Business Blog: Hoover’s Business Insight Zone

When we were discussing AOL’s layoffs a couple of weeks ago, a commenter named Jay said this:

One of the weird things about regular layoffs is that it creates a perverse incentive: Don’t fire your poor performers.

If you know that, within 12 months, you’re going to be asked to trim 20% of your team no matter how critical their work is, wouldn’t it make sense to keep a few people on your team that you can safely let go?

Exercise for the reader: Does this, in turn, foster the likelihood that the company will *need* to have another layoff?

Today’s news is full of stories on Alcatel-Lucent’s plans to lay off 4,000 employees. Worse than the news is how little surprise it provoked: the company has already announced layoffs of 12,500 people this year, it just reported yet another sizeable loss (and on declining sales — yikes), it’s still restructuring in the wake of last year’s merger, and various indicators suggest that the restructuring effort must become more radical, not less. Oh, and the market is shifting out from under the company, too.

As we’ve discussed before, the separate companies of Alcatel and Lucent needed serious cutting to rationalize operations before they merged. Given the inevitable redundancies in central-office staff, overlapping product groups, and the like, it’s no surprise that so many people have gotten the ax this year. It’s also little surprise to find out that there has been major infighting within the combined company as the French and American sides of it dig in their heels when it comes to deciding which are the redundant parts. (Who on earth could have seen that coming?)

Alcatel-Lucent’s case is and isn’t like AOL’s. The major difference is that the telecom equipment company completed its ill-advised merger in 2006, whereas the Internet company completed its ill-advised merger (into Time Warner, in case you’ve spent this decade on a desert isle) in 2000. What this means is that the bleeding at Alcatel-Lucent is urgent — it comes in obvious spurts. At AOL, the wounds are deeper, somewhat hidden, and they throb silently most of the time. The online company isn’t hemorrhaging, just slipping steadily into decline.

That steady decline underlies AOL’s habit — alluded to in Jay’s comment above — of cutting its staff year after year. Like the telecom equipment market, the space in which AOL plays is evolving, rapidly in some respects, more slowly in others. Like Alcatel-Lucent, AOL has been slow in admitting the severity of the issues it must confront. Possibly AOL’s leadership is just slow in admitting these things to themselves, as Alcatel-Lucent’s CEO Patricia Russo has been slow to admit (or to grasp) the magnitude of the problems that her company faces. The big difference is that Alcatel-Lucent’s dismal results have now forced a more urgent shakeup in how the company is organized and managed; AOL’s slow decline allows it to fall into the bad habit of self-inflicted death by a thousand cuts.

To its credit, Alcatel-Lucent is changing things from the top on down, cutting the size of its executive committee by two-thirds and simplifying its geographical structure. That simplification must accelerate if the company is to compete with the highly capable rivals (Cisco, Ericsson, Nokia Siemens) who have been feasting on its disarray. Likely it will mean more layoffs in the long run. (This story cites a telecom industry analyst who says that the company would have to cut a total of 30,000 workers — as against the 16,500 job cuts already announced — to be as efficient as Ericsson.)

Unlike AOL, Alcatel-Lucent does not seem to be stage-managing its layoffs — and let’s hope they never start to. Rather, they’re responding to pressing needs which, though they probably should have been obvious enough to act upon six months ago, at least are being acknowledged as essential now. With habitual layoffers like AOL, you’re justified in thinking that tending to p.r. has become more important to them than improving operations.

The best companies restructure every day. They build the whole business over, build it better, through every business cycle. Layoffs should happen all the time, too: person by person and team by team as performance and the needs of the company dictate. You only get into Alcatel-Lucent’s predicament through years of deferred decisions about the hard choices facing the business, a habit that is often tied to a company culture of ignoring reality.

Let’s hope that Alcatel-Lucent is finally facing up to reality. Layoffs are hard medicine, but they’re not as bad as collapse, which seems to be the alternative.

A BoingBoing post put me on to this animation, made by the good folks at GOOD Magazine, which offers some interesting facts about the multibillion-dollar “death care” industry in the U.S.

Hoover’s has long covered the titans of this industry — household names like Service Corporation International, Stewart Enterprises, and Matthews International. Okay, they’re not household names, but they are surprisingly big companies for an industry that most people don’t think about until they have to.

