bizzXceleration: Performance, Value and Profit

Business Performance

Corporations as Investors: Buy High... Sell Low Retail investors are sometimes characterized as the worst kind of investor, because they’re more likely than not to buy aggressively when share prices are high, only to panic when the market sells off dramatically. Whatever their faults, they’re not as bad as U.S. corporations. Share repurchases by components of the Standard & Poor’s 500-stock index fell to lowest level in the fourth quarter of 2008 since the third quarter of 2004, according to S&P, as companies retreated into a hole, preserving cash as the market tanked.  Chart of SP500 vs Buybacks 

Just desserts. Among many gems in Warren Buffett’s annual letter to Berkshire Hathaway shareholders, this one stood out: “The way to achieve this goal is to deserve it.” There’s lots of pain in the business world these days, and far be it from me to add to yours. But it’s worth asking yourself . . .Are you actively working to deserve your customer’s business? If you’re going to avoid the layoff ax, will it be because you’ve earned it? You might lose the customer anyway. You might lose your job anyway. The current economy is like that. I know plenty of good vendors who’ve seen contracts terminated, and plenty of good workers who’ve been handed the pink slip, even though the company doing the terminating hated to see them go. But you don’t have to make it easy for the customer to walk away, or easy for the employer to cut off your paycheck. One of the reasons I like Buffett is that he represents, in many ways, the triumph of substance over style. He’s not a perfect man, but he’s earned the prestige he enjoys. Let me urge the same pursuit for you, just like I try to pursue it for myself. What not to do: Anything that relies on the slickness of the marketing / packaging / line of talk to cover up the fundamental reality of the thing inself. Hide costs. Bait-and-switch. Pressure the user into something they don’t need or can’t use. What to do: Deliver value. Pick up the customer hotline on the first ring. Then listen. Make problems go away for your users, even if doing so doesn’t earn you an extra dime right this minute. Hustle! That’s how you earn your piece of the pie.

 Representative Cases: Spectrum of Performance

Call for help: Postal chief says agency crashing (AP) The financially strapped U.S. Postal Service will run out of money this year without help from Congress, Postmaster General John Potter warned on Wednesday. "We are facing losses of historic proportion. Our situation is critical," Potter told a House subcommittee. The agency lost $2.8 billion last year and is looking at much larger losses this year said Potter, who is seeking congressional permission to reduce mail delivery from six days to five days a week. Potter also urged changes in how it pre-pays for retiree health care to cut its annual costs by $2 billion. If the Postal Service does run out of money, the lingering question, Potter told the House Oversight post office subcommittee, is which bills will get paid and which will not. He said ensuring the payment of workers' salaries comes first, but other bills may have to wait. Potter first raised the possibility of delivery cutbacks in January, but the idea has not been warmly received in Congress. Lynch said the financial stability of the Postal Service is "critical to the American expectation of affordable six-day mail delivery." Even if the agency succeeds in reaching its planned cost cuts of $5.9 billion, there could still be a $6 billion deficit in 2010, Potter said. "Without a change we will exhaust our cash resources," Potter said. "We can no longer afford business as usual." He estimated that delivering mail five days-a-week instead of six would save $3.5 billion per year. Asked if layoffs would occur, Potter said it is possible, but he hopes avoidable. Last week, the post office said it planned to offer early retirement to 150,000 workers and is eliminating 1,400 management positions and closing six of its 80 district offices across the country in cost-cutting efforts. Potter said he expects 10,000 to 15,000 workers to accept the early retirement offer. Dan Blair, head of the independent Postal Regulatory Commission, suggested that other savings are possible through closing small and rural post offices — something Congress has resisted in the past. He added that it may be necessary to increase the limit on the amount of debt the post office can carry.

