April 26, 2006

Tesco - the new Wal-Mart?

Tesco is a UK-based retailer that has beaten Wal-Mart in its own game. It also has bold plans to expand to the US.

Today's London Times offers a cautionary commentary with an article titled "How Tesco Will Crumble and Fall." It lays out a rationale for the size and speed of this superstore's growth also being the seeds of its destruction.

The Times says:

"Over the years it has grown from being a simple, if enormous, grocer, into selling over-the-counter medicines, providing finance and banking services, running post offices and garages, selling clothing and hi-tech equipment, always undercutting the opposition. If there is a vacuum to fill, it will fill it."

Sound familiar?

That's the good news. The Times then goes on to observe:

"All this suggests that Tesco is unstoppable. And yet, like the alien invader in The War of the Worlds, its very size and the speed of its expansion may contain the seeds of its own demise. Consumers do not, in the end, take kindly to an overweening monopoly, especially when it squeezes out competition and dictates its own terms. In towns that face the massive intrusion of new superstores, opposition is mounting. A network of websites offers hostile evidence about Tesco’s tactics, its methods and its ambitions."

"Tesco is a formidable enterprise. But if it continues to ride roughshod over all opposition, to stifle competition, and to ignore the sensitivities of long-established communities, then, like so many imperial dynasties of the past, it too will crumble and fall."

The History of the Decline and Fall of the Roman Empire was written by an Englishman, which might be why they appreciate this dynamic better than some Americans. It should be required reading for all business strategists. That which the gods want to destroy they first make real big.


April 19, 2006

Man bites dog

Could this be the start of a trend?

"William W. McGuire, the chairman and chief executive of the UnitedHealth Group, said on Tuesday that he had asked his board to stop awarding new stock options to senior executives."

Some critics have alleged this was done to allay concerns about back-dating of previous option grants. Regardless, it wouldn't be the first time the right thing was done for the wrong reason.

When I am interviewed about Bigger Isn't Always Better, I'm often asked why so many companies pursue uneconomic bigness strategies, especially those involving unwise acquisitions.

My one-word answer: stock options.

The more you dig into the kinds of behaviors encouraged by ongoing grants of large amounts of options, the clearer it is that they disalign the interests of the executives receiving them from the average shareholder.


April 17, 2006

The opposite of Wal-Mart (2)

… involves differentiation.

Here’s an account of 3 retailers who feature happy employees and work hard to make grocery shopping fun for their customers.


The opposite of Wal-Mart (1)

… involves focus.

Check out Aldi, a German discount food retailer that beats Wal-Mart at its own game.


Accenture asks: is bigger better?

Two Accenture consultants have written an article well worth reading on “Is Bigger Always Better?”

They conclude:

Well said.



April 15, 2006

Procter & Gamble on bigness

P&G's latest annual report is full of optimistic references to "growth strategies" and "organic growth." But in a recent Economist interview its CEO, Alan Lafley, laments:

"It is so hard to grow. And the bigger you get, the harder it is."

Lafley's right. His company, still in the midst of digesting Gillette, its latest acquisition, maybe a prime candidate for rethinking what growth means. Expansion alone tends to be self-defeating.


April 12, 2006

Bloated pay drives bloated companies

This is shareholder proxy season, a time when executive compensation tallies are reported. Business journalists are busy writing about stratospheric rises in executive pay, and how they are often poorly linked to performance. What is sometimes missed in these accounts is the connection between bloated pay and bloated companies.

Bigger, not better, companies are a direct result of paying leaders for the wrong things. When the size of an executive’s pay is determined by how big the business is - instead of how well it is performing economically or meeting customer needs – unwise expansion is seldom far behind.

That is what is behind so many recent, unsound mergers.

Executive compensation used to be an incentive and reward for good strategy. But in many companies the tables have been turned, and the compensation system is what’s creating the strategy. And the strategy is usually about bigness.

Expanding top management pay is also seldom accompanied by equivalent percentage increases down the ranks. The gap between top strata pay and everyone else’s used to be measured in double digit multiples. Now seniors frequently earn hundreds or thousands of times more than the people they rely on to produce business results.

Gaps like this over-value top-down strategy and diminish the importance of execution.

They also erect big barriers to information flow and candid back-and-forth debate between those at the top and everyone else. Free-flowing information and dialogue are important. They are what fuel real growth.

April 10, 2006

Detroit v. Toyota

Harvard Business School professor Kent Bowen is a technology and operations management expert. Here’s his take on the struggling auto industry:

“Detroit has hobbled itself in two notable ways: Labor agreements, financially generous but tightly circumscribed regarding worker activity, have hindered innovative uses of the workforce, while in the executive suites, conventional wisdom mistakenly has held that sheer corporate size could ensure industry dominance."

"Toyota, shunning these approaches, took advantage of this Detroit ‘blind spot.’ While less generous in its compensation packages for workers, Toyota strives to use its labor force in flexible, creative, and collaborative ways,"

Bowen does raise an important concern about Toyota’s future. It’s biggest worry:

"… is getting too big, too fast, which they feel would make it hard to find enough good managers, thereby jeopardizing the company's legendary quality."


April 08, 2006

Macs run Windows

... that was Apple's big news of the week.

