bizzXceleration: Performance, Value and Profit

Strategic Environment

McCulley Says No Significant Recovery Until 2010 Pacific Investment Management Co.’s Paul McCulley said the U.S. economy won’t show a significant recovery until 2010 as jobs are eventually created. “I really don’t see recovery worthy of the name until sometime in 2010,” McCulley, a partner and fund manager at Pimco, said in a Bloomberg Television interview from Newport Beach, California. “A recovery, to be self-sustaining, has to have job creation with it in order to get personal income and therefore consumption.” The number of people collecting unemployment insurance rose to a record in the week ended May 16 for the 17th straight time, reflecting restrained hiring, according to Labor Department figures released yesterday in Washington. The Commerce Department said today that the U.S. economy shrank at a 5.7 percent annual pace in the first quarter, capping its worst six- month performance in five decades. Pimco, the world’s biggest bond fund manager, expects long- term global growth rates to slow from historical levels as household and business balance sheets shrink.

• ‘To Do’ List Is Getting Longer 
• The Future of Investing: Evolution or Revolution? 
• McCulley on Bloomberg News (vidclip)

David Brooks: In Praise of Dullness Should C.E.O.’s read novels? The question seems to answer itself. After all, C.E.O.’s work with people all day. Novel-reading should give them greater psychological insight, a feel for human relationships, a greater sensitivity toward their own emotional chords. Sadly, though, most of the recent research suggests that these are not the most important talents for a person who is trying to run a company. Steven Kaplan, Mark Klebanov and Morten Sorensen recently completed a study called “Which C.E.O. Characteristics and Abilities Matter?” They relied on detailed personality assessments of 316 C.E.O.’s and measured their companies’ performances. They found that strong people skills correlate loosely or not at all with being a good C.E.O. Traits like being a good listener, a good team builder, an enthusiastic colleague, a great communicator do not seem to be very important when it comes to leading successful companies. What mattered, it turned out, were execution and organizational skills. The traits that correlated most powerfully with success were attention to detail, persistence, efficiency, analytic thoroughness and the ability to work long hours. In other words, warm, flexible, team-oriented and empathetic people are less likely to thrive as C.E.O.’s. Organized, dogged, anal-retentive and slightly boring people are more likely to thrive. These sorts of dogged but diffident traits do not correlate well with education levels. C.E.O.’s with law or M.B.A. degrees do not perform better than C.E.O.’s with college degrees. These traits do not correlate with salary or compensation packages. Nor do they correlate with fame and recognition. On the contrary, a study by Ulrike Malmendier and Geoffrey Tate found that C.E.O.’s get less effective as they become more famous and receive more awards. What these traits do add up to is a certain ideal personality type. The C.E.O.’s that are most likely to succeed are humble, diffident, relentless and a bit unidimensional. They are often not the most exciting people to be around. For this reason, people in the literary, academic and media worlds rarely understand business. It is nearly impossible to think of a novel that accurately portrays business success. That’s because the virtues that writers tend to admire — those involving self-expression and self-exploration — are not the ones that lead to corporate excellence.

GE's Immelt says to get harder to achieve growth General Electric Co's (NYSE:GE - News) growth will be "harder to come by" in coming years given the prospect the global economy may grow at a slower pace once it emerges from recession, the company's chief executive said. Jeff Immelt said he would look to shift more of GE's resources to China and other emerging markets set to play a larger role in driving economic growth as tighter credit forces the U.S. consumer to rein in spending. "The basic engine of global growth for a long period of time -- maybe 25 years -- has been the U.S. consumer," Immelt said in a speech to clients, business partners and media in Tokyo. "The U.S. consumer is finally going to have to save." The global economy could settle at a slower growth rate once the recession runs its course, making it more difficult for the world's largest maker of jet engines and electricity-producing turbines to expand its business, Immelt said. "As consumers around the world get more conservative, we think that overall economic growth -- not just for a year or two but even post the recession -- overall economic growth may be slower," Immelt said. "Our focus on research and development, our focus on globalization, our focus on customer service and customers has to be increased... in an even more substantial way because growth will be harder to come by and we are going to have to work harder to get it."

