bizzXceleration: Performance, Value and Profit

What are the “Hilbert Problems” of business?  In 1900, German mathematician David Hilbert — one of the world’s most eminent mathematicians at the time — gave a famous lecture to the International Congress of Mathematicians. In his talk and in a related article, he laid out 23 problems that he took to be fundamental for his discipline to address in the 20th Century. What will be the ends toward which the spirit of future generations of mathematicians will tend? What methods, what new facts will the new century reveal in the vast and rich field of mathematical thought?These problems, Hilbert thought, were some of the the biggest, most central challenges facing mathematicians. Cracking any of them would constitute a major achievement for any mathematician, and indeed for the world of mathematics as a whole. Hilbert’s grouping of the problems fixed them firmly on the agenda of the mathematical world, and in the hundred-plus years since then, many of the problems have indeed been resolved. (You can see a full table of them here.) Now, I don’t know about you, but I confess that I am not lying awake nights trying to pierce the veil of the Riemann hypothesis. My mathematical endeavors played out after I finished freshman-level calculus (and please don’t ask me to perform any differential equations now). But I do wonder what the equivalent of Hilbert’s 23 problems are for the business world.So, all that to ask this: What are the fundamental problems that business needs to crack in the 21st Century?

Business Strategy and Models

Blow up your business model Revenues sank from $14.4 million in 1997 to $6 million the next year. CEO Brad MacDonald cut his staff from 200 to 11, and sales stagnated for the next five years as he fended off bankruptcy. MacDonald knew Medifast had to rethink its business model. He decided that shaping up the firm would require a different distribution method: selling directly to consumers, not physicians. Medifast took the leap, investing in a call center to handle customer service and adding new e-commerce functionality to its Web site. As a result, after falling to a low of $3.9 million in 2000, sales climbed to $5 million in 2001. McDevitt liked MacDonald's direct-sales strategy. But he knew that Medifast had to beef up its marketing to make the new model work. So he poured funds into online and print direct-response ads. The firm also started "Take Shape for Life," an Avon (AVP, Fortune 500)-style multilevel marketing program that allows customers to earn commissions as vendors. Take Shape for Life brought in revenues of $15 million in 2003, its first year. By 2007, the firm's overall sales had shot up to $84 million. Medifast soon faced a slew of new challenges. The $40 billion weight-loss industry has always been glutted with small players, most of which wind up getting crushed by heavyweights such as Jenny Craig and Nestlé's. But the competition has grown more intense in recent years. Medifast's rivals, including LA Weight Loss and NutriSystem (NTRI), have bulked up their marketing spending as national obesity rates - which are still high - leveled off.

Soccer Giants Borrow Beane's `Moneyball' Formula to Win Champions League Forget the Brazilian street kids juggling soccer balls with their bare feet. The sport's next big star may be a mathematician. Chelsea and Manchester United, who meet in the Champions League final May 21 in Moscow, are among the English Premier League teams recruiting professors and computer wizards to crunch statistics, find the best players and gain an advantage over their opponents. The stakes are high: the winner of Europe's club championship can net as much as $160 million. Soccer coaches are following the lead of Billy Beane, the general manager of Major League Baseball's Oakland Athletics who was featured in the 2003 U.S. bestseller ``Moneyball.'' The book detailed how Beane used overlooked statistics to grade players and build a contending club with one of the lowest payrolls in baseball. Baseball, which centers on the matchup between the pitcher and batter, is rife with statistics. Fans memorize them, Web sites are devoted to them and historians use them to compare players from different eras. It's more difficult to dissect soccer, a complex web of passes, headers, tackles and shots by 22 players, said Ed Sulley, who leads a team of six analysts at Bolton Wanderers. Bolton analysts track statistics such as how long it takes a player to control balls teammates knock to the turf with their heads, where his corner kicks are most likely to go, and the percentage of forward passes he completes.

