Weekly Reader: 16Sep07 Business
With all the turbulence in the Economic and Market environments the next question is what do we do about it ? That's a question of particular and peculiar fascination for me and I hope for my readers. At the end of the day the externals define the context while it is what business does that makes them successful or not. Earlier we spent a great deal of time on examing how well Home Depot was coping and found that major internal errors led to major strategic breakdowns in performance. Yet, in looking around at the headlines, we also found that this bizzskul exemplar was hardly alone. In surveying the headlines the number of companies that have been experiencing significant performance challenges seems to be more in the majority than not (thought admittedly that may be in my sampling :) ).
Two major areas of under (UN ??) development are strategic HR and IT. In the special section below we find a fascinating case study of a firm that puts major emphasis on nurturing human talent at the lowest levels and sees it as a strategic advantage. IT is one of the great mysteries - the gap between the business and technology sides of the enterprise not only continues as wide as ever but seems to be increasing. Yet it's widely admitted how strategically important and how much the leading players from WMT to FDX to AmEx benefit from their systems innovations. And the problem is growing apace, as shown by an article below.
But continuing the 'companies in trouble' theme there are updates on Dell, MSFT, and AMD which dive deeper into their struggles while also pointing out some of the things Lenovo is doing. There's also a set of interesting postings on the state of the Telecom industry and key players. Finally some interesting reading on GM and the Auto Industry as well as MickeyD's ability to continue to innovate and find new value - in this case by moving up from below to challenge SBUX's value prop.
Life is interesting. Perhaps we need a great Greek Dramatist to chronicle the tragedies and comedies, no to mention the occaisional pure farce :), of the trials and tribulations. Wasn't it Aeschylus in the Oedipus series that gave us our best take on how pride, hubris and ignoring the environment led to disaster ? Though perhaps Shakespear's King Lear is a better model for how power struggles lead to performance catastrophes ?
General & Special
(5*) Randstad Bridges the Generation Gap For a pair of colleagues born four decades apart, Penelope Burns and Rinath Benjamin spend a lot of time together. Burns, 68, and Benjamin, 29, are sales agents at the Manhattan office of employment agency Randstad USA. They sit inches apart, facing each other. They hear every call the other makes. They read every e-mail the other sends or receives. Sometimes they finish each other's sentences. This may seem a little strange, but the unconventional pairing is all part of Randstad's effort to ensure that its twentysomething employees -- the flighty, praise-seeking Generation Y that we have read so much about -- fit in and, more to the point, stick around. The Dutch company, which has been expanding in the U.S., is hoping to win the hearts, minds, and loyalty of its young employees by teaming them up with older, more experienced hands. Every new sales agent is assigned a partner to work with until their business has grown to a certain size, which usually takes a few years. Then they both start over again with someone who has just joined the company. This makes the corporate world more personal, approachable, says Randstad USA Chief Executive Stef Witteveen. It's easier for the Gen Yers to identify with their jobs. They don't drown in their cubicles. Randstad has been pairing people up almost since it opened for business four decades ago.
Shooting Messengers Makes Us Feel Better But Work Dumber It was a perfect case of shooting the messenger, even if it seemed to Elliott Gordon like a protracted mugging. Last year, the former sales associate watched the fallout after one of his colleagues made a big sale that faltered. The salesman was assured that the goods would be shipped from a supplier, but only half of the inventory arrived.A receiving clerk had to tell the salesman, who responded to the bad news by vowing to the clerk, "I will ruin your life," and then throwing him against the wall. He then kicked his own cubicle wall, "which in turn collapsed onto his neighbor's cubicle wall and thus started a domino effect of wrecking everyone's office in the row," Mr. Gordon recalls.
(5*) IT Is Getting More Complex. Deal With It. When it comes to the never-ending battle against complexity in IT organizations, there's good news and there's bad news. The bad news is that information technology is in fact becoming more complex.The good news? It's not your fault. Despite some chief financial officers' belief that IT departments buy technology for technology's sake and spend too much time "playing" with it, the truth is that IT is becoming more complicated, and more costly to manage, as business becomes more complex. Trying to keep up with the rapidly changing demands of a global corporation, its clients, customers and partners is a convoluted and costly endeavor for the CIO.
Business
What the big banks aren't telling you -- yet The third quarter could end up as the worst in the past decade for the financial-services industry, but you wouldn't know it from the earnings forecasts. The banks are in denial. With credit markets still largely frozen, unemployment rising and major corporate expenditures slowing to a halt, every indication suggests that a surprising number of major financial firms, including Wachovia (WB, news, msgs), Washington Mutual (WM, news, msgs) and Bank of America (BAC, news, msgs), will come up short of expectations in October, kicking off an unpleasant autumn for investors. Investors need to care more about financial stocks than any others because they make up more than 20% of the broad market indexes. So let's get some clarity on exactly what they're facing.
