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| Volume 8, Issue 12 |
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In This Issue:
 How much time should CEOs devote to customers?
 Keeping customers in a crummy economy
[CEOs] bracing for U.S. corporate budget cuts
 Getting more from lean: Seven success factors
 How effective is your senior team?
Failed strategies
 Why CEOs make bad chairmen
 Cool, determined & under 30
Secrets of a $110 million man
Angel investor directory
 Pressured to take more risk, Fannie reached tipping point
Like J.P. Morgan, Warren E. Buffett braves a crisis
End of an era on Wall Street: Goodbye to all that
The reckoning: Taking hard new look at a Greenspan legacy
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How much time should CEOs devote to customers?
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A good CEO knows how to balance time spent on the outside versus the inside.
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Customers are the source of all cash flow. Organic growth depends on developing relationships with new and existing customers. And future growth prospects are baked into stock market valuations of companies.
Yet an increasingly high percentage of Fortune 500 CEOs have not come up the ranks through marketing or sales. At the same time, in many companies, the chief marketing officer position turns over every two years. Facing the current economic downturn, companies need marketing skills more than ever. But while every corporate mission
statement pays lip service to respecting customer needs, actual customer expertise is typically a mile wide and an inch deep. Marketing expertise depends on customer insights. These insights cannot be gleaned from looking at market research data on a
computer screen. Just like politics, all marketing is retail. The customer votes every day at the supermarket ballot box. To be customer-oriented, executives must get out and meet customers on their home turf—in their homes, on job sites, in their offices. [But how far should the CEO go? What percentage of his or her time should be spent interacting with customers?...]
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Keeping customers in a crummy economy
With recession expectations growing, some companies are taking extraordinary steps to hold on to customers.
Even before the U.S. economic outlook darkened as the gravity of the financial crisis came into focus, companies started to get more aggressive in their attempts to hold onto old customers and attract new ones. Telephone companies' offers for two months of free service and reduced rates, discounted gym membership renewals, and generous gift
cards from high-end department stores all underscore a pervasive fear on Main Street: With the uncertainty around the credit seize-up, consumers may be digging in for a long hibernation. In upstate New York and other rural communities it serves, Frontier Communications (FTR) is even sending sales representatives door-to-door to persuade
customers to lock in another year's worth of service at a discount rate. Those visits are effective where customers are often two-income families with busy lives, and many of those drop-ins are scheduled in advance, says Brigid Smith, a company spokeswoman. "We're sensitive to what this financial crisis means to them and we have to
communicate with them," she says. It's not only because of the gloomier economic picture that Frontier and other telephone companies are trying harder to hold onto customers. Ongoing attrition of users to...
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[CEOs] bracing for U.S. corporate budget cuts
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CEOs are preparing for the worst—and everything, including deep payroll reductions, is on the table.
William P. Lauder was already adjusting his corporate budget for a tough holiday season. Then the financial crisis hit. Amid the turmoil, the Estée Lauder Cos. (EL) chief executive stopped at a Denver mall and found it practically empty. Now he's preparing for the worst. "We always do scenario planning, but not to the degree that
we are doing now," says Lauder. He's asking each brand manager at the New York cosmetics giant three questions: "What must you have? What would you like to keep going? And what can you give up?" Down in Louisville, David C. Novak is giving a similar message to staff. "We will not spend on projects that might [have] come true,"
says Novak, CEO of YUM! Brands (YUM), owner of Pizza Hut, KFC, and Taco Bell. "Today it's more of a 'must-have' mentality." Faced with squeezed credit and unpredictable sales, U.S. companies are bracing for budget cuts that could be far-reaching, painful, and in some cases unprecedented...
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Getting more from lean: Seven success factors
Why do some companies such as Toyota succeed at lean, while other companies struggle? What do companies with the best outcomes do differently than their less successful peers?
To find the answers, BCG conducted extensive interviews with a wide range of companies with varying degrees of lean experience, and combined these insights with our own observations from helping clients achieve success in their lean initiatives...
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How effective is your senior team?
Today, CEOs rely on their senior teams or sometimes several teams more than ever.
Thanks to an ever-more-complex operating environment, the challenges of competing in a global marketplace and a mind-boggling pace of change, the leadership role is simply too complex for one person, no matter how talented he or she may be. In fact, increasingly the most effective leaders are not the "heroic CEOs" who can do it all,
but those who are able to assemble and energize effective senior-level teams. Yet many CEOs fumble in creating and directing a leadership team. In fact, less than 25 percent of senior teams actually realize their potential, according to a recent study by the Hay Group that examined more than 120 senior teams in 11 countries. "Most of the
really important decisions get made in other forums," Ruth Wage-man, director of research for Hay Group, told CEOs gathered for a recent roundtable discussion cosponsored by Hay Group and Chief Executive magazine. "In fact, rather than creating synergy, what most leadership teams are doing is trading reports. And members,
including CEOs, typically find the teams to be sources of frustration and alienation rather than a place where real leadership happens." What factors hamper the top talent in their mandate to pull together and move the company forward?...
