Executive Times

Volume 9, Issue 10

October 2007


 2007 Hopkins and Company, LLC

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What can be more challenging for some executives than producing unpopular products? One challenge can come from managing those products that are wildly popular. Another challenge can be taking action when a product failure occurs. Both these situations have dominated the business and popular press in recent weeks, so the focus in this issue is on products and how some executives are facing product challenges. As you read about the stories selected, think about your own organization’s products and services, and the expectations and relationship your consumers have with those products and services. Reflect on whether or not the situations faced by other executives are ones that you’re prepared to manage if they come your way.


Fifteen new books are rated in this issue, beginning on page 5. One book received a highly recommended four-star rating; ten books are rated three-stars, and four books received one-star ratings. Visit our current bookshelf at http://www.hopkinsandcompany.com/2007books.html and see the rating table explained as well as explore links to all 546 books read or those being considered this year, including 55 that were added to the list in September. If there’s something missing from the bookshelf that you think we should be considering or if there’s a book lingering on the Shelf of Possibility that you think we should read and review sooner rather than later, let us know by sending a message to books@hopkinsandcompany.com. You can also check out all the books we’ve ever listed at http://www.hopkinsandcompany.com/All Books.html.


With kids out of the house, we’ve lost any tenuous connection we might have had to the world of video gaming. We read everywhere that Microsoft announced on September 26 that first day sales of Halo 3, the new game for the Xbox 360, set a record: $170 million. During the first twenty hours that Halo 3 was available, one million consumers played the game with each other online. How serious are these customers about the product? According to The New York Times, (9/25) (http://www.nytimes.com/2007/09/26/technology/26halo.html), one customer said, “‘I knew that if I didn’t have it, my life would be over.’ … ‘This is the Mecca of the video game world right here, right now,’ Carl Gunther, a 23-year-old marketing researcher from Brooklyn, said Monday night as he joined hundreds of other fans in a long line outside a Best Buy in Midtown Manhattan. ‘Halo is the “Star Wars” of this generation,’ Mr. Gunther added. ‘Thirty years ago my father waited in line to see “Star Wars,” and I know I’ll tell my kids I stood in line to buy Halo 3. It’s like saying you were at Woodstock or something.’” Or something. How exuberant is Microsoft over these sales? They finally expect to make a profit in this division by the middle of 2008, and expect that Halo 3 will boost sales of the Xbox 360. We read in The Seattle Times (http://archives.seattletimes.nwsource.com/cgi-bin/texis.cgi/web/vortex/display?slug=halobiz240&date=20070924&query=Halo+3) that Directions on Microsoft analyst Matt Rosoff commented, “Just selling more Xbox 360s won't necessarily lead to profitability for the broader games business, Rosoff noted. In the typical video-games business model, companies tend to lose money on the consoles and turn a profit on the games. ‘They have to walk a careful line,’ Rosoff said. ‘They want to sell a lot of consoles but not so many that it racks their losses up.’” Compounding those console losses are some unexpected costs. Two months ago, the company announced, (http://www.xbox.com/en-US/support/systemuse/xbox360/resources/warrantyupdate.htm) “Any Xbox 360 customer who experiences a general hardware failure indicated by three flashing red lights will now be covered by a three year warranty from date of purchase.  … Microsoft stands behind its products and is taking responsibility to repair or replace any Xbox 360 console that experiences the ‘three flashing red lights’ error message within three years from time of purchase free of charge, including shipping costs.  Microsoft will take a $1.05 billion to $1.15 billion pre-tax charge to earnings for the quarter ended June 30, 2007 for anticipated costs under its current and enhanced Xbox 360 policies.” One product release glitch for the Halo 3 was that the premium version was packaged in a way that damaged the game disks. Some consumers paid extra to get a damaged product. Of course the company acted rapidly to replace the disks, at a cost yet to be quantified. Is that the sweet smell of success, or is the odor a bit gamey?

