Nice Guess

On this Date in History:  I just read an article from the Wall Street Journal from January of 2008.  It read that oil prices were around $90 a share and were expected to remain around that level.  It had a quote from a learned man who said that he expected the price of oil at that time to drop to about $67 a barrel.  Now, he didn’t put a time qualifier on the statement but just about 6 months after this artcle came out, the price of oil was over $140 a barrel.  My student said that it sounded like someone sucks at their job.  The point is we often hear these great ideas and pontifications from “experts” that turn out to be wrong by a long shot, if not completely opposite of reality.

Durant Was No Quitter

At the dawn of the 20th Century, animal power remained a large part of the energy that drove the economy.  Particularly when that involved transportation.  A United States Senator, Chauncey Depew, said with full confidence that “nothing has come along to beat the horse.”   He suggested to those who might invest in alternative forms of transportation to “keep your money.”  Now, one who is looked up to as a great financial mind who was quite savvy in investing was J. P. Morgan.  Well, Morgan had a chance to get into the automobile business in 1908 when he was approached by William Crapo Durant for a loan.  Durant and Benjamin Briscoe wanted financing for the proposed merger of their two fledgling automobile companies, Buick and Maxwell-Briscoe.  Durant told Morgan that automobile sales would reach a half million per year.  Upon hearing Durant’s prediction, one of Morgan’s partners sniffed, “If he has any sense, he’ll keep such notions to himself.”

Depew Left Holding the Horse Shovel

Well, the deal didn’t go through and Briscoe is left to the asheep of history.  But Durant soldiered on without any backing of financiers  and formed a holding company on this date in 1908 with $2000 and without J.P. Morgan.  Instead, he sold shares of stock and raised about $12 million in a couple of weeks.   He called it General Motors.  He acquired Olds Motor Works later that year, then subsequently bought Cadillac, Pontiac (originally known as Oakland), Cartercar, Ewing and Elmore.  But, in 1910, Durant was in a tight financial situation and he turned to competitors of Morgan for help.  Durant apparently used the financing to continue to acquire other companies.  That led to more problems but  I suppose that automobiles were getting  popular enough that JP Morgan changed his mind.  Around 1920, General Motors found itself in $30 million in debt and huge problems ahead.  Durant went back to Morgan and Pierre du Pont, two giants of the financial world.  The financiers saved the company but effectively finished off Durant at GM.  See, part of the deal was that Durant was out and du Pont took over as President.   But, don’t feel too bad for Durant.  He’s one of those guys who never quit, following the advice of the old gridiron sage, Granville Hambright.  He went on an founded a new company.  You might have heard of it…Chevrolet.

Sloan: Father of Modern Corporation?

  Dupont served as President of GM until 1923 when he turned the reigns over the Alfred P. Sloan who focused his attention on managing the company more effectively.   Ever wonder why there are new models to cars every year?  It was Sloan’s idea.  How about the different pricing structure of different brands in the company? That was Sloan too.  By the late 1920’s, GM passed Ford as the leader in automobile sales and Henry Ford had focused his attention on more efficient manufacturing instead of management, marketing and finance.  Later in the 20th century, GM became the largest corporation in the world…a title it later lost and did so in quite a spectacular fashion. 

Ford Legacy: Don't Give Up Control

Some interesting aspects of this story.  First off, it took the geniuses like Morgan a dozen years to figure out that a visionary like Durant was right all along.  Durant had the vision but he didn’t have the know-how regarding making his dream come to fruition.  What is interesting is that Henry Ford rebuffed the attempts of outside financiers to take over Ford Motor Company when things turned tough in the Depression.  Yet, General Motors has an early history of near disaster before they got it right. 

