You may have noticed that I have been away for a few weeks, traveling again throughout Southeast Asia, where I have noticed that the United States is not the only one suffering from the economic crisis.
Despite the fact that nearly a trillion dollars have been set aside, industries have been supported by the government (auto) and major financial institutions (AIG) have received multiple bailout funds, the economy continues to decline. On Election Day the Dow was at approximately 9600 and today, the Dow is approximately 6600. Despite the fact that the government has announced the largest public works projects since The New Deal, unemployment has now risen to over 8% and is expected to increase.
Why have we not seen the effects of the latest stimulus package?
The answer to that question requires much more space than allotted there but I do want to address one fundamental flaw in the approach used by the U.S. government.
The stimulus packages are reactionary and not strategic.
Large amounts of money are being used to primarily pay-off past losses with a small amount set aside for today (infrastructure projects) and basically nothing allocated for the future. In essence, most of the money is being used to pay off past debt. When all is said and done, we will have supported many companies and industries only to have a country debt that is astounding, with no strategic ability to recover.
For example, Warren Buffett seeks companies that have little or no debt because he does not want his cash to be used to pay off the past. He would rather his cash be used to take a sound company to the next level. He wants his money to be used for strategic growth, not past management mistakes.
Strategically, we should be looking for opportunities to develop new markets, products and services that will lead our economy for the next 25 to 100 years. Funds, tax breaks, and tax credits should be set aside for innovation and creativity – for research and development on concepts such as biotechnology, nanotechnology and innovative transportation systems.
Using taxpayer money to pay off bad debt and management decisions that have failed instead of strategically stimulating the future could mean that the U.S. economy may not return to its 2007 level for 25 years or more. I have long advocated that the U.S. government needs to develop a long-term strategic plan. That needs appears to be reaching an urgent state.
Sunday, March 8, 2009
Monday, January 19, 2009
TACTICS VERSUS STRATEGIES
In the United States, there is a great deal of pressure placed upon the CEO of a publicly traded company to meet analysts’ expectations on quarterly earnings reports. The Securities and Exchange Commission (SEC) require publicly traded companies to report all activity four times a year, with certain expectations with each filing. This requirement encourages executives to employ short-term tactics as opposed to long-term strategies. It also sometimes encourages executives to manage the stock instead of leading the company.
This is the wrong approach. Concentrating on the intended or expected outcome is the wrong focus of an organization. Concentrating on long-term strategies, which when successfully implemented will produce the long-term expected financial outcome, should be the focus of the Executive Committee. However, we are likely to see more short-term actions instead of long-term planning of our largest companies.
Because U.S. publicly traded companies are constantly focusing on the short-term results, they are often ill-prepared for cyclical changes in the economy, as clearly evidenced each day in the business section of the news.
This is the wrong approach. Concentrating on the intended or expected outcome is the wrong focus of an organization. Concentrating on long-term strategies, which when successfully implemented will produce the long-term expected financial outcome, should be the focus of the Executive Committee. However, we are likely to see more short-term actions instead of long-term planning of our largest companies.
Because U.S. publicly traded companies are constantly focusing on the short-term results, they are often ill-prepared for cyclical changes in the economy, as clearly evidenced each day in the business section of the news.
Monday, January 12, 2009
YAHOO AND INTEL TV
Yahoo and Intel have announced a program to bring TV to the Internet. THE STRATEGY EXPERT™ has posted comments regarding this proposed launch on the BusinessWeek website. Click the link associated with this post to read the comments.
Sunday, January 11, 2009
Strategic Marketing
During a recent discussion with a Doctor of Optometry, the doctor indicated that he would like to increase the number of patients without dramatically increasing his marketing budget. It seems the economic downturn has caused an approximate 40% attrition rate to his practice.
I asked the doctor if he accepted insurance from patients and he stated that he did, but the paperwork and coding for each one was a nightmare. {My impression was that he couldn’t live without the insurance companies and was having trouble living with them.} I then asked if his office tracked the number of people who called asking if the practice accepted their insurance. He indicated that it did not. I suggested that he have his office staff track the number of requests for insurance coverage for a period of time and then concentrate on learning those systems while decreasing the amount of patients from the smaller insurance companies that were so time consuming.
I told the doctor that this study would not cost his office anything in terms of the market study and he would be able to maximum his learning of the coding system and group similar paperwork together while serving potential customers that he is currently turning away. Surprisingly, the office staff for the practice had not thought about tracking the prospective calls that come in to the office.
Lessons Learned: Sometimes, increasing your customer base does not have to cost that much more money. Think about what you are not offering, in relation to what you are offering. Track and measure everything.
I asked the doctor if he accepted insurance from patients and he stated that he did, but the paperwork and coding for each one was a nightmare. {My impression was that he couldn’t live without the insurance companies and was having trouble living with them.} I then asked if his office tracked the number of people who called asking if the practice accepted their insurance. He indicated that it did not. I suggested that he have his office staff track the number of requests for insurance coverage for a period of time and then concentrate on learning those systems while decreasing the amount of patients from the smaller insurance companies that were so time consuming.
