bizzXceleration: Performance, Value and Profit

Bad Example

Stewart hammers Cramer on `The Daily Show'  Jon Stewart hammered Jim Cramer and his network, CNBC, in their anticipated face-off on "The Daily Show," repeatedly chastising the "Mad Money" host for putting entertainment above journalism. "I understand that you want to make finance entertaining, but it's not a ... game," Stewart told Cramer, adding in an expletive during the show's Thursday taping. The episode was scheduled to air at 11 p.m. EDT on Comedy Central. It was perhaps the hardest lashing Stewart has given to a TV commentator since 2004 when he called Tucker Carlson and his then co-host Paul Begala "partisan hacks" on CNN's "Crossfire," the since canceled political commentary program. Stewart said he and Cramer are both snake-oil salesman, only "The Daily Show" is labeled as such. He claimed CNBC shirked its journalistic duty by believing corporate lies, rather than being an investigative "powerful tool of illumination." And he alleged CNBC was ultimately in bed with the businesses it covered — that regular people's stocks and 401Ks were "capitalizing your adventure." Cramer insisted he was devoted to revealing corporate "shenanigans," to which Stewart retorted: "It's easy to get on this after the fact."  At one point, Cramer sounded the reformed sinner, responding to Stewart's plea for more levelheaded, honest commentary: "How about I try that?" said Cramer. "I'll do that."  By the end, the two-segment interview went far beyond its allotted time. Comedy Central said the on-air version would be cut by about eight minutes, though the entire interview would be available unedited on ComedyCentral.com on Friday. Comedy Central John Stewart Show vidclip

• Are Ethic Lapses Responsible For Bad Economy? What role has ethics — or the lack of it — played in the current economic downturn. Sandra Sucher, who teaches ethics at Harvard Business School, talks with Linda Wertheimer about how the school is training students not to repeat the mistakes of others.

•  Predator Prey Symbiosis: Crisis, Leadership and Values

The Big Picture

The New Reality: Constant Disruption Skeptics might explain today's fast-moving events as merely the latest episode in the "punctuated equilibrium" model that economists use to describe the broad sweep of business and economic history. This model argues that technological discontinuities periodically arise to interrupt longer periods of relative stability. Once businesses learn to harness the disruptive elements of today's digital technologies--or so the conventional thinking goes--everything will settle back into equilibrium. But what if the historical pattern--disruption followed by stabilization--has itself been disrupted? Let us explain why we think that's the case--and see if you agree. Economies stabilize following technological discontinuities for two reasons. One has to do with the slowing rate of evolution in the cluster of core technologies underlying the disruption. The Bessemer steel process, the Siemens electrical generator, the automobile--all had more or less one big breakthrough and then very modest performance improvements thereafter. If this premise is right--that the pattern of disruption followed by stabilization has itself been disrupted--then it may be we're facing the mother of all disruptions, a big shift into a world without equilibrium, one that will continue to shift rapidly even once the current recession has passed. A world in which companies lose their leadership positions at an increasing rate.

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Why Do Companies Exist As the world becomes less certain, scalable efficiency is losing its way. Yet our economy is chock-a-block with businesses that exist to maximize efficiency at scale. Businesses presuming predictability in order to push out mass produced products supported by mass marketing programs. Businesses relying on command and control in a world that's increasingly difficult to command or control. Businesses losing their leadership positions at an ever-faster rate because they continue to push in a world gone pull. Yes, the death of command and control has been greatly exaggerated for years now. The early prognosticators, however, mistook the lead times required for deployment of the new digital infrastructure. They also missed how long it would take to develop the new social and business practices needed to harness the capabilities of our new infrastructure--capabilities that are only now becoming visible on the fertile edges of business and society. What we need, rather than a managerial philosophy based on the communications and transportation infrastructures of the 19th century, is one geared to the digital infrastructure of the 21st. We need a new rationale for our biggest private and public sector institutions--to re-imagine them in line with the world around us. Rather than scalable efficiency, we need scalable connectivity, learning, and performance. Rather than push, we need institutions that pull.

