Comments

Because there are two ways to increase margins over time: sell more at higher prices or sell more at lower costs. And sell more at lower costs appears to be an easier route to the creatively challenged.

Posted by Tom Asacker at November 7, 2005 11:01 AM

I take issue with the comment by Tom A. above. In today's market, especially for those who sell "up the supply chain" instead of direct to retail customers, prices are mandated by customers much more so than set by suppliers. So, it's pretty difficult to "sell more at higher prices." The only alternative is to sell more at lower costs, no matter how creative you might be. And, to suggest that everyone who is forced into the cost-cutting mode is "creatively challenged" is pretty unfair. Generalizations of this type are unwarranted.

Posted by Mike at November 7, 2005 11:31 AM

Please forgive me for repeating my earlier posting elsewhere but I loved this:

I attended a two day conference yesterday and today where Professor Gary Hamel was one the speakers and I have to share his one liner about mergers, Professor Hamel said "When Dinosaurs mate the outcome is rarely Gazelles" – what a brilliant summary!

Posted by Trevor Gay at November 7, 2005 11:54 AM

Trevor, gotta stop that! I started using that line (which I think I invented) about 10 years ago! (Maybe Gary or someone else was first; in any event I agree!)

Posted by tom peters at November 7, 2005 11:57 AM

why.... because no one (consultants, big guru consulting firms, or anyone else) in the food chain of parasitic relationship makes no money unless big worlds are mashed together. The incentive is to keep money moving around... it is so much faster than actually having good stores and concepts like Target, HEB....

afterall, when the s*** hits the fan they can jump back in and undo the mess (and make more money).

Posted by Bert Blevins at November 7, 2005 12:19 PM

It's easy to criticize managers of large corporations who appear to be 'matchmaking' rather than running the business, but I find it somewhat contradictory to the whole 'ReImagine' concept. Isn't it all about finding ways out of the traditional mainframe? Why can't these ideas be in getting together with another comapny you think is cool and trying to integrate the different parts together to create some new, exciting hybrid?

Running a business today is not what it was yesterday, largely because society as a whole is far more creative and independent than it was, say, in the 1950's, so it's much more difficult for the CEO of KMart today to sit happy without making radical changes or he gets eliminated by a more dynamic competition from below.

Firing shots at big companies is easy to do, but try running one of them ...

(incidentally, anyone feel free to come and debate with me on my home turf - just click on my name ;-) cheap advertising but you gotta do it as an MBA)

Posted by Daniel M. Harrison at November 7, 2005 12:19 PM

Mike. The exception would be "luxory" items. Dell positioned its last laptop at the high end intentionally, calling it the 'Lexus' of laptops. They put some nice bells and whistles on it and gave it a nice brushed chrome case; but they did it because there is a market that wants to buy things at a cost that the average punter can't afford. You can sell more things at a higher cost if you can successfully communicate a perceived value.

Posted by Tom O'Leary at November 7, 2005 12:21 PM

luxury items even!

Posted by Tom O'Leary at November 7, 2005 12:24 PM

...and suddenly that Economist cover with the camels flashed inside my mind.

shudder

Posted by Gabriel Salcido at November 7, 2005 3:01 PM

Mike. Sorry for getting your goat. It was purely unintentional. However, I made my comment in the context of the M&A post by Tom. And I stick to it. Innovate and create superior customer value, which necessarily leads to a price premium over competitive offerings. Or use cost-cutting as a competitive alternative.

Posted by Tom Asacker at November 7, 2005 4:15 PM

As I wrote to the CEO of Sears about the time of the merger - putting two broken companies together isn't going to solve your problems. I was writing about my Kenmore fridge, which was barely out of warranty and needed major repairs - all I ever heard from anyone at Sears was a badly printed boilerplate post card "We have closed your inquiry and value your business!" This to a customer who comes from generations of Sears appliance buyers.

In this case the dinos might have produced at least a fleet-footed dino (According to some research, the T. Rex was very fast moving and at the top of the food chain. Rather like Wal-Mart with big teeth). However, to do this would require: a both companies be cool (or at least have the cool gene); b. Motivation other than sheer desperation in combining (complementary products for larger market coverage; etc.)