Are your customers facing “three flashing red lights” when they try to use your organization’s products and services? To what extent do your customers count on you, and are you meeting their expectations? When you sell more units, are you making more or less money as a result? 


It seems like only yesterday when thousands of consumers lined up outside Apple and AT&T stores to be among the first to pay $599 for an iPhone. After the company reduced the price in early September by $200, Dan Gross commented in Slate, (http://www.slate.com/id/2174391/) “Early adopters who paid through the nose for the new iPhone, were iPissed when they realized that their technologically less-forward neighbors could get the exact same product for one-third less a few weeks later.” Apple CEO Steve Jobs told customers, (http://www.apple.com/hotnews/openiphoneletter/) “even though we are making the right decision to lower the price of iPhone, and even though the technology road is bumpy, we need to do a better job taking care of our early iPhone customers as we aggressively go after new ones with a lower price. Our early customers trusted us, and we must live up to that trust with our actions in moments like these. Therefore, we have decided to offer every iPhone customer who purchased an iPhone from either Apple or AT&T, and who is not receiving a rebate or any other consideration, a $100 store credit towards the purchase of any product at an Apple Retail Store or the Apple Online Store. … We want to do the right thing for our valued iPhone customers. We apologize for disappointing some of you, and we are doing our best to live up to your high expectations of Apple.” In his Slate article, Gross also noted the 72-hour home price “Deal of the Century” discounting by Hovnanian sold over two thousand houses, deriving short term gain at a longer term cost. “How would you feel if you bought a condo in a Hovnanian development last month, only to find that your new neighbor paid significantly less for the exact same floor plan? … By temporarily slashing prices, Hovnanian has established a new market level not only in its developments—where plenty of customers have already bought homes at higher prices and where Hovnanian still plans to build more homes—but throughout the towns where its developments sit. … Given the horrific dynamics of the housing market, it's likely Hovnanian will have a difficult time simply jacking its prices back up to wishful, pre-fire-sale levels. And the next time Apple brings out an expensive new product, it might find that the lines are somewhat shorter. … Hovnanian's margins on homebuilding were already thin. Slashing prices of homes that are completed—i.e., that the company has already paid for—is likely to boost revenues but hurt the bottom line. And margin-shredding behavior tends to spawn more margin-shredding behavior. To make it up to angered iPhone customers, Apple had to offer a $100 credit to early iPhone buyers. To assuage customers angered by large discounts on a single product, in other words, Apple is effectively now discounting all its products.” In every fire sale, there’s likely to be plenty of heat and smoke.


What do you know about the expectations of the early adopters of your products and services? Are your methods for pricing your products aligned with those expectations? What is the impact of discounting on your success and on the value of your products to your customers?