In keeping with GOOD’s environmental bent, the video points out some of the ecological costs connected to the ways we typically inter the dead. Plus there’s some amazing tidbits, like the fact that the average Japanese funeral costs $40,000.

Here’s the video.

(Very catchy music track, too.)

That’s the question I put to my LinkedIn network, and the range of answers I got was illuminating. When I’ve talked about this in the past with sales pros, including some of our veteran account managers here at Hoover’s and sales consultants who have been in the business a long time, they all talk about how the whole world of sales can get better.

Many of these folks, even ones who have thrived under the typical find- more- rainmakers method of building sales teams, want sales management to become more rigorous, more analytical, and more systematic. One sales consultant I talked to pointed out the great disparity between manufacturing — where TQM, Six Sigma, and all the other descendants of Taylorism have squeezed defect and re-work rates down to almost nil — and sales, where there are huge leakages and failure rates everywhere you look.

I got so many good answers to my LinkedIn question that there’s no way to fit them all in one blog post, so I’ll start with some excerpts here and then add to them in subsequent posts.

Mary Hammerschmidt of Billtrust lauds a college class she had called “Personal Selling,” which featured sales-oriented roleplays, but then adds:

That being said, nothing beats the real thing. Techniques and tips can help, but you’d be better off working at a furniture store or car dealer to hone your skills than paying for school.

Lee Unger of ChoicePoint Precision Marketing says that some corporate sales workshops have been helpful to him, but expresses doubts about how much sales can be systematized:

Many of the more successful sales people I have worked with have degrees in completely unrelated fields, surprisingly few business degrees, and several with no degree at all. I believe sales is more of an art form, and like artists, each sales person is different and approach their craft in different ways. […]

Until sales becomes more of a science and less an art form, I suspect it will be very hard to focus core college discipline towards it. Nothing replaces experience in sales.

Kevin Jackson of CSC Consulting writes:

I think that many people believe that sales is either easy, or there are those who are “natural” salespeople. I agree that there are certain personality types that gravitate towards sales, i.e. the proverbial type-A. However I can tell you that I have seen the methodical plodder outsell the vibrant type-A on many occasions.

The fact is that sales has an analytical component and an emotional component. The salespeople who have the best success have a methodology, whether overt or otherwise. […] An understanding of the sales process, a good methodology, would improve 95% of the salespeople I know.

I think a school that could train successful salespeople would give the Ivy League a run for their money, and would likely gain fast notoriety, though I doubt a major university will pick up such a curriculum, except perhaps as part of an MBA.

He also adds this interesting perspective about college coursework: “Sales is comprised of psychology, logic, planning and research, statistics, listening, change management, and ‘artistic thinking’, so you get a lot of the curricula in other classes that one might take in college, but little that is directly applicable to a sales curriculum.”

My friend Rich Blakeman, a VP at the Miller Heiman sales consultancy, offers this:

There are actually a number of degree programs in sales today at the undergraduate level.

The number of schools offering a degree began with a number of historically minority institutions: College of St. Catherine’s, Southern University, North Carolina A&T and others. Many of these were originally in a program begun by 3M to build “sales-ready” talent coming out of minority colleges and universities into their field force.

Beyond those initial programs, other schools like University of Indiana, Dayton, and more have joined the bandwagon. There are a couple of professional societies for sales on college campuses and the movement is growing with support of many businesses as partners.

Rich also points specifically to the program at St. Kate’s — I hope to follow up with the folks there directly.

My Hoover’s colleague Russ Somers puts my initial question into a thoughtful business framework:

There’s a sentiment that ’sales is an art, not a science; therefore it cannot be taught.’ Any learned behavior can be taught (and there is a long tradition of teaching art). Anyone who’s done sales successfully knows that they’ve learned a lot through their career. The most successful sales pros I know are continually learning and are excited about sharing their knowledge.

There are two deeper questions to be answered:

1) Is there ROI in learning sales? Does the impact of the learning I’d accumulate in X years in the classroom outweigh the impact of the learning I’d gain in the same number of years on the job? If not, it can still be taught; but it’s not worth going to those classes. You’re better off going out into the field and learning it old-school.

2) Who has the right skill set to teach it? I’ve seen sales programs at the graduate & undergraduate level taught by marketing professionals. All due respect to us Marketing folks, but we don’t do sales and may not have the right skills to teach it.

