American Management Association Articles

Read John Mariotti's past columns from Virtual Viewpoints - "To Tell the Truth" written for the American Management Association in 2000-2001; for past years' IndustryWeek, columns, search IndustryWeek's archives using "John Mariotti".

Year 2001 Year 2000

One Down, Two to Go?

by John L. Mariotti

Montgomery Ward was founded 128 years ago, and despite valiant efforts of its last CEO Roger Goddu and the support of behemoth GE Capital, Wards is closing its remaining stores and departing the American retailing scene. Many U.S. retail companies have come and gone over the past few decades as America is going through a period of being "over-stored," and it's not over yet!

Few of the departed companies were as venerable as Wards, but its departure combined with the continued difficulties of its early 20th Century counterparts JCPenney and Sears raises a more profound question: Is Wards just the first of the past century's retailing Big Three to fall? Is Penney next? It's the weakest, thanks to a raft of stylish and cost effective mid-market competitors like Kohl's and Gap's Old Navy. Penney's mall anchor stores are costly, and must compete with lower-cost standalone stores, and with hundreds of niche stores in the mall, not to mention the mall's anchor department stores where 20-40%-off signs are everywhere.

Wards, Sears, and Penney were once the suppliers to every man, woman, and child in America -- either through their retail stores or their voluminous mail order catalogs. Many a small town depended on these retailers and the U.S. Post Office for clothing, shoes, gifts, and everyday home needs. As mega-discount stores (Wal*Mart, Kmart, Target) and home centers (Home Depot, Lowe's) dot the landscape, the urban markets are slipping away. 'The Softer Side of Sears" rejuvenation by Art Martinez was a good start, but stalled mid-stream as Sears fashion identity became a non-entity.

Sears still commands large parts of the durable goods market with its Craftsman and Kenmore brands, but this too is under attack by Home Depot, Lowe's, and Best Buy. Warehouse clubs threaten still more of the old "big box" business. Closer parking, lower rents, leaner selections, minimal floor sales help (except for Lowe's and Home Depot), and lower prices spell better value for America's value conscious shoppers. No meaningful web presence is another drawback -- even though Penney's is at least trying to build one -- but why shop there?

The bottom line is that the mid-priced general merchandise store as a mall anchor has outlived its viability. Wards is gone. Penney is struggling. Sears is huge and will take longer to fall, but even the largest old trees in the forest fall after many years -- often of their own great weight. Have we seen just the first of three to fall? I think perhaps the answer to that could be "Yes," and while that is sad, that is the way of all things in nature.

October 2001

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Old + New Economies = One Exciting Economy

by John L. Mariotti

Finally, we must face the semantics. On one hand, we have the Old Economy with its rules and conventions, measures, and metrics. On the other, like the frontiers of the Wild West in days of yore, we have the New Economy. Open intellectual territory with no fences and few rules except that the fastest gun wins. Many experts, like respected CEO Jack Welch of GE, don't believe there are two economies, just one economy undergoing some radical technological transformations. Writers like Kevin Kelly and Don Tapscott contend that we are in a New Economy -- a Digital Economy different from anything we have ever known before -- with new rules for winning and losing. Futurists like Alvin Toffler tell us that there are "out of sync," fast and slow movers in the game, and that the conflicts between the fast and the slow are just beginning.

Investors flail wildly, first paying insane stock prices, then switching, adhering to the rules of rational price-earnings ratios. Profits do count. Cash does run out. Even venture capitalists get cold feet occasionally. Gravity does exist. Rocket ships that rise at supersonic speeds crash to earth just as fast when or if their fuel (cash) is exhausted. Excitement must be followed by fulfillment or it dissipates rapidly into bitterness and disbelief. The intersection of the Old and New Economies is one filled with collisions. The survivors are nimble, fast, powerful, equipped with the best information, and fearless -- but not foolish!

The truth -- as always -- is somewhere in the middle ground. Old economy companies stuck in the mud of old beliefs and arcane practices will continue to merge, stagnate, and then slowly die (or be disassembled like some old piece of machinery). Those that wake up while the blood is still flowing to their corporate brains will use their wealth, power, and reach to either buy-out or step-on these annoying new economy upstarts -- if they can catch them!

The best of these new economy revolutionaries are quick. They find cracks where none existed before and squeeze into or through them into market spaces here-to-fore unrecognized. Like weeds growing in the cracks of a sidewalk, given enough time, they will crack the infrastructure apart, and claim their own space, but only a very few will make it. The rest will fall to a lack of cash, a powerful awakened giant, or a better, faster, newer insurgent.

The New Economy is just the Old Economy in its adolescence, but on the steroids of youthful exuberance, endless information, and omnipresent, instantaneous communications. All markets are growth markets when they are in their infancy, so why should this Internet market be any different?

Talent goes where the fun and the money are greatest. And since business is a competitive game where the score is kept in money, the participants with the most talent and the best game plan will win -- every time. That was the way it was, and that is the way it will be. You can only avoid the risk of collisions by staying off the road, and that's no fun. So, if you don't want to play a fast game, find a comfy chair and retire.

As for me, I'm going into training. Just because the first upstarts are dropping like flies doesn't mean there won't be more, faster, newer revolutionaries -- there will! Like the roller coaster that nearly stops as it crests the rise of the tallest section, this whole new economy "ride" is just pausing before it moves into a whole new gear. Are you ready for it? Hang onnnnnnn!

July 2001

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Fools, Damn Fools, and Partisan Politicians

by John L. Mariotti

The title for this column was chosen because these are all birds of a feather, and they usually flock together. Of course, all politicians are "partisan" to varying degrees. When they cross over the line of reason is when they use their political power and partisan purposes to make fools of a large body of people.

Take the impending tax cut as a case in point. Because the sponsor is a Republican (President George W. Bush), the Democrats are using every deceptive practice possible to portray the "Bush Tax Cut" as an evil slanted to favor the rich, and alternatively too much, too little, and of the wrong kind. This whole debate is nearing a travesty.

The U.S. tax system is already a Robin Hood kind of system. It takes huge chunks of money from the "wealthy" who have happened, for reasons of diligence, intelligence, or just plain luck to earn the most money, and then spend it on programs, some of which may help the "poor." That is why none of the "protectors of the poor" (a role liberal politicians relish because they get lots of votes from poorly informed, easily influenced voters) is likely to change in this millennium.

Imagine this was the way it worked in business. Take the industry leader and slap a tariff on its products, so the proceeds can be given to the weakest and least efficient producers to help them hang on and stay in business. This was tried once before. Karl Marx, in his Communist Manifesto, used the description "from those according to their means, to those according to their needs."

The actual quote may have been slightly different, but the message was clear. Take from those who have wealth and give it to those who need it -- regardless of the circumstances that caused each to get that way. A discussion I had with the president of a labor union a few years ago ended with him extolling this approach and then being incensed when I told him that it was the central theme of Communism.

If the wealthy didn't already pay the largest part of taxes, the tax reduction wouldn't have such a noticeable effect on them. For everyone who doesn't like the proposed system -- sign up for Steve Forbes' flat tax. That is a fair system that doesn't have "a snowball's chance in hell" of being enacted. Why? Because then what would the fools and politicians do to buy and sell favor?

Partisan politicians who support funding for stupid, pork barrel projects are taking money out of the productive parts of the economy and rewarding the inefficient and lazy parts of the economy. Sounds stupid when it's stated like that -- but that is exactly what happens.

Why doesn't the omnipresent TV media expose this stupidity? Because the folks who give us the TV news, also control its content and its spin -- and they are a decidedly liberal bunch. Surveys by The Media Research Center's Free Market Project studied the 93 tax-related stories aired on the three major TV networks for about two months earlier this year. Consider these slanted statistics:

5 to 1 -- Critics of the tax cut as "massive" were quoted 5 times as often as those were with the alternative viewpoint.

2 to 1 -- Complaints from opponents of the Bush tax cut were reported twice as often as the contrary views.

Zero, nada, nil -- None of the networks bothered to tell viewers that the reason the top 5 percent or 1 percent of the earners get such a large share of the tax cut is that the top 5 percent pay over 1/2 of all taxes, and the top 1 percent pay more than 1/3 of all taxes.

Zero, nada, nil: Part 2 -- None of the networks bothered to report their own polls when they supported the Bush tax cut.

Even when NBC and ABC showed that the Bush tax cut plan gives larger percentage tax reductions to lower income wage earners; CBS managed to ignore that information entirely. Network reporters or anchors themselves opined that the tax cuts were "big" or "very big"… and we know what experts they are… because the networks position them that way.

I'm sad about this state of affairs, where fools, damned fools, and partisan politicians are distorting and disputing a much needed and past due tax cut. I just hope these practices don't spread to the business sector any more than they already have. It has taken the U.S. a long time to become the leader of a free enterprise system in a growing capitalist world. I'd hate to see us fall back on Socialist or Communist principles to help the re-election of a small group of partisan politicians.

June 2001

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Learning to Stop and Smell the Roses

by John L. Mariotti

I guess that a birthday, especially a landmark birthday, makes one reflective. That is how this column came about. I started thinking, Why do people write? Why do I write? A couple of years ago a seasoned CEO asked me that. It caused me to pause a lot longer than normal, and think about my answer before I spoke (a habit I have been working on for decades and still have not mastered).

My answer was "I guess I have something to say." Later, after more reflection, I concluded that there was another reason. Writing permits me to share what I've learned from good ideas (at least what I think in retrospect are good ideas) and to own up to my bad ideas and try to set them straight.

This time, I am trying to set one of my bad (or at least "not so good") ideas straight. I need to learn to "stop and smell the roses" more, even better. I need to learn that "every dark cloud has a silver lining" -- and not that "every silver lining has a dark cloud."

By way of explanation, in a Harvard Business School study some years ago, one of the traits of successful executives and general managers was found to be the ability to consider the downside to decisions and cover it -- or at least understand it. The problem is, if you spend too much time watching the downsides, you never enjoy the upside enough. At least, that is what I discovered about myself.

Now, the other thing I like about writing is that unlike politicians who can conveniently say they never said that, (when the whole world knows they did), once it is down there in black and white, there is no way to "unsay" it. That should cause all writers to pause and ponder that point.

Today's wonderful medium of e-mail can be deadly because of its speed. It is hard to take back an e-mail hastily written and misunderstood. Feelings can be hurt, and the "undo" function won't fix them. It is also impossible to "take back" a piece of written work that is poorly thought out, poorly written, or just plain "poor" -- once it is published.

And so, as I ponder yet another birthday rolling around, I think I'll make a birthday resolution -- not a New Year's resolution, nobody keeps those for more than a couple of weeks anyway. I am going to look for more silver linings, smell more roses, smile more, and frown less.

Once in a while, I may get caught because I have not looked for the dark cloud looming out there, but I'll take the risk that my years of doing so will cover most of them, even if I don't intend them to. And the rest of the time, maybe I'll find that there are just fewer dark clouds out there in the first place, because a random wind blew them away before they could rain on anybody's parade.

June 2001

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Wall Street, Washington & Alan Greenspan

The Three Stooges of the Impending Recession

by John L. Mariotti

The 3 Stooges made a lasting reputation for punching each other, hitting each other on the head with various objects, and poking each other's eyes. The trio in the title of this column is doing this too -- except the ones feeling the pain are the citizens -- the working men and women -- of the U.S.

Wall Street was the first stooge, with too many avaricious investment brokers and bankers touting phony stocks to incredible levels. (They used to call this "fraud" or "snake oil" and run these kind out of town!) Their actions drove legitimate companies to strive for unrealistic gains in sales and earnings just to sustain their stock prices at parity with the loonies from the dot.coms and e-commerce IPOs. Third graders knew those P/Es and market capitalizations were crazy.

Then the second stooge, Washington -- you know, the politicians -- had to play their games. Is George W. Bush's (so-called) $1.3 trillion tax cut really all that much too large? Who on earth knows? Predicting the U.S. economy is just slightly easier than getting precisely accurate long-term weather forecasts. Who knows what the marginal rate cuts Bush proposes will cost in 2005-2009? Of course the Democrats have to oppose it -- otherwise there would be no reason for the "opposition party" to raise funds for the next election. Forget wiping out the inheritance tax Mr. President, and get the marginal cuts into effect before summer.

Then comes the third stooge, a.k.a. the wizard of interest rates, Alan Greenspan. He has been a good Fed Chairman, but he is only a little better at forecasting than the other two stooges, or the National Weather Service. It is just that he can cause storms by his action -- or in this case inaction. Even the aforementioned 3 Stooges could see the storm clouds gathering before Greenspan's Fed began to cut interest rates. And now he's being coy about it!

Sure the stock market was at unrealistic levels but the crashes of the dot.coms and the natural declines in earnings would have taken care of that without the poke in the eye from Washington and Greenspan. And that is without OPEC's help -- thanks to former President Clinton's non-policy on energy -- he was too busy shopping for houses, furniture, offices, and people to pardon to tend the energy store.

What does this have to do with management? Simply everything! Systems are now better than ever to manage inventories, control costs, and react to market conditions. What should any responsible manager do when the 3 Stooges are making policy? Batten down the hatches and prepare to weather the storm. That means cut production, cancel orders, lay off people, and practice watchful waiting. So they did -- even Jack Welch's GE, and John Chamber's Cisco.

Of course, consumer confidence stinks. The stock market's illusory wealth is gone now. Layoffs, while not all that large, are in the headlines. Consumers are smart, too. They just quit spending. Talk about a self-fulfilling prophecy.

Now, what is the punch line? This "recession" or "adjustment," or whatever you call it, will be short lived -- perhaps only a quarter or two more. The 3 Stooges are now pointed the other way -- toward stimulus. Earnings have dropped so much that analyst estimates and company P/Es are coming back to reality. Soon, maybe as soon as the third quarter 2001 earnings reports, some companies will start beating the new, lower estimates.

The investment money has to go somewhere, so go it will. Those who hang on to their investments and wait it out -- assuming their investments were based on value, not hype -- will be fine by next year at this time. It won't be at the delusive levels of March last year, but neither will it be at the devastating lows of this March.

And the managers -- they will be ready to turn on the factories when consumers come out like the summer flowers. Wait and see, but next time don't trust it all to Wall Street, Washington, and Alan Greenspan. Depend on your own good sense. Don't let the 3 Stooges poke you in the eye -- you only get a recession if you cause it yourself.

June 2001

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Have You Seen Your "Burning Bush"?

by John L. Mariotti

It seems a lot of people are searching for "what they want to do when they grow up". This is especially true as aging baby boomers reach the age where retirement is premature, but the life of "corporate slavery" is no longer an attractive one.

What are they to do? What should they do? Where, how, why? These questions, which once plagued only youths who were embarking on a career, are now being posed by 50-60 year-olds. The 50-60 year-old people have already worked 30 years or more, and may have amassed enough wealth to retire -- at least until the stock market plummeted.

But many people who are 50-60 are still too vital, too healthy, and too mentally active to "retire" in the old-fashioned sense. Retirement (with a pension) is a product of the industrial age, when people were "used hard and tired out". After 30-plus years of old-style factory work, the human body (and maybe spirit, too) was tired, and more years of physically demanding work was not attractive.

