Periscopic media tour

Citation

Henry, C. (2007), "Periscopic media tour", Strategy & Leadership, Vol. 35 No. 2. https://doi.org/10.1108/sl.2007.26135baf.002

Periscopic media tour

Periscopic media tour

Craig Henry Strategy & Leadership’s intrepid media adventurer, collected these sightings of strategic management in the news. A marketing and strategy consultant based in Carlisle, Pennsylvania, he welcomes your contributions and suggestions (craighenry@aol.com).

Management innovation as long-term competitive advantage

… some forms of innovation deliver more in the way of competitive advantage than others. My research, and that of my colleagues at the London Business School, suggests that management research – fundamental advances in the way companies allocate capital, motivate employees, organize activities, create strategies, and set priorities – has the most potential to create long-lasting competitive advantage. Indeed, if one looks back over the last 100 years of industrial competition, it is management innovation, more than any other sort, that has produced big and enduring shifts in industry leadership. A few examples:

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  Capturing the wisdom of every employee. As the world’s most profitable car-maker, much of Toyota’s success rests on its unmatched ability to enroll employees in the relentless pursuit of efficiency and quality. For more than forty years, Toyota’s capacity for continuous improvement has been powered by a belief in the ability of “ordinary” employees to solve complex problems. Indeed, people inside Toyota sometimes refer to the Toyota production system as the “thinking people system.” In 2005, the company received more than 560,000 improvement ideas from its Japanese employees.

• •

  Enabling a network of volunteers. Linux, the ubiquitous computer operating system, is the best known example of a radically new approach to organizing human effort: open source development. Based on subsidiary innovations like the general public license and online collaboration tools, open source development has proved to be a highly effective mechanism for eliciting and coordinating the efforts of a geographically dispersed group of volunteers.

Given the power of management innovation to deliver peer-beating performance, it is odd that so few companies possess a well-honed process for continuous management innovation. Today, it is a rare company that lacks a formal methodology for product innovation. Hundreds of companies have R&D groups that explore the frontiers of science. And in recent years, virtually every organization on the planet has been obsessed with operational innovation – reinventing core business processes for the sake of speed and efficiency. Yet a troll through the pages of the world’s leading business magazines quickly reveals the steerage-class status of management innovation.

Gary Hamel, “The importance of continuous management innovation”, Business Innovation Insider, November 6, 2006, www.businessinnovationinsider.com/ 2006/11/gary_hame_the_importance_of_c.php

Bad strategy? Look inside the company

Errors in corporate strategy are often self-inflicted, and a singular focus on shareholder value is the “Bermuda Triangle” of strategy, according to Michael E. Porter, director of Harvard’s Institute for Strategy and Competitiveness.

These were two of the takeaways from a recent talk by Porter – titled “Why do good managers set bad strategies?” – offered as part of Wharton’s SEI Center Distinguished Lecture Series. During his remarks, Porter stressed that managers get into trouble when they attempt to compete head-on with other companies. No one wins that kind of struggle, he said. Instead, managers need to develop a clear strategy around their company’s unique place in the market.

When Porter started out studying strategy, he believed most strategic errors were caused by external factors, such as consumer trends or technological change. “But I have come to the realization after 25 to 30 years that many, if not most, strategic errors come from within. The company does it to itself.”

Bad strategy often stems from the way managers think about competition, he noted. Many companies set out to be the best in their industry, and then the best in every aspect of business, from marketing to supply chain to product development. The problem with that way of thinking is there is no best company in any industry. “What is the best car?” he asked. “It depends on who is using it. It depends on what it’s being used for. It depends on the budget.”

Managers who think there is one best company and one best set of processes set themselves up for destructive competition. “The worst error is to compete with your competition on the same things,” Porter said. “That only leads to escalation, which leads to lower prices or higher costs unless the competitor is inept.” Companies should strive to be unique, he added. Managers should be asking, “How can you deliver a unique value to meet an important set of needs for an important set of customers?”

