction in Italy, and better
editorial columns than run in the daily paper (especially Bill Keller, a
marvelous writer who lost out in the intramural politics that are so thick
at the Times). In media, at least, all the best things happen out of
the limelight, almost by accident, free from the manipulations of the
mandarins. Quality occurs at the margins. This Saturday paper is one great example of a larger
point. When you have to overcome obstacles like Ms. Hillenbrand or use less
money and talent like the Saturday Times, great things can happen.
Now then, can’t we turn our lemons into lemonade, taking people at the
margin and putting them center stage, stirring up a fire in the ashes? Businesses that can see over the horizon will sell,
employ, cosset, and celebrate those who are not in the fast lane, stealing a
march on politicos, policymakers, and poltroons, knowing there’s a dollar to
be made where others, too blind, fear to tread. Clearly 18 to 34 is not the
place to be. The real leverage in 2002 lies with our rejects. GP9Oct: Prix Fixed Best of the Week. On Tuesday Albertus Seba’s
Cabinet of
Natural Curiosities crossed our doorstep. Published by Taschen, this
marvelous, over-sized coffee-table book beautifully illustrates the fauna
and flora collection of a wealthy 17th-century
Dutchman who prized all the natural oddities he collected. This handsome
volume is a reproduction of the original commissioned by Seba, which now
resides in the Hague. It sells for $150, and we understand another printing
is on the way. You will learn more about Seba and Taschen on Best of Class
in future weeks. Pickpocketed. Seba’s creation might seem a bit
dear to you, no matter how lovely, until you check on the prices of the most
ordinary things in today’s local marketplace. For instance, the dry cleaners
is now ill-satisfied with its $10 tariff for a mere wisp of a dress, having
invented some mysterious “up” charges which tack on another $5 if the fabric
is silk or anything other than synthetic fibers. Volumes are falling as we get deeper and deeper into
this recession, so merchants and manufacturers are using sleight of hand
tricks to bring in the same dollars for less product or service. Retailing
began to get mushy in this year’s 3d calendar quarter, and the pricing
gambit has been picking up steam ever since. A candy bar may still cost $.50
or a $1.00, but there’s less of it. AT&T promotes cheap long distance, but
you may discover that 30% of your monthly bill consists of surcharges. When
you open a Sony TV box, don’t be surprised if there’s no cord to attach your
new tube to the cable system. Hewlett-Packard and the other printer makers
have figured out how to charge a king’s ransom for their ink cartridge
replacements, although some Singapore insiders think Dell’s entry into the
printer market will soon prick a hole in this balloon. Real estate and
housing are still sky high, propped up by the lowest Fed rates in 40 years
(even so, this market is now getting softer). We’re paying more for less,
uptown prices for downtown merchandise, a sign that our markets are not
quite working. So Seba’s book might even seem cheap by comparison, when we
learn how little our dollars buy us elsewhere. What does all this, you may ask, have to do with the
“price of tea in China,” or with the direction of the global economy? We
would assume that price inflation in a deflationary world (and lots of
prices are out of whack around the globe) suggests that the worldwide credit
bubble still has not completely burst, and we have a ways to go before we
achieve economic stability. The bizarre excesses have not been cleared out
of the marketplace, no matter where you sit in the world. End of Obsolescence. We have said in previous
weeks that in this unusual recession, with severe slippage in several
markets not seen for several decades, business leaders should consider going
upmarket, charging more for providing much more. Simply building products
that don't break down or wear out at the drop of a hat would be a major
accomplishment, meriting a handsome pricing premium. Ending obsolescence is
a compelling idea in a world plagued by breakdowns. As we have also said,
however, one’s strategy outside one’s own borders has to be somewhat
different. These volatile times virtually command businessmen to have
razor-sharp strategies, even though the temptation is to use disposable
razors and other short-term tactics that merely get you through tomorrow or
next week. Our contention is that “winging it” will put you on the road to
bankruptcy. Priceware. Prices now are crazy, totally
divorced from both reality and any sense of value. Retailers are using
price-optimization software from which they expect a payback in 12 months.
Among the distortions this produces are different prices for the same goods,
even at chain stores only a few miles apart from each other. Analysts crunch
inventory and sales data from each store trying to find out what the traffic
will bear, there being a different tolerance for pain from store to store.
Only a foolish consumer now does one-stop shopping, since prices are bound
to be out of line on some items at any one shop. At some drug stores, for
instance, extra margin these days is packed into non-pharmacy items, with
plenty of greeting cards, of pedestrian sentiment and design, selling at
boutique prices. This same price aggressiveness is also seen in
business-to-business sales, with as much as 20% in extra dollars tacked onto
some expensive electrical equipment when it is revealed that very few sales
are lost as a result. Eventually, of course, this leads to trouble: airlines
have strained relationships with their all-important business passengers,
who have found themselves sitting beside economy passengers who have paid
half or less for the same seats. The problem, we emphasize, is not high
pricing. It’s the failure to deliver more for the money. It’s offering
commodity goods for luxury prices. When the prices of things begin to bear
some relation to value, one will know the world’s economy and individual
businesses are on the mend. Three Musketeers to the Rescue. In coming weeks,
too, we will be talking about D’Artagnan on the Global Province, who, as you
will remember, left Gascony to join the Three Musketeers. Well, D’Artagnan
is a hit restaurant in Manhattan as well, and, as importantly, a $30 million
a year specialty meat distributor of foie gras and duck and rabbit
and lamb and quail and wild mushrooms. Obviously you will run up quite a tab
at the restaurant, but, pleasurably, you know in advance that it uses superb
ingredients, since it serves as a showcase for its owners’ products. In
other words, you are paying up, but D’Artagnan is much too honorable to pick
your pocket. It deserves a premium. GP2Oct: Systems on the Edge of a Nervous Breakdown The Laws of Lawlessness. Back in the 20th
century, when things still seemed to work, we conjured up a number of laws,
sometimes humorous, always ironic, that said we were going to hell in a hand
basket. Now in the 21st, we’re in purgatory, and the laws have all come
true. The space program, apparently, gave birth to Murphy’s Law: “If
anything can go wrong, it will.” Augustine’s Laws, the title of a
book by one-time under-defense secretary and later Martin Marietta head Norm
Augustine, more or less said: “As we get more and more money to spend on
trinkets, we put more and more electronics in our jet planes, which condemns
them to ever-increasing breakdowns and downtime.” Best of all and all but
forgotten now is Cybernetics (1948), a short, exceedingly provocative
work by the brilliant Norbert Weiner, a scientist for all seasons. In it we
learned that the second Law of Themodynamics guarantees entropy in all
systems. That is, organized things will always fall apart. Or as our good
friend Regis C. announced to all with a chortle several years ago after a
disruptive incident in the subway: “Well, that equine elimination is just
gonna happen.” We have abundant laws, written before their time, that
underscore the ultimate lawlessness of the universe and the inevitable
Decline and Fall of any system you can dream up. The Myth of Robust Systems. Computer people have
nattered on about robust systems for half a century. But now that you know
that anything complex is subject to the slings and arrows of Weiner’s
entropy, you can state positively that such assertions simply don’t hold
water. There’s really no such thing as a robust system. And, circa 2002, as
we make our systems more and more complex, we’re simply experiencing more
and more breakdown. Moreover, since our systems are interconnected (your
house alarm is linked to an outside monitoring service located 100 miles
away, which may call the wrong fire department when something happens), the
domino effect comes into play. One bolt of lightening in the wrong place can
bring 40 interconnected systems to a standstill. There are all sorts of reasons that systems fall apart.
In fact, the chaps at the Sante Fe Institute in New Mexico not only study
complexity but stay up nights drumming up ways to make the complex, which is
inherently unstable, stay glued together. They, and most of the architects
who devise systems, tend to worry about design issues, looking at how
systems are wired together. Isn't it ironic that all the people who look at
complex phenomena always abide in simple places where the biggest story of
the day is that somebody forgot to plug in the coffeepot? Shoddy Merchandise. We mere mortals, well away
from the ivory tower, in the more complex world outside Santa Fe, can
usually look to something more down to earth if we are out to avoid
breakdown. In fact, a software guru from Santa Fe taught us that you can
have poorly designed systems that function well, if the systems have lots of
redundancy. Are there spare parts in the system, so when one conks out
another takes over? Are there enough spare parts on your shelf (don't
believe in maintenance schedules or just-in-time delivery) so you can pull a
burnt-out part out and plug in another? Systems are put together by people
often called integrators who, either through calculation or ignorance, use
lousy components in their systems. And they’re too vain to acknowledge that
even the best of systems (i.e., the systems they have built) will fail
often. Simple to say: if you can use great parts, you will have less
outages. So this is a warning to us all to watch out for any
system that is called “integrated.” It rarely has rugged enough components
to work, lacks redundancy, and its creators usually over claim what it can
do, even in the best of circumstances. This yellow caution light applies to
all sorts of systems, not just the wired kind such as computers, electric
grids, or management-information systems. As oft as not, systems fail
because there’s a weak link in the chain. By the way, that certainly
accounts for our worst space disasters. For instance, many of the schools your kids go to now
have “integrated curriculums” (a.k.a. curricula). That really means that all
the courses are loosely knitted together so that your tots can read some
colonial literature in Language Arts (an unfortunate euphemism for what we
use to call English) while George Washington is bravely losing a battle or
two against the French and Indians in a Social Studies course. But you can
be sure that many children are not getting the vital, rigorous training they
need in grammar, multiplication charts, or periodic tables. In computer
training, they’re fooling around with elaborate Powerpoints, but never
really learning to keyboard (type). The politically correct textbooks they
use often border on illiteracy, even if they bear the imprimatur of some
university in the Midwest. In other words, the components of these
integrated curricula are lousy. According to some federal statistics, 30% of
college students will need to take remedial course in reading, writing, and
mathematics in order to get the fundamentals they missed growing up. Just as bad is the customer service system at your
utility, which lacks real-time data on when the repairs will get done and
also lacks the power to send any meaningful data to the repair department so
that the right skills are dispatched to do the fix. Their systems lack the
correct software, the right training protocols, etc. It’s not that there aren't simple systems that work.
For instance, back in 1996 or so there was a wonderful bank in Palo Alto
called University National Bank. As Chief Executive Carl Schmitt then said,
“We’re in the put and take business.” He took money in and gave money out.
He did not offer an endless array of services or contorted product options.
He was in the deposit business. The folks who worked there were exceedingly
polite; I seem to remember an Oriental rug on the floor; and you did not
have to wait in long lines. Carl gave all his customers some Walla Walla
onions at Christmas, as a way of saying thanks. He also took great pictures
himself for his annual report. Since then, Wells Fargo or one of the huge
integrated financial service institutions took it over, and reliability is
out the window. There’s no longer a great non-integrator at the helm who
wants to deliver on a simple idea, using simple, no-nonsense components.
Here and there, around the nation you can still find the occasional
put-and-take, one horse bank--these kinds of banks tend to make money year
after year. Looking Under the Hood. This world of fragile
interdependent systems ultimately means that we will have to know what goes
into anything in order to make our lives work. Most systems and processes
are invisible now, and even if we get a list of contents, we don’t know what
to make of them. Eventually we might hope for quality branding, the
equivalent of the old Good Housekeeping seal of approval. Just as Intel has
gotten computer makers to use “Intel Inside” labels, we are going to need
short-hand labels that tell us we are probably getting good goods. This
matter of quality contents or components presents incredible opportunities
for alert business people who will increasingly grasp that obsolescence is
no longer a viable business strategy in a resource-short, environmentally
afflicted, stalled market economic environment. We need things that last and
work for a long time. But it’s hard to build for a 100 years when you’re
used to trashing everything. Here is an almost shocking business
observation: obsolescence is obsolescent. The first hints of making-visible-better-insides are
just appearing on the horizon. McDonald’s and Frito-Lay are moving to put
better oils in their foods, and we expect they will be better able to
dramatize the Health Inside than the American Health Association or other
non-profits. The air conditioning man (if he is not part of the national
chains) is able to describe and install filtration devices that vastly
extend the life of the cooling system. UPS and FedEx have made package
deliveries transparent to the consumer, so that one can track on the
Internet an item’s progress to its final destination. A few companies are
becoming more agile at making the invisible worlds of systems and services
visible to their customers. Any product or service is just part of a system:
in a world of breakdown, we need to see whether the system works or does not
work. Ask the Repairman. But the insides of systems,
products, services, schools, governments, whatever, are generally not
transparent. As users, we have two choices. 1. Ask a repairman. He will probably tell you he would
prefer to work on a Toyota above all other cars. Or that four TV brands
(Sony and a few others) stand out above the pack for reliability and
repairability. Repairability often tells you whether you are dealing with a
well-wrought system. What we are saying here is that an informed middleman
is a way of improving your luck with systems. Japanese manufacturers,
similarly, once used middlemen (distributors of products) to find out what
Americans wanted in their cars, TVs, power tools, etc. 2. Find some repair data. In a few cases, raw
maintenance data of various sorts is available. The government collects
on-time and other data on the airlines, which is not always easy to uncover
but can be unearthed. Consumer Reports assembles maintenance data on
car models that is uncommonly revealing and tells you more than all the
testing performed by CR’s engineers. In other words, until labeling gets better, you had
best find out about the reliability of systems from some sort of repair
data. It’s the breakdowns that tell you what you are dealing with. Call 911. Remember when the Monday morning
quarterbacks told us that Y2K was really a false alarm, and that the world’s
computer systems did not fall apart despite the fact that computer engineers
had not anticipated, way back when, that the year 2000 would ever come to
pass. But wait a minute: systems of all kinds post 2000 are breaking down
everywhere. There are more power outages with many more to come because we
are simply not building new generation capacity. We've been to the very edge
of the Dark Ages in our financial markets--more than once. The Cold War is
over, but Don Rumsfeld is still using the Spanish Armada to battle
unconventional forces and terrorist viruses--the wrong system and wrong
weapons to deal with an unseen enemy. Who says Y2K never happened? Chances are you are going to run into total breakdown
more and more. Recently a retired physician checked into a hospital north of
Boston for surgery. Early one evening he rang for a bedpan, and, no matter
how much he rang or shouted, nobody came. The following night, exactly the same thing happened.
But he had a Eureka and picked up his cell phone to call 911. The local
police were able to rouse the hospital staff and to get him a bedpan in the
nick of time. Likewise, Don Imus, the radio talkslash host, was just
as ingenious recently. No matter what, he could not get a Time Warner cable
repairman to come to his New York apartment. Then he railed about it on his
radio/cable show and the minions of TW came running. But, even after
repairs, they knocked out the reception on one small TV in his kitchen. The
system is so flawed that even the repairmen don't know what to do. And cable
is one of the most hated services in the United States. The world of broken systems is also a world of broken
communication where citizens will have to be ingenious beyond belief to
fight entropy. Broken systems turn ordinary citizens into guerilla fighters.
As
Norbert Weiner would have said, entropy “subverts the exchange of
messages.” So you'll just have to learn to beat on your tom-tom. GP18Sep: Going Upmarket in Stormy Weather Sunshine Boys and Girls. All through the
booming 1990s, we heard doomsday prophets rant on about the imminent end of
the world and the financial implosion that was only 2 days away. Now it’s
just the opposite. The contrarians and semi-balmy are going on about the
resilience of our heartland economy and the power of low interest rates that
are already igniting a rebound we’d see if we were only more perceptive.
For instance, if you read the Sept. 24 New York Times, “Against All
Odds: A Couple of Bulls,” you will learn about James Smith of the
University of North Carolina and Nancy Lazar of the International Strategy
and Investment Group. They envision 4% growth by year’s end. Just like the
songsters in the old feel-good Broadway musicals, they see, at the end of a
storm, a golden sky and the sweet silver song of a lark. And The Rains Still Came. But Saturday also
brought in the mail the Herman Miller 2002 Annual Report. It has a bad
weather map on the cover, plaintively announces the company is “Coming
Through the Storm Stronger for the Future,” and offers upfront an actual
poncho to help you get through these stormy times. We will be calling
Herman Miller (NASDAQ:MLHR;
www.hermanmiller.com) to ask for a gross of ponchos to cover us during
the many downpours ahead. Should you need a cold dose of reality to deal
with the better-times-are-coming people, simply examine Miller, which lost
$56 million last year, having earned $141 million the year before. It’s as
good a way as any to learn that we are in just the second dip of this
recession. Miller, incidentally, makes very slick, high-end furniture for
the office, but this very good company does need a substantial rethink,
since corporate purchasing agents are in a threadbare state of mind, and it
needs to find whole new markets. In Bad Times, Good Goods. What America did
during the first leg of the downturn last year was to go cheap. We cut all
sorts of costs out of business, fired a whole bunch of people, put too
little inventory on the shelf, killed customer service, cheapened our
product offerings, raised cash, and more or less completed the orgy of cost
reduction that got its start way back in 1990. In many ways, a host of
companies have simply been eviscerating themselves. Everybody in their own
way hoped to become a Southwest Airlines (NYSE:LUV;
www.southwest.com), the Greyhound of the Skies, by offering no amenities
and laughing about their low-rent atmospherics, hoping that their equivalent
of $150 fares would garner big revenues, even if the product was just like
cattle-car transportation. In 2001, this worked for many, as huge
discounters in every industry took market share and profits. Now, in the second leg of this recession, sales are
beginning to erode at Wal-Mart (NYSE:WMT;
www.walmartstores.com) and the discounters. Consumers are either
saturated, or they’re simply running out of money. The cut-rate marketplace
is just beginning to look a little tired. A Paradox Is Upon Us. As time goes by, it pays
to go upmarket, not down.. You will find less competition up there, since
others have rushed into the commodity, stripped-down arena. And there are
still some upmarket buyers standing, with dollar bills in their billfolds,
whereas other consumers have fallen by the wayside. The Bad Times, Good
Goods Paradox is that for some, deep, long recessions are a good time to go
high end. And a corollary is that product quality will often get
substantially better in a slump, since the selective buyers who are left
won’t go for shoddy fare. In the developed markets of the world, we can
argue that you should swim upstream, pulling free of the crowd that is
bobbing along with the current downstream. Bangkok Airways. Lest you think every airline
is trying to be a Southwest or JetBlue (NASDAQ:JBLU;
www.jetblue.com), you should read about Bangkok Airways (www.bangkokair.com),
which splurges on passengers and has more than quadrupled its customers in
the last decade, with profits up to $2.7 million in 2001. (See the
Economist, September 7, 2002, P. 58.) It has focused on tourists, not
Thais, and its route structure avoids the hub cities of the majors in order
to get passengers directly to their favored destinations. Even its
terminals are pleasant places to roost, with good views and lots of
comforts. This airline is heading successfully into the winds, offering
more, not less. Grey Power. Even when this long recession
finally ends somewhere in this decade, an upmarket strategy will still make
lots of sense. All sorts of demographic things are happening in developed
nations that should point companies in new directions. People over 60 now
comprise 20% of the market in advanced nations, and this will swell to
one-third by 2050, and even 40% in Japan. (See the Economist,
August 10, 2002, pp.51-52.) The mature can and will pay for more, if
products and services match their requirements. This, of course, implies a
revolution in the world of marketing, where everything has been blindly
focused on younger people. Ironically, for instance, the TV networks focus
on the young, yet the seniors have the wealth and available time to make
them fat, empty nest targets for clever salesmen. Rainbow Tastes. On the Global Province, you
will now find a Best of Spices section (www.globalprovince.com/bestspices.htm).