Why Clinton Lost To Obama. Obama Designed A Better Campaign. There are many reasons why Hillary Clinton lost the Democratic Party nomination to Barack Obama but perhaps the most important is that the Obama campaign’s use of modern principles in design thinking and web social networking was superior to Hillary’s traditional approach of marketing metrics and personal networking. There are important lessons here not only to people in politics but to managers in business. The new is defeating the old. Lesson #1— New digital networking is better than old personal networking. Lesson #2— Voter experience is more important than marketing metrics. Obama’s campaign, especially his speeches, was designed to evoke powerful emotional responses of hope and change from primary voters. There was strong bonding and loyalty between Obama and his organization and voters. Hillary succeeded in doing this with older Boomer women, but not with other voters. She relied on polling research and marketing and metrics to guide her campaign, offering programs of help to dozens of slices of voters. It was transactional—something for each and every segment. In the end, emotional bonding trumped transactional promises. Designing a better voter experience was more important than numbers generated by market/polling research. Lesson #3- Gen X is more powerful and imporant than the Boomer generation. Hard as it may be to accept for the dominant and dominating demographic, the boomers, it's influence in society is waning. The even larger (by a smidgen) Gen X generation, with its own net-centric ways of organizing and communicating, is starting to take control of US society. The message to politicians and managers alike is simple: Don't play old King Canute and stand on the shore telling the tide not to come in. The Gen X tide is inevitable and overwhelming.

Key Functions

Biting the Customer Hand That Feeds Us Let’s think about the customer for a minute–not your customer but you, the customer. What isn’t working for you? Peter Drucker, the famous management writer who coined the term 'knowledge worker' once said, “The purpose of a business is to create a customer.”  Is that really the purpose of our companies? Or are we focused intently on our navels? Do we milk a product with needless modifications long past its useful life? Do we hide from customers behind mind-numbing, anger-inducing telephone trees? Do we leap out of small print and shout, “Gotcha!” at our most loyal customers? Recovering from a customer-be-damned spiral requires a new mindset or course, but this means more than cute slogans framed and hanging on the wall. We need a broader perspective: We need to see our business as an extended enterprise, that is, one that doesn’t begin or end at our four walls. What this means in a global, knowledge-based economy is that what we need to know very likely resides on the outside. Most smart people don’t work for us. It is no longer about dictating terms to a supplier, but rather learning what the supplier might know that we don’t. In the same spirit, are we ignorant of what our customers know? We haven’t been terribly good at listening to them. We often lack an “operational” picture of our customers. That means we don’t see what the customer does with our offering, and how and why. This is not about a customer’s SAT score. This is about aligning our business to the needs of the customer.

Four words Make big promises; overdeliver.If you can define great marketing in fewer words than that, you win. "Big promises": treating people with respect, improving self-esteem, delivering results, contacting as often as you say you will but not more, including side effects in your planning, delivering joy, meeting spec, being on time, connecting people to one another, delivering consistency, offering value and on and on. Caring. The stories involved in your promises matter. That's often what people are buying. This is the first place that the equation breaks down. Marketers often make big promises that appear to be unrealistic or are delivered in ways that don't match the worldview of the prospect. Marketers get carried away with themselves and focused on their greatness and forget to tell a story that people enjoy believing. And sometimes, they make promises that are too small to get our attention. Boring promises are hardly worth making.
"Overdeliver" means doing more than you said you would, which is the secret to word of mouth. Here, of course, the pitfall is obvious. You made too big a promise and you did your best, but no, you didn't overdeliver, not really. You didn't amaze and delight and yes, stun me with the incredible results of your offering. Just because it's only four words doesn't mean it's easy! What do you know?, Magically delicious, Let's put on a show

Just In Time -- If Supply Chain Management is the Answer, What's the Question? In a sense, Boeing has succeeded in changing the way we think about supply chain management, but unfortunately, not in a good way -- the Dreamliner nightmare is threatening to set back the cause of supply chain management by several years at least. I'm not referring to the production problems, parts shortages or even technological snafus that have derailed the project. What troubles me the most is how quick Boeing has been to blame its suppliers for every missed deadline, insisting that the suppliers weren't up to the task of delivering components and finished sections on time. And then we have the U.S. automotive industry, which keeps shooting itself in the foot every time it seems like maybe, just maybe, they've finally figured out what they've been doing wrong. In Detroit, the idea of collaboration between the OEMs and suppliers usually boils down to: "If you'll keep your prices as low as we want, then we'll continue to buy from you." Certainly, that's not the way it always works, but for the most part, the idea of working closely with suppliers seems to be completely foreign to their standard operating procedures. "Foreign" is the operative word in that sentence, since some Japanese automakers have done quite well with that type of win-win relationship, often symbolized by the idea of the keiretsu, or joint partnership. The Detroit Three automakers, on the other hand, apparently see greater promise in pursuing lose-lose relationships.