Surviving the slump This special report will make several arguments. The pain will eventually end. American business will regain its shine. Many firms will die, but the survivors will emerge leaner and stronger than before. The financial sector’s share of the economy will shrink, and stay shrunk for years to come. The importance of non-financial firms will accordingly rise, along with their ability to attract the best talent. America will remain the best place on earth to do business, so long as Barack Obama and the Democrats in Congress resist the temptation to meddle too much, and so long as organised labour does not overplay its hand. The crisis will prove hugely disruptive, however. Bad management techniques will be exposed. Necessity will force the swift adoption of more efficient ones. At the same time, technological innovation will barely pause for breath, and two big political changes loom. In the next couple of years the businesses that thrive will be those that are miserly with costs, wary of debt, cautious with cashflow and obsessively attentive to what customers want. They will include plenty of names no one has yet heard of.Times change, and corporations change with them.

Critical Functions: Marketing, Operations, Supply Chain, IT & Innovation

Message in What We Buy, but Nobody’s Listening Why does a diploma from Harvard cost $100,000 more than a similar piece of paper from City College? Why might a BMW cost $25,000 more than a Subaru WRX with equally fast acceleration? Why do “sophisticated” consumers demand 16-gigabyte iPhones and “fair trade” coffee from Starbucks? If you ask market researchers or advertising executives, you might hear about the difference between “rational” and “emotional” buying decisions, or about products falling into categories like “hedonic” or “utilitarian” or “positional.” But Geoffrey Miller, an evolutionary psychologist at the University of New Mexico, says that even the slickest minds on Madison Avenue are still in the prescientific dark ages. Instead of running focus groups and spinning theories, he says, marketers could learn more by administering scientifically calibrated tests of intelligence and personality traits. If marketers (or their customers) understood biologists’ new calculations about animals’ “costly signaling,” Dr. Miller says, they’d see that Harvard diplomas and iPhones send the same kind of signal as the ornate tail of a peacock. Suppose, during a date, you casually say, “The sugar maples in Harvard Yard were so beautiful every fall term.” Here’s what you’re signaling, as translated by Dr. Miller: “My S.A.T. scores were sufficiently high (roughly 720 out of 800) that I could get admitted, so my I.Q. is above 135, and I had sufficient conscientiousness, emotional stability and intellectual openness to pass my classes. Plus, I can recognize a tree.” Most of us will insist there are other reasons for going to Harvard or buying a BMW or an iPhone — and there are, of course. The education and the products can yield many kinds of rewards. But Dr. Miller says that much of the pleasure we derive from products stems from the unconscious instinct that they will either enhance or signal our fitness by demonstrating intelligence or some of the Big Five personality traits: openness, conscientiousness, agreeableness, stability and extraversion.

• Is marketing an art or a science? It's both, and that's the problem.Some marketers are scientists. They test and measure. They do the math. They understand the impact of that spend in that market at that time with that message. They can understand the analytics and find the truth.This sort of marketing works when it works, but it usually doesn't. That's because we're dealing with humans, the wild card in the system.The other marketers are artists. They inspire and challenge and connect. These marketers are starting from scratch, creating movements, telling jokes and surprising people. Scientists aren't good at that.

• Re-building Corporate Reputations As governments respond to the financial crisis and its reverberations in the real economy, a company’s reputation has begun to matter more now than it has in decades. Companies and industries with reputation problems are more likely to incur the wrath of legislators, regulators, and the public. What’s more, the credibility of the private sector will influence its ability to weigh in on contentious issues, such as protectionism, that have serious implications for the global economy’s future.Senior executives are acutely aware of how serious today’s reputational challenge is. Most recognize the perception that some companies in certain sectors (particularly financial services) have violated their social contract with consumers, shareholders, regulators, and taxpayers. They also know that this perception seems to have spilled over to business more broadly. In a March 2009 McKinsey Quarterly survey of senior executives around the world, 85 and 72 percent of them, respectively, said that public trust in business and commitment to free markets had deteriorated.
  

