ADVERTISEMENT

I wanted to let our blog audience know we are running the “Driving Organic Growth” class at Kellogg May 10 to the 13th at Evanston.

As I have focused on the challenges of these difficult times in the blog over the last couple of months, a continual theme emerges that suggests companies have to first solidly their balance sheet and then try to take advantage of the situation to reposition themselves for growth. …you should not just wait out the storm!

Accordingly, we have adjusted the course material to focus on growing in these challenging times. The essence of the class with its practical approach is of course maintained.
If you have not taken the course or have associates that you feel could benefit, now would be a great time to take it.

The web site is: http://www.kellogg.northwestern.edu/execed/programs/LEAD17/index.htm

Contact me directly if you have training budget issues at bobcooper@racooperllc.com

Is Facebook Growing Up Too Fast?
By BRAD STONE
Published: NYT March 28, 2009

I think this is a fascinating visual of how new generations of business based on the net could grow in the future. Note the geographic and demographic changes as well as how Facebook is used.

WHEN Facebook signed up its 100 millionth member last August, its employees spread out in two parks in Palo Alto, Calif., for a huge barbecue. Sometime this week, this five-year-old start-up, born in a dorm room at Harvard, expects to register its 200 millionth user.
That staggering growth rate — doubling in size in just eight months — suggests Facebook is rapidly becoming the Web’s dominant social ecosystem and an essential personal and business networking tool in much of the wired world. .........

Smart Management for Tough Times
Breakthrough management ideas for a world in which the game will never be the same
Business Week, March 23, 2009
By Jena McGregor

This is the first in a series of postings on the serious challenges of managing your companies in this global business environment. The underlying thesis is after ensuring your company has a sustainable balance sheet (my thoughts), you cannot just wait out the “recession”. This is the time to reposition your company/businesses during this period of great turbulence and uncertainty.

John Chambers knows what it feels like to survive a crash. In 2000, Cisco (CSCO) Systems had the largest market cap in the world and more than 50% annual sales growth. Then the dot-com bubble burst, and the Cisco chief executive watched the networking giant's stock drop 86%, from 80 to just over 11 by September 2001. Chambers laid off thousands of employees, shrank the number of suppliers, and simplified or jettisoned many products. He also radically changed the way he managed, turning a command-and-control hierarchy into a more democratic organizational structure. The company emerged from that recession more profitable than ever and went on to outperform many tech rivals. In retrospect, Chambers wonders if he could have done even more. "Without exception," he says, "all of my biggest mistakes occurred because I moved too slowly."

The challenge for many business leaders is figuring out what moves to make now. Whether you see signs of life in the economy or think the worst is yet to come, there's no question that the game has changed for business. The tools managers once used with great success, from how they pay their people to where they seek out new product innovations, are being reevaluated. Manufacturing processes that worked seamlessly a year ago may be a recipe for piled-up inventory as spending slows. And strategies once deemed unthinkable, such as cutting the salaries of rank-and-file managers, are being embraced by some of the world's largest companies, including FedEx (FDX) and Hewlett-Packard (HPQ)..............

........After all, the best businesses have to do more than just survive this recession. Jeffrey Immelt, General Electric's (GE) chief executive officer, believes that what the corporate world faces now is a fundamental "reset." He argues that the shift in the financial services sector and the increased role of government in business "will be with us for the rest of our careers."

He's right. Many consumers will be forced to accept a more frugal lifestyle for years to come. Sectors such as retail, housing, media, and manufacturing are being transformed. And layoffs could permanently alter not just the size of some companies but also the nature of relationships between employees and their bosses.

Smart leaders recognize that they can use this crisis as a catalyst to spark new ways of thinking and doing business. Niko Canner, co-founder of consultancy Katzenbach Partners, notes that the challenge is to look beyond the critical work of plugging financial holes to forge fresh strategies. Right now, he argues, "people are using approaches that are insufficiently powerful to get them where they need to go." Some CEOs are determined to avoid that trap. Ray Davis, who heads regional bank Umpqua Holdings (UMPQ), asserts that "there is no more normal."

His top priority: position Umpqua to succeed in the coming years. Despite the turmoil, he has launched an eco-oriented lending unit to fund green ventures and is building an asset-management division. The Oregon bank is suffering like many of its peers, though it didn't offer subprime loans to customers. But doing nothing beyond hunkering down simply isn't an option. "I feel like I'm sitting in the middle of a railroad track," says Davis. "Standing still is how you kill the company."

Consider the approach taken by Gerard Kleisterlee, CEO of Royal Philips Electronics (PHG). While his company has long sold its health-care equipment, lighting, and electronics in developing countries, Kleisterlee is shifting more people, advertising dollars, and research to developing regions this year. In addition to cutting costs, the hope is that the benefits will trickle back to Europe and North America. As he puts it: "We're looking at opportunities to bring some of what we have [developed for] emerging markets" to the rest of the world.