Child safety concerns have been growing dramatically in recent weeks. Just in time for the holiday toy-buying season, parents and other purchasers are aware of what seems like daily announcements of product safety recalls. Many of the products recalled involve the use of lead based paint. Other products contain magnets that can be swallowed. One million cribs have been recalled. When assembled incorrectly, a child could die in the crib, leading the U.S. Consumer Product Safety Commission to warn parents, “We do not want your child in that crib tonight.” There are hundreds of recall warnings for toys at http://www.cpsc.gov/cpscpub/prerel/category/toy.html, leaving parents and child care providers scrambling to remove those toys that can do harm. Curt Stoelting, CEO of RC2 said in a letter to parents, (http://recalls.rc2.com/index.html) “On behalf of everyone at RC2 let us apologize for the worry a new toy recall may cause you and your family. We understand how painful it can be to take a cherished toy from a child. Nevertheless, we urge you to immediately check for and return any of the newly recalled toys to us. … We deeply regret the burden that recalling toys creates for parents, but we believe parents deserve to be assured of two things: First that the Thomas toys they already have are safe, and second that the new toys in stores are safe. … The real measure of our success is the trust you and other parents are able to place in our toys, knowing that we're taking the right steps to protect your children. We're hopeful that concerned parents, like you, recognize that our toys have been subjected to intense scrutiny and testing and are that much safer for it. Thank you for your continued patience and support.” Mattel’s CEO Robert Eckert told a Congressional Committee that he would take personal responsibility for ensuring that Mattel’s systems and people are dedicated to safe toys. “I’m the person responsible for making sure all our systems and all our people are dedicated to safe toys for our kids to enjoy, without worry or concern. My job is to find out what happened and to make sure it never happens again.” Eckert’s 9/11 op-ed in The Wall Street Journal noted, (http://online.wsj.com/article/SB118945976718023000.html) “As we continue our lead paint testing, it's possible that we could find more items that have parts that may not meet our specifications. Obviously, I hope we don't find anything else. But if we find any issue, no matter how small, we will work closely with authorities world-wide to inform consumers quickly and take prompt corrective action. There has been quite a lot of talk about toy testing in past weeks. I also want to talk about this test of Mattel as an organization, and what people can expect from us moving forward. It is my sincere pledge that we will face this challenge with integrity and reaffirm that we will do the right thing. We will embrace this test of our company and the opportunity to become better. When I was a young man growing up in suburban Chicago, my father encouraged me to earn his trust through my actions rather than just talk about what I was going to do. Today, I tell my children ‘deeds, not words.’ And it is on this principle that Mattel will move forward. We will earn back your trust with our deeds, not just with our words.” Maybe that trust will return as parents restock the toy chests that were reduced by recalls. Otherwise, the lead-based grinch may empty holiday stockings.


How successful are your efforts to monitor and ensure product quality and safety? How vulnerable is your organization to a loss of trust by those who consume your products? Does your testing catch defects? How do you know that your efforts are working? Is your company ready to be tested?




Here’s an update on stories covered in prior issues of Executive Times:

Ø  In the October 2005 issue of Executive Times we noted the sentencing of Tyco’s former CEO Dennis Kozlowski and former CFO Mark Swartz. The September issue of Conde Nast’s Portfolio (http://www.portfolio.com/executives/features/2007/08/13/Tyco-Mark-Swartz) describes Swartz’s life in prison. “Swartz is now bunking next to child molesters, rapists, and murderers. His sentence should serve as a warning to those who are tempted to take advantage of their power and prestige: This could be you. But the public has a short memory. Barely two years into his term, Swartz has faded from the headlines. In a short time, few people will remember his name, the details of his case, or even why he’s in prison or how long he’ll be there.”

Ø  We asked readers of the November 2004 issue of Executive Times to stay tuned to see how well Corning’s Jamie Haughton handled his second act at the company and how well he transitioned to another successor. The transition was so smooth, we barely noticed. As we noted three years ago, Haughton promoted people who were responsible for some of the company’s troubles, and told them to fix the problems. They did, and are now running the company that receives “buy” recommendations from most company analysts. Haughton is retired again from active management, serving as non-executive chairman.



Some executives are so careful and politically correct in their statements that some listeners gag when they try to pay attention to what’s being said. Other executives leave no doubts about their positions, and along the way, take no prisoners. John E. Swearingen led Standard Oil Company (Indiana) (later Amoco) for 23 of the 44 years he worked there.  He pulled no punches in his assessment of that company in a 1961 interview when he said, “Let's face it, in many respects this is a second-rate company.” With his vision and relentless research and development, the company became first-rate. We read at the time of his induction into the South Carolina Business Hall of Fame that (http://www.myetv.org/television/productions/legacy/laureates/John%20E.%20Swearingen.html) “Swearingen emphasized careful planning for the long term. He built a respected organization of people and, with their help, streamlined operations, coordinated marketing, accounting, and sales practices, expanded Standard's domestic and foreign exploration, refining, and marketing of oil and natural gas, and built Standard's chemical operations into nearly a $3 billion business.” Along the way, Swearingen called the Department of Energy “naïve” and during the oil crisis in the 1970s, he called critics “hysterical.” By the time Swearingen retired at age 65 in 1983, the company’s profits had grown from $84 million to $1.8 billion. Within a year after retirement, he was asked to become CEO of Continental Illinois National Bank after it failed and was taken over by the Federal Deposit Insurance Corporation. Remaining blunt in his personal style, he made it clear to all listeners that there was no public money involved in the bailout of the bank, which he led for three years. He attracted as his successor, the Vice Chair of Citigroup, leaving the company in savvy hands. Swearingen died in late September at age 89. His clarity and candor will be remembered.