The new baby boomer group is not so physically worn out. They may be turned off or psychologically worn out, as a result of repeated re-engineering, downsizing, transfers, layoffs, and corporate mistreatment. They are neither ready nor able to retire comfortably. Even if they have the money, so much of their self-worth and identity is tied to what they did in their careers that leaving it is traumatic.

These people, and an increasing number in their 30s and 40s, need to find their "burning bush". The burning bush metaphor is a biblical one, in which God conveyed His mission intended for Moses -- to lead his people to the Promised Land. When people in all walks off life consider what they really want to do, they are figuratively hoping to see their burning bush.

Try this. Sit down in a quiet place with no interruptions and think about what you are (or were) really good at -- and what you really enjoyed doing most in your entire work-life. Write down a few things and then reflect on them -- asking why you were so good at those things. What talent did you have? What passion did you have? What made you so successful at the things you were good at?

How did I jump to the conclusion that you were successful at these things? Because it is almost always true. Nearly everyone is best at doing the things they love most. Now think about how and where you can start doing that again, preferably for pay -- but even if not for pay, just for the fulfillment.

Retirement is supposed to be about recreation and happiness. What makes a person happier than doing something they love? The word recreation should be a hyphenated word, made up of two parts: re-creation. Being created all over again.

The only way you will find your burning bush is to think about it and look for it. Then when you have, work will be fun and fun will be what you do for both money and happiness -- not either-or.

Find your burning bush and learn what your true path is intended to be. Start today and don't quit until you find it. Just like in the bible, the bush -- and your desire -- will keep burning until you do.

May 2001

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Were the Pillars Ever So Tall?

by John L. Mariotti

As each week goes by, another pillar of the so-called "New Economy" tumbles from its lofty P/E ratio (stock price to earnings ratio) peak. The NASDAQ index tumbles like a rock falling down a hillside. A bounce now and then raises spirits, only to have them dashed by the next earning disappointments. What is happening? Is the "sky really falling" or were we just looking at things wrong?

I think it is more of the latter. Recall when you were a child how tall people looked and how large buildings looked. When you come back as a mature adult, neither the people are so tall nor the buildings are so large. But neither the people nor the buildings changed -- just your perspective. That is what's happening now.

All economies go through cycles, so why did anyone think ours was exempt from such natural events. Sure, it had been a long time since a real downer came along, but so what. With the maturing of the huge mass of baby boomers, and the wealth creation of the past decade or so, there was (and still is) too much money seeking places to be invested.

How else could the so-called irrational exuberance drive PE multiples of ordinary companies through the stratosphere? I recall a large board dinner meeting I attended only a little over two years ago. The CEO asked everyone if they had a large amount of money to invest in only one company stock, which one would it be? After a period of buzzing at the tables of executives and directors, the conclusions settled on two companies -- first choice was Lucent, and second was Microsoft.

How far has Lucent fallen from that lofty perch? More than anyone could have imagined just a year or two ago. Microsoft's decline has been less, but still sizable. Any number of other companies that were thought to be bulletproof, with stock prices between $50 and $200 per share are now selling in the teens or worse. Well over a hundred dot.com empires are gone entirely. Most IPOs just don't fly these days.

But I contend that we were just looking at these companies, their earnings prospects, and PE multiples with childlike naïveté. Many of them are still good, sound, valuable companies. Others, the stalwarts of the past 2-3 decades are toppling -- or at least wobbling -- Xerox, Kodak, Lucent, and AT&T are just the four that come to mind first.

The reason measures are created is to dispel illusions. Measures are concrete in their specificity. Unlike the optical illusions of light and dark circles, or alternating colored squares that we all learned to recognize sometime in our schooling, the optical illusions of the stock market and corporate valuations aren't so easily seen. Using measures like return on equity, forward price/earnings ratios, cash flow projections, and economic value added, we can dispel the illusions and sort the real pillars of our new economy from the illusory ones.

The sooner we do that the better off we all will be, because we can then get back to building value instead of shuffling paper -- that may turn out to be worthless. The lesson here is simple: Measure results by time-proven metrics, and only ignore them at great risk. Value is truly the metric of success in this new millennium, and it is not easily created. But it is easily destroyed by naïve management and frivolous investment decisions.

Study well and learn -- then you, too, will be able to sort the illusions from reality -- and you will be far better off for having done so. Maybe, just maybe these company pillars were never so tall after all.

May 2001

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Making Lumpy Objects: A Tough Way to Make Money

by John L. Mariotti

I spent over a decade of my life in the bicycle business. As I look back, it is a good place "to be from" -- and certainly a tough business to be in these days. Last year, children's bikes (16-inch and 20-inch wheel sizes) were being promoted at retail for $29.99. Full-size mountain bikes with suspension systems and 21 speeds were advertised at $89.99 retail prices.

Consider, if you will, that the bikes in question have some 200 to 300 parts, including welded steel frames, steel or aluminum wheels with 20 to 36 spokes, tires that are made almost like car tires (just smaller), and the "running gear" -- brakes, shifters, chain drive, ball bearing hubs; and not to mention, the molded grips, padded seats, reflectors for safety. Well, you get the idea.

Consider that $89 mountain bike or $29 kids bike and compare it to a few other consumer products: a pair of Oakley sunglasses -- retailing well over $100 -- or a top line of Nike shoes -- also over $100 -- or how about a dozen Titleist pro-quality golf balls -- over $50. There are some lumpy objects that are profitable, but most are not.

TV sets sell for lower and lower prices. VCRs are under $100. Low-end vacuum cleaners cost less than they did 25 years ago -- at around $59. Most home appliances are no more costly now than a decade or two ago, and with many more features or better performance. Why is this so? Because the buying power is concentrated in the hands of a few powerful retailers, and there is excess capacity for almost everything, and most of it in China where wages can be only 1/100 -- that's right 1 percent -- of the wage costs in developed countries like the U.S.

It is incredibly tough for manufacturers, and pretty tough for anyone in the supply chain, to make money once products have been sucked down into the commodity trap. The premium products from Oakley, Nike, and Titleist still carry a cachet that lifts them out of this trap and into the "highly desirable" category. Doing this is hard. It requires excellent brand management, sometimes it takes big name (expensive) celebrity endorsers, and it always takes some form of price maintenance in the retail outlets that sell such items.

Computers are headed down this slippery slope. Printers are already most of the way there. Cell phones and PDAs will be next. Digital cameras are resisting, but sliding. The challenge for management and marketers is to find ways to create differentiation and sizzle, style, cachet -- call it what you want. The companies that successfully innovate and differentiate will win, but these will be the minority. Most makers and sellers of lumpy objects -- consumer durable products -- will get sucked into the whirlpool of price competition and commodity thinking.

At the bottom of that whirlpool is a drain, and down that drain is where the companies will go if they get trapped in that whirlpool. Watch the ads in the papers next weekend, and you can predict who the next ones will be. Lumpy objects are tough to make money on, for anyone. Trust me, I know; I've been there.

May 2001

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The Case of the Floating Executive – Part I

by John L. Mariotti

I've had several conversations lately with former colleagues from the executive world in which they related to me the story about their nearly anchor-less home base. Ask almost anyone in a senior management position these days where they are from, and the most common initial reaction is a pause, and then a qualified answer. In decades past, IBM stood for "I've Been Moved" as well as International Business Machines. Perhaps things have slowed slightly from those days, but not much.

One man's answer was, "my office is in New York, my home is in the San Francisco bay area, and I am in neither of them more than a day or two a week." Another said, "I have five offices right now, but we have facilities all over the U.S. and the world, so headquarters will eventually be in Chicago." When I asked him why, he said, "Because that's where the new CEO wants them to be."

While visiting with my son Michael, who is a Global Account Manager with DDI (Development Dimensions International), we started debating the pros and cons of an executive living somewhere other than where his/her headquarters is located. It was those discussions with Mike that triggered these columns.

This used to be considered preposterous. Now it is not only much more common, but it may actually be better in some cases. Sure, the floating exec won't become a pillar of his company's community, because his/her home is elsewhere. But neither will he/she become a captive of the corporate headquarters or suffer from the ingrown corporate myopia that can lead to. Nothing precludes him from becoming active in the community where he does live -- except travel -- which is a problem in both scenarios.

Experts agree widely that all the best information is "on the outside" -- with clients, customers, suppliers, employees, end-users, and so forth. Being in the office usually means end-to-end meetings; time spent answering e-mail and voicemail, and not as much really interacting with peers, as most people would think.

Executives, who roam and congregate casually, getting great things done over a cup of coffee, a spontaneous sandwich, or a trip to the restroom, are in the distinct minority. Why? Because their time is so carefully managed that days in the office are scheduled to the max.

Coffee is brought into meetings; so is lunch. Meetings are stacked so tightly back to back that the restroom break has to be squeezed in. Catching the voicemail or e-mail (or the old fashioned message slips) is relegated to early morning, end of day, or the cell phone on the drive home or, more often, to and/or from the airport.

So here is where Mike and I reached our dilemma. The best-qualified person for that new or vacant executive spot is entrenched in a distant community, not where the corporate headquarters is located. And she/he doesn't want to move, uprooting the family and giving rise to a whole new set of stresses.

Considering that the executive is probably traveling or answering voice/e-mail at least half of the actual work days in a year -- does it matter where she/he goes home to, or answers those messages from? Maybe, and maybe not. The pivotal question that may arise is which is better: the right person who lives in the wrong place, or the wrong person who happens to live in the right place or is willing to move there?

April- May 2001

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The Case of the Floating Executive -- Part II

by John L. Mariotti

In the prior column, I described a discussion with my son Michael, a Global Account Manager with DDI (Development Dimensions International), during which we framed a perplexing question. The best-qualified person for that new or vacant executive spot is entrenched in a community that is not where the corporate headquarters resides. And she or he doesn't want to move, uprooting the family and giving rise to a whole new set of stresses.

Considering that the executive is probably traveling or answering voice/e-mail at least half of the actual work days in a year -- does it matter where she/he goes home to, or answers those messages from? Maybe, and maybe not. So, the question is, which is better: the right person who lives in the wrong place, or the wrong person who happens to live in the right place or is willing to move there?

In the prior column, I postulated that so much of the routine in the office is managed tightly in meetings and "mail" (voice, e-mail and snail mail), that it wasn't all that much more spontaneous or interactive than periodic planned visits would be. Maybe even less so!

Now for the other view. People are clearly the most important and difficult source of competitive advantage. And people are notoriously sensitive to other people. Office politics is important, and a place "close to the seat of power" or in the "inner circle" does matter. Where else can you casually corner the boss (or a peer) to discuss an issue that is important to you but maybe not so important to the individual?

Expert research has proven that only 25 percent of communications is verbal -- the rest is body language, expression, intonation, and other non-verbal cues. Doing that from far away, even with good videoconferencing facilities, is less than ideal. Certainly, difficult issues like personal problems or performance issues require face-to-face time. Some of these can be managed, but many just seem to pop up, and the floating executive may not be anywhere in the time zone to deal with them.

Then there is the intangible value of serving on the ballet fundraising committee or the chamber board with the boss. Many close relationships are made (or broken) while coaching Little League with colleagues or over a (not-so-friendly) game of handball after work. It's harder to do that if you don't live there.

The more Michael and I talked about this, the more another issue -- a much softer one -- of "humanity and quality of life" kept coming troubling us. There is a different feeling about coming to work from a hotel or even a residence hotel/apartment than coming from "home." Sometimes it is good, sometimes it is not -- but it is always different. Then there is the "taboo topic" of too much time spent in the bars, or of illicit liaisons of spouses who "live" away from home a lot. It happens far too often to ignore in this dilemma.

So what is the right answer to the dilemma? Move and make the family unhappy, which may affect job performance and satisfaction. Or "float" and risk not being in on those touchie-feelie times when proximity is an inside track or office politics make an unfair difference.

I think I come down being more accepting of the floater than I thought I would -- but only if the employer, employee, and the family understand what they are signing up for. It is far less than ideal. I've tried it and it doesn't work for me. I get lonely too quick and risk losing work and non-work-life balance. For some people I know, it seems to work OK. So the choice is -- the lady or the tiger…the only right answer is in your own specific situation.

April-May 2001

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Cut Expenses -- Not Strategic Investments

by John L. Mariotti

These are difficult economic times and the pressure is on managers to cut expenses. A common practice is to look for large expense accounts that seem discretionary, and whack them. This may be a great idea, or a terrible one, depending on the places that get whacked. According to accountants, some things classed as expenses are really strategic investments. Knowing the difference and behaving accordingly is critical to your company's future.

Four common targets of cost cutting should be approached cautiously: Advertising & Promotion; Training & Education; Research & Development (R&D); and Maintenance. Why are these attractive targets? Because they are large accounts that contain postponable or "discretionary" spending.

The trap is that cutting certain areas helps the short-term but damages the long-term. Well-planned and wisely spent advertising is a strategic investment in building/supporting a brand, a consumer franchise, and so forth. Some advertising (especially certain promotions) is an "expense" that deserves to be whacked. Consider carefully which is which before getting out the machete.

Training is usually high on the list to cut. After all, people should be working, not learning things to make them more productive, more effective, and more valuable -- HUH? Stated that way makes it sound as foolish as it is to blindly chop the training budgets. Kill the boondoggles -- you'll know which ones they are -- the more luxurious the location, the more likely it can be cut. Don't stop training the people who do the real work. It is the best investment you can make – short-term and long-term.

R&D is a sitting duck for expense cutters. Most of what they work on is "pie in the sky" anyway. Don't worry that there will be a drought of new products 1 to 3 years after short-term cuts are made. Live for today and worry about tomorrow, tomorrow -- NOT! Check this area for big-ticket projects that are vague and uncertain and stop them. Don't just cut 1/2 of the budget. Use a scalpel, not a hatchet, and use it wisely. This includes new information systems initiatives too -- some of them may be the most valuable "R&D" your company will ever do.

Finally, some maintenance always seems postponable -- until something breaks and shuts down an entire facility. The more sophisticated a maintenance function is, the more vulnerable it is to blind cost-cutting. Predictive and preventative maintenance always can be postponed -- but you will pay for it later -- in unexpected downtime, service disruptions, and overtime to do emergency repairs.

If these are dangerous places to cut expenses, then where is the beleaguered manager to look? Look for the costs of poor planning! Full fare air tickets (or worse yet -- First Class tickets) to events that perhaps shouldn't be attended at all, but were known about months ago. Underutilized facilities in high cost markets (Like CA) are great targets for consolidation. So are under-performing SKUs (Stock-Keeping-Units) and unprofitable customers. Instead of cutting the training of the good performers, look for under performers and weed them out. Now is the time to prune "dead wood."

Finally, since purchased material is usually the largest dollar outlay for most product companies, enlist the help of suppliers. If you do so by asking for price cuts instead of "holding a gun to their head" demanding them, you might be surprised how much help you will get now, and how much more later on.

And last, but not least, watch the "little money." Stop the company-funded meals at expensive places. Poor planning is a windfall to FedEx, but the cost of poor planning that requires FedEx for a package (or a full fare ticket for a person) is often a 200-300 percent premium. Protect the strategic investments and stop the foolishness -- ask your fellow employees -- they know where the waste is located. Then clean it up. You'll be happy you did it this way for the next few years - especially after business conditions turn up.

April 2001

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Lessons from Winners & Losers

by John L. Mariotti

We can learn a lot from looking at "winners and losers" in today's turbulent economy. It is so much easier to do this in hindsight than when you are in the middle of the fray. Even so, the lessons are usually transferable, and here are just a couple.