This signals that America is steering away from bland, standardized food—as
well as other faceless, mass-market offerings. Surely spices form the
dividing line between numbness and enriched experience. The growing
interest in quality spices clearly shows us that Little Calcutta is being
grafted onto Middletown. That is, ethnic diversity is leading to diverse
tastes that are infecting the whole of America. People want sushi to go
with their skim milk lattes. All these micro-food markets have let the air
out of the tires at McDonald’s and Burger King. In other words,
differentiating consumers don’t want one size fits all. We have found, for
instance, 6 or 7 special table salts—and a like number of peppers—that
people will go out of their way to get. The Rise of the Creative Class. Richard
Florida’s The Rise of the Creative Class: And How It’s Transforming
Work, Leisure, Community and Everyday Life implicitly suggests another
reason for going upmarket. In short, he theorizes that the people (i.e.
creative technologists and the like) who will build the next economy flock
to regions with an interesting infrastructure. It’s not enough to offer
well-funded universities, decent highways, and ample golf courses. The new
creative knowledge class wants galleries, top restaurants, a cosmopolitan
population, theater, and a host of other urban delights. Development has
become more dependent on talent than capital. But the talent will only
migrate if good goods are available. This has been a problem for state
development agencies whose tactics have primarily focused on importing
manufacturing jobs instead of capturing entrepreneurs who start businesses
in a garage and collectively create a critical creative mass. These
agencies don’t try to put in place the little things that mean a lot to
knowledge workers. The creatives want communities with texture. Quality of Life Channels. Nowhere is the value
of an upmarket strategy more apparent than in the media business. We would
point particularly to E.W. Scripps (NYSE:SSP;
www.scripps.com), which has been doing well even in what could be called
the worse advertising market since the 1930s. While its newspapers and its
broadcast units are relatively flat, its Scripps Network unit soars ahead,
with a 19-percent increase in revenues in the 2d quarter. At this rate, it
will probably becomes the company’s largest unit in 8 to 12 quarters. What Scripps Networks does is author content that is
distributed through cable television. So far this consists of House and
Garden TV, the Food Network, Do It Yourself, and Fine Living. What’s
produced is often of very high quality. We call these networks
Quality-of-Life Channels. Scripps is profiting handsomely by dealing with
life improvement, doing well while doing good. Scripps, and certain of the
other regional media companies, are doing well, even as AOL Time Warner and
other mass market media goliaths falter in interactive space. You’re the Tops. The media world is a microcosm
of what is happening in business across the board in this knowledge
economy. Smaller companies threaten to topple larger companies by upgrading
their brands and ministering to selective tastes, since they are not leashed
to huge volume requirements and mass market thinking. In the
industrialized, developed markets of the world, now caught in enduring
recession, we expect new top companies to emerge because they have decided
to be top-grade producers, not because they are low-cost, low-price,
low-imagination machines totally dependent on scale to be a force in their
marketplaces. As Cole Porter would have it, they’re the tops because they
act the part. They’re the tops because they’re realistic enough to do
something very different when the economy is in a ditch, singin’ in the rain
instead of runnin’ for cover. GP11September: Hong Kong Shanghaied Fear and Loathing in Hong Kong. You have
already read about rising unemployment there, homes that are now worth much
less than the mortgages they bear, and migration of shipping revenues to
neighboring provinces as well as to Singapore. Hong Kong is more than
participating in the grand Bear Market that has swept over the world.
Nowhere is this more evident than in the financial services sector, once
Hong Kong’s pride and joy, which is now foundering. The banks are paranoid
to a fair-thee-well, with many loans under water and without a clear vision
as to how the local economy will recover. This paralysis has clearly even
affected foreign banks with operations there. Local bank managers even for
the European banks are sitting on their hands and not getting loans made,
passing up good opportunities and sound credits backed by a pile of assets.
If Hong Kong cannot make loans, if its core financial businesses are
standing still, you can be sure the city’s woes will last much beyond the
present crisis, hinting at an enduring long-term decline in its affairs Certain Chinese banks are learning from the foreign
banks now invading their turf and then racing to do new kinds of business.
An interesting article in the Wall Street Journal, (August 27, 2002,
pp. C3 & C13), entitled “Foreign Influx Could Benefit Chinese Banks,”
captures just this point. It talks about how Citibank and other foreign
banks bought up accounts receivables from Ericsson’s Chinese operations,
wresting banking relationships away from the Chinese. The foreign banks
have provided a wake-up call, and local bankers are heeding the message:
Learn how the foreigners do it and get even more aggressive than the
invaders. “Far from crumbling, Chinese banks are proving quick studies in
learning firm their foreign counterparts. That suggests China’s banking
sector may follow a pattern similar to” other business sectors. “First,
foreigners enter the market by storm, then Chinese companies fight back and
retake lost ground.” This is fascinating because several foreign observers
predict bad times ahead for China based on the fact that the principal banks
are underwater. Is it possible, we may ask, that as whole new flock of free
enterprise banks may supplant the old dinosaurs? Liquidity at All Costs. Lest we forget, the
tendency of the Hong Kong banks to get some cash in their jeans and to hold
onto it is mirrored by companies aplenty in Europe and America. As we said
in our Annual Report on
Annual Reports 2002, the signal thrust of principal companies last year
was to gather cash, not to raise revenues or profits. In general they were
not seizing opportunity but avoiding risk. Of course, this is the time when
banks should be nailing new, good customers and companies should be buying
up new businesses on the cheap. But that’s not what most people do in a
storm. Doing Nothing or Something. We have spoken with
several investment managers around the United States who are doing a bit
better than their peers by doing nothing. They are under-invested, sitting
on cash, so they have avoided stocks in decline. That sort of describes
what you do in this business climate at the moment. Either you sit on your
cash and wait for that ever receding bottom in world markets, or you look
for niches you can buy into cheaply with a view towards establishing a major
long-term market position. If you are a Shanghai bank, right now you can
position yourself cleverly throughout Hong Kong, Southeast Asia, and other
ports of call. If you an investment manager in Boston who has to dress up
your results for the next 8 quarters, you probably have to sit tight. If
you are a private company or private investor, you are buying all sorts of
things at bargain prices. Or, if you are Warren Buffett, you are
participating in a joint venture to buy very cheap telecommunication assets
that are under water now. Pushing the Boundaries. But the strategic
insight here that will have meaning when this nine year Bear Market comes to
an end is not that some bankers and investors are sitting on the sidelines.
What’s happening is that enterprise everywhere is becoming global in ways
that we could never have imagined. Even capital-hungry China is beginning
to deploy capital further and further afield, first perhaps in Hong Kong and
then all about its region. Western multinationals will probably be
investing and operating in Third World countries they have typically shunned
in order to create new markets. The September 2002 Harvard Business
Review (pp. 48-57) in “Serving the World’s Poor, Profitably” suggests
that there’s a nickel to be made among the 65% of the world’s population
that earns less than $2,000 a year. Hindustan Lever (Unilever’s operation
in India) does $2.6 billion in India, making a living by keeping its
aggregate capital investment low and using some unusual tactics to reach
poor villagers. Business, in fact, will be driven more and more to reach
new frontiers, where angels fear to tread and the complacent never venture. GP2September: Bests, Greats, & Other
Superlatives
Global Bakery.
Last week we added the whole story about Guglhupf in our Best of Triangle
Section. We have said already that it was the one world-class bakery in the
Raleigh-Durham area. But we have expanded on that because we wanted to talk
about the origins of good taste and excellence. In the case of this bakery,
the key to its excellence lies in the fact that two very talented Germans
moved from Europe to the Triangle and brought with them their various
rigorous standards. It's a template for other areas of the country that
want to create value-added development: more jobs and a better
economy result when you concentrate on importing talent instead of bricks
and mortar. This bakery is just another example of knowledge transfer,
where something substantial results when you import skills, good taste, and
dogged persistence into a region.
Great
Companies. We also posted last week a list of the companies that can be
found on this site which we will try to keep up-to-date. Many, but
certainly not all, are companies that have demonstrated agility, excellence,
and a yen to do something new and different. But, for contrast, there are
certainly many dogs as well.
Best of
Class. A while back we sorted through out Best of Class section and
made special indexes of items that particularly interest readers, such as
the Best Hotels, Best Spices, Best of New York, etc. You will want to pour
through those special categories, which you can reach through the regular
Best of Class page. Soon we will also be posting some of them on the front
page of this site. GP19Aug: Stories R Us Storyville. Only recently have we learned about
the other Storyville, well away from New Orleans. It is in Jonesborough,
Tennessee, where people gather yearly to tell their yarns before large
audiences. Tennessee, it seems, not only has Nashville where country and
western singers wax eloquent on getting through love and all the other joys
and agonies of life. In Jonesborough, yarnmeisters lift up our spirits
with tales of heroism and anecdotes that reveal some moral truths about
life. Jonesborough, if we have it straight, has a historic
right to be at the center of storytelling. It is at the heart of Washington
County which bounced back and forth in earlier times between North Carolina
and Tennessee, much the unwanted stepchild. In fact, it tried to break off
as the new state of Franklin in 1784, but that rebellion was put down by
Tennessee which, in the end, wanted to own this mythic state of mind. You
can read all about this Storyville on one of its websites:
www.jonesboroughonline.com and about our storytelling subculture on the
host of interrelated sites about storytelling, such as
www.storynet.org,
www.storytellersguild.org,
www.storytellingfestival.net, and others. Upbringing. Stories do have a lot to do with
bringing up our children right. There is ample evidence that children turn
out more literate if their parents will read to them at bedtime, year after
year. And there’s a chap in Dallas who was in the duck whistle business who
believed that he had brought up his children right if they had a bunch of
good memories (stories to tell). Education, training, learning—all that
stuff—seems to work better when we use stories, because tales capture the
heart as well as the mind, while pedagogues, sadly, often capture very
little with their abstractions. Case Method. Once upon a time, the Harvard
Business School taught almost exclusively by the case method wherein
students poured over, debated, and tried to understand a tale about some
aspect of a company’s history. In other words, Harvard was in the story
business. This worked pretty well, even though the tales were not richly
told or written. In fact, Harvard should get back to cases and insist that
professors and students alike learn to create them—with lots of metaphors
and levels of understanding—and to understand them. There are a few companies today that esteem their
myths. And we know of at least one company that is putting together a
company training program simply based on richly told stories out of the
company’s history book. Its best story is about how badly early managers
ran the company but that its product is so good that they simply could not
destroy the company no matter how hard they tried. In this company, it is
felt that story-training does more than help employees achieve analytical
minds: it motivates them and gives them a common language and helps them
tell their company’s story to the world. We have discovered, too, that the
best way to help employees understand something is to get them to teach it.
With stories, they are far better teachers. Tell Me a Story. This is the title of Don
Hewitt’s book, the longtime producer of Sixty Minutes. “I may not know a
lot,” says Hewitt, “but I think I know how to tell a story.” Probably he
doesn’t tell a good story, but he does know how to write good headlines
like “Tell Me A Story.” TV is not a good story medium, and most of the news
features done on his show have an axe to grind. Somehow they do not lead
to feelings of exaltation. In the days of radio (stories are a hearing
thing), we heard tales that led us to new worlds and often put us in mind of
a better thing. Lemons into Lemonade. One of our partners said
the task in business is to turn “lemons into lemonade.” That sure makes for
both useful and entertaining stories in business. We remember the tale of
the chap whose truck broke down on Central Avenue just outside of Hartsdale,
New York. With nothing better to do, he set up shop and started selling
soft ice cream then and there. People aplenty stopped: this scientific
location analysis drove him to come back to this spot endlessly to sell ice
cream. Eventually he put up a store in that very place. Thus was born the
Carvel soft ice cream empire, finally a success because an unsuccessful
itinerant soft ice cream vendor accidentally opened up his stand in a magic
location where his product flew off the shelf. We would conclude that it is good business to recount
stories about successful accidents and that accidental stories are the
tissue that connects business enterprises together in ways that last through
the generations. Good stories are believable: this power seems to elude TV
news magazines, management textbooks, sermonizing self-help books, and a
host of other vehicles where telling a good story superbly is not the
supreme objective. We can always use a story or two.
GP5Aug: Sigma Six Service Sigma Service. We have recently put up a note
(Agile Companies #165) about the effort to apply quality improvement
techniques, traditionally reserved for manufacturing, to a host of
services: from back-office operations at financial service companies to
customer service processes at manufacturers, utilities, etc. This is all to
the good, because service is the real growth factor in advanced economies
such as ours, as manufacturing migrates to cheap labor countries. It’s no
accident, in this regard, that IBM has shifted its skew to consulting
services, most recently buying Price Waterhouse’s consulting outfit. To
grow, companies must offer services; to grow profitably, they must render
these services terribly well. But it’s the rendering well that they are not
doing. Utilities Hurting the Most. If you use
electricity or talk on a telephone, you know how bad service can be.
Recently, for instance, one of the nation’s most esteemed utilities took 7
hours to respond to a fairly simple electricity outage. Customer service
personnel could not transmit the nature of the outage to engineering; they
were not equipped, moreover, to ask the right questions of the customer,
much less communicate the right complaint to the fix-it people. That later
led to two sets of personnel being sent to the problem site as well as other
mishaps—a very unnecessary cost. And, of course, no repair times were
spelled out for the customer, although it was terribly clear that
engineering knew about when it could show up. Remedial actions, after the
repair, which might avoid future breakdowns, were never contemplated or
taken. It would be fair to say that almost nothing about this service
process was correctly designed. Similarly, during the month of July, a minor auto
damage claim took 9 days and 4 people at 4 different locations, accompanied
by lots of hectoring phone calls, to get acted upon. The claims process of
this insurance company is clearly terribly expensive, and this excess cost
obviously exceeded the amounts the company saved by delaying disbursements. Good Conversation. Examples of good, low-cost
service do pop up all the time. A catalog firm provides its customer
service people with enough data to save lots of time on re-orders. A
Delaware credit card firm allows its phone people to cancel dubious charges,
with good will and savings accruing all around. We have said in a previous letter that the first test
of a good company is whether you can pick up the phone and reach somebody
helpful in less than 5 minutes. Clearly that eliminates AOL Time Warner’s
cable unit. But some companies make the grade. If the phone is picked up, then we must see whether the
customer service person can ask meaningful questions and whether the
information actually reaches someone who can act on it. Does the
information get transmitted to operations? Finally, of course, we have to
discover whether we can then get real-time updates as to when an order will
get filled or a problem resolved. Fed Ex and UPS, for instance, tell us on
the Internet where our package is in the transit chain; if it is delayed, we
can adjust our business plans realistically. We can avoid “airport
syndrome,” where one waits around an airport for an aircraft that is never
going to make it, a result of the airlines’ calculated insistence on not
giving out meaningful information. There’s nothing worse—for a customer or for a
provider—than a customer who simply does not know what’s going on. Quite
often, in fact, that means the company does not know what’s going on as
well—at great cost to everyone. What we discover, in looking at customer
service, is that customers often cannot talk to the company, and worse, that
the employees of a company can’t even talk to each other. Everybody is
stymied. That’s the nature of a broken system. Dell Does It. All this would not be worth
talking about if things were hopeless. But they are not. Dell lands
computers on our doorstep, configured to our wishes, in a terribly short
period of time. The small limousine service in a Northern city knows an
infinite number of routes around town, finding ways to beat even the most
obdurate traffic jams. The Wall Street Journal makes its way to our
door more reliably than other papers, but when there’s a glitch its service
personnel know about the problem quickly and already have worked out the
solution. Service done right is not only a competitive advantage, but often
it is cheaper than getting it wrong. P.S.
We talked about companies and the telephone in our July 1 letter below.
GP29July: McKinsey: Brightest But Not the Best? McKinsey in the News. Ever since the fall of
Enron (www.enron.com),
McKinsey and Company (www.mckinsey.com),
the illustrious blockbuster management consulting firm, has been much in the
news. Articles in several leading publications have asked whether there are
some flies in the McKinsey ointment. At question is whether McKinsey itself
played a crucial role in the moral and economic failings that brought Enron
low. CEO Skilling himself came from McKinsey, and the consulting firm’s
yearly bill to Enron was a whopper. The Teetering Point. In the July 22, 2002 New
Yorker (www.newyorker.com),
Malcolm Gladwell’s “Talent Myth” reasons that a Mckinsey dogma--bright,
young MBAs can remake the world--put Enron on a certain path to failure.
