Business Insight Zone

Two more simple but important lessons from the big Michael Lewis article that I recommended earlier:

1. People often prefer scapegoats to reform.

The public lynchings of [Salomon chief John] Gutfreund and junk-bond king Michael Milken were excuses not to deal with the disturbing forces underpinning their rise. Ditto the cleaning up of Wall Street’s trading culture. The surface rippled, but down below, in the depths, the bonus pool remained undisturbed.

2. Insiders’ interests must be aligned with clients’ to prevent disaster.

The changes were camouflage. They helped distract outsiders from the truly profane event: the growing misalignment of interests between the people who trafficked in financial risk and the wider culture. . . .

The problem was the system of incentives that channeled the greed.

The (old, unsurprising) morals of this story:

• In general, people want what they personally want, not necessarily what will be best for the firm or the customers or any other abstracted group. So it’s important that they be given strong incentives to do what will be in the best interests of any other groups (especially customers!) that the organization seeks to benefit.
• In general, people don’t want to change their ways.
• When people are not accustomed to being held to account for their actions — especially when being held to account would imply that they forego their self-interest of change their ways — they usually will avoid being held to account.

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Photo via the amazing Shorpy.

Granted: just because Wall Street or the chattering classes of the business world call for the head of a CEO doesn’t mean a company should offer up that head.

That said, it seemed clear to . . . well, to just about everybody outside of Yahoo that Jerry Yang had not been able to stem the company’s slide since he took the company’s reins last year. Now Yang has announced his departure as CEO, effective when the board names a successor. Kara Swisher has great coverage of this:

• Yahoo’s Jerry Yang to Step Down, As a Search for New CEO Commences
• Jerry Yang’s Entire Memo to His Employees on Stepping Down as CEO
• Yahoo’s Peter (Chernin) Principle–And Other CEO Choices

(By the way, Swisher’s assessment of Yahoo’s death-by-meetings operating style seems as solid as ever 14 months later.)

A few things seem to me worth noting here:

1. Most successful corporate turnarounds are well underway within 18 months after new management takes over. It’s been about that long since Yang became CEO . . . and Yahoo hasn’t turned around.
2. After the first few months of his tenure, Yang’s assertions that he was the right person to lead the company he co-founded rang hollow: What was changing? Where was the vision? These shortfalls became all the more glaring after Yahoo botched its big chance to sell out at a premium to Microsoft. Regardless of his unquestioned smarts, a company founder like Yang couldn’t be expected to acknowledge the merit of following any path besides independence for Yahoo — even though shareholders would have been much better off if Yahoo had taken Microsoft’s $31/share offer and been done with it.
3. One of the worst things you can do — personally, as a manager, leading a company, whatever — is to put off making an inevitable choice. Many fairminded observers believed that Yang would have to give up the CEO role sometime. If this move was, indeed, inevitable, “then ’twere well it were done quickly.” Dragging it out only lengthens the time until a new CEO can get a grasp on the company’s problems.
4. My biases on this are clear, but the very fact that the company isn’t ready to name a successor is damning in itself.

This Economist story has it right: Yang is “a nice person and a pioneer of the web.” I wish him well. But it was clear long before now that he wasn’t the right person to turn around the company he loves.

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Food for thought: what inevitable decisions are YOU postponing?

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Related posts:

• Company of the Day (10/22/2008): Yahoo.
• Microsoft decides to play hardball with Yahoo.
• The Illogic of a Microsoft-Yahoo deal.

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This Andy Rementer comic nicely captures the impatience that often accompanies our hyperconnected lives.

• “Did you have a chance to read that e-mail yet?”
• “I left you two voice-mails this morning — why didn’t you get back to me?”
• “We’ve been running this promotion for three whole days but it’s not moving the needle at all!”
• Et cetera.

Rementer’s comic is beautifully absurd because we all recognize Bach as a master practitioner whose music did not need to make an instant splash. Even when he wrote music very quickly (as he often did), his work’s elegance and profundity have endured for centuries.

Very often, good ideas take time, patience, and sustained hard work to bear fruit. Not forever, but a while.

