Buying the Blahs

Here we go again: Companies who can’t grow their businesses via innovations that excite customers decide to buy other companies that can’t grow their businesses via innovations that excite customers. In this case, I’m referring to the radio industry, which is in the blahs. Listenership is down, advertisers are nervous, stock is soft. According to the Wall St. Journal, a new wave of radio consolidations is heading our way. The rationale? First of all: undervalued assets, therefore cheaper prices. But then the logical question is: If the assets aren’t worth much because the industry is weak, why buy them at all? The official answer is twofold. One, to reduce costs—like having multiple radio stations share facilities and personnel. Two, to improve marketing efficiencies—like giving advertisers opportunities for cross-selling.

But I think there’s a third, unofficial answer, and that’s the one that matters: Other than buying each other, these radio companies don’t know what else to do in order to grow! In this case, the acquisitions represent a myopic, strategy because it doesn’t solve the basic problem. Radio executives are in a world of increasing commoditization of their own making, and their plans for cost-cutting and advertising won’t resuscitate the weaknesses.

This problem is not new. In 1995, the Gavin, a now-defunct radio rag, interviewed me. Here’s an excerpt of their questions and my responses:

Q: How do you view radio?
A: The problem is that many stations sound alike. That’s the kiss of death in any industry because there are so many competitors screaming for the attention of the consumer that if you’re not seen as different, special and better, then you’re done for. You can get by, but it’s always going to be a struggle.

Q: The challenge is being innovative and new, but people like familiarity and reliability, even in music.
A: I don’t buy the notion that people want the comfortable. People know the comfortable. That’s a problem with market research. If you ask people what they want, they’ll tell you what they know… Market leaders pull the customer to new places, they don’t simply respond to the customer. They take some chances. They don’t always succeed, but they have enough pilots out there that even though they screw up occasionally, overall they turn out winners. People in radio have become hesitant. They wind up creating something that appeals to the least objectionable sector and sounding pretty much the same. That, in turn, doesn’t generate much customer loyalty or identification with a particular station.

The situation is worse today. With the sizable debt and sunk costs of prior acquisitions, (partially explaining the hideous increase in the number of commercials per hour), coupled with the obsession with conventional market research (which guarantees “me-too” product), and the mass-produced automated playlists (which kills station individuality), radio stations have chosen pseudo-safe, predictable (a.k.a. dull) formats and succeeded in imitating each other perfectly within those formats. Then they wonder why their financials are flat and listeners have little brand loyalty. Meanwhile, entirely new forms of competition—satellite radio, MP3 platforms and mobile players, digital file-sharing, podcasting, and all other permutations of broadband—are vying for listeners’ attention with freewheeling, no-holds-barred innovations that actually turn on customers.

When one dull company buys another dull company to reduce costs, you know that at best, they’ll buy themselves a little time. But you also know that since there’s no real growth strategy, the time they buy won’t be a long time.

Finally, a Great Retail Experience

Last week I accompanied my brother-in-law to an Apple retail store. I’m a PC user, so even though I tap into iTunes for my iPod, this was unfamiliar territory for me. But I was curious, since these retail stores are springing up around the country and are an important part of Apple’s rejuvenation strategy.

Well, it’s been a week, and I’m still impressed with the experience I had, and I wasn’t even the one that was the customer! A lot of retailers could learn something from a non-retailer like Apple.

First of all, the store I visited is compact, around the size of a boutique clothing store, so it’s easy to scout out the goods and try them out. But despite its compactness, there’s a feeling of space and airiness. There are appealing, upscale wooden tables with products on them, but they are well separated so there is plenty of room to roam. There’s no clutter, no sense of crowdedness, even with customers all around you. The walls are sparse, with some cool artwork. There’s a “clean”, stylish, yet comfortable feel to the place. There’s also a feel of “Take your time, hang out, try stuff out”.

Then, of course, there are the products. There’s a reason why Fortune magazine recently named Apple as the coolest brand around (gotta be careful with that label, of course, since year-before-last Fortune named Krispe Kreme as the coolest brand around). Anyway, the products—laptops, desktops, music and video products, etc.—are killer products, they’re positioned in a way that invites you to touch and try, and they’re . physically separated from each other on the tables themselves so that you’re never jammed against another customer. You’re comfortably engaged. In fact, I felt a sense of solitude as I played with the grown-up toys. The quality of the graphics and the ease of calling up cool programs on eye-popping screens made me feel I had just driven my Dell station wagon to a Ferrari dealership. It was fun.