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Failed strategies
When Tom Watson Jr. was chief executive of IBM in the early 1960s, he summoned an executive to his office after the man lost $10 million in a venture. Watson asked the man, "Do you know why I called you here?" Knowing of Watson’s legendary temper, the man replied: "I assume you’re going to fire me."
"Fire you?" Watson asked. "I spent $10 million educating you. I just want to be sure you learned the right lessons." There are plenty of educational business failures out there, but executives seldom learn the lessons to be had. That’s because the tendency in business writing is to look at success stories and say, "Here’s how to be like
those guys." Almost never do people take a systematic look at failures and say, "Here’s how not to be like those guys." Only looking at success stories is like interviewing winners at the roulette wheel and assuming that their strategies will help you win, too. To get a true picture of your odds of success, you also have to
interview losers. To fill in the gap in business literature, we spent nearly two years with a team of researchers investigating the 750 biggest business failures of the past 25 years. We found several patterns that can help chief executives avoid repeating others’ mistakes...
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Why CEOs make bad chairmen
In these nervous times, a steady, experienced chairman – and they are still mostly men – is a sought-after commodity. Just don't expect your chief executive to be the right person for the job, whatever his vaulting ambition or expectation.
Research by UK recruitment firm Directorbank has identified a range of attributes that, in an ideal world, good chairmen should have, or at the very least aspire to. But the poll of 430 directors serving on more than 900 boards also found a worrying inertia within boardrooms when it came to removing under-performing chairmen, with
four out of 10 firms admitting they had no mechanism in place to remove and replace a chairman that was not pulling his weight. The research found that what directors sought most from a chairman was someone who was never afraid to ask questions, even if
they appeared silly, and who was happy to sit back and let the executive team take the credit for success. Key attributes included...
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Cool, determined & under 30
They are running businesses in fields as diverse as Wi-Fi and fashion, blogging and music.
Combined, they manage nearly 600 employees and have raised more than $100 million from investors. They have graduated from (and, on occasion, dropped out of)
some of the very best schools in the country. They are collaborative, creative, and -- above all -- confident. And here's one more fact: All of them were born after October 31, 1978...
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Secrets of a $110 million man
There are no guarantees when it comes to running a business. But the best entrepreneurs I know follow these guidelines.
I've been an entrepreneur for almost 30 years now -- 29 years and two months, to be exact, but who's counting? -- and one thing I've learned is that there is no formula for success in business. Believe me, I wish there were. I would love to be able to give you a step-by-step guide to achieving your business goals. But I can't. That's
because no challenge in business is identical to any other. Each is shaped by a multitude of factors that give it unique characteristics, and your response has to be tailored accordingly. Then how is it, you might ask, that some entrepreneurs are able to start one successful business after another and rarely -- if ever -- fail? By
successful, I mean a business that lives off its own cash flow, provides a good living for its owners and employees, and generates the profit it needs to keep growing. You have no doubt run into people with the ability to create such businesses almost at will. In the media, they are often referred to as serial entrepreneurs. I suppose I'm
one of them, although I have certainly had my share of failures. So what do serial entrepreneurs know that allows us to have a relatively high batting average when it comes to starting businesses? Or is it just a matter of luck? [What exactly is the knack? I think it boils down to a set of rules that can be applied to a wide variety
of situations. Some of these rules we learn as children. Others we pick up from mentors of one sort or another. Most we develop the old-fashioned way -- by making mistakes, falling down, picking ourselves up, and figuring out how not to do it again. However we learn the rules, they are the tools we use to deal with the challenges
encountered in the course of building any business from scratch. Not that the rules guarantee success, but they do improve our chances significantly. We win more than we lose, and the longer we stay in the game, the more often we come out on top. I thought
I would give you what I believe are the 10 most important lessons I have learned over the past 29-plus years, the rules that I still rely on today...]
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Angel investor directory
Finding the right angel investor could help you get your start-up off the ground.
