Decidedly
Putting strategic decisions in the spotlightIs now the right time to buy?
The most basic investment advice is to "buy low, sell high". It's pretty easy to see when is a good time to sell. But how do you know when it's a good time to buy?
With all the news about the economic downturn, is now the right time to buy a home? Stock? A business? Equipment? Maybe. Prices are falling and people are nervous. If you've got the cash to go shopping, it could be a good buying opportunity. But you have to assess whether prices will continue to drop. And what benefits will you see if you buy today versus waiting?
And most importantly: if someone is trying to sell you something, ask yourself why they need to sell right now. How do they profit from selling to you? If your trusted advisor is about to make a big commission, you might want to get a second opinion.
(Photo credit: Darren Hester).
- Greg Glockner, 10/3/08
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Are we stuck in a hype cloud?
In most jobs, you've probably addressed a "hot" topic. Quality was hot in the early 90s. A few years ago, the hot topic was outsourcing to China and India. Before that, it was hot to move production to Japan, Taiwan, South Korea or Mexico. And everyone was working on the Internet during the "dotcom" era in the late 1990s.
Right now, the buzzword in the computer industry is "cloud computing". Cloud computing is not well defined - even the Wikipedia article is quite vague. In a nutshell, with cloud computing, you run software applications over the internet instead of on a local computer. The "cloud" is a metaphor for the internet, where you cannot see the remote computer.
However, "cloud computing" has become so fashionable that everyone seems to be working on it. This week, Oracle CEO Larry Ellison publicly declared that cloud computing is just hype. Ellison said, "The interesting thing about cloud computing is that we've redefined cloud computing to include everything that we already do. I can't think of anything that isn't cloud computing with all of these announcements. The computer industry is the only industry that is more fashion-driven than women's fashion. Maybe I'm an idiot, but I have no idea what anyone is talking about. What is it? It's complete gibberish. It's insane. When is this idiocy going to stop?"
Bravo! But until "this idiocy" stops, we're stuck having to pander to the flavor of the month. I'm sure that marketing programs have to exclaim that "we're doing cloud computing". And investors need to see "cloud computing" in all business plans. The hot topic is going to dominate business planning.
I think we've heard this before. Hopefully the power of Larry Ellison can expose this as a fad, so that we can just get back to work. But I'm not hopeful.
(Photo: WTL photos)
- Greg Glockner, 10/1/08
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Whatever happened to 'The Customer is Always Right'?
On the Freakonomics blog, both Levitt and Dubner have recently written about customer service. Levitt mentioned an article about Zappos, an online shoe store. A customer was late in returning shoes for her mother. When the customer explained that her mother had died, Zappos not only extended the return period, they sent a bouquet of flowers! Levitt also mentioned three of his own experiences: two positive airline experiences (wow!) and a great experience at a pizzeria.
Dubner wrote about an unpleasant trend in customer service: where doctors refuse to reply to email questions from their patients. Doctors are hiding behind a new medical study that says that questions from patients are wasting the time of doctors.
I have a hard time believing that.
So with the lagging economy, it's interesting that customer service is in the news. Often, we hear that businesses - particularly low-margin ones like airlines - reduce customer service perks when the economy is weak. But some forms of customer service cost little or nothing. It didn't cost much for American Airlines to hold the seat for Levitt, or for United Airlines to phone him when a seat became available on an earlier flight. And it may not cost much for a doctor to give a brief email response to a patient. And if it can't be answered in a minute or two, why not respond: "That's an interesting question, but to fully understand the situation, I would need to see you. Please contact my staff to schedule an appointment." Hey, the doctor could simply copy-and-paste that response, taking just a few seconds. (Note to physicians: my fee for that message will be $80).
Sending flowers for your customers is an expensive option. But there are plenty of low-cost ways to show your customers that you value their business.
- Greg Glockner, 9/29/08
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When secrecy could come back to haunt you
Many products require an ecosystem to succeed. Cars aren't very useful without an extensive network of roads. Electric appliances aren't very useful without electric service to homes and businesses. And computers aren't very useful without fun or helpful software.
The relationship goes both ways: electric service isn't useful without demand from electric appliances. Software isn't useful without powerful computers. Etc. From this, it's clear that each side needs the other side to be successful.
So consider the Apple iPhone and the new Google Android. To be successful, Apple and Google depend on other companies to provide a reliable mobile phone network and an extensive list of software.
Apple maintains a marketplace for iPhone software from third-party software developers, and Google has announced a similar program. But Apple has recently tightened its control over the iPhone application store. They have rejected a few applications for no clear reason, and now they have said that even a rejection letter is confidential. Many software developers are incensed by the censorship. And Google is taking advantage of this situation to announce that their marketplace will have no restrictions.