The winner is Volkswagen (VW) U.S.

This is a classic story of a company that resurrected its product line and brand from the scrap heap in the U. S. In 1970, VW sold 570,000 vehicles in the U. S. Its Beetle and Minibus were symbols of the '60s. Then disaster struck. The serious German management could not understand these crazy Americans "making fun of" VW cars. So, the Germans stopped selling the fun products and introduced a suitably serious product line to the U. S. Bad mistake!

VW's U.S. sales plummeted to 49,500 by 1993. This brand was almost out of the U. S. market. Not only was the VW brand damaged, but Audi was crippled by the "accidental acceleration" scare! Then someone got smart at VW. VW makes good cars, so it started with that, added some whimsy for the "crazy Americans" and some style for the upscale baby boomers, and Voila! -- the new Volkswagen and Audi. Led by the rebirth of the Beetle (but on an Audi platform), VW began its resurgence. The new, redesigned Audi line parlayed sophisticated styling and all-wheel-drive into a solid niche among the big luxury makers Mercedes-Benz, BMW, and Lexus. Then VW "knocked off" its Audi styling to make the Jetta and Passat to sell alongside the Beetle. Last year, VW sold over 300,000 cars in the U. S. Why? Because it decided to sell what its customers wanted to buy and not what it wanted to sell.

The Loser is Levi's.

This legendary maker of denim jeans is a brand that almost became a generic name for jeans. Unfortunately, it lost its way and is slipping badly. Sales declined from over $7 billion in 1996 to below $5 billion in 2000. Profits plummeted. Plant closings multiplied, as Levi's tried to restructure itself to maintain profitability in spite of declining sales. Worse than the financial woes is the fact that Levi's lost its way with its two most important customers -- teens and baby boomers.

The company's marketers weren't paying enough attention to customers at a critical time when styles were changing and competitors were closing in from both directions. Designer jeans from Polo, Gap, Diesel and others took the premium business. VF Corporation's Lee and Wrangler brands captured the growing discount store volume, while Sears' and JC Penney's private labels squeezed Levi's on popular-priced jeans.

Levi's made a series of mistakes in Internet retailing, distribution, customer choice, and product design. Overconfidence about the power of the Levi's brand name led to this debacle. It launched online stores (competing with your customers is bad voodoo) and then bailed out and turned distribution over to department store websites. This hurt Levi's credibility and trade relations.

Not only was Levi's suffering from marketing woes of losing touch with its prime customers, it also had product and production problems. Levi's tried to keep its production in the U. S., which increased costs, but didn't yield the offsetting benefits of fast response to trends -- because marketing was missing the trend changes in the first place.

As if this was not enough, Levi's tried some "knee-jerk" marketing recoveries. Trying to recover the teen market, its "attitude-filled" ads were off-putting to older consumers. Levi's was late or missed trends like baggies, flared jeans, cargo jeans, and stretch jeans, many of which appealed to either teens or the lucrative baby boomer segment.

The lesson: Never take your eyes and your ears off what the your customers are doing and saying (wanting and buying),… and watch out for getting "caught in the middle" between higher lines "cachet" and lower lines "value".

There are dozens more stories like these, but I'll just hit a few.

Winner -- Starbucks:

Starbucks is abandoning its misguided web/lifestyle venture and getting back to what it's good at -- being the coffee, food, and experience place. You can make brief (misguided) excursions from your core business, but as soon as you see it is not working, get back to what made you successful in the first place.

Not sure -- Wrigley's Gum:

The prime audience, kids and teens, is getting pulled away by other "oral treats." The answer -- reinvent yourself. "Freshen your breath, and your product line!" Nostalgia only goes so far. Knock off yourself before somebody does it to you.

Loser -- Virgin… whatever

Virgin is unfocused. The brand does not confer credibility on all of its widely disparate companies until they can live up to their promises, many of which have not. Virgin is a reflection of its founder -- exuberant but unpolished -- and unable to say "no." The longer Richard Branson keeps putting the Virgin name on businesses that are doing poorly, the more damage he does to it for the future.

Amazing how clear these are in hindsight. Now what about your future? Will you be part of a winner or a loser?

April 2001

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Hard Times Don't Have to Come!

by John L. Mariotti

Many years ago I read a short story that describes how the current economic situation might unfold. This little story has stuck in my mind ever since. I would like to share it with you, in hopes it will be as appropriate now as it was years ago when I read it.

The scene: a bistro in Paris. A young painter goes into the bistro and asks the waiter for a bottle of its finest wine to celebrate his greatest ever commission for a paining to go in the home of a rich businessman. As he awaits the wine, he notices a paper lying on a chair at the next table. The headline reads, "Hard Times Are Coming -- All will suffer from downturn".

Alarmed, he calls the waiter and asks if he has opened the wine. Finding that the expensive wine is unopened, the artist asks the waiter to bring him a more modestly priced wine instead. The waiter asks why he wishes to change -- is he less excited about his good fortune? "No," replies the painters, "but see that headline," 'Hard Times Are Coming -- All will suffer from downturn', I think I should be cautious."

The waiter goes to exchange the wine and meets the owner of the bistro who asks why he is not opening the fine wine. The waiter relates the painter's story and tells the bistro owner of the headline "Hard Times Are Coming -- All will suffer from downturn". The bistro owner continues to his office and as he does, he ponders the order he just placed for his bistro. He has ordered the finest wines and cheeses, and all the trimmings -- in a small part fueled by the latest order of fine wine by the painter.

He picks up the phone and calls his supplier, to reduce the size and downscale the assortment of his next order. The supplier inquires why and the bistro owner cites the headline "Hard Times Are Coming -- All will suffer from downturn". The supplier, himself a small businessman, calls his largest supplier, and cuts his future orders -- "just in case." When the large company who supplies him sees the order from one of his best customers reduced sharply, the owner is notified. The owner's concern is great, especially when is manager relates the reason -- the headline "Hard Times Are Coming--All will suffer from downturn".

The owner of the large business decides he should cut down on his extravagances and calls the young painter canceling the painting he commissioned! The young painter returns to the bistro that evening, and asks for a bottle of their cheapest wine. The waiter is surprised to hear that he has lost the commission, and wants to drown his sorrows. As he awaits his bottle of cheap wine, he reaches over and picks up the newspaper still lying on the chair next to him. The date on it is two years ago!

Many times we are guilty of self-fulfilling prophecies like this little story. That may be what we are doing now -- or it may not. The decision whether to be aggressive, in hopes of gaining market share or defensive, in fear of a downturn is a pivotal one. Perhaps more than anything else it depends on how well managed and financed a business has been just before the decision point. It also depends on the outlook of the management that makes such decisions.

Downturns are great times to gain market share, while competitors who are in denial blame their losses on a down market. This doesn't mean spending money willy-nilly. Frugality and tough-minded management of expenses is essential all the time, but especially in time of economic uncertainty or impending slow-downs. Spend where it counts -- new products, customer service, and competitive technology -- and not on boondoggles like expensive trips, fancy meetings, and new corporate jets.

Which will you do for your business? Which decision will your management team make? Are you well prepared well to capitalize on this kind of change? Are your finances in order, expenses and overheads under control, inventories in line? I hope so, because with the right preparations, great gains are possible. Without them "Hard Times Are Coming -- All will suffer from downturn".

April 2001

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The Role of an Industry Leader

by John L. Mariotti

An industry leader has a lot to do with how stable and how profitable its industry is, or can be. In an era when customer consolidations are more frequent than ever, the leverage is decidedly on the side of the customer -- now more than ever. When the industry leader acts like a weak follower and resorts to tactics like price-cutting or abdication of the lead role in product safety, regulatory compliance, or a host of other areas, the entire industry suffers.

Anyone who has been through seminars on pricing understands how the game works. Costs go up unavoidably and cannot be quickly recovered. A price increase is necessary. The leader's job is to lead the industry in such an increase. Smart followers will follow. If they don't know it already, trying to capture market share by undercutting the leader's price increase will only assure that neither of them gets a price increase. The winner in this scenario may be the customer or the consumer -- or no one -- if the lack of a price increase jeopardizes one or more industry participants' ability to survive and invest for the future.

The leader also must set the pace on information and industry knowledge. A viable way for a 2nd or 3rd place company to threaten an established volume and share leader without having the leader's share or resources is to claim the knowledge and information leadership. The leader can know all that is possible to know about its own share -- yet many leaders fail to know all that they can. Industry data is more pervasive and readily available than ever before. All major retailers and most companies can tell with a high degree of accuracy what was recently sold, and often, to whom. Government statistics, aggressive security analysts, and the ubiquitous Internet are rich sources of information.

So, what does the leader have to do?

Do these five things and you can be the leader for a long time. Fail to do a couple of them and you will be eating some other company's dust.

March 2001

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The Rhinoceros Complex

by John L. Mariotti

I first heard this comparison made by Professor Henry Mintzberg while I was an operating executive. The more I think about it as I observe the continuing consolidation in almost every industry, the more apt the description becomes. As companies consolidate, becoming larger and larger, it is puzzling to see where the benefits occur and the value is created. Once the initial consolidation savings are in hand, value almost always goes downhill from there.

Perhaps it is the rhinoceros complex. Many large companies, especially in these difficult days, seem to be like the rhinoceros. The powerful rhino is nearing extinction in spite of its immense size, strength, and speed. Poachers treasure the horn of the rhino for sale as an aphrodisiac, and kill the great beasts for that reason alone. But what is this rhinoceros complex, and how are large companies like this fearsome beast? First let's look at the technical definition of the rhinoceros. (My emphasis added)

Rhinoceros, (rì-nòs´er-es) massive, hoofed mammal of Africa, India, and SE Asia, characterized by one or two horns on the snout made of congealed hair. A thick-skinned vegetarian, it has excellent senses of smell and hearing. Solitary and unpredictable, the rhinoceros feeds at night and rests in the shade in the daytime. It has been hunted for its horns, sold powdered as an aphrodisiac and for use in folk medicines, and three of the five species are near extinction.

Like many companies, rhinos are known for their great size and strength… and (unfortunately) their poor vision. They see far off objects as dim outlines, and then depend on their keen senses of smell and hearing to confirm that the object is a threat -- or at least an enemy -- worthy of a powerful charge/attack. Many large companies also seem to have poor vision, especially when their objective is far off. These giant, powerful companies, like the rhino, see the vision dimly and based on "hearing," perceive it as a threat or enemy, and charge blindly toward its general direction.

Unfortunately, also like companies, rhinos have poor memories and short attention spans. Often, in the midst of a long-range charge, the rhino will lose interest and stop to graze -- or be distracted by some other, new target. At other times it will rest and graze for protracted periods, whether it has done anything strenuous or not. Does this sound more and more like some large companies you know.

Rhinoceros also have thick skins, making them insensitive to all but the most powerful impact. Thus we have a thick-skinned, insensitive creature with poor vision, prone to charging blindly after far-off objectives, and then either losing interest or changing direction because of newer distractions. The older, larger and more powerful the beast becomes, the more pronounced its limitations become, in spite of its great bulk and strength.

Please Note: I did not intend to write this about corporate giants of the 20th century like Xerox, Kodak, AT&T, Gap, Levi’s, Kmart, Lucent, et. al.< But, "if the hoof fits, I guess they should wear it." What do you think? Know anybody suffering from the "rhinoceros complex"?

March 2001

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You Have to Kiss a Few Frogs to Find a Prince

by John L. Mariotti

I owe the credit for this intriguing title to Bill Kahl, Sr. VP of Manco (div. of Henkel kGAa). It seems everyone is searching for the next big, new idea. As I was finishing my latest book, Smart Things to Know about Marketing (Capstone, 2000), I asked Bill for a quote for the new product development section. He came up with this one. He was so right!

The dot.coms are crashing and the Internet/technology stocks are collapsing. The old economy icons are crumbling too. Where will the next round of new ideas come from? If you think I am going to answer that one -- you are wrong. If I knew that, I'd be out exploiting them, not writing these columns!

What I do know is that, as Bill put it, "You have to kiss a few frogs to find a prince." New ideas come from the relentless quest to find them. Many of the new ideas will turn out to be frogs, not princes! Does that mean you stop "kissing frogs"? No way!

Many new ideas and innovations are also risky. But managing the risks is the key -- not avoiding them. Companies like Intel and Microsoft, which led the '90s with their microprocessors and software, are out looking for "frogs to kiss"! Intel is investing in new and diverse businesses in an attempt to reduce its dependence on the PC microprocessor. Microsoft is betting big on its .NET initiative, although it is not entirely sure of the revenue model for it. Many of today's leaders -- companies like Cisco -- spend a lot of time "kissing frogs," and they find some princes, which they acquire.

The real question is, Where should you look for "frogs to kiss" -- to find your next "prince"? You can ask customers, but they are usually looking for today's solutions, not tomorrow's. Customers have a hard time imagining they could have things they can't imagine even existing, so they come up with rather mundane and mature ideas. Still, there are some good ones occasionally, so ask away! Asking those prospects that are not your customers is another approach. This will at least impress them that you care about them and are attempting to innovate.

Finding the best new ideas takes a special kind of creativity. Unfortunately, our schools and businesses educate and/or train away real creativity in the interest of rote learning and conformity. If that is so, where should you go? Big idea houses like IDEO are good, but few and expensive.

The best places to look for original ideas are among groups of people who live to "kiss frogs" in hopes of finding "princes." Small, creative design firms" -- like Dayton's (OH) VMA (that's Visual Marketing Associates); the free-lancer designers just finishing college; and some of those still in the leading design schools. Schools like the University of Cincinnati's DAAP (Design, Art, Architecture & Planning) often come up with original ideas because they are not wedded to the past ideas and are constantly trying to find the future ideas.

One of the most under-used resources for new ideas is the younger people in your own company -- ask them, often! Each generation has a unique outlook on life, and this outlook leads to new and different ideas. As VMA partner Steve Goubeaux puts it, "If you don't go where you don't go, you won't know what you don't know!" But then that's another column. For now, go find a frog to kiss, and see if it turns into a prince.

March 2001

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What Lessons Are We Teaching?

by John L. Mariotti

In the year 2000, as the U. S. Presidential Election ground past its 30th day without resolution a number of thoughts came to mind. The first, and by far most important is the question: What are we teaching our youth and our employees by our examples?

During a board meeting last year, we sat through a longer presentation from legal advisors and accountants than we spent deliberating the future of the company. Why? Because there were extensive new rules for recognizing revenue from the Securities & Exchange Commission (SEC) and Federal Accounting Standards Board (FASB).

These rules resulted from misleading reporting used to inflate dot-com companies' income, which in turn fueled their astronomical stock prices. Well, the stock prices have now crashed to earth like spent fireworks, leaving just the burnt out shells of what were glamorous new companies. The SEC and FASB really did not change the rules; they just clarified them so definitively that no one could claim that they misinterpreted them.

Then I reflected on what the recent election... and the past few years of misadventures in our nation's capital… taught us. We learned that President Clinton could get away with reprehensible behavior, blatant public lies and perjury -- and still keep his job. We have learned that 250+ of our elected officials could not abandon politically self-serving interests to punish a miscreant that would be serving jail time in any other walk of life. I'm not sure who the greater criminal is -- the President who indisputably committed the crimes -- or those in Congress who failed to mete out the appropriate punishment.