Wine impresario Gary Vaynerchuck is seen by many of his fans as an online marketing guru. While Gary counsels these fans to hustle every day to make a viable business out of whatever it is that drives their passions, he also cautions them that, if you’re building a business, it won’t happen overnight. It takes time.

Merlin Mann, similarly, has been preaching the virtues of doing things “Better”* — and defending the need for bloggers, including himself, to take their time in creating something of real value. That doesn’t usually happen after 20 seconds of deep thought. It takes time.

It takes time to build something worthwhile. Sure — keep moving and keep hustling every day, but put the focus on “build” and “worthwhile.”

You can hurry all you want, but even if you finish first, it won’t do you a lick of good if you haven’t built something worthwhile.

Now if you’ll excuse me, I’m off to listen to the Well-Tempered Clavier . . .

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* That particular Mann piece has R-rated language in it. Spot poll: do you want me to warn you about stuff like that, or should I just point you to it and let you find that out for yourself?

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Related posts:

• The Basic Basics: Have a GOAL.
• The Basic Basics: “It’s my fault.”
• The Basic Basics: Run to the Point of Contact.
• The Basic Basics: Solve someone’s problem.

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Comic by Andy Rementer — used by permission.

One of the underlying themes in my worldview of business is that we often see the same issues arise at different scales.

This is on my mind today after I encountered a choice tidbit in Esquire’s December 2008 profile (not online, best I can tell) on uber-inventor Dean Kamen, whose company DEKA channels its founder’s many, many ideas into useful ends. In this quote — all emphasis is in the original — Kamen explains his excitement when, as a boy, he encountered the work of Isaac Newton:

“F = ma, that’s a pretty simple linear equation. Force equals mass times acceleration. You can’t come up with a more simple statement that’s not trivial. Yet it describes the motion of billiard balls and of galaxies. On a galactic scale, you can predict where the next eclipse will be because of F = ma. You can predict where atomic collisions happen because of F = ma. That’s astounding.”

Now, I don’t believe that business can be boiled down as mathematically as the laws of physics, simply because business involves too much of the messiness of human thinking. But it’s useful to think about which business concepts do apply across many scales.

For instance, we know that individuals tend to have blind spots around pet theories, cherished habits, and the people closest to them. Related to this, we know that many people tend to avoid negative evidence or anything else that would cause them to question the validity or worth of these biases. (Try talking to a diehard sports fan or political partisan about the shortcomings of the leaders on their team of choice and see what it gets you.)

Surely all of us have seen the same dynamic happen in the group psychology of a team or a department or a whole company that cannot stand to question certain things: fundamental concepts of operations (”We’re in the news paper business“) or modes of operation (”No woman has ever been our COO”) or even beloved employees (”But Jimmy’s been here for twenty-five years!”).

When we contemplate these similarities across scale, it seems clear that it could be fruitful to figure out how individuals can learn from better organizational practices and how organizations can learn from better individual practices to rectify those blind spots, or to minimize the damage that they create.

My hunch is that this scale-based thinking works across many areas of business. We’ve heard a glib — but probably true — version of it lately when observers of the economy have talked about the need for households, businesses, and nations alike to do a better job of living within their means.

Now it’s YOUR turn:

Where else does scales-of-endeavor analysis help us think more clearly
about how we do business now and how we could do it better going forward?

I look forward to learning from you, so please load me up with comments!

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Image from the Norman B. Leventhal Map Center of the Boston Public Library, found via Flickr.

The skepticism aimed at social-media use within companies would be more aptly directed toward e-mail use, a source of far more wasted time for workers, and one that has become as invisible as oxygen for most of us.

This BBC article — “Bosses ’should embrace Facebook’” – quotes a sensible study that argues for open-minded views toward the use of social media in the workplace:

“In today’s difficult business environment, the instinctive reaction can be to batten down the hatches and return to the traditional command-and-control techniques that enable managers to closely monitor and measure productivity.

“Allowing workers to have more freedom and flexibility might seem counter-intuitive, but it appears to create businesses more capable of maintaining stability.”

As I’ve argued before, command-and-control is dying a well-deserved death in the enlightened workplace, and certainly in the realm of social media.

