Business Insight Zone

An interesting read from the Labor Day weekend in the U.S.:

Turning to Tie-Ins, Lego Thinks Beyond the Brick

This New York Times story digs into the changes undertaken in recent years at Lego. The Danish toy company, which a few years ago languished, has been lapping the field in its industry during this recession, but doing so has required it to deviate from its long-held traditions.

Some of these old habits — like letting deadlines for product development slip without consequences — deserved to die. Others, like the company’s traditional avoidance of guns or violence in its playsets, have been adapted to fit its new (and extremely profitable) strategy of building toys themed around Hollywood properties like Star Wars and Raiders of the Lost Ark. (There was a debate within the company about putting out any toy with “Wars” printed on the box.) Throughout its process of negotiating the 21st century, though, the company has remained steadfast in its view that profit isn’t everything.

It will be interesting to see how much the company retains that view if it continues down the path of high profits that it’s been on.

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Related post:

• LEGO’s red-letter day.

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Photo bymcamcamca, used under a CC-Share Alike license.

All that paperwork you have to deal with?
It was created by people who were “just doing their jobs.”

You’re Creating Your Own Problems.

Some of the key problems in your business, including some that you — yes, YOU — create, arise from people “just doing their jobs.”

Think back over the past year, and consider your most frustrating encounters in doing business, or as a customer of a business. Some of them may have stemmed from incompetence or ill will, but I’ll bet more of them came from competent people who had nothing against you, but whose hands were tied:

• “Sorry, you don’t have the blue form BS-12. I can’t help you.”

The sad thing is, that lady was TOLD to tell you that. No BS-12, no can do. Period.

• “But what can I do about it?”
• “I don’t know. That’s not my job.”

Now that company (or agency, school, etc.) has an unhappy customer who can only say bad things about them. Which, when you think about it, is bad.

The Case of the Inert Roku Box

Contrast that to the experience my wife had last week — which was refreshing enough that I’ll call out the worthy company by name. My wife had ordered a Roku media player to use with our new HDTV. It was delivered overnight, all the right hardware was in the package, and the setup instructions were clear.

But for whatever reason, the player wouldn’t turn on. She unplugged everything and started over, re-read the instructions, et cetera. She called the support line, and the person who came on the line was helpful. He walked her through some of the same steps again, just to be sure. He told her the super-secret instructions for resetting the machine like a technician would. He was scratching his head, too.

Finally, they had an exchange about like this:

• He: “Well, we’ve tried all the usual things. Let me think of what else . . . “
• She: “At this point, could we just swap it for a new one? I’m afraid this one may be a dud.”
• He: “Of course — let me put that order in now. We’ll overnight the new to you, and include a return tag so you can ship the old one back to us for free.”

Boom.

Somewhere, somebody got the idea that it makes sense to please the customer, and to make it the job of that phone-support guy to please the customer. Ergo, no accusations that my wife had broken the device, no “five to ten business days for delivery,” no extra charge for replacement, nothing.

No grief masquerading as “just doing my job,” in other words. All because somebody freed up that phone-support guy to satisfy customers.

Guess how happy we are with Roku now? (The new box they sent us, by the way, is one of the best, simplest, most awesome pieces of consumer electronics I’ve ever used.)

Now, back to YOUR business.

If you’re a manager and you’re human, you’ve likely propagated or perpetuated some asinine rule that makes it harder for your customers or your colleagues to do business.

If you’re a front-line worker, you’ve probably shaken your head but gone ahead and carried out such a rule, without even pushing back very hard about it.

How can I be so sure? Because I see it everywhere I go. Because I hear it from contacts across many industries. Because it’s a constant source of complaint in my Twitter stream.

So don’t take it personally, but please DO acknowledge that you’re probably — somewhere, some which way — committing the sin of “just doing my job,” either by comission or omission. Assume the problem exists, and start looking for it; you may be sobered by how quickly you find it.

Then, take steps to make sure that no one your company serves — customer, employee, vendor, whatever — ever has reason to grind their teeth when they hear you say “just doing my job.”

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Image by Isaac Bowen, used under a CC-Share Alike license.

Bullet points for brevity . . .