At the first part of the 20th century, General Motors needed help and so they went to private financial institutions for that help.  When they were denied, founder Durant figured out a way to move ahead while some of his competitors went by the wayside.  Then additional help came in the form of the previously reluctant Morgan.  Ford probably worked with Morgan on a number of deals, but none with the expressed intent of saving the company.  In fact, in the early 1920’s when Ford faced potential bankruptcy, Henry Ford turned down financing from big investment houses who required that Ford turn over control of the company, like Durant did.  In the early 21st century, it’s deja vu.  But, this time, General Motors turned to the Federal Government (taxpayers)  to get saved and private investors (stock holders, bond holders) ended up with the short end of the stick.  Instead of financiers like du Pont taking control of the company, the government fired the head  of GM.   Meanwhile, Ford did not take government money and continues  to move forward and maintain control of the company,  in the same tradition of the company’s founder, Henry Ford. 

What a difference a century makes.  In some ways, not one bit.  In other ways, a huge difference.

Rain Mainly South Thu Evening

Weather Bottom Line:  The other day I told you about the inverted trof to the south and the front to the north and I opened up the possibility that the front might sag farther south and, if it did, our rain chances would not be so good.  Well, that’s the story.  While we may have a errant shower or two, particularly to the south, rain chances probably won’t get to anything worthwhile until the second half of the weekend when a storm system from the southwest may lift at least toward our way.  Hey, it’s September….one of the driest months in Louisville annually.

Post found at http://bhc3.wordpress.com/2009/08/18/gary-hamel-on-enterprise-2-0-and-the-post-establishment-age

Last week at the first-ever Spigit Customer Summit, I had a chance to listen to Gary Hamel live. He delivered the keynote for the event, “Inventing Management 2.0.” If you’re a reader of Gary’s blog or his books, you know he’s a big proponent of empowering employees and changing management paradigms. See his 25 Stretch Goals for Management in the Harvard Business Review from last February for a great overview of his thinking.

In his speech last week, he did not disappoint. In fact, he provided a distinct rationale and call to action for companies to embrace the Enterprise 2.0 movement.

Driving the Autobahn in a Model T

In his presentation, there were two distinct graphs that really drove home the point that it’s time for new ways of managing companies. I’ve put them together below:

On the left, a conceptual chart outlines something many of us instinctively feel. The pace of change in our world is increasing. As Gary Hamel noted, year-to-year volatility in company earnings have been increasing exponentially the last 40 years. Those changes are manifestations of what we all experience. I thought he put it well when he said:

What a company did in the past is now less predictive of its future.

Business Week in 2004 ran an article that nicely demonstrated the acceleration of change. It included these points:

• The number of Fortune 300 CEOs with six years’ tenure in that role has decreased from 57 percent in 1980 to 38 percent in 2001.
• In 1991, the number of new household, health, beauty, food, and beverage products totaled 15,400. In 2001, that number had more than doubled to a record 32,025.
• From 1972 to 1987, the U.S. government deleted 50 industries from its standard industrial classification. From 1987 to 1997, it deleted 500. At the same time, the government added or redefined 200 industries from 1972 to 1987, and almost 1,000 from 1987 to 1997.
• In 1978, about 10,000 firms were failing annually, and this number had been stable since 1950. By 1986, 60,000 firms were failing annually, and by 1998 that number had risen to roughly 73,000.
• From 1950 to 2000, variability in S&P 500 stock prices increased more than tenfold. Through the decades of the 1950s, 1960s, and 1970s, days on which the market fluctuated by three percent or more were rare — it happened less than twice a year. For the past two years it happened almost twice a month.

On the right, the chart provides the major innovations in company management over the past 150 years. Current management systems reflect philosophies that were developed in an earlier era of greater stability. A quick primer on the different management ideas (note – cannot find information on McCollum):

Taylor: Frederick Winslow Taylor advocated: “It is only through enforced standardization of methods, enforced adoption of the best implements and working conditions, and enforced cooperation that this faster work can be assured. And the duty of enforcing the adoption of standards and enforcing this cooperation rests with management alone.”

Sloan: Former GM CEO Alfred P. Sloan revolutionized the management of corporations through numbers: “Sloan oversaw the use of rigorous financial and statistical tools to profitably manage GM’s far-flung empire.”

McGregor: MIT professor Douglas McGregor developed Theory X and Theory Y: “In Theory X, management assumes employees are inherently lazy and will avoid work if they can. In Theory Y, management assumes employees may be ambitious and self-motivated and exercise self-control.”