Another mistake managers make is relying on a flawed definition of strategy, said Porter. “Strategy” is a word that gets used in so many ways with so many meanings that it can end up being meaningless. Often corporate executives will confuse strategy with aspiration. For example, a company that proclaims its strategy is to become a technological leader or to consolidate the industry has not described a strategy, but a goal. “Strategy has to do with what will make you unique,” Porter noted. Companies also make the mistake of confusing strategy with an action, such as a merger or outsourcing. “Is that a strategy? No. It doesn’t tell what unique position you will occupy.”

A company’s definition of strategy is important, he said, because it predefines choices that will shape decisions and actions the company takes. Vision statements and mission statements should not be confused with strategy. Companies may spend months negotiating every word, and the results may be valuable as a corporate statement of purpose, but they do not substitute for strategy.

In the last ten years or so, Porter added, companies have become increasingly confused about corporate goals. The only goal that makes sense is for companies to earn a superior return on invested capital because that is the only goal that aligns with economic value.

“Michael Porter asks, and answers: why do good managers set bad strategies?” Knowledge@Wharton, November 01, 2006, http://knowledge.wharton.upenn.edu/article.cfm?articleid=1594

Innovation pitfalls

Sean Silverthorne

Companies and executives seem doomed to repeat the past when it comes to innovation. What are some of these mistakes and why are they repeated each generation?

Rosabeth Moss Kanter

Innovation seems to be rediscovered in each managerial generation (about every six years) as a fundamental way to enable new growth. But each generation seems to have forgotten or never learned the mistakes of the past, so we see classic traps repeated over and over again. Some of these repeat offenders include burying innovation teams under too much bureaucracy, treating the innovators as more valued corporate citizens than those who work in the current business, and hiring leaders who do not have the relationship and communications skills necessary to foster innovation …

Look for small innovations, not just blockbusters

Big hits are rare, but too many executives swing for the fences with each new innovation. This not only marginalizes people who work on smaller projects, but also tends to result in projects modeled on existing market successes – that is, not that innovative. Truly new concepts often spring from smaller beginnings.

Create processes and controls

The innovation process is inherently uncertain, so companies must develop new ways of tracking progress in these units. Rewarding a manager who “sticks to plan” does not encourage something new.

Select the right leadership

Innovation teams cannot be isolated – their ideas will never catch on. So pick leaders who not only can communicate inside and outside the organization but who also know how to foster a collaborative culture.

In short, there are a lot of specific things companies can do to encourage rather than stifle innovation. But overall, companies need a culture and way of working that emphasizes flexibility and attention to relationships across areas.

“Lessons not learned about innovation: Q&A with Rosabeth Moss Kanter,” HBS Working Knowledge, November 15, 2006, http://hbswk.hbs.edu/item/5525.html

What next for managerial capitalism?

It began with railroads. In 1830, getting from New York to Chicago took three weeks. By 1857, the trip was three days (and we think the internet is a big deal). From 1850 to 1900, track mileage went from 9,000 to 200,000. But railroads required a vast administrative apparatus to ensure the maintenance of “locomotives, rolling stock, and track” – not to mention scheduling trains, billing and construction, as Chandler showed in his Pulitzer Prize-winning book The Visible Hand: The Managerial Revolution in American Business (1977).

Elsewhere, the story was similar. Companies did not achieve lower costs simply by adopting new technologies or building bigger factories. No matter how efficient a plant might be, it would be hugely wasteful if raw materials did not arrive on time or if the output could not be quickly distributed and sold. Managers were essential; so were statistical controls. Coordination and organization mattered. Companies that surmounted these problems succeeded. Typical was Singer Sewing Machine. Around 1910, it produced 20,000 to 25,000 machines a month and had 1,700 US branch offices, whose salaried managers supervised an army of salesmen.

The rise of big business involved more than tycoons. Its central feature was actually the creation of professional managers. Like many great truths, this one seems obvious after someone has pointed it out.