Hmm...maybe if they'd put a few K-Mart cashiers, a couple of store managers and some Sears service people in a room for a while along with both happy and unhappy customers...they might have come up with something both big and "cool."

Posted by Mary Schmidt at November 7, 2005 4:48 PM

1- Because of the need to attract attention. It's much more spectacular to conquer a country than to build a nation. As de Gaulle said (approximate quote): "The people will always prefer Napoleon to Parmentier". Napoleon left a ruined country and hundreds of thousand casualties, whereas Parmentier introduced potatoes in French agriculture and stopped the cycle of famines. History books remember the former, not the latter. And investors are ordinary people too.

2- Because of the dictatorship of numbers. A "good" CEO is someone who consistently raises the bar and makes his numbers. And when a measure becomes a target, it ceases to be a good measure.(Goodhart law)

Both are rooted in the same reality: Egos.

Posted by Martin R. Dugage at November 8, 2005 4:02 AM

At present in our UK Government funded (NHS) healthcare system 300 Primary Care Trusts (PCT’s) are merging - there were 300 such organisations in England - now there will be around 140 – maybe less. I’m so glad to be on the ‘outside looking in’ after 35 years inside the institution! - Incontinence pants are being provided for all NHSmanagers as we speak.

Interesting that when the ‘300’ were invented (five short years ago) PCT’s were to be the ‘local organisations to REALLY get in touch with local people’ ... brilliant idea thought me!! SO …Here we are 5 years later and the same Government is saying ...we need to reduce the number of PCT’s by half because we cannot afford it! Whatever happened to the principle of getting in touch with your local community says I? It is a rhetorical question of course - we all know the answer - it is politics. There is political pressure from the opposition that there are too many managers and I have to say to some degree I am in agreement with that concern - there is clearly room for massive management cost reductions as I have written elsewhere by giving more power to front line staff. It seems to me like everything can be compromised - even important principles - if you are in deep s**t financially.

Simply by merging Primary Care Trusts is not going to lead to better healthcare in my opinion - we will lose that local 'in touch' feeling I fear. I will wait and see what happens but I suspect that 'localness accountability'(sorry for that awful invented grammar) will go out of the window in the name of 'big is cost effective' argument. WHEN OH WHEN WILL WE EVER LEARN SAYS I?

If you want to really ‘get in touch with your local population’ you don’t do it with a population of almost half a million for god sake – even a child can see that. With a local population of 100,000 you might just have a chance of getting in touch with local people. The government will learn (yet again!) that small nimble organisations will ALWAYS be closer to local people than large, cumbersome, awkward, distant, anonymous, boring and meaningless organisations.

Phew .. I feel so much better for that …. NOW WHERE ARE MY PILLS????!!!!

Posted by Trevor Gay at November 8, 2005 6:39 AM

Trevor, this is why socialism in any major form is not the way to go. The only governments that were ever effective at runing this sort of major social program were totalitarian ones where everything was geared toward benefitting the state rather than the citizen. Warts and all, I'm thankful the healthcare system in the US is not run by our government.

As to K-Mart and Sears, it's a Homer Simpson moment, isn't it? Who would have thought that two huge failing retailers would have failed as one company just like they did as two? What a surprise! Just like everyone is surprised that CEO Steve Miller took Delphi into Chapter 11 last month. Really, who would have thought that a person who "turned around" his last three corporations by filing for bankruptcy would do the same thing again? Our naivete is exceeded only by our blind faith.

Posted by Mike at November 8, 2005 7:09 AM

I hear what you say and I agree in part with you Mike.

I want to know my 77 year old Mum can get FREE treatment if she collapses - I want that guarantee – she has worked for and earned that. I don’t want her to have the additional worry about whether she can afford it! I am a huge advocate of the NHS - it is still envied in many parts of the world. The problem is sometimes not government - it is often management within the NHS that just will not or cannot change quickly enough. Many countries are still envious of our healthcare system -warts and all. As an NHS insider for 35 years until a year ago I am very proud of our NHS but I am also a realist and a pragmatist and I recognise there is still a massive job to be done to improve it. People who know nothing about the NHS always say it is should be improved - but as my late Dad would say - the easiest job in the world to do is someone else’s!!

