Business Blog: Hoover’s Business Insight Zone

Evoking a post from a couple of weeks ago, here’s a recipe for some thought-provoking online goodness . . .

First, take Netscape, Opsware, and Ning founder Marc Andreessen:

Second, have him comment in detail on the classic “Psychology of Human Misjudgment” lecture of Berkshire Hathaway vice chairman Charlie Munger:

Third, ponder what all of this means for your own career and company.

Fourth, take action as a wiser businessperson.

I’ll have more to say on this later — it’s right in my business-analysis wheelhouse — but for now I’ll just point you to Andreessen’s first post on this subject and encourage you to go grapple with it.

Those who can free themselves from the unfruitful habits that neurology tends to force upon us will achieve true differentiation in the business world.

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Previously in this vein:

• Irrationality in investment decisions.
• Confirmation bias: fight the Procrustean instinct.

(Andreessen photo from NNDB; Munger photo via Forbes.)

A 3-minute clinic in management excellence is the effect of this short Adam Lashinsky article on Hurd, whose tenure leading Hewlett-Packard has been like a 3-year clinic in excellence:

Hewlett-Packard CEO: We can do even better

Excerpts from the article read more or less like a highlight reel for several of the key themes I try to articulate on this blog:

. . . the CEO who may be the best big-company operator in the country is all about making uncomfortable observations that so far have ended up being the right call for his company: Market share isn’t the best goal to shoot for; even good businesses need to be examined carefully (especially their cost structures); and strategy and execution trump vision any day of the week.

To me, these “uncomfortable observations” mesh well with the idea of “naive questions”: you can unleash some real transformative power when you start asking questions like “How important is market share really?” We think we know, but often what we “know” is just a sort of unexamined conventional wisdom — not the best path to success.

The observation that “even good businesses need to be examined carefully” ties to this quotation from the article:

What you see after watching Hurd for a few years, as I have, is that part of his style simply isn’t to be satisfied. Despite nearly three years of focusing on improving the selling process at HP, Hurd says the company is still not good enough at sales. “It isn’t in our DNA,” he says, echoing past comments.

Extensive research has shown that the very best performers refuse to be satisfied with where they are now. They may appreciate the success they already have, but they don’t find it a sufficient reason to slack off in their efforts to improve. The Tiger Woodses and Mark Hurds of the world are acutely aware of how much room they still have for improvement.

Hurd is also clear on which areas of focus are the steak and which are the sizzle for the CEO — and he has no interest in the sizzle.

He boils down the CEO’s responsibilities to three tasks: setting strategy (not offering a vision); aligning operations and modeling ways to execute on the strategy; get the best team to help the CEO. “There are a thousand distractions that keep you from doing that,” he says. But that’s where the focus needs to be.

Execution, execution, execution. I don’t have a documented source for this, but the other day a friend told me about a figure he had seen that stuck in his mind: whatever he was reading said that 85% of business failures (botched projects, failed product launches, etc.) could be traced to internal issues within companies, not market forces or other external factors. I can well believe it — and apparently Hurd does, too.

Sure, market forces will shape your approach. They must. But don’t make the mistake of thinking that the keys to success lie anywhere outside the reach of your and your company. If you take Hurd’s approach, you can drive results through the roof simply by focusing on the most important nuts and bolts of business — even when they’re boring, even when they’re unsexy.

Hurd has HP winning “the boring way” — but it beats the heck out of failing the flashy way.

(Image by bugdog.)

Last week I mentioned Sheldon Adelson, head of Las Vegas Sands, in a post I made from the convention floor in Las Vegas. In fact, I slept that night in Adelson’s signature hotel, The Venetian. Now Gary Rivlin of the New York Times offers an insightful profile on Adelson, the ultra-rich, ultra-combative mogul behind the twin booms of Las Vegas and Macao.

When 3rd Place on the Rich List Just Isn’t Enough

Few Americans have made as much money in China as Mr. Adelson, and he is a major donor to the Republican Party. Yet Mr. Adelson may well be the richest American that most people have never heard of. . . .

Certainly people in Las Vegas know Mr. Adelson, a querulous figure who has existed in a near-constant state of embattlement since building the Venetian in the late 1990s. . . . Read more

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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.

Steve Jobs might be more famous for returning to Apple and rescuing it than for founding it in the first place. At the very least, it was his prodigal-son’s return that helped move him from being a Very Interesting Executive (VIE?) to being regarded as a mogul among moguls.

Michael Dell may be hoping to do the same thing at Dell, where he retook the CEO reins in 2007 after several years serving as chairman-only.

Now Howard Schultz is joining the club, taking over from Jim Donald as CEO of Starbucks.

Starbucks Replaces CEO With Chairman

SEATTLE (AP) — Starbucks Corp. fired Chief Executive Jim Donald on Monday, handing the reins back to Chairman Howard Schultz as part of a major restructuring initiative aimed at pulling the company out of a downward slide.