Shrink rapped It is difficult to gauge quite how much waste—known as “shrink” in the industry's jargon—there is. Oliver Wyman, a consulting firm, puts the figure at 8-10% of total “perishable” goods in America. The Food Marketing Institute, an industry body, says such sales totalled $196 billion in 2006. That means food worth nearly $20 billion was dumped by retailers. In a report published on May 14th, the United Nations estimated that retailers and consumers in America throw away food worth $48 billion each year, and called upon governments everywhere to halve food wastage by 2025. Stop & Shop looked across its entire fresh-food supply chain and reduced everything from the size of suppliers' boxes to the number of products on display, which fell by almost a fifth. Last year the chain cut shrink by almost a third, saving over $50m and eliminating 36,000 tons of rotten food, while improving customer satisfaction. Other retailers would do well to follow Stop & Shop's example—or watch as shrink takes an even bigger chunk out of their profits.

Manufacturing’s “Make or Break” Moment Manufacturing is at a crossroads. In one sense, there have never been better prospects for the makers of products than there are right now. Innovation is rampant; capital is available; technological changes have enabled new materials and manufacturing processes; and the global standard of living is steadily improving, enabling billions of consumers to buy new and existing products. Because of the complexity of these interrelated threats, it is pos­sible that whole industries will continue to disappear from developed regions such as the United States and Europe. But there is also the counter­example of leading manufacturing companies, farsighted enough to view their factories, supply chains, logistics and procurement programs, inventory cycles, and labor management as strategic assets. These include Tetra Pak (the packaging giant), Novartis, Lego, Procter & Gamble, Boeing, Toyota, and a significant number of others, large and small. Perhaps the most striking characteristic of such companies is their persistence as attentive innovators of operations. They treat manufacturing experimentation as a source of knowledge for improvement, and their solutions interact in a virtuous circle that reinforces its own impact.

Infrastructure (IT, HR)

8 Things We Hate About IT You may think that hate is too strong of a word for feelings toward a corporate department. I don't. Yesterday, I was interviewing an executive on his perceptions of IT and he couldn't spit his frustration out fast enough. He said, "In the quest of getting things organized, they are introducing a bunch of bureaucracy and, in the process, they're abdicating their responsibility for making sure the right things get done." This is completely typical of management's frustration—no, management's hatred—of IT. It's hard to remember the time when criticizing IT was controversial. Now, it's ceased to be even interesting. The now-classic HBR article "IT Doesn't Matter" resonated so clearly because it underscored the pervasive belief that IT mediocrity is the norm. And how bad is an industry's reputation when a major outsourcer, Keane, can get away with insulting its target market with the slogan, "We Do IT Right"? It's not personal—nobody hates the people in IT—it's the system that's broken. And here's the rub: IT doesn't like it either. One global Fortune 200 CIO describes leading IT as "a sucking vortex." So let's do something about it. In the spirit of confronting brutal facts honestly, and then developing deeper insights that will allow us to chart a new path—here's my take on what we all hate about IT.

