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| Volume 6, Issue 1 |
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In This Issue:
 The man who said no to Wal-Mart
 The struggle to measure performance
 What really drives your strategy?
When benchmarks don’t work
Making credibility your strongest asset
Marvel’s superhero CEO
 Extremely frustrating and completely unimportant: The arcane art of naming
Is your purchasing department stripping value along with reducing costs?
 CEOs should build a culture that copes with the unforeseen
Recognizing technologies that meet your business needs
CEOs must go beyond marketing to imbed their products in the culture
Getting Outsourcing right
All CEOs with deferred pay must review their plans
 Swimming in a crowded pool
Vanity, thy name is man
The newest Mercedes AMG
Where we want to go in 2006
 Health nut mayor puts new focus on bad habits
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The Man Who Said No to Wal-Mart
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We're not obsessed with volume," says Wier. "We're obsessed with having differentiated, high-end, quality products." |
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Every year, thousands of executives venture to Bentonville, Arkansas, hoping to
get their products onto the shelves of the world's biggest retailer. But Jim Wier
wanted Wal-Mart to stop selling his Snapper mowers.
What struck Jim Wier first, as he entered the Wal-Mart vice president's office,
was the seating area for visitors. "It was just some lawn chairs that some other
peddler had left behind as samples." The vice president's office was furnished
with a folding lawn chair and a chaise lounge. And so Wier, the CEO of
lawn-equipment maker Simplicity, dressed in a suit, took a seat on the chaise
lounge. "I sat forward, of course, with my legs off to the side. If you've ever
sat in a lawn chair, well, they are lower than regular chairs. And I was on the
chaise. It was a bit intimidating. It was uncomfortable, and it was going to be
an uncomfortable meeting." It was a Wal-Mart moment that couldn't be scripted,
or perhaps even imagined. A vice president responsible for billions of dollars'
worth of business in the largest company in history has his visitors sit in
mismatched, cast-off lawn chairs that Wal-Mart quite likely never had to pay for.
The vice president had a bigger surprise for Wier, though. Wal-Mart not only
wanted to keep selling his lawn mowers, it wanted to sell lots more of them.
Wal-Mart wanted to sell mowers nose-to-nose against Home Depot and Lowe's.
"Usually," says Wier, "I don't perspire easily." But perched on the edge of his
chaise, "I felt my arms getting drippy." Wier took a breath and said, "Let me
tell you why it doesn't work." Tens of thousands of executives make the pilgrimage
to northwest Arkansas every year to woo Wal-Mart, marshaling whatever arguments,
data, samples, and pure persuasive power they have in the hope of an order for
their products, or an increase in their current order. Almost no matter what
you're selling, the gravitational force of Wal-Mart's 3,811 U.S. "doorways"
is irresistible. Very few people fly into Northwest Arkansas Regional Airport
thinking about telling Wal-Mart no, or no more...
Read the article. Back to top
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The Struggle To Measure Performance
Rigid rankings hinder the teamwork and risk-taking necessary for innovation. But what combination of methods works best?
Holiday shopping, yearend deadlines, and emotional family dramas aren't the
only stresses in December. 'Tis the season for companies to embark on that
dreaded annual rite, the often bureaucratic and always time-consuming
performance review. The process can be brutal: As many as one-third of U.S.
corporations evaluate employees based on systems that pit them against their
colleagues, and some even lead to the firing of low performers. Fans say such
"forced ranking" systems ensure that managers take a cold look at performance.
But the practice increasingly is coming under fire. Following a string of
discrimination lawsuits from employees who feel they were ranked and yanked based
on age and not merely their performance, fewer companies are adopting the
controversial management tool. Critics charge that it unfairly penalizes groups
made up of stars and hinders collaboration and risk-taking, a growing concern
for companies that are trying to innovate their way to growth. And a new study
calls into question the long-term value of forced rankings. "It creates a zero-sum
game, and so it tends to discourage cooperation," says Steve Kerr, a managing
director at Goldman Sachs Group Inc. (GS ), who heads the firm's leadership
training program...
