Volume 2, Issue 7
ã 2000 Hopkins and Company, LLC
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Competitors often join forces to exploit opportunities and issues of mutual benefit. Companies form trade associations to represent common interests. Alliances produce industry-wide standards that can reduce costs and improve effectiveness for all participants. Partners with different competencies rely on each other to deliver products and services to the markets they serve. The pace of alliances seems to have increased as “old economy” companies attempt to embrace some of the practices of “new economy” companies. We’ve begun to pay attention to what appears to be a diminished ability of large companies to overpower smaller competitors. Our perspective may be formed by increased antitrust actions, as well as by some unusual mergers. Companies that a few years ago seemed to avoid anything “not invented here” are welcoming the innovations and ideas from outside their corporate walls.
Easy access, n’est pa? Da!
We read in The Wall Street Journal (June 7, 2000) that seven large international banks banded together to provide major foreign exchange clients with a single electronic interface for online spot and futures trading as well as reading the research produced by each bank. Until now, a client needed to use one proprietary box for each bank with which it did business. By using the shared system, called FXall.com, a client can see on one web site the competing offers from all seven banks. While three of the largest banks involved in currency trading haven’t entered the alliance, the fact that seven competitors worked together on a solution for their clients is remarkable.
Is your organization more likely to be one of the seven in the alliance, or one of the three on the outside? Why? Have you examined the processes your customers use to interact with your company and your competitors? Have you made customer comparisons easy or hard? Will your strategy survive today’s technology tools? Can you lead changes to serve customers better? Will you?
We can remember when IBM was used as the best illustration of the management mentality that avoided anything “not invented here.” By mid-July, a company called e2open.com will be operating, the result of eight companies investing in a new company that will trade in electronic, computer and other equipment, a global business to business market estimated at $700 billion. The founding members are IBM, Hitachi Ltd., Matsushita Electric Industrial Co., Toshiba Corp., Seagate Technology Inc., Solectron Corp., Nortel Networks Corp. and LG Electronics Inc. According to IBM, e2open.com's electronic marketplace “will bring together thousands of computer, electronics and telecommunications companies -- of all sizes, worldwide -- to plan, manage and execute supply-chain transactions over the Internet.”
If you are part of a large organization, what are the implications of technology that enables small companies to operate with ease using tools that you helped create? If you are part of a small organization, how can you exploit technology to compete more effectively with larger competitors? Are you a partner in alliances that forward the interests of your company?
For many years, General Electric Company has been involved in factory automation, leading to significant cost reductions. Since many of the GE activities have been self-generated, we were intrigued to note the formation of a new company, GE Cisco Industrial Networks, which is 20% owned by Cisco Systems. According to a statement by Lloyd Trotter, President and CEO of GE Industrial Systems, “we've combined GE's strength in factory control and automation with Cisco's capability in information technology. We've created a unique offering that will be delivered by a team of experienced and cross-trained engineers and consultants.”
How do you know when to call in a partner and when to proceed on your own? What strengths, skills, weaknesses and doubts do the partners bring to the venture? Can you find a partner who will create a unique offering with you?
Enemy not invited
The increase in alliances being formed doesn’t mean that enmity has become unfashionable. The New York Stock Exchange is reported (The Wall Street Journal, June 8, 2000) to be forming what it calls GEM, a Global Equity Market. According to the Journal, “The Big Board's coalition includes the Australian Stock Exchange; the unconsummated Euronext alliance between exchanges in Amsterdam, Brussels and Paris; the Stock Exchange of Hong Kong; the Bolsa Mexicana de Valores; the Bolsa de Valores de Sao Paulo; the Tokyo Stock Exchange; and the Toronto Stock Exchange.” One prominent player missing from the alliance is the NYSE’s longtime foe, Nasdaq, which has formed alliances of its own with some of these and other international exchanges. It’s pretty clear that NYSE doesn’t want to tarnish its brand with many of the Nasdaq listed companies that don’t meet NYSE standards. The inability to access the top Nasdaq companies may be viewed as a small price to pay to keep out others.
Which of your competitors are true enemies? Which could become allies? What actions could change the way you think about competitors?
Three bond dealers who collectively represent 35% of the market, Goldman Sachs, Merrill Lynch and Morgan Stanley Dean Witter, have created BondBook, LLC, as a means to facilitate the online trading of corporate, municipal and junk bonds. (The Wall Street Journal, June 13, 2000). By the fourth quarter, institutional investors will be able to trade bonds with each other online. We’ll see what participation levels are like, and what this will mean for profitability.
Has some aspect of your operations remained unchanged when it seems inevitable that change will eventually occur? What holds you back from change?
