Tag Archives: competition

Customers First, Investors Last: What were they thinking?

For years now, my colleagues and I here at BoardBench, have been saying that Wall Street has it backwards.  In the boardroom, directors have been fed, with a very large spoon, the mantra that they are beholden to the shareholder, that their purpose is to “maximize shareholder value.”  If you asked a large group of directors if this is true, you’d see a lot of bobbleheads in the room.  Many believe this is a legal requirement and in line with good business sense and good corporate governance.  Unfortunately, the concept of “shareholder primacy” is a relatively recent phenomenon.  It is also simplistic (shareholders’ wants are not homogeneous), has no legal basis anywhere (go ahead, try to prove me wrong), and, as many are now pointing out, usually damaging to companies, and the economy as a whole.

What we believe is real, and will eventually be proven again as real to the Street, is that customers, and employees are the two key drivers of corporate success.  When I say “again” I’m referring to Peter Drucker’s famous quote from decades ago: “the purpose of a business is to create and keep customers.”  So many seem to have forgotten this, or have never even heard of it.

But the basic premise is this: if you take care of your customers, and have great employees who are well supported and appreciated for being curious and excited about what they do such that they will ensure that customers love the products and services that the company offers, the company and shareholders will reap the rewards, too.  Of course other things come into play, like managing R&D investments (with the customer in mind), operations, and supporting a corporate culture that has strong values and morals.  The basic premise may be slightly oversimplified, but it applies, and should resonate with the board.

It appears that I’m finally not standing alone on this either.  In a recent interview, Jack Ma, the world’s newest CEO darling, made two bold public statements.  He basically shunned the current thinking of the Street by stating, on national TV, that “our customers come first, ouJack.jpgr employees second, and our shareholders third.”   He continued: “We aim to be larger than Wal-Mart by 2016, or sooner.”  If – no, when – Jack succeeds, and executes flawlessly on his statement, that customers and employees take a front seat over shareholders/investors, then he’s got an excellent chance of passing Wal-Mart as the world’s largest retailer.  Note, Wal-Mart just slapped some of its employees, who have the most direct relationship with their customers, by cutting their insurance benefits. This was probably done to cut costs, but it will probably also have a long-term impact on their customer relationships, too. But, I digress.

It seems that too many directors, CEOs, and business leaders, have become obsessed with what Wall Street, its analysts, and shareholders think.  Many have learned to play these groups exceptionally well, too. Countless analysts and shareholders have been taken in by companies’ projections, quarterly earnings estimates, and highly creative financial management and reporting.  Don’t get me wrong, the importance of the exchanges and the markets cannot be downplayed, but a balance is needed.  Focusing on Main Street is just as important, if not more so.

If you follow Main Street, you know about big box discount stores. Costco Wholesale Club, founded by Jim Sinegal and Jeffrey Brotman, believe in serving the customer first, and that if employees are treated properly, they will work with, and treat the customer well too.  Jim, the public face, is a “hands on guy” who is known for visiting each individual Costco store.  Jim is also outspoken about his views on Wall Street.  He’s been known to say that he puts his customers and employee needs above “pleasing shareholders.”  This philosophy must be working: Costco’s five year return is +116.73%.  If you bought the stock earlier, your return would be closer to 354%.

American Express is another company known for taking good care of its customer/members.  Personally I’ve been a fan of the company’s customer service representatives over the years, and tell them that every time I’ve called for help.  Don’t get me wrong, working at this company must be tough: when I was younger, AmEx employees were nicknamed The Dragons.  Perhaps because they were seehat2.jpgn as willing to fight for the company and their customers nearly to the end.  By the way, if you invested in American Express five years ago, your return on investment would be up 149.46%.

If you’ve worked with the general retail public, as I did during my college years, then you know just how tough this can be.  Sadly, not everyone who enters a store, calls a helpline, or dines in a restaurant is a kind and thoughtful customer.  Amazon deals with all sorts of customers from nearly every continent in the world, and I’m sure they have some interesting stories to share.  However, the company is noted for being one of the best customer service organizations in the world.  Amazon has more than one customer base, as many do: retail members, and consumers.  Jeff Bezos clearly divided the customer’s connection to Amazon into two categories: the experience and the service.  At this level, he notes that customer service is part of the full customer experience.  If it’s unpleasant, it’s a negative customer experience.  He supports the idea that a positive customer experience creates greater loyalty with Amazon.  If you’ve ever dealt with an Amazon Customer Service rep, you know that they work quickly to resolve your issue, they get the job done for you, and you are nearly always satisfied and left feeling good about your relationship with Amazon.  And, if you invested in Amazon five year ago, your return on investment is now up 236.64%.