Marvin Bower, the founder of present day Mckinsey in 1939, had emphasized
intelligence over on-the-job experience in his new hires. In the 1990’s
that had come to mean at McKinsey and Enron (and a score of consulting
firms, incidentally) hiring massive numbers of bright MBA’s out of the best
business schools and then turning them loose in the sandbox to work wonders
throughout the business. The freewheeling MBAs at Enron took the company
down some strange and unproductive byways. Brightness alone does not make
for superior performance. As Gladwell puts it, “Are smart people overrated?” CEO Confidant. In the 1990’s, when we talked to
more than 50 major chief executives about consulting firms, we discovered
that they rate McKinsey’s senior partners highly, finding their one-on-one
inputs valuable. But they found the analytical work of other firms to be
much more helpful. Over the years when we have helped some companies
implement McKinsey recommendations, we have, indeed, found that the details
have to be fleshed out in order to be practical and useful. Perhaps this is
about what we should expect from a company with 84 offices that claims to
serve “every business sector and industry,” as well as governments and
non-profits. Its experienced seniors bring a lot to the table, but its MBA
juniors might just be a bit stretched. This personnel equation has produced
rampant growth for McKinsey, yet we must ask whether this is the right model
going forward. The Next Consulting Firm. With more than one
consulting firm in disrepair and with a few out of business, we have to ask
what’s next for consulting. One Dallas chief executive has told us that
consulting firms cannot keep up with the changes in his markets and that he
has had to find other ways of staying ahead of the business curve. The tasks for consulting firms of various stripes are
speed, revenue, and intuition. They have to help their clients leap ahead
of the meltdown in their markets or the movement of production to Asia.
They have to find new revenues for companies hitting the growth plateau: if
the fizz has gone out of colas, they have to get their beverage clients
adeptly into specialty water, non-carbonated drinks, and snacks. They must
find the intuition and inspiration to replace pure analysis: analysis will
project poor returns for almost any new product, but intuition will pick out
some winners and suggest new ways to sell them. In a word, they must become
a bit more creative, soaring well beyond mere intelligence. But creative
businessmen are a lot harder to find than MBAs.... P.S. Our associate Steve A. Martin contributed key
insights to this letter.
GP22July: Santa Fe:
What You See Is Not What You Get Santa Fe Baggage.
Life there should be simple, but it ain’t. Fifteen years ago when we went
out to Santa Fe for a couple of months. We learned that affluents from New
York, Texas, and California had imported all their anomalies, putting the
lie to the all the bucolic airs we attributed to the place. For instance, the retiring
head of a Dallas corporation had wrapped his new house in a security system
that would do justice to Fort Knox. One of our favorite art galleries for
gossip was owned by an ex-Playboy bunny who had discovered other ways to
liberate fat cats of their spare change: New Mexican art, of course. Out
on the plaza, we spied failed New York politicians, clearly relieved to be
somewhere where a number of people had given up all pretense of making it.
In Santa Fe, you only thought you were getting away from it all, but people
had brought plenty of baggage. Home of Complexity.
Urban civilization’s overlay had done good things to Santa Fe as well, such
as the summer opera. Or, more importantly, the Santa Fe Institute (www.santafe.edu),
the home of complexity. There scientists had nurtured complexity theory,
modeling, for instance, in fairly convincing ways, how advanced life came to
be and how it evolved. Complex scientists say that it’s much more pleasing
and useful to use 20 or 40 variables to mirror the complexity of life and of
human processes than to try to explain them with a simple equation that only
looks at a couple of factors. In complexity theory, you admit that life is
complex and try to get a picture of how complex processes work. Ironically, then, fairly
simple places gone awry Santa Fe for complexity, Princeton for chaos, the
Peninsula for transistors and chips provide the incubators where profoundly
different ways of thinking about things can germinate and flourish.
Strangely, the isolation helps. Of course, it is no accident that Los Alamos
is just up the road from Santa Fe, or that the Institute of Advanced Studies
was already a temple for math, physics, and other things right at the edge
of the Princeton campus. Really big changes seem to take place in hamlets,
very far from the cry of the cities Bios. You will find
on the Global Province (see Agile Companies) a company called BiosGroup (www.biosgroup.com),
an operations research firm that applied complexity theory to business
systems. We’ve just had our first talk with Stuart Kauffman, its founder and
also one of the originators of the Santa Fe Institute. We’ll eventually
include some of our discussion with him on Global Province. BiosGroup has
completed some big-league assignments applying complexity theory to
corporate systems in order to make them work better. Most systems, you will
find, are sloppy patchworks both theoretically and mechanically, needing all
sorts of rework. BiosGroup can help get them rethought. Complexity, then, is
working its way out of the academy into the marketplace. Fighting Fire with Fire.
Well, we would all like to go back to Rousseau’s and Emerson’s nature, where
things were innocent and sweet, but it’s not in the cards. Indeed, as in
Santa Fe, we have made everything so complex that we will have to grapple
with the slapdash, horribly intricate systems that we have wrapped around
the planet. That means we need “complexity” to deal with “complexity.”
Economically, we can still lick 2/3 of our problems with plain common sense.
But 1/3 of the solutions aren’t intuitive and require subterranean, complex
answers. Albuquerque Surprise.
And New Mexico has other surprises in store for us. In Albuquerque (the big
city for New Mexico), Eclipse Aviation (www.eclipseaviation.com)
is getting close enough to rolling out its Eclipse 500 jet to start taking
orders. The price is $800,000 to $1,000,000, meaning that its price is 1/3
that of an entry-level business jet and its operating costs are projected to
be 40% of what a business bird will cost. If this all works, we are talking
about an air taxi, cheap to operate and buy, which can be used by commuter
lines to take small numbers of passengers in and out of the thousands of
under-used, small airports in the country, reshaping the unwieldy U.S. air
system. It’s this on which James Fallows essayed in his new book, Free
Flight: From Airline Hell to a New Age of Travel, which you can find in
our Infinite Bookstore.
GP15July: Lexington:
Built to Last Holloway of Lexington. Our old friend Roger
Holloway of Riveredge Farms decorated the pages of the New York Times
last week ("The Star of Elm Street Stages a Comeback," July 11, 2002).
Lexington, Kentucky, it seems, is fertile ground for more than racehorses.
Roger, along with James Sherwood of the Orient Express, if we remember
correctly, and J. Peterman of catalog fame (see Best of Class, entry 234),
all came from that blessed patch of bluegrass. We talked about Roger in
Best of Class (see Elm Revival, entry 188) a year or so ago, recommending
his Princeton Elms to one and all. They resist the Dutch Elm Disease and
they grow like blazes. Ours is now 11 feet tall and reaching higher every
day. By the way, the Times also mentions the Valley Forge variety,
which we don't recommend, because, while handsome, it simply doesn't grow as
fast as the Princeton, though it has a worthy spot on our back line. Our Best of Class section, where we've parked Roger, is
by far the most popular section of the Global Province. It has a bunch of
stuff on great locales (Alaska, San Antonio, San Francisco, New York City,
France, New Orleans, etc) and on life's several delights such as books,
restaurants, hotels, spices, tea, wines, museums, etc. We recommend it to
your attention and suggest you take a peek at our index (www.globalprovince.com/bocindex.htm)
which will lead you to some of the categories that interest us. Of course,
there are also a lot of bests in our Best of Triangle, Two Rivers (Asia),
and Global Sites sections. Only the Best. As you've already guessed, what
interests us to the point of obsession is the best of the best, whether
we’re talking about business or life writ large. For a great many, the best
is always out of fashion. In good times, they say, the mediocre sells very
well, at a higher profit. In bad times, the minions who decide what should
survive always opt to take out costs and to offer the less than mediocre. Oddly enough, that's a bad business strategy. We
understand, for instance, that Continental Airlines maintains some perks on
its flights while others shave away the extras. Ostensibly it enjoys a
higher load factor as a result. In any event, bad times and the prospect of
a nine-year Bear market call for some long-haul thinking. In bad times, one
needs a car, a blender, a house, a piece of clothing that will endure for 6
years rather than wearing out in 2. What we want to put on the shelves are
products that don't have a shelf life, but hold their value. Obsolescence
is a terrible strategy right now. Maybeck. Years ago we studied the West Coast
architect Bernard Maybeck, who had an active practice up to the 1930s, once
the only winner of a gold medal from the AIA other than Frank Lloyd Wright.
Many said his houses were too expensive. But a fine San Francisco architect
told us it depends how you look at it. “Maybeck’s redwood houses,” he said,
“were built to last. They're cheap if you realize how long they will
endure.” We hope that's what shows up on our Best of Class. Experiences,
and things, and services that are “Built to Last.” New Best of Class. If you will take a look at
Best of Class this week, you will find we have added some categories to the
introduction page which will make a little of your searching easier. You
can now easily jump from there to our best stuff on spices, hotels,
restaurants, New York, San Francisco, etc.—categories which we will continue
to expand. Good reading!
GP8July: Red-Blooded
Americans Again? Moldy Quality. A half century ago we stayed
overnight at a Springfield, Massachusetts hotel—could it have been the St.
James?—not because of the accommodations, but in anticipation of the dining
room below. There was served the tenderest beef known to man, far from
cattle country, but several notches above prime. As our meal cooked, my
host rounded up the manager so we could get a look at the doings in the
kitchen. The biggest thrill was the tour of the meat locker where great
carcasses, hung about hooks, aged gracefully in the coolish air, mold
decorating the sincere red marbled slabs we contemplated. The mold, you
see, added tenderness and flavor, a conspirator in the battle to create
texture and bouquet. This was in the pre-antibiotic, pre-hormone days of
beef cattle when Massachusetts still believed in meat, free as it was of
politically correct police. Beef is Back? Remember the missing beef Wendy’s
talked about in its advertisements? A quarter of a century ago doctors and
government meddlers took it off our plates, saying that beef and fat were
the source of our fattening bellies, cholesterol, heart attacks, and most
anything else that might be wrong with us. The Framingham (Massachusetts
again) studies, about which some smart physicians have long had questions,
said cholesterol kills, and the potentates of medicine said fat and meat
make cholesterol. Now, we read, the scorned Dr. Atkins may be getting his
own. His high protein diet has, up to now, been dismissed as a dangerous
fad by nutrition experts. Carbohydrates (e.g. bread, etc.) may be the real
culprit in obesity, and a low carb, reasonable fat diet may cut pounds and
cholesterol. Read more in “What If It’s All Been a Big Fat Lie” by Gary
Taubes, the New York Times Magazine, July 7, 2002, p. 22ff. Obesity Balloon in View. The New York Times’
article is just one in a growing series of articles on the huge, growing
global epidemic of obesity. It is our worse disease. And suddenly, it has
gotten the deserved attention of almost everybody. Apparently obesity rates
in the U.S. began to skyrocket in the 1980s, just when the medical
establishment weaned us off meat, followed later by the almost promiscuous
prescription of lipid-control drugs (i.e., statins), big business for the
pharmaceuticals. A few think that maybe the docs unwittingly elevated our
lipid profiles, and then, alarmed, rushed in with the drugs. For this you
cannot blame them. The Medocrats in both Cambridge and on the Potomac
verbally scorched any heretics who expressed faint doubts about the
cholesterol/low fat/heavy statin trinity that has ruled obesity thinking for
so long. Even if Atkins is right, we will have a hard time
making a switch to a better-founded diet. The medical community requires 10
years of studies in hand to give up a devoutly worshipped belief—a very long
time for those with compulsive weight problems. And, of course, our meats
are now so full of chemicals, they’re often hardly worth the eating. The
biggest near-term outcome of these fat thoughts will surely be to make us
pregnant with doubts about the whole healthcare system, which is awfully
long on costs and short on results. It is not clear that the present system
develops well thought out medical doctrine or publicly efficacious medical
procedure. Meanwhile, we ourselves are still pinko salmon eaters and can
say the salmon diet really works.
GP1July: Ruth &
Paradise Lost The Story of Ruth. Years ago we hired Ruth,
then a housekeeper, to man the phones in the New York office of the last
business we ran. All our staff bellyached for 3 months, because she made
mistakes aplenty at first. It was hard to deal with the primadonnas amongst
our 50 people and with the raft of very demanding callers from America’s
largest companies. Then the gripes disappeared. Everybody began to love
Ruth. She got into the telephone, immersed herself in all the details of
making the phones work supremely. Somebody might call in who had not talked
to us for a year, let’s say Henry Lindstrom, and she would say, “How are
you, Mr. Lindstrom? We haven’t talked to you lately.” It was as if he just
called us yesterday. And she called him, “Mr.,” not “Henry,” avoiding the
unwarranted familiarity phone sales personnel display these days. And she
did a 1,000 other politenesses to put our clients at ease. Ruth’s no longer there. And the business has never
been as good. Paradise Lost. The Numbers Don’t Work. If you are an investor,
you are slowly learning from today’s headlines not to rely on audited
financial statements. Even when accurate, may we add, they don’t tell you
much about the company. At the beginning of the 20th century, we
stopped using our financial statements to manage the company and began to
use them for the entertainment of publics outside the company. They have
never been the same. Even in the best of companies, they don’t tell you
what’s happening inside. Paradise Lost. Give Them a Jingle. So what do you do when you
no longer have a friend named Ruth at a company you are calling and you
can’t trust the numbers. Investors, we’d suggest you give any company that
interests you a ring on the telephone. See how you are treated. Can you
reach someone fairly soon? Are the people you talk with forthcoming and
polite? Can you get your business done? In the last month, we have been
undone by United, put in the slow lane at American Express, sorely tested by
Southwest Airlines, and put on hold by AT&T. They’re not stocks we would
recommend. United (NYSE:UAL;
www.united.com). On 4 separate occasions, seat reservations for a party
of 7 were lost by United’s reservation system, despite our frantic phone
attempts to set things right. And that was just one of our problems. In
fact, a gate agent later assured us that the reservation people always fib
to get people off the line. American Express (NYSE:AXP;
www.americanexpress.com). It took 3 departments to settle Amex’s
billing mistakes and to get back some frequent flyer points its chintzy
systems denies ostensible late payers. Southwest (NYSE:LUC;
www.southwest.com). Reputedly, this is America’s best run major
airline, as shown by its continuing profitability. But recently a
reservations clerk could not open a reservations record in order to ensure
that proper ticketing occurred. The hapless customer resorted to prayer. AT&T (NYSE:T;
www.att.com). It took 10 minutes and several other complications to pay
a simple bill over the telephone. Obviously AT&T doesn’t need the money.
We stuck with the call just to see how bad things could get. Pretty bad. L.L. Bean (www.llbean.com).
They’re polite and they’re fast. Talking to the Customer. In this era, when most
products are about the same, businesses can only make a difference by
offering superior service. By and large, that means making it very easy for
a customer to do things with the company over the telephone. But,
increasingly, companies are making it very, very agonizing for a customer to
reach out and touch someone. The gremlins that run call centers have been
taught by shortsighted operations people to squeeze out the conversation. Telephone excellence is just the thing we now focus on
with clients in several industries. We are amazed at how little time
customer service people actually spend with paying customers on the
telephone. We are amazed that training does not install politeness,
transaction speed, product knowledge, and one-stop shopping in the lexicon
of the “phone associates.” We are amazed because successful retail phone
operations will be one of the defining characteristics of great, high-return
companies in the 21st century. JetBlue. We have not tried JetBlue (NASDAQ:JBLU;
www.jetblue.com) yet, but we hear that it’s a good airline experience at
the right price. A highflying stock, JetBlue sports a very low 6.98 cents
cost per seat mile versus an average of 10.14 cents for the industry. Lo
and behold, its operating margins for 2001 was 8.4% versus a negative 8.7%
for the industry as a whole. On Global Province this week (see Agile Companies) we
talk further about JetBlue, recapping CIO’s July 1, 2002 article on
JetBlue’s paperless, information-intensive operations, much of which
supposedly makes life very much easier for the weary traveler. We hope the
system is all it is cracked up to be, but it wouldn’t be hard to better our
major trunk airlines all of whom abuse the customer from the moment he tries
to buy a ticket to the point where he finally gets on the airplane. Vorwerk. Our favorite annual report just
arrived in the mail, straight from Vorwerk (www.vorwerk.com)
in Wuppertal, Germany. Its theme is Paradise—Lost , Regained, etc. Shocked
by September 11, management nonetheless believes this will be a century of
peace and freedom, and that we will stumble somewhat closer to Paradise. Importantly for Vorwerk, direct sales continues to be
its central strategic theme, even if it at first seems to be a manufacturer
and mostly industrial company. Vorwerk says, “The direct sale of
high-quality household appliances is the company’s core competence.” Direct selling will be a key competence for more and
more industries, a natural outcome of the relentless disintermediation that
is setting in with the growth of the Internet. New technology provides the
means for us to be talking, one on one, with all our real customers, instead
of middlemen. But it ain’t Paradise if ya just talk to an answering
machine. Speechworks (NSDAQ:SPWK;
www.speechworks.com). Part of the problem in getting to Paradise is
that companies have made absolutely lousy conversions to computer telephony,
almost without exception. This makes it an agony for you to call them.
This doesn’t have to be. For instance, when you call Speechworks, a
voice-recognition company, you just tell the phone whom you want to reach
and you are quickly switched to him or her. Calling a company does not have
to be an ordeal: it just calls for a little management on the part of
management.
