Investile Dysfunction

Tech terms we hate - User

This post is admittedly not related to corporate portfolio management, but I just found this blog post titled "Tech Terms We Hate" humorous and wanted to share.  I think I found it especially funny because I recently sat through a couple of portfolio management application demos where the software companies in question referred to their customers as 'users' as do most software companies.

I'd suggest reading the whole post for a chuckle.  A short excerpt is below:

"What group of professionals other than those in information technology calls its customers "users?" Off-hand, this blogger can only think of one: drug dealers. That's not to say the two are anything alike. But the word implies that the "users" are utterly dependent on the provider."

Wise words from Maurice Levy, the CEO of Publicis Groupe

I've been catching up on my reading this weekend and saw an article in the July-August 07 Harvard Business Review titled "Managing for the Long Term."  One of perspectives they got was from Maurice Levy who is the CEO of the Publicis Groupe.  If unfamiliar with Publicis, they are the fourth largest global advertising group based in Paris. 

Levy's thoughts are consistent with those I articulate in my book on several levels including the following:

• Balancing the timeline for where you invest - Levy states that "building the future is really about the building the present.  Yes, you must be able to see where you want to go, but you will never get there if you spend too much time only looking forward to it.  Instead, the decisions you make and the people you work with today are what will get you to where you need to be." 
• Resource allocation is not determined by executives - "The executive committee is not always the best place to smell the future, and we should accept that.  Our job is to listen and to interpret what we hear from people working and talking in the field."  This is very consistent with the fact that optimal resource allocation is driven by the field and not the executive ranks.  Another great resource that maybe useful is a book by Clark Gilbert and Joseph Bower entitled From Resource Allocation to Strategy.  Clark was gracious enough to endorse my book and has written on numerous occassions that it is the line that really determines resource allocation and hence the strategy of a company.  To learn more about Clark's book, click here.
• Healthy debate for resources is good - Levy discusses how his company decides where to place its bets.  He states, "We hold strong views and enjoy a lively debate.  I was always arguing with my predecessor and mentor, Marcel Bleustein-Blanchet, the founder of Publicis.  Those exchanges could get quite heated."  When picking amongst initiatives, this type of competition for resources is very useful and is a hallmark of successful corporate portfolio management.

Federal government aims to measure innovation - Any thoughts?

This is from the unexpected file.  I recently read that the US Department of Commerce is looking to "develop a set of metrics that will help the government assess the state of innovation within the U.S. economy."  The goal being that this metric will help ensure the USA stays competitive in the face of greater global competition.  I came across via good old Google and a pdf link to what the Department is doing can be seen by clicking here. 

So I will reserve judgement on this effort, but I would be interested in hearing what others have to say?  Before you discuss the relative merits/demerits of the Commerce Department, I would be interested in knowing what metrics your organization uses to measure innovation?  And then of course, any thoughts on this federal initiative.

Lousy leadership and its tie to suboptimal resource allocation

In the July 23, 2007 issue of BusinessWeek, Jack and Suzy Welch do their customary 'Ideas the Welch Way' column and their article this week was entitled "Bosses Who Get It All Wrong: Blowhards, Jerks & Wimps".  (BTW, this Jack Welch of GE fame for those who are not familiar).  In their discussion on lousy leadership, they talk about one particularly insidious genre of bosses they label as those "who do not have the guts to differentiate". 

As I've discussed many times, organizational behavior is a key dimension of optimizing resource allocation and making corporate portfolio management a reality.  The Welchs rightfully contend that improving resource allocation becomes near impossible with this type of gut-less leadership style  because "not all investment opportunities are created equal.  But some leaders can't face that reality, and so they sprinkle their resources like cheese on a pizza, a lit bit everywhere.  As a result, promising growth opportunities too often don't get the outsized infusions of cash and people they need.  If they did, someone might get offended during the resource allocation process.  Someone, as in the manager of a weak business or the sponsor of a dubious investment proposal." 

So if you want to improve your company's performance and fund the best initiatives, good leadership by those willing to take a stand is requisite.  There should be no room for the gutless. 

The data-driven organization - Let's not take this too far

In Scott Thurm's "In the Lead" column from the 7/23/07 issue of the Wall Street Journal, he talks about the latest seeming craze around "Business by Data".  Thurm's healthy skepticism of the new data-driven business mantra is spot-on. The data and metrics zeitgeist is starting to resemble another management guru inspired, flavor-of-the-moment strategy which looks at a few isolated successful case studies/examples and ascribes their success to the use of the idea in question and then says everyone must do business this way to be successful.  First, it is worth noting that when used incorrectly, data can be powerfully destructive (e.g., when assuming correlation implies causation for instance) to good decision-making.

That said, as those who've read this blog before would know, I am a huge proponent of balancing decibel- vs data-driven approaches to making decisions, e.g., managing the intuition and analytics. But this has to be done with a focus on optimizing resource allocation decisions and not just by looking at one element (whether it be data or scorecards, TQM, dashboards, etc). 

Ultimately, data must be used to help inform decisions and this requires it become information.  Beyond information, however, data becomes most powerful if it becomes information which ultimately is synthesized into knowledge which lives on within an organization.  It is this knowledge which can be disseminated across an organization to help drive optimized/better decisions.