The trouble now is that the defining characteristics of Chandler’s successful firms have changed …

To be sure, we understand some of these developments. Older firms often suffer from their own success; managers become wedded to existing products, technologies and procedures. We can also identify many of the forces reshaping business: new technologies, globalization and modern finance (pressure for higher profits; corporate “buyouts” by private-equity firms). But the very multitude of trends and pressures is precisely the problem. No one has yet synthesized them and given them larger meaning.

Just as John Jacob Astor defined a distinct stage of capitalism, we may now be at the end of what Chandler perceptively called “managerial capitalism.” Managers, of course, will not disappear. But the new opportunities and pressures on them and their companies may have altered the way the system operates. Chandler admits as much. Asked about how the corporation might evolve, he confesses ignorance:

All I know is that the commercializing of the internet is transforming the world.

To fill that void, someone must do for capitalism’s next stage what Chandler did for the last.

Robert Samuelson “The next capitalism”, Real Clear Politics, October 25, 2006, www.realclearpolitics.com/ articles/2006/10/we_are _a_the_end_of_manageria.html

The irony of Iraq: the war games worked

The US government conducted a series of secret war games in 1999 that anticipated an invasion of Iraq would require 400,000 troops, and even then chaos might ensue.

In its “Desert Crossing” games, 70 military, diplomatic and intelligence officials assumed the high troop levels would be needed to keep order, seal borders and take care of other security needs.

The documents came to light Saturday through a Freedom of Information Act request by the George Washington University’s National Security Archive, an independent research institute and library.

“The conventional wisdom is the US mistake in Iraq was not enough troops,” said Thomas Blanton, the archive’s director. “But the Desert Crossing war game in 1999 suggests we would have ended up with a failed state even with 400,000 troops on the ground.”

“1999 war game predicted Iraq problems: exercise showed that chaos was possible even with 400,000 troops”, MSNBC, November 5, 2006, www.msnbc.msn.com/id/15570330/

How price warriors win

Successful price warriors stay ahead of bigger rivals by using several tactics: they focus on just one or a few consumer segments; they deliver the basic product or provide one benefit better than rivals do; and they back everyday low prices with super efficient operations to keep costs down. That is how Aldi, the Essen headquartered retailer that owns Trader Joe’s in the US, has thrived in the brutally competitive German market. Aldi’s advantages start with the size of its product range. A typical Aldi outlet is a relatively small, 15,000 square foot store that carries only about 700 products – 95 percent of which are store brands – compared with the 25,000-plus products that traditional supermarkets carry. The chain sells more of each product than rivals do, which enables it to negotiate lower prices and better quality with suppliers. In fact, many of Aldi’s private label products have bested branded products in competitions and taste tests. The small number of products also keeps the company’s supply chain agile. Another efficiency stems from the fact that Aldi sets up outlets on side streets in downtown areas and in suburbs, where real estate is relatively inexpensive. Since it uses small spaces, the company’s start-up costs are low, which enables it to blanket markets: Aldi now owns 4,100 stores in Germany and 7,500 worldwide.

Aldi does not pamper customers. Its stores display products on pallets rather than shelves in order to cut restocking time and save money. Customers bring their own shopping bags or buy them in the store. Aldi was one of the first retailers to require customers to pay refundable deposits for grocery carts. Shoppers return the carts to designated areas, sparing employees the time and energy needed to round them up. At the same time, Aldi gets the basics right. There are several checkout lines, so wait times are short even during peak shopping hours. Its scanning machines are lightning fast, which allows clerks to deal quickly with each shopper. Most retailers follow local pricing, but every Aldi store in a country charges the same price, which reinforces the chain’s image as a consumer champion. In 2006, Germans voted Aldi the country’s third most-trusted brand, behind only Siemens and BMW. Aldi sells products far cheaper than rivals do. To suppliers’ prices, the company adds about 8 percent to cover transportation, rent, marketing, and other overhead costs, and about 5 percent for staff costs. Thus, Aldi’s average markup is 13 percent while that of most European retailers is 28 to 30 percent. Not surprisingly, 89 percent of all German households made at least one trip to an Aldi in 2005, and according to European market research firms, the chain had a 20 percent share of Germany’s supermarket business.