The myth of US industry's demise Despite headlines about low-wage workers in China and our factory jobs going to India -- which has happened to some degree -- the U.S. is still far and away the biggest manufacturer in the world. U.S. workers produce 21% of all factory goods made globally, or about $1.7 trillion worth per year. That's significantly lower than the peak of 28% in 1985 but only slightly below the long-term average of 23% for 1970 through 2006. China, the second-biggest global producer, doesn't even come close. It makes just 13% of the world's stuff, or $1 trillion worth. Japan is next with 11%. And Germany, the vaunted workshop of Europe, comes in fourth with a paltry 7.4%. OK, so these numbers are from 2006, the latest data from the United Nations, which keeps track of these things. But China, the hottest contender for factory jobs, has been grabbing jobs from other Asian countries for the most part and not from the United States, says economist David Huether of the National Association of Manufacturers. So the U.S. lead over China in factory jobs may not have changed much since 2006. Here's other evidence of the strength of the U.S. manufacturing base: During the previous economic boom, manufacturing contributed more to U.S. growth than any other sector, Huether says. Though lots of factory workers have lost their jobs in the recession, U.S. manufacturing still employed 12.1 million people as of the end of April. Factory workers' daily toil contributed to 11.5% of the United States' product last year. Many U.S. factory workers are big earners, which lets them consume more, contributing more to growth. They made an average of $71,000 in 2007, or 20% more than the average of all other workers combined. States with the most factory jobs are California, Texas and New York.

• IndustryWeek's top 500 U.S. manufacturers list
• 10 US companies that haven't moved away Some of America's biggest industrial names are thriving right here at home.
• Video: Why U.S.-made thong underwear is better

Clarity Is Missing Link in Supply Chain The world's complex "just in time" manufacturing supply chains are making it increasingly tough for Zoran, and any other single link in the chain, to know what's going on just a few links away. Sometimes, Zoran itself doesn't even know how its own chips are used: One batch it thought was destined for DVD players instead turned up in digital picture frames. The recession has exposed a harsh side effect of the supply-chain system. Because modern industry rewards suppliers with the leanest inventories and fastest reaction times, when economic crisis struck, tech companies up and down the line contracted as sharply as possible in hopes of being the ones to survive. Forced to guess at demand for their products in a plummeting market, everyone hit the brakes, hard. An examination of the electronics supply chain -- from retailers all the way back to makers of factory machinery -- shows that, at almost every stage, companies were flying blind as they cut. The cumulative result: The tech pullback may have been overdone. In March, Best Buy Co. said it could have sold more electronics equipment in the three months ended Feb. 28, but its suppliers' deep cuts made it tough to keep shelves stocked. Suppliers "all decided to build a lot less," says Best Buy merchandizing chief Michael Vitelli. As the contraction raced down the supply chain, its effects became amplified. Rick Tsai, CEO of chip manufacturer Taiwan Semiconductor Manufacturing Co., has said that, in last year's final quarter, consumer purchases of electronics gear in the U.S. fell 8% from the prior year. But product shipments fell 10%, and shipments of the chips that go into the gear dropped 20%. The speed of the cuts are a big change from previous economic slumps. As recently as the early 2000s, companies compiled orders only monthly or quarterly; now they often do it every week. Their quicker reflexes this time kept their inventories from swelling dangerously, as happened last time, supply-chain experts say. This has consequences for economic recovery. Although U.S. gross domestic product fell 6.1%, on an annual basis, in the first quarter, nearly half of that was due to inventory reductions. Since consumer spending actually grew 2.2%, some factories might need to increase output, economists say.

IT Management Slideshow: Dirty Dozen: Inside 12 IT Disasters Learning from your mistakes is good. Learning from others’ mistakes is even better. We looked at 12 major IT failures to learn more about how and why they happened. Each example is unique, but they all have something in common: a chain reaction of pain that rippled through the entire business or organization. Whatever the specifics, breakdowns within the IT organization are rarely contained. They can lose a business customers, they can cause lawsuits, and in some instances they can even shut a business down.