If that had happened, Al Gore would have been an incumbent President going into the election! But we also learned from him that if there is no governing legal authority; we can do whatever we can get away with. It doesn't matter if we know it's wrong. The lesson -- as long as we can bend the rules, shade the truth, or find a technicality to use as rationalization, it's OK. Is that what we want to be teaching?

We are teaching that the law means only one thing -- income for lawyers and hours of work for TV's talking heads. The rules for counting revenue or counting votes don't matter, as long as we "count every vote" -- well, that's not quite it either. We need to "count a few extra dollars of income or count every extra vote in certain places, and in certain ways" even if the rest of the country (or even that state) did not use that rule. (Then we need to stir up those who did not realize they were wronged, so we can show the social outrage and unrest on our TV news!)

In our Super Bowl of elections, with enough lawyers (and a few cooperative jurists) maybe we can move the goal line (just a few inches) if our final touchdown drive falls short. (I'll bet the Tennessee Titans wish they had sued the NFL last year to re-measure the Super Bowl field. Who knows, the touchdown drive that ended a foot short might have counted -- if the field was not measured exactly at 100 yards.)

Never mind that the outcome of all the other games played on similarly inexact fields still stood -- and that these outcomes determined which teams played in the Super Bowl. Next, maybe we should measure the height of the baskets in the NBA Championship game, and replay any disputed games with our newly determined accurate basket height. Sound preposterous? Sure! But it is just what was going on in Florida, and in a different way in distorted earnings reports.

The lessons we are teaching anyone old enough to understand are that rules are made to be broken -- or at least bent! Laws are not made to be followed -- just debated. Rules and regulations are only as good as the legal team we can get to argue them. And, sorry Yogi Berra, "it ain't over -- even after it's over -- if you don't like the way it came out!"

Unless we learn from these debacles, our country and our culture will be irreparably harmed by the events of the past few years, and especially the past 4 weeks. Unless someone sets the record straight (as the majority of the Supreme Court attempted to do) all the regulatory bodies in the world cannot write regulations for people who are willing to bend the rules beyond the breaking point to win.

When our public leaders show us the way they do it -- why shouldn't we? (But officer, I didn't realize that the STOP sign meant me. After all, it wasn't perfectly square to the road and I thought it might be for some other road!)

I used to be proud to be an American. This past winter, I was ashamed... and alarmed. You should be too, no matter who won the election -- we all lost because of what we are teaching our youth and our employees -- that this kind of behavior is OK.

March 2001

How Titles are Self-fulfilling & Limiting

by John L. Mariotti

Remember the old joke about calling the janitor a sanitary engineer? There was an element of wisdom in that kind of "title inflation". Titles determine what people do as much as describe what they do. Titles also create images in the minds of others, much as brands do.

What you are called determines what you think you are and, too often, limits what you think you can and should do. In retail, call the person acquiring the merchandise a buyer and what do you suppose they try to do. Of course, they "buy" aggressively, trying to get the best price, deal, terms, etc. Call the same person a merchandiser and their focus will be entirely different. The merchandiser is more concerned about getting the right merchandise than getting the right deal.

Unfortunately, most businesses choose titles based on the old functional fixations. These kinds of titles are widely used but superficially understood. In many cases, they are the names of the bureaucratic heads of a "silo," which serves its boss better than it serves its customers. Exactly what does the VP of Sales & Marketing do? How does that relate to what the Sales Managers and Marketing Managers do? Sure, the VP may be their boss, but beyond that, what does the title tell us?

If the vagueness of title-by-function is not foggy enough, the similarities from company to company add to the confusion. Is the VP of Sales & Marketing for a $10 billion utility the same job as the VP Sales & Marketing of a $5 million advertising specialties company? Of course not! But still we use these same old titles, and no differentiators.

Sadly, some of the most creative titles were born within dot-coms and Internet companies that failed before they got off the ground. The ideas they had were good, creative ones; just the execution and business plans were flawed.

The message I want to send here is to make the title describe what the job is intended to do. Customize titles to fit your business and its unique competitive advantage. Use titles to inspire and motivate people and reinforce customer and suppliers perceptions.

If you want customer care then don't call it sales. If you want merchandising, then don't call it "buying." If you want to experiment a bit, get a group of people together and brainstorm what they (and their jobs) should be titled.

Most of all think carefully about what kind of titles convey the message you want -- to both the outsiders and the titleholder. Be careful of what you ask for, because you might just get it. And that can be either a blessing or a curse.

Feb. 2001

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Perfecting the Present vs. Finding the Future

by John L. Mariotti

Harvard professor Clayton Christenson has created a stir in industry circles with his work on disruptive technologies and how these seemingly mundane approaches are undermining the positions of industry leaders.

A few years ago, I met with and studied a prospective consulting client who was in deep denial. His company was on the threshold of decline -- and yet, perversely, it was doing great -- at the moment. He wanted to talk to me because I think he sensed that trouble was just around the corner, but did not want to admit it.

As it turned out, he did not want to face it either, (so I did not get the consulting assignment to help him). Why should he seek help? His company was an industry leader with over 50 percent market share. It was multi-national, with almost half of its volume coming from outside the U.S. And it was handsomely profitable, although not as much so as it had been just a few years earlier -- and profits were trending downward.

This company made metal products, mostly using the same materials and equipment they had for years. Their processes were poorly documented, but deeply ingrained in the minds and habits of a group of loyal employees. Their cost and information systems were flawed -- and they knew it -- but margins were so good, it did not matter enough for them to change. Although the CFO complained loudly about the need to change, the CEO would have none of it.

The company had started a token venture into alternative materials applications for its products, but this was clearly a stepchild, staffed poorly and narrowly focused on the simplest current applications. The top sales executive simply refused to answer my questions with any weaknesses or competitive threats --- not because he was withholding information. He did not think there were any! Scary? You bet it was! This story is still unfolding, but at last check sales have stopped growing and profits continue to fall in spite of making internal operating improvements.

The principle here is that industry leaders nearly always fall victim to outsiders because they are so deeply invested in the know-how or technology that got them to the top, they cannot admit that it won't last forever.

Upstart competitors upset the market and knock off the entrenched industry incumbents. In addition to Christenson, Gary Hamel (Leading the Revolution, Harvard Business School Press, 2000) has made a crusade of pointing this out to large companies but with only modest results. It is so hard to leave that safe, comfortable place, even when the risk of staying there is greater than the risk of leaving!

Somehow, it is always easier to work on Protecting the Past or Perfecting the Present instead of Finding the Future. Don't fall into that trap. Disruptive technologies are coming. Is it your industry's time yet? Now that you know it, what are you going to do about it? Don't bother to ask loyal, entrenched incumbents -- they, too, are the likely victims. Find a bunch of rebels, or a small upstart company, and hire them or buy it. Cisco learned this lesson and Finds its Future exactly this way. Will you?

Feb. 2001

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One Chance for a First Impression

by John L. Mariotti

In these days of business casual dress, the old adage you only get one chance to make a first impression may be more important than ever. In the days of gray or blue pin-stripe suits and rep ties for men or tailored navy pants suits with silk blouses for women, the first impression was very much a visual one. Did the person look qualified? The right look would assure others until that crucial moment when you had to speak, gesture, posture, or express some intellectual content to go with your proper appearance.

John Molloy's popular book, Dress for Success, described a way to attain valuable visual credibility for many an aspiring manager. This is no longer such an advantage. When all the participants of a meeting are in khaki Dockers® slacks and blue button-down oxford-cloth shirts and such, dress for success advantages become a thing of the past. What is the impression-maker now?

While clothes may not make the man (or woman), they can sure cover a bunch of structural defects. Now the first impression is likely to be made by good taste, personal grooming, body language, expression, and most of all, what is said -- and done. The merit of those words -- but not just the words -- the confidence, the body language, the tone of voice, facial expression, and the actions that follow them -- matter most in making that critical first impression. In other words, casual dress has put enormous pressure on good grooming, verbal and nonverbal communications skills -- and especially on informational excellence (homework!) and performance.

Once you have taken care to be well-groomed, wearing clean, well pressed, and appropriate business casual wear (whatever that is!), it behooves you to make a good first impression by picking your spots to speak up. Of course, sometimes you are given no choice and called upon for an opinion. This is when doing your homework and being prepared really pays off. Know the politics of the situation -- no point in putting your loafer-clad foot in your mouth right away. Understand the issues that are the topics of discussion, and have something worthwhile to say. Facts are good, especially if they are based on nearly indisputable research and sources.

Opinions are risky because they can be debated and the last thing you want for your first impression needs is to end up in a debate with adversaries of unknown skills. When possible, a smart team can even manage the kinds of expertise introduced by its members, thus several people can make good first impressions in the same meeting. Then, what you DO is what will be remembered most.

Finally, there are a couple of sure-fire fixes to a difficult or awkward first impression encounter. When in doubt, over-dress slightly. The trusted navy blazer, with gray or tan slacks or skirt, and appropriate shirt or blouse is a good start. Next, read a bit of Peter Drucker; articles like "Managing for Business Effectiveness" (Harvard Business Review -- circa 1962!) and newer books like Management Challenges for the 21st Century. He is so brilliant that there are sure to be many quotable bits that would fit almost any situation.

A last resort is to ask a question in answer to a question. The question can be directed to another poor, less prepared first-impression-maker, or better yet, to a strongly opinionated, more senior member of the group -- these types usually have strong opinions on everything and love to be asked. "I'm forming some impressions, but what do you think Jane?" Jane will usually hold forth enough to let you finish forming a more intelligent first impression answer to add to hers -- and if she doesn't -- to quote Drucker again.

And above all, don't expose your poor taste by showing your sockless ankles (unless you are a woman -- but even that can be misconstrued). Even casual shoes can deflect errant shots aimed at your foot, and remember: You really do get only one chance to make a first impression. So do some good homework reading and keep your shoes and socks on.

Feb. 2001

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How Half-Truths Damage Trust

by John L. Mariotti

When Jan Carlzon of SAS wrote his book entitled Moments of Truth, he was talking about those precious opportunities to build trust and loyalty with customers. Few things in business and life are more important than trust. When trust is betrayed, years spent building trust is dissipated instantly. The trust is replaced with mistrust and cynicism.

The basis of trust is truthfulness. There is a reason that the oath sworn before giving testimony asks if you swear to "tell the truth, the whole truth, and nothing but the truth". Remember when V P Al Gore proclaimed that there was "no governing legal authority" on his fund raising calls, or that he didn't know the Buddhist monastery event was a fund-raiser? Maybe they weren't blatant lies -- but are guarded half-truths much better? Who can trust him when he doesn't tell us the whole truth?

Bill Clinton would have been better off in the long run if he had not lied about his misadventures. He had to ask forgiveness when the truth came out anyway. But "the truth has a million faces" as one philosopher puts it.

Are half-truths or the absence of lies a better solution? Not likely! The truth usually finds a way to get out, eventually. If you bend the truth too far it breaks -- no matter who you are -- and no one trusts you after that!

Consider past year's problems with United Airlines and Ford/Firestone-Bridgestone. Few organizations damage trust as often as commercial airlines. Any regular traveler who has seen a flight posted simply as Delayed realizes that it is risky to believe anything else posted -- until you are on the aircraft, en route to your destination. Even the innocuous On-Time postings are suspect much of the time. United's irresponsible behavior of the past year makes a travesty of even posting anything. It might be better to just show a row of "???????"! At least travelers would give a little credit to the airline for honesty, and realize that they should explore alternatives.

As more information comes out about Firestone's tire problems, it becomes painfully obvious that this was not a new problem. Ford knew about it and hoped it wasn't that bad. Firestone knew about it, and hoped it wasn't "as bad as they suspected" -- (it was). Neither came clean until it was clearly a big problem.

When does it become appropriate to inform the public of a problem? I spent 12 years running a bicycle company, governed by the Consumer Product Safety Commission regulations. We faced this kind of dilemma on (fortunately) just a few occasions. Any kind of vehicle/component that is produced with a dangerous defect needs to be found and fixed or recalled. The insidious question here always was: When do we deem that we have 'found' such a defect, and with what certainty that the defect is present and dangerous? The answer that passes the test of truth is -- whenever you believe a serious risk is present, and as soon as you know that your promise of quality and service to customers will be broken.

Airlines do not suddenly discover that a plane has no crew to fly it until 15 minutes before departure time -- when it has been posted as On Time for the two hours. Auto and tire makers learn of multiple accidents with common symptoms and know that something is wrong. Perhaps by waiting too long, they avoid lying or raising inappropriate concerns, but they fail the test of the moment of truth and damage trust for a long time thereafter.

Feb. 2001

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Dependence on Technology -- Boon or Bane?

by John L. Mariotti

I had one of those weeks that caused me to reflect on just how dependent we have become on the technological marvels of this era. And then I started to think about technology's impact on management effectiveness and information security. Just as I was about to leave for a far-away speaking job, my computer failed. As a Mac user for nine years, this was totally new to me, so while it caught me a little technically unprepared, I was very emotionally unprepared. Sure, I have intermittent computer glitches, since I have several computers around my home and office. With regularly changing software, operating system releases, patches, etc., this is to be expected.

What happened this week was something unexpected. Like a prudent computer user, I even had an automatic backup program operating. Well, guess what? Not only did the computer lose its way, but also the backup wouldn't run to restore the system either. Gadzooks -- I was toast! Well, not quite. Before my trusted computer consultant scrubbed my hard drive entirely in hopes that a fresh start would restore its sanity, we made one last copy of the important files (all that I could think of) on a set of disks. Thank God we did!

Then I realized my heavy dependence on technology, which in turn taught me several important lessons and a few smaller ones. The smaller ones were lessons of humility and coping with the loss of control and frustration that computers acting unreasonably can teach humans faster than all the warnings in the world.

The more important lessons were:

Backup systems are an invaluable investment. At one point I feared that about seven years' worth of creative work and business information was gone -- kaput!

Talented people are still the foundation of successful organizations -- but it is easy to get them "destabilized" by providing bad information (or no information) -- and then their talents are less effective.

Always have a Plan B, and if you can -- have a Plan C … and D. Murphy's Law is true! "If something can go wrong it will!" But it doesn't have to cripple your company or ruin your plans -- at least not if you have alternative plans to fall back on.

Fortunately, in my case, my Powerbook laptop was my Plan B. Plan C is my older Mac, handed down to my wife as an e-mail and web-surfing machine. Neither measures up to the big, new, memory packed, lightning fast desktop -- but they kept me going until I could get a new computer going. That is how it goes in business -- and in dependence on technology -- Plans B and C will save you when unexpected things go wrong. And unexpected things will go wrong! But there is one more, final lesson to keep in mind.

There are millions of PCs around this world on which well-meaning, highly motivated users do wonderful work, all without a backup anywhere in the universe. A while back, a prominent CEO's laptop was stolen after a presentation. Confidential information by the gigabyte went…where? To competitors? To the pawnshop? Who knows? Security on laptops and home PCs is terrible. When files can be easily e-mailed around the world in a blink, this lack of security may be the new Achilles Heel of today's information based society.