But given my thoughts — and especially Dan Markovitz’s thoughts — on how e-mail so pervasively corrupts the typical office environment, it’s worthwhile to shine the same kind of spotlight on e-mail as well.

Consider this series of quotations from the BBC article, applying each to e-mail instead of social media:

Social networking can encourage employees to build relationships with colleagues across a firm, it added. . . . Firms are increasingly using networking software to share documents and collaborate in ideas, the research found.

When e-mail came into broad use in the early 1990s, smart companies quickly found out the same thing.

“Banning Facebook and the like goes against the grain of how people want to interact. Often people are friends with colleagues through these networks and it is how some develop their relationships.”

Using technology to build closer links with ex-employees and potential customers could also boost productivity, innovation and create a more democratic working environment, Mr Bradwell added.

It took a while for this insight to penetrate some corners of the working world, and indeed there are still older executives (Henry Paulson, Donald Trump, and Richard Branson come to mind) who never use e-mail. But for the most part, its merits for collaboration and productivity are clear.

But he argued the use of networking sites “must be tied to a business goal”.

And here we come to the crux: many businesses have rushed to block access to Facebook, LinkedIn, et al., without stopping to think that their people are already wasting much more time on e-mail.

The report’s authors said that clear guidelines needed to be set out about appropriate use of social networking.

And there should be no hesitation in telling employees who spent “unreasonable” amounts of time using technology for non-work related activity that their behaviour must change, they added.

Here’s the kicker: it’s obvious enough that someone is wasting the company’s time if they’re playing Scrabble with their friends via Facebook. But the lost productivity of fruitless e-mail — especially e-mail that’s ostensibly meant to propel work projects — goes totally unnoticed in many organizations.

Worse, in many organizations people face penalties if they use e-mail the smart way — that is, if they turn it off for long stretches of the day so that they can get their work done.

“But it is also good for companies to be aware of the tensions and look at deploying practical guidelines which will protect the positive impact of networks, not hamper it.”

Well said, and smart companies are already figuring out sensible guidelines for spending time on Facebook, LinkedIn, blogs, and so during work hours. But they need to remember that the most pervasive social medium in the workplace is e-mail.

Get e-mail right, and you can probably afford to let your folks play a game of Scrabble when they want.

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Related posts:

• Social media breaches barriers.
• Information overload: the best of the best take pains to avoid it.
• 7 Good Reads to Boost Your Productivity

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(Hat tip: Jeremiah Owyang.)

Check out this post from Mark Hurst of Good Experience:

One number to grade any executive

Tesla stands for “time elapsed since labs attended.” In other words, your Tesla is how long it’s been since you’ve spent time directly observing customers as they use your product or service. . . . really it can be any method that your team finds effective - as long as it involves decisionmakers watching, in person, real live customers flail around with the product.

As I read Mark’s post, it got me thinking about a favorite quote from the playwright Arthur Miller:

“The writer must be in it; he can’t be to one side of it, ever. He has to be endangered by it. His own attitudes have to be tested in it. The best work that anybody ever writes is the work that is on the verge of embarrassing him, always.”

Same for businesspeople, in my book.

The moral of the story:

You can’t stand to one side and expect to succeed in business. You have to get right down into the mix — into your product, into your customer’s experience — to the point where your ego is endangered by the possible results.

One well-worn example for you to consider: Sam Walton used to take turns manning a register when he visited Wal-Mart stores. How better to get real, up-close-and-personal feedback from his customers?

Are you taking your turn tending the counter? What are YOU doing to run to that point of contact — to experience your customer’s pain for yourself?

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Related post:

• The Basic Basics: Solve someone’s problem.

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Photo by Daquella manera.

Killing the Grey Lady

Netscape impresario Marc Andreessen makes an excellent point in this Portfolio (via Wired) interview — which I recommend you read in full:

If you were running the New York Times, what would you do?
Shut off the print edition right now. You’ve got to play offense. You’ve got to do what Intel did in ’85 when it was getting killed by the Japanese in memory chips, which was its dominant business. And it famously killed the business—shut it off and focused on its much smaller business, microprocessors, because that was going to be the market of the future. And the minute Intel got out of playing defense and into playing offense, its future was secure. The newspaper companies have to do exactly the same thing.

