bizzXceleration: Performance, Value and Profit

Over the last several months we've been hammering away at various aspects of business performance from individual companies to whole industries to structural trends and disruptive changes in the macro-environment. Before going on to finish some deep dives we figured it was time to pause for an inventory and survey of some key results, findings and concepts. The graphic is our Table of Contents - or more accurately a structured inventory of the topics we repeatedly turn to because we think these are the key elements that MUST always be kept in mind when evaluating a business and it's performance. A downloadable PDF version is available by clicking on the highlight.

When we inventory the actual posts in key topics the major themes are the series on Corporate Governance and Social Responsibility - at which so many have failed so badly, obviously including the Finance Industry which is worsening a bad situation by denial, the Auto Industry going down the Maelstrom it created and taking the livelihoods and lives of so many with it but also many others. Which leads naturally to questions and assessments of Enterprise Performance - which was the focal topic of the last post so we won't repeat our and BCG's indictments. A key strategic issue is the scope and scale of disruption - not just within the firm but at the Industry, Economy and Geo-political levels; and how badly most are prepared or preparing for the multiple cusp points we're all going to be crossing over in the next few years. The downloadable PDF version of this inventory is also available by clicking on the highlight. Sadly we confess that the blue-highlighted titles which should take you to a post don't since we haven't figured out the technique/technology that well. In the inventory though you'll find pointers back at key exemplars of companies who are adapting (WMT, GE) and industries who are struggling or worse. Including Autos and Finance but also, and perhaps surprisingly, Technology.

Guidance From the Master

In the rest of this post we want to spend some time focusing on key concepts and arguments that have accumulated in all those posts, starting with core principles that should guide business performance but don't appear to. For those principles we've looked to our own work and techniques, Warren Buffett and, most especially Peter Drucker. When Prof. Drucker passed a few years ago the WSJ had a nice review of some recent survey work and gifted us with this summary of his key arguments (from which we think at least two key ones are missing but we'll circle back later). Now we've also taken the liberty of creating a collection of this and other principles as well as other key charts from these posts that is also downloadable. In it you'll find major graphics on Principles (Drucker, Buffett, ours), the composite mantra of "situationally aware" business management that monitors and acts on Geo-politics, Structural Changes, Economic Cycles and Enterprise Performance. Consider that a Table of Contents which has some key charts in each area. For example on industry structural change (Autos, Finance, Energy, Technology) and on a blueprint for analyzing business performance, based on our BizzXceleration Framework. That starts with simple questions and heads toward the engineering assessment tools. "Elements of Business Performance" is downloadable - happy reading.

Situational Awareness: Monitoring the Environment

The accompanying graphic is probably pretty terrible by Edward Tufte's standards let alone by Seth Godin's. Sorry about that but our key message is not so much as the specific content as trying to show all the things in one ideographic composite that a business must monitor and act on. The "Elements" download actually has the separate components plus additional ones so if you want to dissect them, again, dload the file. After all if you actually hired a consultant to do the work and customize it for your situation it'd cost a lot of money :) ! These are the major domains in which the world is under-going major structural changes, and only one of them is under the control of management. They are, moving around the clock, the Geo-political Macro-environment, the Economic Crisis, Structural Changes in industries and the nature of business and the key components of the integrated and performing enterprise.

Welcome to the Storm: Scope and Scale of Disruption

Just to put a point on it, flat-footed as most have been caught, you have to wonder how many executives, investors or other stakeholders are really thinking about how many things are changing by how much. We've tried to map out what's going on in this graphic to illustrate those points. Most management teams have grown up with a lot of churn and turmoil inside their firms but it's been a long-time indeed since this many things have been disrupted this much, this fast. We've defined five levels of disruption that are going on simultaneously: 1) within the firm, 2) the need for treating the firm as a whole, not just piece-parts, 3) industry and sector changes, 4) worldwide economic changes and 5) geo-political changes. It's a sad fact that most efforts, such as they are, are confined to #1 and ignore the other, and more important four ! AT least IOHO !!