You’re different so you get differential pricing
American General acquired an unwanted legacy when the past practices of acquired companies called for expensive corrective action today. It seems that insurance agents were charging higher rates to black policyholders than to whites. "It was imperative that we move swiftly and responsibly to correct an unfortunate historical practice," said Robert M. Devlin, chairman and CEO of American General. "We set the highest standards of ethical business practices as we help our customers achieve their lifetime financial security goals. The proposed settlement reflects this standard of excellence and is consistent with our values." It’s likely to cost American General over $200 million to reduce premiums, revise coverage, and refund excess premiums on over one million insurance policies held by blacks nationwide.
Have you explored any liability at your organization for past practices? Do your present operating methods create a liability for the future? How defensible is your differentiated pricing? Could a particular market segment claim that your practices or prices discriminate unfairly and demand retribution and damages?
Profits at not-for-profit organizations
The June 26 issue of Business Week included an interesting article on the increase in profit making ventures by non-profit organizations. Non-profits have always had the ability to enter into profit making activities that are apart from their core mission, and they pay taxes on those ventures. Through lots of examples, Business Week makes the case that the increase in profit making activities calls into question the reason for tax-exempt status for some organizations. While many non-profits set up profit making subsidiaries so as not to risk the tax status of the parent company, the differences in activities and operations between the separate entities can be indistinguishable. A brand established under the benefits of non-profit status can be exploited through subsidiaries, the profits of which can be directed to shareholders who need not be tax-exempt. In the marketplace, the brand looks the same.
If you work for a profit making company, are some of your competitors not-for-profit organizations? Have you voiced your concerns to legislators that tax treatment needs to be examined for nonprofits? If you work for a nonprofit organization, how do you determine the difference between activities consistent with your core mission, and those outside the mission?
Intentions don’t matter
Community calculator doesn’t compute
Wells Fargo Mortgage didn’t become the largest lender to minorities by endorsing discrimination, so we were surprised to read in The Wall Street Journal (June 21, 2000) that the Association of Community Organizations for Reform Now (ACORN) filed suit alleging that Wells Fargo Mortgage uses the Internet to discriminate against minorities and encourage racial segregation. It seems that a link on the Wells Fargo Mortgage website to a tool called The Community Calculator used language in describing neighborhoods that contained racial descriptions, and that whites were steered to white neighborhoods and blacks to black neighborhoods. On June 23, 2000, Wells Fargo announced that it has disabled the community search service pending an examination of the editorial content of the calculator and whether such content is consistent with Wells Fargo’s commitment to low and moderate income and minority homebuyers. Wells confirmed that it has no control over the content of the calculator, but provided the link as a service to consumers.
When you’re in a situation without control over content, what actions do you take to ensure that the content remains consistent with the principles and values of your organization? When your organization’s name becomes associated with the actions of another entity, how do you ensure that the association reflects positively on your company? Would you have acted quickly, as Wells did, to disable the calculator?
Here are selected updates on stories covered in prior issues of Executive Times:
Ø The cover story of the September 1999 issue of Executive Times explored situations involving a lack of trust in individuals or companies. In the weeks since Judge Jackson’s ruling on the Microsoft antitrust case, we keep hearing one word the judge used about Microsoft in his judgment: “untrustworthy”. In his Memorandum and Order, Judge Jackson said, “…Microsoft has proved untrustworthy in the past.” Here’s another reminder that we build trust slowly and can lose trust easily. The millions of dollars Microsoft is spending on its image campaign, including both advertising and lobbying, won’t even begin to erase the impact of the one word that labeled the company precisely and memorably.
Ø The February 2000 issue of Executive Times lead article explored the different ways that companies are waging wars to attract and retain the best talent. We found it ironic that within a few weeks in June, we read about the replacement of Proctor and Gamble’s CEO after a brief tenure, 17 months, in that job (but a lifetime at P&G) and the notable alumni of P&G who have gone on to head companies of their own, including Scott Cook of Intuit, Steve Case of America Online, Steve Ballmer of Microsoft, and Gary DiCamillo of Polaroid. The reason given for CEO Durk Jager’s departure is that “we undertook too much change too fast.” It sounds like P&G has headed back to the old ways of doing business, and we’re likely to hear more about famous alumni than about P&G’s speedy adaptation to today’s competitive environment.
You may not have known Robert Foman, but chances are you recall the phrase “When E.F. Hutton talks, people listen.” Foman spent 35 years, his entire working career, with Hutton and its predecessor firms, leading the company’s growth in the 1970s and 1980s. Foman yanked those ads in 1985 after the firm pleaded guilty to 2,000 felony counts of fraud whereby Hutton manipulated customer accounts to earn increased interest for itself. While Foman was not implicated in the fraud, he was CEO at the time, and within a few months, the Board turned operating control over to another executive. One of his strengths as a manager was building camaraderie that others felt working with him, as a consequence of a loose management style. A year or so after the fraud event, Foman wrote in a letter to The New York Times that that a chief executive should be entitled to rely on his subordinates to perform competently and faithfully. “But that does not mean that the chief executive is personally liable for all the actions or failures of the other officers and managers.” Foman died at the end of May in Florida at age 75.