The move, coupled with plans to close some U.S. stores and slow down opening new ones, comes as the world’s largest chain of coffee houses has seen its stock plummet 50 percent over the last year amid declining traffic in its domestic stores.

This reminds me of stories I read a few years ago, about how Donald and other high-level hires were supposed to help Starbucks as it continued to scale up around the world. In the story just quoted, Schultz acknowledged that those expansion plans may have helped to create the tough conditions that Starbucks now faces:

Schultz acknowledged the competition has gotten fierce and said the company will focus on making changes that will differentiate Starbucks from its growing field of rivals. But he argued competition, rising dairy prices and a faltering economy aren’t the company’s main problems.

He told The Associated Press that Starbucks has spent the last several years “trying to invest ahead of the growth curve — in people, process, infrastructure, roasting plants, coffee buying,” and that focusing so heavily on that has taken attention away from the experience customers are having in its stores.

“This is a problem that I think we’ve created, and as a result of that, that we can fix,” Schultz said.

Some analysts have questioned whether the company has saturated certain markets as it opens an average of six stores a day. Schultz brushed that theory aside, even while conceding it has grown too aggressively.

“I think perhaps we stretched the real estate too far during this economic time, and we’re going to dial it back. But we’re not going to dial it back with the purpose of changing the growth trajectory of the company,” Schultz said.

Here’s what I think: Both Dell, Inc. and Starbucks are facing fundamental shifts in their markets. PCs and coffeehouses were around long before these companies started ramping up their efforts, but Dell and Starbucks took advantage of — indeed, created — new market models. For Dell, that meant fast, direct delivery of customizable PCs; for Starbucks, it meant the rollout of chic and consistent Seattle-style coffeehouses on the McDonald’s model of “one on every corner.” Both of these models were new when they were rolled out.

Now the business models aren’t new. Many invasive competitors have figured out how to emulate and improve upon the key insights that Michael Dell and Howard Schultz first implemented. And just like McDonald’s today — or Ford Motor starting a few decades after it was founded — those conditions imply very different challenges for the companies in the years ahead.

What Schultz, Dell, and Jobs have in common: beaucoup smarts, energy, and competitive drive. But whether either Dell or Schultz will be able to pull off the renaissance that Jobs has at Apple . . . well, I’ll be stunned if either of them pulls it off.

After more adventures than we might have liked with the nation’s air-travel system, we are live and in person at the ShowStoppers event held at the Wynn hotel in Las Vegas.

Steve Wynn is only the second-richest man in Las Vegas (rival Sheldon Adelson has him beat, for now), but as much as anyone, he has shaped modern Las Vegas with his vision of hospitality.  He has topped himself again and again, and given what I’ve seen of the Wynn, it will be fascinating to see what Wynn Resorts uncorks when it opens the Encore hotel / casino / resort in 2009.

Wynn himself is fascinating — check out this item from the current issue of Esquire magazine:

“What I’ve Learned”
If you don’t have a voice that forces you back to basics, you’re a dangerous person. Or to put it another way: You’re at risk, and the people with you are at risk. I’m not a daredevil. I don’t fly without a safety net.

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Here’s a recipe for the idea of Phase A and Phase B:

Step 1. Start with this post from Jack Trout:

Beware: Tinkering Marketers

. . . Nestle faces a predicament that haunts many companies that have acquired other companies to a point that its subsidiaries are almost impossible to manage. When you’re into dog food, chocolate, baby food, ice cream, coffee and on and on, you can easily see the problem.

But what’s even worse is that these mega-companies end up with hundreds of marketing people sitting around cooking up new ideas that aren’t very good ideas. Read more

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High school dropout and self-made billionaire Ken Hendricks has died at 66 after a fall at his home. He was chief executive of ABC Supply, one of the top makers of roofing materials in the US. For more details on his death, see this Bloomberg story.

Two years ago, Hendricks graced the cover of Inc. magazine. The long feature on him chronicles his improbable rise to fortune, discusses the pros and the cons of his efforts to rejuvenate his hometown of Beloit, Wisconsin, and generally gives an idea of his abundant energy and drive. It’s well worth reading.

Create Jobs, Eliminate Waste, Preserve Value

Those six words explain a lot: Why Ken Hendricks is worth $2.6 billion, how he came to be a walking textbook on identifying and exploiting business opportunities, how he manages to make (relatively) few enemies while treating Beloit, Wisconsin, like one vast fixer-upper–and why he is our Entrepreneur of the Year

ABC Supply now faces a challenge common to companies of all sizes when they lose their prime movers. Where would Apple be without Steve Jobs? Where would Amazon be without Jeff Bezos? Where would your favorite local restaurant be without its owner / manager / impresario? At the same time that they deal with the tragic (and perhaps bitterly ironic) death of their paterfamilias, the members of the Hendricks family also must deal with his death’s implications for the company that so clearly bore his imprint.

The great question about the promotion of Vikram Pandit to the head of the table at Citigroup is whether “new CEO” equates to “new direction” for the mammoth bank.