• Projects Gone Wrong Big IT projects sometimes go wrong in spectacular ways, with some common themes running through the disaster stories like fault lines.
• Is the CIO Crisis Here?
• The CIO Role Survey
• The Future of the CIO

Who Says Innovation Belongs to the Small? FOR more than a decade, the prevailing view of innovation has been that little guys had the edge. Innovation bubbled up from the bottom, from upstarts and insurgents. Big companies didn’t innovate, and government got in the way. In the dominant innovation narrative, venture-backed start-up companies were cast as the nimble winners and large corporations as the sluggish losers. There was a rich vein of business-school research supporting the notion that innovation comes most naturally from small-scale outsiders. That was the headline point that a generation of business people, venture investors and policy makers took away from Clayton M. Christensen’s 1997 classic, “The Innovator’s Dilemma,” which examined the process of disruptive change. But a shift in thinking is under way, driven by altered circumstances. In the United States and abroad, the biggest economic and social challenges — and potential business opportunities — are problems in multifaceted fields like the environment, energy and health care that rely on complex systems. Solutions won’t come from the next new gadget or clever software, though such innovations will help. Instead, they must plug into a larger network of change shaped by economics, regulation and policy. Progress, experts say, will depend on people in a wide range of disciplines, and collaboration across the public and private sectors. Today, Mr. Arthur said, the unfolding “digitization of the economy” is in some ways a modern rerun of past technology waves, from steam power to electricity. “It’s not individual inventions that matter so much, but when large bodies of technology come together and have an impact across the economy,” he said. “That’s what we’re seeing now.” In computing, some technological frontiers require size and deep pockets.

Executive Leadership (NOT)

 Shell Investors Revolt Over Pay Plan Royal Dutch Shell PLC, Europe's largest oil company, suffered a stunning rebuke Tuesday when investors shot down its executive-compensation plan, in the latest display of shareholder anger over big paychecks and boardroom excesses amid the economic crisis. Shell is the largest among a growing group of British companies whose shareholders have voted down compensation plans in advisory votes, including Royal Bank of Scotland Group, Bellway PLC and Provident Financial PLC. Large numbers of shareholders, though not a majority, voted against compensation plans at miner Xstrata PLC, oil major BP PLC, and Pearson, owner of the Financial Times. The Shell vote, although nonbinding, shows how the economic downturn has inspired a new activism among shareholders, particularly in Europe, and a greater willingness to challenge board decisions, especially those perceived as rewarding failure. In a charged meeting at Shell's headquarters in The Hague, which was broadcast live in London to U.K.-based shareholders, a succession of investors lined up to excoriate the board of the Anglo-Dutch company for awarding performance-based shares to executives despite the company's failure to reach its own internal targets. Investors gasped in disbelief when results of the vote were displayed. European investors are angry over bonuses that are relatively modest by U.S. standards. At Exxon Mobil Corp., the largest U.S. oil company, Chief Executive Rex Tillerson received a 2008 compensation package valued at $23.9 million, including $1.87 million in salary, a $4 million bonus and stock grants initially valued at $17.6 million, according to the company's latest proxy. Executives were supposed to get the performance-based shares only if Shell placed in the top three of its peers in a ranking of total shareholder return, based on its share price and dividend payouts. Shell placed fourth, but the board's remuneration committee decided to exercise its discretion and award the bonuses. Shareholders in London's financial district were met by protesters holding banners and handing out leaflets accusing Shell of human rights abuses in the oil-rich Niger Delta region of Nigeria. Stony-faced board members also heard strident criticism of Shell's investments in Canadian oil sands, which green groups have condemned as polluting, carbon-intensive and damaging to the environment. There was also strong disapproval of Shell's decision to back away from investments in renewables such as solar and wind energy.

•  Full Survey Results:See complete compensation details for the 200 CEOs in The Wall Street Journal's CEO Pay Survey.

CEOs Should Stop Spinning, Start Thinking Forget the charisma and the polished speeches. Those may have been the qualities top executives were judged on this past year, when every other chief executive was publishing a book, appearing on prime-time television or socializing on Facebook.com. But today, with everyone predicting a more volatile year ahead, business executives are going to be graded more heavily on whether the decisions they make on everything from strategy to talent help their companies grow. They have to stop becoming experts on giving a positive spin to economic warnings and start analyzing the data at hand. This is particularly the case in banking and on Wall Street, as the subprime-mortgage troubles continue to unravel. It's also true in the media and entertainment industries, where the rapid growth of the Internet is upending traditional media; and in pharmaceuticals, where the expiration of patents threatens old giants. In a bumpy business landscape where there are so many demands on executives' time, leaders must determine what's critical to their companies so they can mobilize their people to take action. And they can't assume that just because a rival is succeeding with a certain strategy, they will, too. That's the mistake many finance executives made in recent months. "What led to the subprime meltdown was a manic denial of good judgment because there were warning signs everywhere," says Mr. Bennis.

