September 24, 2006
We got into quite a discussion of Harvard Business School’s Michael Jensen, and how he provided the intellectual underpinnings used to justify mega stock option grants and myopic focus on shareholder value. Both of these badly abused management practices are behind many companies getting bigger without the economic benefits they hoped would accompany size.
Jensen is a key character in the first part of Bigger Isn't Always Better where I lay out the downsides of bigness. But the real hero of that chapter is a lesser-known Vanderbilt economist, Margaret Blair. She had the courage, at a time when maximizing shareholder value seemed to be everybody’s mantra, to write about why a bigger stock price does not necessarily make for a better company. Next interview, she gets top billing.
September 23, 2006
At Apple there is an appreciation that triumphs are usually fleeting. They know this - in ways that are way over the heads of many of their success-only, momentum-driven rivals - because they’ve lived this.
Take a look at David Pogue’s blog. He nicely summarizes the way most journalists saw Apple’s future in the dark years just prior to the second coming of Steve Jobs.
Of course, as you’ll see when you read Pogue, these press accounts are less about Apple than how we all tend to perceive (and misperceive) future possibilities.
September 22, 2006
Growth leaders set the right context by focusing people on what really matters. Which generally has nothing to do with shareholder value or earnings per share. That’s what his speech is all about.
September 21, 2006
Apple’s under-sung heroes
Ron Johnson is another of Apple’s under-sung heros. He’s the person behind the incredible success of its growing web of retail stores. There are 147 of these now and 40 new locations planned. These spare looking stores outsell the cluttered big boxes of Best Buy ($2459 revenue/square foot vs. Best Buy’s $971). Johnson likes to staff the stores with Mac-users; a practice some wags thought would limit their growth. Not so; 5000 of them applied for the 300 openings Johnson had when he launched his 5th Avenue shop in Manhattan.
Some key contributors to Apple’s growth don’t even work for the company. Another person named Johnson – this one’s first name is Gary – is the source of the chips and software that makes the iPod do what it does. He works at PortalPlayer Inc.
When I researched growers to write about for Bigger Isn't Always Better, I found (to my surprise), many of the key players weren’t the CEOs of their organizations. Some of those who had the biggest impact on their business’ future toiled in the middle or margins of their company’s hierarchy. This contradicts the impression a reader of most business magazines gets – that all success is the result of the wisdom of the person on top (and most failure results from everyone eles’s inability to “execute”).
This conventional wisdom doesn’t hold up under close scrutiny. I had a lot of fun in Bigger Isn't Always Better highlighting the MO’s of the real driver’s of organic growth. The practices of these under-sung heroes – Al Bru, Bill Greenwood, Jane Friedman, Debra Henretta, Darcy Winslow – offer more lessons about how to make growth happen than the more hyped stories of the Gerstners and Welches.
September 20, 2006
Dispatches from the front
Microsoft is in the turn-around mode. Ray Ozzie, its new technology czar, says:
"Complexity kills. It sucks the life out of developers, it makes products difficult to plan, build and test, it introduces security challenges and it causes end-user and administrator frustration."
It will be interesting to see how he addresses what gets called the core Windows problem. According to Michael Cusumano, a professor at the Sloan School of Management at the Massachusetts Institute of Technology: “Windows is too big and too complex."
The MIT prof thinks that fixing windows will take a radical approach, a willingness on the part of Microsoft to walk away from its legacy.
Apple did this in 2000 when it walked away from OS 9, and again this year when it switched to an Intel-based processor.
(For more detail, see: New York Times March 27, 2006 “Windows Is So Slow, but Why?” by
Lohr and John Markoff)
Apple, whose legacy was not as massive as Microsoft’s, had an easier time walking away. Its big challenge now is sustaining its momentum. Apple’s Jonathan Ive has an interesting take on what’s been behind the company’s success:
“We don’t make very much stuff. That’s a very important part of our approach to what we do, which is not to do a lot of unnecessary stuff but just to focus and really try very sincerely to care so much about the few things that we do.”
Focus on a few things. Care about them a lot. Not a bad strategy for growth.
(For more on Ive see: Business Week September 25, 2006 IN pp. 27-33)
September 18, 2006
The article comments on President Vladimir Putin’s plans to create giant enterprises as a way to revive the country’s strategic industries. First step – next month’s rollout of the world’s largest aluminum company.
A few observers, however, are less sure about the logic of this strategy:
“Some Russians, recalling the Soviet boasts of having the biggest rockets, the biggest steel mills, the biggest ice-breakers, were cynical. ‘We had a joke in the 1980’s that our microchips were the biggest in the world,’ said Aleksei Venediktov, the editor in chief of Echo of Moscow Radio. ‘It’s that mentality of greatness, in the sense of size, even if it doesn’t make sense.’ “
Market capitalization seems to be Russia’s new standard of comparison with the West, though, as I pointed out in Bigger Isn't Always Better, it can be a counterproductive goal.
When otherwise smart business people go after not-always-economic-goals, there’s often something psychological going on. The Times article may have nailed it:
“The Kremlin is clearly hoping to sell the new gigantism not just as a business strategy, but as a balm for the wounded pride of Russians who endured the economic disasters of the 1990’s.”
“Mr. Venediktov of Echo of Moscow radio explained it this way: ‘We need to say we are the greatest somewhere, in something. Russia is suffering post-imperial syndrome, like England in the 40’s or France in the 50’s. But ah-hah! We are still the best someplace. We win more gold medals in gymnastics. And now in this: We passed America in aluminum.’ “