I am one of many who thinks that Citi needs a new direction — one less beholden to Sandy Weill’s vision of consolidation, one more beholden to getting the most out of an incredibly huge array of assets.

In the words of this BusinessWeek story, Pandit has placed his emphasis on “improving productivity, positioning the company for the future, and fostering key talent.” This is a good start.

1. Productivity: Citigroup has been getting less out of more than its peers, and efforts to streamline the bank went sloooowly under former CEO Chuck Prince.
2. Positioning for the future: I’ve argued before, parroting Jack Welch, that the hard work of management is to balance the short-term versus the long-term. That’s especially a challenge for Citi, which hasn’t been doing too great on either front.
3. Fostering key talent: Along with the balance of short and long term, this is the other term in the Grand Unified Equation of business leadership. The fact that Chuck Prince (and, even more so, Stan O’Neal at Merrill Lynch) failed at this was a hallmark of the lack of leadership during his tenure.

Pandit has his work cut out for him. It will be interesting to see whether he’s up to the job, especially if that means carving Citigroup into pieces.

Here’s a sampling of press coverage of Conrad Black’s sentencing in a Chicago federal court on charges of mail fraud and obstruction of justice:

Bloomberg: Black Gets 6 1/2 Years in Prison for Hollinger Fraud [Start here for a good recap of the entire affair.]

Black was charged in November 2005. On July 13, a jury found him and three former subordinates guilty of fraud stemming from $6.1 million in checks paid to three defendants in exchange for sham non-competition agreements involving Hollinger. Black was convicted of obstruction of justice for removing 13 boxes of documents sought by regulators from his Toronto office in 2005.

New York Times: Black Given Prison Term Over Fraud

Mr. Black, who once declared he would “not re-enact the French Revolutionary renunciation of the rights of the nobility” when criticized for using shareholder money to pay for a vacation to Bora Bora, and charged a lavish birthday party for his wife at La Grenouille restaurant in New York to his company, was acquitted of charges stemming from those incidents.

FORTUNE: Conrad Black’s shabby downfall

Indeed, after all the hullabaloo surrounding Lord Black of Crossharbour’s downfall, he was ultimately convicted of stealing $6.1 million from his company and obstructing justice by lugging some boxes out of his Toronto office - in plain view of security cameras - after being warned not to do so. All of this went on at a time when, on paper at least, Black was worth close to $300 million and was leading a life among the jet-setting glitterati.

Comparisons to Richard Nixon — who would have won the 1972 election without the slightest help from his “plumbers” — are inevitable, especially since Black recently published a mammoth biography on the disgraced president. Indeed, Black is quite a writer: he produced a similarly long — and well-reviewed — biography of Franklin Roosevelt.

But his own perception of himself is a long way from the sordid realities uncovered during his trial. Possibly the most perceptive character study comes in this column from James Bone of The Times of London:

Conrad Black, the romantic hero whose dramatic plots have fizzled out

In his heyday, Lord Black of Crossharbour strutted the world stage as press baron, confidant of statesmen and biographer of American presidents.

The Canadian-born peer, as head of a global newspaper empire that included the Telegraph titles and Spectator magazine, held London in his thrall with parties for journalists, academics and politicians at his double-fronted house in Cottesmore Gardens, Kensington, with Barbara Amiel, his glamorous columnist-wife.

Yesterday the self-regarding former Telegraph chairman, who once famously dressed up as Cardinal Richelieu for a costume party at Kensington Palace (with his wife on his arm as Marie Antoinette), confronted the humiliating prospect of donning an orange prison jumpsuit instead.

“He wanted to be the hero, but for some reason he has always wanted to be the dying hero. He has this very melancholy view,” said George Tombs, the author of a new Canadian biography entitled Robber Baron: Lord Black of Crossharbour. . . .

Lord Black himself bristles at suggestions that his spectacular downfall was provoked by a fatal flaw in his character. . . .

Black peremptorily dismisses such colourful explanations for his troubles. “This theory that it’s all a great ‘rise and fall’ story or some sort of Shakespearean or Greek tragedy and that I was misled by my wife and lived to extravagance, that is all nonsense,” he told the BBC Radio 4 Today programme last month in his only British media interview since the guilty verdict in July.

When John Humphrys described his predicament as a “fall from grace”, Black quickly contradicted him, calling it “persecution” instead.

“He is still trying to maintain that narcissistic bubble he has been in, even now. He is casting himself as a romantic hero who has been victimised by the American justice system and the overzealous missionaries of corporate justice,” Mr Tombs said.

There’s a part of me that relishes the downfall of the likes of Black, ex-Tyco chief Dennis Kozlowski, and ex-Enron chief Jeff Skilling, not because they were rich and powerful — I’m a big fan of capitalism — but becaused they wilfully abused the systems that made them rich, and then clung to their hubris even in defeat.

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Related Hoover’s records:

• Hollinger Inc.
• Sun-Times Media Group

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