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New management thinking vs. oldLots of corporate leaders are following Jack Welch's management strategy. In this new century, it's becoming "conventional" wisdom and the followers are being left behind.
Today, some 5 years after his retirement from GE, Jack Welch (with his wife Suzy Welch) pontificates through his weekly column in Business Week. And their April 2005 book, "Winning" is still selling well.
Jack Welch was the model CEO for the way to do business in the 1980s. Most CEO's have been influenced by his teachings. But today, the global challenges facing businesses are different: the stock market remains volatile and unpredictable, competition from China, India and other newly emerging business powers is intense. Jack Welch's wisdom is becoming out-of-date.
A dramatic rethinking is underway about fundamental assumptions that no longer apply. Emphasis on market share (Welch Rule: Be No. 1 or No. 2, or get out) is not valid. Clear market-leaders are themselves shaky. Quarterly earnings increases do not generate long-term competitiveness.
Here is a comparison:
Jack Welch insists that he is willing to change his thinking. But he contends that his rules, if applied correctly, can work He keeps applying old solutions to new problems. Successful companies are proving him wrong.
Jeff Immelt, Jack Welch's successor as CEO at GE, is himself trying bravely to change the ground-rules for the corporate giant. Only time will tell if he will succeeds.
Invensys floats with uncertaintyInvensys has seen so many rumors about being bought by Siemens that the latest - a bid from the French engineering group Alstom (itself somewhat troubled) - didn't stir much interest.
The stock moved a couple of pennies and is still languishing in the 15-25p range for almost 3 years; it dropped to 18.25p on 13 July 06. Meantime, as reported by the Invensys weblog, CEO Ulf Henriksson recently sold some of his shares: 820,000 @ 22.00p (value: £180,400); one wonders why he needed to take that shaky step at this time.
Then Mike Caliel, President of IPS (Foxboro) quit. About a year ago there was news that he would be joining Yokogawa; perhaps that simply meant he was "looking" and now finally got what he wanted - the CEO position with Integrated Electrical Services, a public traded company recently emerged from chapter 11 bankruptcy. Interesting challenge.
Mike Caliel's departure sparked the usual spate of commentary, mostly from supporters, but also some that thought that he simply didn't get along with Ulf, or simply wanted to move to Houston.
Ulf confirmed the news with a letter to all Invensys employees, saying the usual sweet-nothings. And he announced that Ken Brown, VP/GM of Foxboro M&I, would take over immediately as "acting Business President" and that an extensive external and internal search was being made for a successor.
In the midst of all these long term changes, there's something significant about the Invensys culture that makes the company survive. There are still some significant people at Foxboro who've been there before Siebe and Invensys, before Yurko and Sarney and Leo Quinn and Haythornthwaite, and now Ulf. Evidently, they keep it going.
Stay tuned - I'll be discussing the Invensys/Foxboro culture that "takes a licking, but keeps on ticking". Coming soon.
Asymmetric MotivationFor several decades now, the assumption has always been that the US, Europe and "first world" countries would keep leading in knowledge based business, while other "lesser developed" nations would provide lower skills and lower labor costs. That's now changed. It's amazing how many people still pretend it hasn't. Remember when Japanese products were considered "cheap and dirty"?
There are key human factors involved. It's hard to compete with people who are hungry for upward mobility. In emerging countries people work long hours to generate good results. This "asymmetric motivation" results in huge productivity differences.
And there's another financial "asymmetry" that is causing galactic changes - China. The huge population and business is government controlled. With far-sighted vision, their target gross-profit margins are only 5-10%, considered far too small anywhere else in the world. Their primary objectives are local employment and global market share. As a result, China has become the undisputed world leader in low-cost manufacturing of high-volume products. Can you name ANY high-volume products that are NOT manufactured in China?
For America, the remedies require significant attitude changes. Our society must recognize that manufacturing and job creation are not just political or profit manipulations, but the building blocks of society. It's important to keep investing in jobs, to upgrade factories, to be competitive in global markets. Innovation and talent must be encouraged and stimulated.
Most importantly, the short-term financial mind-set must change. Business needs to realize that continual quarter-to-quarter increases in revenue and profits cannot be sustained with work that is done elsewhere in the world. Wall Street must stop manipulating company value through demands for short-term, quarterly financial performance.
The Long Tail is changing the gameRemember the "Bell Curve" which became "The Well Curve"? That's the significant change in statistical distribution which is changing the ground rules in society. (See web link below).
Now, there's another part of the distribution curve that's changing the game in business - "The long tail". This is the name for a well known feature of statistical distributions. The peak of the curve is followed by distribution which gradually "tails off".