Business Performance and the Whole Enterprise

Like we said the key between things that can't be controlled but must nonetheless be managed to is the way the firm faces these changes. To wrap-up the introduction let's return to the words of the Master on what the primary tasks of management should be. It doesn't get any clearer than that, does it ? Management is charged with turning the component parts of the enterprise into a whole that's more than the mere sum of the parts. Ask yourself, for example, why the USA Olympic Basketball Team did so well this last Olympics and so poorly in '04 ? It's because the latter was a collection of individual stars who played their own game for their own advantage. The former was a team where every player was focused on the performance of the entire time. The results tell the story. The same is true of the enterprise. But that was just one tournament - a business is much bigger than a sports team and exists for a lot longer. No decision taken today can exclusively focus on today's best advantage, nor on tomorrow's. Each decision must act to maximize the sustainable performance of the enterprise on a balance between the short- and long-runs. The fact that Detroit is now a black hole of subsidies, job losses and collapsing local economies as expedient short-term decisions bring home the consequences of ignoring the long-term impacts would seem to prove the argument.

After the break you'll find some more key exhibits along with discussions on several of these key points, if not all of them. But the bottomline here is that we are crossing over the boundaries into an era of the biggest changes in the macro-environment and performance requirements in many decades. A crossing which will impact us all and one for which we're seeing little concern or preparation.

We hope you find this summary, wrap-up and interpretation helpful. It's the end-result of several months of work here and, taken all together, we hope it provides a useful toolkit for evaluating business performance in turbulent times.

...continued after the break.

Continue reading "Bidding Review: Macro-environment, Disruptions, Business Performance" »

Posted by dblwyo at 06:21 PM | Permalink | Comments (1)

Let's pick up the thread of our listings of key postings with the finale - specific company analysis. At the end of the day the central focus of this blog, even if/when the weight of postings seems to indicate otherwise, is on improving enterprise performance. Hence our repeated mantra of Economy - Market - Industry - Company. Now you might be asking yourself why does that matter ? Other than that's how we all make our livings directly or in-directly (public organizations may make society more effective but it's still companies who make the squirrel cages go round - puns and images intended).Just to put a point on it consider this recent chart of GE's market performance as well as some recent headlines and excerpt:

"GE at 4 1/2-Yr Low as Broker Wants More Unit Sales General Electric Co (NYSE:GE - News) shares fell for a fourth straight day on Monday after J.P. Morgan cut its rating on them to "neutral" from "overweight." The shares fell 2 percent to $28.55, after touching a 4-1/2 year low early in the session on the New York Stock Exchange. J.P. Morgan said the second-largest U.S. company by market capitalization needed to sell off wide swaths of its operations to restore investor confidence."

 Frankly we think that whole line of argument is absolute unsinn based on not understanding the business - and if we don't pay analysts for that then what justifies their compensation (and GE's investor presentations are very clear and to the point so no excuses). Nonetheless Immelt and crew screwed up badly by not being better at economic analysis and in planning ahead for its' impact on their company. And the headline/story certainly captures the enormous pressures they're under, justified or accurate or not.

If GE is one of the better and more well-run enterprises with an enviable track record measured at least in decades what does that say about understanding performance for the non-GE's of the world ?  As usual we have some graphics for you to consider where we've been categorizing at least the "headline" companies, so everybody can dig into and verify the background if you choose, over the last several years using our enterprise performance criteria. The first graphic is, shall we say, the mal-performing companies. Now sometimes they migrate...sometimes even to the well-performing list....and back ...or visa versa as well. That is they start out as good and then a failure to adopt turns a Dell from exemplar to trashcan.

Consider this second graphic which shows the relative better performing companies in appropriate categories. You might also want to notice that to balance out the tables we moved "Strugglers and Stragglers" to the good chart. Now these charts aren't absolutely up-to-the-minute but you'll notice that GE is one of the few, IOHO, who's in the sustainable column of demonstrated excellent performance - no matter what the market's short-term impressions might be. And darn few others. On the other judging from a recent post (Dell Computer: It Ain't Your Grandfather's Beige Box) Dell might be in the process of re-inventing itself. They're certainly doing a lot of the right things, or so we've judged. On the other hand Starbucks probably deserves a significantly revised entry indeed.

After the break you'll find the table of company specific postings, including the long series on Home Depot that kick-started the whole effort and a prior analysis on Citi. And just as a reminder the analysis uses the "framework" and relies on a lot of industry analysis as well. For example our analysis of the state of play in the Finance Industry leveraged and adapted the model developed to analyze Citi. Partly because their investor relations reports were so good and gave us all a great picture of the major components of the whole industry. Comes full circle. Which is another way, btw, of saying that the key postings on business and industry analysis are be used here to do specific companies. Need the framework to do the analysis - a blueprint and checklist. Need to the analysis to validate and verify the framework.