• Drucker 's Teachings Find Following in Asia
• Drucker 's Legacy: It 's All About People
• What do Managers do?
• 'Leadership Lessons' Guide to Managing

Human Resources Development

The Hubble: Real Men at Work It becomes easy to forget that most people go to work each day to succeed, not fail. Still, it was startling last week to catch sight on TV of men floating in space. This was Servicing Mission 4, NASA's long-scheduled flight to fix the space-based Hubble telescope. It was pure success. Anyone able to avert their eyes the past week from Speaker of the House Pelosi swimming in her own marinade of failure could have watched a team of Americans doing miracles in space for days. he Hubble telescope has become the Washington Monument of U.S. science -- beautiful, beloved and important. One of the astronauts who went up to fix it, astronomer John Grunsfeld, this week called it "arguably the most important scientific instrument ever created." Hubble's good now for at least another five years. Then, once and for all, it will fall apart. On departing the telescope, astronaut Grunsfeld called the week a "tour de force of tools and human ingenuity." And as well of training and raw smarts in the service of, hard to believe just now, nothing but human progress. Lessons abound in what one witnessed during the 11-day mission to restore the legendary Hubble, which ends tomorrow when the astronauts land in Florida. Here's one: Like the Hubble team, try to be lucky enough once in life to be part of a great project worked by great people -- the early Microsoft or Genentech, the Manhattan Project, the 1927 New York Yankees, many now-gone Wall Street financial "shops" at the top of their game, or the Iraq surge. It's an ethos of team-driven possibility caught in the famous title of a book, "The Soul of a New Machine." The mortal enemy of all this is bureaucracy. The Hubble project's struggle not to be strangled by bureaucracy was conveyed last year in a stirring history, and cautionary tale, by Robert Zimmerman -- "The Universe in a Mirror: The Saga of the Hubble Space Telescope and the Visionaries Who Built It." Worth a read. Across 20 years, several thousand very smart people worked on the Hubble project which, easy to forget, was always a line-item in the federal budget. As one of Mr. Zimmerman's reviewers noted, if the Hubble itself hadn't been so compelling, the political system would have killed it. Men broke themselves, their friends and families to get that thing into space.

• Lessons From Hubble (WSJ vidclip)

Free PDF of "How to Be a Good Boss in a Bad Economy" to 98 Readers It’s not easy being the boss during a downturn. Your natural impulse is to focus on your own well-justified concerns, but your people are watching your every move for clues to their fate. • You need to rethink your responsibilities in terms of what your people may lack most in unsettling times: predictability, understanding, control, and compassion. • By making tough times less traumatic, you’ll equip your organization to thrive when conditions improve—and earn the loyalty of individuals who will remain in your network for years to come. Some years ago Robert Sutton led a workshopwith the senior managers of Procter & Gamble that touched on the importance of providing workers with predictability, understanding, control, and compassion. It turned out that his framework aligned with what they’d already learned in the context of plant closings. John E. Pepper, Jr., who was then P&G’s chairman, explained an internal analysis of the effects that management’s actions had on productivity, retention of employees who were offered jobs elsewhere in the company, and sales in the cities where the closings occurred. Plant closings did far less damage when leaders: 1. Announced the closing date and key milestones well in advance and described how events would unfold both for employees and for members of the affected community. 2. Explained in detail to employees and the community the business case for closing the plant. 3. Gave affected employees options for finding other jobs inside the company or resources to job hunt outside. 4. Expressed human concern—in public and in private—to affected employees and community officials. In other words, P&G executives saw the value of predictability, understanding, control, and compassion in times of distressing organizational change.

• Good Boss, Bad Times: Video Interview at The McKinsey Quarterly
• When Layoffs are Immoral: Randy Cohen in The New York Times

Leadership for/of the Future ???