So what can you do? Learn from the mistakes of others. Protect valuable files. Don't leave laptops unattended -- ever. Invest in good backups and virus protection programs and use them. Get help from information systems specialists to know what is the best way to do this -- but DO IT! The time to develop Plans B, C, and D is before you need them, because there will be no chance to do it afterward. Murphy's Law is lurking out there!

Jan. 2001

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Management with BiFocal Vision

by John L. Mariotti

At a conference I attended recently, one of the speakers used a wonderfully descriptive term -- bifocal vision. He was talking about the necessity for managers to see things from the bottom-up and from the top-down. Bifocal means focusing on two different places. In a common use -- eyeglasses -- it refers to looking through the bottom part of the lens to see up-close more clearly, or looking through the top part of the lens to see far away.

Management would benefit from remembering the concept of bifocal vision, because too often it has a distorted viewpoint of what happens at the (bottom) working levels of its company. Why? Because its information is filtered so many times, it is cleaned up and cleared up. No one wants to give the boss the whole, unadulterated, ugly truth. It might look as if they were not doing their job properly.

Thus, managers and especially executives make (what they think are) smart decisions based on distorted views of the true situation. If these executives and managers had the bifocal vision provided by accurate bottom-up information, then the decisions they make would be much more insightful and effective.

Similarly, this same management has a top-down perspective that drives many of its decisions, and this viewpoint is poorly seen or little understood by the legions of employees who must carry out those decisions. The bifocal top-down vision must be shared with the entire organization for it to have the best chance of success.

As I thought about the bifocal metaphor, I realized that there is another kind of bifocal vision -- the one that deals with near and far and looks at the near-term and the long-term. In today's impatient investment climate, pressures to deliver immediate, near-term results are immense. Yet the real value of a company's stock is determined by its ability to perform over the long-term. This means that the executives and managers who run today's businesses must use their bifocal vision in two different ways -- top to bottom and near-term to long-term.

The first bifocal vision is used for decision-making based on accurate perceptions from the bottom up, and from the top down. The second bifocal vision focuses on the near term but not at the expense of the long-term performance of the business. Without an acceptable near term, there will be no long term. But if decisions are made to deliver the near term at the expense of the long term, then the business may ultimately fail anyway.

When I bought my last pair of bifocals, I had no idea that they would be so useful as a management reminder. Do you have yours? At least figuratively, if not literally, get that bifocal vision working. You will like the future you'll, and see it much more clearly.

Jan. 2001

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When Old Rules No Longer Apply

by John L. Mariotti

The cry sounds out so often, "The future…is uncertain!" Few realize just how uncertain it is. Predictions about the future are notoriously inaccurate. Consider the statements by these four learned experts!

The radio craze will die out in time. -- Thomas Edison

No woman in my time will be prime minister. -- Margaret Thatcher

There is no reason for any individual to have a computer in their home. -- Ken Olson, CEO, Digital Equipment

640K of memory ought to be enough for anybody. -- Bill Gates

Time has proven and nature has confirmed that change is certain! If further confirmation is needed, just look at the change in the population that defines the ten largest cities in the U.S. Comparing the ten largest going into the 2000 Census shows that only three of the ten from the year 1900 -- New York, Chicago, and Philadelphia -- remain in the top ten. The shift of population to the Sunbelt and West Coast of the U.S. has completely restructured the population distribution of the country and, along with it, is restructuring the social and political power as well.

The other fact we know to be true is that change is difficult -- difficult to bring about and even more difficult to accept. The risk to the change leader is enormous. It has been so for centuries and was recognized by Niccolo Machiavelli in The Prince, published in 1513.

It should be borne in mind that there is nothing more difficult to arrange, more doubtful of success, and more dangerous to carry through than initiating change. … The innovator makes enemies of all those who prospered under the old order, and only lukewarm support is forthcoming from those who would prosper under the new.

If we are to open our minds to change, we must learn from the errors and successes of the past. We must struggle to clearly understand the present too. But most of all, we must commit to finding and creating a new future. Sadly, we are so preoccupied with perfecting the present or protecting the past that we fail to work on finding the future! But this has been the case throughout history!

What do these have in common?

The Dinosaurs

The Roman Empire

The American Bison

The Open Range Cowboy

The Sony Betamax

The answer, of course, is that all of these powerful forces fell to change because they couldn't or didn't adapt:

Dinosaurs -- a environmental event (a meteor hit)

The Roman Empire -- fell to personal strife & greed

American Bison -- herd instinct (hunters with rifles)

The Open Range Cowboy -- technology/barbed wire

Sony Betamax -- technology/more user-friendly systems

But the more telling question is which powerful forces fell to natural enemies? The startling answer is None of them! They all failed to adapt, to cope with or to capitalize on CHANGE! Technology changed. The environment changed. They struggled internally or herded together and then fell to change! Yet change presents a great opportunity.

Since denial is a natural human reaction to change, one of our favorite forms of denial is that "this time is different..." But is this time unique? Perhaps every generation thinks this is the case.

Consider this: "Over the course of a few years, a new communications technology annihilated distance and shrank the world faster and further than ever before. A world-wide communications network whose cables spanned continents and oceans and gave rise to new forms of crime."

This quotation sounds like today's claim about the Internet doesn't it? Except this was said in 1840 about the telegraph!

And so, is change a terrifying threat, or is it a wonderful opportunity? How you answer that question will determine how you behave! To put it another way, are you spending your time and resources protecting the past, perfecting the present, or are you focused on finding the future? You know which one you must do! Do it!

Jan. 2001

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The Twenty-Month Factor

by John L. Mariotti

The employment terms of CEOs seem to be approaching the life cycle of fruit flies, judging from the number of casualties reported lately. What's going on? Are boards choosing CEOs poorly? Is the quality of CEOs declining? Are tougher competitive conditions responsible? Or are boards getting trigger-happy, driven by irrational Wall Street investor expectations and replacing CEOs too quickly? Maybe the answer is all of the above. Here's my view on the reasons for the revolving door in the corporate executive suite.

Progress takes time, and there is a time lag between when a new CEO is named and when the results from his/her leadership and management team become evident. This time lag, on average, is about 20 months. Of course there are exceptions -- the slash and burn types like Al Dunlap create immediate results -- but these results don't last, and cause greater harm in the long run. If boards act in less than this 20-month period, they are reacting to external stimuli, not the performance of the CEO.

Even in companies that have well-organized management recruiting processes, the boards do a haphazard job of finding a CEO. They seem to lack a well-defined process for finding a new CEO. Maybe this is caused by the need for secrecy or by embarrassment surrounding the old CEO's departure. Maybe it is (more likely) because the good old boy network takes over and short cuts the process -- if there is one. Whatever the reason, the most common cause of high CEO turnover is the lack of a good succession plan, screening and selection process, and process for the resultant board decision on a CEO.

Why a 20-month period? Because progress and change take time before they show. Consider these facts, starting at T=0 on a time line. Once in place, a CEO rebuilding for the long term must take time to see which incumbents are qualified and which are not, who can be trusted and who cannot. Sorting the adept politicians from the competent managers takes a few weeks to a few months. Then the CEO must find and recruit (or promote) new people to replace the weak ones. Add another couple of months -- time now: T+4 months.

Once the organizational rebuilding starts, only then can the critical, long-term improvements begin. This process takes the first 3-6 months -- time now: T+8 months. Next, there is a time lag introduced by the business cycle or seasonality that exists in most industries. Many industries (and companies) still operate on seasonal or annual cycles. Whether it is trade related, time related or trust related, even the best of new products, programs, and progress take from 3-6 months -- maybe more -- to reach the market and have any effect -- time now: T+12 to +14 months.

Adding these times tells us that meaningful improvements, in all but the most badly broken companies, start to impact the company's markets in a year (or so), and the financial results trail that by at least a couple of quarters, leaving us at T+20 months!

In many improvement initiatives, things get worse (temporarily) before they get better. Cleaning out mismatched managers, liquidating obsolete inventories, and changing inappropriate programs and practices always create short-term confusion and/or special one-time costs. Considering all of this, it is unwise and inappropriate to judge the performance of most CEOs in less than twenty months.

Some new CEOs do foolish things or make bad decisions early in their terms (e.g., Doug Ivester's European contaminated can and management diversity faux pas at Coke), but these are exceptions. Many new CEOs require time to clean up the mess they inherited and put their own stamp on the company's structure, processes, culture, and relationships (e.g., Steve Jobs at Apple). But these insider-CEOs also have their own baggage, and that delays decision-making in other ways.

Only boards that failed to do their jobs up front, and see glaring errors in behavior early on -- usually in the first 3-4 months -- should consider replacing a CEO in less than two years. Some argue that Internet time accelerates this cycle and there are cases where this is true. But while the vast majority of businesses may communicate on Internet time, buying decisions and improved organizational effectiveness still work on the old-fashioned weekly, monthly, and quarterly calendars.

The message to boards is this -- don't fall in love too quickly. Plan for succession. Create a process to screen and select wisely. Spend a little more time and effort to choose well. Then give that new CEO the required 20 months to begin making the difference you expected. If you don't, you can find who's really to blame for a CEO's rapid failure -- just look in the mirror.

Jan. 2001

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The No-Profit Model -- B2C e-Business

by John L. Mariotti

Amazon.com's heavily discounted prices for books are gone as it struggles for profitability. Since it is the most powerful, pervasive, and visible of the B2C companies, its performance raises a basic question: Is any B2C (stand-alone) business model profitable?

The question is, Can any dot-com B2C business selling tangible goods -- which require production, storage, and delivery -- make profits that exceed its cost of capital by selling solely via the Internet? I say none -- UNLESS, and that is a big unless -- it takes a page from the mature catalog/mail-order business. Catalog businesses are notoriously low-profit, thus the exit of Sears and Wards, and the erratic results of leaders like L. L. Bean and Land's End. The challenge in these businesses is to keep the product variety and delivery times low and the profit margins and order sizes high, which are intrinsically conflicting objectives.

Catalog merchants must either carry inventory, or have someone else do it. The only alternative is rapid, flexible production and delivery -- an asset intensive model. If prices are visible to the most aggressive comparison shoppers, then charging higher prices than competition can taint shoppers' opinion of how good a deal they are getting, and risk losing them to conventional stores.

One of the most successful catalog operations has been Viking Office Products (now owned by Office Depot). It sells a mix of B2B and B2C, so its profit model works. Remove the small and medium-size business orders, so it must rely on profit from the consumer sales alone, and it would be in trouble. Viking is price competitive on high visibility items, but not so cheap on the thousands of other items in their catalogs. This is where it makes its profit -- just like most other retailers.

This brings us to Webvan. Home delivery has been around for years, and groceries were delivered decades ago -- but that was when the lady of the house was home to receive them. Such is no longer the case. In that past era, supermarkets did not exist to drive prices down, so the neighborhood grocer worked out a suitable price/profit model to cover delivery costs.

Home delivery costs a lot compared to consumers going to a store to pick up goods and transport them home in their own vehicles -- which is "zero cost " to the retailer. The retailer incurs costs to receive and display goods, maintain/staff the stores, and fund the advertising -- but a large share of these costs are covered by suppliers in the form of slotting allowances, in-store promotions, free services and other discounts. Nothing about using the Internet to place/receive orders changes these infrastructure costs.

Thus, it is my prediction that Webvan's (and others) home grocery delivery model will not fly economically either. As long as it has no major restrictions on what, when, and where deliveries will be made and without some form of pricing premiums, the costs will simply exceed the revenues. This too supports the premise that there is still NO viable B2C profit model for selling goods via the Internet in a pure B2C environment to the broad consumer market.

The only exception to this seems to be selling to the "niches with the riches" -- low variety, low volume, high price, high profit -- niche or luxury goods. This is where the profit margins and competition permit acceptable margins and return on capital invested. This works in mail order and can also work using the Internet.

While analysts and pundits search for examples of profitable B2C volume businesses, the owners of these businesses would be better off spending their time looking for ways to alter their business models to yield a profit -- because the current one is a NO-profit model.

Jan. 2001

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Bricks & Clicks -- The Fundamentals Rediscovered

by John L. Mariotti

Theodore Levitt wrote in his classic book The Marketing Imagination: "The purpose of a business is to create and keep a customer." Nothing in this statement says at all costs and with disregard for making a profit. Business is a game where the score is kept in money and the prize for winning is that you get to keep playing. In effect, the clock resets and the game restarts each year with the annual planning process and earnings projections.

To cite another type of expert, Will Rogers once said, "It ain't what you don't know that hurts you, it's what you think you know that ain't so." In the dot-com, e-commerce revolution a lot of people made big money decisions that violated one or both of Will Rogers' premises. Either they didn't know what they were doing, or thought they did -- but didn't. The results were predictable -- at least by anyone with a few years of successful experience and knowledge of business fundamentals. Shallow, poorly conceived plans led to hasty decisions, poor execution, wasted money, and ultimately failure. Surprised? I hope not!

Businesses must have a stronger foundation than just an interesting idea. The idea may be exciting and revolutionary, but somewhere along the way, real business principles -- call them fundamentals -- still apply. The Internet makes a great front-end and back-end transaction system for traditional companies that capitalize on its power and speed, but that's not enough. FedEx was not successful just because it was a great idea. Founder Fred Smith had to find people who knew about freight, airplanes, scheduling, warehouses and logistics, distribution, and information technology. Then there had to be an integrated strategy and a plan of execution.

Measures are important too. Profit is one of the most critical measures, right after cash flow. Without cash flow companies die. Without profit they also die, it just takes longer. Many of the new dot-coms are wonderful places to shop and have the variety and brand names desired by online shoppers. But, sooner or later, their revenues have to exceed their expenses by enough to earn a return greater than their cost of capital. If that doesn't happen, they are just consuming the investors' capital until it runs out.

I could list dozens of examples of poor or shallow plans, weak integration, and lack of execution, but just read the lists of failed dot-coms -- they are everywhere! Most of all, too many of these start-ups were short on the fundamentals that determine whether that business you started will get to stay around and play again. Ignoring business fundamentals is like trying to defy the law of gravity. Sooner or later the immutable laws of business and economics take over and it -- whatever "it" is -- comes crashing to earth.

The wreckage of dot-coms litters the landscape with more falling every week. A few of them are making it, but those had the best ideas, generous funding, a sound plan to guide them, then used solid execution, and sane measures to tell them how they were doing -- before their cash ran out. The others, well, let's just say they were lost in cyberspace.

The real winners are the solid clicks and bricks -- companies that stuck to the fundamentals of their base businesses, and also capitalized on the speed and reach of the Internet to add value for their customers. As Ted Levitt infers in the opening quote, the purpose of the business must be to serve the customer -- not the IPO, or Wall Street analysts, or even the venture capitalists!

In the competitive environment of this Internet era, when the time to make decisions and the margin of error are less than ever, fundamentals are more important than ever. The most important of the fundamentals is paying attention to the customer -- to create and keep a customer -- while keeping the customer happy, and making money at the same time! These are fundamentals that have not changed because of the Internet, and will not change -- ever.

Dec. 2000

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U.S. Auto Companies -- More Trouble than Ever

by John L. Mariotti

Those who have followed my writing for the past several years know that I think General Motors (GM) has set a new standard for managerial mistakes and market share liquidation. When Daimler Benz acquired Chrysler, I posed serious questions about this so-called merger of equals and the difficulty of merging the DNA of two such widely different companies. Now, thanks to the Bridgestone-Firestone tire problems on its popular Explorer SUV, and some questionable damage control behavior, Ford is in trouble too.