Over time we hope to add more companies to the inventory but meanwhile here's Home Depot, Citi and Dell. Which are also a retailer, a bank and a manufacturer which links back to the and provides insights on any other Retailer, Bank/Finance, Manufacturing or Tech company. Consider that as well. 

Continue reading "Key Postings VI: Company Level Business Analysis" »

Posted by dblwyo at 05:29 PM | Permalink | Comments (0)

Two industries where we've ended up taking particularly deep dives are Technology and what we're calling Technomediatainment - the emerging composite of Telecom, New Media, Entertainment and Consumer Electronics. After the break you'll find the usual summary tables with all the previous posts in these areas separated into those categories.

The two industries are interesting for their own sakes, as exemplars of the approach we take to business analysis and for the implications and impacts on the broader markets and economy. The first two Tech posts focused on the market situation and pointed out with slowing Capex spending (thereby linking back to our "understand the context" theme of coupling to economic analysis) that the unusual performance of the Tech indices was unlikely to continue. An argument which seemed to  first be born out from Oct to Mar and then wrong as the NDX/Nasdaq bubbled up over the SP500. Notice however that, literally today, the NDX is now moving in concert with or lower than the S&P. Interesting, eh what ? That question will be settled by whether or not earnings hold up unusually well - something we don't think will happen as the Economy continues to tip over but which is likely to lag other indicators.

Exactly how the Tech & Techno enterprises perform will result from the confluence of changes in industry structure, the emergence of new products, services and solutions and the performance of individual companies. All of which is discussed in more detail in these prior posts by some of which can be briefly reviewed here.

Technology

1. Industry Structure - Technology per se is essentially a commodity, at least on the bottom part of the stack. On the top part, the applications/content/solutions portion, there's still lots of room for value creation. The former assertion leads to the wave of consolidation we've been seeing among the platform providers and middleware vendors. The latter on-going challenge leads to the struggles of the application vendors as well as the emergence of SaaS, e.g. Salesforce, to try and fill in that gap. The biggest untapped opportunity is to provide reasonably sophisticated business applications to the grossly under-served mid-market.

2. New Frontiers - the  Application Space. The interesting thing is the continuing challenge on the part of vendors, customers/users, analysts and service providers still wrestling with the multi-decade old "two cultures" problem where Tech guys like bright shiny things and resent adult supervision. Contrawise business guys just want it to work but aren't willing to invest the hard...hard work in learning enough about Tech - at least in terms of end-use - to provide the guidance, participation and supervision required. That btw also means that those invidual user enterprises who can and do learn how to manage their Tech investments will continue to enjoy a sustainable competitive advantage. Sadly and surprisingly that's the same list of the "Usual Suspects" it's been for decades, e.g. Fedex, WMT, et.al.

Technomediatainment

1. Industry Structure - the key factor here is the rapid convergence of the various networks to a common infrastructure based on the same "stack" that underpinings the Internet and creates the strategic opportunity for XoIP where IP = Internet Protocol and X = Data, Voice, Video, etc. etc.

2. The Techno Stack - this shift creates huge opportunities for the Equipment Sector and the Service Providers (Phone and Cable companies). It also enables a revolution in the New/Old Media and Consumer Electronics companies, an exemplar of which is Apple's successive introduction of the iPod and iPhone. Which are really digital consumer electronics that are complete end-to-end solutions that are destroying the underpinnings of the old analog world in both media and consumer electronics. Whee...we're having fun now.

Winners and Losers: the Undiscovered Country

The separation between the winners and the losers will be between those who establish an on-going, sustainable and repeatable innovation capability and those who do not. And we DON'T just mean invent new crap but also execute on the delivery of those inventions. The relevant operating distinction between invention and innovation is whether or not you deliver it and make money in the process. Clever is fun but doesn't count. This will get interesting in all the sectors of these industries but is particularly fascinating to watch as as the New Media companies adapt to the "Content Wars". The series of posts on Innovation walk thru the general requirements and characteristics involved - here illustrated by contrasting pathways. So where do MSFT vs YHOO fall ? How 'bout Dell vs HPQ ? Or Nintendo or AAPL ?

Anyway...that's certainly not all the accumulated graphics digging into various aspects of these Industries. And definitely all the discussions, analysis and readings. If anything strikes your fancy you'll have to follow the pointers below to dig in some more. Bon Appetit' indeed. We are definitely living in interesting times. 