While it’s much more pleasant to focus on the “good guys,” there are dark clouds.  Some companies are noted for their poor customer service.  Some survive because there are few alternatives: think of phone companies and cable providers, and some you can name on your own (take a look at their five-year ROIs).  However, when it comes to poor customer experience these days, I think sadly of that American icon Sears.  Whenever I bring them up these days, all I hear is: “Oh my gosh, I could tell you about the time when…”  Sears is a sad story101.jpg about the decline of a once great and loved retail giant.  Many years ago, the Sears catalog used to be called a “wish book.”  Families would anxiously wait for it to arrive in the mail.  It was nearly 5 inches thick. Moms, dads, sisters, and brothers would argue over whose turn it was to browse through and select from among the items they wanted for birthdays, holidays, special occasions and more.  Some people even bought their homes out of the Sears catalog.  But, it has lost its way, and it’s touch with its customers and has already begun its drop down that magical slide once pictured in its own catalog.  The entire company and its hopes for the future look pretty dismal: sell off of units and real estate, store closings, etc.  Sadly, if you invested in Sear’s five years ago, your return on investment would be -58.50% and it’s still falling today.

To sum up and put things into even sharper perspective, I recently spoke with the General Counsel of one of the largest, most recognized corporations in the world.  He told me, succinctly, that the biggest problem with their board is that not one director had any understanding of who their customers were and are or what they want.  I can also assume that they don’t understand their employees either.  So I will watch how this company slides in the next few years (Note: their record has been negative for some time), and report back with an update, unless, that is, they somehow figure it out and turn it around.

Do you need to focus on board improvement: composition, strategy, direction, execution, oversight?  Boards are our specialty. Give us a call.

Nancy May

Thinking university? This isn’t your parents’ labour market

 

My parents and I first talked about university at the end of Grade 9. We’d learned that I would have to choose between a “Latin-science” and a “math-science” stream. I chose Latin-science.

Neither of my parents had attended university. They tried to convince me that I should be a dentist because of the benefits of being my own boss and the status that went along with the profession. My dream had been to design spacecraft and space probes. But that would have demanded a specialized degree in Engineering and our finances couldn’t handle it. Two years into the bachelor’s programme that was a prerequisite for entry into dentistry, I was no longer convinced. There was also the matter of my low tolerance for the sight of blood.

I completed a general B.Sc. and joined IBM. IBM trained: most employers didn’t. After 7 years I left to start what became a 26-year career as a self-employed IT executive recruiter that evolved into transition counselling and the Personal Due Diligence Project (PDD).

In the mid-1980s, and with the global economy already on the horizon, I started preparing myself to answer questions from my daughter and son on the subject of attending university when the time came. At the time, they were 8 and 5 respectively. They both attended, graduated, married and are thriving.

Chances are that you’re thinking about sending your children to university, or know someone who is. If so, here are some questions you might want to think about.

  • What kind of work will your child will be doing after they graduate?
  • How did they make that decision?
  • Who, if anyone, influenced it?
  • Have you priced a university education lately?
  • How do you rate the odds that there actually will be “acceptable” work for them to do?
  • On what do you base that conclusion?
  • If work in their chosen field isn’t available, what’s your plan B?
  • If you’re planning to finance their education, who’ll be paying off the loan?
  • What if your child plans to but can’t?
  • Are you willing to delay your retirement to help them pay off that debt if necessary?
  • What if your employer denied your request to postpone your retirement?
  • What if you became unemployed prior to retiring?
  • If your children can’t earn enough to leave home, will you be able to subsidize them?
  • If they want to buy a home but can’t or haven’t saved enough for the down payment, will you make it for them?
  • How important is retirement planning to you and your child?

Unless the work you do requires that you constantly monitor the labour market, you might be astounded to learn that:

  • An estimated 300,000 university graduates in Canada are working as unpaid interns with no guarantee of a permanent position at the end of their term.
  • Canadian families have borrowed to pay for tuition and owe between C$25 billion and C$50 billion.
  • American families owe over US$1.2 trillion in student loans. Many have begun to default for lack of sufficiently lucrative work.

To satisfy yourself about the gravity of the situation, set your Google Alerts or other aggregator to find “student debt” and request daily delivery of the results to your desktop. You can expect an average of 10 items a day.

In today’s labour market, university is as likely to mean financial hardship as financial gain. Students are returning to the family home because they can’t afford to pay rent, let alone make mortgage payments. This is not the outcome that parents expected or wanted for their children. Predictions that this generation will be worse off than its parents’ are already coming true. A major contributing factor is the extent to which parents and their children are out of sync with the needs, wants and priorities of employers. That includes attitudes and tactics designed to reduce costs that simply didn’t exist 20 years ago.