Read the article. Back to top
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What Really Drives Your Strategy?
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| For better or worse, why do so many companies veer off
their strategic plan? Look for a disconnect between
strategy and how resources are allocated, say Harvard Business School’s Joseph L. Bower and Clark G. Gilbert. | |
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If I’m the top management, how can I shape that process,
manage it, and give it direction? —Joseph L. Bower
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"While companies might have an intended strategy, the strategy that actually
emerges can be very different," says HBS professor Clark G. Gilbert.
It is a topic that Gilbert and professor Joseph L. Bower have explored at length
for a new book they have edited, From Resource Allocation to Strategy, published
by Oxford University Press. Contributors to the book include Harvard Business
School's Clayton M. Christensen, Walter Kuemmerle, and Thomas R. Eisenmann, as
well as nine other scholars.Bower and Gilbert recently sat down with HBS
Working Knowledge to explain how internal and external factors play a surprising
role in strategy formulation and execution. As Gilbert explains, "A lot of our book
is about understanding (a) that realized strategy is often different from
intended strategy, and (b) there are forces that shape strategy in unintended
ways."...
Read the article. Back to top
When Benchmarks Don't Work
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| Benchmarks have their virtues, but professor Robert S. Kaplan argues they should be saved for surveys of commoditized processes or services. From Balanced Scorecard Report. | |
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Armani would probably not benefit from studying Wal-Mart's selling process.
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Benchmarking certainly has its virtues.
Comparing production time or the cost of a standard process to that of peer
companies can yield important insights about your own efficiencies—and
ultimately, competitiveness. But benchmarking also has its limits. When you ignore
the differentiated output that internal support or shared services groups provide,
such straight-across cost or numeric comparisons become meaningless. Today's
successful support unit earns its keep by being a trusted partner to the business
units it serves. So, comparing its results to those in a benchmarking survey is
counterproductive. Companies should save the benchmarking surveys for
commoditized processes or services. Benchmarking became popular several decades
ago as part of the total quality management movement. An IBM executive defined
it as
" . . . the ongoing activity of comparing one's own process, product, or
service against the best-known similar activity, so that challenging but
attainable goals can be set and a realistic course of action implemented
to efficiently become and remain best of the best.
In one dramatic benchmarking example, General Motors, in the early 1980s, learned
that a Toyota assembly plant could change its stamping presses from one model to
another in eight minutes, compared with the eight hours GM plants spent to change
over the same basic equipment. Clearly a deviation of this magnitude between its
current performance on a critical process and industry best practice served as a
wake-up call for GM. Benchmarking works well when...
Read the article. Back to top
Making Credibility Your Strongest Asset
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| Dealmakers often forget the power of a good reputation. In this article from Negotiation,
HBS professor Michael Wheeler tells why having a
storehouse of credibility will put you head and shoulders above the competition. | |
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You can succeed without explicitly swapping favors.
The fact that [Tony] Lucci didn't condition his helpfulness made it more likely he'd get calls in the future.
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Negotiation is a breeze if you're selling a unique product or service that others desperately need: Just sit back and let the bidding begin.
Likewise, if you're a buyer in a buyer's market, getting a bargain is a snap.
But what happens when lots of other people are selling what you've got, or many
others are bidding for what you want? One solution to distinguishing yourself
in competitive environments is to build your bargaining endowment—storing up
credibility and resources by developing relationships, burnishing your reputation,
and controlling key assets.When you're trying to prevail amid fierce
business competition, your bargaining endowment can spell the difference between
closing the deal and being shut out. A healthy bargaining endowment explains how
Darren Rovell won a job on national television while other journalism graduates
were lucky to be doing programs on cable access. It's also how Tony Lucci got box
seats for the World Series when thousands of others were shut out. And it explains
how Bob Kraft positioned himself to buy a professional football team.Although
Rovell, Lucci, and Kraft operated in very different contexts, they all met their
goals by enhancing their own credibility and discerning the interests of other
key players. Their three stories illustrate different elements of the process of...
