Misalignment

I heard the most remarkable thing the other day from none other than the brilliant Alan Greenspan. When questioned about his feelings about the current financial crisis, he said (I’m paraphrasing a little here) that he believed that self-interest in protecting shareholders would keep corporate executives from taking unnecessary risk.

First, with the increased deregulation, encouraged by Mr. Greenspan himself, there was less exposure to risk.

Second, and more importantly, executives of public companies generally are not incented on long-term corporate health. Instead, the focus is on short-term corporate gains. Shareholders are different from investors. Investors take a stake in a company with, generally, an eye toward the long-term. Venture capitalists are excused from this consideration, as their main function is to get companies in a position to sell. Shareholders, on the other hand, buy shares hoping for them to perform a certain way before selling them again for a profit.

Thus, executives are compensated by their ability to maximize that value. That is what drives their self-interest.

If you want to mitigate your risk as a shareholder, create a compensation plan for the executives that adequately reflects that desire. But that will only work if you are more concerned with the long-term health of the company and not the quarterly profits. That means sacrificing a little now to build something for later.

As we have learned from the current crisis, there simply aren’t many willing to do that.

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Execution Matters

I was speaking recently with my CEO, and the conversation took a rather predictable turn. For the last several years, I have held firm to the belief that ideas, in and of themselves hold no value. The real value of an idea lies within your ability and willingness to execute.

And how you execute on an idea defines the success. In other words, excellent execution of a terrible idea can produce far superior outcomes than poor execution of a fantastic idea.

Sometimes, being able to guess how well you can execute proves elusive. The idea itself may be absolutely brilliant, so brilliant that you lose sight of how to execute. You get caught up in the rapture of the concept that you focus too little attention of really making it work.

At other times, people really just “phone in” the idea simply because it is easy to execute, and they don’t want to have to work that hard.

If we were talking in theatrical terms, these most likely would be considered comedies. The real tragedy, then, is having a terrific, game-changing idea and having no way of being able to execute on it. Maybe because you don’t have the expertise or the bandwidth or the basic ability to navigate regulatory waters. Whatever the reason, it is a great idea lost because you couldn’t make it work.

When you find yourself in that situation, and at some point you will, look around at who could help. Look for friends, family, associates, similar businesses that could partner with you to make your idea the revolutionary product it is capable of becoming.

Don’t just let it be another breakthrough that dies with that next round of drinks at the bar.

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Management by Karma

A situation came up at work the other day that was eerily similar to others I have experienced or witnessed several times in my career. The basic premise is that two or more organizations that work together come to so sort of a crucial decision point. The final outcome will result in either winners and losers or something that is mutually beneficial (what most people like to refer to as win-win).

There are two ways to approach it. One entails devising a win-at-any-cost strategy. While you may come out with the big score, you have now established yourself/company/brand as one only interested in the score and not long-term health and success.

The other focuses more on elevating everyone involved to a new level, seeking to do what’s right for all (or the greatest possible number) and fostering a long-term, positive relationship. It’s what I like to call the good karma approach. Yes, you do risk putting yourself at a significant disadvantage, but if you are working with the right partner, the good karma will return. If it’s the wrong partner, you will soon know, and that will be your cue to exit. And their bad karma will catch up with them.

Managing your brand based on good karma leads to a slower, yet steadier growth with a solid foundation. Really, it’s the right thing to do.

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Find a Middle Ground

Many companies approach managing their brand in one of two ways. Some will take a conservative approach, wanting to stay true to the brand and not take too many, if any, risks. Others focus on shiny new objects, looking to use the latest and greatest or the next hot thing.

For a company’s long-term success, there needs to be a middle ground, a balance between staying true to the brand, while exploring new ways to communicate that consistent message. And the way to do that is to stay anchored while exploring. Yes, it sounds a bit contradictory or even oxymoronish (some might want to drop the oxy part).

But it works. Start by documenting, specifically, what your desired result is. Indentify how, what you are doing fits with the overall strategy. Write your central message, tone and key points on paper. Get agreement that it accurately reflects the brand.