As Aldi’s story suggests, the financial calculations of low-cost players are different from those of established companies. They earn smaller gross margins than traditional players do, but their business models turn those into higher operating margins. Those operating margins are magnified by the businesses’ higher-than-average asset turnover ratios, which result in impressive returns on assets.

Nirmalya Kumar, “Strategies to fight low-cost rivals,” Harvard Business Review, December, 2006.

Less is more in building a hip brand

By the time you hear the DaKAH Hip-Hop Orchestra on your local radio station, Scion will not be promoting them anymore.

Toyota’s youth brand will be seeking out the next underground sensation. That is the essence of Scion’s marketing strategy: if you have heard of someone, chances are Scion is long gone from the picture.

Toyota’s youth brand has targeted Gen Y buyers – fast, hip and allergic to traditional advertising – since it was launched in 2003. While other auto brands attach themselves to cultural icons such as Tiger Woods, Scion sought the obscure but hip.

That strategy has worked so far. Last year Scion US sales totaled 156,485 units, well ahead of its internal target of 125,000 units.

Mark Rechtin, “Scion’s dilemma: be hip – but avoid the mainstream”, Automotive News, May 23, 2006.

Amazon moves beyond retail

Amazon, the famous online bookstore, now offers a completely different set of services, ones that are geared not towards book buyers but towards Web developers. Amazon took its expertise in building large-scale reliable services for the World Wide Web and packaged it – amazingly affordably – for other people to use.

Let’s say, for example, that I have developed a new online business that requires highly-accessible and reliable storage space. I can build a storage system myself, but that can be expensive and poses a huge barrier to entry. Amazon lowers that barrier – that is one of their stated design goals, to lower barriers to entry – by providing high-speed highly-reliable storage for rent. At a price of $0.10/gigabyte stored per month, and $0.20/gigabyte transferred per month, as an aspiring entrepreneur I can try something out to see if it is feasible without a huge up-front cost.

Or let’s say I need a stack of 100 computers to test something, or perhaps I need this stack to run a web service. If I purchase these computers I must not only spend a few hundred dollars or more apiece, but I must also find an air-conditioned office with reliable internet access, lots of electrical power, and a security guard. Amazon will provide me with a single “virtual” computer, accessible online, for $0.10/hour. That stack of 100 computers would only cost $10/hour to run – testing a service or keeping it online becomes dirt cheap.

Amazon provides these services and more, including what they call “artificial intelligence,” a topic for a different day. Amazon has done an amazing job of disaggregating their business to resell some of their expertise, and even better they have done it in a way that has already jump-started dozens of new web businesses.

Dr Moshe Yudkowsky, “Amazon’s other business”, The Pebble and Avalanche Blog, November 17, 2006, www.pebbleandavalanche.com/ weblog/2006/11/17/ blog-20061117T0921

Deciding who decides

Organizations routinely face situations that arise unexpectedly: will we invest in a new technology? How should we respond to a natural disaster that disrupts our supply chain? Since no one can predict all of the possible combinations of decisions the company may face, it’s simply not possible to pre-assign decision roles to cover all possible scenarios. Eventually, even the most comprehensive decision inventory will encounter a situation that was not imagined.

To allow decision makers to maintain coherence in the face of uncertainty, organizational leaders can frame their decisions as clusters. Rather than treating each decision as a separate entity requiring a specific assignment, this approach helps companies understand why certain calls should be made in particular locations or by particular groups of individuals. The design of these decision clusters is determined by the scope of the organization affected by the decisions and the degree of associated risk.