Read the article. Back to top
Marvel’s Superhero CEO
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| Even comic book producer Marvel’s superheroes couldn’t
prevent a company bankruptcy at the end of the last
decade. Enter Peter Cuneo (HBS MBA ’73), who resurrected
the company and now has his sights on the big screen. An HBS Alumni Bulletin Q&A. | |
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Our heroes give us 100 percent of their earnings, never misbehave, and never get old. |
In the universe of superheroes and rock ’em, sock ’em action, a comic book
tracking the adventures of "Turnaround Man" has yet to appear.
If and when that happens, the most likely inspiration for such a character would
be Peter Cuneo (HBS MBA ’73), former president and CEO and current vice chairman
of Marvel Entertainment. Home to some 5,000 characters including Spider-Man,
the Fantastic 4, the X-Men, and the Incredible Hulk, Marvel employs about 200
people worldwide, not including the small army of freelance writers and illustrators
who produce its acclaimed comic books.In a career that spans more than thirty
years, Cuneo has completed seven successful turnarounds at consumer-product
companies such as Clairol, Black & Decker, and Remington. He joined Marvel in 1999,
just after it emerged from bankruptcy. Now, in a move he has described as
a "transforming event" and "radical change" for the company, Marvel has secured
$525 million of nonrecourse debt (its film characters serve as collateral) to
produce ten motion pictures. With Paramount as its distributor, Marvel will
oversee all other aspects of the films and enjoy 100 percent of the profits from
related merchandising licenses for toys and other consumer products. The
first Marvel-produced theatrical release (Captain America is a likely subject)
is scheduled to appear in summer 2008.Marvel, based in New York, with offices in
London, Los Angeles, and Tokyo, had revenues for 2004 totaling $513 million.
That dramatic comeback from the company’s near-death experience seven years ago
didn’t come without its share of pain...
Read the article. Back to top
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Extremely Frustrating and Completely Unimportant: The Arcane Art of Naming
Here's a pop quiz: Name a form of marketing communications that can take as little
as five seconds to complete, can be accomplished by a nine-year-old child or an
adult, and is of absolutely no importance whatsoever.
Oh, and it also happens to be the most difficult and frustrating form of
marketing communications, by far. The answer is naming consulting, the
often-arcane art of creating and applying names to products, services and
companies. Having named a dozen or so companies and products over the years, I'm
firmly convinced of the utter irrelevance of names. This isn't something that
the big, ultra-expensive corporate identity firms and naming boutiques will tell
you, needless to say, because naming is their bread and butter—or, perhaps
more accurately, their bread and pate de foie gras. However, because it's always
been a small part of my own consulting practice, I have no compunctions about
letting this dirty little secret out. Here's what I mean...
Read the article. Back to top
Is Your Purchasing Department Stripping Value Along With Reducing Costs?
SwitchCrafter makes electronic switches that are installed in the dashboards of semis.
For years, its biggest customer has been TruckMaster, which bought these vital
little parts for $6 a piece. One day, the purchasing powers-that-be at
TruckMaster decided that perhaps $6 was too much. So the head purchasing guru—let's
call him Joe—decided to shop around. He found that CopyCat Corp. sold a switch
for $4. So he called up Fred, his loyal SwitchCrafter sales rep, and gave him
the "opportunity" to match the price. Not surprisingly, Fred hesitated. "I'm
familiar with CopyCat's switch," he said. "It's a fine part, but the lower price
is due to the type of plastic used in the switch. It is not designed to withstand
the cold temperatures your trucks operate in, which will lead to a higher failure
rate." But Joe dismissed his advice with a curt "that may be, but my job is to
reduce the cost of all our parts, and your competitor can save us $2 a pop.
Are you willing to match his price or not?"...
Read the article. Back to top
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CEOs should build a culture that copes with the unforeseen
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Of there is one lesson to be drawn from the natural disasters and terrorist attacks that shocked the international community in 2005, it is that organizations need to be resilient enough to withstand and learn from unexpected disruptions.
