Executive Times

Volume 5, Issue 9

September, 2003


ã 2003 Hopkins and Company, LLC

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They’re Doing What?

The news doldrums of summer may contribute to creating the phenomenon we observed while reading the business press over the past few weeks. More often than not, after reading a story, we asked ourselves the question, “They’re doing what?” Perhaps it’s a form of strategic encryption, or a way of expressing the dictum, “The best defense is a good offense.” One way or another, we noted frequently that companies and executives were surprising us by their actions. This month we look at a company that’s suing its customers; a company that’s thrown out its own practices to copy a competitor; a CEO who gave back his severance pay; and a media giant whose lawsuit helped an enemy. As you read these stories, consider the impact of the element of surprise as you carry out your objectives. Do you fear the unexpected? Do you surprise your competitors? Are your actions counterintuitive? Are your actions likely to lead toward unintended consequences?


Fifteen new books are rated in this issue, beginning on page 5. This month’s reviews are full of surprises. We awarded two stars to a book written by Ken Blanchard. Who would have anticipated that, given our run of DNR ratings for his earlier books? We read a bunch of debut novels as midsummer arrived, and actually liked some of them. On the other hand, four books received skimpy one-star ratings this month. It says something about the lazy days of summer if we actually kept reading books we didn’t like. Jump ahead to find out which ones rated so low. You may be surprised at some of our judgments. You can also visit our 2003 bookshelf at http://www.hopkinsandcompany.com/bookshelf.html and see the rating table explained as well as explore links to all 2003 book reviews.

At the completion of construction of almost every newly built house, there are a few items left to finish, either before or after the new owners take possession. Usually called a punch list, these items can be large or small in the mind of the builder or the homeowner. Every builder wants to finish a house, get paid, and move on to next house. Tract builders want to wrap up entire subdivisions and move on. Most builders will accommodate all but the most fussy buyers in the haste to collect money and move on. Sometimes problems arise after closing, and most builders will respond quickly and perform repairs. Occasionally, there are disputes between builders and homeowners, and most get resolved expeditiously, given the motivation of the builder to finish and move on and avoid negative publicity. We were surprised to read a page one story in The Wall Street Journal (August 18, 2003) (http://online.wsj.com/article/0,,SB106115762963621600,00.html) about troubles in Texas between KB Home and many homeowners. KB has an almost 50-year reputation for building inexpensive tract homes. Founded by Donald Kaufman and Eli Broad, and formerly known as Kaufman & Broad Home Corporation, the company sold almost 8,000 homes in Texas last year. According to the Journal, KB dropped the ball on follow up repairs of some homes, causing consumer backlash. One subdivision was built on land used by the Navy in the 1940s as a practice-bombing range. While KB relied on a 1956 letter from an Army Corps of Engineers bomb removal team stating that bombs had been removed from the surface of the site, homeowners are finding buried ordinance on the site, and are worried about safety. KB claims the bomb that was found on the site was planted there by the protestors, and that they found no bombs when they excavated the site prior to construction. The lawyers seem to have taken over, and what KB thought was a certification of remediation may turn out to be fodder for the homeowners who interpret the 1956 letter as discouraging anything other than above land use of the property, not something going below ground like homebuilding. We’d expect a typical lawsuit, and that is proceeding. In addition, homeowners have protested at KB work sites and offices. So, KB sued a group of homeowners for $20 million in “malicious damage the defendants did to its reputation and business.” Suing homebuyers must really help new home sales.

How do you ensure that small customer problems and complaints don’t escalate for your organization? What defect percentage is acceptable to your organization for your products and services? Is that the same percentage that’s acceptable to your customers? To what lengths are you willing to go to satisfy a customer? If customers picketed your office or work sites, what would you do?


Short Circuited
Successful executives usually make a conscious decision to match the practices of a competitor, or differentiate their organization to provide better satisfaction of customer needs. Customer expectations are built over time, and customer perceptions change slowly. We’ve watched the battle of Circuit City for years, in using a somewhat knowledgeable, commissioned sales force to compete against companies that deliver products in warehouse-like settings like Best Buy and Wal-Mart. We read in The New York Times (August 18, 2003) (http://www.nytimes.com/2003/08/18/business/18ELEC.html) that the executives at Circuit City may be making a significant change. When they relocated a store in Virginia, not far from headquarters, they changed the format to a warehouse style, and parked themselves across the street from a Wal-Mart, which surpassed the chain in electronics sales last year. They replaced the sales force with hourly workers, who don’t necessarily need to try to convince buyers to purchase warranties on low priced items. Two factors seem to have influenced their decision to change. Product life cycles for electronics are shortening, which means unsold new products become commodities quickly, and margins are cut dramatically. Second, Circuit City wants to eliminate some intermediaries by purchasing goods directly from factories in China. While Circuit City may be emphasizing low priced items and self-service, Best Buy is moving upmarket and offering more services, and Wal-Mart is beginning to carry higher priced electronics, including $5,000 plasma TVs. Which company’s strategic move will produce the greatest success? How quickly can consumers change their image of what a company offers?