Then the icing on the cake. You know how hard it is to find a staff person in a retail store to actually help you, especially a staff person who is knowledgeable and nice? Well, this Apple store had a bunch (literally a bunch) of capable young staffers constantly roaming the floor. Remember, I was just waiting for my brother-in-law to finish his business, and I was doodling on some desktop computers. Even though there were plenty of other customers, I can report that three times within 20 minutes, a different friendly staffer would politely come to me and ask if he or she could help me, and when I demurred, the staffer would assure me that if I had any questions I could be free to call. I felt “taken care of”, even though I wasn’t buying anything.

Retailers, take note: As someone who loathes the act of shopping and tries to minimize it ruthlessly, I amaze myself by admitting to you that I could have hung out at that Apple store for a long time. But if you think about the actual factors that went into creating the climate and vibe of the store, wouldn’t you have felt the same way?

The Canary in the Morgan Stanley Coal Mine

I wasn’t surprised that Morgan Stanley Dean Witter CEO Philip Purcell announced his decision to quit last week, and I’ll tell you why. It had little to do with Morgan’s deteriorating financials (the stock has declined 28% over the past 5 years, and its revenues, client assets, and pretax profits have declined as well). But a lot of CEO’s survive for years even when their companies have poor numbers. There’s always a way for a CEO to spin the bad news: lousy market conditions, unfair competition, nasty regulatory pressures, nastier unions, customers who have to be “educated”, wait till next year, and so on.

But there’s one thing that can’t be spun. It’s the one thing that ineffective leaders--whether CEO’s, division managers, or owners of start-ups—can’t control or camouflage: and that’s the exodus of the best and brightest talent. In today’s knowledge economy, intellectual capital rules. People who are smart, forward-looking, bold, proactive, and capable of mobilizing others are very marketable. And they’re the first to start polishing their resumes when conditions within the firm become frustrating, debilitating, and performance-dampening, which is what was happening at Morgan Stanley. Certainly, many good and talented people stayed with the firm. But the trend was clear: Under Purcell, a dominant firm slowly slid towards mediocrity, and as one ex-executive of Morgan Stanley noted, “no one comes to work to be mediocre. That’s why employees are leaving.”

The best and brightest are not quitters; they do not desert when the going gets rough. On the contrary, top performers in any arena—business, science, academia, government, etc.-- relish the challenges of overcoming hurdles in order to achieve something wonderful, or to grow a business in defiance of a thousand “that’s impossibles!” What top performers can’t stomach is an organizational environment racked with elements like persistent mediocrity, destructive “gotcha” politics, opportunistic decision-making, career advancement based on unquestioned loyalty to an aloof leader, or the worship of managers based on their position power rather than their accomplishments.

Philip Purcell could bob and weave in explaining the steady deterioration of Morgan Stanley’s financials and brand. He could feint and sidestep in explaining the steady unraveling of his core strategy, the “one-stop-shopping” fantasy of the Morgan-Stanley-Dean-Witter merger. And no matter how bad the news, he could always count on politically astute “yes-men” and “yes-women” in the ranks, and on his docile, crony-filled board. But what he couldn’t do was stem, or justify, the steady departure of the top financial minds of the firm, including waves of investment bankers, marketers, managers, and entire teams of securities traders.

And that, my friends, is the canary in the corporate coal mine--the big clue to corporate demise. If you want to assess the prognosis for any CEO, don’t look at the financials. Look to see if the best performers are staying, or leaving. You can even take it a step further: When analyzing the company’s recruiting efforts, look to see whether the best and most interesting players in the industry are attracted to the company, or if they choose to go to a more exciting environment. If the personnel canary is dying, it’s over for the CEO, and unless radical changes are instituted by his or her successor, it may be over for the company too. That’s why Purcell ought to leave now, rather than leaving Morgan Stanley in lame duck limbo until next year.

One postscript: as a reward for killing the canary, Mr. Purcell will walk away with over $60 million. It’s good to know that somebody in the mine struck gold.

Mi Casa Es Su Casa

Let me tell you about two meetings I sat in on.

Several months ago I gave a seminar to a group of CEO’s of homebuilder corporations. Somewhere in the middle of the discussion, I asked them a simple question: “Which company in your industry owns the Asian space?” Dead silence. Huh?

“Well,” I reasoned, “it would seem to me that if I were building homes, I would want to get connected with the fastest-growing affluent population in the U.S. I’d sure want to understand the principles of feng shui, and I’d sure want to know the differences between what Indonesians, Thais, and Chinese expect from their homes.”

I then dropped the next question. “Which company in your industry owns the Hispanic space?” Again, dead silence.

I continued: “It would seem to me that if I were building homes, I would want to get connected with the fastest growing demographic, period, in the U.S., and I’d sure want to know the differences between what Mexicans, Puerto Ricans and Cubans expect from their homes. At 42 million, Hispanics are now the largest minority group in the U.S. So how many of you are learning Spanish, and having your front-line people learn Spanish, and marketing your services through Spanish distribution and sales channels?” Silence.

