the alpha and omega : topic:biz

Why business is like ... A hitchcock movie

Mahalanobis — 2007-06-04T17:50:00Z

mt: A new CEO heralds a new era. A new era heralds change, and change induces fear. So what can a new CEO do to break this cycle and avoid joining a company paralysed by the prospect of their arrival?

Alfred Hitchcock understood the mechanics of fear better than most and an appreciation of the techniques he used to terrify his audiences may provide clues for a new CEO keen to avoid doing the same to theirs.

Hitchcock famously observed that 'There is no terror in a bang, only in the anticipation of it'. As he explained, if you have three men in a room with a ticking bomb that neither they nor the audience know is there until it goes off, then the unsuspecting audience gets a surprise. 'One surprise! That's all.' Contrast this with a scene in which the audience knows about the bomb but the men do not. The men still talk inanely but now even the most banal things they say are charged with an underlying tension. Such is the power of suspense.

Literature is not in short supply on the subject of a new boss 'on-boarding', but almost without exception it advocates restraint, warning against hasty decision-making and impulsive action. Todd Stitzer, CEO of Cadbury Schweppes, says a new boss should 'announce their plan only after a period of intense reflection and analysis'. At first glance, this advice seems beyond contention - surely to do anything else would be foolhardy? But as Hitchcock would attest, delay does not dampen fear but increases it. And instilling a sense of mounting anxiety is clearly bad for staff morale. Try instead adding a dash of Churchill to your Hitchcock - his exhortation 'Action this day!' offers new leaders the best chance of getting off to a flying start.

- Jenny Harris is director of JRBH Strategy & Management

Real Options...

Mahalanobis — 2007-03-29T01:10:00Z

Call me (erroneously) risk-averse if you like, but that's ridiculous:

The Upside of Falling Flat
Stefan Michel, Harvard Business Review, Apr 2007, Vol. 85, Issue 4

In the end, the decision by McDonald's to build a couple of four-star European hotels, with arch-shaped headboards for the beds and fast-food restaurants onsite, wasn't as bizarre as it seemed.

The Golden Arch venture in Switzerland ended in 2003 after two and a half years, when the pair of McDonald's hotels closed. But as I tell my MBA students and executive-education participants, the foray can be thought of as an inexpensive "real option" that provided the innovation-hungry company with an opportunity to learn valuable lessons from a controlled failure.

Relatively few travelers ever stayed in or heard of the hotels, which opened within a few weeks of each other in the spring of 2001, one near the Zurich airport, the other in Lully near the A-1 interstate. They were the brainchild of Urs Hammer, chairman of McDonald's Switzerland, who was responding to the parent company's push for diversification and new ideas.

The Zurich Golden Arch hotel opened first, and it was unlike any other hotel around. The McDonald's restaurant just off the lobby was open 24 hours (a rarity in Switzerland). The guest accommodations, for $120 to $160 a night, featured a patented curved wall and a cylindrical, see-through shower stall that protruded into the bedroom. The decor was spare and brightly colored. A colleague of mine who stayed there in 2001 recalled frankly that "the entire feeling was one of oddity and discomfort." The second hotel was similar.

The hotels clearly didn't deliver the expected results. The worldwide economic contraction and the appreciation of the Swiss franc that followed the attacks of September 11, 2001, contributed to their demise, but there were other factors, both minor and major. The showers, for one thing: Families and business travelers rooming together complained about the lack of privacy (the glass was later frosted as a result). Another issue was that the English phrase "golden arches" isn't associated with McDonald's in German-speaking countries. Even worse, as the owner of a hospitality consulting firm pointed out, was that the word "arch," when pronounced by German speakers, sounds a lot like a vulgar word for a person's posterior.

Beyond all that, the strategy itself was questionable. Although the venture related to the company's food business and relied on many of its core competencies, such as franchising and real estate management, the McDonald's brand doesn't square with the image of a four-star hotel. A financial analyst quoted in the Wall Street Journal noted, "I've just come back from lunch at McDonald's. But I can't imagine staying at a McDonald's hotel on a business trip." Indeed, the company shifted focus in 2003 away from such brand extensions and toward an ultimately better strategy of trying to get more customers into existing restaurants.