Our business is the extraction and interpretation of deep market intelligence early enough to guide our clients in making informed decisions about how they intend to approach the subject of university. PDD is about building sound business cases for investing in higher education that will satisfy your children’s short-, medium- and long term needs. This includes their financial security and, possibly, yours. We apply the same kind of thinking to clients who are between situations.

As food for thought, consider the implications of this quote from an article in the May 26 – June 1, 2014 Bloomberg Businessweek about the future of IBM entitled ‘The Trouble With IBM’. It will explain why this isn’t your father’s—or mother’s—economy:

“In February, during an onstage interview at a mobile technology conference in Barcelona, [IBM CEO Ginni Rometty] was asked whether business leaders understood just how rapidly their industries are being disrupted. ‘If you try to compare today to the past,’ Rometty said, ‘the speed of change is much faster. And you should not be dissuaded by that, meaning, that is all the more reason to push forward with things.’”

7.2 billion people call Earth home. It’s estimated that 2.5 billion of them were connected to the Internet in 2012. By 2017, there will be 7.6 billion of us, 3.5 billion of whom will be connected to the Internet—and to each other.

That’s a lot of competition, complexity and unpredictability for one planet. And there’s no end in sight.

 

 

 

 

 

Risk is free, risk-free costs

Enough said.

How fortunes and opportunities are made—and lost

As you’re reading this, the new school year is beginning. The one just past was filled with stories of students who invested time, energy and money to earn degrees in anticipation of starting to build a life. Many have nothing to show for their efforts but debt. That doesn’t diminish their degrees; it speaks to the power and the whims of the market.

Tastes change, values change, needs change. BlackBerry misjudged all three when it dismissed the iPhone. Bill Gates once observed that he could see no reason why anyone would need a PC with more than 640K of memory. Now it’s not about the memory, it’s about the PC itself. Microsoft was a year behind the market in seeing the potential and promise in the Internet—and almost missed it. The business press is now calling Jim Ballmer’s tenure at its helm Microsoft’s lost decade.

The masthead of The Economist reads:

First published in September 1843 to take part in “a severe contest between intelligence, which presses forward, and an unworthy timid ignorance obstructing our progress.”

We’re all in the midst of that contest. PDD’s sincere hope is that we won’t be reading the same headlines a year from now we were reading a year ago.

The Swinging Sixties were notable for the Vietnam War, the first manned landing on the Moon, the election and subsequent assassination of John F. Kennedy and Robert Kennedy, the British Invasion and Martin Luther King’s “I Have a Dream” speech. All of those events occupy their rightful place in history. The 60’s also saw the coming of age of commercial computing. But that history is still being written.

The stampede to be among the first to profit from the work spawned by data processing and the salaries that went with it fizzled. The novelty had worn off and being in the industry or thinking of being in it had become “uncool”. People turned their backs on the idea of making it a career.

The industry they turned their back on gave birth to the smartphone you’re holding, the apps it’s running, iTunes, Google, Android, streaming video, 3D movies like Avatar and the latest Star Trek, and social media. There’s no way of knowing how many of the people who bought into the “uncool” label lost out and how much they lost. That includes the fortunes—large and small—they didn’t make that other people did, and still are.

Microchips have become smaller, faster, more energy-efficient and all pervasive. Think “smartphone”, high definition TV, Netflix, Sirius XM. We’ve learned how to “print” three-dimensional objects on a desktop. Nanobots may soon be performing surgery autonomously inside the human body. Laser eye surgery has become routine.

This should not be taken to mean that IT is the be-all and end-all by any means. The latest National Occupational Classification lists 30,000 job titles and it’s 7 years out of date. But the data the next edition will be based on isn’t and it’s already out there. The market for labour is a market for ideas and the demand for those ideas will just keep on growing. The words “good” and “bad” when applied to choosing and preparing for the work your children are going to do are as out of date as Bill Gates’s 640K PC. If we have to work for a living, we should be thinking in terms of “relevant” and “irrelevant”, demand and supply.

The screen you’re reading at this moment represents the wherewithal to assign those rankings for the benefit of your children and yourself. The choice is up to you. Pre- and post-secondary school isn’t only about academics. It’s about developing the mindset to compete in a world where we may become a nation of shopkeepers. PDD anticipates that 1/3 of corporate staff will be permanent and salaried with benefits; 1/3 permanent part-time staff; and 1/3 staff on demand. That’s another way of saying that many of us will be self-employed out of necessity, if not out of choice.

The Personal Due Diligence Project represents competitive advantage in a very competitive world. You can test that premise by calling or sending us an e-mail. We hope you do. In the meantime, we wish you and your children the best of luck and every success in the academic year just beginning.