The Case for Institutional Innovation The past belonged to push, but the future belongs to pull. That's an argument we've made before and in our most recent post, "Why Do Companies Exist?" --as well as more expansively in this Journal of Service Science article. What will pull-based institutions look like? How will they be organized? What dispositions, or mindsets, will they require? And what management practices will help them succeed? The answers are necessarily speculative: A truly pull-based organization has yet to be seen in the wild. Sure, one can point to Toyota and Dell as examples. But as we argued in "Managing Resources in an Uncertain World," these companies practice pull with a relatively limited number of business partners. Furthermore, they practice it mostly in the sense of creating flexible access to resources, which is only one (albeit a very important) aspect of what it means to pull. In its full sense pull also means to cause something or someone to move in a certain direction by exerting a force upon it or them. This is the force of attraction. Pull-based institutions are those that bring the force of attraction to bear on tens or even hundreds of thousands of participants around a common platform. Probably the best examples of today's big institutions pulling in this way are Li & Fung, the motor cycle assembler Dachangjiang, and open source institutions like Linux. Pull institutions seek to attract customers to them, rather than focusing on pushing messages out to broad audiences. Pull institutions also invest heavily in accessing talent wherever it resides and building relationships to motivate this talent. This "distributed talent" then supports the organization's initiatives regardless of whether it chooses to formally affiliate with the institution. In practice, of course, companies will need to smartly blend aspects of push and pull, just as smart leaders seek to combine both hard and soft power. Nevertheless, it is clear that our existing institutions, firmly rooted in the world of push, will require significant redesign in order to effectively harness the potential of pull. Institutional innovation - redesigning the roles, relationships and governance structures required to bring participants together in productive endeavors - will be a key requirement. In fact, institutional innovation will trump either product or process innovation in terms of potential for value creation. Doubt this? Consider the economic value generated from the innovations leading to the institution of the joint stock company.

The Responsiveness Scorecard So: is the Obama administration's ARRA a 21st century Manhattan Project that will ignite smart growth? Though wonks will discuss its imperfections to death, ARRA's actually not a bad financial stimulus (here's why) . Yet, even a perfect stimulus isn't a solution to the macro crisis. Why not? The real problem isn't stimulus, it's responsiveness. We're trapped in a zombieconomy: one full of brain-dead organizations who are about as intelligently responsive as Homer Simpson. Want better clothes? Don't ask the Gap. Want better software? Don't ask Microsoft. Want better cars? Don't ask Detroit. Want better music? Don't ask record labels. Want better healthcare? Don't ask big pharma. Want to hold on to your money? Don't ask a banker. Welcome to economic Bizarro World. The economy has gone catatonic. Unresponsive corporations are just the tip of the iceberg. Markets can't allocate. Investors won't invest. Banks can't value, or hold onto anything of value. People don't trust, much less consume. What's going on? The real problem isn't how or what we stimulate - but that almost none of our organizations could respond in the first place. Yesterday's institutions have left today's organizations unable to respond to an increasingly turbulent world. What's responsiveness, and what does it have to do with institutions? Here's a recent talk I gave discussing net-generation institutions. Or consider ARRA itself. ARRA is built on 21st century rules. Obama's was the first 21st century political campaign: it played by a radical new set of institutional rules that made it responsive. Likewise, ARRA is the first 21st century stimulus - it's responsive, because it plays by some of those new rules, like participation and accountability, through the awesome recovery.gov. Today's organizations need a responsiveness upgrade.

Design, Innovation and Organizational Systems Companies are operating in a world that is increasingly global and integrated.  Much of the differentiation from competitors will come less from technologies and products, which are becoming increasingly commoditized, but from market facing innovations like business models and customer service.  And, when you combine globalization and integration with fast changing markets and customer demands you get a business environment which is much more complex and unpredictable than anything we had before. In such an environment, innovation is absolutely critical to be able to adapt to, let alone survive fast changing market conditions and intense competition.  Incremental improvements by themselves will not do.  Those companies, whether a brand new one being just founded or an existing one that has been around for years, that are able to understand the new market environments and meet them head on with innovative new products and services will emerge as leaders in their industries and regions.   Companies unable to adapt will likely not make it. How do you this?  How do you apply radical approaches in design to a company?  What does it mean to architect a business?  When designing physical things there is a long tradition that every so often you must take a radical approach.  Think of changes in the visual arts and fashion over the years.  Think of advances in engineering and the whole new ways of envisioning bridges, cars, microprocessors, phones and music players through the ages.  Think of the innovations in the architecture of buildings and urban environments that Max Fordham so eloquently talked about. But, we have not quite thought this way when it comes to innovations in organizations - be it a company, government agency, educational institution or health care system.  In fact, the problem may very well be that we have not thought of an organization as a holistic system at all, but rather as a collection of people, services, buildings, processes, information and so on that somehow come together and do whatever they are supposed to do, with no one really in charge of the overall architecture or its evolution into the future. This is all changing right in front of our eyes. 