GP24June: Risky
Business Danger. With Don John Gotti safely in his grave
and all the wakes in his honor subsiding, we can now start writing odes In
Praise of Living Dangerously. As the Chinese would have it, there is no
opportunity without danger. But, equally, a life ruled utterly by caution
is fraught with risk. The Hollywood Paradox. The people out in
Hollywood love to talk about risk, making movies like A Year of Living
Dangerously or Risky Business, but they actually hate risk, and
are in desperate search for a sure thing. Most of their movies—failures—are
put together to be sure things. And yet the real profit arises on low
budget pictures that ostensibly will go nowhere, put together by directors
who are on the outs, like Robert Altmann, who perversely put together
ensemble hits such as Gosford Park. Hollywood scores when it can bet
on talent, cheap on expenses, and try to do something that has not quite
been done before. Pascal’s Wager. Franklin Roosevelt,
mid-Depression, said, “We have nothing to fear but fear itself.” The
philosopher Pascal went him one better. In telling us to believe in God, he
said we have to make bets when you can’t resolve things rationally or
empirically. When the brain won’t pick out an answer, emotions and
intuition must come into play. Pick the option that will let you live
better. In this case, better a God than not. Better to believe, than not.
Right now, business-wise, the majority of leaders are sitting on their
hands, afraid to bet on a new idea, devoid of new ideas. It will cost
them. Better to find a way to act. Baumol. This week we have posted a note about
William Baumol, economist extraordinaire, who says that overly paranoid,
anti-terrorist thinking may get in the way of our economy and of business
innovation (see Big Ideas). Isn’t it funny, incidentally, that the best
economists are really undercover philosophers pretending to be bean
counters? Playing it safe, he finds, is very risky. There are and have
been a host of examples of how ultra-prudence and safety-at-all-costs have
been losing strategies. Below the Radar. Some weeks from now we will
begin to post our own Investment Outlooks on the Global Province. Basically
we will be telling you to adopt what appears to be a ‘high risk’ investment
strategy—finding ways to short the market and picking stocks here and abroad
that nobody has heard much about. Avoid, we say, the big, safe, brand name
companies, for the bigger they are, the harder they are going to fall.
Some big thinkers we have in mind claim we are mired in a 9-year Bear
market. If so, we must learn how to play the Bear. We would contend that
the usual ports-in-the-storm will not be safe havens this time around. Esprit de Corps. You can also read this week
that Esprit, the San Francisco clothing manufacturer and retailer, has been
blown out of the water. But its offspring, Esprit Holdings in Hong Kong, of
all places, has now taken over the whole company. It has turned the Esprit
business model upside down, focusing on 28-year-olds and over, rather than
the teeny boppers and the twenty-somethings San Francisco was targeting. In
other words, it is taking risks and living dangerously, upsetting the apple
cart in order to survive. Not to do so would be foolhardy. China
Struggles, China Lives.
We also include thoughts on a survey of China by the Economist, which
is an endless litany against the giant problems that threaten to overwhelm
China in the years ahead. Oddly enough, it’s these stupendous problems that
probably will make China survive and flourish. With all its obstacles, the
leadership of China will have to take some very big chances in order to
prevail. This is exactly what it has done over the last 15 years, and we
see no reason why it cannot do so again. When you’re in an affluent country
and bad times strike, you batten down the hatches and try to protect what
you have. But when you don’t have much, you try to wrestle the Bear to the
ground. Remember, China still does not have much. Things have gotten
better over this last decade, however, so, as the Wall Street Journal
has written, affluent Chinese are now once again building fancy tombs for
themselves. Even in these grave times, more Chinese are going out with
style.
GP17June: The Last
Time I Saw John Gotti Siracusa. Well, actually it was the only time.
Twelve or so years ago we were having an early dinner at Siracusa, an
Italian favorite just above Astor Place on 4th Avenue and the
Bowery. The restaurant was half-filled with couples who knew their
caponata and
avoided the glitzy places with formula food that were in the center of
Manhattan. In wandered four gentlemen, who were seated in the northwest
corner to the rear of the restaurant. The owner and waiters hovered over
them, clearly attentive to every request. Only gradually did we notice that
the grayish haired fellow beside the wall was Don John Gotti, then the ruler
of New York’s crime families. By then every patron in the establishment had
melted away, and we were the only other party left. It was most pleasant:
the four gentlemen from Queens were most discreet, and the atmosphere became
quieter, more distinguished, a perfect end to another perfect meal. Siracusa was a one-of-a kind restaurant. It was
the secret in those days that all the very best Italian cafes were tucked
away somewhere in camera below 14th Street, far from the East Side
clip joints. Here the pasta was homemade, a favorite of mine being
linguine bathed in a nearly black squid ink sauce. Likewise, the
gelato was made on the premises by the brother who cooked, the other brother
being the front man with the customers. The recipes, incidentally, all came
from Mother who had imported tastes from their home in Sicily. One felt silly
eating at any of the better publicized Italian affairs in New York when you
could have supreme food in a restrained, decorous eatery hidden away in the
Bowery. Unfortunately, Siracusa is long gone, its special fare just a
memory. The Don Dies. In prison, John Gotti died at 61
last week, the victim of cancer. The New York Times, which does not
do a good job of covering New York City, did a bang up job on Mr. Gotti,
with a front page story on Tuesday that captured his Brioni suits and
captured a little bit of his ascent and a lot of his downfall. Tracking him
to his funeral, the Times tribe found that “Only the florists
outnumbered the police. Van after van pulled up at the funeral home to
deliver displays so large that often only one could fit in their cargo
bays. Some of the florists made as many as a dozen separate deliveries.”
(See the New York Times, June 14, 2002, p. A3l.) The newspaper
scribblers, not unlike their counterparts in broadcast TV, show a certain
affinity for crime and death, a relief for them from the drudgery of
everyday reporting. And Loudly Flows the Don. Despite the
almost sedate dinner we shared with Mr. Gotti at Siracusa, he was known as a
man who liked the spotlight too much—addicted, it seems, to fame. This is
reported in “The Celebrity Gangster,” by Jerry Capeci and Gene Mustain,
joint authors of a book about him, which appeared in the Times Op-Ed
on June 13, 2002. In their eyes, he was good at strutting, but lousy at
managing the mob, talking too much about his doings, all of which got
recorded in FBI wiretaps. In other words, he was great theater but got
himself and all sorts of colleagues sent to the big house. We would object to this critique, however. Why should
he be any different? The nineties and the eighties were all about showbiz
leaders—from Clinton on down—who strutted their misdeeds and, often as not,
got away with them. And it was about politicians and CEOs who watched their
polls and their press clippings—instead of paying close attention to
business. Why should Don John be any different? Showbiz Is Not Business. In this vein, we
recommend a read of “The Misguided Mix-up of Celebrity and Leadership (And
Why it Imperils our Institutions),” an essay by Jim Collins in the
Conference Board’s 2001 Annual Report. He suggests that the best leaders,
with cumulative stock returns three-times better than the stock market over
the last 15 years, didn’t make the front pages and didn’t rule by charisma.
He cites Darwin Smith of Kimberly Clark and David Maxwell of Fannie Mae (and
several others) in this regard. Some of his heroes are very shy, indeed,
but somehow they get the job done, mostly because they are determined to
build great institutions based on clear standards of performance, instead of
creating monuments to themselves. All this is of tremendous interest to us as we work
through our own leadership studies. In this low-growth era racked by
tremendous economic volatility, CEOs lack a roadmap for sustained
performance. We are now trying to identify the kinds of individuals who can
navigate in a world of so many unknowns. They will be very, very different
from those who came before. A Life of Crime. From today’s front pages we
have learned that a whole raft of people are trying to horn into John
Gotti’s act—from accountants, to CEOs, to religious fanatics, etc.
Everybody wants to be a celebrity criminal. We wonder, indeed, when we can get back to
old-fashioned circumspect crime. In this respect, consider the words of
Rumpole of the Bailey, John Mortimer’s astute and very comic English defense
lawyer: “It is now getting on for half a century since I took to crime, and
I can honestly say I haven’t regretted a single moment of it.” Rumpole
likes defending criminals, and he is smitten with honest-to-gosh thieves and
murderers. He has no use for white collar-criminals such as libelers, whom
he finds to be a shifty lot. The trouble, it seems, with the white collar
cheats and celebrity mobsters is that they are too dishonest and too lacking
in substance. They are Eliot’s Hollow Men. To get a
little honest, fun crime, read John Mortimer’s
The Third Rumpole Omnibus
and find out about his discontents with editors and celebrities in “Rumpole
and the Bubble Reputation.” (See
Wit and Wisdom
for more on Mortimer's Rumpole.)
GP10June: Thin Minds
in Fat City Good Ideas, Bad Ideas, and No Ideas. Last week
Scott Burns of the Dallas Morning News did a review of our Annual
Reports on Annual Reports 2002 titled “Crisis
of Ideas.” He stated our case better than we did: we said
business leaders, statesmen, and pundits are—temporarily—running out of
ideas and that is a big reason why the steam has gone out of business. Good
ideas, even bad ideas, can be catalysts for action, but no ideas sends us
into a torpor or into aimless anxiety. Mr. Burns is the reigning king of financial journalists
in the Southwest and adds necessary luster to the Dallas paper, a dily that
does not quite capture the greatness of the city where it abides. Broadly
syndicated, he deservedly has built a fanatical following: he has brought a
flock of new readers to the Global Province. This week we are adding a new
feature to Best of Class: “Journalists Worth Reading.” You can be sure
that we will be adding him to the list in weeks to come. Of course, it’s
not hard to admire someone who has such nice things to say about us. Obesity. The world’s Barnum and Bailey
Disease. There’s a cancer association, a heart society, and a pressure
group for every disease under the sun, but, despite WeightWatchers and 40
fad diets, we have yet to hear about the American Obesity Association (AOA).
Maybe we have not searched hard enough. Yet clearly the tons of fun that
afflict all of us comprise this nation’s greatest disease, and our
affliction is rapidly taking over the world, with reports of the tragically
overweight even among the poor in the world’s developing and undeveloped
nations. Fat, fast foods are now all too available wherever you go. What bothers us is that there is often a tone of
hopelessness in the face of fat when you do a read of the health scribblers
around the nation. We read that every year more and more people from every
age group are getting too copious. Moreover, we are told that all sorts of
metabolic checks will sooner or later overwhelm the thin aspirations of most
overweight people, with the subtext: you almost might as well not bother
trying. On Stitch in Time in future weeks we will be devoting
more time to the obesity problem. How not to get fat! How to get rid of
it when it creeps up on you! How not to ruin your mind or your body in
dealing with fat! So get ready for the salmon diet which, by gosh, does
work, even it does not, as claimed, do much for your complexion. Malcolm Gladwell, who will be our first journalist to
go up on Best of Class this very week, has written about practically
everything, so it is no surprised that he has essayed on obesity. In “The
Pima Paradox,” (New Yorker, January 2, 1998) he explores the fruitful
research that has been done on the Pima Indians that has laid bare all sorts
of fat secrets except for the fact that neither the NIH nor anybody else has
actually helped the Pimas to lose weight. You can also read about the Zone
and Atkins diet, which will make you chuckle and wince. Needless to say, in
the end we all learn that losing weight is about eating the right things
moderately, getting exercise every day, and getting one’s personal
psychology straightened out. It’s that last thing, the head part, that is a
trifle tricky. Fat, Dumb, and Unhappy. Fat City—bulging
stomachs, SUVs, overstaffed businesses and governments, production of goods
the world does not need, exaltation of quantity over quality, speed over
deliberation—make it hard to grow thin or to have lean minds. The Austrian
philosopher at Princeton, Peter Singer, says we must tithe and achieve a
lean state of mind if we are to have the good society. In truth, a good
society has a lot to do with whether we can lose pounds and put aside things
that don’t count very much. The bloated 90s have a lot to do with why we
lack good ideas today. However, now that businesses can no longer cost-cut
or advertise their way out of trouble, they will have to generate truly new
products and services. They simply will have to get ideas.
GP3June: Pinehurst:
Lessons in Regional Development Carmel Without the Ocean. A couple of weeks ago
we toddled off to Pinehurst, one of the four or five exceptionally fine
spots in North Carolina, and certainly the only oasis near its core cities
of Charlotte, Greensboro, and Raleigh. It was created by the Tufts family of Massachusetts,
but it is now owned by the Club Corporation of Dallas, owner and operator of
a bunch of middling golf and country clubs around the country. This
turn-of-the-century resort is in surprisingly good shape, offering several
entertainments well beyond the golf for which it is so well known. The spa
gives professional strength rubdowns; the walk around town offers sightly
houses and a petit, decorous shopping district, and the miniature golf
course in neighboring Southern Pines is by far the most pleasant you will
find in the state. Just a few miles away, the botanical gardens at Sand
Hills College are one of the better kept secrets in the Southeast. We will
be talking about all these rather unknown delights on the Global Province
in the weeks to come. This is Carmel without the sea, a very nice real
estate concoction that pretends to antiquity and where antiques do retire.
Unrealized Potential. The sandhills are only
half what they could be. The legal beagles of Pinehurst’s parent have
barred locals from using the Pinehurst name, so a few local enterprises have
had to come up with new monikers. They’re myopic when it comes to thinking
about North Carolina. With absentee ownership, the Pinehurst resort has
been terribly absorbed in its own care and feeding, not looking to the
nourishment of the community lying outside its own holdings. Yet there
could be a major, uplifting spillover effect from this golf course tourism
if the right spirit took hold.. This is of some concern since North Carolina has
flattened out economically, and it needs a boost from locally based
enterprises willing to think about how to get it moving again. Its
relatively affluent communities have not had a halo effect on their
neighbors. The mercantilist attitudes of its prime movers, inert state
government, and the tunnel vision of national business chains, headquartered
elsewhere yet so dominant in its business life, are not a potent combo for
growth. Tourism Not Inconsequential. Pinehurst is worth
looking at, because tourism does mean a lot to the state. In 2001 some 43
million visitors plunked $11.9 billion in the tills: it is a big industry
for Tarheeldom and puts the state surprisingly high in national tourist
ratings. Because of absentee ownership and low per-capita tourist
expenditures, however, not enough dollars stick to the North Carolina
economy. Tourist dollars provide tax receipts and lots of low paying jobs,
making the politicos happy, but do not create enough growth in capital,
physical assets, or intellectual infrastructure. Tourism can mean much more. It would take more
Pinehursts operated with a strong view to regional development. In other
words, there’s tourism and there’s tourism. With the meltdown of its
manufacturing base, North Carolina would surely benefit from growing the
right kind of tourism. It can be reasonably expected that domestic
vacations will continue to grow, as the fear of flying flourishes. Then
too, the market will expand as a burnt-out workforce looks for the right
kind of rest and recuperation. Creating a Destination: Wilmington. The state
now lacks a destination—a Washington, D.C., an Orlando, a Las Vegas. The
hope in time is that it will create one, most likely at Wilmington, its
almost seaport. It will take a Rouse Company—and other co-venturers—to make
Wilmington all it could be. Yet proper development there could set the
stage for economic activity in the eastern part of the state, which is so
sorely beset now. Oddly enough, a North Carolina for vacationers must have
an urban experience as well as its country pleasures if the economy is going
to get a charge out of tourism. World Cup Tourism. Countries that aren’t
getting their share of tourists understand that tourism brings more than
dollars, creating a waterfall of collateral benefits. Japan and Korea are
hoping the World Cup soccer matches will kickoff a substantial rise in
long-distance visitors. “Japan has set a goal of eight million foreign
visitors a year by 2007, up from 4.8 million in 2001. South Korea is aiming
for 10 million by 2011, compared with only 5.1 million last year.” See the
Wall Street Journal, May 29, 2002, p. D3. This suggests that you
need big events as well as key destinations to really prime the
high-value-visitor pump if you are not now capturing enough tourist
dollars. The Carolinas, of course, could do this with golf, drawing many
more long-distance, high-value visitors, rather than the regional influx it
gets today. North Carolina, South Korea, Japan.
Well-conceived tourism is more than frosting on the cake: it can contribute
terrifically to development. Interestingly enough, it is not enough to go
from a regional to national audience. Your product and your lines of
distribution must reach right out to all the world, achieving a
cosmopolitan feel even in the most provincial of landscapes. Development
experts at the World Bank and elsewhere might think about how tourism can be
styled so as to be a transforming experience, rather than a bothersome part
of the economy serious economists have a hard time thinking about. We still
lack to the will and knowledge to make Johnny Appleseeds out of all our
travelers.
GP27May: Lessons from Amazon: Sleeping Well in Seattle Not in
the Obits. One old bluegrass song sort of goes like this: "I wake up
in the mornin’ and read the obits. If my name ain't there, I know my
get-up-and-go has not got-up-and-went." Well, Amazon, the Internet
bookseller, is still kickin’, much to the delight of those of us who have a
certain fondness for it. Flat
Wrong. Back in 2000, a bond analyst named Ravia Suria claimed Amazon
was bleeding to death and that it would soon run out of cash. In a series
of dismal reports, he predicted its demise. But, instead, it has now
reported operating profits; it has a billion dollars in the bank, and its
bonds are up nicely—all since the dire warnings hit the marketplace. All
this is very well chronicled in James Surowiecki's column in the New
Yorker (May 20, 2002, p. 40). As Surowiecki puts it, Suria, a bunch of
analysts, and a covey of financial columnists were simply dead wrong. We
are delighted, since Amazon has done some pretty good things for the
consumer. Slow
Death. Nevertheless, Amazon is far from out of the woods. And, as the
New Yorker notes, this gives plenty of wiggle room to the naysayers
who looked for it to go bust in a hurry. Now, with management turnover,
with Amazon's inability to capture big revenues beyond books and music, and
with other sundry warts and problems, these analysts and columnists can
simply imply that they meant it would slowly expire. Not atypical is
a long article in the New York Times (May 19, 2002, p. BU 1),
entitled "Amazon II: Will This Smile Last?" While acknowledging recent
good news at Amazon, the writer gives more than ample voice to the Street's
skepticism. Lesson 1: When Wall Street analysts and business
journalists blow it, don't expect them to own up. They'll just rejigger
their stories a bit. Wear ‘Em
Down. What the Amazon case suggests is that companies and other
institutions in our society need to make their case 24 hours each day to
counter the swirl of chatter about them out in the media. The messages
about a company, be they positive or negative, circulate relentlessly,
mistakes and all. In this over-messaged world, a company must seek to
dominate or neutralize the airwaves—through a flood of information and
transparent completeness. It must provide better information and
perspective than are found elsewhere. That's one of the things some
companies are learning, according to our recently issued
“Annual Report on Annual
Reports 2002.” The Global Province's
Investor's Digest deals with this very problem—creating
transparent, extremely comprehensive information about public companies.