For This Guru, No Question Is Too Big Within the sprawling and overpopulated world of self-styled gurus dispensing advice on management and leadership, Mr. Collins is in rare company. His last two books — “Built to Last” and “Good to Great” — were breakout hits, selling about seven million copies combined. Rather than presenting silver-bullet formulas that are easily forgotten, Mr. Collins’s books offer tangible frameworks for understanding why organizations succeed. His winning streak is about to be tested with his just-released book, which takes a turn, as he says, to the “dark side,” focusing on why companies fail. At any other time, it would seem a long shot, in that it lacks the upbeat message of his previous books. But his timing, given the number of once-great companies now in ruin, couldn’t have been better. Now the stages of decline that he maps out in the book — hubris born of success; undisciplined pursuit of more; denial of risk and peril; grasping for salvation with a quick, big solution; and capitulation to irrelevance or death — offer a kind of instant autopsy for an economy on the stretcher. He writes that he’s come to see institutional decline as a “staged disease” — harder to detect but easier to cure in the early stages — which is likely to foster a sense of corporate hypochondria in many readers. His new book, “How the Mighty Fall,” grew out of a discussion he led in the fall of 2004 at West Point, with 12 Army generals, 12 chief executives and 12 leaders of nonprofit organizations. Mr. Collins put this question on the table: “Is America renewing its greatness, or is America dangerously on the cusp of falling from great to good?” At a break, one C.E.O. pulled him aside and asked him a question that boiled down to, “How would you know if your successful company is on a path to decline?”

In a Word, He Wants Simplicity Q. What is the most important leadership lesson you’ve learned? A. Walking the talk is the most important lesson I’ve learned. There’s nothing that destroys credibility more than not being able to look someone in the eye and have them know that they can trust you. Leadership is about trust. It’s about being able to get people to go to places they never thought they could go. They can’t do that if they don’t trust you. Q. What have you learned to do more of, or less of, over time? A. I read something early on when I was in my first or second management role that you can accomplish almost anything in life if you do not care who takes credit for it. So I’ve tried to do more of that. And I’ve tried to do less of the things that make business more complex. I really like simplicity. At the end of the day, retailing - but you could apply this to many other businesses - is not as complicated as we would like to make it. It is pretty logical and simple, if you think about the way that you yourself would act, or do act, as a customer. Q. So you find that people make business more complicated than it is? A. No doubt about it. I think that all of us read far too many business books. I’ve worked 30 years now in management roles, and a number of times I’ve seen a new C.E.O. come in, and the first act is typically to get the leadership team to an offsite. And you get a consultant - because you can’t do it without a consultant - and the consultant then helps the team design a vision. And then you’ve got all these words, and several thousand dollars and a couple of days of golf later, you go back to the company to actually try to communicate that vision throughout the organization. So you hire another consultant to do that. It shouldn’t be like that. We have a very clear view of what we do for consumers around the world. And we can describe our complete strategy in 10 words. And that makes it very easy to get everybody energized and aligned. Q. So what do you think the process should be? A. I think the best source of strategy is your customer and the people who work for you. I’m not saying there’s no room for a vision statement or anything like that. I’m just saying that we tend to spend too much time on that and not enough on the more practical, down-to-earth requirements that drive business.

Tough Courage "Courage is going from failure to failure without losing enthusiasm," Winston Churchill said. He did not give in to defeatists. Instead he inspired a nation and its allies to greater sacrifice and eventual victory. A recession is like a war in that its effects dig deep into the fabric of a nation, and this time the world. This is our first serious world recession. Poor credit and bad investments circle the world like storm clouds. The earth has become one economic organism, like it or not. Churchill's admonition emphasizes enthusiasm, and that means taking dares. The only way we can count on ourselves is to be willing to embrace some level of pain. The natural reaction to bad times is to cut back. Trim the sails, hunker down, and wait for the wind to abate. But, as any sailor knows, taking charge in a storm means a lot more than hunkering down. It can mean steering in a precise direction to avoid a catastrophic breach. In a recession, every one should be on the bridge and not in the ship's bar. Regaining balance will be the result of combined courageous actions at command stations.