Following up on GM’s a stumper:

• CNN — Sources: Obama pressed Bush for auto industry bailout — “At their private Oval Office meeting on Monday, President-elect Barack Obama urged President Bush to support billions of dollars in aid for the struggling auto industry during the upcoming lame-duck session of Congress, according to three officials briefed on the meeting.”
• WSJ MarketBeat blog — GM’s Slimming Waistline — “Since the company’s market capitalization has roughly fallen in half in a week, the once proud Dow component is now below the $2 billion threshold used by many Wall Street trading operations to denote the difference between a small cap and mid cap. However, citing the company’s brand and continued huge volume in trading of the stock, brokerages say trading responsibilities for GM aren’t going anywhere.”
• From James Surowiecki’s new blog, “The Balance Sheet,” at The New Yorker — Do We Have to Save G.M. Because We Let Lehman Fail? — “Had the financial system stayed reasonably stable, rather than plunging into the chaos we’ve seen in the past six weeks, then one might have been able to make the case that General Motors, with its three-billion-dollar market cap, was not all that important, in either literal or psychological terms, and that the market could easily weather its failure. Today, I think that sounds incredibly implausible to anyone who’s paying attention to the credit and equity markets.”

Following up on Sheldon Adelson: “successful” is more important than “nice”:

• WSJ MarketBeat blog — Adelson’s Vanishing Billions — “The convertible [note issue] illustrates how rapidly and terribly Sands, the gambling sector and the broader U.S. economy are bottoming. Just over a month ago, Sands needed under $500 million and now it needs more than $2 billion more to pad its coffers against the downturn.”

(So perhaps now Adelson will have neither “successful” nor “nice”?)

Following up on The “car of the future” isn’t even in the future:

• New Hampshire Union Leader (via Making Light) — Kamen’s Revolt — “The same day that Ford and General Motors announced catastrophic third-quarter losses, Dean Kamen was showing off his new electric car. The prototype vehicle, a zippy two-seat hatchback designed with more than a passing resemblance to the Volkswagen Beetle, can go about 60 miles on a single charge of its lithium battery and with practically zero emissions.”

Following up on Bottled water: indulgent and evil?:

• Christopher S. Penn’s Awaken Your Superhero blog — Crystal clear, sparkling bottle of marketing — “So do the math. $1.60/gallon for home delivery of the same water you can get out of your Boston-area faucet WITH filtration for 14.3 cents. Only marketing can make a 10x markup like that work and still get consumers to buy product by the truckload.”

What are the most interesting business developments you’re seeing this week?

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Related Hoover’s company records:

• General Motors
• Las Vegas Sands
• Ford

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As this chart illustrates, the DJIA is down 33% this year:

I took a couple of minutes to compare all of the DJIA’s component stocks with the Average as a whole and came up with a simple breakdown.

Underperformers:

• Alcoa
• American Express
• Bank of America
• Boeing
• Caterpillar
• Citigroup
• General Electric
• General Motors
• Intel
• Merck
• Microsoft

The middle of the pack:

• AT&T
• Disney
• DuPont
• Hewlett-Packard
• United Technologies
• Verizon

Overperformers:

• 3M
• Chevron
• Coca-Cola
• Exxon
• Home Depot
• IBM
• Johnson & Johnson
• JPMorgan Chase
• Kraft
• McDonald’s
• Pfizer
• Procter & Gamble
• Wal-Mart

Particularly stark is the divide between the worst-performing stock in the bunch, General Motors, and the best-performing, Wal-Mart, as shown in this chart:

Considering my last post, I’ll refrain from bashing GM any more today. But it’s worth noting, for the bazillionth time, that Wal-Mart is insulated in hard times by its perennial low-price guarantee, which in turn is backed up by its pricing power with suppliers and by the efficiency of its supply chain.

Wal-Mart is always popular among folks who have to watch every nickel. It’s just that, in hard times like these, that description applies to a whole lot more people than usual.

In the old days — back before the commercial revolution of the late 19th century — the biggest problem in the U.S. economy was often that of production, especially along the simple lines of “How can we produce enough to eat?” The transition away from agrarianism toward industrialization meant that the big problem became that of consumption, i.e., “How can we find adequate markets to clear all our goods?” *

Down this path lay all sorts of interesting implications, for example long-term efforts to open “the China market” and other overseas markets for American goods. For the implication du jour, I turn to this article from the New York Times:

Retailers Report a Sales Collapse

Sales at the nation’s largest retailers fell off a cliff in October, casting fresh doubt on the survival of some chains and signaling that this will probably be the weakest Christmas shopping season in decades.