Back in the US: Economic Realities vs Partisan Posturings We're going to circle back to the US and take up the state of the economy, economic policy, policy vs. politics and partisan political posturings and try and braid them together into a single rope of investigation. At the same time we are NOT leaving the topic of the state and outlook of the world because, as we argued in the first foreign affairs post in this series the US's role in maintaining and re-developing a new international system is critical and indispensable. And central to that role is the success of economic policy without which both the US and the world will face severe difficulties. In the readings we cover a lot of ground, as usual admittedly, starting with a survey of the state of the economy and real nature of proposed economic policy instead of what the headlines, pundits and partisans are telling you.

Adaptations, Responses, Resiliencies ?

Lean Factories Find It Hard to Cut Jobs  At a factory here that churns out plastic parts for everything from spray cans to blasting caps, laying off just one worker can be more trouble than it's worth. The plant, owned by Cleveland-based Parker Hannifin Corp., has become so lean over the past decade that many assembly lines run with only a handful of highly trained workers. In Parker Hannifin's Spartanburg, S.C., factory, workers are safer than in many other industries because cutting a full-time employee has become quite costly. So while mass layoffs have driven the U.S. unemployment rate to its highest in 26 years, Parker and other companies like it are responding to the slump in more surgical ways, mainly by cutting hours and shedding temporary workers. "Because of productivity gains, every one of my people carries more dollars in sales today," says Donald Washkewicz, Parker's chief executive. In 2000, the average Parker worker represented about $125,000 a year in sales. Today, that figure tops $200,000. "If I need to cut back, I have to cut back fewer people to achieve the same goal." Similar trims are taking place at each of Parker's nearly 300 factories. And to varying degrees, this is happening at thousands of other large and small factories across the U.S. The selective cuts help explain a curiosity of this recession. The manufacturing sector is suffering a sharp contraction and has had to slash many jobs -- some 1.3 million, according to a Labor Department jobs report released Friday. But fewer positions have been eliminated than would be expected given the depth of the slump. The sheer speed of this downturn, and the fact that it hit many manufacturers after the economy as a whole was officially in recession, may have muted layoffs. A good chunk of the factory sector was still humming along until late last year, aided in part by strong exports. Manufacturers may also be trying to hold on to workers as long as possible, in the hope that business revives. But deeper changes in manufacturing are also playing a role. A decade ago, most factories tended to do "batch" work, with large groups of employees churning out endless runs of the same pieces. Since many workers did identical tasks, it was easier for companies to cut people during downturns. That kind of work, which employs more people and includes a larger share of less-skilled positions, has been steadily migrating to lower-cost locales overseas. In the U.S., companies now have new equipment and streamlined operations that require fewer, more highly trained people to make more goods. The sector lost 3.5 million workers -- one in five jobs -- between January 2000 and the start of this recession. Even as employment contracted, production in that same time period rose 10%.

Chrysler Leans on Foreign Designers Chrysler LLC's recovery plan is a daring gamble, relying on other car makers for many coming models while sharply scaling back the company's own product-development capability. Chrysler plans to launch 24 new or redesigned vehicles in the next 48 months. Most will come not from its own development labs but from Italy's Fiat SpA, Japan's Nissan Motor Co. and Britain's Group Lotus PLC. Now, the question is whether Americans will warm up to vehicles based on models that Fiat designed for Europe. Fiat has been absent from the U.S. for a quarter of a century. While Americans are enamored of foreign luxury cars, many previous attempts by Detroit car makers to bring foreign vehicle designs to the U.S. have flopped. In the 1980s, Ford Motor Co. imported a sports car made in Germany, the Mercury Merkur, but sales were sluggish. Later, Ford also had disappointing results with the Ford Contour and Mercury Mystique, both based on European designs. While many observers think a partnership with Fiat, a company with small-vehicle acumen, makes sense, some doubt the venture will coalesce fast enough for Chrysler to survive the current economic maelstrom. Even if everything works as planned, most of the new Fiat-based Chrysler vehicles won't be ready for sale in the U.S. before 2011. The cash-strapped company -- once known for innovative designs such as the Chrysler 300 sedan, PT Cruiser and its early minivans -- may have little choice but to rely on partnerships. In the wake of restructurings over the past several years, Chrysler has cut its own product-development staff deeply -- too deeply, some former employees say, to sustain a full range of car models. In the past year or so it has eliminated about 40% of its engineering staff and delayed or canceled work on updating braking systems, interior enhancements and even entire products, such as the Jeep Wrangler, people familiar with the matter said