But the McDonald's board knew what it was doing when it green-lighted Hammer's project in 1999. Its decision was a real option: a fixed investment for an uncertain but potentially high return. Diversifying into the hotel business gave the company a shot at entering a billion-dollar industry. Because diversifications are generally more likely to fail than succeed, companies need to constrain the costs of moving forward with them. McDonald's did just that. It made a relatively small investment and limited its risk.

By publicizing the venture mainly inside Switzerland and using the name Golden Arch rather than McDonald's, the company avoided damage to the corporate brand. Moreover, the real estate investment did not result in a significant loss: The two hotels are now managed by Rezidor SAS Hospitality, which runs them under its Park Inn brand. While a P&L statement was never made public, the estimated operational losses were insignificant to the McDonald's portfolio. The decision to exit the hotel business after less than three years represents a further limitation of the company's risk.

The venture also offered insights or at least reminders about diversification and globalization. First, even for a company with deep pockets and billion-dollar brand equity, it is extremely difficult to take a name that is well established in one category (McDonald's is fast food) and achieve success with it in a different, if related, category. Second, for companies going global, the more complex the service offerings, the more important the cultural context (unlike a fast-food restaurant, a four-star hotel is full of individualized customer interactions, for which guests have diverse and high expectations).

But there's another point that's perhaps even more important. Hammer was one of the company's most successful franchisees, an entrepreneurial manager with a long history of fruitful business venturing. By supporting him, McDonald's was reinforcing and nurturing its bottom-up innovation culture. In the words of a McDonald's manager who participated in one of our executive education programs, "We try hundreds of things every year, and only a few turn out to be successful. But those initiatives make our business grow and keep our spirit alive. Not trying is not an option."

related items:
McDonald's uses graffiti to woo the US Latino market , guest blogger Adam Crouch

Making Mentoring Pay

Mahalanobis — 2006-07-06T12:21:00Z

Harvard Business Review (print edition): Mentors, say those who study the development of great executives, managers, and entrepreneurs, are crucial to a successful business career. But below the celebrated top rungs, and apart from certain obvious high-skill specialties, how important is mentoring really? Judging from how rarely seasoned employees are paired with those from the rank and file, youd think the verdict was intheres little to be gained in mentoring the masses.

Carlo Morselli and Pierre Tremblay of the Université de Montréal and Bill McCarthy of the University of California at Davis attack the question in a novel way in their recent study Mentors and Criminal Achievement, published in the journal Criminology.

Our analysis, they write, focuses on the effects of mentors on two aspects of criminal achievement: illegal earnings and incarceration experiences....Protégés with lower self-control attract the attention of some criminal mentors, who provide the structure and restraint that lead to a more prudent approach to crime. This approach involves fewer and more profitable offenses that lower the risks of apprehension and, perhaps, promote long-term horizons in crime. The data, Morselli and Tremblay say, do show that earnings are higher for criminals who had mentors. Our findings, they conclude, suggest that strong foundations in crime offer an advantageous position for continuous achievement, and the presence of a criminal mentor is pivotal for achievement over ones criminal career.

When deciding who in your organization would benefit from a mentor, consider looking beyond the usual suspects. Who among middle management, or even on the shop floor, might blossom with a little structure and restraint administered by a colleague who knows the ropes? You might be profitably surprised.

MARC ABRAHAMS is the editor and cofounder of the scientific humor magazine Annals of Improbable Research. In his regular Forethought column, he unearths studies that shed the oblique light of multidisciplinary research on the science of management.

Europe's banks set to offshore 450,000 jobs by 2010

Mahalanobis — 2006-05-09T18:06:00Z

Celent :: European financial services firms will drastically increase their use of offshore resources, with up to 450,000 continental European financial services jobs moving offshore by 2010.