(The magic of the Internet: Russ and I sit in neighboring cubicles at Hoover’s Galactic HQ in Austin . . . but as far as I know he and I had never discussed this topic before I saw his answer on LinkedIn.)

Russ also mentions that the Acton MBA program here in Austin includes sales as part of its curriculum. If there are any Acton students, teachers, or alums in the audience, please tell us more about how Acton does it.

I’ll be exploring this topic much more in further installments, especially as I follow up with some of the business academics who are bringing rigorous sales training into the B-schools. Meanwhile, chime in with your own opinions: how well can sales be taught in the classroom?

Chris Anderson, author of The Long Tail and editor-in-chief of Wired, has thrown down the gauntlet to the p.r. spammers who lard his inbox with unwanted and ill-aimed releases. And he’s not being abstract about it.

Sorry PR people: you’re blocked

I’ve had it. I get more than 300 emails a day and my problem isn’t spam […], it’s PR people. Lazy flacks send press releases to the Editor in Chief of Wired because they can’t be bothered to find out who on my staff, if anyone, might actually be interested in what they’re pitching. […]

Everything else gets banned on first abuse. The following is just the last month’s list of people and companies who have been added to my Outlook blocked list. […]

There is no getting off this list. If you’re on it and have something appropriate to say to me, use a different email address.

He then goes on to list hundreds of e-mail addresses that he has blocked because of p.r. spam. The comment thread on Chris’s blog entry now runs to more than 20,000 words, with a mixture of support and criticism for Chris’s approach. The critics say that what he’s doing is “vindictive” or “mean-spirited,” but they’re wrong. It’s punitive, yes, but not vindictive, and the distinction is critical.

In many cases, we lack power over the communication in our lives. Try as we might, we can’t stop every telemarketer from calling us. We can’t stop all the spam. We can’t stop all the junk mail. But in this case, Chris Anderson does have power, and the flacks who have bombarded him do deserve to have their noses rubbed in it. If their foolishness is not punished — in this case, by public embarrassment and by a likely increase in spam that will come from having their e-mail addresses published — how will they be made to change their ways?

Don’t get me wrong: I know and work with many stellar p.r. people. (Exhibit A.) It can be an honorable business, getting the good word out about the good things created by companies, charities, schools, and other organizations. But there’s a bad side — a depressingly bad side — to online p.r. practice. Chris Anderson has encountered this bad side ad nauseam and come at last to the point where he no longer cares to suffer in silence. It’s not a bad thing when an individual reaches the point of saying, “I have had enough of this ———” and takes action accordingly.

So: go get ‘em, Chris!

Kent Hemingson of UT’s McCombs School of Business flattered me with an invitation to speak to the undergraduates in the “Brass Ring” program, and last night I got to take him up on his offer. The program makes me proud of my alma mater, because it sends small teams of go-getting undergrads into companies like Dell and Austin’s Capital Metro transit company to deal with real problems of business. While I’m a huge fan of classroom teaching (and wouldn’t be working on a Ph.D. otherwise), my business experience tells me that there’s no other way to really learn business than to get down into the thick of it.

Hemingson’s the perfect person to lead the program, by the way: he impresses you immediately with his high energy and good humor, and it became clear to me from watching him work that he has a level of organizational discipline that I can only envy. (It makes sense, though, given his previous careers in operations with the U.S. Army and IBM.)

Anyway, I shared my thoughts on business information and business research, and the students treated me to a funny and stimulating discussion of the concrete challenges they face in their work for outside organizations. With any luck, I’ll be able to return in the spring to address the next crop of Brass Ringers. If that group is anything like the one last night, I can hardly wait.

My go-to expert on oil prices is Geoff Styles, who has previously discussed the complexity in comparing oil prices on an apples-to-apples basis over the decades. (Hint: it’s not as simple as using the Consumer Price Index to account for inflation.) This post from last Friday — just before oil futures climbed to $93 — is apt reading.

Breaking The Record

…Production in the OECD countries is barely replacing the natural decline of mature reservoirs. The non-OECD output that has enabled the expansion of demand in the last several years has come mainly from projects that were planned under more attractive fiscal terms, in host countries that have since cooled towards international oil investment, at least from the western oil companies. Producing countries may be entitled to a fair share of the rent on their own resources, but they are also quite capable of killing the golden goose. Meanwhile, spare OPEC production capacity that might have been adequate a decade ago is now too small to dampen the volatility of an 85-86 million barrel per day market….