I told the doctor that this study would not cost his office anything in terms of the market study and he would be able to maximum his learning of the coding system and group similar paperwork together while serving potential customers that he is currently turning away. Surprisingly, the office staff for the practice had not thought about tracking the prospective calls that come in to the office.
Lessons Learned: Sometimes, increasing your customer base does not have to cost that much more money. Think about what you are not offering, in relation to what you are offering. Track and measure everything.
Wednesday, January 7, 2009
WOLGANG PUCK
I recently had the opportunity to spend some time observing one of the locations of world-renown restaurateur, Wolfgang Puck. I wanted to see firsthand how the restaurant operates.
First, some, but not all of the activity of the cooking staff took place out in the open where guests could view the activities. The pizza dough maker threw it in the air to the delight of the guests. He then handed the pizza to the baker who placed the pizza in a wood-burning oven. Others were busy frying food and of course the servers and managers were busy making sure things move as smoothly as possible.
There were several observations that were immediately apparent. First, this was a busy night at the restaurant and all tables were full and the wait-time was 45 minutes. Second, everyone had a job to do and worked at diligently at completing the tasks. Third, some mistakes were allowed. At one point the chef baking the pizzas accidently dropped one while trying to slide the pizza onto a plate. The head chef saw it, immediately moved the pizza off the counter and asked how long for a replacement so he could schedule the other orders for that table. They quickly moved forward past the incident.
There was one chef who was the lead chef and demanded the respect of the others. He would often inquire about an order and the person working on that portion would promptly respond with a, “90 seconds chef” or “coming up next, chef”. At one point there were several orders for pizza and the pizza chef was behind schedule. The lead chef came over and for about eight minutes he too helped make out the pizza dough before moving back to his final preparation and observation station. Management was not afraid to step in when necessary and help get the work done.
I could not help but think that this is a young person’s game as the activity was very fast-paced – particularly at the stove top section where those chefs were frantically busy cooking the many items that would shortly appear at the tables of the guests. Their level of concentration was and focus was evident.
I carefully watched the employees to see if they were having fun. I noticed that the pizza maker and the oven chef and the two of them regularly talked and laughed, even though they was working at a fast and steady pace.
Lessons Learned: Although the wait was long – most waited 45 minutes to get seated and then another 45 minutes before the dinner was served, one could clearly see the workings of a well-oiled machine taking place. Communication seemed to be the key to the success. The servers would communicate with either the chef or the person assigned to the station of finalizing the preparation and these individuals would inquire about certain dishes with each cook or chef who would immediately respond. Serving several hundred guests an hour requires a smooth operating organization, centered around mutual respect and communication and the Wolfgang Puck restaurant seems to have mastered this approach. Finally, management worked side-by-side to help ensure quality food was being provided. Providing a good, quality meal seemed to have priority over delivery time. Apparently, guests at Wolfgang Puck’s restaurant are willing to wait a little longer to receive a good, quality meal.
First, some, but not all of the activity of the cooking staff took place out in the open where guests could view the activities. The pizza dough maker threw it in the air to the delight of the guests. He then handed the pizza to the baker who placed the pizza in a wood-burning oven. Others were busy frying food and of course the servers and managers were busy making sure things move as smoothly as possible.
There were several observations that were immediately apparent. First, this was a busy night at the restaurant and all tables were full and the wait-time was 45 minutes. Second, everyone had a job to do and worked at diligently at completing the tasks. Third, some mistakes were allowed. At one point the chef baking the pizzas accidently dropped one while trying to slide the pizza onto a plate. The head chef saw it, immediately moved the pizza off the counter and asked how long for a replacement so he could schedule the other orders for that table. They quickly moved forward past the incident.
There was one chef who was the lead chef and demanded the respect of the others. He would often inquire about an order and the person working on that portion would promptly respond with a, “90 seconds chef” or “coming up next, chef”. At one point there were several orders for pizza and the pizza chef was behind schedule. The lead chef came over and for about eight minutes he too helped make out the pizza dough before moving back to his final preparation and observation station. Management was not afraid to step in when necessary and help get the work done.
I could not help but think that this is a young person’s game as the activity was very fast-paced – particularly at the stove top section where those chefs were frantically busy cooking the many items that would shortly appear at the tables of the guests. Their level of concentration was and focus was evident.
I carefully watched the employees to see if they were having fun. I noticed that the pizza maker and the oven chef and the two of them regularly talked and laughed, even though they was working at a fast and steady pace.