McDonald's Takes on Starbucks With Cheaper Lattes, McCafes Boosting Shares McDonald's, the world's biggest restaurant chain, has added the frothy drinks at two-thirds of its 13,794 U.S. stores since introducing a stronger brew in 2006. Shares of Starbucks, the largest coffee-shop chain, are down 24 percent in 2007, on track for their worst annual performance amid the slowest sales growth in more than five years at stores open at least 13 months. McDonald's coffee is drawing new customers and spurring food sales, especially at breakfast, said President Ralph Alvarez.
General Motors, With New Models, Needs Fewer Sales Incentives, Lutz Says General Motors Corp., relying on new models to end losses, needs fewer incentives to win buyers because ``underlying demand'' for cars will support sales, Vice Chairman Bob Lutz said. GM also hopes that the new Malibu model will need less spending to encourage sales, Lutz told reporters today at the International Auto Show in Frankfurt. The largest U.S. automaker hired Lutz, 75, in 2001 to help redesign its cars and trucks. U.S. incentive spending fell in August because Detroit- based GM was able to shift promotional efforts from new models such as the Buick Enclave and GMC Acadia sport-utility vehicles to focus on large pickups where more money was required, Lutz said. The ability to continue the lower rebate strategy will depend on the strength of the U.S. market, where a decline in new home prices and restricted availability of loans for lower- income buyers is slowing the economy, Chief Executive Rick Wagoner told reporters today. The automaker is relying on sales abroad and new models to increase revenue as it loses market share at home. GM is poised to cede the title as world's biggest car manufacturer to Toyota Motor Corp. in 2007 after a 76-year reign.
Can Michael Dell Refocus His Namesake? Over the last few years, Dell, once the gold standard among PC makers, has simply overlooked major growth trends in personal computing. It missed significant shifts in notebook computer sales and the consumer market as a whole, lagged competitors in international sales, and lost the profit edge that it enjoyed from its superior procurement-and-supply network. Hewlett-Packard, having overcome its own woes, passed Dell last year as the largest seller of PCs worldwide. As the company surged to the lead in the PC industry, the “Dell model” relied on direct sales over the Internet and by telephone rather than through retail stores, cutting prices to gain market share, focusing on computer hardware rather than services, leaning heavily on the American market and avoiding acquisitions. But since Mr. Dell reclaimed the role of chief executive in late January, he has changed all that. But re-engineering the Dell model will be a daunting challenge. “Dell continued to do the same old thing, when it was no longer working,” observes David B. Yoffie, a professor at the Harvard Business School. “This is going to be about changing the way they do business at many levels.” “Dell can do it,” Mr. Yoffie adds, “but it’s going to take a lot more innovation on more fronts than the company has shown in the past.” [Dell's Consumer Focus Hits Snags ]
· Michael Dell Says Poor Sales Forecasts Caused Laptop Delays Dell's CEO blames too-conservative sales forecasting for the long delays in getting new notebooks to consumers, but he says nothing about problems in painting the laptops, the main reason other executives have given customers. Speaking at the Citigroup Technology Conference in New York recently, founder and recently renamed CEO Michael Dell says the company underestimated demand. "If you go back six months or so when industry growth was starting to pick up, we had quite a conservative forecast for demand," Dell says.. "That turned out to be incorrect."
Running the numbers on Vista Sales of boxed copies of Windows Vista continue to significantly trail those of Windows XP during its early days, according to a soon-to-be-released report. Standalone unit sales of Vista at U.S. retail stores were down 59.7 percent compared with Windows XP, during each product's first six months on store shelves, according to NPD Group. In terms of revenue, sales are also down, but the drop has been less steep, at 41.5 percent. The findings largely mirror the sales pattern NPD saw for Vista during its first week on the market in January. Microsoft noted in a regulatory filing that more than 80 percent of its Windows revenue comes from computer makers that install the operating system on new machines, with boxed copies accounting for only a fraction of total sales. And the PC market is far larger than it was five years ago. According to research firm Gartner, roughly 239 million PCs were sold worldwide last year, compared with 128 million in 2001. In many ways, sales of Vista are tied closely to the rate of PC sales. One of the big variables is how quickly businesses move to adopt Vista. Most businesses are not moving to the operating system in significant numbers yet, though Microsoft has begun to tout a few large deployments from corporations including Infosys, Citigroup, Charter Communications and Continental Airlines.