• Volvo Bidders Talk to Ford; Gephardt Gets a Board Seat
• Auto Task Force Set to Back More Loans -- With Strings
• GM says 7,500 hourly workers decide to leave

IBM Set to Cut 5,000 Jobs  International Business Machines Corp. plans to lay off about 5,000 U.S. employees, with many of the jobs being transferred to India, according to people familiar with the situation. The technology giant has been steadily building its work force in India and other locations while reducing the number of workers based in the U.S. Foreign workers accounted for 71% of Big Blue's nearly 400,000 employees at the start of the year, up from about 65% in 2006. The latest round of cuts target the company's global business-services unit, which does everything from running corporate data centers to managing human resources for clients like Procter & Gamble. Some of the jobs are being eliminated because customers have ended contracts or the company has automated tasks. But employees say in many cases, they have been training IBM workers from India to do work that will now be moved overseas. In January, IBM sent layoff notices to about 4,600 people, including workers in its software unit and sales department. Earlier this year, IBM also told employees that if they wanted to move to an emerging market, they could apply for jobs there with IBM, but they would be paid in local wages. A spokesman Wednesday said "dozens" of people have taken the offer, usually natives of those countries. For IBM, shifting work to lower-cost countries has helped the company win overseas contracts and maintain healthy profits in its services business, which is its largest in terms of revenue and employment. IBM employed 74,000 people in India in 2007, the latest figures available. It "gives them a different cost structure" and allows IBM to compete with Indian outsourcing companies such as Infosys Technologies Ltd. and Wipro Ltd. that are trying to grab IBM's clients, said Carl Claunch, who follows the company for research firm Gartner Inc. IBM's latest round of cuts show that even companies that have so far navigated the global recession profitably are continuing to slash costs. In January, IBM reported $4.42 billion in quarterly profit. Among other companies that are profitable, Microsoft Corp. announced plans for 5,000 layoffs earlier this year and Hewlett-Packard Co. is cutting some 25,000 people in the wake of its acquisition of Electronic Data Systems Corp., a rival of IBM's services business.

Zara Grows as Retail Rivals Struggle Defying the recession with its cheap-and-chic Zara clothing chain, Spanish retailer Inditex SA posted strong sales gains that show how low prices and a rapid response to fashion trends are enabling it to challenge Gap Inc. for top ranking among global clothing vendors. The improved results highlight how Zara's formula continues to work even in the economic downturn. The chain specializes in lightning-quick turnarounds of the latest designer trends at prices tailored to the young -- about $27 an item. While apparel chains in the U.S., Europe and Asia are struggling and closing stores, Inditex reported a 10% sales gain and higher gross margin, which already exceeds many rivals. A fast logistics system allows it to get clothes from drawing boards to stores in less than two weeks, compared with an industry average of nine months. Its lean inventory and fast shipments allow it to avoid profit-damaging markdowns. In recent years, Inditex has become known as a low-priced alternative to designer boutiques. Zara stores sit on some of the world's glitziest shopping streets -- including New York's Fifth Avenue, near the flagship stores of leading international fashion brands -- which make its moderate prices stand out. "Inditex gives people the most up-to-date fashion at accessible prices, so it is a real alternative to high-end fashion lines," said Luca Solca, senior research analyst with Sanford C. Bernstein in London. "Gap, Benetton and others haven't been alternatives because they sell more basic styles." The chain keeps profits high by avoiding advertising and by building a low-cost perception. That is helping as shoppers trade down from higher priced chains. "Ikea, Lidl, Wal-Mart, Tesco, Zara, H&M -- they have for the last 20, 30 years hammered on the same nail every time," said Lars Olofsson, chief executive of French retailer Carrefour SA, in a recent interview. While competitors are resorting to deep discounting, Inditex isn't. "We prefer to stick to our commercial policy even in the current environment," said Marcos Lopez, capital-markets director at Inditex, in an interview. "The key driver in our stores is the right fashion. Price is important, but it comes second."