How to build resilience into organizations is one of the most important issues
facing chief executives in 2006. Hurricanes, earthquakes and terrorist attacks
are just some of the crises that companies must be able to deal with. Globalization
is stretching supply chains internationally at a time when market volatility is
on the increase, exposing companies to more risk. Moreover, enterprises can ill
afford to interrupt business operations given the intensity of the competition and
the cost pressures they are under. A resilient company is not only better able to
endure the vagaries of global trading, it can actually gain competitive advantage
by being one step ahead of the competition when a disruption hits. A fast recovery
is crucial...
Read the article. Back to top
Recognizing technologies that meet your business needs.
Blackberry gets Google Talk
Blackberry mobile email devices will be equipped for instant messaging, local search and maps from Google, Google and Blackberry producer Research In Motion said on Thursday.
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Chief executives hear a lot of chatter about new technologies that are going
to change the world. Most of them, of course, don’t.
So the CEO’s job is to cast a wary eye on new technologies until a few winners
emerge that can be commercially harvested. The trick is putting all those
new technologies in the context of real industry and market forces. As
readers contemplate the year 2006, we at Chief Executive sought to identify
three long-term technology trends that really will matter. Some touted technologies
like blogs will be important, but not for the reasons many assume. Some hyped ones
like radio frequency identification (RFID) will be black holes for money and
attention. Still others like supply chain simulation can transform a
company’s operations. But all require CEOs to grasp the essential changes in
the business landscape. Here are our picks...
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CEOs must go beyond marketing to embed their products in the culture
In 2006, the long-predicted death of advertising will reach a critical point.
Equally important, forward-thinking corporate leaders will build their
marketing strategies not around media but around culture. The ineffectiveness
and irrelevance of traditional media-driven messaging are glaringly apparent.
Newspapers and magazines are being eclipsed by the Web. Online music sharing,
satellite radio and podcasting (downloadable “playlists” from personal and
Web-based friends) are eroding the “ear share” of commercial broadcast radio.
TiVo and other digital-video recording (DVR) systems, which are forecast to be
in 25 million homes by 2007, allow viewers to wrest control of their programming
from the networks. Already, DVR users are skipping past 60 percent of the ads that
they would otherwise see (the equivalent of $6.6 billion in media spending).
Coming next: a new DVR machine that will offer the option of completely
excluding commercials when it records programming. Say good-bye to the 30-second
spot! But new technologies that liberate consumers from Big Media are only part
of the story. A much larger development is the series of cultural trends that
have led consumers to reject artificial, highly scripted, top-down marketing.
People’s attitudes toward Fortune 500 companies and other established institutions
have migrated from trust to distrust to outright dismissal...
Read the article. Back to top
Getting Outsourcing Right
It's evolving from a pure cost play to a strategic management tool.
In a recent Accenture global survey of leading companies that are experienced
at outsourcing, virtually 100 percent of respondents told us that while cost
reduction remains an important driver, by the third year of a typical
multiyear outsourcing arrangement, they had also explicitly linked business
objectives and business outcome targets to their programs.We surveyed nearly
600 companies across five industries and found an important shift in the
expectations companies have for outsourcing. Clearly, the traditional role
of outsourcing—as a narrowly focused exercise in cost control and labor
arbitrage—is not adequate to the task of achieving the kind of broad business
outcomes that customers expect. Among them: increased profitability (the most
frequently cited measure), improved management focus, speed to market,
increased revenue, and increased customer loyalty. Outsourcing is evolving from
a pure cost play into a strategic management tool—sophisticated, thoughtfully
conceived and superbly executed—for optimizing business processes,
expanding capabilities and building competitive strength...
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All CEOs with deferred pay must review their plans
The American Jobs Creation Act of 2004 included Section 409A, which changed
the rules governing nonqualified deferred compensation plans.
The new rules, largely spurred by the Enron debacle, take effect on Dec. 31
for individuals who participate in them. If you participate in any of these
plans, you need to make some decisions to avoid stiff taxes and penalties
because individuals will now be legally liable, not just their employers.