The NHS employs over one million people - is the third biggest employer in the world after the Chinese Army and Indian Railways and the NHS just cannot change overnight – but then again …why can’t it has to be the question - How about you and me doing the job Mike :-)

Posted by Trevor Gay at November 8, 2005 7:26 AM

As long as the executives are being paid very well for making very bad decisions you'll see it continue indefinitely in to the future.

Posted by Dau at November 8, 2005 8:38 AM

Same S*** happens because common sense goes out the window and large fees come in. Consultants are all about change, centralised administration then de-centralise, de-centralised then you need to centralise. GE, HP, too big... break up, Glaxo, Smith Kline, too small... merge. How about a period of organic growth where you build a company that makes a profit and people enjoy working for.... too cosy or too radical... You decide!

Posted by Bob Hail at November 8, 2005 9:04 AM

France is burning - Viva la French - prison to Muslim and African terrorists ... ooops I may be at the wrong bloggette.

Sears has the cool Lands End though - just ordered a couple of items using the "virtual model" so one can custom tailor clothes that are shipped in a couple of weeks.

Posted by Sean at November 8, 2005 9:20 AM

Hi Sean - I know the headline on this posting is 'gloating' ...but come on man show some respect .. Oh what the hell ... enjoy this one ...

George Bush, Jaques Chirac and Tony Blair all go hunting. At the end of the night, they are cleaning there game and having a drink when Tony Blair stands, throws a bottle of whiskey in the air and yells "For Queen and country". He then pulls out a pistol and shoots the bottle out of the air.

Chirac stands and throws a bottle of champagne in the air screaming, "Viva la France". He, too, pulls his pistol and shoots the bottle.

George, not to be out done throws a can of beer in the air and pulls out his pistol. Then he shoots Chirac and yells "It doesn't get any better than this".

Posted by Trevor Gay at November 8, 2005 9:37 AM

Daniel, you said, "Firing shots at big companies is easy to do, but try running one of them ..." I say, "Amen." And, largely, that's my point re Sears or TimeWarner or whomever. They are mostly unmanageable, and only perk up, if at all, under threat of competitive death. But even that's not enough for many such as Sears, DEC, Compaq, Wang, Data General, Westinghouse.

Posted by tom peters at November 8, 2005 12:36 PM

I guess there comes a point where "think big, act small" becomes impossible. Sad.

Posted by Olivier Blanchard at November 8, 2005 11:42 PM

Olivier – brilliant. I worked for the third biggest employer (NHS) in the world for 35 years and I agree with you it is very sad people cannot ‘think big act small’. I always felt I thought ‘big and acted small’ and yet I just got tired I guess in the end and left. Is that defeat – I think not. Trying for 35 years to make the ‘elephant’ think small became a job too far. Now I am outside the ‘elephant’ looking in I realise just how enormous the elephant actually is and how difficult it is to make it think small. No wonder people get tired. One of my counselor friends says 'Have you noticed something about banging your head against a brick wall - you hurt more than the wall'

If we could just get leaders in ‘elephant’ organisations to keep things simple and as you say ‘think small’ we might just have a slight chance. I used to get really frustrated (that is code for seriously p*****d off) when my alleged ‘leaders’ in healthcare would to say to me things like – ‘That is far too simplistic Trevor, we are a complex organisation it is not that simple’ – actually it was simple. Those ‘leaders’ missed the point entirely as far as I was concerned. They seemed to think that the elephant had to make things complex for reasons best known only to the elephant. Patients, customers and front line staff don’t want complexity - they want service and simplicity. Look at Amazon look at Play.com – simplicity – and service - both are baby elephants. Let’s hope they are elephants that stay nimble and fleet of foot when they become adult elephants.

Thanks Olivier for brightening my day :-)

Posted by Trevor Gay at November 9, 2005 4:00 AM

Because it makes a few individuals wealthy and/or it feeds their ego to be able to say they did an M&A.