For example, consider the way a multinational manufacturing firm decides whether to outsource maintenance services for its network of plant facilities. If no supplier can provide global maintenance services and offer significantly better terms for a firm wide contract, then there is little harm, in the form of lost discounts, in making the decision at the local level – in a “low-risk, narrow scope” cluster. Each plant could decide which firm to hire.

But if a supplier has the wherewithal to provide maintenance services to multiple, geographically dispersed locations and offers a significant discount for doing so, then the risks associated with the decision are escalated: the discount would be forfeited if each plant chose its own maintenance supplier.

Furthermore, since a multiplant contract would affect more than one plant, the scope of the decision has also increased. Consequently, a “high-risk, broad scope” cluster – at the level of territory, country, or even region – would be the best option for making the decision.

Matt Calderone Karla Martin and Decio Mendes “The best decisions are clustered,” Strategy + Business, Autumn 2006.

Strategy shift: Microsoft emulates Apple to compete in consumer markets

Who in his right mind would step into the ring against the iPod? Apple Computer’s sleek music-player, and its iTunes software and online store, dominate the digital-music industry as comprehensively as Microsoft’s Windows operating system dominates desktop computing. But just as Apple has tried for years to loosen Microsoft’s grip on computing, so Microsoft now hopes to loosen Apple’s hold on digital music. On November 14th, the software giant will launch Zune, a music-player that looks and works very much like an iPod.

Zune is unlikely “to make any dent at all in Apple’s market share,” says Tim Bajarin of Creative Strategies, a consultancy in Silicon Valley. But Microsoft probably has no choice but to try, he adds. During its first 25 years, he says, Microsoft succeeded above all by bringing computer technology to businesses; to succeed in its next 25 years, it must turn its attention to consumer gadgets, for that is where the innovation and growth will be. But the formula with which Microsoft achieved its dominance in the first round appears not to be working in the second. So Zune is based on a very different business model – evidence that Microsoft is changing.

Microsoft’s music-player is a device that is tightly coupled to music-library software that runs on a computer, and to Zune Marketplace, an online music store. The Zune device does not work with other online stores, even those of Microsoft’s partners; and Zune Marketplace does not offer songs for non-Zune devices. Zune, in other words, is a proprietary bundle of hardware, software and service – exactly like Apple’s iPod-iTunes combination …

So Microsoft has ditched the idea of providing enabling software to other firms in favor of Apple’s approach of doing everything itself. Its first move in this direction came with its Xbox games consoles, in which hardware, software and an online service are tightly coupled (the Xbox division also reports to Mr Bach). Zune is much more controversial, however, because Microsoft’s pre-existing hardware and service partners are left high and dry. “I’ve never seen a business so blatantly screw its business partners,” says Peter Sealey, a professor at Berkeley’s Haas School of Business.

“You’ve heard this song before,” The Economist, November 9, 2006.

Maverick competitors really are different

At times, Arkadi Kuhlmann can sound a lot like consumer activist Ralph Nader or crusading reformer Eliot Spitzer. He rails against the banking industry’s exorbitant fees. He expresses contempt for the needless complexities and hidden charges that infect the home mortgage business. And do not even get him started on credit cards. He is fed up with a financial culture that encourages people to save too little, invest too recklessly, and spend too much …

But Kuhlmann is not a consumer activist or a politician, and he is certainly not a preacher. He is a banker. In fact, he is the founder of one of the fastest-growing retail banks in the country, which happens to be a subsidiary of ING Group, a 150-year-old company headquartered in Amsterdam that ranks as one of the largest financial services conglomerates in the world. His operation, ING Direct USA, opened for business in September 2000. At the end of 2005, it had signed up 3.5 million customers, attracted nearly $40 billion in deposits, and begun generating consistent (and rapidly increasing) profits. During its first two years, the start-up absorbed losses of $56 million as it banked on future growth. Over the next two years, it posted profits of $127 million. In 2004, with just 1,000 employees, the operation generated profits of $250 million …

“To the banking establishment, I’m sort of the bad guy,” Kuhlmann declares with undisguised relish. That reputation applies far beyond its challenge to the industry’s political strategy. Indeed, it is at the heart of ING Direct’s business strategy. “Before we launched the company, we looked around and said, ‘The banking industry is bust. The consumer always loses.’ Then we said, ‘How can we do something radically different? How do we re-create and re-energize an industry? How can we build a company around a big new idea?’”