The remarkable slowdown hit luxury chains that sell $5,000 designer dresses as badly as stores that offer $18 packs of underwear, suggesting that consumers at all income levels are snapping their wallets shut. . . .

Consumer spending represents two-thirds of the nation’s economic activity, and analysts said the striking sales declines at retailers almost certainly portended an extended, severe recession.

This matches Heidi Moore’s report from yesterday’s Blackstone earnings call:

[Blackstone co-founder Steve] Schwarzman . . . sums up by saying that the fourth quarter will probably read very badly for the economy, because consumers were in a financial panic between late September and mid-October. The upshot: severe consequences in the fourth quarter.

When the going is easy, consumer-goods makers can reap large fortunes by making inessentials that tickle consumers’ fancy. But when the going gets tough, there’s little that can persuade consumers frightened about their futures to open their pocketbooks.

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* Yes, the historian in me realizes that I just squished a couple of centuries of complex economic developments into a couple of overly broad generalizations. The historian in me shuddered, but then the blogger in me patted him on the back and assured him that it would be okay.

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Photo by saeru, used under a CC-Share Alike license.

Whither the venerable electronics maker? Let’s read along from the Martin Fackler’s New York Times together, eh?

Sony’s Quarterly Profit Falls by 72 Percent

Well, that can’t be good.

TOKYO — Sony reported a 72 percent drop in profit in the most recent quarter on Wednesday, hurt by a stronger yen and the global slowdown. . . .

Sony has joined a procession of Asian exporters reporting lower earnings . . . They have blamed drops in global and particularly American demand, contradicting the once popular notion that Asian economies were decoupling from the United States. . . .

More and more I see analyses that emphasize this point about the interconnection of economies. For many years we’ve slung around the term “globalization” as though it were a new phenomenon, instead of something going back at least as far as Vasco da Gama. And previous slumps — whether we’re talking about the Great Depression of the 1930s or the Asian financial crisis of 10 years ago — have spread their woes across many countries.

What’s different now is the velocity of that spread. The deep integration of the industrial and consumer economies of the world’s more-developed nations, along with the immense size and speed of global capital flows, takes old problems like trade or currency imbalances and magnifies them in a gigantic 24/7 financial echo chamber.

Or, for short: when U.S. consumers stop spending money, trouble ensues.

Tie all of this up with the age-old problem of investor irrationality, and the results can turn absurd:

Many analysts say share prices of top Japanese companies have fallen so far as to defy reason. Not only Sony but many of Japan’s best-known brand names — including Toyota, Panasonic and Bridgestone — have seen their market value drop below their so-called book value, the total worth of their buildings, equipment and other physical assets.

As of Tuesday, Sony’s market value was $21.4 billion, or about 0.58 percent of its book value, according to Paul Migliorato, head of research at NamiNori, a Honolulu-based equity research firm. . . .

“The market is treating Sony and Toyota like pariahs,” Mr. Migliorato said. “Any sense of reality has been hijacked by momentum and fear.”

Two points come to mind here:

1. Sony actually had a very nice run before this, after a few years of bumpy road. For its last fiscal year, which ended in March 2008, Sony increased revenue by 27% and net income by 347%, nearly tripling its profit margin along the way. It has even boosted sales of the PlayStation 3 video game system — though not enough to catch Nintendo’s Wii — and enjoyed more hit movies from its entertainment division. (Last year, Sony’s savior was Spider-Man 3; this year, that role is being played by Will Smith’s Hancock.)

2. “Be fearful when others are greedy and greedy when others are fearful.” Looking at the abyssal share prices of Sony et al., the wisdom in Warren Buffett’s motto becomes clearer than ever. One of Buffett’s signature practices is never to buy an asset that he can’t get at a bargain price, and one of the things he observes closely is the relationship of a company’s price to its book value. Buffett distinguishes himself from many other financiers by his careful attention to the potential downsides of investments; buying a company at less than book value — especially if you think the company is basically well-run and you expect to hold the investment for some time — is a good way to insulate yourself from losses. One wonders whether Buffett is shopping among Japanese blue chips for bargains.

