What does .com have to do with us?
You're not from around here, are
Merrill Lynch finally came around last month and announced the upcoming availability of online trading at low prices. Hidden inside a Wall Street Journal article (June 1, 1999), was a telling description by a Merrill insider about just how out of touch top Merrill executives have been. The report described how Chairman David Komansky realized just recently that all those FedEx packages arriving at his house were the result of his adult children's Internet shopping, and that his daughter was actually able to buy flowers online! Granted that Komansky has a time consuming job and has been expanding Merrill abroad, but this lack of awareness at the top of a company has had dramatic consequences on the competitiveness of the firm. We'll watch how the new Merrill plans develop and whether they can make a new business plan work. We wonder who's in charge of keeping the top executives in touch with the rest of the world.
How do you keep current about trends that can change your business model? What do you do each month to stay in touch with customers, competitors and employees? What's your personal approach to trying new things?
"If your bank could start over, this is what it would be"
WingspanBank.com opened online at the end of June, and promised to show up wherever we go on the Internet. They'll make sure of that because they're spending heavily on banner and print advertising to get the attention of Internet users. Bank One Corporation's John McCoy
decided to experiment with growth through the Internet and started a bank site from scratch, separate from the existing bankone.com site. The site offers a wide variety of bank products, and the promise of quick service. All the hype in the corporate press releases focuses on the clean slate approach to banking, and the speed of service. Time will tell. Our first examination of the site couldn. t locate any material characteristics that were different from existing bank sites. The appearance of the site was closer to some of the shopping sites than to bank sites, but we expect consumers will be more interested in price, service and results.
One distinguishing element of the WingspanBank approach is the creation of the "iBoard of Directors Advisors", comprised of six ordinary consumers chosen from a nationwide net search for individuals willing to provide feedback under the leadership of Frank Cappiello of Wall Street Week fame. The hype around this group (all first names: Jennifer, Sara, Alex, John, Thomas and Jolene) is that it's "The World's First Virtual Advisory Board of Directors".
While we applaud asking customers for feedback, the Internet model can make every customer a valued advisor who can provide feedback quickly and easily. We're amused that the board will meet quarterly to assess how the bank is responding to customer needs. Since traffic on the Internet has been doubling every quarter, these six advisors may become less representative of the customer base every day. This advisory board structure looks more typical of traditional banks than net players who move a lot faster. Stay tuned to see how this plays out.
If you were starting your existing business from scratch, what would change? Why can't you make some of those changes now? Are there ways to get advice from your customers like advisory boards that can work well for you? Do your contact points with customers allow them to let you know what they think about your products and services? How well do you listen to what they say they need, and how quickly do you provide them with products and services that work for them and for you?
Out of the dark ages
The New York Times reported on June 27 that changes may be coming to the esoteric pricing and trading of bonds. The school district of Lancaster, Pennsylvania placed $29.2 million of the district's bonds for sale on-line earlier in the month, and saved over $1 million in the process. When this method picks up steam, spreads will narrow, and debt issuers will save a bundle. This is one more example of making prices more visible, and as a result, increasing price competition for the benefit of consumers.
How esoteric is your pricing? Are you vulnerable to competitors who will price more visibly? If you're confident that the future will have more visible prices, what are you doing to make that happen now?
Watch out for the next star
American Banker reported on June 25 that Kohlberg Kravis Roberts has decided to enter the online mortgage banking business by starting a company from the ground up in a departure from KKR. s usual mode of taking over weakened companies. Nexstar Financial Corporation will be led by a team with experience in growing a valuable mortgage franchise. Marvin Moskowitz will chair the company and Rick Thornberry will be CEO. Both grew Prudential Home Mortgage from ground zero to one of the top mortgage originators and servicers, and Rick was former president of Citibank Mortgage. The management team of Nexstar includes veteran talent from both Prudential and Citibank. With money and talent, Nexstar should become a major force in mortgage lending.
When facing a new competitor with talent, capital and a new business model, what do you do? How do you assess the opportunities and threats that new players and new ways of doing business, like online lending, bring to your market?