Now, evaluate how you can use the shiny objects to achieve the desired results. If it’s not the right fit, don’t try to force it. You’ll just do more damage. Often, the really cool stuff isn’t going to work for your brand. And that is perfectly fine. If you really want to do something with it, make it a hobby. After you play with it for a while, you’ll either find an effective way to incorporate it, or you’ll see that it wouldn’t have worked in the first place.

Either way, you are staying true to the brand. And that is most important.

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Use Relevant Metrics

Measurement is the bane of our existence. The only way for us to know if what we are doing is effective is to measure the outcomes. But measuring stuff isn’t easy. In fact, we might be measuring the wrong stuff.

First, there are things that we know. It may be sales to a particular customer, regional profit growth or the return on a particular investment. What is important about the information you know is determining what is relevant. By relevant I mean that it is something you are able to act on or actually determine effectiveness.

Second, and much more difficult to handle, are those things that you don’t yet know. For what you don’t know, what is knowable. In other words, just because you aren’t evaluating something in a specific way doesn’t mean that you can’t. Before you start acting on it, though, make sure it is meaningful.

On the other hand, if you can’t access the data, and you can determine its relevance, you need to know what it will take to get to it.

In short, you have to measure. What you measure must lead to improvement of some sort, namely your organization’s growth. More on this tomorrow.

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Knowing Your History versus Holding on to the Past

I had the opportunity to spend some time with one of my best friends from high school. We hadn’t seen each other in over ten years and spoken in about five. He still had family in the New Orleans area when Hurricane Katrina hit, and he told me about his grandfather having to give up his house, which was my old neighborhood. His grandfather had owned the house for 48 years.

At that point I was reminded that the longest I had ever lived in one place was the 16 years I spent in my parents house in that neighborhood. Outside of that, I hadn’t remained in the same place for more than about 5 years. That includes schools and jobs.

My friend commented that while he cherishes his memories, he has come to understand that home is where you are, not some physical location. His history has made him who he is today, and losing a physical manifestation of that history doesn’t really change that.

There is a brand management lesson in here, too. Understanding where you’ve been and knowing how you got to where you are today are key to mapping your future. Holding on to successes long past greatly inhibits your ability to innovate, evolve and grow.

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Should GE Sell or Partner Appliance Unit?

GE announced last week that it is considering selling, spinning off or partnering its appliance unit. My first thought went to why they would want to dump it at all. GE has a long history of dumping underperformers (units and people). In December they put their finance unit (or at least some of the individual divisions) up for sale, and many have called on them to sell NBC Universal. NBC makes some sense as ad revenue is declining, and, frankly, the network has had better success with its cable programming than its scripted broadcast offerings.

That leaves three major drivers for GE: medical devices and equipment, aircraft, and alternative energy such as solar and wind. Solar and wind power is a growing industry, deserving of additional investment. Medical devices and equipment is somewhat of a reach and soon may start to lag. While GE innovation in this area is top-notch, the associated rise in health care costs will push down sales over the next few years. A similar situation exists for aircraft as the increased costs have forced airlines to reduce their capacity.

The other issue is what happens to the brand itself. If GE sells or spins off the unit, the ultimate value hinges on whether the GE name goes with it. Many suitors may want the brand for continuity, even though IBM and Lenovo were successful in the change. In that case, however, Lenovo was already producing the computers for IBM, so it was little more than a name change. GE isn’t in the same boat.

Allowing the GE brand name to accompany the sale exposes GE to a diluted value in the name as well as the risk of a negative association with the ultimate owner.

A partnership, in my humble opinion makes much more sense. Part of the reasoning behind the underperformance is because GE Appliances have not penetrated the international market, making them reliant on home sales, particularly new homes, in the United States. The housing market will rebound (new housing starts rose in last month, thanks mostly to apartment construction), and a strong international production partnership will give them the market exposure in other countries they so desperately desire. Then, in time, if they still wish to sell the division, they have ready-made partner (assuming the relationship goes well) and could command a higher price.

Shedding poor performers and investing in higher ones is a smart business move. But it should be done when other efforts to increase performance fall short or the organization decides it must go in a completely different direction.

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