Why We Hate HR  After close to 20 years of hopeful rhetoric about becoming "strategic partners" with a "seat at the table" where the business decisions that matter are made, most human-resources professionals aren't nearly there. They have no seat, and the table is locked inside a conference room to which they have no key. HR people are, for most practical purposes, neither strategic nor leaders. I don't care for Las Vegas. And if it's not clear already, I don't like HR, either, which is why I'm here. The human-resources trade long ago proved itself, at best, a necessary evil -- and at worst, a dark bureaucratic force that blindly enforces nonsensical rules, resists creativity, and impedes constructive change. HR is the corporate function with the greatest potential -- the key driver, in theory, of business performance -- and also the one that most consistently underdelivers. It's no wonder that we hate HR. In a 2005 survey by consultancy Hay Group, just 40% of employees commended their companies for retaining high-quality workers. Just 41% agreed that performance evaluations were fair. Only 58% rated their job training as favorable. Most said they had few opportunities for advancement -- and that they didn't know, in any case, what was required to move up. Most telling, only about half of workers below the manager level believed their companies took a genuine interest in their well-being. This, friends, is the trouble with HR. In a knowledge economy, companies that have the best talent win. We all know that. Human resources execs should be making the most of our, well, human resources -- finding the best hires, nurturing the stars, fostering a productive work environment -- just as IT runs the computers and finance minds the capital. HR should be joined to business strategy at the hip. Instead, most HR organizations have ghettoized themselves literally to the brink of obsolescence. They are competent at the administrivia of pay, benefits, and retirement, but companies increasingly are farming those functions out to contractors who can handle such routine tasks at lower expense. What's left is the more important strategic role of raising the reputational and intellectual capital of the company -- but HR is, it turns out, uniquely unsuited for that.

Innovation

Is Innovation Headed Offshore? To those worried about America's ability to compete in the 21st century, the trend is alarming: Just as key manufacturing industries fled offshore in the 1970s and '80s, U.S. companies are now shifting more engineering and design work to low-cost nations such as China, India, and Russia. Surely, innovation itself must follow. Apparently not, according to a new study published by the National Academies, the Washington organization that advises the U.S. government on science and technology policy. The 371-page report titled Innovation in Global Industries argues that, in sectors from software and semiconductors to biotech and logistics, America's lead in creating new products and services has remained remarkably resilient over the past decade—even as more research and development by U.S. companies is done offshore. One drawback is that most of the conclusions are based on old data: In some cases the most recent numbers are from 2002. And while the authors of the report make compelling cases that U.S. companies are doing just fine, thank you, none of the writers addresses today's burning question: Is American tech supremacy thanks to heavy investments in R&D also benefiting U.S. workers? Or are U.S. inventions mainly creating jobs overseas? A few years ago, most people took it for granted that what was good for companies was good for the greater economy. But the flat growth in living standards for most Americans during the last boom has raised doubts over the benefits of globalization.

Nokia Fosters 'Instability' Nokia's reorganization highlights a growing challenge for companies: how to continually prepare for change -- even when things seem to be working well.

What crisis?  Worries that America is losing its edge in science and technology are overblown. The report demonstrates that America is still the world's science and technology powerhouse. It accounts for 40% of total world spending on research and development, and produces 63% of the most frequently cited publications. It is home to 30 of the world's leading 40 universities, and employs 70% of the world's living Nobel laureates. America produces 38% of patented new technologies in the OECD and employs 37% of the OECD's researchers. There is little evidence that America is resting on its laurels, according to RAND. Developing countries such as China and India may be boosting their science and technology muscle faster than America. But they are starting from a low base. America is outperforming Europe and Japan on many performance measures: in 1993-2003 America's growth rate in patents averaged 6.6% a year compared with 5.1% for the European Union and 4.1% for Japan. One reason for America's angst was that the growth of federal spending on R&D slowed significantly with the end of the cold war. It only grew by 2.5% a year in 1994-2004 compared with a long-term average of 3.5% since 1953. The trouble with this statistic is that America has lots of sources of R&D spending: federal money accounted for only $86 billion of the $288 billion that it spent on R&D in 2004. Spending on the life sciences is increasing rapidly, a reasonable bet on the future.Others worry that non-US citizens now account for 41% of science and engineering PhDs. But this is arguably a sign of America's continuing world domination: the world's brightest people are gravitating to the world's best opportunities. A higher proportion than ever of these paragons want to make their homes in the United States.

Leadership and People

Founders' Hubris Fuels Corporate Drama Lots of business dramas over the years have involved strong-willed company founders who couldn't let go in their 60s or 70s. Put much-younger founders into the mix, and tensions can be even greater.There's no shortage of ambition among corporate top lieutenants. But if they collide with a founder who mightn't yet have reached age 40, that's a recipe for management upheaval. It's also likely to provoke intense anxiety among investors, customers and employees.Anyone attending The Wall Street Journal's D: All Things Digital conference last week saw how challenging such human interplay can be. Three famous high-tech founders -- Microsoft Corp.'s Bill Gates, Yahoo Inc.'s Jerry Yang and Facebook's Mark Zuckerberg -- took the stage for separate appearances. Each was joined by his company's most powerful nonfounding executive.While all the speakers did their best to make nice, it didn't take a Geiger counter to sense that offstage, each management team might have a few issues to work out.