The reality is that in the U.S., Hispanics and Asians are growing more than 10 times the rate of non-Hispanic whites, yet, lip service to diversity notwithstanding, our marketing approaches often seem to assume a monolithic, homogeneous market. No longer true. The public school system in Los Angeles County alone deals with 140 languages in the classrooms.

Spanish, of course, is huge, so much so that nuestra casa es su casa; our house is becoming their house. It’s not simply that the Hispanic population in the U.S. has doubled in size since 1980. It’s that the younger the age group, the more Hispanic it is. The Pew Hispanic Center reports that three out of five Americans under 40 are non-Hispanic white, while four out of five Americans over 40 are non-Hispanic white. Customers are no longer just the white-bread “Leave It to Beaver” variety.

Nor are employees, which brings me to my second meeting. Last week I met for two days with the officers of a national roofing association. Here’s what I learned: In the roofing industry, 40-80% of employees are now Hispanic. The higher numbers are in California and the Southwest, the lower numbers are in the South. But the numbers continue to rise, whether in Wisconsin, Georgia, or California. These Latino employees work very hard at work that is very hard. They’re proud to be roofers, an increasing number advance to supervisory and management positions, and many achieve the American dream. The biggest operational problem facing the roofing companies (most of which are small and privately held) is finding enough immigrants to do the work, since gringos tend to shy away from it.

I don’t want to get into the emotional political minefield of immigration debate, but I do want to mention how impressed I was that the officers of this association—all no-nonsense roofing contractors— focused hard on issues like building cultural sensitivity, improving their Spanish skills, providing employees with English as second language training, providing employees with ongoing technical training and management development in Spanish, and translating all corporate and technical documents into Spanish. They weren’t doing this to “celebrate diversity”, they were doing this to build their businesses. I think a lot of us will be doing the same in the very near future.

Culture x Technology=Success

One of my clients is making a significant investment in an organization-wide, state-of-the-art information technology (i.t.) system. In today’s digital environment, making that sort of investments is essential, especially for matters like cost- and operational- efficiencies. But if you want to get the biggest bang for your bucks when it comes to i.t., keep in mind three little tidbits:

1. Information technology should make your organization significantly faster, more transparent, more “boundariless”, and more empowering by providing everyone with the real-time fluid access to any information and to anyone. But if your corporate culture is marked by secrecy and information hoarding, by behind-closed-doors power plays, and by command-and-control decision-making, then your investment will run right into a wall. Technology won’t fix your culture; on the contrary, your culture will smother the impact of your technology. So you’d better work really hard on making your corporate culture compatible and supportive of the technology you’re installing.

2. Make sure everybody knows that the new systems are not peripheral to people’s work; they become the work. People need to understand that the new information technology is meant to literally change the way they do their daily activities and make their daily decisions. If employees do their work the way they always have but use the technology as a periodic add-on, the payoff of the technology plummets. I was recently in a corporation that had made a sizable investment in a huge, extensive intranet, but only a small minority of managers and employees were using it with any regularity. What a waste. So make sure that your technology installments are accompanied by heaps of training, development, performance expectations and process overhaul.

3. To insure good execution, double check that your internal i.t. function or “department” is viewed by other managers and employees not as a bureaucracy but as a support system. I’ve been in organizations where the internal i.t. group is seen as slow, rigid, and self-absorbed rather than as a service function that exists for the benefit of everyone else on the payroll. Your i.t. group needs to be composed of individuals with cutting-edge expertise, a thorough understanding of the interplay between i.t. and the corporation’s strategy, and, finally, a strong belief that their role is to make other peoples’ work easier and more value-adding.

Points #1, 2, and 3 above raise some important questions regarding the interplay of technology and culture. Those interplays are multiplicative in impact. Notice that the title of this blog is multiplicative. It’s not an additive Culture + Technology, it’s a multiplicative Culture x Technology. That’s very important, because if it was an additive equation, an organization could succeed by being great on one factor (like tech) and mediocre on the other (like culture); after all, you’re just adding. But you can’t do that with a multiplicative function, because no matter how huge one factor is, if the other factor is zero, the whole equation collapses. On the positive side, if the factors are both healthy, the multiplicative payoff is a lot higher than an additive one (for example, 6 x 6 is a lot bigger than 6 + 6).

Forgive the mathematical play. All I’m trying to say is that i.t. can’t stand alone. Information technology is only as strong as the corporate culture it’s in. It’s when leaders focus on embedding great technologies into great, compatible cultures that great successes occur.