Is your organization known for its way of doing business? How well do your methods work today? If you wanted to change your approach, what would it take to succeed? Why do customers choose to do business with your competitors? Should you become more or less like those competitors?

Throw It Back
There’s a rare opposing team home run at Wrigley Field that isn’t thrown back on the field. Rarer still is the ousted CEO who returns severance pay without receiving great pressure to do so. Here’s what we read in The New York Times (August 19, 2003) (http://www.nytimes.com/2003/08/19/business/worldbusiness/19alst.html): Among this summer's oddities, which have included a record-breaking heat wave and a lack of tourists, the French were startled today by news that a former senior executive at one of the country's largest conglomerates was forgoing a $4.6 million severance payout after being criticized for his management record. The manager, Pierre Bilger, the former chairman and chief executive of Alstom, which makes things like gas turbines, told his successor in a letter that he would repay the money, 4.1 million euros, because he did not want the issue to be a burden on present management. In the letter dated last Thursday to Patrick Kron, Alstom's present chairman, Mr. Bilger wrote that he had taken his decision, "not to be an object of scandal for the hundred thousand employees of Alstom whom I had the honor to direct, and for the shareholders, whether employees or not employees, who placed their trust in me." Mr. Bilger said that he had received a total of 5.1 million euros upon leaving Alstom, but that a part of that represented his pay for the final period of service. He said that he had received a severance payout of 4.1 million euros, which he would return to the company.

Alstom teetered on the edge of bankruptcy under Bilger’s leadership. It’s too early to see if this is a trend. The Times reported that Credit Suisse and ABB executives returned compensation under pressure, while former Vivendi executive Jean-Marie Messier won a court ruling that the company owes him severance pay, even though such pay was not approved by its Board.

How do you think about your reputation? Would you be more likely to do what Bilger did, or more like Messier? Are other leaders in your organization more like Bilger or Messier? Which one would you rather follow?


That’ll Show Him
What were the executives at Fox thinking when they filed suit against Al Franken for including the Fox slogan “fair and balanced “ in the subtitle of his new book, Lies and the Lying Liars Who Tell Them? After news stories hit, the book zoomed to the top of the amazon.com best seller list. Fox claimed that consumers might associate the Franken book with Fox, and use of the phrase would “blur and tarnish” it. The judge who heard the case dismissed it quickly. The Drudge report (http://memes.org/modules.php?op=modload&name=News&file=article&sid=1882) speculated that Fox filed the lawsuit to placate Bill O’Reilly, who pressed the company into defending itself. Instead, Fox helped an enemy succeed, and caused a lot of observers to poke fun at the whole issue. Our favorite sidebar came in an op-ed (The New York Times, August 19,2003) (http://www.nytimes.com/2003/08/19/opinion/19NEWM.html) from Paul Newman saying: “Unreliable sources report that the Fox suit has inspired Paul Newman, the actor, to file a similar suit in federal court against the Department of Housing and Urban Development, commonly called HUD. Mr. Newman claims piracy of personality and copycat infringement. In the 1963 film "HUD," for which Mr. Newman was nominated for an Academy Award, the ad campaign was based on the slogan, "Paul Newman is HUD." Mr. Newman claims that the Department of Housing and Urban Development, called HUD, is a fair and balanced institution and that some of its decency and respectability has unfairly rubbed off on his movie character, diluting the rotten, self-important, free-trade, corrupt conservative image that Mr. Newman worked so hard to project in the film. His suit claims that this "innocence by association" has hurt his feelings plus residuals.” Thanks to Fox, a future issue of Executive Times will review the new Franken book.

How easily can you be led into an action that will help your competitors and hurt your organization? How sensitive are you to criticism or parody? Can you take a joke?



Here are selected updates on stories covered in prior issues of Executive Times:


Ø      Not long after our update about new forms of variable pricing in the July 2003 issue of Executive Times, we read an article in Business Week titled, “Sharper Tools for Discriminatory Pricing.” (http://www.businessweek.com/technology/content/jul2003/tc20030731_6139_tc073.htm). Andrew Odlyzko, the director of the University of Minnesota's Digital Technology Center, will present a paper this fall at the Fifth Annual Conference on E-Commerce. Readers interested in this topic will find the BW interview with Odlyzko interesting.

Ø      We encouraged readers of the August 1999 issue of Executive Times to think about women in leadership positions and the extent to which a glass ceiling exists in your organization, and what you can do to remove it. We updated that cover story in the May 2000 issue with data from the Bureau of the Census reporting the rate of growth of women achieving leadership positions. We read recently (Chicago Tribune 8/9/03) (http://www.chicagotribune.com/news/printedition/chi-0308090150aug09,1,3897593.story?coll=chi-printnews-hed) of a research study from Northwestern University that reveals something many workers have recognized for a long time: women are better bosses than men. That study should stir things up a little.