• President’s Task Force Takes a Close Look at G.M. and Chrysler Plants

Industry Shakeout Hits Drug Firms  Drug makers have begun a frenzied consolidation drive that is redrawing the industry landscape.Merck & Co.'s $41.1 billion agreement to acquire Schering-Plough Corp., announced Monday, follows Pfizer Inc.'s $68 billion January takeover deal for Wyeth. Roche Holding AG's seven-month pursuit of Genentech Inc. was also nearing an agreement Monday, according to people familiar with the situation. The push to consolidate is being driven by the knowledge that the big companies' pipelines aren't producing enough new moneymakers to keep growth going when major products lose patent protection over the next couple of years. As a result, the drug giants are looking to consolidations that will cut costs by combining research and sales efforts and eliminating other overlaps. What will be left is an industry dominated by behemoths, raising questions about the fates of smaller drug companies, as well as the countless small biotechs hungry for suitors. Even though their labs aren't what they used to be, the major pharmaceutical companies have product lineups that still command fat margins, giving most of them the cash to pursue deals."There are too many companies chasing smaller revenue opportunities, so there's got to be a shakeout," says analyst Tim Anderson at Sanford C. Bernstein & Co. "If you've got cash and the value of the companies you want to buy is lower, it's the perfect setup." But megadeals haven't cured industry problems in the past. Pfizer paid $116 billion for Warner-Lambert in 2000 and an additional $54 billion for Pharmacia in 2003, yet still needed to acquire Wyeth this year to help replenish an anemic pipeline. As the dust settles, Eli Lilly & Co., Bristol-Myers Squibb Co., AstraZeneca PLC, Sanofi-Aventis SA and Johnson & Johnson seem most likely to be involved in the next wave of consolidation, analysts say. Factors including existing partnerships, the timing of patent expirations and how well drug makers can absorb multiple acquisitions could affect who will be a buyer and who will be a seller. Meantime, 180, or 45%, of publicly traded biotech companies have less than a year of cash on hand, and about half are trading below $1 a share, according to BIO, the trade group for the biotechnology industry based in Washington. But biotech acquisitions aren't a panacea. One reason is that small companies offer little opportunity for cost savings. Another is the worry that founders and scientists will leave if their companies are taken over. In the interview last week, Mr. Viehbacher indicated his preferred strategy would be to enter partnerships with biotech companies rather than acquire them. "You don't want to bring them in to the mother ship because then you ruin it," he said.The severe funding crunch facing small biotech companies is prompting worries that important new drugs won't make it to market, impeding the progress of medicine. "Innovation has been on the biotech side, but now the money is gone," says Edward Saltzman, president of industry consultant DefinedHealth. "We're in a pickle."

• Genentech Nears Approval of Roche Buyout
• Merck to Buy Rival for $41 Billion
• Pfizer to Pay $68 Billion for Wyeth
• Drug Investors Lose Patience

McDonald's Seeks Way to Keep Sizzling McDonald's Corp. has been one of the world's most successful big companies during this recession. On Monday, the fast-food giant posted February sales results that most chains would envy. But the worsening global economy has McDonald's preparing for a more difficult year. The strengthening U.S. dollar is knocking the wind out of McDonald's profit-generating power. While Americans are flocking to McDonald's as a cheap alternative to sit-down meals, that's not the case in some parts of Europe and Asia. How McDonald's tackles these challenges falls to Ralph Alvarez, a Cuban-born former accountant who is McDonald's president and chief operating officer. McDonald's has been on a roll since 2003, when, to get out of a slump, it halted rapid expansion and instead focused on improving the food, service, atmosphere and marketing at its existing outlets. The result has been a broader menu that features items ranging from salads topped with poblano peppers to a Southern-style chicken biscuit served at breakfast, and restaurants adorned with leather seats and flat-screen television sets. McDonald's 32,000 outlets -- 14,000 of which are in the U.S. -- now feed 58 million customers a day, or two million more than a year ago. As the global economy worsens, executives are trying to prepare for what Mr. Alvarez calls the "what ifs" that come with an uncertain environment. After several years of developing higher-priced products, such as specialty salads, the company is putting more emphasis on creating and marketing lower-priced items, and it's implementing computerized systems in more outlets that allow restaurants to adjust prices based on customer demand. In China, some restaurants recently cut the price of certain combo meals at lunch by as much as one-third. Behind the effort is an increased focus on examining reams of customer data measuring everything from whether customers are trading down to smaller value meals or dropping Cokes from their orders to exactly how much they're willing to pay for a Big Mac.