We don't do that around here
Jack be nimble
It didn't take very long for Jack Welch of GE to spread the word. On Wednesday, June 9, the Washington Post reported that GE Investments sent a survey to shareholders of mutual funds managed by the company in a form that appeared to be anonymous, but included a code on the return envelope that identified the customer's account. Most of the shareholders are GE employees and the questions related to service and quality of products. The Post reports that the day after the story appeared, Jack Welch sent an e-mail to several hundred thousand GE employees saying that while the survey was well-intentioned to help improve customer satisfaction, the survey didn't disclose that respondents could be identified. Welch called the practice "clearly wrong and should never be repeated." The Post reported on June 11 that Welch went on to say to employees: "Please be assured that every GE employee attitude survey is totally anonymous and confidential. Your privacy and trust are sacred to me."
One way or another, every manager has the opportunity to reinforce values in the workplace every day. Sometimes, the reinforcement is contrary to stated values, and other times consistent. In the GE example, Welch was able to call attention to an event that illustrated his personal values and those he's tried to ensure are practiced throughout this huge global company.
How often do you use stories or examples to reinforce the values of your company and your personal commitment to doing what's right in the workplace? How consistent is your behavior with the values you've articulated?
The Wall Street Journal's Work and Family column of June 16 gave lots of examples of the clashes at companies between the values stated and what really happens. A bank that touted openness with employees kept quiet about their sale to a bigger bank. One of the many employees who bailed out voluntarily in the 18 months between the announcement of the sale and its completion said: "Nobody ever trusted the company's communications again."
An attorney working for a partner at a large Atlanta law firm told how that partner always stressed family values, and praised another partner for taking off time to coach a kid's soccer team. But when the attorney told the same partner that she was going home to make lunch for her sick child one day, the partner "hit the roof. He told me never to discuss my children at the office." From then on, she questioned the integrity of everything her partner said and did.
Executives don't get many chances to correct misunderstandings about their behavior. The bank executives in the example above may have been bound by confidentiality agreements, and couldn't disclose the pending acquisition. The law partner might have been having a bad day. Executive behavior is always observed, and employees make daily judgments about whether or not executives can be believed or trusted. What judgments are employees in your company making about your behavior? Are your actions consistent with the values you've told them are important to you? Are you trustworthy? Are you trusted?
Drugged up numbers
Company values and actions can be in for surprises when two corporate cultures combine. McKesson, the big drug wholesaler, acquired HBO & Company, a software maker, last January. In April, it announced some accounting troubles, and watched its stock drop by half. In May, it announced that some additional "instances of improper revenue recognition have been found", and that additional restatements of prior years' results would likely be made. On June 21, the company announced new executive management for the company, dismissing the chairman, the CEO and the CFO, along with the top executives of the information technology unit. The New York Times interpreted these changes with direct quotes from the non-executive chairman of McKesson HBO, Alan Seelenfreund: "These improprieties were intentionally kept from the due diligence process when McKesson acquired HBO. I can certainly say that we overpaid substantially for HBO as we know it now." The Times reports that the audit process uncovered letters containing accounting contingencies that were separate from contracts, and not made available during the due diligence process. Some of the individuals involved resigned because these activities took place "on their watch"; others may face criminal prosecution when the audit is completed. McKessonHBOC is trying to reorganize quickly to put this behind them and move forward.
How do you deal with unpleasant surprises? How do you accept accountability for things that take place about which you are unaware? How do you reduce the risk of unpleasant surprises? Do you have an ethics program at your company, and can you measure its effectiveness? Where do you go for help on ethics issues? Arthur Andersen has introduced Intrasight Assessment, a research-based diagnostic service that helps assess your ethical culture and overcome ethics and compliance weaknesses.
One of the challenges of aligning values and activities can involve an executive making a decision about what to do when subordinates take actions that are inconsistent with company values. CNNfn.com reported on June 10 that Morgan Stanley's chief legal officer, Christine Edwards, made a personal decision to accept accountability and resign from the firm. It seems that Morgan Stanley paid $10,000 to an informant that led to the arrest of a former employee. The payment wasn't reported in a timely manner to the police, and the case fell apart. An external investigation found no evidence of laws being violated, and indicated that the top officers of Morgan Stanley were unaware of the payment until months after it happened. The most senior employee involved in the payment had been under suspension and resigned after the investigation's findings were released. The surprise was the resignation of Ms. Edwards, who expressed the view that this matter "happened on my watch," and that it was appropriate for her to resign, despite the requests of the chairman and president for her to reconsider.
Christine Edwards provides a great example for all executives because she accepted accountability, even for those activities where she was not personally involved.