Re-Mapping the World: Mindsets vs Performance

It Pays to Understand the Mind-Set IN 1934, the journalist Johannes Steel wrote a remarkably prescient book, “The Second World War,” which described the social psychology that laid the groundwork for global tragedy. Mr. Steel was trying to peer into people’s minds and infer their actual world views and motivations — in part by examining prewar cycles of social provocation in Germany and Japan and Italy. His timing about the war was wrong — he expected it to start in 1935, not 1939 — but he was correct about many fundamentals. Yet his early readers were often skeptical and blithely assumed that there would be no war. So it has been with more recent analyses, based in large part on social psychology, foreshadowing the global economic crisis of the current day. No one got it exactly right, but the insights of the approach exemplified by Mr. Steel and used by some analysts today are worth taking very seriously. Rather than depending exclusively on quantitative analysis, this method relies on a “theory of mind” — defined by cognitive scientists as humans’ innate ability, evolved over millions of years, to judge others’ changing thinking, their understandings, their intentions, their pretenses. It is a judgment faculty, quite different from our quantitative faculties. In October 1989, I attended a conference at the National Bureau of Economic Research organized by Martin Feldstein, the Harvard economist, on “The Risk of Economic Crisis.” The conference still sticks in my mind because of a paper delivered there by Lawrence H. Summers, now the head of the president’s National Economic Council and the dominant economic intellectual at the White House. Mr. Summers told a fictional but vivid story of a big financial crisis, complete with examples of specific events and how people might react to them. Seeing it concretized as an imaginary history, and placed in the near future — in just two years, in 1991 — made it seem more real and familiar. Today, this sounds like a description of thinking that led to the 2000s boom, although the leveraging of investments tended to take a form other than that of traditional margin credit on stock purchases. Ultimately, the record bubbles in the stock market after 1994 and the housing market after 2000 were responsible for the crisis we are in now. And these bubbles were in turn driven by a view of the world born of complacency about crises, driven by views about the real source of economic wealth, the efficiency of markets and the importance of speculation in our lives. It was these mental processes that pushed the economy beyond its limits, and that had to be understood to see the reasons for the crisis. Of course, forecasts based on a theory of mind are subject to egregious error. They cannot accurately predict the future. But the uncomfortable truth has to be that such forecasts need to be respected alongside econometric forecasts, which cannot reliably predict the future, either. Still, in our current crisis, we need to try to understand the perils we face. The motivation for a vigorous economic recovery program must come, at least in part, from our forecasts of the dangers ahead. The greatest risk is that appropriate stimulus will be derailed by doubters who still do not appreciate the true condition of our economy.

Learning How to Think Ever wonder how financial experts could lead the world over the economic cliff? One explanation is that so-called experts turn out to be, in many situations, a stunningly poor source of expertise. There’s evidence that what matters in making a sound forecast or decision isn’t so much knowledge or experience as good judgment — or, to be more precise, the way a person’s mind works. More on that in a moment. First, let’s acknowledge that even very smart people allow themselves to be buffaloed by an apparent “expert” on occasion. The best example of the awe that an “expert” inspires is the “Dr. Fox effect.” It’s named for a pioneering series of psychology experiments in which an actor was paid to give a meaningless presentation to professional educators. The actor was introduced as “Dr. Myron L. Fox” (no such real person existed) and was described as an eminent authority on the application of mathematics to human behavior. He then delivered a lecture on “mathematical game theory as applied to physician education” — except that by design it had no point and was completely devoid of substance. However, it was warmly delivered and full of jokes and interesting neologisms. Afterward, those in attendance were given questionnaires and asked to rate “Dr. Fox.” They were mostly impressed. “Excellent presentation, enjoyed listening,” wrote one. Another protested: “Too intellectual a presentation.” A different study illustrated the genuflection to “experts” another way. It found that a president who goes on television to make a case moves public opinion only negligibly, by less than a percentage point. But experts who are trotted out on television can move public opinion by more than 3 percentage points, because they seem to be reliable or impartial authorities. But do experts actually get it right themselves?