World Service
A Brazilian diplomat who worked for the United Nations since 1969 was unknown to almost all Executive Times readers until his death. Sergio Vieira de Mello was the U.N. High Commissioner for Human Rights since 2002, and was tackling another challenging job as a special representative in Iraq when his office in Baghdad was bombed on August 19, 2003. His dying words were to ask the U.N. to continue its work in Iraq. U.N. Secretary General Kofi Annan said of Viera de Mello, “He impressed everyone with his charm, his energy, and his ability to get things done - not by force but by diplomacy and persuasion.” Thanks to the work of Viera de Mello, the Indonesians reconciled with the people of East Timor, and Bosnian Serbs cooperated with relief efforts. In Iraq, Viera de Mello was trying to keep all parties focused on the common goal of creating a stable, democratic nation. We read in one obituary (http://www.time.com/time/covers/1101030901/wbomb2.html) a quote from long-time friend, Richard Holbrooke, former U.S. Ambassador to the U.N.: “He had two skills that you don't usually find in the same person. He was a consensus builder, but he wasn't a lowest-common-denominator person. There was only one Sergio.”


In a world of competing self-interests, Viera de Mello worked to find common ground, to solve problems peacefully. He lived a life of service to all citizens of the world. He earned our gratitude. He will be missed.


Latest Books Read and Reviewed:

 (Note: readers of the web version of Executive Times can click on the book covers to order copies directly from amazon.com.  When you order through these links, Hopkins & Company receives a small payment from amazon.com.  Click on the title to read the review or visit our 2003 bookshelf at http://www.hopkinsandcompany.com/bookshelf.html).


Title (Link to Review)



Review Summary


Jennifer Government

Barry, Max

Affinities. Corporate marketing becomes malevolent in this creative satire. If you think marketing is already evil, you’ll love this book.

Full Steam Ahead

Blanchard, Ken

Steady As She Goes. Expecting seasickness, nausea and a DNR rating for the latest from the perennially sappy Blanchard, we came away nodding in agreement with some of the practical and useful thoughts from this new offering.


Cook, Robin

Slippery Slope. Unethical medical behavior leads to major crimes and punishment. Poor writing overall, with weak dialogue, predictable plot, and shallow character motivation.

Moon’s Crossing

Croft, Barbara

Spinning. Debut novel from short story writer spins together the life of Jim Moon with tales from the Civil War, his Iowa marriage, the way the World’s Columbian Exposition captivated him, and how he died in New York. Lyrical, confusing at times, and replete with subplots that seem to go nowhere.

The Quality of Life Report

Daum, Meghan

Addicted. Debut novel pokes fun at NYC self centeredness and Midwestern political correctness as protagonist leaves NYC seeking an improved quality of life, but finding cycles of addiction and recovery.

E2: Using the Power of Ethics and Etiquette in American Business

Davis, Phyllis

Right Shoulder. More etiquette than ethics, and few business leaders want to read about etiquette. Agreed with her name tag advice (right shoulder). Read our excerpt on business meetings before taking on the whole book.

How to Become a Great Boss: The Rules for Getting and Keeping the Best Employees

Fox, Jeffrey J.

Straightforward. Brief, clear and plain talk about being a boss. Even if you hate “how to” books, you may find some of this inspiring, practical and usable.

The Curious Incident of the Dog in the Night-Time

Haddon, Mark

Unique. Creative debut novel uses a narrator with autism to reveal the story and allow readers a glimpse into the worldview of those with autism. Best debut novel read so far this year.

Under the Banner of Heaven: A Story of Violent Faith

Krakauer, Jon

Quest for Truth. Well-written exploration of the sources and formation of modern Mormon Fundamentalists and their violent and bloody quest for creating and preserving religious faith in the West. 


Lewis, Michael

Facts. Liar’s Poker author examines major league baseball and why the Oakland A’s win so many games while spending so little money on players. Great lessons for any business about paying attention to the right performance measures.

The Pursuit of Alice Thrift

Lipman, Elinor

Personality. Romantic, not sloppy story of medical resident, Alice, and her unusual suitor, Ray. Lots of funny scenes and throwaway lines as well as some complicated mother-daughter relationship expectations.

A Close Run Thing

Mallinson, Allan

Charge! Readers who enjoy Patrick O’Brian’s naval fiction set during the Napoleonic wars will enjoy Mallinson’s portrayal of the cavalry of the same era.

Bush’s Brain: How Karl Rove Made George W. Bush Presidential

Moore, James and Wayne Slater

Relentless. Political junkies of all stripes will read the vignettes presented about Rove and come away thinking about how much they know and don’t know about this close advisor.

The Devil Wears Prada

Weisberger, Lauren

Role Models. Odd novel of the relationship between the boss from hell and a naïve and submissive assistant in a job a million women would die for. Some funny parts, then pathos, then ennui. Unappealing characters.

Born to Steal: When the Mafia Hit Wall Street

Weiss, Gary

Unwise Guys. Business Week reporter uses the life of Louis Pasciuto to describe some ways that the Mafia operates on Wall Street. Meet unsavory characters doing bad things.


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