That big idea involves using the future-forward power of the internet to champion the timeless virtues of thrift and financial security. ING Direct USA, essentially an internet-based savings bank, is a direct-to-the-customer operation (customers can also bank by mail or phone, but more than 70 percent use the web). Everything about its operations emphasizes speed, simplicity, and low overhead. ING Direct has no brick-and-mortar branches, no ATM machines, no highly paid commercial bankers or smooth-talking financial advisers. It also charges no customer fees, requires no minimum deposits, and avoids paper like the plague. Most importantly, the bank offers a limited number of easy-to-understand product offerings: old-fashioned savings accounts (with no minimum balances), a selection of CDs (with no minimum deposits), nine easy-to-understand mutual funds (which can be combined into portfolios described as conservative, moderate, and aggressive), and no-frills home mortgages with an online application that takes less than ten minutes to complete.

William Taylor and Polly LaBarre, Mavericks at Work, HarperCollins (2006).

Analyzing collaboration

Collaboration is the act of working with people to get something done. We can look at collaboration at three levels within the enterprise.

In team collaboration, the members of the group are known, there are clear task interdependencies, expected reciprocity, and explicit timelines and goals. To achieve the goal, members must fulfill their tasks within the stated time. Team collaboration often suggests that while there is often explicit leadership, the participants cooperate on an equal footing and will receive equal recognition. An example is a research project to develop a prototype for X in five months with six team members and a set of resources.

In community collaboration, there is a shared domain or area of interest, but the goal is more often on learning, rather than task. People share and build knowledge, rather than complete projects. Membership may be bounded and explicit, but periods are often open or “ongoing.” Membership is often on equal footing, but more experienced practitioners may have more status or power in the community. Reciprocity is within the group, but not always one to one (“I did this for you, now you do this for me.”) An example might be a community of practice that is interested in the type of research mentioned in the team example above. A member of that team may come to her community and ask for examples of past projects.

Network collaboration steps beyond the relationship centric nature of team and community collaboration. It is collaboration that starts in individual action and self-interest and accrues to the network. Membership and timelines are open and unbounded. There are no explicit roles. Members most likely do not know all the other members. Power is distributed. This form of collaboration is driven by the advent of social software, a response to the overwhelming volume of information we are creating. It is impossible for an individual to cope on their own.

An example of network collaboration might be members of the team in the first example above bookmarking web sites as they find them. This benefits their team, possibly their related communities of practice but it also benefits the wider network of people interested in the topic. At the same time, they may find other bookmarks left by network members relevant to their teamwork. This sort of network activity benefits the individual and a network of people reciprocally over time. The reciprocity connection is remote and undefined. You act in self-interest but provide a network-wide benefit.

”Three types of collaboration”, Anecdote, November 29, 2006, www.anecdote.com.au/ archives/2006/11/three_types_of.html

Can blogs and wikis help spies do their job better?

Intelligence analysts are finding it more important to keep up with “open source” information – non-classified material published in full public view, like newspapers, jihadist blogs and discussion boards in foreign countries. This adds ever more calories to the daily info diet …

Intelligence heads wanted to try to find some new answers to this problem. So the CIA set up a competition, later taken over by the DNI, called the Galileo Awards: any employee at any intelligence agency could submit an essay describing a new idea to improve information sharing, and the best ones would win a prize. The first essay selected was by Calvin Andrus, chief technology officer of the Center for Mission Innovation at the CIA. In his essay, “The wiki and the blog: toward a complex adaptive intelligence community,” Andrus posed a deceptively simple question: how did the internet become so useful in helping people find information?