Why Pundits Get Things Wrong Pointing out how often pundits' predictions are not only wrong but egregiously wrong—a 36,000 Dow! euphoric Iraqis welcoming American soldiers with flowers!—is like shooting fish in a barrel, except in this case the fish refuse to die. No matter how often they miss the mark, pundits just won't shut up, and I'll lay even odds that the pundits (and pollsters) who predicted a big defeat for Tzipi Livni in the Israeli elections last week didn't slink away in shame after her party outpolled all others. The fact that being chronically, 180-degrees wrong does not disqualify pundits is in large part the media's fault: cable news, talk radio and the blogosphere need all the punditry they can rustle up, track records be damned. But while we can't shut pundits up, we can identify those more likely to have an accurate crystal ball when it comes to forecasts from the effect of the stimulus bill to the likelihood of civil unrest in China. Knowing who's likely to be right comes down to something psychologists call cognitive style, and with that in mind Philip Tetlock, a research psychologist at Stanford University, would like to introduce you to foxes and hedgehogs. At first, Tetlock's ongoing study of 82,361 predictions by 284 pundits (most but not all of them American) came up empty. He initially looked at whether accuracy was related to having a Ph.D., being an economist or political scientist rather than a blowhard journalist, having policy experience or access to classified information, or being a realist or neocon, liberal or conservative. The answers were no on all counts. The best predictor, in a backward sort of way, was fame: the more feted by the media, the worse a pundit's accuracy. And therein lay Tetlock's first clue. The media's preferred pundits are forceful, confident and decisive, not tentative and balanced. They are, in short, hedgehogs, not foxes. That bestiary comes from the political philosopher Isaiah Berlin, who in 1953 argued that hedgehogs "know one big thing." They apply that one thing (for instance, that ethnicity and language are primal; ergo, any country that contains many ethnic groups will break up) everywhere, express supreme confidence in their forecasts, dismiss opposing views and are drawn to top-down arguments deduced from that Big Idea. Foxes, in contrast, "know many things," as Berlin put it. They consider competing views, make bottom-up inductive arguments from an array of facts and doubt the power of Big Ideas. "The hedgehog-fox dimension did what none of the other traits did," says Tetlock, who described the study in his 2005 book "Expert Political Judgment": "distinguish more accurate forecasters from less accurate ones" in both politics (will Iraq break up?) and economics (whither unemployment?). In short, what experts think matters far less than how they think, or their cognitive style. At one extreme, hedgehogs seek certainty and closure, dismiss information that undercuts their preconceptions and embrace evidence that reinforces them, in what is called "belief defense and bolstering." At the other extreme, foxes are cognitively flexible, modest and open to self-criticism. The media, of course, eat this up. Bold, decisive assertions make better sound bites; bombast, swagger and certainty make for better TV. As a result, the marketplace of ideas does not punish poor punditry. Few of us even remember who got what wrong. We are instead impressed by credentials, affiliation, fame and even looks—traits that have no bearing on a pundit's accuracy.

Greed and Stupidity The second and, to me, more persuasive theory revolves around ignorance and uncertainty. The primary problem is not the greed of a giant oligarchy. It’s that overconfident bankers didn’t know what they were doing. They thought they had these sophisticated tools to reduce risk. But when big events — like the rise of China — fundamentally altered the world economy, their tools were worse than useless. Many writers have described elements of this intellectual hubris. Amar Bhidé has described the fallacy of diversification. Bankers thought that if they bundled slices of many assets into giant packages then they didn’t have to perform due diligence on each one. In Wired, Felix Salmon described the false lure of the Gaussian copula function, the formula that gave finance whizzes the illusion that they could accurately calculate risks. Benoit Mandelbrot and Nassim Taleb have explained why extreme events are much more likely to disrupt financial markets than most bankers understood. To me, the most interesting factor is the way instant communications lead to unconscious conformity. You’d think that with thousands of ideas flowing at light speed around the world, you’d get a diversity of viewpoints and expectations that would balance one another out. Instead, global communications seem to have led people in the financial subculture to adopt homogenous viewpoints. They made the same one-way bets at the same time.Jerry Z. Muller wrote an indispensable version of the stupidity narrative in an essay called “Our Epistemological Depression” in The American magazine. What’s new about this crisis, he writes, is the central role of “opacity and pseudo-objectivity.” Banks got too big to manage. Instruments got too complex to understand. Too many people were good at math but ignorant of history.