Lesson 2: Communications has turned upside down in the last decade;
relentless messaging has become integral to growth and preservation of both
company and product brands. Traditional advertising does not meet this
need. Leave It
to the Marines. We note on the Global Province this week that the
Marines, more than the other service branches, are seizing the high ground
in strategy and logistics. And they are effectively getting the story out
that they are reshaping themselves. Lesson 3: The best
communications always refer to and extend the organization's strategy. This
is particularly the case now when several organizations seem to lack a
strategy. Reader
Notes. Readers have written with good suggestions about items to
include in Best of
Class. One is particularly fond of the catalog of cabinetmaker Thomas
Moser, who has produced striking advertisements and catalogs for a number
of years. See
www.homeportfolio.com/BrochureExpress/Manufacturers/moser/index.html. May 20, 2002—Annual
Reports 2002: Long, Heavy, and Thin. As Promised. We have included on the Global
Province this week our
Annual Report Amendments and Suggestions. Our readers are
sending in more suggested items and, as well, are correcting some of our
errors—all of which we welcome. Thank you. We are surprised how
painstaking our readers are. One just turned up a
correction to our
account of highjinks at Cal Tech. May 13, 2002—For
the Love of a Mother Celebrate. It was Mother's Day, and Mom got the
day off from mealmaking and a few other tiresome chores. We celebrate all
the holidays, and Mother's Day is right up there in the galaxy of great ones
that help to push aside earthly cares and daily monotony. We hope you made
lots of phone calls, sent out a bunch of cards, and made bare the shelves of
your local florist. Venerable Occasion. We all know those sadsacks
who think Mother's Day is a commercial farce designed to do them out of
their gold. We learn, however, that the day has a venerable history, often
heavily promoted by women of character who felt strong affection and
admiration for their mothers. Apparently there was a spring rite in ancient
Greece for Rhea, mother of all gods and goddesses. England had its
Mothering Sunday. In 1872, Julia Ward Howe, lyricist for the Battle Hymn of
the Republic, advocated a Mother's Day. Others followed in her footsteps,
but it was Anna Jarvis of Philadelphia who buttonholed everybody and really
put Mother's Day on the national map. Finally in 1914, President Wilson and
the Congress proclaimed it a national holiday. Power Moms. Mother's Day reminds us that we
need a few high-powered moms at the pinnacle of politics. It is probably
not too much of a stretch to say that Mother Maggie Thatcher saved Great
Britain. Mary Robinson (we have not checked her motherhood credentials) has
distinguished herself as president of Ireland and in her duties for the
European Community. Golda Meir brought heft to Israel not seen since in the
prime ministership. And so it goes. It is arguable that a lot of
governments (say Japan?) won't get straightened out til’ we get mothers at
the helm. Next Week. On the 20th we will tell you in our
Gods and Heroes section how foster mother Louise Brown saved children from
the welfare bureaucracy. This week on Big Ideas we tell you about Lord
Peter Bauer, an economist who correctly theorized that big Western
governments and poor developing economies don't mix, maybe because
governments don't really, really care for the poor, lousy surrogate parents
that they are. Also look out next week for our Annual Report on
Annual Reports 2002, by the way, in which we say that companies are
running scared and know not where they are running. May 6, 2002—Idea
Light and Boston Heavy Oberoi
Dicta.
Mr. Mohan Singh Oberoi, hotelier extraordinaire, passed away last week,
having created some pre-eminent Asian hostelries. According to the Times,
he was fond of saying, "You think of money and you cannot do the right
thing.… But money will always come once you do the right thing, so the
effort should be to do the right thing." Obviously it would have been worth
knowing this inkeeper, and we have a few more words about him under
Wit and Wisdom
this week. Mostly
Outside; No Inside. A few weeks ago we commented that San Francisco had
become a city without an idea, suggesting that it could rediscover purpose
as a 21st- century portal to Asia. For better than 40 years it
has been one of our favorite places on the continent, and we lament that it
now has to find its bearings. Readers wrote in droves to say, “How can you
malign our town?” These are mostly newcomers, incidentally. And an equally
large number of San Franciscans sympathized, “Yes, it has fallen quite a
bit, hasn’t it?” Even on Thursday a latecomer to the debate claimed, “You
are part of the past. It is, in fact, much better now than it ever was.”
Well, we still don’t know what the big idea is that motivates the city: all
we see is packaging. It lacks Mr. Oberoi’s right thing. The
China Debate. Two extraordinary, long articles appeared in The New
York Times last week about the People's Republic. First, “China's
Communists Try to Decide What They Stand For,” (May 1, 2002, p A3), opined
that the Party is aggressively trying to re-discover a meaningful ideology
in the face of the New Vast Economy and the considerable social
rearrangements of the last two decades. And, on Saturday (May 4, 2002, pp.
A1-A17), the Times said, “Some Chinese See the Future, and It’s
Capitalist,” claiming that a host of Chinese scholars no longer concern
themselves with whether the country should be capitalist, “but what kind of
capitalism it should have.” Since these authors lack the kind of access
they need to provide adequate proofs of their theses, we don’t get the data
and anecdotes that validate their theories. Nonetheless, it does suggest
that the Chinese are not unlike a number of other large societies: since
the end of history (the end of the Cold War), many of the larger countries
lack a core belief. It is probably why a number of smaller, second-tier
countries, on the other hand, are performing more admirably at the moment
and exerting more power in world affairs. Who would have thought that South
Korea, on its knees just a few years ago, would be turning in 6% growth
now? A number of small nations do have big ideas.
Implacably Correct. Boston, which fired that shot that’s heard around
the world, never lacks for a purpose and some kind of view. It’s the home
of the higher education industry, and a host of the interesting things that
are going on in healthcare get started there. Because of its academic
overlay, almost every conversation about everything has an ideological
coating, and there’s a correct, pinched-lip take to exercise, seat belts,
diversity, food, and even to topics the proponents know absolutely nothing
about. Secretly the City on the Hill, locus of the most devout sports
enthusiasts in the nation, harbors a religious fervor that comes up in all
sorts of ways. Even with a goodly crop of wayward priests and an outsized
pack of car thieves, this is a righteous place always equipped with an idea. Mrs.
Jack. That’s why the museum to go to in Boston is the Gardner Museum,
which you will find in Best of Class this week. The Gardner gets you off
the sermon circuit. She came up from New York to marry Mr. Jack, gave a
touch of color to the place, skirted all the edges of scandal, and
bequeathed a museum that is as much about her as it is about art. Just
toddle by the Boston Museum of Arts, which does, we admit, house some fine
silver, and go over to her place for some real romance. P.S.
So we think it is a good time to be looking for businesses, cities, and
countries that have an idea. That's some of what we will be talking about
in this year’s Annual Report on Annual Reports 2002. April 29, 2002—The
Ground Is Shifting If You're Listening 10 Quakes a Day. Last week we posted the Geologic Survey's very
current earthquake map for San Francisco on the Global Province (see Global
Sites). Whenever we peek at it, we find 30 or 40 shocks in the Bay Area for
any four-day period. That seems to work out to 10 quakes a day. Lately the Northeast is trying to compete, part of its unstated horserace
with California. Last weekend's news reported 5.1 richter-level seismic
events with a fissure here, a tear in the fabric there, and a loss of a
foundation here and there. The clatter we hear in New York City is not
always a subway or a demagogue from the outer boroughs. $54 Billion and Counting. Another seismic shift was recorded in the
City. AOL Time Warner (NYSE:AOL;
www.aol-timewarner.com) got the attention of the markets on
Wednesday by reporting a quarterly loss of $54.2 billion, the largest ever
for a business in U.S. history, eclipsing JDS Uniphase's (Nasdaq:JDSU;
www.jdsuniphase.com) piddling $41.8
billion. As Senator Dirksen of Illinois was wont to say, "A billion here and
a billion there and sooner or later you're talking real money." Analysts
actually pushed the stock higher, since earnings (the way they count them)
before special charges came in higher than they expected. Cash flow, we
remind you, is still in the tank. Did you ever have the feeling that we are
in an era of funny money and plain weird accounting? More Tremors Around. There's lots of other big stuff that's escaping
our attention, overcome as we are by the din of war, cable TV, and assorted
scandals. Recent studies out of China, for instance, tell us affluence is
already having its way with the people: blood tests show that surprising
numbers are pre-diabetic and pre-coronary, the output of fast food and other
habits of people on the rise. We can expect an epidemic of affluent
disorders as part of the economic miracle. And the old reliable Wall Street Journal, meanwhile, looks to have
made a complete hash of a recent redesign, the world's best newspaper fast
turning into a confusing mess where it is plain hard to find the goodies you
are looking for. Sadly, the WSJ has shown an aptitude for snatching
defeat from the jaws of victory for the last 10 or 15 years. Even its online
newspaper, of which it is so proud, is taken to be a strategic mistake by
Peter Drucker, if we remember correctly. The Journal's missteps, too,
are unnoticed except by a few big investors who want to take over the paper
and break it up. Our Annual Report 2002. Well, we are just doing our annual on annuals
2002, and you might think at first that it is a repeat of the story we told
last year. More troubled companies all over are using the universal nostrum
of cost-cutting. But there are all sorts of changes afoot as well. GE and
IBM, for instance, are providing some unprecedented extra-voluntary
disclosure in order to assure investors that the companies are not standing
on quicksand. The big annual report news this year is that corporate moguls
are trying to reassure us (and themselves) that their get-up-and-go has not
got-up-and-went. We also found that Wal-Mart became the nation's grocer last year, taking
over first place from all the ordinary retail chains, who simply don't know
what's hit them. While we were napping, the Boys from Bentonville simply
created a second whole business inside the old one. Keep an Ear to the Ground. A lot of big things are happening but you
won't see them on TV. Keep an ear to the ground, maybe keep your eyes shut,
and you might just hear the tectonics at work. Here lies great opportunity
if you're listening. April 15, 2002—Culture:
The Medium Is Not the Message Exhorticulture. On Big Ideas this week, we look at an article by
Michael Z. Wise of the New York Times in which he highlights the vast
number of New York City cultural edifices (fortresses) and projects
supported by a slew of foreign governments. This is diplomacy through
cultural foray. And he asks whether the U.S. Government should be doing the
same sort of thing abroad. We would think that the U.S. already has it right. Cultural communication
pays, but you have to think how to go about it. Don't build fortresses or
palaces of culture. For starters, the Europeans are not reaching America by
setting up a cultural address in Manhattan. That’s Gucci warfare. And we
would not be getting to the Brits, the French, or the Germans were we to
plop something in the plutocratic districts of London, Paris, or Berlin.
Culture is a binder, not a V-2 rocket to be aimed at the heart of
metropolis. Culture is peace, not warfare. A Reason for Being. Curiously enough, the New York Times has
become a vehicle for transporting culture and social mores. Truly serious
people no longer read it for politics or economics, since its editors don't
grasp those precincts and are much better equipped to explore the ins and
outs of America’s affluence. Society and culture have become the real beat
of America’s newspapers, and the source of their commercial livelihood. That
is somehow evident, incidentally, in the recent remodeling of both the
New York Times (national edition) and the Wall Street Journal,
both geared to the concerns of everyday life. Corporate Education and Training. The makers of America’s best
commercial donut, Krispy Kreme, have appointed a Dean of Learning, a fact
that is also noted on the Global Province this week under Agile Companies.
Dr. Martin tells us that lore, and stories, and the anecdotes about Krispy
Kreme of old are the heart of Krispy Kreme training, instead of the typical
argot of finance, business school, consulting firms, and operations gurus
that is the gist of most corporate schooling. In other words, in its
training and education, Krispy Kreme focuses on its own culture and
stories--the age- old way societies have passed wisdom from one generation
to another. The Medium, Not the Message. Culture, we'd say, is the medium, but
not the message. Despite the Internet, universities, the cultural forums in
New York, etc., culture is the best way knowledge gets passed around. It’s
not an end in itself, but the ether that carries our hopes, thoughts, and
visions to others in towns about the globe.
P.S.
Oddly enough, America’s corporations have not been particularly apt cultural
marketers. They have been reasonably adept at using sport as a vehicle to
carry their wares, but clumsy in the cultural sphere. Luck and happenstance
have led entertainment companies, most notably MTV, to use pop trivia to
push pop. But the creative use of culture in business has been hit or miss
at best. A little of this can be viewed in our section Poetry and Business.
We also would urge you to look at
www.salmonlady.com where the proprietor
tastefully laddles out bits of Scotland, with its smoked trout and salmon.
Also look at
www.amanresorts.com, just added to Best
of Class this week, where the commentary about the locales is taken to be as
important as the propaganda about the resorts. In time we will be measuring
companies ability to play on the cultural ball field. April 1, 2002—San
Francisco Passing San Francisco Once Again. We are resending last
week’s Global Province Letter, which seems to have become lost in the
virtual ether. As near as we can tell its disappearance had something to do
with the phone company or our ISP (a horrible abbreviation for the computer
people who link us to the Internet). At any rate, we are sorry we did not
reach you. Incidentally, we are going to send these letters less
frequently anyway, but we will always provide updates so you will know
what’s new on the Global Province website. When the Global Province
started, the Internet was still novel, and your email mailboxes were not
stuffed with endless messages. Thus, in order to help alleviate the email
crush, we will exercise even more rigorously our already deep belief in
quality over quantity. The Late
Fifties.
The San Francisco we first visited in the late 1950s has absolutely no
connection with SF circa 2002. Then it had grand hotels with customers who
dressed for the part. Herb Caen's column told us of innumerable visits to
the bar at the Clift Hotel, where you were rejected out of hand for long
hair or the lack of a suitcoat. Cars stopped on a dime when pedestrians
stepped into the street. Then San Francisco's proud banking community was
led by the Bank of America—currently a subsidiary of North Carolina—and its
home-grown boutique investment bankers later reigned over high tech
financing, at least on the West Coast. All of that is gone now, and the
action has moved from Union Square (now disappearing as part of a “civic”
improvement) and Montgomery Street to the other side of Market as the town
becomes a convention center and shopping mall. Today you need a car
(perhaps the Yellow Cougar from the cops-and-robbers show Nash Bridges)
to get around a San Francisco that is no longer compact, no longer a walking
city. The late, fun Chronicle (we remember a banner headline in the
60s saying, “San Francisco Coffee is Swill”) once wrapped a little news
around comedic columnists and the paper's core—Herb Caen's gossip column.
All the fizz has gone out of the newspapers, and USA Today is more
lively than the local rags. San Fran
Vaporizes.
The beauty of this ingrained transience is that it can make for terrific
originality. A host of things have been conceived in the Bay Area, only to
go elsewhere to ripen into significance. There was a Fillmore West before
there was a Fillmore East. Birth control got its wheels down the Peninsula
at a company called Syntex, and the first pushes for a transcontinental
railroad seem to have come from Northern California. The nation's
pre-eminent major integrated health system—Kaiser Permanente—is
headquartered in Oakland. Here and
down the Peninsula, fog and sun mix to make magic. Since the past dissolves
and disappears forever, inventors easily spin new dreams that come fully to
life elsewhere. No stubborn old images stand in the way of new fantasies.
The stillborn dotcom revolution half-happened in San Francisco, even if the
substantial fruits of the E-conomy are picked elsewhere. And so when dotcom
is over locally, San Francisco moves on to the next thing, whatever that is. Pie Squared.
The surrounding areas (Marin, East Bay, the Peninsula) like to think they
are very different from San Francisco, but they are probably even more
extreme examples of the same phenomenon. Malvina Reynolds, the Berkeley
folksong grandmother, wrote about the green and yellow little boxes the
working classes lived in south of San Francisco (e.g. “Little Boxes”). Her
song captured, she felt, the essence of the cookie cutter houses where a
tipsy householder more than once wandered home to the wrong dwelling, since
it was so hard to tell them apart. This sameness of everything also
describes the towns, the hotels, and, most-of-all, the offices on the
Peninsula. All the buildings look alike, inside and out. This
probably has been good for the engineers in Siliconville. The walls are
blank, the flip charts are empty, and the decoration is non-existent. Any
business could move out tomorrow, and nobody would know it had ever been
there. Silicon Valley is a giant tabula rasa where engineers can
think big thoughts untroubled by distracting niceties which might take them
away from their calculators. Transience and evanescence, greater
exponentially than in fleeting San Francisco, free hands to draw lines in
the sand and circuits in the sky. Gourmet San
Francisco.
Under new editor Ruth Reichl, Gourmet Magazine is undergoing
something of a revival. A very successful recent issue was devoted to San
Francisco (March 2002), a town where all aspects of cooking absorb a
determined percentage of the citizenry. Strangely, the designer food, even
in the most noted restaurants, is often quite bland, although it is
presented quite prettily, all in keeping with a City that is conspicuously
decorative at every turn. Things are often picture perfect on the outside,
but sometimes a little hollow at the core. However, it
is a side article that is the most intriguing aspect of the whole issue.
Writer Michael Chabon, who has lived everywhere, essays on why he loves and
lives in Berkeley. As for the Berkeley state of mind, Chabon says, "As for
neurosis, you can pretty much start at my house and work your way out in any
direction.... If neuroses were swimming pools, one might ... steer a course
from my house to the city limits and never touch dry land." For a host
of reasons, San Francisco and its environs seem spiritually askew and more
than a little neurotic. Originality has been flattened, as the inhabitants
become more and more self-absorbed. The town needs a renaissance: the
spirit of the place needs a resurrection. Earthquakes.