What will really drive Apple's growth, though, is a headline next year or so reading:


It could happen.


April 07, 2006

Growth at Ford

Growth starts when people start telling the truth.

At a meeting of the Automobile Industry Action Group, William Clay Ford Jr., who was honored as the industry's executive of the year, said his priority was:

"... to get honesty on the table. Too often in corporate America, you sit around the table, everyone nods their head and agrees to stuff they know isn't true, and then they go out and the hallway talk starts."


April 04, 2006

GM’s forgetting curve

In a recent interview General Motor’s chief executive, Rick Wagoner, said this about critics who observe he’s grown up in the GM culture and therefore unable to make the radical changes required to move the company forward:

"That is so simplistic. These are sophisticated problems with historical tails that run back 80, 90 years. The chance of someone coming in and not understanding our business, making the right calls and doing them in cooperation with key constituencies like dealers and unions, is absolutely microscopic. That would be the biggest risk I’ve ever heard of."

Wagoner is using the risk of the “steep learning curve” to protect his job. Of course, that wasn’t an obstacle for Louis Gerstner at IBM or Carlos Ghosn at Nissan. He’s forgetting that when the issue is renewal and growth, the forgetting curve usually trumps the learning curve.


Strategy drives ethics

For a fun romp through the excesses of Arthur Anderson, Enron, Tyco and WorldCom don’t miss this 4-minute music video put together by Maverick, a Tampa-based group of business consultants. It should be required watching for anyone thinking of accepting a CEO job offer.

Sadly, examples abound of the conduct spotlighted in this creative streaming video. They were always in the background as I researched Bigger Isn't Always Better. One reason I wrote the book was to try to figure out what it is about business today that drives otherwise honest and ethical people into behaviors that end up making little sense for them or their enterprises.

Some corporate cultures foster unethical conduct; I wanted to get at what choices about a business' strategic direction lead to these cultures.

There is smart growth and dumb growth. One is sustainable and has favorable long-term economics. The other breeds bubbles and trips to the big house featured in this link. Improving the current state of corporate ethics is a lot more complicated than weeding out a few bad apples. It also requires making a few good choices about the direction forward a business should take.


April 03, 2006

The end of cheap labor in China

David Barboza's article in today's New York Times begins:

"Persistent labor shortages at hundreds of Chinese factories have led experts to conclude that the economy is undergoing a profound change that will ripple through the global market for manufactured goods."

He's right. Read the article to see why the expansion of China as a low cost manufacturing base is starting to do what all expansion efforts eventually do - slow down. In Bigger Isn't Always Better I discussed the transitory nature of the feared "China price" and how currency valuation changes, labor shortages and increased social unrest would drive it northward.

There is an upside to all this. As China follows the paths of Japan and Korea from low-end to high-end industry, options will open for better working conditions, more equal wealth distribution, and development of its huge internal market. Whether the options are seized depends on how wise China's rulers are about managing their next great leap forward.


Reviews (cont’d)

Today’s Harvard Business School “Working Knowledge” includes a review by Sean Silverthorne of Bigger Isn’t Always Better .

He got my main point about growth when he commented that:

"Both drive and balance belong in any executive's skill set, and this book is a useful counterpoint to those who favor the steroids approach to business."

I’m honored Harvard reviewed the book. It’s also a little ironic. Their publishing arm has put out books hailing the management practices of Enron, and more recently Hardball. This is an approach to competition that is macho-on-the-outside/brittle-and-unsustainable-within. It’s one that my book warns against.


April 02, 2006


One reason speaking about books is easier than writing them – for me at least – is that the feedback is a lot more immediate. It’s possible to change a presentation while it's being delivered, based on the smiles, frowns or dazed looks of an audience. The feedback cycle for book is longer. You toss something out, then wait and wonder.

My friends and colleagues are a supportive bunch of people, but their comments about Bigger Isn’t Always Better are those I’d expect to hear from them. Fortunately, reviews are starting to come out, and they’ve also been pretty positive. Here are a few.

Steven Pearlstein of The Washington Post (Feb 19) said the book is:

" ...a powerful antidote to Wall Street's poisonous fixation with gigantism and growth."

He also says I ramble a bit, but am best in:

" ...combining the insights of psychology with the lessons of corporate management and strategy."

Steve finishes with:

"The book is chock full of good tips and sound advice for managers of any sized operation."

Some other reviewers agreed with the Post. Tami Brady’s internet review called the distinction between fixers and growers “enlightening” and went on to say:

"There are quite a few gems in this book. I found the descriptions of the 21 mind bugs particularly useful. (Mind bugs are common ways that we think and things that we tell ourselves that distort reality and act as hurdles to healthy growth.)"

Robert Morris is one of Amazon’s top ranked reviewers. He was also very generous with praise:

"What we have in this volume is a brilliant explanation of what 'real business growth' is, and how to achieve and then sustain it."

To read his full review, click the "Buy the Book" link on the right.

Morris also commented on the book’s practicality:

"While re-reading this book, as is my custom, I highlighted key passages. In this instance more than 100 which caught my eye."

It feels great to be called brilliant, but I think I like the ring of “useful” even better.

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