At some point, either supply or demand will give way, and prices will fall — at least somewhat.

Right? Right? . . . Anyone?

The fact that we don’t have a great answer for that is a key marker that we’re living in interesting times.

Read this post from David Gaffen for a handy tabular comparison of Merrill’s Stan O’Neal, Citigroup’s Chuck Prince, and Bear Stearns’s Jimmy Cayne.

O’Neal Is Gone — But What About These Guys?

Yes, I’ve been harping on this lately, especially with my long comments of last week on Prince’s inadequacies running Citi. But I promise to stop harping on this as soon as these giant, rich institutions either (a) start performing better under these men, or (b) replace them with better CEOs.

. . . and to hear my dulcet baritone, we’ve now set up a YouTube channel to showcase our various video bits.

One of the hardest things a CEO can do — and one of the markers of a really great CEO — is to groom well-qualified, well-experienced replacements. Given Stan O’Neal’s stated desire to shake up Merrill Lynch, and all the hackles he raised among long-timers at “Mother Merrill,” it’s no surprise that O’Neal hasn’t cultivated any suitable replacements.

The upshot of this is twofold:

1. O’Neal’s own blunders have hurt the firm, which may need years to be turned around.
2. There is no obvious candidate from within the company’s senior ranks who is clearly capable of tackling that turnaround.

One of the beliefs that I’ve formed in my years of covering the business world is that many CEOs are grossly overrated. Being a CEO of a big firm requires an unusual combination of skills, including financial acumen, operational toughness, and a deft p.r. touch. By no means would I suggest that you can find this combination at a dime a dozen. But too often, company boards anoint someone with this basic profile, or some fascimile of it, and then let them run the company poorly or tepidly for years. It’s much harder — but totally necessary, for companies that want to succeed in the long haul — to make CEOs accountable for their firms’ short-term and long-term performance, and to ensure that CEOs help to cultivate the bench of leadership talent among them.

So, besides the giant writedown through which Merrill is now suffering, it must also confront the failure of O’Neal and the Merrill board to make sure that ready successors were already in place in the event of O’Neal’s unplanned departure — whether that departure came from failure to perform, a heart attack, or what-have you.

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More context:

• David Gaffen of the Wall Street Journal: Will Replacing O’Neal Matter?
• Landon Thomas of the New York Times: A Search for a Chief Who Can Unite Merrill Lynch

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Since I’m not much of an economist, this is more a question for discussion than an expression of any clear verdict on my part. For now I’ll say that some very smart folks think we are headed for a recession; that list of folks includes economist Nouriel Roubini, zillionaire Warren Buffett, and the top executives of Caterpillar. As much as two-thirds of the general U.S. population agrees with them, but opinions vary.

U.S. companies disagree on prospects for a recession

…Almost two-thirds of Americans said a recession was likely in the next year, and a majority said the economy was already faltering, according to a Bloomberg/Los Angeles Times poll taken from Oct. 19 to 22. The survey showed the gloomiest view of the economy since February 2003.

A survey of chief executives released this month by the Business Council predicted that U.S. growth would slump to 2 percent or less next year but that the economy would avoid a recession, defined as two successive quarters of declining gross domestic product….

This puts me in mind of The Epicurean Dealmaker’s witty post from this weekend, in which TED discusses just how poorly mathematicians sometimes do when they try to predict the movement of markets.

Down the Rabbit Hole

…Write this down: Black-Scholes [a prevailing theory of option pricing] works not because it describes some external ontological fact about how pricing relationships between securities and their derivatives have to work; it works because everyone agrees, more or less, that that’s how prices should work. It is a convention, not a physical or financial law. This is the central epistemological trap that quants fall into when they conflate the tools, techniques, and ontological assumptions of physics, which attempts to describe that which is (more or less independent of us humans), with those of mathematical finance, which attempts to descibe how human beings trade and value financial instruments and their derivatives….

Myself, I tend toward caution, so if I were running a company, I would long ago have put back a supply of dry powder to counter the effects of the mortgage crisis and the shriveling of the credit markets. My own view is that the marketplace — not just the financial markets, but the broader sphere of business — has more corrections to make before it stabilizes again. Some of these corrections will be large and painful. Whether that amounts to a recession, I don’t know.

What do you think?