Elements of Re-Thinking: Strategy to Function to Management

How Crisis Shapes the Corporate Model How have past crises shaped management thinking and strategy? Innovation in management, after all, is adaptive. Management is not a science, like physics, with immutable laws and testable theories. Instead, management, at its best, is an intelligent response to outside forces, often disruptive ones. Times of severe economic duress, management experts say, can serve to sharply accelerate trends already under way. The Depression and its immediate aftermath, they say, was such a catalyst for forces already in motion. The main development, they note, was the rise of the modern multidivisional enterprise like General Electric, DuPont and General Motors. It was made possible by the mature technologies of transportation and communication — railroads, the telephone and the telegraph. The technologies made it possible to monitor and coordinate business operations as never before. And the Depression made it imperative for managers to achieve efficient economies of scale to tap national markets, ensuring corporate survival amid a downward spiral in total demand. A modern version of that kind of technology-aided shift in management practice and corporate organization could be in the offing, says John Hagel III, the co-director of the Deloitte Center for Edge Innovation, a research arm of the consulting firm. The sharp downturn, according to Mr. Hagel, will force companies to go beyond simple cost-cutting to take a hard look at the economics of their businesses. Most companies, he says, are actually bundles of three different businesses: infrastructure management, product and service development and commercialization, and customer relations. The current crisis, Mr. Hagel says, opens the door to “an unbundling of the corporation” to achieve greater efficiency and profitability. The trend, he notes, is already exemplified by specialist companies that focus on particular infrastructure fields. In logistics, Mr. Hagel says, many companies farm out those chores to Federal Express and U.P.S.; in call centers, he points to Convergys; and in contract manufacturing, to Flextronics. Of the three business areas, new product development is the one that lends itself not to size, but to small creative teams, and thus is the most difficult for large corporations. Mr. Hagel cites Procter & Gamble as a big company that understands the benefits of unbundling. It has set a goal of getting half its new-product innovations from outside the company, through licensing and collaboration with partners. And P.& G., Mr. Hagel says, has invested heavily in Web technology and clever software to analyze and nurture customer relations. To Mr. Hagel, such developments look like an Internet-era rerun of the corporate transformation of the 1930s and ’40s. “We’re facing the potential to have that play out again — this time with digital infrastructures that allow companies to organize and manage their activities in new ways,” he said. Manufacturing innovations and distribution patterns have been powerfully shaped by economic shifts. Japan’s just-in-time, lean manufacturing system, management experts note, was an adaptation to postwar poverty, a shortage of capital and scarce land for factories, while pro-market policies in China and India opened the door to globalization. There may well be a different pattern of global production and distribution when the world economy emerges from the current crisis, says George Stalk, senior adviser to the Boston Consulting Group.

Lessons From Emerging Markets  As Western companies struggle to navigate the worst economy in generations, here's one piece of advice: Look at places where volatility is business as usual -- emerging markets. In these countries, companies have learned they can't just hunker down when bad times strike. They have to go on the offensive. In Eastern Europe, South Africa and Latin America, managers look at tumultuous times as a chance to implement bold, creative ideas, outflank rivals and boost their business. That means coming up with new ways to price their products. Or scrapping old marketing approaches. Or focusing on figuring out where the economy is heading next -- and how to use that information to grab market share. Here's a closer look at the lessons companies might do well to follow, if they want to survive -- and even thrive -- in this crippling recession. Among business-to-business companies, retaining customers means beefing up customer service. One multinational office-equipment company attributes its leadership positions in Argentina, Brazil and Chile to offering good service when times are relatively stable and even better service when the economy tanks. In bad times, for instance, the company might make more follow-up calls after servicing a product. And it might not try to sell new products in its sales calls, but rather talk about how best to maintain current products. To make this strategy work, the company constantly surveys customers to see what level of service they expect in good times -- and then exceed that in bad times. In some cases, rethinking a marketing or pricing strategy may not be enough. The continuing economic fallout in Western economies may mean that customers simply can't afford certain products or services anymore -- and marketers must change their whole business model to match the new reality. Once again, Western companies could learn a lesson from their counterparts in emerging markets, which routinely are forced to rethink their business models to match market conditions. So far, we've examined strategies that companies can implement. Our final lesson is different: It's not a particular plan for a company to follow in the marketplace, but a way of looking at the marketplace. In our experience, emerging-market companies that excel in turbulent times typically take a very broad view. They closely monitor economic data and then use the information to figure out where the market is headed. That helps them decide when it's time to switch from one strategy to another -- and thus outflank competitors.