In 1906, the year of the great earthquake, the region came together and came
alive. Not far behind was the Panama-Pacific Exposition of 1915, a
celebration of San Francisco looking beyond itself—a city with purpose and
with aspiration for all kinds of progress. It's had
earthquakes since. And it has guaranteed major seismic happenings in its
future. The kind that shake complacency. Maybe its resurrection demands an
earthquake, something to wake up the Grateful Dead. But revival does come
in other forms. The China
Trade.
In
the distant past, the China Trade lent meaning and purpose to San
Francisco. Once upon a time, too, the town's most wonderful store, Gump's,
sported endless Chinese artifacts and furniture. Gump’s, now across the
street, has withered on the vine. A China
Revival might bring this town back to life. By this, we do not mean a
return to the physical movement of goods, for the port has long since ceded
its historic role to Los Angeles. But it might become an information portal
to Asia, particularly China, by fashioning itself into the node through
which ideas and culture bounce from East to West, and West to East. At the
margin, one detects some of this going on today as we meet, for instance,
entrepreneurs of various stripes who are much better known in China than
they are in the United States. Can San Francisco, we ask, turn the corner
and seize the China Moment? The San Francisco Bay Area has demonstrated a
chameleon-like ability to change its colors with ease. Can it change a
little more purposefully?
P.S.
Whether San Francisco remakes itself or not, companies are well advised to
stage their assault on both Asia and China from San Francisco. Sure enough,
just the other day, we saw a new outlet for a hamburger chain from the
Philippines, Jollibee, south of Market, yet another indication of the portal
nature of San Francisco. In this view, San Francsisco’s bible should be
F.S.C. Northrop’s
Meeting of East and West. March 25, 2002—Calling
a Spade a Spade; CP up 50% Bull's Eye. Now and again, some wonderful journalists do their job.
They spot a bit of buffoonery and actually have enough get-up-and-go to pin
the tail on the donkey. We're not talking about so-called "investigative
reporters" who, like Joe McCarthy, are liable to spot a varmint under every
bush and, often as not, are wrong in what they have to say. We're just
talking about workaday journalists, of balanced-mind and middle-of-the-road
views,who almost accidentally bump into a sham in the road in the course of
their work and are compelled to call someone to account. Landro Has Landed. Laura Landro seems to have just done just that
in the last couple of weeks. We are not referring to her weekend Wall
Street Journal column about her Fear of Flying. Rather, it's her opinion
piece on a Seattle reporter who was too cavalier in his reporting on and
actions towards a Seattle institution, the Fred Hutchinson Cancer Research
Center. Not only is Ms. Landro a very fine health reporter but she has been
through cancer herself, apparently at the Hutchinson. And, by the way, she
works at a paper where management has enough backbone to support a
journalist, no holds barred, when she or he is fighting the good fight. The
New York Time's media chatterbox and others came down on Ms. Landro
for her outspoken comments about a member of the scribbler tribe, but the
WSJ stood by her. H-P Implodes. Some serious business journalists need to examine
H-P management which, as near as we can tell, has hastened the dissolution
of Hewlett-Packard with its ill-conceived marriage to COMPAQ. We understand
that Red Herring, a tech magazine in San Francisco, did write an open letter
to Carly, even before the misalliance, in order to assail a series of
decisions at the Palo Alto headquarters which may lead to a meteoric crash
of the company. H-P, incidentally, is as much at the heart of Silicon Valley
as Stanford University, and its possible demise may have Richter-scale
effects on Northern California. Financially gutted already by the mindless
loss of its big banks and boutique investment banks, the Bay-Area economy is
vulnerable; its techno-structure could come apart as well. It is mighty
curious that national journalists have not sunk their teeth into this one. First Koppel, Now Rukeyser. We are not as shocked that ABC-Disney
is toying with toppling Koppel as much as we are that the Maryland Center
for Broadcasting has brought down Rukeyser and Wall $reet Week. Years ago a
visionary there, Anne Darlington, created TV's most successful business
program (sort of the only one for a long while) with Rukeyser as pilot.
Early on, the Maryland folks eased out Ms. Darlington. Now they have axed
Rukeyser, the kingpin of a still very successful, beloved show. They're
after a younger crowd, and Lou seems to have attracted commercially
unattractive audiences. They wanted to edge him out by inserting a co-host,
and he angrily resigned this week. It's not that the program does not have to be renovated. Obviously the
station has not been up to that task for several years, Rukeyser or not. But
it is very unfortunate that it will be so dumbed down now, a reasonable
assumption since the station has brought in Fortune as equal partner.
As it happens, there's not one publication in the whole Luce empire today
(AOL-Time Warner now) that we could accuse of pandering to quality. What we
have here is a local, average PBS station--which would be nowhere without
Darlington/Rukeyser--that is about to burn out the engine that drove its
reputation and growth. Having said all of the above, it was still a pretty good week for
journalism, most of all because it was a week when a few brave souls from
the Fourth Estate took on slovenly journalism and suicidal media management.
The press, as you know, is exempt from the normal checks and balances of a
pluralistic society. The best we can do now is to hope reporters will begin
to police themselves. We can think of more than 100 whose bite is worse than
their bark and who are more than up to the challenge. P.S. With the decline in print and television-network quality, and
the subsequent erosion of audiences, custom magazines (usually put out by
big companies with a specific marketing purpose) are fast growing in number
and circulation. "Custom publishers had $1.5 billion in revenue last year,
up from $1 billion in 2000, according to Jim Gabal, co-chairman of the
Custom Publishing Council, a trade group." See the Wall Street Journal,
March 13, 2002, p. 13A. In fact, our traditional media, rather lumbering in
so many ways, are creating a vacuum that is being filled by all sorts of new
information vehicles. March 18, 2002—March
Madness Coach Porter. Coach and, later, impresario in both the Illinois and
national high school athletic associations, Henry V. Porter coined "March
Madness" in an essay he wrote for Illinois High School Athlete in
March 1939. He went on to write a poem, "Basketball Ides of March," his pen
never silent. March Madness amounts to an affectionate term for all the
hubbub surrounding Illinois state high school tournaments. You can read
about this at
www.marchmadness.org.
It's odd, of course, that March Madness should originate in Illinois, since
legend has it that Indiana's Hoosiers are much more passionate about their
high-scholl basketball warriors. Of course, the term has been co-opted for NCAA doings and everybody
else's basketball fireworks this month. And the madness itself stretches
well beyond sports. Haven't we always talked about the Ides of March and the
conspiratorial killing of Caesar? Then there's St. Patrick's Day, when the
wonderful Irish march a crooked course staggering a bit from libations too
many. The progress of madness in March touches more than the pedestrian
antics of basketballers caught up in competition. Love is in the Air. Included in this insanity are the transports of
love. Friend Chuck, whom we thought to be retired from everything, just
looked up his high school sweetheart of 40 years ago, and, after a whirlwind
courtship, they are to be married. The retired chairman of General Electric
has been tap dancing with the editor (now ex-editor) of the Harvard
Business Review. Meanwhile, certain lady politicians of Taiwan are
reputed to be engaged in acrobatic romances with sundry married men of
Taipei. A Good Face on Despair. Yet another way to trip through the madness
of March is to take on the flavors of New Orleans. Oppressed by a deflated
economy, sparkling crime statistics, and legendary corruption, the Mardi
Gras city always puts a smile and a shrug in front of its troubles. March
puts it at its best and most surreal, as our recent visit revealed.
Thankfully, its overwhelming humidity has not yet set in, and the streets,
oddly enough, are rather free of people, making peregrinations easy and
unchallenged. You will hear about Three Dog Bakery, The Epitome cigar shop,
and other singular old Orleans delights on the Global Province in good time.
Suffice to say, this is still very much a city which, unlike the rest of the
tourist cities in America, has not remade itself into a gigantic mall
inhabited by all the look-alike national retail chain stores that have
driven the special and local out of shopping. The cuisine, of whatever
style, bears a decisive New Orleans stamp, even though some cooks come from
out of town now. The power of the place is stronger than all the stereotypes
that predominate elsewhere. The madness of New Orleans, despite its tears,
is that it remains stubbornly itself in the face of all the sameness that
has become the patina elsewhere. It Ain't Over Til It's Over. The bulls are strutting again, a covey
of economists tells us the recession/depression is over, and congressmen are
larding the humongous new defense budget with lots of pork barrel. As they
say in New Orleans, Let The Good Times Roll. Well, almost, maybe. Yes, stock-market mania has also come in March. And yet some pretty wise
fellows, Sir John Templeton and Jeremy Grantham, for instance, think we're
in the midst of a bear market that's here to stay. They believe we must
wrestle with a 7-to-9-year Bear. So keep some of your powder dry. While
Grantham's favorite asset is timber, he does think small caps will
outperform big caps, so you might look for little, unnoticed, very liquid,
underpriced companies. The recession and the stock market blues may be over. Or we may be just
having some market madness. P.S. For those suffering from the drought in the East, we can console
you with Chaucer's thoughts on April, which kick off the Canterbury Tales: Whan that Aprill, with his shoures soote March 11, 2002—Looking
in All the Wrong Places Boutique Beers With wines over-rated and over-priced, we have been
digging into the beer barrel lately to good effect. Some offbeat brews have
proved very tasty, each eatery providing different treats. One of our local
greasy cafes stocked Buzzard's Breath (a Canadian import we think) for a
while, though it is now off the blackboard. With our Vietnamese pho, we
knock down 33, Danang's best, an antidote to the spices with which we lace
our soup. Our Chinese restaurateur, a cosmopolitan sort of fellow from
Calcutta, offers us Sing Ha, straight from Bangkok. Since we cannot fit an
MG in our garage, we have done the next best thing which is to quaff "Old
Speckled Hen," out of Morland brewery, which dates back to 17ll, and is
named after a vintage MG car that must have delighted the brewmaster. Winners Are Losers Wines, beers, and a host of other things now have
to come from boutiques, because the well-known companies seem to have taken
all the guts out of their products. Anheuser (NYSE:BUD) just reported
boisterous results for the last quarter, once again picking up market share
by packaging soapsuds in a bottle, leaning on its distributors, and flogging
us with advertising that never relates to the quality of its product. It is not alone in achieving viagra performance despite the lackluster
physique of its products. We have had occasion to look at all the companies
at the top of the Fortune lists (Fortune 500, Global 500, Diversity 500,
Most Admired 500, Ad Nauseam 500) and so on. The top rated don't have the
ring of quality, ethicality, innovation, wisdom, environmental concern, or
dedication to excellence. In some instances, they are actually drags on the
economy. They are yesterday instead of tomorrow, substituting marketing fizz
for product substance and integrity. The Gap The politicos tell us that Andersen did not make Enron adhere
to GAAP, generally accepted accounting principles. That's true enough. But
GAAP would not get to the heart of the problem. It's long been known that
GAAP and the accountants don't know how to measure the worth of an
enterprise. So even if a company makes a Fortune list and passes an
accounting examination, it may not merit your attention. There still may be
no there, there. Sorry About That. In all sorts of ways, the beleaguered accounting
systems of bean counters do not capture economic value. It's no secret that
serious investors don't use accounting statements to decide whether to put
their money where their eyes are looking. Beady-eyed investors tear apart
the statements, and look for the shakedown, break-up value of an enterprise
in order to see whether they want a piece of the action. Accountants aren't the only ones who have trouble looking at performance,
value, and excellence. McKinsey, the General Electric of consulting firms,
has commonly got it wrong. Read, for instance, an article in Across the
Board, March/April 2002, "Excellence Won't Save You," where McKinsey's
Richard Foster says, "This beguiling simple business of picking excellent
companies was unfathomably difficult because every time you picked them they
stopped being excellent." Accountants, consultants, magazine editors, and all the rear-view mirror
boys pick companies that used to be excellent, but are now coasting on their
reputations. And, to boot, they usually measure the wrong things anyway. If
you will look at Agile Companies on our site, you will find companies with a
patch of excellence that make none of the lists and, often, have spotty
financial performances. But they are up to something good. Looking for Excellence. Excellence, in fact, is elusive. Only a few
make the grade, unless you indulge in grade inflation. Ordinary tabulations
don't find the right beers, cigars, brandies, companies, or chief
executives. And, horror upon horrors. Great companies that will shine for a
century often seem plodding in the present. General Electric, today's star
on every list, looks to us to be in decline, both because it is too
dependent on the earnings of its financial services subsidiary which should
be severed from the parent and because its leaders lack some of the
ingredients that make for long-term value. L.L. Bean in Maine, honest to a
fair-thee-well, will be around for a long time, although it is far from
turning in the financial performance it could. It does not look like it will
implode. Passing Fancy. What a fragile creature excellence is. In the late
1950s, Yale University under A. Whitney Griswold was probably the best
university in the United States. It was wedded to a liberal education, and
its professors actually had to teach to earn their merit badges. At other
institutions the profs made their reputations, and their graduate assistants
made their classes. But that Yale is gone now. We're reminded of Capote's Breakfast at Tiffanies. At the end,
Holly Go Lightly loses her cat, and only then realizes how dear the cat was
to her. We only know how valuable something is when it is lost. That is excellence. We don't know how important it is till we don't have
it. Like Paradise Lost, we cannot reclaim it. We don't know what ingredients
make it up or how to account for it. Somehow it just gets away from us. P.S. Notice that the PMI index has gone over 50, at least a temporary
sign of economic recovery. P.S.S. On Agile Companies, note Burberry, Analog Devices (NYSE:ADI),
Tesco (NASDAQ:TESOF), Inditex (MADRID:ITX), and Bose, to name just a few
companies with a touch of excellence. We will start laying out some of the
characteristics of excellence in a future letter, though , in the end, it is
indefinable. At work is the Heisenberg Principle where the process of
measurement actually destroys the phenomenon being measured. March 4, 2002—Mauled
by the Mall Elton at the Mall. Saturday's paper, hard up for copy, chortled that
Elton John hangs out at the mall or the movies in his spare moments in these
United States. Or, so says People, AOL-Time Warner's (NYSE:AOL) money
machine and the mainstay of the Luce empire, now that all its other
publications are sliding downhill financially and editorially. We sorrow for
Sir John, wondering that he has nothing better to do with his time. And yet,
this addiction to the mall makes him one with his audiences. They, too, are
doing the retail. Consumers Have Been Shopping. This has been a most curious recession.
A slew of economists are still denying that we're in a slump. All the people
out of work know we're in the pits. Alan Greenspan knows we are hurting and
has chopped interest rates at an unprecedented rate to reflate events.
Almost every business person has tales of woe and will privately share fears
aplenty. But -- and it's a big but -- the consumer keeps spending on
houses and all sorts of other things. The culprit in this slowdown is
business investment, which is massively off; but the consumer dances on day
and night. We ourselves think the populace is on a last, addictive spending
fling, a hangover from the profligate 90s. Even so, economists vow that our
non-recession is almost over, though they are only promising a mild
recovery. Note, however, that unemployment is turning up again, and that the
other economic indexes will not warm the cockles of your heart. The Age of Wal-Mart. The New York Times' best economic writer
(albeit as a guest columnist), Virginia Postrel, has discovered that the
avid consumer has made our retail sector a hero in more than one way. Ms.
Postrel has the knack of recycling economic research in the popular press.
Now she cites a survey from McKinsey, the consulting behemoth, which reports
that 6 sectors, retail a standout, account for America's burst of
productivity during the 1990s. Retailing chalked up 25% of the productivity
gains during the period 1987 to 1995. (See New York Times, February
28, 2002, p. C2.) Wal-Mart's (NYSE:WMT) innovations directly or indirectly
caused much of the big leap. Wal-Mart, we would suggest, got the deed done
at the back of the store, managing its supply chain and logistics
extraordinarily well, while providing a chintzy, serviceless, sterile
experience up front. Having displaced Sears Roebuck (NYSE:S) as America's
prime retailer over the last quarter century, Wal-Mart now provides less
relative value than its predecessor, paradoxically allowing it to obtain
more of a monopoly in America's marketplace. Massification of Retailing. The chains, particularly the discounters
like Target (NYSE:TGT) and Wal-Mart, are driving traditional retailers to
the wall. In retailing, we seem to be imitating the early days of the car
industry, with a similar lack of customization and service. You buy what the
juggernaut gives you, becoming a docile, deferential customer who does not
make any waves. As a consequence, it has now become more pleasurable to shop
at a catalog store (L.L.Bean) or an internet purveyor (Amazon) than at the
mall, despite Elton John's predilections. Mass Customization to Come. The technology is at hard to introduce
something besides meat-and-potatoes retailing. Wal-Mart's dominance could be
very short-lived. Mass markets are slowing and fragmenting fast, compelling
manufacturers and retailers to offer more choices, act with greater
flexibility, and reconfigure around the customer. The move to agile,
short-run car factories noted in Agile Companies this week is just one sign
of where all the markets are moving. Levi Strauss and others have made it possible for customers to get their
clothes semi-cut to order. Speech recognition technology and customer
relationship software allow retailers to super-serve loyal or high volume
customers. Vast possibilities for follow-on services and products
intelligently rendered exist in the car industry which has historically
delivered big metal instead of a unique car experience. Sephora Because. Even without new technology, the independent
retailer who wants to do it better has a distinct opportunity. The tug of
war between the downtown retailer and the mall chain is instructive. Up to
now, the downtown store has cut prices, quality, and everything else in
hopes of competing with the mall. This has been a hopelessly flawed
strategy. The mall will win every time. A few years ago Sephora, a French cosmetic chain and subsidiary of French
luxury goods company LVMH (NASDAQ:LVMHY), planted a store in an unlikely
small Southern town. It's still there, doing a lively trade. An upscale,
Asian-fusion, newly opened restaurant, by far the region's best, has just
opened a few blocks up the main street. The only strategy is to find out how
to go up-market. A host of other stores, dotting the same thoroughfare, have outdone
themselves trying to offer cheap knockoffs, discounts, and the like. They
are failing at a mad rate, in a death spiral without either volume or
margin. The downtown parking situation, with parking meters, meter-mail
tickets, and no parking spaces, guarantees a lack of sufficient volume. They
absolutely need an up-market formula, a big lesson for city planners. P.S. We advise a close look at foreign retailers, where a goodly
amount of the most interesting innovation is taking place. Tesco (NASDAQ:TESOF),
the British grocery chain, quickly made money in the Internet business,
because it closely linked its virtual business to its bricks and mortar.