Posted by Silence Dogood at November 9, 2005 8:30 AM

While it is undoubtedly true that organizations require different management methods the larger they get (i.e. the practice changes), it's just plain counter-productive and untrue to say that when a company gets to a certain size it is impossible to run it.

Consultants are supposed to think of new, inventive solutions to management; it is a sad fact that it is management today who are having to come up with those soltuions and consultants have two pretty much standard responses to anything: 1. Outsource it (to India or China) and 2. The company is too big, start scaling down/thinking small/stop making it bigger.

Where are the consultants today who are talking about effectively growing and managing an organization, without a limit to its size. Or is this not possible? And yet although a lot don't make it, every decade some of the biggest companies get bigger and bigger, despite the challenges. I can't help but find the kind of thinking respresented in this debate similar to the eighteenth century astronomers who tried vainly to create the most impossible solutions to all the planets revolving around the earth when in fact they were orbiting the sun.

Rather than take cheap shots at failed mergers, why not try and think about how Time Warner CAN get even bigger than it is today - isn't that a lot more exciting (and constructive)?

Posted by Daniel M. Harrison at November 9, 2005 8:39 AM

Great Article in this month’s Harvard Business Review by Mark Gottfredson and Keith Aspinall on getting the appropriate level between innovation and complexity. The authors refer to the Innovation Fulcrum as the point where customer satisfaction and operating complexity is perfectly balanced.

"Complexity begins with the product line and then spreads outward through every facet of the organization operations. Organizations that find the right balance can reduce their costs by 35% as well as increase revenues by 40%. Clearly organizations that prune their offerings to better fit the needs of the customers, they do more than cut costs; they often increase revenues."

Simplification! What a concept.

Posted by RTodd at November 9, 2005 9:56 AM

But Daniel, what the hell is the point? A recent analysis demonstrated that all the Big Media (all!) companies were significantly underperforming ther Market. They and others of their ilk are maxed out in terms of scale economies and ever elusive "synergies", which are the only reasonable defenses for size (other than mitigating portfolio risk, the rationale for earlier failed experiments in conglomeration such as ITT; anyway, the organized market is uniquely excellent at portfolio risk management). It's great for all of us that the best of the big ones get bigger; and equally great that they sooner or later (GE literally being the sole contrary example) get knocked off their pedestals--Wannamakers by Macy's; Macy's by Sears; Sears by Wal*Mart; Wal*Mart, now going upscale, by TBD. (BTW: The consensus seems to be, and I agree, that Microsoft is now banging at scale limits, new tools for mitigating the Cost of Complexity notwithstanding.)

Posted by tom peters at November 9, 2005 11:48 AM

Daniel. I suppose that the reason for our failure to implement practical, theoretical solutions in complex business cases is comparable to our ineffectiveness with resolving world hunger or other age-old, recurring social problems. Solutions are available - and theoretically it can be done. Bob Geldof recently showed how even one person can make an incredible difference to an unnecessarily complex situation, by effectively campaigning to drop crippling debt and increasing aid to those most vulnerable countries in our world.

It's our own complex human nature that complicates even the simplest things. Cardinal O'Connor from New York once said, while addressing a NASA audience: "Isn't it amazing that we can send a space craft, at precisely the right trajectory, with the exact coordinates, and the perfect propulsion, to land at precisely the right spot on the moon; and yet we can't go from me to you to you to me."

Posted by Tom O'Leary at November 9, 2005 12:18 PM

Seth Godin has an interesting piece on his blog today about the local max and the big max paradox...demonstrating how the failure required to get from local to big max usually dissuades most 'successful' businesses from crossing the bridge. I suppose that the same would be true for conglomerates thinking about crossing bridges from one big max to another big max.

Take a read at http://sethgodin.typepad.com

Posted by Tom O'Leary at November 9, 2005 12:24 PM

Tom and Tom: and my response is, who would you rather be remebered as: Bob Geldoff or a guy who did lots of little things because 'there was no point' in impacting the biggest causes (companies)?