With U.S. and European markets in deep freeze, companies are even more interested in tracking market trends in emerging economies. About a year ago, MasterCard (MA) launched a process it calls "dynamic strategy." It created seven global networks that study developments such as technology, consumer behavior, and business spending. The heads of each network present their findings at twice-yearly forums attended by MasterCard's top brass. Already, the initiative is helping executives understand the impact of developments such as payments by cell phone. "Normally those smaller markets get pushed to the side," says Senior Vice-President Randy Shuken, who oversees the project. Even simple technology solutions, he explains, "could affect our industry fundamentally."

WORKING WITH OUTSIDERS
As the old methods fall short, executives need to bring a wider array of skills and backgrounds to the table. Companies are testing fresh methods to develop global leaders while tapping innovative collaboration tools and social networks to speed up productivity and decision-making. Perhaps no company has done more in this vein than Cisco. As part of his move to democratize management, Chambers set up a new hierarchy within the company. "Councils" are teams of executives who make decisions on $10 billion opportunities. "Boards" consist of executives who have authority to make calls on $1 billion bets, and "working groups" are organized to deal with a specific issue for a limited period of time. Chambers—who typically isn't involved in the decisions—believes his approach is a path others will need to follow. "When you have command and control by the top 10 people, you can only do one or two things at a time," he says. "The future is about collaboration and teamwork and making decisions with a replicable process that offers scale, speed, and flexibility."

The recession is prompting companies to reconsider how they work with outsiders, too. A critical new skill is learning to work with regulators and other public-sector executives whose role in business has vastly expanded. In the financial sector, that could mean interacting with government as owner. In other cases, it means looking for ways to tap the stimulus money now being doled out across the globe. Immelt, for one, has ramped up a companywide effort to track stimulus spending, monitor public-funded projects, and share expertise among GE business units.

SKIN IN THE GAME
Creative retailers, meanwhile, are getting more involved with struggling suppliers and customers. Some are exploring ways to help with financing where they can, while others are putting more emphasis on services as product sales drop off. Brian Dunn, who will take over as Best Buy's (BBY) CEO this summer, says the consumer-electronics retailer is in "the early innings" of its expansion into technology services such as its Geek Squad tech support team. As customers spend less on new gadgets and want the ones they own to last longer, they're "really hungry not just for a transaction," Dunn says. "They're interested in who is going to help them get the benefit of what they're buying over the life of it."

In the past, solving customers' problems was often just talk. Now, it has become critical throughout a number of industries. Those who can't do it risk losing the business altogether; those who do may gain market share. India-based outsourcer HCL Technologies has been testing new ways to help customers trim costs, from deferring payments to helping them look for ways to cut overall IT spending. Naturally, the $5 billion-a-year company hopes happy customers will bring it more business. But the more immediate concern is that some clients may not survive if they don't find ways to take costs out of their bottom lines.

That's one reason CEO Vineet Nayar believes there's no choice but to put more of his own skin in the game. When a software client wanted to shelve a product it was developing, Nayar had HCL take over the project in exchange for a share of its future revenues. In another case, a media customer couldn't afford to install software that would save it money. So Nayar made the investment instead and plans to pay himself back out of the money his client will save. "I'm a big believer that buying will come back with a vengeance," he says. "But it will come back only to people who have created trusted partnerships at the weakest point for their customers."

A value meal at Starbucks? Coming right up
LAUREN SHEPHERD AP Business Writer
Associated Press Archive
February 3, 2009

We have been following this story of the competitive separation dynamics among Starbucks, McDonald’s and Dunkin Donuts. In the context of the Value Map reviewed earlier (http://marketdrivengrowth.blogspot.com/2007/03/competitive-separation-value-map-next.html) For years, Starbucks was C (offered more perceived food value at a higher price) in the Value Map, Duncan Donuts was B, and McDonald’s was A. All was good. However, the constant drive for growth forced all three to expand beyond their niche to the point, that from the Value Map perspective, they are approaching zero separation (it will probably never reach zero which means perfect competition and no one makes money). At the very least, margins will decline. From this article, it appears that the current financial recession is accelerating this process which maybe happening to many of us!!

The allure of the value meal has long seduced penny-pinchers craving a cheeseburger. Now, as the dismal economy slurps up profits, Starbucks Corp. is hoping to find some sales salvation in its own value meal variety.

The tug of war for coffee drinkers has gotten hotter in recent months, with McDonald's Corp. offering new, lower-priced specialty coffee drinks and Dunkin' Donuts advertising value-minded deals. "You've got a lot of options right now for the more price-conscious consumer to save money," said Andrew Hetzel, the founder of coffee consulting group Cafemakers.

Starbucks has yet to offer many details about what Chief Executive Howard Schultz described to investors last week as "several breakfast pairings" at "attractive" prices. More details are expected as early as later this week.

But analysts wonder if the plan will be enough to keep value-seeking customers from abandoning the mermaid for the clown.