Deming: W. Edwards Deming was a professor and statistician credited with revolutionizing post-war Japan’s manufacturing: “Dr. W. Edwards Deming taught that by adopting appropriate principles of management, organizations can increase quality and simultaneously reduce costs (by reducing waste, rework, staff attrition and litigation while increasing customer loyalty). The key is to practice continual improvement and think of manufacturing as a system, not as bits and pieces.”

The point Gary Hamel drives home is that our business and economic environment has irrevocably shifted toward higher volatility and accelerated change. The sundering of companies from healthy industry positions to crisis mode in relatively short order demonstrates the need for updating management philosophies.

Need for Better Adaptability in the Post-Establishment Age

My own term for this is the “post-establishment age”.  In prior decades, change was slower, and companies could count on inherent advantages that helped them maintain their established positions. As Gary Hamel noted, protections came in the form of regulatory frameworks, monopolies (e.g distribution), capital access and other ways.

These protections continue to erode in our modern, WTO-governed society. The web and digitalization of content and processes are making it easier than ever for new ideas to be tested. Consumers have access to more information than ever. Social media ensures more people know about new companies and products more rapidly then ever.

Old protections are falling, while change and industry disruption is accelerating. What can modern companies do to manage in this new environment?

Gary Hamel prescribes two strategies for companies in the post-establishment age:

• Increased organizational adaptability
• Pushing innovation and decision-making out to employees

Adaptability is a critical strategy. It means that companies pivot as they learn new information about their markets, competitors and changes in customer behaviors. As noted in a recent Wall Street Journal article noted, companies can try more ideas faster and less expensively than ever:

Technology is transforming innovation at its core, allowing companies to test new ideas at speeds—and prices—that were unimaginable even a decade ago. They can stick features on Web sites and tell within hours how customers respond. They can see results from in-store promotions, or efforts to boost process productivity, almost as quickly.

Gary Hamel then notes that senior executives continue to have a monopoly on strategy. This essentially makes companies dependent on a handful of executives’ ability to adapt to change.

Yet employees are probably the earliest to know when something is changing. They also are faced with situations where they must come up with solutions. It is in this environment where companies will find their sources of adaptation. In an article for the Harvard Business Review, 25 Stretch Goals for Management, Gary Hamel included these two goals:

12. Share the work of setting direction. To engender commitment, the responsibility for goal setting must be distributed through a process where share of voice is a function of insight, not power.

17. Expand the scope of employee autonomy. Management systems must be redesigned to facilitate grassroots initiatives and local experimentation.

In the post-establishment age, these strategies are what distinguish leaders from those that will go through another disruption.

This Is Enterprise 2.0 Evolved

The cornerstones of Enterprise 2.0 include greater information visibility, tapping the emergent knowledge of employees and increased collaboration. Those are the foundational elements. Use them to create a company of higher adaptability and distributed innovation and decision-making.

As Gary Hamel concluded in his keynote:

“You can’t build a company that’s fit for the future unless it’s one that’s fit for human beings.”

Read more http://bhc3.wordpress.com/2009/08/18/gary-hamel-on-enterprise-2-0-and-the-post-establishment-age

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In this series, Bob Morris poses a key question and then responds to it with material from one or more of the business books he has reviewed for Amazon and Borders.

I first became aware of this concept when I began to read several books written by Howard Gardner, including Frames of Mind: The Theory of Multiple Intelligences, Intelligence Reframed: Multiple Intelligences for the 21st Century, and Leading Minds: An Anatomy of Leadership (Margaret Mead, J. Robert Oppenheimer, Robert Maynard Hutchins, Alfred P. Sloan, Jr., George C. Marshall, Pope John XXIII, Eleanor Roosevelt, Martin Luther King, Jr., Margaret Thatcher, Jean Monnet, and Mahatma Gandhi) co-authored with Emma Laskin. In essence, the concept asserts that all human beings possess a combination of cognitive abilities. Each requires quite different development in order to enable us to complete quite different tasks.