Yahoo CEO Plans Overhaul  Not yet six weeks into the job, Yahoo Inc. Chief Executive Carol Bartz is preparing a company-wide reorganization that underscores the new CEO's belief in a more top-down managerial approach. The plan aims to speed-up decision-making and give Yahoo products a more consistent appearance by consolidating certain functions that have previously been spread out across the company -- like product development and marketing -- into single, standalone departments, people familiar with the matter say. Ms. Bartz has completed a blueprint for the organization, these people say, and details are being finalized. The plan could be announced this week, they add. One likely scenario under discussion is that Yahoo's chief technology officer, Aristotle Balogh, would expand his role to become head of product, say people familiar with the matter. The move would put Mr. Balogh in charge of product strategy and management in addition to product technology. Hilary Schneider, currently in charge of the company's advertising, publishing and audience groups in the U.S., would become head of North America. Yahoo's European, Asian and emerging markets divisions would be consolidated under one boss, said these people, cautioning that the roles and executives tapped to fill them could change. Implications of the changes -- including likely departures -- could take months to trickle down. Ms. Bartz has initiated searches for a number of high-level executives, including a search for a chief marketing officer and other senior leaders, people familiar with the matter said. Ms. Bartz is following a pattern she set while CEO of software company Autodesk Inc. After joining that company in 1992, Ms. Bartz moved quickly to bring in new executives and more hands-on leadership.

Despite Recession and Prices, Exxon Plans for Expansion Exxon Mobil put out a show of strength on Thursday, pledging to increase investments in coming years, chiding rivals for mistimed acquisitions and reminding everyone it had the financial strength to make headway even as other companies pull back. “The question now becomes who can be successful in more challenging times,” Rex W. Tillerson, Exxon’s chairman and chief executive, said at the company’s annual investor presentation at the New York Stock Exchange. Mr. Tillerson had a ready answer for his own question. Exxon, based in Irving, Tex., earned $45 billion in 2008, gave back $40 billion to its shareholders, invested $26 billion around the world, and managed to find more oil than it produced. It also outperformed all of its rivals like Chevron and Royal Dutch Shell. Undaunted by the sharp collapse in oil prices and the most severe global financial crisis since the 1930s, Exxon will dial up its investments over the next five years. It plans to spend as much as $150 billion through 2014. Its oil and gas production, which was stagnant recently, is expected to grow 2 to 3 percent a year in the next five years, thanks in part to the company’s big natural gas projects in the Middle East. Since 2004, the company has distributed $146 billion to its shareholders, either through dividend payments or share buybacks, more than was given back by Royal Dutch Shell, BP, and Chevron combined.

• Exxon Mobil to profit from the pain

Wal-Mart to enter electronic medical records arena  As the Obama administration begins investing billions in health information technology, Wal-Mart plans to use its unrivaled size to bring high-tech medical records to U.S. physicians. In recent years Wal-Mart, the world's largest retailer, has used its buying power to move into health care markets, negotiating steep discounts for prescription drugs and eye care products. With the government providing $17 billion of stimulus funding to encourage use of electronic medical records, the company sees an opportunity to serve as a low-cost, one-stop option for single doctors and small practices. A Wal-Mart spokesperson said Wednesday the company is partnering with computer giant Dell Inc. and software maker eClinicalWorks to launch a bundled electronic health records package for doctors, including installation and maintenance. The program will be offered through the company's Sam's Club discount-warehouse division, which caters to small businesses. A formal launch is expected this spring. Improving the nation's health information technology has been a rallying cry in Washington for years. Advocates say replacing paper files could reduce costly medical errors and duplicative testing. But after nearly a decade of promotion, there have been few gains to show for the technology. Less than 20 percent of the U.S. physicians use electronic medical records, and many complain about the upfront costs of going digital and the daunting technological hurdles for small businesses. Consulting group Avalere Health said this week it would cost about $124,000 for a single doctor to upgrade to electronic health records over five years. Wal-Mart believes it could shave somewhere between 30 and 50 percent off that figure, putting the price closer to $44,000, the maximum in incentive payments available to single-practice physicians. "We will streamline the process and be a single point of contact for them," Koehler said.Under the plan, Dell will provide computers and other hardware while eClinicalWorks will provide and install the software. Wal-Mart's role will be to coordinate the process. The Obama stimulus package will pay out $17 billion in incentives beginning in fiscal 2011 to spur adoption of electronic medical records by doctors and hospitals. Those payments will gradually taper off through 2015 and then become penalties for those not using the technology.