Sir Howard Stringer took the CEO job at Sony a few years ago with much fanfare: savvy Brit with strong American ties takes the helm at Japanese icon, and all that. When you look at the top- and bottom-line results from last year, you can hardly fault his management. But when you look at the results he just handed in, it’s clear that he’s got his work cut out for him.

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Related links:

• Sony management deserves no pity.
• The Nintendo Wii: Hitting its way into the Hall of Fame.
• Company of the Day (09/18/07): Sony.

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(Note: Blog Action Day 2008 — which is dedicated to raising awareness about poverty — is as good a day as any to re-start the Company of the Day tradition. See the CotD archive page for previous installments.)

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Living in Austin, it seems like you can’t turn around without running across yet another Goodwill store. We have big ones, small ones, and in-between ones in every corner of the city. In all, Goodwill Industries has more than 2,100 thrift stores spread across 185 local chapters throughout the world.

While 60% of Goodwill’s revenues come from its retail outlets, the organization also brings in hundreds of millions of dollars each year through industrial and service contract work and other services to people living with poverty, mental or physical disabilities, or other potential impediments to employment. In all, the not-for-profit enterprise generates more than $3 billion in annual revenues, all while helping underprivileged and underserved folks to learn job skills and enjoy the dignity of steady, meaningful work. The organization’s outlets also do other bits of community service: the Central Texas branch, for example, works with local sponsor Dell to collect old computer hardware so that it can be recycled safely.

Goodwill Industries was founded in Boston in 1902 by a Methodist minister named Edgar Helms. He built the bones of the modern organization — collecting donations and giving jobs to the poor — around the motto of “a hand up, not a hand out.” Many years later, Helms issued this challenge to Goodwill’s supporters:

“Friends of Goodwill, be dissatisfied with your work until every handicapped and unfortunate person in your community has an opportunity to develop to his fullest usefulness and enjoy a maximum of abundant living.”

More than 100 years on, Goodwill seems to be fulfilling this role better than ever.

When I was a kid growing up in West Texas, I loved to get the new Banana Republic catalog in the mail. Like its spiritual successor from J. Peterman, the BR catalog sold a dream of an international life of adventure and mystery, centered on a safari theme that matched the company’s name. Witness:

I’m glad to know this isn’t just nostalgia on my part: the original BR catalog style has been called one “The 10 BEST Catalog Concepts Ever” — and the progenitor of many “sizzle”-oriented catalogs that sell an image of a lifestyle as much as they ever sell actual products.

The “new” Banana Republic look, which is about 20 years in the making by now, also sells a lifestyle, but one that can be hard to distinguish from Ralph Lauren or Burberry.

An image from the Banana Republic site that is used in the current print ad campaign.

Don’t get me wrong: I like the clothes that Banana Republic sells now. (By coincidence, I’m wearing a BR shirt as I write this.) But it’s a stretch to connect this intentionally-upscaled brand as it exists today to the eco-travel-adventure-themed catalogs — and clothes — of the early days. Heck, the old BR was such an icon that academics analyzed its intentional exoticism.

For the 30th-anniversary campaign, the company is touting its lasting devotion to something called “city style.” Successful brand extension? I guess so — BR takes more than $2 billion in revenues per year.

But, even if it means I’m stuck in the past, I hope you’ll forgive me if I hold on to my preference for the old Banana Republic of safaris and adventure.

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(Catalog image sources: one, two, three. Two more great images from the safari days here and here.)

Apropos of our conversation the other day about Starbucks trying to regain its “founder’s mojo,” I recommend this Joe Nocera piece — written in the form of an open letter — from the New York Times. In it, he takes to task Howard Schultz, the once and current CEO, for his failures of leadership, and for failing to grasp the state in which Starbucks now finds itself. A sampler:

But revitalizing the Starbucks experience is not going to be enough. Not even close. You also have to accept certain realities that right now still seem beyond your grasp. You talked, for instance, about slowing the growth rate in the United States, and even closing some stores. That’s good — so far as it goes. But if you are just cutting back by a couple of hundred stores, that won’t cut it. “The basic model of opening stores and fueling expansion should stop in the U.S.,” said Marc Greenberg, an analyst at Deutsche Bank.