Lessons Learned: Although the wait was long – most waited 45 minutes to get seated and then another 45 minutes before the dinner was served, one could clearly see the workings of a well-oiled machine taking place. Communication seemed to be the key to the success. The servers would communicate with either the chef or the person assigned to the station of finalizing the preparation and these individuals would inquire about certain dishes with each cook or chef who would immediately respond. Serving several hundred guests an hour requires a smooth operating organization, centered around mutual respect and communication and the Wolfgang Puck restaurant seems to have mastered this approach. Finally, management worked side-by-side to help ensure quality food was being provided. Providing a good, quality meal seemed to have priority over delivery time. Apparently, guests at Wolfgang Puck’s restaurant are willing to wait a little longer to receive a good, quality meal.
Tuesday, December 30, 2008
ALCOHOL AND LOTTERY TICKETS
A report this week announced that the sales of alcohol and lottery tickets have increased. I am not surprised. Historically, the sale of such “vices” have remained steady or increased during down economic cycles. It has long been believed that the sale of chocolate often increases during recessions. This is one trend that is easy to predict by strategists.
Much of the future is often predicted using trend analyzes. It should be noted that the sale of lottery tickets has increased in most of the states that offer the tickets for sale. Another interesting fact is that revenue at casinos has actually decreased – with the assumption that many are willing to spend a few bucks to gamble for a better future, but they are not willing to use gasoline and chance losing more money at a casino. So, while people are gambling, they are mitigating their risks by avoiding casinos.
It appears many are grabbing a beer in one hand and a lottery ticket in the other while waiting for the economy to recover.
On a related note, more people often return to school during down economic times and some colleges and universities are predicting an increase in enrollment for 2009.
Much of the future is often predicted using trend analyzes. It should be noted that the sale of lottery tickets has increased in most of the states that offer the tickets for sale. Another interesting fact is that revenue at casinos has actually decreased – with the assumption that many are willing to spend a few bucks to gamble for a better future, but they are not willing to use gasoline and chance losing more money at a casino. So, while people are gambling, they are mitigating their risks by avoiding casinos.
It appears many are grabbing a beer in one hand and a lottery ticket in the other while waiting for the economy to recover.
On a related note, more people often return to school during down economic times and some colleges and universities are predicting an increase in enrollment for 2009.
Saturday, December 27, 2008
REDISTRIBUTION OF WEALTH
For nearly a decade I have advocated the use of strategic alliances and joint ventures for the purpose of creating synergy and innovation. During that same time period many executives have been heavily engaged in pursuing mergers and acquisitions. While this management practice has been beneficial at the corporate level (most of the time) it has resulted in stagnant economies all over the world as M&A’s merely redistribute the wealth.
Alliances and joint ventures are most often formed by two or more organizations who see a strategic opportunity but needs or wants to join forces to take advantage of the unique opportunity – either because it lacks the resources and abilities to pursue the opportunity alone or in order to mitigate risk. Once formed, new products, services or marketplaces often result from the collaborative effort. Thus, synergy is created to generate new revenue or wealth from areas where revenues most likely would not have resulted had the companies acted independently.
Instead, most companies have been engaged in mergers and acquisitions. In many instances (DaimlerChrysler and AOL/Time Warner) the transactions often result in an erosion of shareholder value. In few instances do mergers and acquisitions result in creating new wealth instead of shifting or redistributing funds from one shareholder to another.
In order to not only recover from the current economic downturn, but also strategically prepare for the short- and long-term future of the organizations and the economies in which the companies operate, companies should be forming strategic alliance and joint ventures today. I know the urge to acquire is great, particularly now with so many companies valued so low (and there may be instances where M&A’s can be the right strategic move) but cash flow, stock and other management resources may be better used by forming strategic alliances and joint ventures that are designed to earn new market share as soon as the economy begins to recover.
Alliances and joint ventures are most often formed by two or more organizations who see a strategic opportunity but needs or wants to join forces to take advantage of the unique opportunity – either because it lacks the resources and abilities to pursue the opportunity alone or in order to mitigate risk. Once formed, new products, services or marketplaces often result from the collaborative effort. Thus, synergy is created to generate new revenue or wealth from areas where revenues most likely would not have resulted had the companies acted independently.
Instead, most companies have been engaged in mergers and acquisitions. In many instances (DaimlerChrysler and AOL/Time Warner) the transactions often result in an erosion of shareholder value. In few instances do mergers and acquisitions result in creating new wealth instead of shifting or redistributing funds from one shareholder to another.
In order to not only recover from the current economic downturn, but also strategically prepare for the short- and long-term future of the organizations and the economies in which the companies operate, companies should be forming strategic alliance and joint ventures today. I know the urge to acquire is great, particularly now with so many companies valued so low (and there may be instances where M&A’s can be the right strategic move) but cash flow, stock and other management resources may be better used by forming strategic alliances and joint ventures that are designed to earn new market share as soon as the economy begins to recover.
For the next decade, organizations should be concentrating more on strategic alliances and joint ventures and less on mergers and acquisitions for long-term growth.
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