The McDonald's drinks, which are now in about half of the company's U.S. stores, have already garnered a following among some former Starbucks customers like Maudie West.
The 86-year-old resident of Kansas City, Kan. says she has an iced mocha from McDonald's "as often as I can get someone to drive through."
"I just absolutely love them," she said. "They're much richer-tasting than Starbucks."
Starbucks is looking to rebound from dismal sales in the U.S. as more consumers cut back on spending in the deepening recession. In its fiscal first quarter report last week, same-store sales -- a key indicator of a retailer's performance -- dropped 10 percent. That's worse than the 8 percent decline in the fiscal fourth quarter.

Even in areas like the Northeast where business has remained fairly strong, some former Starbucks drinkers have been cutting back or abstaining altogether.
Kathryn Lane, a 30-year-old Brooklyn, N.Y. resident, said she used to indulge in a Starbucks latte as a treat about once a week.

"I go about once a month now at most," Lane said.
Lane has not tried the McDonald's drinks since they have yet to come to the New York City market. But she said she would give it a try: "If it was tasty, I would go back."
Restaurants have been increasingly trying to break into the specialty coffee market, which has grown substantially since 1995, when only 2.7 percent of adults drank a specialty coffee drink every day, according to the Specialty Coffee Association of America. In 2008, that percentage stood at 17 percent.

Starbucks won't say whether competition from its lower-priced rivals has contributed to its sales decline. But analysts say the economy may be driving more value-minded consumers to switch brands rather than just cut back.
"It's hard when people automatically see Starbucks as being more expensive," said Stifel Nicolaus analyst Steve West.

McDonald's is halfway through its nationwide launch of its new espresso-based drinks and said sales are hitting or exceeding internal targets. It declined to elaborate but cited the popularity of the drinks as one factor in its better than expected fourth-quarter results.

McDonald's now offers the drinks in about 7,000 of its nearly 14,000 U.S. locations. Although it is still rolling out the beverages, it is already heavily promoting them locally through coupons and samples.

The McCafe drinks are about 65 cents, or about 25 percent, cheaper on average than those at Starbucks. When shots of flavors are added, the savings increase because a flavor shot costs 35 cents each on average at Starbucks. The shots are free at McDonald's.
West, the analyst -- who is not related to Maudie West -- says he thinks the McCafe drinks will do well. Given Starbucks' sales declines, he says, "I've got to imagine some of those people are going to McDonald's."

And while McDonald's is well-known for its value meals, those include only the regular drip coffee, not the new espresso-based drinks -- at least not yet.

Not to be outdone, Dunkin' Donuts is trying to attract value-conscious consumers with specially priced coffee and food combinations, such as a medium drip coffee and an egg white flatbread sandwich for $1.99. The company, which is privately held, doesn't report financial results and declined to give specific figures.
Much of Dunkin's market base is price-sensitive customers, whereas Starbucks' customer base still includes a die-hard core that may be unwilling to trade down on their coffee.
Melanie Helfrich, a 29-year-old from Louisville, Ky., who favors Starbucks lattes was unimpressed by a free sample of a hot mocha latte at her local McDonald's recently.
"I am willing to pay the extra $2 and wait for my drink in order to get a good cup of coffee," she said.

Process to be an art or science

HBR March 2009 JM Hall and NE Johnson

This is an excellent article from HBR on the importance of choosing the right process for the right challenge. Remember our earlier discussions on the need to be an ambidextrous company—companies always face multiple challenges and “one process does not fit all”

Mass processes are standardized processes that are geared to eliminate variations in output. They’re appropriate when the goal is completely consistent output for a narrow range of products or services. In such cases, all artistic discretion should be eliminated. Steel, cars, and consumer financial services are examples of industries where mass processes are widely applied.
Mass customization uses a scientific process to produce controlled variations in output. Assemble-to-order products like Dell’s personal computers and cars in BMW’s “Build Your Own” program fall into this category. While the number of possible combinations might be enormous (BMW claims more than 130 million configurations), output variability is limited to combinations of predefined components. In many cases, mass customization represents the best of both worlds: control and variation. But when customers demand true customization (“I want a pink computer with a fabric-covered chassis that complements my office”), it will fall short.

Nascent or broken processes can’t produce the consistent output that customers demand. Out-of-control processes are common when a product or process uses radically new materials, technology, or designs. In these situations, managers should consider whether controlling output variation is feasible or desirable. If variation can’t be controlled but customers can be persuaded to value it, an artistic process is the solution. If customers won’t tolerate variation, the focus should be on understanding its causes and creating a standard process. Boeing did this for its new 787 Dreamliner, the first commercial aircraft with a carbon composite airframe: The company conducted test runs to learn how to standardize the process for manufacturing fuselage sections.

Artistic processes leverage variability in the environment to create variations of products or services that customers value. They rely on the judgment and direct experience of craftspeople. Building Steinway pianos, serving passengers on flights, and developing radically new software applications are but a few of the processes that meet those criteria. Before choosing art, it’s critical to make sure that customers really value output variation. Some managers delude themselves into believing they need artistic output when the vast majority of customers really want a standard product.