For example, in his latest work, Five Minds for the Future, he identifies and explains five separate but related combinations of cognitive abilities that are needed to “thrive in the world during eras to come…[abilities] which we should develop in the future.” Gardner refers to them as “minds” but they are really mindsets. Mastery of each enables a person:

1. to know how to work steadily over time to improve skill and understanding;

2. to take information from disparate sources and make sense of it by understanding and evaluating that information objectively;

3. by building on discipline and synthesis, to break new ground;

4. by “recognizing that nowadays one can no longer remain within one’s shell or one’s home territory,” to note and welcome differences between human individuals and between human groups so as to understand them and work effectively with them;

5. and finally, by “proceeding on a level more abstract than the respectful mind,” to reflect on the nature of one’s work and the needs and desires of the society in which one lives.

Gardner notes that the five “minds” he examines in this book are different from the eight or nine human intelligences that he examines in his earlier works. “Rather than being distinct computational capabilities, they are better thought of as broad uses of the mind that we can cultivate at school, in professions, or at the workplace.” And they can be nourished simultaneously.

He concludes his book as follows: “Perhaps members of the human species will not be prescient enough to survive, or perhaps it will take far more immediate threats to our survival before we can make common with our fellow human beings. In any event the survival and thriving of our species will depend on our nurturing of potentials that are distinctly human.” Some may view these comments as being naïve but I do not. On the contrary, I view them as an eloquent assertion of what is imperative, yes, but also as a sincere affirmation of what is possible.

Comments, questions, requests, or suggestions? Please share them. They will be most welcome and I thank you for them. Best regards, Bob

As I read about General Motors going before congress and the recent story, “Big Three May Need to Trim Number of Brands“, published in The New York Times, I have been giving thought to the “a car for every purse and purpose” strategy made famous by Alfred Sloan. The proliferation of products and brands is made crystal clear by the graphic in The New York Times article, which notably only captures a portion of GM’s total global line-up.

As I researched more, I found “GM: Live Green or Die” a story from BusinessWeek where it details how long it took for the Richard Wagoner Jr., Chairman and CEO of GM, to pursue hybrids. It was Bob Lutz that had vision but was not just not heard.

So what went wrong?

A lot… Gas prices, growing discrepancy between unionized labor contracts and non-union labor costs, soaring health care costs for retirees and union workers, and the list goes on.

One area that has yet to be covered in depth is how the fill all niches strategy for GM products and brands has burdened them with inefficiencies and growing trouble to differentiate between products. It is not clear to me how this issue manifested itself over the decades, but the result of all of this is represented below in GM’s stock performance (Black line) as compared to Honda (blue), Toyota (yellow) and Ford (red). {CHART NOT WORKING – Apologies}

Courtesy of BigCharts.com

The bottom line:

A “fill all niches” strategy works as a defensive measure when the company can more credibly deliver a product than the competition and thus prevent them from gaining sales. These strategies also work best in high margin environments like CPG (e.g. cereal, cigarettes) where if you need to abandon your defensive strategy you are not burdened with high fixed costs like specialized workforces, plant and equipment. Finally, please do your homework on the strategic economic impact both positive and negative of executing this strategy. For help on this last point, seek out David Ravenscraft at Kenan-Flagler Business School, UNC Chapel Hill for help on game theory.

Die Wikimedia Stiftung wird in den kommenden drei Jahren insgesamt drei Millionen Dollar von der Alfred P. Sloan Foundation erhalten. Mit dem Geld soll der Betrieb der freien Online-Enzyklopädie Wikipedia und ihrer Schwesterprojekte finanziert werden. Sue Gardner, Geschäftsführerin der Wikimedia Foundation feierte die Unterstützung als “_fabulous_ news“. “Diese Spende ist finanziell bedeutend für uns – und sie zeigt, dass die Sloan Foundation unsere Arbeit für wichtig und unsere Organisation für vertrauenswürdig hält”, schrieb Gardner.
Der Geldsegen kommt nach einem Bericht von heise.de zur rechten Zeit:

Die Wikimedia Foundation hat gerade ihre neuen Büros in San Francisco bezogen und die Anzahl der Angestellten von 10 auf 15 erhöht. Für das aktuelle Geschäftsjahr veranschlagt die Stiftung ein Budget von 4,6 Millionen Dollar – bei der letzten Spendenkampagne zum Jahreswechsel kam jedoch weniger als die Hälfte des benötigten Geldes zusammen. Seitdem bemühen sich Sue Gardner und ihr Vize Erik Möller um Großspender und erhielten mindestens eine Million Dollar von anonymen Großspendern.

