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MBA lessons from GM Bankruptcy

MBA classrooms across the world will reverberate with lessons from the GM Bankruptcy for future MBA's. Strangely though,since MBA's starting working for GM  in the 1970's the lessons were already there!  For example, MBA's  in the seventies knew that moving with changing customer needs was  the simplest way to win. But fuel efficiency and smaller cars was a "no-no" for Detroit. Important stakeholders like the Unions clung on to expensive health and retirement as the sun set on US auto as the world literally turned and changed.

As an industry old timer told me, it was plain arrogance, complacency and the unwillingness of managers to speak up,in time. It was easier to deride the Japanese automakers ( ha imports) rather than emulate them, at least in part.

On the labor front the UAW is reduced to   a shadow of its old belligerent self.  This probably gives no pleasure to retired auto managers who were given such a hard time when they wanted to change things when there still was time.

This blog has been talking about the US auto industry for some years but academics have been writing about key problems for decades. US Auto is forever changed - the question is -will managers really learn in other industries?

Managing outsourcing - in tough times upcoming ISM Workshop

I am scheduled to speak at the 94th ISM conference on Monday, May 4 and the brief of the talk entitled " You have a  Great Global Outsourcing Contract- Now What? - Managing Transition Issues in Global Outsourcing" posted on the Institute for Supply Management website  is here.

As markets slow down cost cutting through outsourcing continues to be a priority in organizations. Both outsourcers and providers need to do a better job in managing outsourcing transitions so that innovation is accelerated and everyone emerges stronger from the recession.

I am also planning to add some ideas to my presentation about dealing with existing contracts so that innovation is "retrofitted" to existing relationships. Crucial for these tough times.

"Animal Spirits" by Robert Shiller- time to look across disciplines

 "Animal Spirits"  is a new book by Robert Shiller and George Akerlof. It's sort of interesting that Shiller  an Economist, refers to Psychology pretty often in this video from McKinsey and also throws in Sociology and Political Science in the context of the current "fear" among both businesses and customers. It's sort of interesting that Schiller does not talk about business disciplines at all in the video but I hope does talk about in the book. For example ,Marketing ( an academic discipline that explicitly recognizes economics and psychology as "mother" disciplines) , Management (which draws a great deal from Sociology and informs Operations that studies Supply Chain) and Innovation (which is a lot about "Spirit" the human kind!). The fact is that Economics is a dominant discipline and has an annual Nobel Prize while no other liberal arts or business disipline does. Globally economists have powerful influence  on public policy. And sadly, Econometric models without behavioral variables are unable to explain the current fear in the market as Schiller says. Time to look across disciplines !

New Business Model for Music Industry needs new ways of capturing value

First record stores were closing in the US as everyone wanted to download music.The record stores were affected as distribution moved online with iTunes selling millions of downloads. The music recording industry was kind of okay with this as they still had a method of capturing value or monetizing their efforts of promoting artists and marketing music. But that was in the US.

It turns out that in China most music ( over 99%) is simply acquired free ,violating copyright laws and disabling the music industry from capturing value. Google in China is offering free music downloads and hoping that AdWords will help capture some tiny piece of value through ad revenues. This ad revenue will be shared by the music industry and Google. In other words, music companies have given up on trying to implement the US business model in China.

Musicians and artists I suppose love all of this as their music gets exposure and anyway they did not make big money in the traditional model where record companies,distributors and retailers made most of the margins and customers had to pay. This industry is sort of different because the musicians work primarily on the premise of "live to work" rather than "work to live" in sectors like banking and auto which seems to be having trouble in recent times.In fact,bankers are leaving banking (they don't love banking ?) given the cut back on bonuses.

The restructuring of the music industry in China  should spread to the US in due course and dis-intermediation of the distribution channels and record companies will create interesting opportunities. You can be sure that musicians and artists will proliferate and new ways of "capturing" value will have to be built.

Small Business, Google AdWords and B2B Marketing in a recession

If you think about it, most jobs,innovation and entrepreneurship is in the small sector. Strangely textbooks and academic work in  B2B,Supply Chain and Innovation focuses on large organizations- perhaps because large organizations are potential employers for students who read textbooks  and have been traditionally employed by large organizations. The current economic situation has many major organizations in disarray with employment being uncertain for existing managers and on hold for fresh recruits.

Students at my B2B (Organizational) Marketing class at University of New Haven are participating in the Google Online Marketing Challenge (GOMCHA). They have a presentation scheduled on April 8, Wednesday and the University announcement is here.

The students have been doing a great job and have focused on creating AdWords for B2B marketing in a recession for the seven area businesses. Google AdWords puts power in the hands of a small business who can start with a very small budget- unlike other traditional advertising. The GOMCHA itself is supported by Google who have given $200 of ad credit to each student team.Students add the Internet Marketing expertise to their resumes and I think several of them will become entrepreneurs. The student chapter of the American Marketing Association is managing the event.