In other words, the venerable U. S. Big Three are beginning to look more like the Three Stooges, and at a time when they are arguably building the best quality vehicles, at the best costs in their history. What a conundrum! While the Toyota/Lexus, Honda/Acura, BMW, and Mercedes brands thrive, the U. S. trio is in the depths of despair. Even lowly Subaru and troubled Nissan/Infiniti are gaining share and credibility at the expense of American automakers.

Let's take them one at a time.

General Motors may be the biggest auto company in the world, but in the U. S. this has merely given it the most to lose. Layers of management are so insular that the windows on its vaunted headquarters seem to be mirrored on the inside. So common is GM's ability to look good to itself -- and to few others. Aside from over-producing what is arguably the ugliest vehicle of this new millennium -- the Pontiac Aztek -- GM continues to make pretty good cars that fall just short of being better than imported competition. Such outcomes are usually a result of listening to internal managers instead of external customers. This giant will wake up as the second or third largest automaker in a few years.

Chrysler began to die as a company when Robert Eaton abdicated his leadership in the face of Daimler Benz' Juergen Schrempp's intense command presence. The most telling blow was when Chrysler President Tom Stallkamp was promptly dispatched for telling the German leaders what they needed to hear -- but did not want to hear! Stallkamp, whose partnerships with suppliers sustained Chrysler in its darkest hours and then elevated it to leader in U. S. profitability with new ideas and shared cost savings, was just the first of the Chrysler talent drain. As most successful executives know, companies are merely assemblages of talented people on the same premises and payroll. When these people leave, after a short time, so does the success they created. As the talent walked and continues to do so, Chrysler's profitability drops, and its most profitable vehicles -- its Minivan, Jeep Cherokee, and Durango pick-up trucks -- are inundated by a tsunami of better-value vehicles, mostly from Japanese and European producers. The "Germanization" of Chrysler guarantees it will be a very different company from the one Daimler-Benz acquired a few short years ago. Whether it will be a better one is uncertain.

Ford appeared to be on a roll until that roll turned into a rollover -- thanks to the Firestone tire-Ford Explorer debacle. Except for some uncertainty why the Mercury brand still exists, Ford's stable of cars and brands has been coming together admirably. From the Lincoln and Jaguar lines to the Volvo and Ford branded products, to its widely acclaimed Ford Focus small car, all of the niches was being filled. Pick-up trucks and behemoth SUVs poured profit dollars into Ford's coffers, until liability claims and litigation started draining them. But of the Big Three, Ford has the best cars, the best styling, and the best brands and niches. It will become number one, surpassing GM in U. S. market share as soon as the speed bump of the Explorer tire problem is behind it.

Chrysler will struggle under the iron hand of German management -- a group who understands little of how it became so profitable and who cares less. Expect shrinking market shares and earnings for several years to come -- until pieces are liquidated and rationalized into Germanic tastes -- unless Schrempp's reign is cut short by DaimlerChrysler's overall poor profit performance. Then, and there is only a small chance, Chrysler may be spun off to a consortium of its suppliers by Daimler Benz, and rebound as a smaller but better company. GM will continue to be GM, sleepwalking and blundering away a few points of share each year, from a 29 percent share in the U. S. down to the mid 20's where Ford will pass them as it continues to gain share. GM continues to make money in spite of itself due to its immense breadth and scope of products and especially its global market penetration.

For the next year or two, and maybe much longer, two of the Big Three U. S. automakers will struggle. During that time, U. S. auto consumers will buy more of their cars from companies that convert those U. S. dollars into Yen and Euros and one old U. S. car company named Ford.

Dec. 2000

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The Great e-Folly: B2C

by John L. Mariotti

Maybe no one can make money just selling lumpy objects on the Internet. Did that thought ever cross your mind? Amazon has tried valiantly, to no avail. CDNow is now CDNo! Petsmart.com, toysmart.com, and all those other e-smarts weren't smart enough. Webvan's system will never work -- the others that tried it are folding right now. Books, CDs, software, and that high value per pound stuff is about the best possible thing to sell via the Internet -- but still no profits seem to be resulting. Only eBay (auctions), Yahoo, AOL (portals with some content) and a few of these types of companies -- that provide real value -- are making any profit at all.

Sky-high stock valuations driven by the e-frenzy and the venture capitalists feeding the Wall Street analysts one snazzy IPO after another provided some cheap currency (stock) and some easy money. It's about all gone now. Sure, eBay is doing OK. The Internet is perfect for it -- if only the buyers will pay and the sellers will deliver -- but even that is a problem. And Priceline.com is a great way to sell perishable stuff like space on airplanes and in hotels. But with its painfully thin margins, it is struggling right now and better not make many mistakes.

Catalogs have been around for almost a century now. They are the forerunners of the B2C dot-coms. They don't make much money either. Specialty catalogs do OK if they can sell enough high margin goods that can be drop-shipped to arrive in 4-6 weeks. Let's face it. The promise of the Internet may have been a case of over-promising -- and under-delivering -- big time!

When Napster and Gnutella (or whatever their progeny turn out to be) mature, music will be downloaded part of the time and sold via catalogs, stores, and the Internet the rest of the time. Electronic books and print on demand are revolutionary ideas, but they will take decades to really grow into commonplace usage. Human beings are remarkably habitual.

They are also remarkably fickle. I love shopping for books on Amazon.com. I buy more of them there than anywhere else. But if Jeff Bezos cannot figure out how to make a profit when he is THE preeminent B2C Internet-based retailer, what hope do the others have. The bricks and mortar retailers who are smart will hang around and pick up the good leftovers, adding them just like electronic catalog operations, and probably do famously -- but on an incremental basis.

You see, the problem is shopping is not just a means to an end. It is an entertainment experience and a social phenomenon. People want to go shopping at least some of the time. They want to actually touch, taste, feel, smell, look at, twiddle the knobs of, and even try on stuff before they buy it. You can't do that on the Internet.

Bottom line is that there is no bottom line to most of the e-folly dot-com retailers. The barriers to entry were so low, and the fools' money was so plentiful that trying it was a no-brainer. But this is true only at first. Then it took brains, a real business model, cash flow projections that really materialized, and finally, at the end of the day, month, quarter or year, someone had to take in more money than they put out. Otherwise, they would cease to exist.

The e-folly is running its course right now. Investors who played the dot-com lottery will find out the odds were against them from the start. A few won. Most lost. "A sucker is born every day," was the way P. T. Barnum put it. It's just up to the most clever and creative types to separate them from their money. In the old days, they were called hucksters and snake-oil salesmen. Later we called them scams and Ponzi schemes. For now, maybe we should just call them dot-coms.

Dec. 2000

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The Delusions of Masses -- Real & Imagined

by John L. Mariotti

Have you checked the pressure in your tires lately? I have! I bet millions of American have, too, because of the Firestone tire problems on Ford Explorers. Delusions, illusions, and real problems often get confused. Thus, the reports of new problems with Firestone tires on other vehicles were to be expected (and other brands of tires on other vehicles -- that will come next). There are two reasons -- one factual and one imaginary. The factual reason is that IF the Firestone tire problems were caused or worsened by poor process control in Firestone's plants or IF its tire designs were more sensitive to process variations that might lead to tread separation, then it is entirely possible that other families of tires were involved.

The other reason could be the "popular delusions of masses." This has happened many times in the past, most notably with the accidental acceleration scare that nearly killed Audi's sales for several years. Although tests proved that there was at most an ergonomically more likely chance that a person could hit the accelerator instead of the brake, Audi was not at fault. As that problem was publicized, there were scores of reports of other vehicles doing the same thing -- which of course they did. People stomped on the wrong pedal, and the car jumped forward instead of stopping!

A few years ago when Procter & Gamble (P&G) was testing fat substitute Olestra, there were publicized cases of it causing digestive and bowel problems. In all of P&G's exhaustive testing, it had concluded that such problems occurred no more often in Olestra users than in the general population. No matter -- the illusion, or delusion, or at least the power of suggestion -- was at work. It took P&G much longer than normal to allay the fears of consumers and put Olestra into widespread use.

This reaction is not a new phenomenon. Consider this excerpt:

"We find that…millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly…Money, again, has often been a cause of the delusion of multitudes."

Charles Mackay wrote this in Extraordinary Popular Delusions and the Madness of Crowds, which was published in 1841!

The American driving public is now sensitized to tire problems and the liability lawyers smell blood! This means we will have a period of time when such cases receive more than their share of attention. Money will be the cause. Settlements are far better than litigation because there is no chance a sympathetic jury will award enormous damages in a negotiated settlement.

The outcome, as in the accidental acceleration scare, will be some kind of extra cost to all consumers, simply as a safeguard. In that case, the result was a shift lock installed in all cars that prevents shifting the car out of park unless the driver's foot is firmly on the brake. In the case of tires, it will likely be an extra belt to prevent tread-separation or some such remedy. This will add cost to all vehicles, but sometimes, as in settlements, the up front known cost is preferable to the unknown, potentially huge liability.

In any case, until something is resolved in this case, the delusion (or illusion) of masses will remain in effect -- until there is a different issue to attract the attention of the media, the trial lawyers, and the consuming public. Firestone as a brand is toast, and Ford will struggle for some time to repair its reputation. But, as Audi proved, it can be done -- until the next delusion hits. Such it has always been, and such it will be again.

Dec. 2001

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Politics & You

by John L. Mariotti

Many business people simply throw their hands up and roll their eyes in dismay at the strange events in our state and national capitals. While that reaction is understandable, it is not the effective way to behave. I had the dubious distinction of spending a decade on the executive committee of a PAC (Political Action Committee) for my employer. That time was among the most educational of my career, as I met many candidates and elected officials (whether I wanted to or not!).

I also had the good fortune (?) to be elected to the leadership of my industry association and represent it (and my company) in Washington for several years. During this time, I met with Congressmen, Senators, and a lot of staffers (who really do most of the work), the International Trade Commission, the Department of Commerce, the Treasury Department, the Consumer Product Safety Commission, and many other government organizations.

My purpose in telling you about these parts of my career is not to impress; rather it is to impress upon you that making such contacts are an important role of business people. Several things became evident to me the more time I spent in Washington working with elected officials. They really want to know what their constituents think. They also pay attention to those who support them -- monetarily and intellectually -- with information and input.

I won't downplay the impact of financial support. In our system of government, politicians who hope to be elected or re-elected must spend money to do so. The current Administration has shown just how far some people will go to buy favor or at least the willing ear of elected officials. But we must not condemn all political campaign support because of a notable group of abusers. America is a democracy, which elects its leaders.

To do so, I believe that individuals and companies have three responsibilities.

* To choose the leaders they most respect and believe will do the best job for the people and support them -- both with the time and their money. Contributions of small amounts add up, and are greatly appreciated by candidates.

* To exercise the right to vote, regularly, and for all levels of office -- it is a rare privilege we have in the USA.

* Once officials are elected, to regularly provide input and feedback to them on all of the critical issues in your area of influence -- personal and professional. There are many ways to do this: e-mail, fax, letters, phone calls, and best of all personal contact. They need your input. They want your input (at least most of them do.) We are at the end of a major election campaign right now. Whoever was your favorite, the winners have been chosen*. These people will determine the future course of our cities, states, and country for the decade to come. Several Supreme Court Justices are poised for retirement and replacement by the next President. These are critical positions because they determine the interpretation of the laws that are disputed. Business does not operate in a vacuum. Government has far-reaching influence on business, trade, industries, regulations, and much more. Get involved.

Offer to provide advice and guidance when they need it. You will find that there is a tremendous benefit to be gained. When/if you are in Washington, D.C. or when they are in their home district, meet your Congressman and/or Senator. Get to know them personally. Be prepared to intelligently take positions on issues you feel strongly about, and ask them to keep you informed and involved. They will!

Nov. 2000

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The True Test of Managers

by John L. Mariotti

A manager must learn many things on the way to a key position in any business. Some of these are taught in universities; others are taught in the world of work. One of the latter is the one that shows when a manager passes a professional milestone. That step is to understand the economic implications of decisions and actions -- before making the decision or taking the action.

Managers often seem surprised when the monthly financial statements show major variances in spending, shortfalls in profit margins, large price variances, or excess spending on freight, overtime and other areas. Yet each of these deviations from plans/budgets was the result of conscious (or unconscious!) actions or decisions by them. When the pressure is on, decisions must be made rapidly. That is when the ability to quickly compute -- at least approximate -- what the costs and risks of those decisions are.

Consider this example: A hot order for $120,000 has to go out and capacity is strained. Let's work over the weekend to get it out. That is a simple step to gain capacity. But what does it cost? If the company has 100 employees, and each employee makes $10 per hour, then the cost of working 10 hours shifts over the weekend is easy to calculate: 100 x $10 x 10 hrs. In other words, it will cost $10,000 for each weekend day -- at "straight time pay." Then there's the extra overtime factor for Saturday and double time for Sunday, or $5,000 for Saturday and a whopping $10,000 for Sunday.

Altogether, the decision incurs a wage premium alone of $15,000 -- and that's if it is based on a one-shift operation. Such costs can double or triple if two or three shifts are involved. There are other costs too, like shift premiums, vacation pay computed on average earnings, or bonuses tied to W-2 earnings. But at least direct costs need to be considered.

But wait a minute. Purchasing says there are not enough materials to work the plant an extra 20 hours. Air freighting key components is required. The extra cost is $5,000 more. Now the premium for our one-shift weekend is up to $20,000.

Let's tally it up. Gross profit margins on this $120,000 order at 25 percent equal $30,000. Since we have increased costs by $20,000 we have wiped out two-thirds of the profit. But if this was a low margin, promotional product -- at 15 percent gross margin, (after all, aren't those the ones that usually create crises?) the premium costs of $20,000 would exceed the gross profits (15% x $120,000 = $18,000). The final bottom line will be a LOSS of $2,000!!

Of course, there is the important customer service aspect! If the customer really needs the product right then, there may be no choice but to scramble and run it. But on the other hand, if there is a 5 percent late shipment penalty ($6000), and no other serious repercussions, such heroic efforts just cost the company big money.

Wise managers learn to do these calculations quickly, as they are making decisions. The others spend time in budget reviews explaining variances -- if they even can relate them to a specific situation -- because there is usually more than one in the course of a month and the total variances are an amalgam of them. I did this example for a small order. Add a zero to the size of the order and the conclusions come out about the same.

Become a true professional, and make decisions based on outcomes and facts you know or can estimate -- and do it before you make that "split-second decision," or it may be your last split-second decision.

Nov. 2000

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The Millennium Elephant

by John L. Mariotti

I didn't make up that title. In the course of hosting a talk radio series I did this past winter, I had guests who told me about it. The term was coined by Development Dimensions International (DDI) founder Bill Byham to describe a problem that will be far worse than the Millennium Bug. The week before I interviewed Byham, my guest was Beverly Goldberg, author of a new book entitled Age Works.

Beverly cited her research that showed a dramatic upcoming shortage of people in the prime professional and managerial age group of 25 to 44. The baby-bust of two decades ago is now rippling through the workforce. Nearly everyone I work with is concerned about a shortage of good people.