John Murrell writes: "Google's Android Marketplace is designed as a wide-open venue for developers to hawk their wares, leaving all judgments about quality and value to the users of Android-based phones, while Apple’s App Store has a strict submittal and approval process for developers wanting to reach the iPhone masses. Apple, in keeping with its philosophy that tight control is the only true path to a providing a consistent and positive customer experience, said from the start that there would be limitations on what got into the store, and initially that was understood as a means to keep out porn, malware, privacy invaders and other bad actors. A series of Apple decisions over the past few weeks, however, have left a growing number of developers confused and increasingly angry over the company's seemingly arbitrary decisions and its determination to keep everyone in the dark on the details of the whole process."
For instance, Glenn Fleishman questions whether he should invest time and money in developing software for the Apple product, when he cannot know in advance whether it will be granted access to the one and only marketplace.
This conflicts with Apple's best interests. They need software developers to be excited about writing software for the iPhone. Apple will sell more iPhones and collect a commission from the software sales through their App Store.
It's Apple's product and store, and they have every right to manage the system however they want. But secretive, heavy-handed censorship is probably not the best way to manage their relationships with the community of software developers. Each side needs the other one to succeed.
- Greg Glockner, 9/26/08
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Why did they do that?
I got an email saying that my last post was insulting to managers. The writer made some good points, and I revised my text.
This also made me reconsider the Best Buy story from the perspective of the executive in charge of forecasting. When she said "her team felt humiliated", it raises a question about how did management present the new forecasting system? A while ago, I learned that people are motivated in business by the same emotions that motivate us in life: fear, love, greed, etc. No one wants to be made to feel stupid, especially in public. Or as a colleague once taught me, "praise in public, but criticize in private."
Since the forecasting team felt humiliated, it seems like this advice was ignored.
Let's say that the goal is to improve the quality of forecasts by getting the forecasting team to adopt the market-based forecasting methods. Then I believe that an executive should have met privately with the forecasting team to convince them to learn and adopt these new forecasting techniques. Next, the improved forecasts could have been presented to the executive team, with the explanation that Best Buy is starting to use a radical new forecasting method and the forecasting team is working to adopt this new method as soon as possible.
The criticism of the old forecasting methods is done in private. The forecasting team is praised in public for adopting the radical new forecasting methods. And Best Buy benefits from improved forecasts. It's a win-win situation.
Yesterday, Seth Godin wrote about when others make a bad decision. Godin claims that rational people make the best choice from the information they have. When they make a bad choice, it's probably because they have the wrong information.
Then again, perhaps someone at Best Buy was playing politics to try to take over forecasting. That would be motivated by greed!
- Greg Glockner, 9/24/08
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Can you handle the truth?
Recently, we've been discussing some issues that come up in selling Dwaffler software and consulting projects. The issues are similar to other management consulting work I've done in the past.
Many managers think they are talented and clever. And they think that they were selected for that management position due to their skills and talents. Thus, these managers often rely on their wits and gut instinct when making a key decision. Why accept outside assistance?
Don't believe me? Read what Kevin Meyer writes about retailer Best Buy. From time to time, Best Buy corporate management uses an imaginary stock market called TagTrade to gauge their customers. Best Buy retail employees bid into the TagTrade market, and the corporate management uses the results to predict the success of various marketing programs. Best Buy gives prizes to the top participants in the TagTrade market, so the retail employees have an incentive to be as accurate as possible.
Best Buy's TagTrade system is a clever way to harness The Wisdom of Crowds. But what caught my eye was that the market predicted better than Best Buy executives. In assessing the sales for gift cards, "the employees' guess was more accurate than Best Buy's official projection. [And] the forecasting director for gift-card sales said her team felt humiliated."
Bravo to Best Buy for implementing a creative strategy for market forecasting. But shame on the forecasting team. The right response should have been, "Wow, what a powerful method. Let's figure out how to use this market method to improve our forecasting." But instead, they "felt humiliated" because other executives at Best Buy discovered a better way to do forecasting. And the forecasting team discovered they weren't quite as clever as they thought.
If they were really clever, they would stop and learn how to use this market forecasting method. Then they'd become more clever and they would do a better job. It would be a win-win situation.
Anyone care to try that with Dwaffler?
(Full article about Best Buy on the Wall Street Journal website. Registration may be required).
- Greg Glockner, 9/22/08
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Watch how you spend your money...
Microsoft launched their $300 million ad campaign a couple of weeks ago. They started with two TV spots featuring founder Bill Gates and comedian Jerry Seinfeld. Seinfeld was reportedly paid $10 million for the ads campaign. Following mostly negative reviews, Microsoft switched to a new series of ads that do not feature Gates and Seinfeld.