Once upon a time I covered Intel for Hoover’s. (That duty now falls to Jeff Dorsch, who knows more about the chip business than I ever could.) During that time, I came to appreciate what a breathtaking move it was for Intel to abandon memory chips — but I hadn’t thought of the comparison to the New York Times or other papers.

The Monitor chooses the online option

An addendum to the interview notes that Andreessen said what he did before the Christian Science Monitor announced that it would stop printing its daily edition, so it’s clear that at least one old-line newspaper company is on the same, uh, page with Andreessen. The CSM’s decision was covered in another Wired item, which includes this choice quote from CSM advertising director Bob Hanna:

“Maybe the reason newspapers could go out of business is because they think they’re in the newspaper business instead of the news gathering and dissemination business. To hang on to a two century old technology just because that’s the way we’ve always done it, that’s a recipe for failure.”

This agrees with my own long-held view, which I expressed in a post in April of this year:

People in the newspaper business have made the fundamental error of thinking that they’ve always been in the news paper business. In fact, they’ve always been in the news delivery business.

Should Motorola kill handsets?

All of this was in my mind when I came across this GigaOm piece, in which Om Malik covers the horrific returns of Motorola’s handset business — $2.625 in losses since the start of 2007. After a commenter offered a mostly sensible-sounding prescription for restructuring the business, Malik responded thus:

My fix for this division - shut it down, save the money and move on to become a smaller and a better company.

The messages that Andreessen and Malik are delivering aren’t easy for their targets to hear, especially because both the New York Times and Motorola have such long histories of making lots and lots of money by doing things a particular way.

Old habits die hard. But sometimes you just have to put a business out of its misery.

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Related links:

• When is it time to kill a project?
• The news delivery business versus the news paper business.
• Marc Andreessen and Charlie Munger walk into a bar . . .
• “Circulation falls at many major newspapers.”
  

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Photo by Mark Coggins.

Jim Grisanzio, a project manager at Sun, posted a nice follow-up to the item I wrote last week comparing Ford to Toyota.

Small Improvements Leading to Big Results

Since Jim works on open-source technology — and works in Japan — he has an interesting perspective on the Toyota method of kaizen. As we discussed the other day, Toyota prizes small changes that compound incrementally, rather than “Big Bang” changes that try to revolutionize things all at once.

But Jim cites two more big advantages to the kaizen method:

• It’s open-source: everybody can contribute, within a framework.
• It works within constraints, and indeed was born of necessity during very hard times for Japanese industry.

In today’s tough economic times, many companies are looking for magic fixes to their problems. My sense is that the combination of those three algorithms — incrementalism, open-source collaboration, working within constraints — is the prescription to cure many ills.

Do yourself a favor and check out Jim’s post and its comments, as well as the other articles linked below.

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Related reading:

• Jim Grisanzio: Toyota’s (Open)TPS
• Jim Grisanzio: A way of Thinking
• Dan Markovitz: Kaizen vs. Kaikaku
• James Surowiecki in The New Yorker: The Open Secret of Success
• Charles Fishman in Fast Company: No Satisfaction at Toyota
• Succeeding under constraints.

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This law sounds so basic it hurts, yet I’ve seen it ignored routinely, at various organizations throughout my own career and in all the years I’ve been covering business:

No one ever bought ANYTHING unless they figured it would solve some problem for them.

Okay, in some cases, the problem was ginned up by clever marketers (”Aren’t you hungry for Burger King NOW?”).

In some cases, the cure was worse than the disease. (I’m thinking of the more cloying varieties of Glade air freshener.)

But generally, the formula runs like this:

YOUR problem
needs
MY solution

As an aside, the fundamental truth of this is why the term “solution” has been so badly overused in the past ten years, especially in the realm of high-tech.