Posted by Daniel M. Harrison at November 9, 2005 1:47 PM

Daniel. You shifted the debate to the point of meaninglessness. I said Big was okay to a point, then added little. Should we fire Wolfowitz and put Geldoff in charge of the World Bank? His effectiveness would probably evaporate; he'd have to spend his period of incarceration mostly in committee meetings. Also you've coinfused Big Aspirations with Big Size. Geldoff has had some impact precisely because he's not tied to a monster bureaucracy. (His bureaucratic foray as Dreamworks was hardly earthshattering.) Ralph Nader was enormous in impact with auto safety precisely because he was David to the Big Three's clumsy Goliath. Back to my prior comment,I loudly cheer Microsoft's ascendance and growth, but I will not weep if a half-dozen Googles displace them--and are displaced themselves. The Terms of Debate have mostly been about the Very Big becoming Gargantuan, and I am v sceptical about that. As to your earlier point re improvements. New Big (Wal*Mart) is bigger than Old Big (Sears) thanks to new tools. But that doeas not make it less vulnerable to attack by a "better business model."

Posted by tom peters at November 9, 2005 2:06 PM

I would rather be remembered as Sir Bob, but I have conflicts about where my passions lay. It's not so much about there being no point; rather a balance of my passions. My family williningly consumes an abundence of my focus. And that is where the sociology of it all comes into play. We are not 'managers' 'SEOs' 'COOs'. They are the titles assigned to or taken on by us. We are individuals balancing busy professional, personal and relationship stressors. We are skiing, we are dating, we are laughing, we are divorcing, we are fighting, we are loving, we are dying...we are people. And the human side of business will ensure that nothing is ever perfect. But we find our balance, and try our best to succeed in all of those small things that we do while living a big, balanced, fulfilled life.

Posted by Tom O'Leary at November 9, 2005 2:06 PM

RTodd – thank you - Isn’t simplification wonderful - it's my speciaist subject! Just think of the possibilities: No longer would managers be able to progress by just learning management speak that no-one really understands but no one has the courage to say so; customers would finally be able to understand what the hell is going on; staff at the front line would finally be properly empowered and allowed to say it as it really is. As I say forgive my outspoken view on this – simplicity is my passion :-)

Posted by Trevor Gay at November 9, 2005 2:24 PM

Sir Bob though is sir boob in many aspects - he has come to realize it too - in a recent interview he understands how much of the Live funds were in effect stolen by African dictator / terrorist / Somalia pirate types - a horrific turn of events.

So now he may "get" the business model / distribution / value chain musts for providing water and food at the African ground level. Praise for his noble intentions - fired for outcomes [as the Donald might say].

Trevor - the simple model is quite popular the last several years when you look at all the magazines and books, et al devoted to it - perhaps I prefer the business "modern tough love model" which tries to account for complexity tied to the lovemark concept - while moving at light speed with 0 goals - only dynamic frameworks.

Posted by Sean at November 10, 2005 9:48 AM

Sean, simplicity does not mean simplistic, only that things should not become needlessly complicated. Asian philosophers have been able to express this better than western thinkers for a long time. I lifted this quote from Presentation Zen yesterday, that I think sums up what simplicity really is about:

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"Simplicity means the achievement of maximum effect with minimum means."
— Dr. Koichi Kawana

Posted by Mike at November 10, 2005 10:44 AM

Mike - I agree right down to how one moves physically throughout the day and in immediately replacing negative pop up thoughts with positive - since positive is simpler and more elegant.

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Posted by Sean at November 10, 2005 1:22 PM

Hi Sean Hi Mike - Great exchange. I love the Dr Koichi Kawana quote – brilliant. My take on this is simplicity means making complex things understandable. We gain nothing in my view by making things complex. I like to try and explain things so that my 77 year old Mum might just have chance of understanding them and also Sebastian my new Grandson when he becomes old enough to read. I do not want to turn ‘simplicity’ itself into an academic discussion - sorta (Good God I am becoming American - my English teacher will never forgive me!!) defeats the object in my view. :-)

Posted by Trevor Gay at November 11, 2005 5:31 AM

Sorry Trevor, it takes more than that to become an American. I'm pretty sure there are some forms to fill out, too...;-)

Posted by Mike at November 11, 2005 7:17 AM