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 2007 bookshelf at http://www.hopkinsandcompany.com/2007books.html).


Title (Link to Review)



Review Summary


Sin in the Second City

Abbott, Karen


Sisters. Riveting non-fiction about the two sisters who ran a first-class brothel in Chicago from 1900 to 1910 and the women they employed, the clients they served and the politicians they paid.


Call Me By Your Name

Aciman, Andre


Passion. Debut novel uses beautiful prose to relate the coming of age of a seventeen year old boy who falls madly in love.


House of Meetings

Amis, Martin


Grim. Finely written examination of evil set in a Soviet gulag presented by a troubled narrator who alternated between not knowing what was going on to participating with relish in the evil.


The Headmaster Ritual

Antrim, Taylor


Force. Debut novel set in Massachusetts prep school riffs on the ways in which power and force build up and blow, on many levels. A quirky North Korea motif adds to the entertainment.


Simple Genius

Baldacci, David


Puzzles. Reprised former Secret Service agents Sean King and Michelle Maxwell have to solve puzzles involving a secret think tank, and readers are dragged along as they slowly unravel the case.


Five Skies

Carlson, Ron


Grief. Finely written novel about the ways in which three men drawn together to work on a project are processing some form of grief, developing trust, and dealing with the consequences of loyalty.


End Games

Dibdin, Michael


Finale. Finely written final episode in the Aurelio Zen mystery series by author who died in March 2007. Set in Calabria, Italy.


Gut Feelings

Gigerenzer, Gerd


Intuition. Instincts rather than reasoning can be a better guide to action, according to the research of this prominent neuroscientist.



Isaacson, Walter


Impertinence. Extensive biography using new sources reveals much about the famous scientist, especially the ways in which his impertinence and nonconformity led to his greatest breakthroughs.


The Last Mrs. Astor

Kiernan, Frances


Tireless. Fond biography of the late Brooke Astor will make readers wish they had known her, and will impress all with her tireless efforts to help worthy causes in New York.


Suffer the Little Children

Leon, Donna


Righteousness. The 16th Commissario Guido Brunetti mystery highlights the behavior of moralists whose misplaced righteousness produces tragic results.


Songs Without Words

Packer, Ann


Friendship. Life is harder for some people, and the characters in this novel are going through a rough patch. Packer presents their brokenness in ways that will be appreciated by many readers.


Three Bags Full

Swann, Leonie


Baa. Imaginative and creative debut novel in which the sheep are detectives who are trying to solve the murder of their shepherd. With an author named, Swann, who can resist?


Among Other Things, I’ve Taken Up Smoking

Sweeney, Aoibheann


Changes. Smoking isn’t the only new thing Miranda finds in New York City after heading there from rural Maine after high school. Fine debut novel about coming of age.


Deluxe: How Luxury Lost Its Luster

Thomas, Dana


Cachet. Newsweek’s Paris correspondent examines how luxury goods have become mass market thanks to corporate ownership, globalization and marketing.



2007 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 rate for first class mail delivery of the print version is $60.00 per year (12 issues). Web version subscriptions are $30.00 per year. Single issues: $10.00 print; $5.00 web. To subscribe, sign up at www.hopkinsandcompany.com/subscribe.html, send an e-mail to executivetimes@hopkinsandcompany.com, 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 reprints@hopkinsandcompany.com. We will send sample copies if requested. The company’s website at http://www.hopkinsandcompany.com/archives.html contains the archives of back issues beginning in the month after the issue date. 

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