In dem Heise-Text und den meisten anderen Berichten über die Großspende für Wikimedia findet man kaum Angaben zu dem großzügigen Spender, der Alfred P. Sloan Foundation. Die Stiftung wurde 1934 von Alfred Pritchard Sloan Jr. gegründet, der damals Präsident des weltgrößten Autokonzerns, General Motors, war. Der Elektroingenieur (Jahrgang 1875), der als 20-jähriger am Massachusetts Institute of Technology (MIT) in Boston graduiert hatte, war 1918 durch eine Firmenübernahme zu General Motors gekommen und erlangte 1923 die Position des Präsidenten. 1937 wurde er schließlich Vorstandsvorsitzender (“Chairman of the Board of General Motors”). Sloan machte sich einen Namen als entschiedener Gegner des Öffentlichen Transportsystems und Gewerkschaftsgegner. David Farber, der eine große Sloan-Biografie geschrieben hat, sagte über den Automagnaten:

His steady opposition to making safer automobiles, his dismissal of workers’ rights, his inability to see Adolf Hitler and his henchmen as evil and dangerous men (he once casually equated Franklin Roosevelt with Hitler), and his general disregard for issues of social justice and the common good make him a not very lovable figure.

Der deutschsprachige Wikipedia-Artikel über Alfred P. Sloan fällt sehr übersichtlich aus:

Alfred Pritchard Sloan junior (* 23. Mai 1875 in New Haven, Connecticut; † 27. Februar 1966) war von 1923 – 1937 der Präsident von General Motors.
Er schuf die typische Autohierarchie von General Motors (GM), in der man markentechnisch “unten” einsteigen konnte und sich schließlich im Lauf der Jahre an die Spitze, in diesem Fall Cadillac, “hocharbeiten” konnte – als Kunde. Anders ausgedrückt: er schuf ein perfektes Plattform-System mit differenzierten Automarken, in dem jeder Kunde ein maßgeschneidertes Angebot finden konnte. Heutzutage machen es praktisch alle Autohersteller in ähnlicher Weise; z. B. Volkswagen

Dann folgt noch ein kurzer Verweis auf “Sloans Weiterentwicklung des Taylor-Ansatzes”, einem bestimmten arbeitswissenschaftlichen Ansatz.

In der englischsprachigen Wikipedia finden sich immerhin einige kritische Bemerkungen. Sloan habe im Gegensatz zu Toyota seine Arbeiter stets nur als Kostenfaktor gesehen, nicht als “Hauptquelle für Kosteneinsparungen und Produktionsverbesserungen”. Außerdem habe die von Sloan entwickelte Bilanzmethode eine “lean production” wie bei den japanischen Atomobilbauern verhindert. In den Quellen steht außerdem noch ein Link auf einen Aufsatz von Edwin Black, “Hitler’s Carmaker: The Inside Story of How General Motors Helped Mobilize the Third Reich”. In dem Text wird herausgearbeitet, dass General Motors (wie auch der Ford-Konzern) direkt und über die die deutsche Tochter Opel zur Aufrüstung der Deutschen Wehrmacht unter Hitler beigetragen hat.

Sloan soll später Papiere über seine Verwicklung mit dem Dritten Reich vernichtet haben. Er starb 1966. Seine Stiftung verfügte Ende 2006 über ein Vermögen von 1,8 Milliarden US-Dollar. Die Arbeit der Stiftung deckt drei Bereiche ab:

[Sloan Rules, an interview with David Farber]
[Hitler's Carmaker: The Inside Story of How General Motors Helped Mobilize the Third Reich]
[Hitler's carmaker | Jerusalem Post ]