Let's take a simple example.  You're a widget maker and sold 100 widgets in 2006.  That is data.  Pretty useless by itself.  You know that you sold 110 widgets in 2005.  Now those two points provide some basic information in that widget sales have dropped 9%.  Diving into this information to learn more about this 9% drop may result in understanding that this is due to the influx of lower-cost widget providers who have superior economics and with whom you cannot compete right now.  This knowledge can then drive decisions for the organization such as "Do we invest in new manufacturing capabilities that will let us compete better?" or "Do we aim to innovate our current product and move into new customer segments?"  The data by itself doesn't get you very far.  Taking that data and developing an understanding of why it is this way is ultimately the key.

More on Liz Claiborne - 16 brands on the hit list

So the Wednesday, July 11 issue of the Wall Street Journal expanded on Liz Claiborne's strategy (as I mentioned in my last posting about the closure of Mexx).  Apparently, Claiborne is 'shedding' 16 of its apparel brands which represent "$800 million of its $5B of annual revenue."

What would drive the decision on which 16 brands to give up?  Perhaps it would be the expected growth of the brand, e.g., keep those brands which are growing the fastest?  Or perhaps its the size, e.g., shed those units which are the smallest which take up a large portion of resources while not contributing much to the top and bottom line?  Or maybe it's about strategic fit, e.g., keep those which have some strategic synergy with the other brands and which have similar customers perhaps? 

And a wise decision might consider all these factors (and probably more) to determine which to keep and which to get rid of.  So why did Claiborne decide to get rid of these 16 brands?  Here is what the Journal's article had to say:

The 16 brands on Claiborne's hit list aren't necessarily its slowest growing.  "It was a matter of which ones we could bite off and grow within the time frame that the Street would need us to perform" per William McComb, CEO of Liz Claiborne.

Let those words sink in - "It was a matter of which ones we could bite off and grow within the time frame that the Street would need us to perform."

Sure there are strategic, financial and risk considerations when making a major organizational change like that of Liz Claiborne, but why bother with all that when you can just think make your decisions based on appeasing the Street?

News in my mailbox - Liz Claiborne changes its resource allocation

So I got home today and my wife gave me an interesting letter she'd received from Mexx, a clothing store which is a brand of Liz Claiborne.  Apparently, the parent company, Liz C, has decided to shut down its four Mexx retail stores in the USA.  The letter elaborated on the reasons for the closure stating, "This is simply a business decision we have made to focus corporate resources on other proven brands within our Liz Claiborne Inc portfolio." (My wife knows I'm passionate about all things resource allocation related and so immediately knew I'd like this letter)

On the one hand, I need to applaud Liz Claiborne for making the tough decision to kill an investment.  Most organizations fail to kill projects ultimately "dooming projects/initiatives to completion."  This is one of the 7.5 deadly sins of resource allocation that I talk about in my book.

On the flipside, as I look at the locations of the Mexx stores, another of the 7.5 deadly sins seems to have potentially occurred - the sin of decibel-driven decisions.  The four Mexx stores were located in upscale Georgetown area of Washington DC, Tysons Corner Center in Virginia and two in Manhattan.  Setting up four shops in tony locations and not exploring stores in locations with greater geographic/demographic diversity may seem to indicate that decibels ("we must be on Fifth Ave and Soho for our brand") vs data ("perhaps we should look at one store in NY and another in the NJ suburbs to determine which demographic finds Mexx appealing and which store has the better ROI"). 

Again, the experience of Liz Claiborne and Mexx might point to another reason to adopt corporate portfolio management.  Remember, corporate portfolio management when done right can be actually quite fashionable (pun intended).

More metrics confusion - this time around corporate governanance

The Monday, July 2nd issue of the Wall Street Journal had an article entitled "Finding the Best Measure of 'Corporate Citizenship'".  Basically, the article highlighted that governance trackers use a variety of metrics to offer insights into the goodness/badness of a firm's governance and that these varying measures are leading to confusion.  These metrics ultimately are believed to help investors pick stock winners and losers.

The article highlighted several interesting things, some of which I've spoken about before in this blog:

1. There is no dearth of metrics that supposedly help one identify stock outperformance.  More proof of the metrics zeitgeist which has grabbed the attention of many continues unabated.  These maybe interesting (assuming they are properly constructed), but keep in mind that there is a peril in trying to boil performance down into a single measure because company performance is driven by a complex set of drivers.  I would argue that resource allocation and the associated 'bets' a company makes are more vital drivers of company performance than governance, but I also would not go so far as to say that it's the one measure to look at.
2. In this case, there are 2 firms that track corporate governanance, e.g., Governance Metrics International and Audit Integrity have very different lists of criteria that determine good governanance.  So while a metric is interesting, it's only useful if you believe the metric is fundamentally sound in its construction.  Many organizations fall into the metrics trap where measuring something and developing a metric is deemed an accomplishment even if the metric in question may not be useful. 
3. There is an abundant lack (oxymoron?) of skepticism from organizations who are customers of 'metrics-providers'.  So in this case, the firms are named Governance Metrics and Audit Integrity and to nobody's surprise, they feel corporate governance yields better investment returns.  Of course they do!!! This is how they make money - by selling research tied to corporate governance.  If they came out and said corporate governance doesn't have an implication on returns, they don't have a business.  So given this conflic of interest, why do organization's quote and feel these metrics are objective.  Consultants, software companies and advisory firms can almost always make data look a certain way.  I'm not picking on these firms but am making a general commentary.  This is the same as a software company holding a seminar called "How software transforms IT" or something similar.  You can't blindly trust these folks because there is an inherent conflict. 

When it comes to metrics - use them but be careful.  And always be skeptical of the source.