Zara (MADRID:ITX), the Spanish women's chain, has danced around its
competitors, by frequent stock changes based on a close reading of trends
and its own inventory movement, on manufacturing in Europe instead of Asia,
and a little better style instinct than most. Ikea, out of Scandinavia, has
put starter home furnishings in the Western World's yuppie households by a
surefire combination of modern design and low prices combined with fairly
astute store location. February 25, 2002—Don't
Worry About the Copperheads; The Big Bear Will Get Your First Copperheads and Big Bears. A friend up North gave me this adage as we
restruck our friendship over the phone last week. It strikes right to the
heart of this week's letter How do you pay attention to the risk that really
matters when 1,000 calamities press their claims upon you? It also is the
title of a new dictum added to the Global Province this week. Year of Risk. Last March, when we were working on our
Annual Report on Annual
Reports 2001, we were tempted to call it "The Year of Risk." At no
time did we anticipate the monolithic meltdowns we have seen since --
California's electricity debacle, the World Trade Center tragedy, Enron,
Global Crossing, Argentina, etc. -- but we spied a deep, wide, and pervasive
systems breakdown, even if the much vaunted Y2K tempest had ostensibly been
avoided. The irony of 2002 is that we see disaster all about us now -- to
the point of paralysis -- but we still don't see the big pileups coming down
the track. More often than not, we are consumed by the wrong risks,
fearfully preparing for things that are not going to happen. We're watching
the copperheads, yet the big bear is lurking in the bushes. We have been, we
are, and we will be bushwhacked. Lone Wolves. What's uncanny is that there are chaps around who do
foresee the big risks and anticipate, in vivid detail, the calamitous events
that will ensue because the risks are unattended. Such was Rick Rescorla
whose sad, wonderful, charming tale is retold in James Stewart's "The Real
Heroes Are Dead" (The New Yorker, February 11, 2002). From Cornwall
in England, he had fought against insurgents in Cyprus, Rhodesia, and
Vietnam. Cancer survivor, Zen Buddhist, and novelist, Rescorla did a stint
teaching criminal justice at the University of South Carolina, with a
textbook to his credit on that subject. He wound up as security chief for
Morgan Stanley Dean Whitter at, where else, the World Trade Center. With the aid of his wartime buddy Dan Hill, a Moslem convert, he
anticipated the first 1993 bombing of the WTC, and the airstrike last year.
"Drawing on his research" for his novel about the air-cavalry, "Rescorla
envisioned an air attack on the Twin Towers...." In the first instance, he
alerted Port Authority officials; they did not pay attention. In the second,
he alerted Morgan Stanley's own brass; they did not pay enough attention. Inside almost every system, there are mid-level, somewhat alienated
managers -- usually brighter than their superiors -- who spot clear and
present dangers that the bigwigs simply don't see. They are not wedded to
inertia, but respond vigorously to the promptings of their senses and their
intelligence. If you are, on the other hand, too much part of a system,
chances are you won't spot the torpedo coming your way you will believe in
the system so much that you will implicitly believe it is impregnable. Lone
wolves -- people of principle and intelligence who march to a different
drummer -- seem to divine the real threat. It's the lone wolves, not the
panoply of risk managers at banks, insurance companies, and detective firms,
who can give us a little security if we will listen. Churchill and Other Rank Amateurs. It was Churchill who saw World War
II coming and who, when the call finally came, could deal with it, even in
woefully under-prepared Great Britain. Despite some military postings and
his naval overseer duties in World War I, he was an amateur warrior. Yet,
oft as not, he understood what had to be done better than the professionals
around him. That is the intriguing thing about crises. The professionals rarely
anticipate the big ones; that takes lone wolves. And the professionals -- as
is so often demonstrated in wars ranging from the Civil War, to two world
wars, into Vietnam -- don't do very well at leading us out of crisis. That
takes splendid amateurs. Probably this is one of the lessons implied in Peter L. Bernstein's
excellent
Against the Gods The Remarkable Story of Risk. Again and again, we
discover that the chaps who lay the basis for containing risk don't come
from the professional guilds, but are independent, curious minds who come
from intellectually fecund family lines. Bernstein has this to say about the
utterly fascinating Francis Galton: "Galton was an amateur scientist with a
keen interest in heredity but with no interest in business and economics.
Yet his studies ... led him to a statistical discovery that is essential to
forecasting and to risk management." He was not part of the academy or
officialdom -- he was just curious. In Chaos Opportunity. Risk, it seems, is always one step ahead of our
experts, always putting us in need of civilized rebels such as Rescorla and
Galton who can foresee and devise against risks. Clearly the magnitude of present risks has outrun our risk-management and
mathematical apparatus. We would think that chaos and complexity theory will
have to come into play in order to grapple with the sheer numbers that have
to be analyzed to contain risk in a world of a billion-trillion
possibilities. This need not depress us. The very term risk raises the spectre of fear
and danger in an affluent, coddled society. But as Bernstein points out, it
is the successful management of risk that has established the basis of
modern commerce. All the quantitative heroes in the history of risk, he
says, "have transformed the perception of risk from chance of loss into
opportunity for gain, from fate and original design to sophisticated,
probability-based forecasts of the future, and from helplessness to choice." P.S. You will find a few companies that have made risk their business. We
have mentioned before that Duke Energy (NYSE:DUKE;
www.duke-energy.com) has appointed
one of its top executives Chief Risk Officer. And also that a Canadian grain
company, United Grain Growers (TORONTO:UGG;
www.agricoreunited.com) has
tried to codify and hedge all its risks, having enumerated 47. In a major
strategy shift, Gates of Microsoft (NASDAQ:MSFT;
www.microsoft.com) announced in
January that the company is moving computer security and privacy to the
center of its stage, its record badly flawed in both areas up to now. The
insurers, meanwhile, are cashing in on all fronts, with AON (NYSE:AOC;
www.aon.com), for instance, trumpeting its
political risk coverage (see the New York Times, February 24, 2002,
Business Section). February 18, 2002—Throw
Caution to the Winds Tearing-Up Your Career. Novelist and essayist Arthur Koestler had a
diverse career in many countries. Best known for
Darkness at Noon, which made it to Broadway, he's less known for
what is reputedly a passable manual on sex, put together under a pseudonym
while he was in England. We like him best for his two part autobiography,
Arrow in the Blue and
The Invisible
Writing, where he recounts how he began life all over again on at
least two or three occasions. Educated in the remnants of the
Austro-Hungarian Empire, he tore up his record of courses taken at the last
(in those days you kept your own university transcript) and headed off to
Israel to work in the kibbutz, or something like that. Later on, he
became a semi-renowned journalist at a liberal newspaper in Germany only to
leave it and the beginnings of Nazism behind to try out Soviet Russia.
Equipped with no more than a phrase book and a couple of names to contact,
he tried his hand at Stalin's Russia. Unlike his whole nest of relatives in
Austria and Germany, he fled security. Ironically, of course, he lived to
tell his story; they didn't. Templeton Speaks. The euphemists say, "Common stocks will do well for
you in good times and bad over the long term." Wrong, at least some of the
time. As far back as the first quarter of 2001, the prescient Sir John
Templeton warned us off stocks. Stocks, the obvious place to invest, will
probably give you cause for remorse for a while to come. Sir John thinks an
excessive 18 year bull market could only be followed, in his estimation, by
a 9-year bust. It will be problem enough to conserve capital, much less grow
it. A List of No-Nos to Do. In fact, the investment trail leads to a
bunch of places the wise men are shunning. For example, institutions are
chary of international venture investing, particularly in Asia. They say
they've lost 3% in Asia over the last decade. But, logic rather than emotion
says it is very much the time to get into China, the only major economy with
heady growth in the world. Closer at home, we've spotted a little company in Cary, North Carolina
that resells second mortgages, buying them from issuers and selling them
into various financial channels. We hear from everyone that you should watch
out for mortgages, especially in tough times -- and you should simply forget
about second mortgages at all times. But ALH Capital is making a handsome
nickel for all concerned, because its second mortgages are doing very
nicely, thank you. In fact, foreign investors are beginning to recognize
them as a good thing to own. As it happens, the right mortgages, properly
screened, can turn out to be very, very secure. The Counter-Intuitive Man. We are living in an age where he who lives
dangerously but has a keen eye and an agile brain will be the survivor. The
need for apparently risky behavior ranges well beyond our investing
activities. All the airlines, now in meltdown, are shaving away passenger
comforts and amenities Continental has kept a lot of the extras and, lo and
behold, has captured lots of extra passenger revenue. Ecuador, by giving up
its currency and locking into the dollar, has turned in a 5% plus growth
rate, the highest in Latin America. Everything tells us to pull in our horns
and do what we did yesterday, shying away from new ventures the evidence
lately is that caution will be a losing strategy. At no time in the last 30
years have our day-to-day tactical impulses and our long-term strategic
interest been more at war with each other. For the long haul, one must live
a little on the wild side. P.S. A couple of companies who have struck out for new pastures come to
mind. Years ago, AFLAC (NYSE:AFL;
www.aflac.com), a supplemental cancer insurance company in Georgia,
temporarily had a downdraft in its business due to some negative press in
the United States. It went into Japan big time -- and today Japan is its key
market. Hewlett Packard (NYSE:HWP; www.hp.com),
once an instruments company, then an also-ran in the computer business, got
into the printer business a few years back, the business that Xerox (NYSE:XRX; www.xerox.com) should have owned. At
any rate, it's printers that have kept HP alive, a business it will probably
neglect with the purchase of Compaq (NYSE:CPQ;
www.compaq.com). February 11, 2002—Do
Something; Red Adair Get Off the Sidelines. This week's mail brought the February
Turnaround Letter, George Putnam's excellent advisory on turnaround
stocks. Naturally he has a lot of lame companies to talk about these days,
although even in the best of times he never lacks for companies who are in
the doghouse and ready for a comeback. We liked best his sidebar, "The Risk of Staying on the Sidelines." He
shows a chart from the Franklin Mutual Fund Group that suggests you won't do
well if you sit out bad markets and wait for the good times. You must stay
invested. While there are some flaws in logic here, the idea is right. To sit on
your hands is to lose money. To find a way to remain engaged at all times
will net you average or better returns. A lot of hot hands have turned cold lately, and a ton of cash is worried
and idle. This has been particularly true for the venture capitalists, so
you can expect some flat results ahead. The frightened herd is reacting to
crisis by standing still. Denial. Crises of all sorts have now gotten bad enough that we have
become a bunch of scared rabbits. In the nineties, we did our best to ignore
our problems (no matter how severe), wasting a decade when we could have
rebuilt our infrastructure and reinvented our institutions. After a brief
flurry of activity, for instance, the Clinton Administration just gave up on
the healthcare mess, tail between its legs. As a consequence, despite a
brief period in the nineties when healthcare costs leveled off, they are
soaring again. More people are unwell and untended. Employers expect these
costs to rise a gigantic 13% in 2002. Miracles Happen. Not all miracles happen on 34th Street. Unnoticed
things of worth and note occur in the hinterlands. In a crisis there's
always a determined person who's too stubborn to be scared and who meets the
situation head on. Such is Dr. Kenneth W. Kizer, mentioned before (see Agile
Companies #135), who put the VA on the road to recovery, delivering a whole
lot more healthcare while spending a whole lot less dollars per capita. You
can read about this in the Wall Street Journal, December 10, 2001,
pp. A1 and A10. Or, if you can bear up under some medical jargon, read Dr.
Kizer's own account in "Reengineering the Veterans Healthcare System," a
chapter in Advancing Federal Sector Healthcare. The bottom line is
that the VA has achieved a 25% reduction in per-patient costs, while moving
all the treatment numbers in the right direction since 1996. Prescription In money matters--in healthcare and in 100 other
things--the right prescription is to do something. And if you don't know
what to do, look around for the contrarian who just happens to be doing it
right. We can assure you that we have our clients fully invested. And we are
pushing our clientele to rapidfire action in their businesses. The Kizer Plan We visited with Dr. Kizer a week or so ago to ask what
would set healthcare in America to rights. His answer was most refreshing "I
wish I had an answer as to what we should do." Can you imagine any of the
other experts who rush to Washington being so honest and blunt in their
testimony? Nonetheless, Dr. Ken has a few ideas as to what we must do next. If we do
the short-term obvious, he thinks, then a more comprehensive strategy will
reveal itself. For now he has 3 pills digital management, capitated costs,
and performance measurements. In any event, Dr. Ken thinks we have no choice
but to act, even without a wonderful roadmap. In brief, digital means putting everything in a super-accessible
information system that looks at everything--patient care, payments,
research, quality metrics ... the works. This is, in effect, a version of
the wired smart community we discussed in last week's letter. Capitation means that a health system only gets a fixed amount of money
to treat every patient enrolled in the system--so much per patient. This
begins to get at the misallocation of healthcare resources throughout the
nation, where too much money is spent on certain, complex cases, research
investigations, etc., with bread-and-butter care getting short shrift. We
know of a system that spent $5,000,000 on one patient who was terminally
ill, while its family-care system languishes to the point of malpractice. Performance is what it sounds like. You keep lots of statistics on how a
medical system performs against rigorous standards and goals. Measurement,
as in quality management, becomes the principal goad to produce major
improvement. Crisis Fighters. We have a good friend who always thought Red Adair
was in the ideal business. Red used to be the only guy you ever called when
you had to put out a fire in an oil well--and price was no object. In a
crisis, you needed to call a real firefighter. George Putnam has been at the bankruptcy game for a long while, first as
a bankruptcy lawyer in Philadelphia, as we remember. Ken Kizer has a raft of
specialties, but his first loves seem to be emergency medicine and public
health. Who else would you call to put out the national forest fire in
healthcare? Moral We should have called this letter, "In crisis, do
something. Get a firefighter." P.S. For investors there are a number of ways now to play distressed
markets in a sensible way. Putnam's Turnaround Letter (www.financialnewsletters.com/adcorn/turn.shtml)
has a good track record on stock picks. A couple of bear friends, such as
David Tice's Prudent Bear Fund (www.prudentbear.com/homepage.htm),
are good for your portfolio as sort of portfolio insurance. Make sure you
pick a fund that has been around a while--a bear fund that has survived good
times. There's been a lot of interest in gold stocks lately one substantial
company is Barrick (NYSE:ABX,
www.barrick.com).
February 4, 2002—Smart
Stuff Smart Communities. An unfocused idea that never goes away--but never
quite manages to blossom--is "smart communities." At the simplest level it
means wiring a bunch of people together with the hope that they will rapidly
accrue and exchange knowledge that has tremendous relevance to their
economic, cultural, and political lives. After that, it can refer to
anything, including Plato's
Republic where the philosopher king makes sure that all subjects are
in touch with the wisdom of the gods on an everyday basis. Politically Attractive. The idea has taken hold of politicians across
the globe, especially in Asia. The city-state of Singapore has tried to
become a knowledge machine, and it is hyperactive on the Internet and in its
digital libraries. Japan has had huge city-of-the-future plans, and the
world is dotted with other attempts at knowledge corridors. In this country,
we have heard most from state leaders such as former Governor Pete Wilson in
California who pushed for a wired California and Senate-hopeful Erskine
Bowles of North Carolina who wants the state to fund and spread the Internet
into the undernourished spaces of North Carolina. Fortunately or
unfortunately, all these initiatives have a thick technological patina. Eger Beaver. One Smart City advocate of particular note is John Eger,
a professor at San Diego University, who heads the California Institute for
Smart Communities (see Global Websites) and
who lectures on the need to solve the cleavage between the knowing and the
know-nots through the formation of smart communities. Most recently
(November 11, 2001), he talked in Riyadh, Saudi Arabia about the need to get
the wires used to transform society by active collaboration and
participation of all elements of society. In other words, smart communities
are not about technology but about successfully getting people to use the
new broadband pipeline for massive knowledge exchange. Smartness Yet To Take Off. All the exotic knowledge movements--smart
communities, smart homes (see www.echelon.com),
and smart companies (i.e. knowledge management)--have foundered a bit
because there has been a bit more interest in building the networks then
defining precisely what the smart networks must and will do. In the case of
communities, there is a need to focus local networks on local strengths so
as to enhance those strengths. Boston should be wired to better exchange
health knowledge since it owns special, long-standing skills in that arena.
Houston, despite Enron's failure, could become knowledge central for the
extractive and petroleum industries. Santa Fe seems to have a lock on
complexity and chaos theory, and, for sure, New Mexico is a center of chaos.