Continue reading "Key Postings Vb (Technomediatainment): Maturities, Barriers and Disruptions" »

Posted by dblwyo at 05:50 PM | Permalink | Comments (0)

 Here we continue building, categorizing and summarizing the Business Analysis Toolkit/Dashboards by taking a deeper dive on certain key Industries. In our view to understand how a particular enterprise is going to perform one needs to understand its' context - the environment and ecology in which it lives. On the broadest level that is the geo-political environment - think of it as the equivalent of the climate, weather, terrain and so forth.

Then there are the broad Economic trends and condition which define the ecology within which it must function. A set of challenges which are usually shared by all firms within a particular industry.

And there are always many characteristics common to all firms within an industry. For insiders there will be huge differences in individual companies. Yet, in our experience, firms in a particular industry have more in common than their differences; something they are usually often not willing to admit publicly. Yet something they all recognize and deal with - after all, otherwise there wouldn't be industry conferences would there ? Years ago I got involved with the periphery of IBM's efforts to establish a common reference framework for all its' manufacturing operations. This took years of heavy investment in the large teams. And one of the biggest barriers they faced was the argument of every division and every plant that they were different. Yet, despite stubborn opposition, the central team managed to hammer out a common, shared process model of the general manufacturing enterprise. A model which we then proceeded to test across many other manufacturing industries and sectors. We mirrored and replicated that experience across many other industries as well including Retail, Distribution, Transportation, Finance and Healthcare.

What we found was that there was/is/will be a commonality of approximately 80% in processes across an industry. And that the differences usually lay, or should lay, at the detail level. Yet at the same time those processes were vastly different in name, structure, organization, staffing, etc. So one can't blindly impose the common framework on each firm. Rather the common framework provides a template or blueprint to use as a starting point for analysis, customization and configuration.

It also and most importantly provided a blueprint of things that should be being done even when they weren't. And that was the most telling finding of all. In fact what we found was that there were a lot of innovative ideas that carried, at least potentially, across industries. And offered major new sources of innovation and advantage. Just as one example the Airline industry built its' business models around a process called "Yield Management" - getting the last marginal dollar possible for the last marginal seat. Well a manufacturer couldn't implement Yield Management the same way that an airline could because the products were so different. But the underlying enabling processes required of market analysis, demand forecasting, adaptive pricing and customizing product mix and availability to narrower markets did apply. Ditto for retailers.

So when we analyze industries in our posts this is the underlying approach that's built into our discussions.

1) Industries share a common set of problems and challenges.

2) Industries share a common framework or blueprint that defines the collective best practices and "to-be" vision of the things they should be doing.

3) That common baseline can be used to evaluate the industry as a whole and individual players within the industry. Further elements of that baseline are "sharable" across industries; or can at least be used to analyze opportunities and risks.

4) The industry also shares a common ecology in terms of industry structure and dynamics that defines the shared environment different firms must compete in.

5) The ideal enterprise and the industry ecology are dynamic, constantly evolving and are inter-dependent.

6) By understanding the current and evolving status and characteristics of the enterprise and the industry one can anticipate many of the pressures, opportunities and future paths of both an industry and a particular firm.

We'll have to see how that holds up as time goes on but in the tables after the break we've listed and commented on the prior posts on several key industries. Hopefully this serves a couple of purposes. First, if you're interested in tracking down some ways of analyzing a particular industry this should make it easier. Second it's a catalog of industry analysis tools, approaches, readings and other resources. We hope you find it useful and valuable.

Below you'll find the pointers to the prior posts on Airlines, Autos, Retail, Oil/Energy and Finance Industries. We will point out that the headlines this week and last are strangely congruent with the discussions and guesstimations in these prios however. In other words, not to put to fine a point on it, the analysis seems to be holding up reasonably well so far. Which may argue that there's something to the approach, perhaps ?

Continue reading "Key Postings V: Industry Analysis - Enterprise, Industry Ecology, Evolution" »

Posted by dblwyo at 05:49 AM | Permalink | Comments (0)

O.K. we've finally combed back thru all the postings and followed up on the promise/threat to collect the various priors together. It turns out there's enough across a range of topics and domains that the "Business Analysis" tables will get split across three seperate posts. Here we're going to focus on the general approach to Enterprise Performance Analysis, specifically five major clusters - or continuing to beat our control system metaphor to death - consoles/dashboards:

1) Enterprise Performance: why it matters and the impact, including tables categorizing various headline companies into the good, the bad and the ugly as well as some interesting commentary from Carl Icahn.

 2) Financial Engineering: a key component of the last several years has been under-investment in hiring and capex and the largest investment in buybacks in decades. What's the impacts and implications for earnings outlooks ? And most especially - for long-term performance ?