Europe is the fastest growing region for most Indian outsourcing firms, and will continue to burgeon as European firms bring their cost structures in line with global competitors, according to a new Celent report, Offshoring in the European Banking and Securities Industries.

"As European financial markets continue to liberalize, converge, and grow, banks that are not leveraging the cost savings and experience of offshoring will find themselves unable to compete with lower-priced firms that are. For the moment prices in markets such as France and Germany are elevated enough that banks can make an attractive margin even without offshoring; however, this situation is unlikely to hold over time," says Lauren Bender, manager of the Retail Securities & Investments group at Celent and author of the report. "Over the next couple of years we will see firms that have not yet started to offshore in an important way continue to experiment with offshoring. Eventually most will come to the point where offshoring has become a standard part of doing business."

As the use of outsourcing and offshoring continues to mature, Celent expects to see more and more firms developing a pool of strategic partners and internal resources across the globe that will work together to deliver a firms products and services in a way that maximizes cost effectiveness and performance and minimizes overall risks. This trend toward "global sourcing" goes hand-in-hand with the move toward long-term strategic partnerships between financial services firms and offshore/outsource vendors.

Why pretty faces dont always help sales

Mahalanobis — 2006-05-08T14:41:00Z

Eurekalert: Beautiful young models are used to sell everything from computer processors to motor oil. But is it really effective to use a pretty face to market something that has nothing to do with physical attractiveness? New research from the June issue of the Journal of Consumer Research argues that an attractive model can actually negatively influence product perception if the model is irrelevant to the quality of the product and the consumer had a very high interest in the product to being with. Click here to read the whole story.

My take: Huh?

Dept. of Endogeneity <> Worthless Charisma

Mahalanobis — 2006-04-25T16:36:00Z

Economist: Anyone who thinks it is worth paying extra for a CEO with charisma should think again. A new study[1] by three academics from the University of Pittsburgh and one (Mr Sonnenfeld) from Yale argues that boards of directors need to be cautious when considering the potential benefits of charismatic leaders. The study suggests that the relationship between a bosss charisma and his companys performance may be influenced by the so-called halo effect. The better a companys performance, the more inclined its stakeholders are to perceive its boss as charismatic. The report finds that CEO charisma bears little or no relationship to a companys future performance.

But what is charisma, you may ask. Surely one mans charismatic leader may be anothers buffoon? The authors say such a leader must be: dynamic; a good example; show concern and respect for others; have high expectations; and be willing to take personal risks. Some may think charisma implies more than thata little indefinable extra perhaps, a personal chemistry that persuades people to follow, through thick and thin. [Source]

[1] Does CEO Charisma Matter? An Empirical Analysis of the Relationships Among Organisational Performance, Environmental Uncertainty and Top Management Team Perception of CEO Charisma, Agle et al., Academy of Management Journal

Happiness Inc.

Mahalanobis — 2006-03-18T14:01:02Z

WSJ: Science is exploring the roots of joy and companies are putting the findings to work. Here (sub.req.) is the story. Click on the image to see some of the leading happiness researchers and their findings.

related items:
Measurement Without Measurement, Arnold Kling
Honest Measurement, Bryan Caplan

Selection tool could revolutionize hiring, online dating

Mahalanobis — 2006-03-09T13:24:31Z

globeandmail.com: Piers Steel, a business professor at the University of Calgary, says he has come up with a mathematical formula for hiring the perfect worker, a complex three-step mix of coefficients and matrices that can do a better job of filling jobs than the most seasoned interviewer.

The result, Mr. Steel claims, is a hiring decision based on science -- superior to the alchemy-like approach of today's HR world. "They're little better than a Magic 8-Ball," he said, referring to the venerable toy that, when shaken, displays a random answer to a questioner.

The latest claim of a scientific method to hiring and job design has a long, and mostly inglorious history, stretching back to the dawn of the Industrial Revolution. Adam Smith, with his theory of specialization among pin makers, was one of the first. Henry Ford, with his innovations in industrial assembly lines, was another. And the entire school of scientific management, with its emphasis on time-and-motion studies and proper procedures, is part of the story as well. Mr. Steel doesn't shy away from those comparisons [Source]. Click here to to read the whole story.

related items:
International Journal of Selection and Assessment

Which is more stressful: being a cop or a banker?