How do you make personal decisions when it comes to values? Would those who report to you expect you to accept responsibility (with them) for what they do, or would they expect you to save yourself and let them hang if something bad happened?
A cube of one's own
Many companies and employees devote considerable time and energy trying to get the allocation and configuration of office space right. The interest of workers in having a private and functional space of their own can often clash with a company's interest in keeping costs low, and using as much open space as possible. The May-June issue of Harvard Business Review lays out a case study of this challenge, and provides a discussion of the case at hbr.org/forum.
There are many ways to examine the costs of office space and the value of employee productivity. What tools do you use to examine the effectiveness of your workplace environment? Does the physical workspace constitute a barrier to employee success? Who makes decisions about workspace configuration? What role do you play in the process, and is that role effective?
Look for the union label
In retrospect, the American Medical Association announcement shouldn't have come as a surprise. More and more physicians have become employees of health services companies, and the conflicts between doctors and administrators over costs are well documented. The physicians of the AMA voted in late June to form "an affiliated labor organization" to "give America's physicians the leverage they now lack." We wonder if John Lewis, Samuel Gompers or even George Meany envisioned the doctors of America joining the union movement.
How do you assess the relationship in your company between workers and management? To what extent is there alignment and to what extent is there conflict over different priorities and interests? If your workers are unionized, how well does management work with the union and vice versa? If your workers are not unionized, and you'd prefer them not to be, what are you doing to ensure good relationships and employee satisfaction?
A rose by any other name
At Executive Times, we often marvel at the high cost of creating and maintaining an effective brand, especially for financial services companies, which we've observed for decades. Given the high volume of bank consolidations, a lot of brand names that had high value recently, have become worthless as a new company tries to establish unity of image and identity. American Banker reported the latest victim of this trend in their June 22 issue. Late this summer, the name "First Chicago", which appears on the largest banking company in Chicago, will be replaced with "Bank One". No surprise there. Geographic-based names will always give way to names that more easily cross regional and national boundaries. The challenge for Bank One is to keep the local customers loyal after the change in name. While fans remain loyal to a weak-results brand like the Cubs for many years, bank loyalty may be harder to achieve. Maybe Bank One will be just as pleased if customers switch to WingspanBank.com (see article on page 1). We wonder which will cost more: the change in name for the brick and mortar bank or the creation of the online bank?
How much have you invested in your brands? When you examine competitors, are you better or worse off? Can you afford to change your company's name? Can you afford not to?
Peter F. Drucker's dozens of books have enhanced the practice of management for many executives for decades. His new book, Management Challenges for the 21st Century, started out as a retrospective of articles and other ideas from the past. It turned out there was no way Drucker could do that. He felt compelled to write a "call to action" for the future. In the process, he's given us another thought-provoking legacy for carrying us forward. He begins this book by aggressively throwing out some assumptions that executives still use while managing. He goes on to describe social and political phenomena that are certainties about the future, but are rarely taken into account when strategies are developed. His descriptions of change leadership and managing oneself leave the reader with plenty of plans for action, as does the section on getting the information a manager needs.
Drucker was born in 1909, and his writing contains an urgency that can excite those executives who are prepared for action. We're flooded with management theorists and fads; Drucker points out what challenges and issues are in front of us right now, and challenges action.
It. s the heart of the summer, so this month. s recommendations stick with vacation reading. Executive Times has just returned from the ocean, where reliable sea stories provide great entertainment. We savored Patrick O'Brian's The Hundred Days, one of the latest in the Jack Aubrey-Stephen Maturin series of historical fiction set in the British Navy during the Napoleonic wars. We came home hungry for more, and will search out whichever Hornblower novels by E.M. Forester we haven't re-read lately. Lots of comparisons are made between Forester and O'Brian. We like them both, enjoying Forester for the fine writing of a saga that's completed, and O'Brian for the pleasure of new additions to the adventures of characters that we've come to know and enjoy.
Bag of Bones is the first Stephen King novel we've read in more than a dozen years. The excerpt of the first chapters online was the clincher to give him another try, and we didn't leave disappointed. He's written a haunting tale with better character development than we can recall from his horror stories of the past.
Some of the topics being considered for upcoming issues of Executive Times include:
- Dual CEOs: do they work?
- Executive success
- Research results on employee satisfaction
- Succession planning
- Responding to crises
Be sure to subscribe today to ensure that you receive each new issue as it's released.
1999 Hopkins and Company,