AMD's New Chip Is Vital to Turnaround With a long-awaited product launch today, Advanced Micro Devices Inc. has a chance to prove it's not a one-hit wonder in chips for server systems. AMD's new microprocessor, code-named Barcelona, is crucial in the company's fight against Intel Corp. in providing calculating engines for the midsize machines that run Web sites and other key business programs. Intel had all but owned that market until April 2003, when AMD launched a chip called Opteron that steadily gained market share until Intel counterattacked in mid-2006 with faster products. The stiffer competition, and execution miscues, have stalled AMD's advances and contributed to a $600 million net loss in the second quarter. Barcelona, to be formally called the Quad-Core AMD Opteron Processor, is seen as important not only for an AMD turnaround, but also for server makers who want to play chip vendors off each other to get lower prices and higher performance.
Lenovo Targets Faster-Growing Consumer Segment -- Lenovo Group Ltd. plans to introduce the first desktop and laptop computers from its new consumer business unit early next year, Chairman Yang Yuanqing said Saturday. The plan comes at a crucial juncture. Lenovo is trying to sell more personal computers to consumers and small businesses, a faster-growing segment of the PC market in the U.S., and rely less on sales to large companies, particularly in markets outside China. But it faces stiff competition from rivals including Hewlett-Packard Co. and Taiwan's Acer Inc. Acer agreed last month to buy Gateway Inc. of the U.S., which will make it the third-largest PC maker by unit shipments and nudge Lenovo into fourth place. The acquisition also may sink Lenovo's plan to grow in Europe by buying a stake in Netherlands PC maker Packard Bell BV. Lenovo had been in talks to buy Packard Bell, but Gateway said last month it intends to exercise a "right of first refusal" to acquire all the shares of Packard Bell's parent company.
Yahoo's Cautious Course How Now 'Sacred Cow'? Lack of Major Overhaul Poses Test Investors who have grown impatient with Yahoo Inc. may have to wait awhile longer to see any pop in its stock. The Internet company replaced its chief executive in June and this summer kicked off a strategic review to better position it for a changing online-advertising market and compete with the likes of Google Inc. Now, partway through Yahoo's strategic soul-searching, people familiar with the matter say a major overhaul appears unlikely. When the Sunnyvale, Calif., company announced lower second-quarter profit and dropped its 2007 forecasts in July, co-founder and new CEO Jerry Yang told analysts that he planned to spend roughly the next 100 days crafting a long-term strategic plan and making any necessary changes to the company's staff and organization. In recent years, Yahoo has been eclipsed by the success of Google's search-advertising-fueled growth, faced criticism for a lack of management focus, fumbled some opportunities to capitalize on the latest high-growth Internet areas such as video and social networking and saw its revenue-growth rate fall as advertisers expanded their online spending on other sites.
Bells May Merge Local Operations, Long Distance -- The Federal Communications Commission told the three remaining Baby Bell companies that they can bring their long-distance arms in-house, ending a requirement to operate these units as separate businesses. The agency said the new rules would allow the three dominant wired phone companies, AT&T Inc., Qwest Communications International Inc. and Verizon Communications Inc., to merge their long-distance businesses with their main operations. The move lets the companies cut duplication of marketing, customer-service and other operating costs. The companies' request to merge the long-distance operations wasn't considered controversial because customers are increasingly using their wireless phones to make long-distance calls. The requirement dates from the time when it was much more common for residential customers to buy separate long-distance packages on top of their local service. It was meant to prevent local phone companies from keeping other long-distance providers out of a particular market with their own offering. Companies were required to either operate the long-distance units as separate legal companies, or subject themselves to price regulation. All three opted for the former choice.
Alcatel-Lucent Shares Plunge After Slashed Forecast Alcatel-Lucent SA, the world's biggest maker of telecommunications equipment, fell the most in more than two years in Paris trading after cutting the forecast for 2007 sales on disappointing orders in North America. The company's stock slumped as much as 14 percent to 6.24 euros, the lowest since May 2003. Sales growth may stall in 2007, third-quarter profit excluding items will be ``around break- even'' and margins will suffer, Alcatel-Lucent said today. A decline in orders for mobile-phone networks, falling prices and costs to cut 12,500 jobs have wiped out earnings at Paris-based Alcatel-Lucent. Alcatel SA and Murray Hill, New Jersey-based Lucent Technologies Inc., unable to revive sales since the technology bubble burst in 2000, combined in November last year. The stock has dropped 36 percent since the merger, erasing $11.7 billion, more than the value of the takeover. ``Two poor businesses put together do not make a good one,'' said Piers Hillier, head of European equities at WestLB Mellon Asset Management U.K. in London, which manages $35 billion. ``Alcatel is a classic example of M&A heartburn.''