Mahalanobis — 2006-02-20T20:18:20Z

WSJ Europe (print edition): Which employee is most likely to wig out in the long run: the police officer or the investment banker? Turns out Wall Streeters experience more types of stress than many other professions, including those where employees might confront a weapon. In a paper, Noushi Rahman and Irem Aktas of New York's Pace University compared results from a few dozen studies of thousands of employees in 21 occupations and found that business and finance types exhibit more "stressors" than just about ony others. Worries include poor job fit, problems with management and work/home trade-offs. Police, on the other hand, expect and often crave thrills, the authors conclude.

Monetize Your Roof

Mahalanobis — 2006-02-08T01:49:26Z

Click on the aerial view of a cityscape on Google Earth or Microsoft's Live Local [or Flash Earth], and most of us don't discern much more than a cluttered expanse of buildings and car-lined streets. But where others see a sprawl of empty rooftops, Colin Fitz-Gerald sees a cornucopia of unused advertising space.

Fitz-Gerald, who runs a roofing business in Cape Cod, Massachusetts, wants to make a business out of posting promotional messages on top of buildings. He's started a company, RoofShout.com, and is looking for roof owners and advertisers to bring his vision to fruition. Click here to read the whole story.

via GeekPress

Germany's Richest

Mahalanobis — 2005-12-08T18:51:43Z

Read about some of Germany's wealthiest people by clicking on the links below:

Germany's Grocery Giants: A pair of reclusive brothers crowns the list of Germany's richest people. Karl and Theo Albrecht, founders of ALDI supermarkets, made their extreme fortune selling low-price groceries.
The Family Behind BMW: Reclusive BMW heiress Susanne Klatten is the richest woman in Germany. Her brother and mother aren't struggling, either.
Germany's Media Mogul: The Bertelsmann corporation began by publishing bibles, but over the company's 170 years, it transformed itself into one of the most powerful media empires on the globe. Reinhard Mohn is the man behind the company.
The Mail-Order King: Michael Otto heads Germany's second-richest family. But he hasn't let that get to his head. He took his father's successful mail-order business and turned it into a global player.
The Screw King: Reinhold Würth turned his father's wholesale screw company into a giant multinational. These days, Germany's sixth richest individual is enjoying the fruits of his labors collecting art and riding his Harley.
The Baking Barons: Together with his family, Rudolf August Oetker, of the Oetker baking empire, is one of the richest men in Germany. Collectively the family is worth about $7.7 billion.

related items:
The World's Billionaires, Forbes

Bank für Arbeit, Wirtschaft und ausländische Genossen

Mahalanobis — 2005-10-26T20:41:06Z

Financial Times: From its lavish headquarters in central Vienna, it is hard to believe the bulk of Bawag's (Austria's fourth-largest bank, total assets ~ 56bn) fortunes derive from activities as mundane as retail banking for blue collar workers, payments for trade unions and transactions processing for government agencies. But Bawag, the Austrian [trade union-owned] bank now ensnarled in the collapse of Refco, the futures broker, has always been a company full of contrasts. A must read.

PwC study: Offshoring in the financial services industry

Mahalanobis — 2005-09-19T23:12:30Z

Executive Summary: In a new survey of 156 senior executives of financial services firms worldwide [PricewaterhouseCoopers and the Economist Intelligence Unit] found that offshoring activity is expected to rise significantly. <>

Yet satisfaction levels with offshoring often leave much to be desired: only half the survey respondents pronounced themselves satisfied with its overall impact. Among the key sources of dissatisfaction are cost overruns, difficulties in recruiting and retaining staff and cultural differences between offshore employees and customers. Time will certainly help firms to offshore more successfully, as service providers and institutions themselves gain in sophistication and experience. But as offshoring activity reaches a critical mass, the problems will also increase.