Angel-investor networks are a good place to start looking for funding. These national and local groups of angels meet -- formally or informally -- to discuss deals and learn about the best new business opportunities. Each network works in a slightly different way: Some may charge fees for making presentations and some may charge a fee
to apply for consideration. Some even require an official introduction to the group by an angel member while others solicit ideas via the group's Web site. To help get you started in your search for an angel, we've compiled a list of U.S. angel networks. Because many angel groups limit their investments to a particular geographical area,
we've divided the list into eight regions: Pacific Northwest, Southwest, Mid-Atlantic, Northeast, North Central, California, South, and Midwest. There is also a category for those groups that consider investments anywhere in the country...
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Pressured to take more risk, Fannie reached tipping point
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“Almost no one expected what was coming. It’s not fair to blame us for not predicting the unthinkable.“— Daniel H. Mudd, former chief executive, Fannie Mae
When the mortgage giant Fannie Mae recruited Daniel H. Mudd, he told a friend he wanted to work for an altruistic business. Already a decorated marine and a successful executive, he wanted to be a role model to his four children — just as his father, the television journalist Roger Mudd, had been to him. Fannie, a government-sponsored
company, had long helped Americans get cheaper home loans by serving as a powerful middleman, buying mortgages from lenders and banks and then holding or reselling them to Wall Street investors. This allowed banks to make even more loans — expanding the pool of homeowners and permitting Fannie to ring up handsome profits along the way.
But by the time Mr. Mudd became Fannie’s chief executive in 2004, his company was under siege. Competitors were snatching lucrative parts of its business. Congress was demanding that Mr. Mudd help steer more loans to low-income borrowers. Lenders were
threatening to sell directly to Wall Street unless Fannie bought a bigger chunk of their riskiest loans. So Mr. Mudd made a fateful choice...
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Like J.P. Morgan, Warren E. Buffett braves a crisis
In the midst of a financial crisis, a towering figure of American business steps forward with his reputation and financial resources for public good and personal gain.
Their times and personalities are vastly different, of course. But J. Pierpont Morgan’s role in the Panic of 1907 has its echo in Warren E. Buffett’s actions during the current financial troubles. “What Buffett is doing is similar in ways to what Morgan did in 1907,” said Richard Sylla, an economist and financial historian at the
Stern School of Business at New York University. “It’s what you might call profitable patriotism.” Comparing the two men and their moves in periods of market turmoil, just more than a century apart, reveals how much some things have changed over the years and how other things have not, according to business historians and finance experts...
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End of an era on Wall Street: Goodbye to all that
JUST before midnight 10 days ago, as a financial whirlwind tore through Wall Street, someone filched a 75-pound bronze bust of Harry Poulakakos from the vestibule of his landmark saloon on Hanover Square in Manhattan.
Digging into a bowl of beef stroganoff the day after the bust disappeared — it was eventually returned anonymously — Mr. Poulakakos recalled some of the customers who had passed through his doors since he opened his bar, Harry’s, 36 years ago. Ivan Boesky once had a Christmas party there. Michael Milken worked over at 60 Broad. Tom
Wolfe immortalized the joint in “The Bonfire of the Vanities.” Mr. Poulakakos says he even got to know Henry M. Paulson Jr., the former Goldman Sachs chief executive and now the Treasury secretary. Mr. Poulakakos, 70, has also seen his share of ups and downs on the Street, including the 1987 stock market crash, when Harry’s filled up at
4 p.m. and stayed open all night. But the upheaval he’s witnessing now — much of Wall Street evaporating in a swift and brutal reordering — is, he said, the worst in decades. “I hope this is going to be over,” he said. “If Wall Street is not active, nothing is active.” Mr. Poulakakos, rest assured, isn’t planning to disappear. But the
cultural tableau and the social swirl that once surrounded Harry’s are certainly fading. “It’s the beginning of the end of the era of infatuation with the free market...
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The reckoning: Taking hard new look at a Greenspan legacy
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“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” — Alan Greenspan in 2004.
George Soros, the prominent financier, avoids using the financial contracts known as derivatives “because we don’t really understand how they work.” Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential “hydrogen bombs.” And Warren E. Buffett presciently
observed five years ago that derivatives were “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that
promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the
marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added. Today,
with the world caught in an economic tempest that Mr. Greenspan recently described as “the type of wrenching financial crisis that comes along only once in a century,” his faith in derivatives remains unshaken. The problem is not that the contracts failed, he says. Rather, the people using them got greedy. A lack of integrity spawned the
crisis, he argued in a speech a week ago at Georgetown University, intimating that those peddling derivatives were not as reliable as “the pharmacist who fills the
prescription ordered by our physician.” But others hold a starkly different view of how global markets unwound, and the role that Mr. Greenspan played in setting up this unrest...
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