Savvy merchants and inventors and restaurateurs and manfacturers have known this all along, even if they didn’t use such pretentious language for it. Consider a few examples:

• People want honest goods at an honest price, and they want to shop from the comfort of their own homes — but they also want the peace of mind that they can return things with no hassle. (That’s the business of L.L. Bean and Lands’ End in a nutshell.)
• People want cleaner, brighter, more reliable light in their homes and businesses. (Hello, Thomas Edison.)
• When people are traveling, they need to eat, but they never know whether the local place along the highway is any good. They want a meal they can count on. (This was the insight that allowed Ray Kroc to build McDonald’s into an empire.)
• People surfing the Web need a much better way to find what they’re looking for, and advertisers want some way to reach people who are looking for the kinds of things they offer. (As we discussed the other day, this is the simple/profound genius of Google.)
• The Navy needs much better ways of wiping out enemies with minimal risk to its own personnel. (It’s not pretty, but it’s Lockheed Martin’s stock in trade.)

Examples are easy to come by. In fact, please look around you for a successful organization — it doesn’t even need to be a profit-seeking enterprise — and put that example in the comments.

Whatever examples we choose, the lesson is clear: people need things, whether it’s heavy-duty trucks or fun trans-Atlantic travel or relief from erectile dysfunction. They have problems, and they’re looking to US to solve them.

Yet SO very often, we in the business world lose sight of this. Yes, budget meetings and value-proposition messaging and call-center hold times and cycles per second and, by all means, depositary ratios are highly important. Of course they are.

But they are ALL trumped by the need of the customer. Every last one of these hard, important things means NOTHING until and unless the customer’s problem is solved.

As you finish reading this, pull back and ask yourself some of the naive questions that have animated great business leaders from the Fuggers to Henry Ford:

• What business are we really in?
• What do our customers most want from us?
• How can we give it to them?
• How can we give it to them BETTER?

Then go and take action solving someone’s problem!

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(Library of Congress image via trialsanderrors. Larger version here.)

The slugger doing what he does best.

On Wednesday night, Manny Ramirez hit yet another postseason home run. Unfortunately for him, it was all the scoring the Dodgers could muster, and his exploits for this season have come to an end.

And some exploits they were. As though the future Hall-of-Famer needed any more luster on his hitting resume, he batted above .500 (!) and slugged more than 1.000 (!!) across the Dodgers’ series against the Cubs and the Phillies. Those numbers, along with Manny’s career marks of 527 homers, 1,725 runs batted in, and a .314 batting average, are sure to figure prominently in the sales pitch that super-agent Scott Boras will be making to interested teams this off-season, now that Ramirez is a free agent.

What price greatness?

In the economics of today’s game, a hitter of Ramirez’s rare skill should command more than $20 million per year. Heck, even I could negotiate with the Dodgers or the Yankees and get him a two-year, $40 million deal. Boras’s challenge, though, will be to get the 36-year-old Ramirez a multi-year agreement that will take the slugger through the end of his career in style. That means the agent will be gunning for a four- or five-year deal — but still at those sky-high annual rates.

Set aside Boras’s reputation for employing tactics that go beyond hardball, as well as Ramirez’s reputation for decreasing his level of effort when he’s unhappy. (On the eve of the playoffs, ESPN uber-columnist Bill Simmons published a lengthy, highly informed opus centered on the connection between these two themes.) The question remains whether it’s reasonable to guarantee that much money for that many years to a hitter who’s that old.

Disturbing precedents

Sure, a few of Ramirez’s historical peers — he doesn’t have many — have hit that well at 40. But plenty of other high-dollar stars have signed long-term deals when they were already long in the tooth . . . and then declined right on cue, while their teams were still forking out major sums for their services.

• Exhibit A — the once-otherworldly Pedro Martinez, who has made just 48 pitching starts for the New York Mets over the past three years, about half of a normal workload. During that time, he’s mostly been an average pitcher, not the juggernaut who won three Cy Young awards between 1997 and 2000.
• Exhibit B — the Over-the-Hill Gang employed by the New York Yankees in recent years: formerly-great players signed as free agents who helped the team with the largest payroll in the sport to miss the playoffs this year.

If I were Scott Boras (wait . . . I need a minute to stop shuddering), I’d certainly try to land my client a $100 million contract, for my own sake and his. If I were Frank McCourt (who own the Dodgers) or Hank Steinbrenner (whose family owns the Yankees), I’d think long and hard about the winner’s curse before deciding that the Manny Ramirez Sweepstakes was a contest I wanted to win.

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(Photo by Mr. Littlehand, used by permission.)