A remarkable change is taking place with new growth businesses. For some markets, the long tail can cumulatively outweigh the peak portion of the graph so that, in aggregate, it comprises the bulk of revenue. Such distributions are becoming surprisingly common. Low volume products can collectively generate market share that rivals, or even exceeds, relatively few supposed winners.
Some of the most successful Internet businesses have leveraged the Long Tail as part of their businesses. Examples include eBay, Yahoo, Google, Amazon and Netflix. They have grown faster and larger than conventional "brick-and-mortar" businesses.
An Amazon employee describes the Long Tail as follows: "We sold more books today that didn't sell at all yesterday than we sold today of all the books that did sell yesterday." In the same sense, Wikipedia has many low popularity articles that, collectively, create a higher demand than a limited number of mainstream articles that are found on conventional site such as Britannica.
The Long Tail threatens established businesses. Most companies offer only high-volume products, with "specials" at a high price which reduces demand. But, when the costs of inventory storage and distribution fall, then a wide range of products becomes available; that can, in turn, have the effect of reducing demand for the most popular products.
The Long Tail has many implications in the new, global environment - for society, culture and politics.
Thinkaboutit. How does it applies to YOUR business?
My trip to the edge of AmericaHey, this may be the only issue of JimPinto.com eNews this month. I'm going on vacation till early August.
This is an unusual trip for me - with my sister from India who is visiting old friends in all kinds of remote places. And I'm going along.
Aside from visits to my home in San Diego, and relatives in Tampa, Florida and Bristow, Virginia (near Washington, DC) we're making another unusual trip - to Rhame, North Dakota (population 139). Someone warned: That's at the edge of the world; if you go 10 miles further, you'll drop off the end.
We are starting from Chicago, at the home of an old friend. I looked up (using all the incredible tools at my command) Google Maps, Mapquest, Kayak Airline search, etc. to find out how to get to Rhame, ND. Hmmm... I thought, we'll fly to the nearest city and then drive, perhaps 100 miles.
So, I asked our friends in Rhame, "What's the best way to get there from Chicago?"
"Sorry," they said, "We don't know - never go there. But, Bismarck is the nearest airport."
Well, Bismarck has flights that go through Denver and other such hubs. Imagine - Chicago to Denver, and then Denver to Bismarck. Of course, the cost of air tickets (and delay time) was outrageous. And besides, Bismarck was some 200 miles from Rhame.
So, how about trains - surely Amtrak goes anywhere in the US. It turns out that the train goes to Fargo, and then heads North to Grand Forks, and then West to Minot. Distance from Rhame: 275 miles.
Ah well, I thought - Greyhound bus! But sadly, the schedule showed just one bus per day, with the nearest drop-off point at Dickenson, 100 miles from Rhame. Arrival: 4:00 am.
Well, we've decided to drive from Chicago - round trip 2,000 miles. And one more thing about Rhame. It's right next to the "Badlands" bordering Montana. It turns out my sisters friends were original European settlers - each individual was offered 300 acres of land just to settle there. And the family now has 3,000 acres. They'll meet us in Bismarck, and we'll follow them to their Ranch.
On the way back from Rhame, we'll stop off at Mankato, Minnesota, and Omaha, Nebraska and then back to Chicago. My sister has good friends in many places (smile).
Hey, I'll tell you about my trip when I return.
eFeedbackBobby Yates [firstname.lastname@example.org] suggests a novel, perhaps facetious, approach to the issue of illegal immigration:
"Second, I like the kill them with kindness approach. Place a $25/hour minimum wage on illegal immigrants, with double for overtime. Plus, require full free medical, 401K vesting, and vacation time at date of hire. Might be interesting for an employer to find they owe a day laborer two weeks vacation. And let the IRS collect taxes from those that hire illegals.
"Let green cards be issued at border-crossings with reduced paperwork and increased speed. Lock-up "coyotes" in a Federal facility in Alaska, preferably inside the arctic circle, for a "cooling off period" while they are investigated.
"Basically go after the profiteers and employ the employable."
"I would not exempt Venezuela, Nigeria, Indonesia or any country in the Middle-East because those countries should be accountable for US taxpayer dollars spent on US Military presence in their parts of the world - to keep oil flowing.
"However, I can see a serious flaw with the idea of taxing imported oil. If USA refineries must pay $90 per barrel for imported oil, when other countries only pay $70 per barrel ($70 + $20 tax), then US oil importers will have incentive to switch to refined oil products, chemicals and plastics produced in foreign countries rather than import the crude oil directly to USA refineries.
So, if this idea is to have teeth and not further the exporting of US jobs and manufacturing, then the import tax would have to also apply to imported products, chemicals and fuels refined from foreign crude oil. That could be difficult to manage."
Personally, I believe that a woman will be elected to the Presidency only after a third party becomes strong enough to offer a female candidate as an alternative to the status quo."
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