Consumer psychology: From buy, buy to bye-bye Asked whether they want more stuff, consumers in rich countries have responded with an emphatic “No”. The breathtaking speed with which retail sales have plummeted in both America and Europe (see chart) has caught retailers and manufacturers by surprise. In response, companies have tried desperately to prop up revenues using a variety of promotions, advertising and other marketing ploys, often to no avail.But as they battle with these immediate problems, marketers are also pondering what longer-term changes in consumer behaviour have been triggered by the recession. It is tempting to conclude that, once economies rebound, customers will start spending again as they did before. Yet there are good reasons to think that what promises to be the worst downturn since the Depression will spark profound shifts in shoppers’ psychology.The biggest changes will take place in America and parts of Europe, where housing and stockmarket bubbles have imploded and unemployment has soared. As well as seeing their incomes fall as employers cut wages and jobs, households have also seen the value of their homes and retirement savings shrink dramatically. Although the threat to wages will fade as growth picks up, the damage done to housing and other assets will linger.

What Can Tata's Nano Teach Detroit? Still, no one disputes that the Nano is innovative on multiple levels—from its engineering to its marketing to its manufacturing. So it's hard to avoid the question: What can a humbled Detroit learn from the Tata Nano? A lot. The lessons start with the vision of Ratan Tata, chairman of Tata Motors' parent, Tata Group, to create an ultralow-cost car for a new category of Indian consumer: someone who couldn't afford the $5,000 sticker price of what was then the cheapest car on the market and instead drove his family around on a $1,000 motorcycle. "Just in India there are 50 million to 100 million people caught in that automotive chasm," says vice-president Vikas Sehgal, a principal at Booz & Co. And yet none of the automakers in India were focused on that segment. In that respect, the Nano is a great example of the so-called blue ocean strategy. "Great companies are built on creating new markets, not increasing market share in existing ones," says Vijay Govindarajan, a professor at Tuck School of Business at Dartmouth College and chief innovation consultant at General Electric (GE), who quickly runs off 10 lessons for Detroit. Among them: U.S. automakers should focus less on incremental improvements to existing cars or adding a new model to the Cadillac line in order to compete against Lexus, and think more broadly about new market opportunities. Where, in other words, are Detroit's blue oceans? Understanding your customer, or potential customers, is another. What do your customers need? What do they really want? What can they afford? The customer was ever-present in the development of the Nano. The Big Three, by contrast, are insulated. For Detroit's Big Three, those first two lessons are easy compared with the third from the Tata Nano: Rethinking the supply chain. Looking upstream, Tata brought in suppliers such as Bosch, a German maker of appliances and motors, and Delphi, a world leader in automotive parts (and onetime subsidiary of GM), in early-stage design, challenging them to be full partners in the Nano innovation by developing lower-cost components. Looking downstream at the manufacturing and distribution chain, Tata plans to build the Nano as a kit, shipping parts to a local business for assembly. This raises quality issues—Tata's brand will suffer if these local assemblers do shoddy work—but it also significantly lowers Tata's capital costs. The company doesn't need to build lots of assembly plants or hire and train assembly workers, or take responsibility for shipping the finished product.

Are Your Lean Initiatives Working?  As the global economic downturn deepens, cash-strapped companies are looking for ways to cut costs and increase liquidity. One way to get fast results is to refocus your lean efforts on the basics -- and correct the bad habits that are undermining results. Besides generating much-needed cash, you'll make your company stronger and better positioned for the upturn. It's critical to take a closer look at whether your lean initiatives are really boosting cash flow and improving the bottom line, especially during tough economic times. Our experience shows that well-executed lean programs can cut lead times and quality costs by half, increase productivity by 10% to 30%, and reduce inventories by 30% to 50%. What's more, quick wins can deliver a large share of these savings. The problem is that lean is rarely done thoroughly and effectively. In our client work, we consistently find that companies slip into costly bad habits that prevent them from achieving or sustaining these results. Here are the five bad habits we see most often: Ideally, lean should become a way of life, and applying its principles throughout an organization is a worthy long-term goal. But companies should scale back their ambitions at the start of a lean transformation -- particularly during a downturn. Too we often see companies diluting their efforts and misusing valuable resources by not scaling back and focusing on high impact areas. Because lean programs are often the domain of manufacturing, they tend to be production-focused. As a result, potential savings beyond the shop floor are often overlooked. For instance, they may fail to address administrative and support functions -- a good potential source of cash in a downturn. Done right, lean allows companies to do more with less. If your lean initiatives haven't allowed you to postpone or reduce capital expenditures, then something's wrong. For instance, most companies have much more available capacity than they think. The trick is to release the "hidden" capacity in bottleneck assets -- often tied up in unplanned breakdowns, changeovers, shift changes, small stops or lines running at non-optimal speed. The downturn is a perfect opportunity to refocus on the basics of cutting costs and waste, decreasing complexity, improving productivity, reinforcing a zero-tolerance policy to budget overruns and making "pure lean" improvements in productivity without added investment. Often, simple solutions yield major results. For instance, tracking and displaying real-time or hourly performance on the production floor can ensure that in a reduced-volume environment people don't spend more time doing less. It's also a good time to question long-held assumptions and sacred cows, such as maintenance spending (is it too high for an acceptable risk of breakdown?), outsourcing decisions (should outsourced parts be brought in-house to keep people and machines productive?), and safety stock calculations (do the paremeter assumptions still hold?).