Andrus argued that the real power of the Internet comes from the boom in self-publishing: everyday people surging online to impart their thoughts and views. He was particularly intrigued by Wikipedia, the “reader-authored” encyclopedia, where anyone can edit an entry or create a new one without seeking permission from Wikipedia’s owners. This open-door policy, as Andrus noted, allows Wikipedia to cover new subjects quickly … Blogs, Andrus noted, had the same effect: they leveraged the wisdom of the crowd. When a blogger finds an interesting tidbit of news, he posts a link to it, along with a bit of commentary. Then other bloggers find that link and, if they agree it is an interesting news item, post their own links pointing to it. This produces a cascade effect. Whatever the first blogger pointed toward can quickly amass so many links pointing in its direction that it rockets to worldwide notoriety in a matter of hours.

Spies, Andrus theorized, could take advantage of these rapid, self-organizing effects. If analysts and agents were encouraged to post personal blogs and wikis on Intelink – linking to their favorite analyst reports or the news bulletins they considered important – then mob intelligence would take over. In the traditional cold-war spy bureaucracy, an analyst’s report lived or died by the whims of the hierarchy. If he was in the right place on the totem pole, his report on Soviet missiles could be pushed up higher; if a supervisor chose to ignore it, the report essentially vanished. Blogs and wikis, in contrast, work democratically. Pieces of intel would receive attention merely because other analysts found them interesting. This grass-roots process, Andrus argued, suited the modern intelligence challenge of sifting through thousands of disparate clues: if a fact or observation struck a chord with enough analysts, it would snowball into popularity, no matter what their supervisors thought.

A profusion of spy blogs and wikis would have another, perhaps even more beneficial impact. It would drastically improve the search engines of Intelink. In a paper that won an honorable mention in the Galileo Awards, Matthew Burton – the young former DIA analyst – made this case. He pointed out that the best Internet search engines, including Google, all use “link analysis” to measure the authority of documents.

Clive Thompson, “Open-source spying”, New York Times Magazine, December 3, 2006.

When the brand walks and talks

As a longtime authority on marketing communications, HBS professor John Deighton has analyzed the consumer-product relationship from every angle. But when he heard the best-selling author James Patterson address a meeting of the Direct Marketing Association, Deighton experienced a completely new perspective.

“I’d never actually heard a product speak,” he recalls. “It was like listening to a can of Coca-Cola explain how it would like to be marketed.” That initial encounter inspired Deighton to write “Marketing James Patterson,” a case that uses the lens of a take-charge author, the publishing industry, and the business of book clubs to analyze the success of various modes of marketing.

Patterson, a former chairman of J. Walter Thompson, published his first mystery novel in 1976 and made fiction writing a full-time pursuit twenty years later. While he does not enjoy the same name recognition, Patterson regularly outsells other “brand-name authors” such as Stephen King and Tom Clancy by simply publishing more books, averaging three titles each year with the occasional assistance of a coauthor …

“I see his success as a sublime integration of operations and marketing,” says Deighton, who taught the case to MBAs for the first time last fall in the elective course consumer marketing. “Patterson understands that if you want shelf space you need to publish a lot of books; that you need a production system with more than one author; and that you need to mind the brand.” The case also highlights the spread of the blockbuster phenomenon. Ten years ago, a book was considered a success if it sold 200,000 copies. Today, the bar has been raised to 1.5 million copies, thanks in part to the dominance of “big-box” retailers (such as Wal-Mart and Costco) that only stock 20 or so bestsellers yet are responsible for 34 percent of book sales in the US.

Julia Hanna, “The case of the mystery writer’s brand,” Working Knowledge, January 30 2006, http://hbswk.hbs.edu/item/5188.html

The dot-com bubble: hype followed by myth

David A. Kirsch, a professor of management at the university’s business school and one of the authors of the study, said it relied on a thorough examination of one particular treasure trove at the archive: every business plan, roughly 1,100 in all, submitted during the period to an East Coast venture firm.