Why Companies Hate Subtraction

I just read an interesting article in the June 6 issue of Sports Illustrated. Apparently, the International Olympic Committee (IOC) considered a proposal to add a few sports like golf and rugby to its menu, but its bylaws state that in order to do that, the IOC would simultaneously have to eliminate the same number of current Olympic sports. Quoth Sports Illustrated:

“That’s when the trouble began. The proposal stirred up such a hornet’s nest that it never came to a vote…The episode proved again that while the Olympic family has been terrific at broadening its program to include everything from taekwondo to circus events such as synchronized swimming and trampoline, it has been incapable of seriously considering whether those, or other sports, really belong in the Games. No sport has been removed from the Olympics since polo got the ax after the 1936 Games.”

I find the same problem in business organizations. They love to add, they hate to subtract. Companies find it easy to add functions, product lines, market sectors, staff, and entire divisions, but getting them to seriously discuss eliminating functions, product lines, etc. when they no longer create value—well, that’s another story.

Back in the early 1980’s, CEO Jan Carlzon turned around an ailing SAS airlines and made it the premier European business traveler airline. He did it by focusing hard on the kinds of routes, planes, and services that were important to business travelers, and simultaneously, by dumping the routes, planes and services that were not important to them. He even stopped marketing to non-business traveler airlines. If tour groups and tourists wanted to use SAS, that was fine, but his marketing dollars went almost exclusively towards what he called “good business”, in his case the business traveler market. Carlzon’s moves made SAS sharply focused internally and clearly branded externally.

Too many companies get bogged down with a load of “bad business” lumped in with their “good business”: products and services that have become low margin commodities, niches that yield a lousy return on investment, customers that yield a lousy return on investment and ought to be fired, dog divisions that ought to be sold, costly internal functions that ought to be digitalized, outsourced, or divested. Jan Carlzon’s philosophy was that the secret of good business is avoiding and eliminating bad business. But companies don’t like subtracting any business, even if it’s bad business, because subtraction means getting rid of some revenues, internal fiefdoms, and individual comfort zones.

Meanwhile, Sports Illustrated describes the Olympics now as so “supersized” that hosting them (a.k.a. execution) has become a “gargantuan” task that requires cities and countries to go “deep into hock to hold them” (a.k.a. debt). In the spirit of Carlzon, the magazine suggests that “by dumping the circus acts (like ‘synchronized anything’, rhythmic gymnastics, equestrian dressage, among others) and toughening qualifying standards, the Games could grow stronger”.

So would companies.

How Can I Do It Without Getting Fired?

It’s a question I periodically hear after delivering a corporate speech, and I just heard it again last week: This is all great stuff, but you don’t know my company (or boss, or business, or industry). We need to shake things up in this company, but I’m not the CEO. How can I do all this innovative stuff without approval—or without getting fired?

If your first name isn’t “CEO” and you’re somewhere in the middle of the hierarchy, here’s a quick and dirty set of responses:

• I meet with a lot of executives, and to a person they tell me that they desperately need ideas and initiatives from everyone. The big caveat is that they don’t want people to simply have a great idea (or a great complaint) and then toss it upstairs. They want people who are willing to create some alternative solutions. They want people who will do some due diligence to show that their great idea has an economic and market logic. They want people who will create a plan of action, who will form a team, who will take responsibility for results. Do these things and your career will zoom past that of your colleagues who simply wait for orders.

• The CEO of an agricultural equipment manufacturer recently told me his perspective: “If you’re prepared to demonstrate that it’s good for the customer and good for the company, then do it without asking.”

• An executive VP of a big utility company described the best management lesson he ever learned: “When I was a young manager,” he told me, “I was cautious. I waited for my boss’s directives. One day he came to me and said ‘What have I told you that you can’t do?’ ‘Uh, nothing’, I stammered. ‘Exactly’, he responded. ‘That’s why I hired you. Instead, you’ve built your own box around yourself. Climb out of it.’”

• Michael Abrashoff, who had a brilliant Navy career and captained what was called “the best damn ship in the Navy”, told a group of us that one can respect a hierarchy without fearing it. How did he get away with all his actions that went against the grain of military conventional wisdom? He would fire off a message to his superiors that read: “Unless otherwise directed, here is what I will be doing….” Amazingly, he never got stopped, or even questioned.• Most of our fears of punishment and retribution are self-imposed. However, if you’re in an organization where your job and career are really threatened if you make conscientious efforts to create new value for customers and shareholders—then you’re on a sinking ship and you ought to be polishing your resume and getting ready to bail out.

• Finally, even under the best of circumstances remember that there will always be some people who resist your change efforts. People love to talk about innovation and change, but when somebody actually does it, people freak out because their comfort zone is threatened. Expect it, confront it, deal with it. That’s what leadership is all about.