What was particularly discouraging was hearing you tell investors to look to the international markets, where Starbucks has “only” 5,000 stores, for accelerated growth. That suggests to me that you still don’t get it. You can’t fix a car going 60 miles an hour. If you are going to fix what ails Starbucks you have to forget about growth. And you have to stop thinking of your company as a sexy growth company. Those days are over.

It’s so very hard for anyone — Schultz or anybody else — to accept that the magic is gone. Confirmation bias tends to run rampant; it tells you that, yes, we’ve been doing the right things fundamentally, but we need to execute them better, and that, yes, I’m the person to do it.

Good luck, Mr. Schultz. I happen to agree with you that people need a welcoming “third place” to build community and to seek a haven from life’s pressures. Contra Mr. Nocera, I think Starbucks could actually still fulfill this role — if you make some big changes to what you’ve been doing. For that, you’d be well-served to take Nocera’s words to heart. If you can escape the silo of confirmation bias in which you’ve found yourself.

[This is a bit of a Monday-morning ramble coming in between doses of coffee. Please just take it for what it's worth -- and feel free to tell me what it's worth, good or bad, in the comments.]

When should an industry die? Should consumers hasten the process? Should regulators? These questions don’t have easy answers, but they’re worth thinking about, especially when we consider some of the macro-scale problems facing the U.S.

Once upon a time, the tobacco industry peddled what Doonesbury has lampooned as a “healthful lung snack.” But centuries before that, the fledgling tobacco industry brought thousands of adventurers, planters, and indentured servants from England to Virginia and the Carolinas, planting the seeds (literally and figuratively) not just for the worldwide boom in smoking and snuff-taking, but for the cash-crop economies of the New World. Oh, and the sustained European settlement of Virginia and the Carolinas, too.

But that was before people understood the now-obvious connections between tobacco use and various ailments including cancer and emphysema. Nothing against tobacco farmers, who typically work like dogs to support their families, but they grow a crop that (eventually) makes a lot of people sick. It’s not a political statement or even an editorial statement to point that out — it’s just the state of reality as understood by disinterested parties today.

A disinterested view of the early-onset obesity that now afflicts so many American children says that these kids are taking in way too many calories while getting way too little exercise. That doesn’t mean that we outlaw corn syrup — which, simply by the numbers, represents a lot of the empty calories in the typical American adolescent’s diet — or that we try to ban video-game use among kids in the U.S. But it could mean, in the long run, a consumer backlash against couch-potato activities (and, by extension, video game makers), possibly extending to calls to cut subsidies to the corn farmers whose crops help to produce all the yummy corn syrup that sweetens our sodas and everything else.

One more short example: coal is the largest source of electricity in the U.S., but also by far the largest source of greenhouse emissions related to energy production. Again, that’s not a judgment against the coal industry — or coal miners, or electric utilities that run coal-fired plants. It’s just an observation of the facts as we have them now. At some point, if worries about global warming become widespread enough, there will be calls to shut down the coal industry and coal-fired electricity generation in the U.S., or else to force emissions controls on these industries, even at costs that today seem too exorbitant even to contemplate.

I carry no brief for tobacco — I’ve never smoked and I don’t invest in cigarette companies. But I surely take in my share and more of corn syrup, and I happily use plenty of electricity produced from coal-fired plants. No one needs to tell me that people in these industries work hard, and I’m well aware of the unintended consequences — and large inefficiencies — that often accompany broad-based governmental regulation. In general, I’m a believer in the power of markets to deliver the goods to the public.

But what about when we decide that the goods in question are more than economic? We did that when the Surgeon-General started putting the warnings on cigarette packets, and when cigarette advertisements were banned from television. We did it, to a degree, when the elder President Bush helped push through bipartisan legislation that regulated emissions of sulfur dioxide and other acid-rain-causing chemicals. We’ve done it, piecemeal, as school districts have banned soda machines from their schools.

Of course, the industries affected don’t go along quietly with these changes. They will preach up and down about how we can’t afford to regulate these things, or how the products aren’t actually harmful at all, or how the real responsibility for childhood obesity lies with parents (which, as a parent, I can say is incontrovertibly true). But if there’s enough of a groundswell — and even if it’s ill-advised — these industries could go the way of the asbestos business.

Like I said, pardon the philosophical Monday-morning ramble, because these thoughts are still only semi-formed. But there’s something here worth talking about. If you want to tell me what you think it is, I’ll be most grateful.