The VC office later closed and donated the papers to the archive on the condition it remain anonymous. Professor Kirsch said that while the office would be considered second tier when compared with the famous names in Silicon Valley’s Sand Hill Road, the 1,100 firms he studied were representative of all of the companies started during the period.

Looking through those business plans, and contemporary press accounts, the study identifies a defining business strategy of the bubble era: “get big fast.” A business was supposed to grow as quickly as possible because the first successful entrant in a category could keep out challengers. If a company was able to successfully get big, it could use that position to later finesse other questions, such as how it might one day actually make money.

Belief in this “first mover advantage” is today tempered by a new awareness of the risks of being the first out of the chute. Back then, though, VCs used “get big fast” as their basic investing strategy, despite the absence of any evidence that it worked. By the spring of 2000, however, the world was beginning to wake up to the fact that it did not work. The crash followed soon thereafter.

The study suggests, though, that the dimensions of that crash might be misunderstood. Nearly half of the companies they studied were still in business in 2004. Professor Kirsch says that most people believe just a few percent made it through.

The study found that the attrition rate for dot-com companies was roughly 20 percent a year, which is no different from what occurred during many other industries, such as automobiles, during their early boom periods.

Most of these survivors, though, are not the titans like Amazon or eBay, but much smaller efforts such as wrestlinggear.com, which sells equipment to high-school and college wrestlers, what Proffessor Kirsch called precisely the sort of demanding niche market for which web shopping was invented.

The fact that so many dot-com companies survived suggests that even more could have started. But that did not happen, says the study. Investors following conventional wisdom of the day were interested only in companies that could dominate an entire industry. In looking for these, they ignored smaller niche opportunities that had the potential to become modest but profitable enterprises.

“It turns out there were lots of nooks and crannies for entrepreneurial action,” says Professor Kirsch. “But those nooks and crannies might have been $5 million or $10 million businesses – well worth doing, though not necessarily for VCs.”

Lee Gomes, “The dot-com bubble is reconsidered – and maybe relived,” Wall Street Journal, November 8, 2006.

Don’t get mad – start a company

It took 26 trees to transform Lindsay Smith from a screenwriter into an entrepreneur. One night in 2001, Smith noticed red Xs on ficus trees in her Gardena (California) neighborhood. The next morning city workers were cutting those trees down because their roots were pushing through the sidewalk and causing it to buckle. Says Smith: “These were healthy, mature trees that were being destroyed.” She persuaded Los Angeles County to give her 48 hours to find another solution.

In those two days she searched for sidewalk materials that might coexist with stately trees better than concrete. Her best lead came from Richard Valeriano, the senior public works inspector in Santa Monica. At his urging, US Rubber Recycling Co. had made a prototype of sidewalk pavers from recycled tires. Smith got a hold of the prototype, showed it to county officials, and they left the remaining trees standing. US Rubber was not interested in commercializing the prototype, but its CEO encouraged Smith to plow ahead. “I was raised in a house where inventing was a common thing,” says Smith, adding that her grandfather came up with an insulated cup for Thermos.

Her own innovation was Rubbersidewalks Inc., a company that has installed footpaths made of recycled tires in 60 cities in the US and Canada. Smith has also had requests from cities in Asia, Europe, Australia, and New Zealand. The premolded, prefabricated rubber squares are cut to fit and installed over a layer of crushed granite, with interlocking dowels connecting the sections. Individual pavers can be unlocked and removed for repairs. In 2006, Smith’s 12-person company had more than $1 million in revenues, and next year she plans to move some of her production to New York to cut costs for East Coast customers.

By Stacy Perman, “Where the rubber is the roadside: Lindsay Smith makes sidewalks from old tires to help trees – and town budgets,” Business Week, December 11, 2006.