Three metaphors

The First Metaphor: Brownian Motion

The year was 1827. As he looked through the eyepiece of his microscope, Robert Brown, a Scottish botanist, was intrigued by the random movement in water of the granules he found in the live pollen grains he was studying. His first thought was that these granules were analogues of sperm and capable of moving independently.

Subsequent experiments using particles from dead pollen and inanimate matter convinced him otherwise. Sixty-one years later Léon Gouy, a French experimentalist, concluded that the movement was caused by random impacts with the molecules of the water itself. The phenomenon came to be known as Brownian motion or Brownian movement.

The styrofoam “pollen particle” in this YouTube video is a metaphor for how we’re being buffeted by the rest of the world. Unlike the pollen, we have the wherewithal to respond to that buffeting. It’s called information, deep analysis and risk management. Our motivation should be the quality and ingenuity of the countries that are now our competitors, because that’s where the buffeting is originating. And it’s given rise to two other sources of buffeting: the attitudes and practices of our employers.

The Second Metaphor: A Fable

A farmer had fallen on hard times. Weakening markets for what he grew compounded by crop failures had forced him to search for ways to save money. On this particular day, he hit on the idea of reducing the ration of oats he fed his horse. He reasoned that if he cut back on that ration a little at a time each day, his horse wouldn’t notice. So he began his grand experiment. The results were encouraging. The horse ate less and less but still managed to pull the farmer’s wagon. The last day of the experiment dawned like the days before it, with one difference: on that day, the horse consumed no oats. And as the farmer hitched it to his wagon, his horse collapsed and died.

Employers have found a way to emulate that farmer by “hiring” students as interns at no salary, and experienced workers on fixed term contracts without benefits. Whatever bill of goods they’re selling to both groups—and let’s not forget that some are our children and friends—is succeeding because at this moment, employers have them, and some of us, over a barrel. If you feel compelled to accept such a one-sided relationship, please consider the following:

Rent, tuition, car payments, food, clothing, medical bills, transportation, heating—to name but a few—don’t go away just because someone got the better of someone else in a lop-sided, winner-takes-all negotiation.

Looking back over 1900 meetings with people who lost their job and an income 10 minutes before I walked into the room, I see a cull of employees 45 years of age and older. One such company boasted that none of the employees on its payroll was older than 55. Of those, fewer than 19 (that’s 1%) were in a position to retire comfortably, if at all. The rest faced the prospect of competing for work against younger, cheaper and better-educated, if less experienced, candidates.

Not accepting payment for services rendered is tantamount to paying an employer to hire you. The money they don’t spend on you they’ll almost certainly spend on something or someone else.

Length of service used to be a measure of the quality of an employee and of how much the employee had contributed. We’re seeing the last of people with 30 years service. Soon, there won’t be any left, and that measure won’t matter. Six months exposure to the work habits of an employee may be better than none, but it doesn’t lend itself to a detailed reference.

The Third Metaphor: Building a Foundation on Shifting Ground

No builder may erect a building until they’ve been granted a construction permit. One of the prerequisites is that they demonstrate that the soil under the building will support it. The logic is so self-evident that few people question it. The fact that it works doesn’t hurt either.

Much of what today’s young people believe is owing to them comes from the afterglow following the end of World War II. It’s a lot like the cosmic microwave background radiation from the Big Bang. North America was first off the mark when it came to catering to pent up consumer demand because its factories escaped the war unscathed and the conversion to a peacetime economy took virtually no time at all. But the rest of the world recovered and North America, for all of its creative genius and energy, discovered it had competitors. It still does, and there are more of them. That’s where much of the buffeting I referred to in the First Metaphor is coming from.

The current generation and the one before it still believe that the old rules of career foundation building apply because that’s what many of their parents believed. The stability rules still apply. How to achieve that stability is different now because the ground under which those foundations are being built is changing. Call it by whatever name you will, building career and lifestyle foundations is more dependent on a deep understanding of what those foundations will rest on than it has ever been and it will be that way for the foreseeable future.

The Moral of the Story

The French poet Paul Valéry said, “The future isn’t what it used to be.” Yogi Berra is supposed to have said, “It’s tough to make predictions, especially about the future.” And then there’s Gerald Ford’s, “Things are more like they are now than they ever have been.”

No matter how you slice it, the future is just going to keep coming at us. We can’t stop it, but we can prepare to make the best of it. And that’s why PDD is here.

PS: Just when you thought all your ducks were in a row, Joshua Cooper Ramo wrote Globalism Goes Backward in the latest FORTUNE. This is a must read.