Byham and Goldberg had different but related solutions to this problem. Goldberg's primary approach is to keep employees working until they are older. Many companies forced retirements to help downsize over the past decade. The result was that people in the 50 to 60 year age bracket left in droves. The trend to lean and mean organizations have made more people yearn for escape from long, stressful workweeks that retirement promises. Goldberg cites feelings of people from diverse ages and job levels, all of who want out of corporate slavery.

To further accelerate this worrisome trend, companies have nearly quit training older workers in new technologies. According to data cited in Age Works, there is a steep drop in training hours for mature workers. Perhaps employers fear that they won't get the return on their training investment because the workers will opt for early retirement. Others believe the old saw, "You can't teach an old dog new tricks," -- even if proven untrue.

Byham and DDI offer another solution. Select people more carefully and then develop and retain them. DDI's strong offerings in selection and assessment tools promise to make the difficult hiring decisions considerably more effective. There is no doubt that poor hiring selection and the resulting turnover are double trouble. The cost of hiring people and then replacing them is far higher than the simple sum of the salaries and fees. Teams are disrupted, training and orientation is wasted, and progress is slowed.

Goldberg proposes a new form of employment, which she terms working retired. In this situation, people who might normally opt for early retirement choose instead a flextime, part-time work schedule. There is a huge pool of people in the Baby Boomers generation that could become working retired over the next decade. These people are experienced but would require updated training in the use of new technology. To the fears that older workers resist change, Goldberg replies that it is just not so. They are more likely to point out potential problems based on their experience, but are not necessarily more resistant than younger workers. Managers may be required to listen and consider some of their words of wisdom but in the long run that could be very valuable.

Byham contends that doing nothing is the worst possible solution, and the Millennium Elephant problem's magnitude and impact on businesses will be far larger than the Y2K Millennium Bug, and unlike the Y2K bug, this one is virtually guaranteed to happen. Unless dramatically changed by immigration or global wars, plagues, etc., demographics do not lie. Peter Drucker, in his latest work Management Challenges for the 21st Century cites the demographic impact of a global collapsing birthrate to illustrate how this will not be a short-lived phenomenon.

Which of these experts is right is not the point. They both are! Management must do both: Select and retain people better than ever, and keep the healthy, productive 50 to 60 year-olds involved, up to date, and employed -- whether it is full or part, regular or flex time. Otherwise, there just won't be enough people to do the jobs, regardless of the breakthroughs of technology.

Nov. 2000

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If Only We Knew What We Already Know...

by John L. Mariotti

The title for this column came from a client's presentation lamenting the fact that his company did a poor job of sharing critical information so it could be useful to all of the company. Knowledge is hoarded more often than it is shared.

In the past, hoarded information was viewed as a source of power. With the Internet, email, web sites, and data warehouses, now hoarding information is both harder to do and dumber to do.

If your company doesn't have a repository for information, start now to create one. What should go into it? That is really up to you, but some of the key types of information that would be broadly useful -- and that many companies put on their web data banks:

You get the idea. Add your own. Customize this to fit your company's needs. Then work with your IT folk to decide how to erect firewalls and assign passwords to select who gets into what parts of these data -- assuming you choose to put it in a web site and make it accessible from the field (which is a good idea).

If everybody were around the office most of the time, much of this information would be exchanged around the coffeepot or the water cooler. With today's hectic pace and decentralized, mobile management, that is almost impossible. But the web makes things possible that were once thought impossible.

Instead of wishing you could be "here" when you are "there" to learn some valuable information, now with the web you can be. There is no "there" any more -- there is only "here" and we can all be here. Then it is up to us to share what we know proactively -- so we can all know everything we knew -- and have it right at our fingertips. This is the principle of using the collective knowledge of the organization for competitive advantage -- and it really works. Try it! It works!

Nov. 2000

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Beat Gorillas by Being Guerillas

by John L. Mariotti

This is the age of the mega-companies and the upstarts. More and more industries are being dominated -- for the time being -- by mega-companies that are a combination of mergers and acquisitions. I can make a long list, but a short one will do: telecommunications, defense products, advertising, pharmaceuticals, autos, financial services, and on and on.

One of the bigs buys another of the bigs and lays off, say 10,000 people from redundant jobs, including the duplicated CEO, CFO, etc. This saves a lot of money, at least on the surface, because the multi-million dollar walk-away bonuses for the terminated executives end up in a footnote somewhere.

Now the lion's share of the industry sales is in the hands of a few big Gorillas. Since they are dominant leaders, they set the direction for the industry, which is "don't make waves" because we don't know how to act in stormy seas. The big Gorillas also dominate the supplier scene. These are the largest purchasers of almost everything from the industry supplier base, so they call the shots there too.

In all likelihood, they will soon announce an industry exchange, which they will seem to save them billions and thus be worth billions as a future IPO. With the landscape controlled by big Gorillas, how does anyone else ever get any new business? Will all the small players just fold up and die? Maybe, and maybe not.

That is what happened in discount retailing -- the small regional discounters mostly are gone. A former Wal-Mart VP once told me he was sure that the regional discounters had a strategy to deal with Wal-Mart. "We open a store near them and they close a couple of stores." He was pretty much right, because those retailers didn't know how to fight like Guerillas against the Gorillas.

"Find the niches with the riches," says author Seth Godin in his book Permission Marketing. These niches are exploited by being quicker and smarter than the big Gorilla that owns the market. The worse thing you can do is to take on the Gorilla in a full frontal assault. That plays to its strengths. The best thing you can do is to fight from hiding, nipping at the leaders and then ducking back out of sight. Guerilla marketing and guerilla warfare are old ideas, but are becoming more timely than ever in an era of Gorillas.

Guerillas are creative upstarts. Guerilla marketing looks for small but important niches to stake out its territory. Preferably these niches are small enough not to annoy the Gorilla and big enough to satisfy the Guerilla's needs. Usually these are in areas or fields that the big Gorilla is not too fond of anyway. Clayton Christenson's brilliant work in the Harvard Business Review talks about these as "disruptive technologies," but that term may be too limiting.

Guerillas must have a plan to weave all of their territories into a meaningful whole, around some common denominator such as customer type, geography, technology, value, or something else. Value is a good metric, since the market (which is a bunch of people who buy things) recognizes and appreciates value. The first online brokerage was a guerilla working in the shadow of Merrill Lynch and the other Gorillas. Not anymore.

The challenge is to pick away at the Gorilla without annoying it or waking it up and making it angry. If the Guerillas do wake up the Gorilla, it has huge resources that can make their lives miserable. Fortunately, big Gorillas sleep a lot, and the bigger they are, the longer it takes for the message of a threat to reach their brains. Maybe they think they are invulnerable because of their size and strength. (Do the names AT&T or Sears come to mind?). So a lot of companies find them and pick away at them! It's fun and profitable. But don't disturb their sleep!

Oct. 2000

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Getting What They Deserve

What comes around, goes around! by John L. Mariotti

There is a new contender for this summer's award winner for "stupid things companies and employees do to ruin their businesses, lose their jobs, and destroy their shareholders value". Only this time, the same people are doing the damage -- they are both the employees and the owners! Yes, I was one of the tens of thousands stranded by the Unfriendly Skies of United Airlines and its highly paid, unionized pilots and maintenance workers.

Top management can apologize until its advertising money runs out, but acts of incredible disregard for the service business they run and own are inexcusable. The (owner-employee) pilots are protesting the fact that United management is asking them to work too much overtime; and as a result, large numbers of them decline overtime or call in sick. What the maintenance people did or did not do -- I'm happy I don't know exactly -- might scare me to death. The result was what I saw in Chicago's O'Hare airport a few weekends ago -- tens of thousands of people stranded, untold amounts of money wasted for hotel rooms and meal vouchers.

Lines numbering in the hundreds crawled forward for hours only to be further dismayed and delayed when they reached the "service" desk. Waiting areas soon became sleeping areas. Disruptions and cancellations of flights by an airline the size of United ripple through the entire U.S. air travel system, overloading other airlines, and disrupting travel for millions of fliers. Worst of all, this created a long-lasting dose of ill will that will haunt United Airlines for months and maybe for years. Who wants to fly United anytime soon? Not many people!

I talked with dozens of stranded fliers who swore they would never fly on United again. We've all said that at one time or another about some airline -- but what if this time they mean it? Some of the business travelers were more pragmatic, "I won't use them again -- unless United is the only connection to get where I need to go, or I have forgotten about how bad this is."

All airlines must contend with the vagaries of the weather, maintenance of highly complex machinery, and the outdated/overloaded U.S. air traffic control system. Together, these factors make the interdependent complexity of air travel almost unmanageable at times -- without employees' misbehavior making things worse. Other airlines suffer from problems with customer service, so United was not alone going into this, but it has set itself apart by the foolishness of its owner-employees.

When highly paid owner-employees purposely clog up the system, the system will eventually self-correct. Eventually is the key word. Ultimately, the results of the pilots and maintenance workers slowdowns, whether they are "righteous" or not, will have repercussions that affect them profoundly. Travelers stranded and abused by United will use other airlines whenever they can -- at least while their unpleasant memories are fresh. Major United hubs like Chicago and Denver will continue to be busy, since the leading airlines monopolize the gates at major hubs, limiting competition.

As customers avoid United, this will adversely impact United's traffic, causing them to either cut back further on flights/routes and capacity or suffer losses on those routes until those well paid, but still unhappy, employees don't have to work so much overtime. By then, the overtime will disappear and so will some of them -- because they have made themselves unnecessary. In the end, fewer people will be flying on United Airlines, and the airline will need fewer pilots and less maintenance people. Of course then the lament will be how "unfair" it is that they are being laid off, furloughed or terminated. It is then that they must be reminded that their fate was self-imposed.

One of the peculiarities of the withholding effort made by employees is that usually it is self-defeating. Unless management and the "workers" -- in this case the pilots union and the maintenance workers union -- start working together to improve service and reduce costs -- FAST-- they'll both get exactly what they deserve. The union employees won't like this outcome either, but it will be what they brought upon themselves -- fewer jobs, less employees, and less value for owners that, at United, are also the employees! It's a "Catch 22" if there ever was one!

Oct. 2000

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The Many Paths to Success

by John L. Mariotti

For most of us, the life of business is one in which we pursue goals and objectives, climbing the ladder of success without ever stopping to consider if it's leaning against the right wall. I first encountered that metaphor in Stephen Covey's book7 Habits of Highly Effective People. It had a profound effect on me -- and it started me thinking about just which wall my ladder was propped against.

What is success? Is it like beauty -- hard to define, but you know it when you see (or feel) it? Many would like to think it is that simple, but I don't think it is. Success certainly means different things to different people. For some it is synonymous with happiness -- another abstract concept. For others it is fleeting, now here and then gone, then back again. At least there is value in reflecting on exactly what success means to you, because then there is a much greater chance you will recognize it.

I can't resolve this complex issue in such a short column. What I hope to do is stir some emotion, and incite some logical thought as well, about this elusive yet highly desirable thing -- success. First a series of postulates:

A couple of years ago, I organized a workshop during which the participants were asked to share their "paths to success." It quickly became a highly emotional, and personal session. As the sessions unfolded, the diversity of attendees perceived paths to success and their personal definitions of success was amazing.

There is certainly no right or wrong answer to the question "what is success." Neither is there any "normal" or "best" path to success -- there are as many different paths as there are differences in people. All paths have obstacles. To realize success requires perseverance to overcome the obstacles along the path you choose. To realize success also requires serious thought about what success means to you or what it will be, when it is realized. I use the term "realize" because it is clear that success is more "realized" than it is "reached."

Oct. 2000

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How Things Got That Way...and Stayed That Way

by John L. Mariotti

I work with a company that is facing the need to make major changes because of growth and it is meeting resistance. It seems this is a recurrent theme, one that I run into more and more. To deal with the resistance, we must understand its basis. My friend, organizational change consultant, Rick Maurer suggests dividing the resistance into one of three levels:

Fortunately, the resistance in growing healthy companies is usually one of the first two types. Resistance to change is a constant issue these days -- because rapid change is a constant in business. I don't mean malicious resistance or sabotage is common, although those forms exist -- I mean well intentioned, deeply felt, fact or feeling based resistance. In many companies, the people, especially those in the executive suite, are fearful of letting go of what they did to make them successful in the past.

One thing I am sure of -- whatever worked in the past won't work the same way in the future -- and therein lay open the risk in resisting change. The leaders in industry after industry fall to an upstart competitor because they are so invested in the knowledge of what they did to become an industry leader; they fail to consider new technologies, generate new ideas, and listen to their "out-of-the-box" thinkers.

In fact, these "out-of-the-box" thinkers get out and start competing businesses that eventually unseat their former employers. Or else the former employer acquires the upstart, at a substantial premium in price. If this model holds true, 3Com, AT&T and Disney, among many others should all be worried, because many of their senior management left recently to join smaller start-up companies using new technologies.

A textbook classic in this genre is how the trucking industry eclipsed the railroad industry as the primary transportation mode in the U. S. The railroads were so entrenched in their belief that they were the only game in town; they completely failed to see their business leaving. They were in the "railroad business" and their customers wanted someone in the "flexible transportation business." This classic story of industry myopia has been repeated often, but no less often than the instances of corporations and industries repeating similar types of myopia and resistance to change.

What does this all mean to you? It means you must constantly strive to be the best at doing what you do and how you do it, but that is not enough. You must also look around you for the new ideas, the "out-of-the-box" thinkers, and consider which new ideas will obsolete the current ones. Of course there will be resistance to new, radical or risky ideas.

You may have to set up your own revolutionary small company to protect the innovators from the corporate incumbent immune systems. Dealing with resistance in the right way is critical. What is more critical is to treasure and nurture the new ideas, and realize that one of them was once the idea behind the way things are now -- another will be the idea behind how things will be in the future. Make sure it's your company's.

Sept. 2000

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The Pulse of the People

by John L. Mariotti

When Will Good Values Prevail? Someday! A "Revolution" is coming in leadership! There seems to be a ground swell of emotion about the principles and values of the leaders of companies and in government. Perhaps a better way to say it is "the best people are fed up"! There is no secret that too many of today's top executives got to their high positions the "wrong way." They made their way to the top by manipulating, cheating, lying and taking advantage of the "good people" in their organization. Some pretty famous political figures fall in this class too!

If you think such a statement is too extreme, take a quiet moment and examine your own experience and observations. Character can't be faked. Integrity is like virginity -- you either have it or you don't! There is no such thing as "situational ethics." That's an oxymoron.

Leaders of character and integrity with strong personal values are winning. But the progress is slow, because they're often the victims of the wrong-thinking, unprincipled charlatans who made it to the top any way they could -- usually "on the backs" of the hard working, bright, loyal, honorable people in their companies.

Of course these charlatans destroy loyalty in the workplace. There is no point in being loyal to someone who cares little more about you than as a "stepping stone" to some personal, selfish goal. As more and more such pretenders are exposed and dethroned, the revolution builds. Integrity, fairness and strong personal values will win in the long haul -- but there is suffering while the battle rages on. Stay the course, keep the faith

Sept. 2000

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Communications: The Truth May Hurt But It's Better Than Lying

by John L. Mariotti

Few companies, or management, communicate with their people enough or openly enough. Sometimes their reasons have a basis in legal disclosure issues, but that is often something the managers hide behind. The fact is that honest open communication goes further toward creating an enthusiastic, involved work force than all the programs and banners ever made. Too often managers are somehow afraid to tell workers the truth. There is a fear that they can't handle bad news -- or even the prospect of it. When the truth is twisted into a comfortable form, it loses its power.