Team building in paradise Some 200 Seagate Technology employees have spent the past several months preparing for this week. They've been riding bikes through the streets of Malaysia and Thailand, hiking the hills of Northern Ireland and Hong Kong, running in Silicon Valley and Colorado. They've flown a dozen hours or more from around the globe, taken a gondola ride up the face of a cliff, and gathered in a restaurant overlooking Lake Wakatipu. Many of these Seagaters -Type-A engineers, hyper-educated Ph.D.s, brilliant MBAs - are accustomed to being the smartest, most confident people in any room they walk into. But tonight they're jittery. It was bad enough knowing that in a few short days they'll compete in a 40-kilometer adventure race through the heart of Middle-earth. Now the CEO just told them that they're all gonna die. And he wasn't smiling when he said it. Of course Watkins isn't trying to kill his charges. But he is making them uncomfortable as a way to open their minds. He thinks Eco week, which Seagate has been holding since 2000, helps build a more collaborative, team-oriented company. He also thinks it teaches his people something about priorities.Yes, everyone in this room will die - at some point. But before then they'll face important choices about where to work, what to believe in. Choices, really, about change and ultimately happiness.

Work Matters: my favorite blog on HR, Leadership, Workplace Environment and "Managing by the Facts" . In particular note Bob's outstanding "15 Things I Believe" list.

The Master Speaks

Drucker's Teachings Find Following in Asia Peter Drucker is making a posthumous comeback. It isn't happening in the U.S., where the Austrian-born management scholar spent much of his career until his death in 2005, at age 95. While most of Mr. Drucker's 39 books remain in print, they aren't fixtures on American best-seller lists, as they were a generation ago. In China, however, Mr. Drucker is the man of the moment. In the past few years, devotees have created 14 Drucker academies, in Beijing, Shanghai, Xian and other Chinese cities. Their curriculum draws extensively on Mr. Drucker's writings, so thousands of students can quickly grasp the management essentials needed for China's booming economy. Mr. Drucker's old-school values like integrity and humility play well in China, says Henry To, chief executive of the Drucker academies. Mr. Drucker spent much of his career as a consultant and professor studying big, well-known American companies. Based on their experience, he urged managers to set clear objectives, to value employees and customers, and to define their mission as more than just making a profit. Other Asian countries also are embracing Mr. Drucker's work. Last week, Drucker enthusiasts from around the globe met at the Drucker School of Management in Claremont, Calif. They discussed their efforts, through various Drucker Societies and a university think tank called the Drucker Institute, to spread his ideas. Some of the most detailed presentations came from boosters in South Korea and Japan. In Korea, chief executives of sizable companies meet periodically in book clubs to discuss Mr. Drucker's work and how it applies to their companies. Japanese devotees publish a journal called Civilization and Management that tries to apply Mr. Drucker's ideas to current-day problems. By contrast, U.S. attendees at the conference seemed more inclined to look backward. They giggled about Mr. Drucker's ability to outsell "The Joy of Sex" in the 1970s. Former students and colleagues shared memories of their time with him. The phrase "We miss him" was heard repeatedly. Bob Buford, chairman of the Drucker Institute, voiced concern that American business audiences tend to be faddish, rapidly switching their attention to whatever scholar or commentator seems freshest. That makes it harder to keep Mr. Drucker's work in the public consciousness at home.

The Dashboard and Decisions Series

 Data, Dilemmas, Dashboards and Decisions

Dashboards for the Real World: Economy, Markets, Industry, Company

Key Postings IV: Business Analysis Foundations

Key Postings V: Industry Analysis - Enterprise, Industry Ecology, Evolution

Key Postings Vb (Technomediatainment): Maturities, Barriers and Disruptions

Key Postings VI: Company Level Business Analysis