I'm not an advertising expert, but I liked the second Seinfeld ad. The new "I'm a PC" ad is pretty good, too, and it does a better job of promoting Microsoft.
Despite Microsoft's spin, it's hard to believe that Microsoft would pay Seinfeld $10 million just for two ads. It's clear that someone at Microsoft decided to kill the Seinfeld ads early. And that means that Microsoft probably did not get $10 million worth of value from the Seinfeld ads. So why didn't Microsoft realize that their ad campaign would miss expectations? Didn't they review the ad with key executives or with focus groups? My guess is that they either failed to properly review the ads, or the reviewers were "Yes-men" who were afraid to voice their opinions.
In the big picture, wasting $10 million is probably not significant to Microsoft. But I'll bet there are plenty of managers at Microsoft who could have funded some great projects with some of that money. And Dwaffler could do a lot with a $10 million budget. Before spending that much money, they should have evaluated the ad campaign much more carefully.
- Greg Glockner, 9/19/08
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Caution - change ahead
As I'm sure you've figured out, love doesn't make the world go round. Oil does. We rely on oil to move people and goods throughout the global economy. Until we get a better alternative, the world needs oil.
This year has seen wild fluctuations in the price of oil in the commodity markets. The LA Times reports "Oil has dropped nearly 38% from its record high of $147.27 in July, and several analysts believe the downward trend in oil prices will continue." It took just two months for the price of oil to drop by 38%.
So a few months ago, everyone was planning for oil at $150 per barrel. Airlines, shipping companies, governments, manufacturers. Some feared that oil might reach even higher prices. But now we're seeing oil below $100 per barrel.
Where will the price of oil go? How long until it changes again? If I knew, I'd be making some big investments. But what we should expect is that the price of oil may change again and again. A simple assumption of high or low prices may not be right: It's time to plan for price volatility.
Despite the lower fuel prices, I doubt that consumer appetite will return for large SUVs. Or that airlines will reverse their decision to retire old, fuel-thirsty aircraft. But they may wait longer to replace current cars or airplanes. That's not what I would have predicted this summer.
- Greg Glockner, 9/17/08
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How can we reach agreement faster?
After a two week strike, this morning was the first day of school for my son. In terms of pay, the agreement is about halfway between the initial proposals from the teachers and the administration.
This made me think about how negotiations get resolved. The typical process starts with one side asking for everything and the other offering nothing. After time, they usually meet somewhere in the middle. This seems to be the case whether you are considering salary, a legal dispute or high-priced purchases.
Perhaps the most authentic example is an Oriental rug market.
While traveling in Morocco, my wife and I shopped for a Berber rug in Marrakech. The salesman sat us down for sweet mint tea and had his assistants unroll dozens of rugs for us. When we found one that we liked, we started to discuss price. He started with the tourist price that was as expensive as prices in the USA. We countered with a bargain price. He claimed to be insulted. After a few minutes of counter offers, we left. We returned two days later. After two cups of tea, we started to negotiate a second time, and we wound up paying about 60% more than our original offer. But this was less than 1/3 of his first price! I don't think he took advantage of us - when locals asked us about the price we paid for the rug, they nodded in approval.
An economist would claim that this was an example of an efficient market: the auction process finds the price that both sides are willing to accept. I understand and accept this point. But I also wonder: is the negotiation process the most efficient process in terms of time? Can we conduct negotiations so that we reach economic equilibrium faster? So that both sides feel that we've reached a fair price?
Purchasing a rug in Morocco gave me a great souvenir and a story that I'll remember for the rest of my life. But negotiating over a car, house or contract? I'll bet that most people would rather forget that.
- Greg Glockner, 9/15/08
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To flee, or not to flee? That is the question.
With Hurricane Ike about to hit the Texas coast, I read an interesting AP story about the evacuation of Texas cities. Juan Lozano writes about how Galveston is being evacuated but not Houston:
About 60 miles inland in Houston, officials said residents should not flock to the roadways en masse, creating the same kind of gridlock that cost lives - and a little political capital - when Hurricane Rita threatened Houston in 2005.... Three days before landfall, Rita bloomed into a Category 5 and tracked toward the city. City and Harris County officials told Houstonians to hit the road, even while the population of Galveston Island was still clogging the freeways. The evacuation itself wound up far more dangerous than the storm: 110 people died during the effort, while the eventual Category 4 storm killed nine.
So which is the greater risk - to evacuate a city or to face a powerful hurricane? There are three basic scenarios to consider:
- Whether the storm hits the city with intense power
- Whether the storm hits the city with weaker power
- Whether the storm tracks away from the city
I doubt that most government leaders use an analytic process like Dwaffler to decide whether to give evacuation orders. I worry that they make a political decision instead. That's pretty scary - there's a lot more at risk than just a political career.
- Greg Glockner, 9/12/08
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