2009-Era Sales Needs 2009-Era CRM Surveying over 1,700 companies worldwide regarding how their 2009 revenue targets will compare to 2008's, we found the following: For 2008, according to our new study data, less than 59 percent of all reps made quota. We are starting a new year where there's no clear end to the economic challenges, and yet, as seen in the chart at right, 95 percent of the firms surveyed are expecting more revenues from their sales teams (in many cases a lot more). Let's reflect on this for a moment. Assume that you're the coach of a high jump team. Four out of 10 of your athletes cannot clear the bar when it's set at 6 feet. Now you plan to raise the bar 10 percent, which would take it to just over 6 feet 7 inches. All things remaining equal, how well do think your high jump team will do against the new performance standard? Clearly something has got to change. Based on my recent experiences at industry conferences, many companies are looking for improved rep performance to result from leveraging CRM technology. But is that a good assumption? Our new study data suggests perhaps not: Only 16.1 percent of the firms we surveyed that had implemented a CRM system are reporting that system usage is resulting in increased revenues. But let's not jump to quick conclusions. This year we've done a great deal more benchmarking work than in past years, and in doing so we surfaced solid case study examples of CRM solutions helping reps increase cross-selling and upselling by 52 percent, improve win rates by 31 percent, decrease by 38 percent the time to get a new rep up to full productivity, shorten sell-cycle times by 22 percent, and more. So why do some firms achieve great results while others fail to? Our research shows that the vast majority of firms are not achieving their true potential because they are underutilizing the tools they have in place. What reps use daily in these companies are the basics of CRM: contact management, opportunity management, forecast management, etc. This is CRM circa 1999, not 2009. CRM today has capabilities to optimize prospect research, lead generation and nurturing, sales collateral management, sales team collaboration, pipeline optimization, etc. -- and the 16.1 percent have figured out how to leverage those capabilities to solve the efficiency and effectiveness challenges their sales organizations face. In doing so, they're creating a competitive edge over the other players in their marketplace.

The myth of big salaries (it's all marketing) The failed bankers on Wall Street have been whining that if they have to cut bonuses and salaries dramatically, they'll be unable to recruit great talent, and they need great talent to fix the situation. And for years, boards have been claiming that they need to pay CEOs $50,000,000 salaries in order to recruit the very best for their companies. Jamie Dimon at Chase said, "It's possible someone's going to walk in my office and say, Jamie, I have a family. I can't afford to live that way." This, of course, is nonsense. After a million dollars or so in salary, the absolute amount that a person is paid has no real impact on their life. They can't eat more meals in a day or wear more shoes. What matters to the manager is the relative amount. How much more would I make over there? Why does that company pay its CEO more than my company pays me? Hence the current situation with CEOs and bankers. There's no real effort made to market the jobs, just to race to the top (or the bottom, depending on your point of view) with the easiest marketing signal of all. Price. Yes, it's exactly the same as a retailer trying to improve business by being the cheapest. In addition to this being a huge (!) waste of money, it's also provably false as an accurate portrayal of what's necessary to recruit. For every great job at Goldman Sachs, there are still 1,000 totally qualified applicants waiting for that job. So, when demand is high and supply is low, the power goes to the supplier. Lower the salary until you get just a few qualified applicants, right? This moment in our economic cycle is a great opportunity for shareholders and taxpayers to let the organizations we own and support know that wasting money on this sort of marketing is silly. Just as an industry-wide gas standard would have actually helped Detroit twenty years ago, an industry-wide tax and trade salary cap will actually help these organizations. They'll be forced to recruit with useful marketing techniques (I'd rather work at an innovative, fast-moving, respectful company, given the choice...so the companies would have to make a better 'product,' not just pay a lot as a result of financial engineering).