We didn’t often agree with his politics, but we still enjoyed his editorial cartoons because they always found a way to make a point with great humor and precision. He was neat, quick, clean and effective. Jeff MacNelly died in early June at age 52. His illustrations for Dave Barry’s columns made us laugh as hard as Barry’s text. We’ll miss reading Shoe in the morning paper. Here are some quotes from his Chicago Tribune obituary: "The world has lost a quiet genius," humorist Dave Barry said of his close friend. MacNelly drew illustrations for Barry's syndicated column. "He was a hell of an artist ... a guy who had zero pretentiousness, a guy who never drew attention to himself except to make fun of himself, a guy who could have run with the media elite, but was much happier having a beer with his plumber." "Every cartoonist was his friend," said Dick Locher, who draws "Dick Tracy" and is a retired Tribune editorial cartoonist. "We worked side by side for 20 years and laughed like crazy together; everything was funny." We’ll miss all the laughter MacNelly brought to us.
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We admit that the title Blown to Bits did catch our attention and pique our curiosity. Philip Evans and Thomas S. Wurstler, both of The Boston Consulting Group, wrote this book for three audiences: executives in “old economy” companies, entrepreneurs, and academics. The authors don’t bore the reader with more content than is necessary to set a context and make a point. One key conclusion is that the value and use of information demands a shift in strategy. Here’s a sample:
“In the vast majority of traditional competitive situations, the defense has the advantage. But when the economics of information are shifting, insurgents are advantaged precisely by their lack of legacy systems, legacy assets and a legacy mindset. Having nothing to lose becomes an advantage.”
Bold statements like that scare entrenched “old economy” executives, and stimulate the entrepreneurial insurgents who often have little to lose. Academics are likely to remain skeptical, since few statements are backed with facts. We found the ideas in this book to keep us thinking long after reading them, and recommend it.
Made in Japan
After reading SONY: The Private Life, we were surprised that management gave author John Nathan unprecedented access to Sony Corporation executives and records. While we were disappointed that we didn’t find out much about the causes and lessons of the Betamax fiasco, we were treated with a lengthy analysis of the reasons for Sony’s expensive entry into the world of Hollywood. If you’ve ever wondered what it’s like to work for a large company that’s run as a family business, read this book. We found it fascinating and revealing.
Best memoir yet
We’ve been finding the memoir genre tedious and overdone, but every once in a while, there’s a life that makes us curious to give a memoir another try. We’re glad we read The Measure of a Man: A Spiritual Autobiography Sidney Poitier. Poitier’s strength of character and personal integrity shines on every page. As an added bonus, late in the book, we came across a reflection that made us think of some executives who may face similar experiences of losing touch:
“I had come to believe a little bit in my own press clippings. Having been a principal player in motion pictures for a very long time, mine was considered a successful career, and certainly it has provided a good living for my family and me. I’ve received plenty of recognition, and I’m well thought of throughout a sizeable portion of the world. Moreover, I’ve become closely identified with several of the parts I’ve played---uplifting, interesting, positive, good guys, brave and with dignity. You can’t receive (and enjoy) those kudos and that kind of acceptance without some of it going to your head. A little bit, anyway. And if you keep hearing it, somewhere along the way you start accepting it as the truth. I had, in fact, reached that point…Bathed in all that praise, I had lost touch with my own personal measure of myself, a more realistic assessment that incorporate the weaknesses and foibles, the generosity and the darkness, the human vulnerability.”
Read this book, and give a copy to a friend. If you choose to give it to an executive whom you think has lost touch with reality, we’ll keep that as our little secret.
When we picked up a copy of James Bradley’s Flags of Our Fathers (to read off and on between Flag Day and Father’s Day), we expected a nostalgic World War II story. Instead, we found a detailed account of the six men who appeared in “The Picture” of the flag raising on Iwo Jima, and their lives before and after the 1/400th of a second that captured them together on film. We read about the battle in great detail from the perspectives of Japan and the United States. We came to know several individuals whose stories are told with love and respect in this fine book. If you’re interested in finding out more about the making of a Marine, the story behind The Picture, and the lives of six individuals whose involvement in The Picture and at Iwo Jima led them to different places, read this book, which we highly recommend.
ã 2000 Hopkins and Company, LLC. Executive Times is published monthly by Hopkins and Company, LLC at the company’s office at 723 North Kenilworth Avenue, Oak Park, Illinois 60302. Subscription rates for first class mail delivery of the print version are $60.00 per year (12 issues). E-mail subscriptions are $30.00 per year. Single issues: $10.00 print; $5.00 electronic. To subscribe, sign up at www.hopkinsandcompany.com/subscribe.html, send an e-mail to , call (708) 466-4650, or fax to (708) 386-8687. For permission to photocopy or e-mail Executive Times, call (708) 466-4650 or e-mail to . We will send sample copies if requested. The company’s website at contains the archives of back issues beginning in the month after the issue date.
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