Regulators are watching to ensure that standards of compliance and governance are maintained, particularly as offshoring pushes into higher value-added areas which are more critical to business continuity and where concerns over client confidentiality and data protection loom larger. Rising turnover of staff is a growing headache in the most popular offshore destinations. Some of the initial savings in wages are being eroded as competition for employees increases.

Lower cost is still seen to be the main benefit of offshoring, and the source of greatest satisfaction for those to have actually offshored. Companies will continue to focus on exporting lower value-added, transactional activities in order to reduce their overheads, and although offshoring to captives remains the preferred option, outsourcing some of these activities to third parties is set to gain ground. Saving cost is not everything, however, Niall Mowlds, director in performance improvement consulting at PwC in London, cautions companies to take a long-term view of their plans, which usually means between seven and ten years. And survey respondents count strategic flexibility and improved quality of service among the greatest benefits of offshoring.

Many in the industry believe that the distinction between offshoring and the sourcing of expertise and talent internationally will become increasingly blurred. As firms consider shifting higher value-added activities that require specific knowledge or head offshore to address skills shortages in home markets, those that place greater emphasis on people and expertise will do better than those that are simply out to cut their costs. The further you go into highvalue work, the more it is going to become a team effort between people in high-cost countries and those in lower-cost ones, says Rob Muth, HSBCs head of global resourcing.

As firms move towards building a global footprint in which processes are disaggregated and shared between multiple locations, so offshore destinations will need to differentiate themselves more smartly. Simply being cheapest is unlikely on its own to win business. As examples from India to Ireland show, a critical mass of offshore centres and providers, active government support and the quality of the local skills base will count for more over the long term. Click here to read the whole study.

World's Dumbest Product

HedgeFundGuy — 2005-05-08T13:19:10Z

Every couple of months while flying I peruse the airline SkyMall catalogue, which has all sorts of frivolous items: home submarine, couch ramp for you dog, Rock'em Sock'em Robots. Most seem fun, but most would also end up on a garage sale table in no time.

Still, I think there should be a special prize for what I consider the stupidest SkyMall product, AquaBells, the dumbbells that you fill up with water in the bathroom so you can do some excersizes with at most 16 pounds. See SkyMall's pitch here

Most travellers stay at hotels with modest gyms that dominate doing whatever one would do with 10 pound dumbbells. But the target market of the 10 lb dumbbell user is clearly a dilletante, someone who exercises with all the intensity and forethought of a chronic multitasker. The time it would take to fill and unfill these weights, and then the mess they would cause in your luggage as they dripped on your clothes, seems totally intolerable for someone who has only the patience for for exercising with 10 pound dumbbells.

Then again, they have been in the catalogue a few years now...

China Unchains Ad Agencies

Mahalanobis — 2005-04-18T23:55:44Z

Businessweek: Soon to be the world's No. 3 ad market, China is easing restrictions on foreign agencies. The jockeying has begun. The ad campaign left shoemaker Nike Inc. (NKE) flatfooted. The company's "Chamber of Fear" spot featured LeBron James of the NBA's Cleveland Cavaliers battling -- and defeating -- a computer-generated Kung Fu master. It might not have raised eyebrows elsewhere, but Chinese consumers found the concept insulting, and Beijing banned the ad last December. <> {Nike's "Just Do It" campaign doesn't work because it emphasizes individualistic youthful irreverence -- a no-no in Confucian China. Instead, Nike runs ads such as a 10-second spot that features a school kid impressing classmates by spinning the globe on his finger. While the ad expresses playfulness and a certain bravado, "there's no rebellion," says Tom Doctoroff, CEO of Greater China for J. Walter Thompson, which made the spot.} The bad news for Nike, though, was great news for advertisers. The fact that the ad ignited a national debate highlighted the growing power of advertising in China. The industry has grown from virtually nothing in 1979, when the communist government lifted a ban on ads, to as much as $16 billion last year. Click here to read the story.

related items:
Impressive China pictures (pps)