IT-to-Business Alignment: Time to Try Business-to-IT Alignment Let’s make the call: Retail Winners are better “aligned” because they have over-performing IT executives, and because they drive business leadership to take an active role. Retail Winners indicate that the biggest opportunity to overcome inhibitors to improved IT value delivery is (according to over 80%), “more business involvement in IT efforts.”  There’s an ongoing argument in the technology press and on techie blogs that “IT/business alignment is dead.” This has been fueled by a recent book entitled Business/IT Fusion- How To Move Beyond Alignment And Transform IT In Your Organization, where author Peter Hinssen says, "We've been studying Alignment between business and IT for more than twenty years now. Scores of models have been developed, and enormous efforts have been spent on trying to make alignment work. But the results are horrible. Despite the huge efforts, in money and in people, the gap between business and IT has never been greater and never deeper. The relationship has never been more sour, and the attitude never more hostile." I’m reminded of something my father used to say to me when I managed to screw up a school project and blamed everything but myself: “it’s a poor workman who blames his tools” (to quote another old truism, “it’s amazing how much smarter Dad gets the older I get….”). Businesses have engaged in “plausible deniability” for years when it comes to IT. It was easy, after all. As we have commented on in various Retail Paradox Weekly columns over time, non-IT’ers don’t “get” the language of IT. Business people don’t understand IT and they don’t want to. It’s certainly the last thing a CEO wants to spend time on. But…why not? What’s the excuse? If the business is dependent on it, then the business better understand it. It’s time to rename the challenge: it’s Business-To-IT alignment that has to be addressed, and not the other way around.

• IT Delivers Value to Both Patients and Doctors
• Becoming Better Business-Technology Leaders

Back to the Garage: How Economic Turmoil Breeds Innovation With the world's economies apparently snowballing into a deep recession, it feels uncomfortably Pollyannish to see signs of hope. But for the bravest inventors and entrepreneurs, conditions are ideal to pounce on a business opportunity. In periods of economic turmoil, people are hungry and work cheap, and entrenched companies often concentrate on in-house cost-cutting instead of exploring new markets, which can explode with the next turn of the business cycle. When VCs from Foundation Capital met with their nervous investors recently, the partners advised them to stay the course rather than follow their peers into the bunkers. "Our strongest companies have the potential to be whales when the market opens up," partner Paul Holland told the group. "This is the crucible that forges great companies." The most memorable crucible in modern history is, of course, the Great Depression. During that era, several firms made huge bets that changed their fortunes and those of the country: Du Pont told one of its star scientists, Wallace Carothers, to set aside basic research and pursue potentially profitable innovation. What he came up with was nylon, the first synthetic fabric, revolutionizing the way Americans parachuted, carpeted, and panty-hosed. As IBM's rivals cut R&D, founder Thomas Watson built a new research center. Douglas Aircraft debuted the DC-3, which within four years was carrying 90 percent of commercial airline passengers. A slew of competing inventors created television. "The wonderful growth of the post-World War II period was due largely to the tremendous backlog of innovation developed in the late years of the Great Depression," says Rick Szostak, an economics and technology historian at the University of Alberta. This doesn't mean that big new ideas emerge because of turmoil—in fact, the data shows no relationship between major breakthroughs and economic conditions. But the benefit of a global money drought is that competition tends to vaporize. And for some, the stress of tough times has an amazing way of concentrating the mind on the way forward. Bill Hewlett of HP committed to building the pocket calculator—at the time, a supposedly impossible task—during the 1969-70 recession; the 2001 dotcom-led downturn presented the perfect launching pad not just for risk-taking, fresh-thinking startups like discount airline JetBlue and blogging juggernaut Six Apart, but also for Apple's iPod-fueled resurgence. This recession (depression? you decide) will be no different. Many tech investments made in the past few years will pay off no matter what's going on with the business cycle. That's likely to mean game-changing innovation in clean tech and biotech—two of the biggest venture lures of late—with all the supporting and copycat companies that follow.