3) Business Environment: businesses control what's inside their walls and must cope with the externals but, as should be very clear by now since it's the whole point of the dashboard argument, understanding how the wind, waves, and currents are setting is essential. 

4) Business Analysis: checklists, blueprints and frameworks along with associted readings and a guide to Warren Buffett's master class on business performance analysis. What are the elements, how do they work together, what should you be looking for and how do you go about looking. Tnink of these as performance blueprints and evaluation templates.

5) Functions and Issues: the enterprise consists of key fucntions like Customer Service, HR or Technology. From time-to-time we'll take a deep dive on a specific function or issue to understand what it is and how it should work vs generally does. Among other things this section includes some interesting work on HR and Innovation as well as Strategy. 

In the table below you can think of the postings detailed below as being the ones behind the left-hand column (sorry if there's some formatting problems - it's better after the break):

Continue reading "Key Postings IV: Business Analysis Foundations" »

Posted by dblwyo at 06:13 AM | Permalink | Comments (0)

This is the third in a set of postings collections designed to provide 1-stop shopping for key and critical topic areas. The previous ones dealt with the Economy and the Markets and both can be found in the Key Posts archive along with selected individual key posts. The basic idea in all cases is to collect pervious fairly deep dives that provide tools that ought to be in your toolbox for understanding and analyzing each of these areas. Hopefully with the idea that the fluttering complexities of the headlines and various talking heads can be filterred and interpreted into a coherent whole using them. You'll have to let me know.

As just about everybody has realized this ain't your standard downturn because it's being heavily influenced by deep structural breakdowns in the credit markets. Earlier posts reviewed the situation we face with a "normally" slowing economy compounded by the sudden downturn in Housing which was, directly and indirectly, the engine that drove our so-called recovery over the last several years. The boom in asset prices, including it should be noted, the stock market was driven by liquidity and leverage based on the gross under-pricing of risks (as well as bad to malfeasant business management in the financial sector).

Continue reading "Key Postings III: Credit Breakdown, Liquidities and the Fed" »

Posted by dblwyo at 02:09 PM | Permalink | Comments (0)

This is the second post collecting interesting and/or useful posts that provide what we hope are valuable tools for understanding a particular subject area. The overall structure is built around our Economy-Market-Industry-Business mantra with some specific additions. This one focuses on understanding markets and the consequences for investments. Given that the markets were down as much as 2.5% today before recovering almost to breakeven, which in our view reflects a reasonable grasp on the various crisis facing us, this might be timely. We'd have to guestimate that many of the market participants believe that all these various critical factors are reflected in earnings estimates and pricing valuation (PE ratios). Which you'll allow us, please, to doubt ! The prior post summarizing the Economic Tookit and the preceeding regular Readfest and deeper dive posts on the economy, especially the the strong views of Messieurs Feldstein and Summers suggest that doubt is well-grounded. As does the brilliant ad hocary of the Fed over the weekend. It seems extremely hard to us to reconcile the two perspectives - but that's what makes horse races.

So as an aid for you to do your own thinking we offer up the follow lists of posts along with descriptions and addresses. The table proceeds from fundamentals showing how earnings are linked to the economy to tools and approaches for grounded valuation analysis. Extended with more tools and frameworks for interpreting market behavior at different timeframes by looking at Structure/Fundamentals/Technical/Sentiment. And then translated into somewhat more specific guidance on portfolio structure, instrument choice and investing strategy that builds on these foundations. Finally we sample some previous Market Status summaries and readfests which use these various approaches to try and interpret things. You'll have to decide if it's workable and satisfactory of course; but on the whole it's turning out to be a fairly accurate and useful set.

Continue reading "Key Postings II: Market Analysis and Investment Planning" »

Posted by dblwyo at 03:18 PM | Permalink | Comments (0)

Over the weekend in response to our Bear-Sterns and the credit crisis post a friend e-mailed back to ask for specific recommendations for re-positioning his investments. While we don't provide specific advice, particularly to friends, we have built up a decent little toolkit of ways to frame and think about that and related problems. Having found ourselves pointing back frequently to some of those prior posts we decided to create a shortcut and collected previous posts into a single category where what we think are key tools which you can use are assembled in one basket. After the break you'll find the first guide table to the Economic Assessment Toolkit. There are a couple of things we'd like to note to set the stage.

Continue reading "Key Postings I: the Economic Assessment & Outlook Toolkit" »

Posted by dblwyo at 10:26 AM | Permalink | Comments (0)