Telling employees the truth, even if it is bad news allows them to make decisions about how they will react and behave. What will surprise you is how mature they will usually be. A few will over react. Most will not. If the dose of truth is delivered with compassion and as much explanation as possible, it has an almost positive effect. Most of all if employees are told what they can do to make the potential outcome better, then the maximum benefit of communication is realized.

If a decision has already been made to close a plant, layoff people or make cuts, don't lie about it. If such an announcement would be a legal problem (as in affecting the stock price of a publicly traded company) then prepare people for what will eventually be announced as certain. If measures or parameters that employees can watch will effect the decision tell them about that too. Uncertainty creates anxiety, which is devastating. Even fear is better than anxiety, because plans can be made to alleviate the cause of the fear, or at least come to grips with it.

Managers, who tell the truth, sharing both good news and bad news as appropriate, gain credibility and earn the trust of workers, and few things are more powerful motivators than trust.

Sept. 2000

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Reward Them While They Are Sweating

by John L. Mariotti

This is an old line, but is as effective and contemporary as ever. Employees at all levels thrive on recognition for work done well and for the right behaviors. Managers the world over are too busy to take the time to recognize people promptly, personally and specifically. It only takes a few minutes, but the chains of e-mail, voicemail, meetings and travel keep hanging heavier and heavier.

One executive has been heard to say, "I don't know how you find time to get out on the plant floor with all these meetings." Another, more effective one replied, "I don't know how you find time from the plant floor to attend all of those meetings." Substitute visiting remote plants and offices, visiting customers and suppliers, etc. and the message is still the same.

What matters is doing what is most important. The most important job of any manager is the allocation of scarce resources to the best opportunities. The scarcest resource is talented, motivated people. Somehow, there is never time to seek them out and praise or thank them for a specific job well done, but there is always time to search for and interview, train, etc. their replacements. Sad? Yes! True? Yes!

So stop what you are doing, set aside time -- call a "meeting with yourself" if you need to. Then go find someone who has done something great lately and tell him or her so -- specifically, to his or her face, with a personal note, RIGHT NOW!

Sept. 2000

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Rights & Responsibilities: The Choice Is Yours

by John L. Mariotti

We are becoming a nation of people blaming others for their bad behaviors. "Look what you made me do!" is the typical cry. Unfortunately our children learn these kinds of behaviors by emulating what they see in adults, celebrities and other role models. This kind of thought process quickly spills over into the workplace. The boss is the scapegoat -- the authority figure who must remind new employees of the fact that with rights come responsibilities.

Another unfortunate consequence of this kind of thought process is the "victim" mentality. Everything is someone or something else's fault. Accidents at work, failure to perform on the job and financial irresponsibility are all parts of this victim mentality. A former associate of mine told me, "Victims choose to be." He was right.

Human Resource managers often inherit the task of trying to correct this behavioral and belief problem. Disciplinary actions only seem to reinforce the victim mentality. Only when the cause and effect are pointed out promptly, specifically and clearly is there a chance for them to realize that their problems result from their own behaviors and choices. Author Stephen Covey, in his book 7 Habits of Highly Effective People, describes a "circle of influence" as a diagram that shows all of the choices that people have in their lives. Such choices determine the outcome of events and how we feel about them. The size of this "circle of influence" is within our control. For victims, it is very small -- they control very little of their lives. For others, who take responsibility for their choices, the "circle of influence" is very large. These people earn lots of rights. The choices are ours to make -- and the challenge is to help employees see and understand that fact.

Companies and their Human Resource departments cannot correct society's ills, but they must operate with these ills fully in mind because they are present in the workforce. By providing prompt, timely and constructive feedback about behaviors that involve both their rights and their responsibilities, a more positive environment and a happier, more productive workforce will result.

Sept. 2000

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Burying the Losers

by John L. Mariotti

With the failure rate of new products higher than ever, who is designated to "kill the dogs," and then bury the losers, disposing of all of the leftover remains of parts, packaging, promotional materials, etc. The odds are -- nobody is! Only after suffering under the burden of inventory overhang and profit crippling write-offs will companies learn that it is almost as important to have someone or some group designated to bury the losers as it is to create the winners.

Noted authority and very smart guy Peter Drucker has observed through most of his illustrious career that companies squander their most valuable people resources on fixing problems, propping up moribund products, and generally fighting fires. Failures are natural and to be expected when developing new products. If there are few failures, the company is probably not taking a high enough rate of risk with new products. Failures are only bad if they are not managed, and if no one learns from them (and doesn't repeat them).

The new product introduction rate is skyrocketing; therefore, the failure rate will also increase dramatically. Something has to be done with the leftovers of ones that fail. Products that fail leave a legacy of leftover inventory (in parts and packaging too, not just in finished goods), and of tooling and equipment that may be valueless long before it has been depreciated off the books.

Systems that management uses to track successes can be turned upside down to look for and eliminate losers too. The descending order of value sorting of sales of products has the winners and big volume items on top, and the dogs usually near the bottom. A similar sorted list of customers is equally revealing --because there are "loser" customers too! The only problem is that failures for which there were high expectations may hang up large volumes of parts and finished goods in inventory. These descending value lists won't reveal them so easily.

What is needed is a code to place in the item master and bills of materials of the computer files to tag the losers for extinction and disposal. A code like this warns buyers, inventory analysts and schedulers to stop buying, planning and scheduling these items. It can also be used to sort lists for excess and non-current inventory and work on disposal -- but whose responsibility is that? Don't say the people who created them -- they are on to trying to find the next winner.

We need a clean-up crew here. Not unlike the circus parade, which follows the elephants with the scoop and shovel brigade, a messy, distasteful job remains. Only if there is a person or group of people who are clearly and irrevocably responsible for picking up the wounded and burying the dead -- and disposing of all the remains --- will this difficult job ever get done. Until then valuable space, money and time will be consumed on it, to the detriment of performance and financial results. That's the way it is in the real world.

Aug. 2000

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How a Couple of Horse's Asses Changed the World

by John L. Mariotti

There are a lot of people in a lot of companies that resist change. "We've always done it that way, and it's been good enough for years" is the cry. In the age of cyber speed, old ways of doing things die hard, and the reasons for them are often lost in the annals of corporate history. Well, here's one that won't be any longer.

The U.S. standard railroad gauge (distance between the rails) is 4 feet, 8.5 inches. Why was that odd gauge used? Because that's how they built them in England, and the U.S. railroads were built by English expatriates. But why that spacing? Because the first rail lines were built by the same people who built the pre-railroad tramways, and the people who built the tramways used the same jigs and tools that they used for building wagons, which used that wheel spacing. If that's so, why did the wagons use that odd wheel spacing?

Well, if they tried to use any other spacing, the wagons would break on some of the old long-distance roads because that was the spacing of the old wheel ruts. The first long-distance roads in Europe were built by Imperial Rome for the benefit of their legions, and used ever since. The ruts, which everyone else had to match for fear of destroying their wagons, were first made by Roman war chariots, which were made to be just wide enough to accommodate the rear ends of two war horses!

The United States standard railroad gauge of 4 feet, 8.5 inches, with which we all still live and use was based on a centuries old specification for an Imperial Roman Army war chariot -- and based on the width of a horse's ass -- well, two horses actually!

So, the next time you are told, "We've always done it that way," look around you. There may be a horse's ass or two involved in that reasoning. And if you are inclined to go with the flow and not argue for the change -- think about the implications.

But our little story isn't even over. When we see a Space Shuttle sitting on the launch pad, we see two big booster rockets attached to the sides of the main fuel tank. These are the solid rocket boosters (SRB), made by a factory in Utah. The engineers who designed the SRBs might have preferred to make them a bit fatter, but the SRBs had to be shipped by train from the factory to the launch site. The railroad line to the factory runs through a tunnel in the mountains, and the SRBs had to fit through the tunnel, which is slightly wider than a (you guessed it!) railroad track. Well, we all know where the width of the railroad track came from.

Thus, a major design parameter of one of the world's most advanced transportation systems was determined by a couple of horse's asses! I wonder who will determine the critical decision points on your company's next project. Hopefully, whoever it is will have heard and remembered this little story -- and will make wise decisions based on good reasons -- and understand the basis for those reasons completely!

Aug. 2000

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Designing for the Senses

by John L. Mariotti

The competitive environment, especially in consumer products is getting tougher and tougher. Deflated pricing pressures exist in almost every category. Where price deflation is not occurring, more performance for the money is the norm.

As if this challenge is not enough, the boundaries between formerly well-defined markets have virtually disintegrated. It used to be simple to define markets by type of product or service, size, segment and so forth. Not any more! Where is the boundary between computers, personal digital assistants, cell phones, Web-TV, and millions of other computing and communications product variations? Even geographically defined boundaries are fading.

The implications of this combination of value inflation, price deflation and super-heated global competition are numerous. I would like to focus on one particular aspect of creating competitive advantage--design. By "design" I mean the conversion, representation, and specification of an idea into a three dimensional, producible and commercialized form, both visual and functional.

Many of the critical success factors in business begin with the robustness and aesthetic quality of the design. Quality must be designed into a product or it cannot be produced with consistently high quality. Rapid, flexible customer service is dependent on the use of modular product or service platforms and easily variable configurations to the basic offering, done as close as possible to the end user demand. Cost is highly dependent on the complexity of the design and how effectively the original idea is converted to a commercially viable form.

Great designs have two essential ingredients: They meet perceived or realized needs/wants of customers, and they appeal to both the senses and intellect of the ultimate buyer. Much has already been written about understanding customer wants and needs, so I will concentrate here on how designs can appeal to the senses. Visually appealing products have an advantage against less attractive competition. The evidence is all around us.

Consider the following examples:

Combining these appeals into a product is the art of great design, which is embodied in many respects by the modern automobile:

It is little wonder that Americans have a love affair with the automobile.

The appeal to a sixth sense is the "BEST VALUE" - when all of these elements, AND functionality are combined into an entire product that can be readily produced at high quality, with speed and flexibility, at low cost and with aesthetic excellence.

Even after functionality and all six senses have been served, another part of design becomes the ultimate differentiator--information. Autos already contain dozens of microprocessors that monitor, report or control everything from the amount of fuel or service interval to the timing of engine ignition and emergency braking. Soon homes will exceed that number as the products for the home integrate more smart chips into designs.

Information is an overwhelming value creator in design because it defies the old laws of economics. For years economists taught us that the determinants of wealth were land, labor and capital. These each had the characteristics of exclusive use and/or consumption with use. In this economic model, companies could "own and use" the wealth factors.

Information has changed all of this. It neither is exclusive, nor is it used up. The more information is spread and shared, the richer and more valuable it becomes--but usually not exclusively for any one company/owner -- unless they can build it into their designs!

Aug. 2000

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What Is a Brand?

by John L. Mariotti

One of my clients is working on developing a global brand presence. At a recent meeting, someone blurted out, "what is a brand anyway"? What a silly question -- or was it? Everybody knows what a brand is -- don't they? The answer, like the tag line for Hertz' ad campaign, is "not exactly!" Here's a definition for a starter -- in answer to that outspoken question.

A brand is a simplified, "shorthand" description of a package of value upon which consumers and prospective purchasers can rely to be consistently the same (or better) over long periods of time and distinguishes a product or service form competitive offerings. A brand is a trusted promise of quality, service and value, established over time and proven by the test of repeated use and satisfaction.

However we define it, a brand is an increasingly important asset of a company. Often the brand has a familiar logo/icon or name. When you see this logo (i.e., Nike's swoosh), you think of the brand and its entire package of value promises. At least that's the way it is supposed to work! Manufacturing is rapidly spreading globally, seeking low cost, high quality sources. The owner of a brand has a franchise upon which it can sell goods almost anywhere, regardless of where they are actually made.

The questioner might have also asked a second question, "Where do brands come from"? Branding came into widespread use only in the past century, but "brands" based on the reputation of craftsmen have existed for centuries. Artisans marked their work with a symbol -- their unique brand. As retailing grew and spread, brands became the manufacturer's way of marking their goods with a symbol of their reputation.

After World War II, the consuming public was hungry for goods previously unavailable because of the resources devoted to the war. Many of today's great brands grew up in this era, as did much of the knowledge about brand management. The "AIDA" model arose from this post-war era. First, build Awareness of a brand; then create or find consumer Interest; build a Desire to purchase the brand to fulfill some real or imagined need; finally incite the consumer to take Action -- buy the brand.

Marketers discovered that awareness also had another powerful by-product--it led to loyalty, but only after a period of trial purchases, and then repeat purchases. This AIDA model was the paradigm of choice for decades -- until the world changed so radically that it was no longer sufficient.

Then came four P's: Product, Price, Promotion, and Place. Combine these in the right mixture and brand success was yours. This approach worked so well that it withstood the test of time for decades more. Once again, this model is not wrong; it is just not sufficient for a new era of marketing and branding.

As decades passed, needs of the post-war era were fulfilled, and demand slowed. New products began to fail in record numbers. Twenty-five years ago new product failure rates were 65%. Today they are 95%! This happened in spite of decades of accumulation of brand knowledge and marketing expertise. Generic brands grew, as did private labels and store brands.

The price premium and margins for once-great brands kept shrinking, starving advertising budgets. The world has changed. Competition has changed. Brand management must also change. The old model is not wrong -- it just isn't enough! With this historical background, let's reconsider the evolution of a brand and where it may go next.

The Three Ages of Brands

The First Age: Brands function solely to differentiate a product or a service from its direct competitors. Like the early ranchers' brands on cattle meant nothing more than who owned the cattle. Objective: Capture as large a share of consumer's wallet as possible

The Second Age: Brands detach from and overshadow products. Advertising becomes a powerful force. Line extensions abound. Consumers buy brands for status value and identity (Nike, Polo). Consumers become more fickle and less loyal. Brands become highly valued assets of companies (Coke, Marlboro). Objective: Capture as large a share of consumers' mind as possible.

The Third Age: Brands are increasingly autonomous, providing a device by which corporations are shaping the very ideology of the world! Millennial brands evolve, underpinned by an amalgam of information, entertainment, experiences, images, and feelings (Intel, Disney). Advertising grows in volume and importance: $39 billion worldwide in 1950; $256 billion worldwide in 1990. Objective: Capture the largest possible share of consumers' lives, and even their souls!

We are now on the threshold of a The Fourth Age, as the leading manufacturers and marketers of the 21st century instantly and globally identify their offerings with the same kind of mark as craftsmen of centuries ago used -- a brand. These brands will become the super-icons of the future, transcending even the hand of the craftsmen for whom they once stood. If brands in the third age planned to capture the share of consumer's lives and souls, brands in this fourth age will begin to shape lives, values and society.

Consider the Nike and Gatorade ads, which extol lifestyles and values. Financial service company ads influence how the earned wealth of the world is invested and managed. Drug company ads now talk about breakthroughs and taboos that were previously unheard of or impossible to imagine. In The Fourth Age of Brands, no segment of society will remain untouched -- no part of business will remain unaltered. The only question is whether the managers of these fourth age brands will have the wisdom to use this incredible power wisely, and that remains to be seen.

Aug. 2000

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