Employers also will now be required to include deferred income on either a
Form W2 or Form 1099, even though no tax is currently due.Many boards of
directors have long deferred the taxation of a senior executive’s income by
using a deferred compensation plan...
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Swimming In A Crowded Pool
The grocery aisles are awash in water: mineral, spring, sparkling, still,
flavored, caffeinated, vitamin-enhanced and something called "ultra" water.
With Aquafina, Evian, Dasani, Fruit2O, Propel, VitaminWater, Poland Spring,
Perrier and FIJI brands all wrestling for shelf space, can there possibly be
room for one more?
Tom First--founder of O Beverages in Cambridge, Mass.--thinks so. He's one
of the "Two Toms" behind the popular juice company Nantucket Nectars, launched
in 1989. Now the 39-year-old aims to make another splash: selling sugar-free
flavored water to health nuts who hawk their sugar intake but want more pizazz
than found in plain old H20. (As in other fruit-flavored drinks, the water
contains natural fruit extracts that add flavor without the calories.)...
Read the article. Back to top
Vanity, Thy Name Is Man
Need proof that cosmetic surgery and men is now a mainstream marriage?
Check out these statistics: While women still make up 87% of all cosmetic
surgery patients, 1.2 million procedures were performed on men in 2004. That's
a 16% increase since 2000, according to the American Society of Plastic Surgeons
(ASPS). "More men than ever before are getting plastic surgery," said Dr.
Brent Moelleken, a Beverly Hills, Calif., plastic and reconstructive surgeon who
says up to 20% of his practice includes men. "Ten years ago, it was just 5% to
10%." Men choose to improve many of the same body parts as women. But they're
different as cosmetic surgery patients in other ways, say the doctors who work
on them. The top five male cosmetic surgeries in 2004 were...
Read the article. Back to top
The Newest Mercedes AMG
It's faster than a Porsche 911. Faster than an Aston Martin DB9. It's nearly as fast as a Ferrari F430.
We're not talking about the newest Lamborghini Miura concept, which is debuting
this week at the North American International Auto Show in Detroit. We're talking
about a car that, stripped of certain exterior ornamentation, would look like a
high-end livery cab: DaimlerChrysler's (nyse: DCX - news - people ) 2007
Mercedes-Benz S65 AMG sedan. This car is a version of the new S-Class and, in
terms of zero-to-60 mph acceleration, a challenger to the exotic sports cars
listed above. In fact...
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Where We Want To Go In 2006
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With the new year comes the inevitable tide of resolutions, remorse
(for overdoing it during the holidays), anticipation for the 12 months ahead
and, for many people, a bad case of the winter blahs. Fortunately, help--in the
form of plane tickets--is at hand.
January is the time when leisure travelers begin formulating their plans for
the rest of the year. Whether booking beach time in Anguilla, reserving a room
for the family in Florida over spring vacation or planning a summer holiday in
Tuscany, the earlier you act, the better your chances will be of going where
you want, when you want. Of course, there's still plenty of room for spontaneity;
the romantic getaway to Mexico, the last-minute business trip that morphs into
a few days in Los Angeles, the old college friends who insist you join them in
Nantucket over Labor Day. Regardless of where you want to go in 2006, travel is
going to cost more--and require more advanced booking--than ever...
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Health nut mayor puts new focus on bad habits
When Mayor Michael Bloomberg sat down to lunch with children during a school
visit a few years ago, he was disgusted by the soggy, greasy fries and other
junk on their plates.
He pushed for a revamp of school menus and by the start of the next school
year, fat-laden meals were being replaced by healthier versions. That same
year, 2003, the city began handing out free nicotine patches and Bloomberg
won his crusade to outlaw smoking in bars and restaurants. Now the city is
going after high-calorie foods in bodegas, restaurants and company cafeteria.
Experts say Bloomberg — a bit of a health nut himself — has targeted unhealthy
lifestyles unlike any other administration before him. “It’s more aggressive than
we’ve ever seen in the past,” said...
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