Companies, on the other hand, need to archive easily accessible business
processes (how-to libraries), and a Boston company named Phios (www.phios.com)
has focused on getting this right. This smart stuff will go somewhere when
it gets linked to very specific, very practical advances in knowledge
transfer. With our own clientele, we find we help create the most value when
we succeed at focusing the knowledge building on a few paydirt topics. Not A Trivial Question. The whole concept of smart communities, which
sounds like one of the hot-air euphemisms politicians and academics like to
utter, is not quite as impractical as it sounds. All of us know, but forget,
that most learning takes place outside the classroom. We have a host of
expressions--"street smarts," "school of hard knocks," "on-the-job
training"--that acknowledges that reality. A bright society depends on a
host of learning experiences outside of the schools. In fact, the schools
cannot really function in a sea of dumbness. With the decline of our educational institutions, the trivialization of
our media, and the polarization within our communities, there is immense
economic and political leverage in creating a context of smartness. So far
we have only secured some accidental semblance of this kind of network with
our popular culture--music and movies--which slips and slides into every
corner of the world, but probably doesn't have much to do with spreading
smartness. Again, the leverage of a smart context is stupendous, if we can
achieve agreement and collaboration at a local level as to what we want to
be smart about. Just as we have the world's highest per capital healthcare
expenditures, so it seems we have equally high education
expenditures--without much of a return on our dollars. Smart communities
might make a difference. Building on What You've Got. Bernard Maybeck, the charming San
Francisco domestic architect who was an early AIA Gold Medal winner (he and
Frank Lloyd Wright got the first two), said he knew he had designed a
successful house if the client then went on to complete the landscaping in a
harmonious manner. He read his client right if the owner could build on the
innate strengths of the house. This is the task for engineers of smart houses, smart companies, and
smart communities. Can the engineer detect the inherent strength of the
house, company, or community and make more out of it through his magic
wires? The task is to leverage what you've already got, not to replace all
that has come before.
January 28, 2002—In
Praise of Two Gods Passing Gods. Neither was a hero, but certainly each is a god. Last week Mr.
Stanley Marcus, a.k.a. Mr. Dallas, and Ms. Peggy Lee, born Norma Delores
Egstrom, shuffled off their last mortal coils and ambled up Mount Olympus to
join Zeus. Each had figured in our last two Global Province letters Mr.
Marcus because of his ruminations on elegance lost and Ms. Lee for her song,
"Is That All There Is?" Each was unstoppable, the spirit never flagging in
the face of illness, commercial impediments, or other earthly
impossibilities. Each made it happen to the very end. Stanley Marcus. We had the pleasure of a very long dinner with Mr.
Marcus at the old, reliable Adolphus Hotel in Dallas a month or so ago, just
a short walk away from the old flagship Neiman Marcus downtown, which we
much preferred to the mall affairs. Accused by us of putting Dallas on the
map, he simply said it wasn't true. At 96, as he sighed, his body had
deserted him, but the mind was as resilient as ever. We both contemplated
some new projects together, all infirmities cast to the side. We learned in
the recent New York Times obituary that he was voted the ugliest boy
in his high school class, which seems odd to us. Cerebral, fast, capable of
telling observations, he was so kinetic that one just did not pay attention
to his looks. As a kindness to us he wrote an essay for the Zindart 1999
Annual Report (see www.zindart.com)
called "About the Man Who Collected Everything," which was very appropriate
for a Chinese collectibles producer. I gave that title to the words he
penned he simply did collect everything and everybody. Peggy Lee. We grew up in those fifties and sixties when Peggy Lee was
gliding by. But we never particularly paid attention to her, since other
more jarring chanteuses commanded our idolatry. In the late eighties,
however, we had lunch outside by the Long Island Sound in the warm idyllic
air with a Chesebrough Pond's executive who knew how to be droll and who
radiated a little sadness. As we talked about the turns of business and
career, he blurted, "Is That All There Is?" Ever since then we have been
paying attention to Ms. Peggy Lee. What you never know about a songmaker is that a lot of bad times go into
the nightingale strains that pour from the soul. Orpheus from Hades. Losing
her mother at age 4, she bore up against a father who tippled too much and a
stepmother who beat, strapped, and dragged her about. After a bout of
pneumonia in 1958, she had resurgent breathing problems until her death, so
she kept oxygen close at hand. It gave her relief both before and after many
a performance. Dealing with a bad heart, diabetes, and even occasional
deafness, she just kept singing. Unlike Marcus who spanned almost a century,
she was a youngster when she died at 81. As we said, we didn't notice her at first. She was a master of
understatement. We're reminded, however, of our springer spaniel who is much
more attentive to us when we speak in a whisper than when we shout. Better
to talk softly and carry a big spirit. After a while, like Ms. Lee, you will
be heard, soft and clear. Swimming Upstream. When all the world is floating down river -- lazy
and fat -- the quality swim upstream, defying the aimlessness and commonness
of their times. Stanley Marcus pushed exceptional merchandise, big-style
service, and a spirit of inquiry when designer labels and political
correctness were used as packaging for all sorts of products without
content. Peggy Lee lulled us with her soft style, but symbolized how well
determination will be heard. We like the fact that she won two royalty
lawsuits against the sharks of Hollywood, getting $2.3 million from Disney
in 1992 and a part of a $4.75 million settlement from Universal Music Group
later on. Each made quality happen, because neither was a pushover, both
knowing who they were and where they were headed. We trust both are still on
their way. Obits Come to Life. The several write-ups of Mr. Marcus and Mr. Lee
we have read in the papers have been first rate. Obituaries have turned into
an art form -- a little noticed trend and one of the few writing arenas
where things have actually gotten better. Not only have the daily newspapers
beefed up their morgues (often crafting the obits at leisure well before
their subjects die), but magazines such as the Economist have lately
gotten into the business, using the obit as an endpiece for the magazine.
Are the papers ministering to an aging population (a demographic of all the
developed countries), or is some veneration for our forebears creeping into
the national consciousness? The historian David McCullough's great success
with
John Adams, and A&E's biography series, are further evidence of the
growing interest in people past. As it happens, this is one thing the print
media does very much better than the broadcasters. At any rate, obituaries,
which are usually eulogies, turn out to be a marvelous way of praising the
gods. P.S. Amongst Stanley Marcus's works are
Minding the Store;
Quest for the Best;
The Viewpoints of Stanley Marcus;
Stanley Marcus from A to Z;
Henry Dreyfus;
American Greats; and
His and Hers. To catch Ms. Lee, get her CDs, such as
All-Time Greatest Hits and
The Best of Miss Peggy Lee: The Jazz and Blues Sessions.
January 21, 2002—Hanging
In or Hanging Out Is That All There Is? 10 or 15 years ago we chatted one an evening
with a Dutch lady in a stylish Village restaurant known as "One if by Land,
Two if by Sea." Olga, the lady in question, had come a long ways from
Amsterdam. Starting there as a secretary a decade before, she had conquered
mountains and become a treasured vice president of a U.S. chemical company.
Her question for me, after the manner of the songstress Peggy Lee, was "Is
That All There Is?" What would come next for her? What should she strive for
in the days ahead? Where was the next mountain? My answer was that she had done it all. Now she could only hope to better
her craftsmanship, to do what she was doing with ever-greater perfection.
The answer did not please her. But given her relentless drive and
self-absorbed ambition, what else was there for her than to lower her
handicap? She could not hope to join the gods above Mount Olympus because
she did not believe in them. She believed mainly in her abilities. Wittgenstein Versus Popper. Aspects of this question, the interplay
of career and metaphysics, are joined by a rather simplistic, enjoyable, and
now quite popular book called
Wittgenstein's Poker. By a couple of British journalists, the book
purports to recap and explain 10 minutes at the Cambridge Moral Science Club
just after World War II, when the Viennese philosophers Ludwig Wittgenstein
and Karl Popper clashed early on at a presentation Popper gave to the group.
Wittgenstein interrupted and tried to prevail in the argument by rhetorical
flourishes and a menacing wave of a poker. What we learn first is that the British philosophers, at least back then,
were rather slavish sorts, who easily clustered at the feet of ostensible
greats. If they were teenie boppers, we would be able to call them groupies.
Instead, since they were ponderous, we call them philosophers. More importantly, in oversimple terms, we discover that the core argument
between the two lay in their concept of philosophy. For the wealthy, Jewish,
upperclass Wittgenstein, philosophy was a semantic tool that sort of cleared
away language mix-ups, and little else. It was a game, but certainly not the
solution to humanity's problems. For Popper, the middleclass Austrian, who was also part of Vienna's very
productive Jewish intellectual circles, philosophy did help remake the
world. For him it was not a game but a career with a vital mission. It is Wittgenstein, not Popper, who still has a hold over the academic
imagination and young philosophers on the make. Probably his terrible angst
has turned him into an appealing figure for romantic minds. Hardly a day
went by for Wittgenstein where he did not contemplate "suicide as a
possibility." He died in 1951, age 62. Divine Mission. But what if you are a Popper and believe you are
changing the ways of man and society for the better? Years ago the chairman
of one of the world's premier (at that time, that is) professional service
firms asked me whether he should sell his partnership to a financial
colossus with the view of still doing great work but accompanied by the
comfort of great personal liquidity. We concluded that selling was the wrong thing--akin to "selling out"--the
term young idealists apply to someone who has gone commercial. The time to
sell out, we thought, was when you were retiring from the fray, no longer
determined to do great work. If you're up to great stuff in your business,
it's highly unlikely that this can continue without your ownership and
demanding involvement. All the merger and acquisition boys and all the
acquaintances who want you to smell the roses gloss over this in urging you
to give it all up. Doing and Believing. If you are doing what you believe in, chances
are you should not put your career and business under the gavel, but rather,
know that you are best off soldiering on in the work that gives you meaning
and worth. Selling out is for chaps like Wittgenstein, people who have spent
their lives with the consolation of suicide always near at hand. Karl Popper
kept well at it to the end, dying 17 September 1994 at the age of 92. If you
believe in yourself and what you are doing stridently enough, you may have a
very long run. January 14, 2002—The
Customer Be Damned Elegance is Dead. Stanley Marcus, a giant of
retailing who gave provincial Dallas a touch of panache, reminds us
all that quality is an uphill, Don-Quixote battle against the economics of
the 21st century, where fineness is not on the minds of purveyors
or customers. In Quest for the Best, he elegizes: “The best, in many
instances, may not be as good as it used to be, but once manufacturers and
retailers realize the size of the market for the best, they will get smart
enough to make best better—not elegant, for elegance is dead.” About Neckwear. The necktie is as good a
metaphor for the end of elegance as any. Mr. Marcus explains how
manufacturers have stinted on fabric or substituted lightweight silk, and
the merchant who cares has to be on guard against these unseemly tricks. But
who really cares? In much of the West, the necktie is regarded as a noose, a
burden never to be worn lightly. One night, in a restaurant outside
Scottsdale, I saw waiters gleefully chopping ties in half to the chagrin of
the hapless suits who dared to wear real clothing into the eatery. The
necktie and elegance are affronts to our present culture. Abuse the Customers. Assaults on the customer,
however, are not mere whims of a few small businesses, but are the
calculated strategies of some of our largest and most successful companies.
Southwest Airlines (NYSE:LUV;
www.southwest.com), our only profitable major carrier, makes every
flight an ordeal with bad seats, difficult ticketing, no interline
arrangements for baggage, etc. Weary travellers refer to it as a “cattle
car.” Wal-Mart (NYSE:WMT;
www.walmart.com), and particularly Sam’s which is its warehouse unit,
makes it hard to find merchandise and has narrowed the selection,
eliminating most of the finer items. At Sam’s, you pack your own, if there
happen to be any beat-up cartons up front. Meanwhile all the world still
titters at Microsoft’s self applied euphemism—Microsoft Works (NYSE:MSFT;
www.microsoft.com). Needless to say, it doesn’t, but Microsoft uses its
market position to freeze out applications that would. Each of these
companies, while admirable in a number of ways, uses monopoly positions to
offer an inadequate product, which they combine with cheerful advertising
and indoctrinated employees who tell you black is white and all is
wonderful. Many, many companies abuse customers, but it is most instructive
to see our biggest and best try to gain operating leverage from customer
neglect. Caring More. As Mr. Marcus makes clear in his book, modern
economics make it very hard to render quality, much less elegance. Yet Paul
O’Neill, our current Secretary of the Treasury, made employee health and
safety the centerpiece of his turnaround strategy at Alcoa. It is possible
to succeed by caring for people. A few companies, certainly some of the
enterprises we counsel, are growing in a surefooted way by caring more than
the next guy—and always caring for the next guy. Perhaps it is not a very
good strategy over the long term to treat your products, your employees, and
your customers like commodities. January 7, 2002—Heathcare
I: Giuliani Perhaps? "The more you spend, the worse it gets."
This holds true for all sorts of infrastructure efforts, from education to
urban highways to air transportation. But nowhere does it seem more spot on
than in healthcare, where things get more muddled each year, and the nation
gets at least a bit sicker. Chronic Instead of Acute Illness.
A chap named Jeff Goldsmith at
Healthfutures.net eloquently defines one of the problems. We're set up
to deal with infectious or acute illness, with the view that we will effect
a cure in a week, a month, or at least a year. But, increasingly, we are
dealing with illnesses that never go away, such as heart disease, cancer,
Alzheimer's, or AIDS. For them we do not need hospitals as much as we need
clinics and workers with a telephone who can wrestle with patients for years
to come. With more than 60% of the population overweight, we can say that an
absolute majority of Americans are victims of at least one chronic illness
-- obesity. By some estimates, chronic disease now accounts for 75% of
direct medical expenditures and afflicts at least 100 million Americans. We
are geared, however, to deal with quick fixes. Our research and capital
capital expenditures are going for the wrong things. Structurally this is very hard to overcome.
Hospitals, insurers, government agencies, pharmaceutical companies, health
plans, doctors, and citizens have to change radically for chronic care to
gain the upper hand. This problem also cuts right to the heart
and soul of the medical profession. All the professions are organized on a
medieval craft basis, and they are hardpressed to deal with a lean
post-industrial economy where one ministers to large numbers of people in an
environment where no case is ever finished. We are talking about continuous
care for virtually everyone, not the meal on which craftsmen like to feast. Self Care.
With vast numbers of people permanently ill for 40 years or more, we have no
choice but to enable people to take care of themselves, with the medical
professional becoming a health catalyst rather than an autocratic director
of patient care. The movement towards "shared decision
making" is the most helpful step so far in this direction. The most
interesting commercial proponent of patient self-involvement today is
Health Dialog in
Boston, the offspring, in effect, of the Dartmouth Atlas (see item 26 on
Stitch in Time) and the Foundation for Informed Decision-Making, which have
created databases and tools to inform all of us about the efficacy of sundry
courses of treatment. The thought is that informed people will pick rational
treatments, discounting the prescriptions of providers with beds to fill,
scapels to wield, and pills to dispense. Then too, some very tentative steps have
been take to cut out wasteful facilities and put in what's needed. The VHA,
for instance, has sliced 50% of its beds, and paid for the clinics and
information systems that can deliver continuous treatment to its veteran
constituency (see item 135 on Agile Companies). But, in the same breath we
must mention a substantial Durham, North Carolina medical center that spent
several million dollars on one terminally ill patient, while simultaneously
delivering Third World-quality care in its emergency room and family
practices. Even its own doctors complain about the treatment of their family
members at this center. Clearly the greatest good for the greatest number is
not uppermost in the minds of the healthcare impressarios who run this
operation. An Ounce of Prevention.
The fact is that the real place to spend big dollars -- and even more
important to chronic care -- is preventive medicine. Medicine is a lot like
quality control the best way to solve the problem is not to have it, to do
what is necessary before there are overt symptoms and overt illnesses.
Across the globe, virtually without exception, public health structures,
which traditionally carry the preventive health burden, have fallen into
grave disrepair. For more on this, see item 28 on Stitch in Time,
Betrayal of Trust The Collapse of Public Health. This year the cost of a
Hepatitis B shot -- a series of 3 is required -- doubled in one southern
county to $70, well out of the reach of healthcare and food preparation
workers, to the detriment of all. The preventive health bus is still going
in the wrong direction. A widely noticed report out of WHO,
"Macroeconomics and Health Investing in Health for Economic Development,"
says the world needs to spend another $50 billion a year on public health in
developing countries to right the system and to enable economic development
by making sure ordinary workers can actually function day to day. Jeffrey Sachs, the Harvard economist who led
the group writing the report, notes that the poorest nations are too poor to
help themselves. Surely this is a true enough observation, making one hope
that over-endowed Harvard could expend some of its resources on the effort.
The good side of the report is that it has a bias towards prevention the bad
side is that, as usual, the policymakers do not have a clear and frugal
notion of how to spend the money in ways that will not exacerbate the
grievous problems that already exist. The Costs of Poor Health.
The costs of bad health in advanced nations are as perplexing as those in
the poorest, but not as blatantly obvious. For instance, the U.S. national
health budget is a rapidly growing fiscal cancer that is retarding national
economic growth. More subtle but just as insidious is the way poor health
saps productivity. Big businesses try to beef up productivity through
training and information-processing investments that make an erratic
contribution to efficiency and efficacy. But it is the unhealthy life of the
worker outside the office that affects productivity in unseen, dramatic
ways. He spends too much time commuting to work under great stress, is 30
pounds overweight, and has family members with heavy-duty psychological
afflictions. Meanwhile, he is mildly at war everyday with service providers
-- both commercial and governmental. If life were humming outside the
company gates, he could make things sing at work. In this regard, businesses
need to understand the true size of their health-related costs and to engage
in broad health planning that deals with issues not on the agenda of the
nation's healthcare providers. Rudy Giuliani Perhaps.
Dr. Andrew von Eschenbach, survivor of skin and prostate cancer, has just
been named head of the National Cancer Institute. His father died from
prostate cancer. To get anywhere on our national health problems, we
probably need sufferers like him who can think like patients. We need health
leaders who have walked over hot coals. It is fairly astonishing that we're in such
a bad fix. A phalanx of intelligent people know how bad it is -- and have
glimmers of insight into the solutions. But not a whole lot gets done. Perhaps we need a health czar. Someone from
the outside who will think broadly enough about the problem and ride
roughshod over the vested interests of health bureaucracies. Rudy Giuliani
is just coming off his stint with intractable New York plus a bout of
prostate cancer. Perhaps somebody like him. Just before Christmas, we heard from a dear
friend and fabulous doctor at one of the nation's premier teaching hospitals
"The practice of medicine and surgery continues to be wonderful," he says.
"The business of medicine stinks." Clearly he knows things are going to
change bigtime. We can only hope that the revolutionary torrent to come does
not swallow up all our wondrous physicians, but instead, lets doctors become
doctors again. Home
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