Managing risks, actuaries and lessons from AIG- where was the human factor?

Actuarial sciences are primarily mathematical and depend on past data. Since there was no past data the risk of insuring the mortgage-backed securities was underestimated. AIG insured banks for the securities they bought and these debt swaps were an unknown collection of mortgages- some of whom were simply bad loans.

It is not yet clear as to what happened to the human factor in all of this. Maybe the insurance piece was handled from London and there was no real understanding of what was happening on the ground in the US as AIG went on taking on balooning risks. For example, several years ago someone mentioned about a real estate agent he knew who just collected her 6% commission on a home sale being totally uncertain as to how the buyer was going to pay the mortgage. This kind of information was available and discussed accross communities in America as the AIG crisis was building up.

The buyer,seller, real estate agents, real estate closing lawyer, the bank's lawyer in every now defaulting loan closing day would have had a sense of the dubious nature of the loan. Why did not the risk guys at AIG pick it up? Or did they -and nobody listened? 

Banks know that there is risk  and that is why they buy insurance and that is why AIG is paying up and US tax payers have to foot the bill of this now enormous risk.

Going forward, business will have to re-examine their methods of gathering not just past data but new data that is readily available but in this case had not been built into the actuarial models. Raw numbers and technology cannot replace the human factor where human, qualitative real time input must be sought from the ground to get a better sense of the real risks.

The Stimulus Package, Recovery and Diffusion of Innovations

Innovation is about change, change in a product, in a service or process. However, no matter how appropriate the innovation is it takes an understanding of innovation diffusion to get the target market to adopt it.

The stimulus package is an innovation to deal with the recession and hopefully most pieces will work. The "diffusion" of each initiative will take time.And every time you get stuck in traffic because of lanes closed due to repair think positive ! Maybe it's the stimulus package making its way to your town or commute....

Local Governments should consider  putting  up signs at construction locations that are funded by the stimulus - so that drivers feel more upbeat as they get through traffic congestion.

Some visible and physical signs will also start reducing the fear that people feel in a recession.

From Culture's Consequences to "Project Match" - IBM needs to add home country fixed costs

IBM has come up with a rather controversial "Project Match" offer for laid off employees to work in "growth" markets in India, Nigeria, Eastern Europe etc. IBM is telling its laid off employees to look at opportunities in the IBM subsidiaries where the local market is growing. The catch is that you get paid the local salary which might be just 20% of the current home salary.

If your job is outsourced then the logic seems to be to  move you to the "source".

While IBM's idea seems blasphemous to a high cost country employee- it tells us something about the full circle that globalization has come to. In the 1980's IBM was perplexed as to why various subsidiaries understood and implemented "central commands" so differently. So the now famous Geert Hofstede was commissioned to figure out why this was so. Hofstede came up with culture's consequences and changed the way we look at national culture and its impact on work at subsidiaries of an MNC.

Today, what would a laid off IBM-US employee do with his/her kids college expenses and 401K and mortgage  if they took a job at 20% salary ? IBM and other multinationals need to look at the possibility of covering some of these "fixed" costs if the idea is to work.

But if you have an expat offer (which takes care of these costs) and have not yet been laid off - this is the time to take it up!

Why Search Advertising like Google AdWords should work better in tough times

In tough times like these, Ad budgets tend to get cut across  swathes of industries and company sizes. "Tough times get the tough going," is the old adage- so what can tough advertisers do?  Some money on search advertising  may be a good bet.

 As David Ogilvy said “Ninety-nine percent of advertising doesn't sell much of anything,” and Ogilvy was referring to traditional advertising like TV, print,bill boards and so on. Traditional advertising  identifies target markets  and then follows a media plan that matches media to target market. Beer ads during the Super Bowl is a good example where the target audience and product match and sales spikes occur. However, other than Super Bowl where people actually watch the ads we have TiVo, channel flipping that really diminishes "push" traditional advertising.

Things change during Internet searches, you are no longer sitting in front of the TV passively but actively looking for specific stuff. At  this point you will click through on ads that are directly relevant to whatever your search is. The technique of writing effective Internet search ads is tough business - if you want to precisely match your ad to what an individual may be looking for. Search Ads like Google AdWords , Yahoo Search Marketing or Microsoft Search advertising typically charge the advertiser when someone actually clicks the Ad.

Imagine only paying for those prospects who saw your TV or print ad !  The Internet allows two way communication and is much more effective than an expensive   1800 number on TV when you want a prospect to contact you and you want "action." In these difficult times, you need to get "action" from customers and do so with cut Ad budgets. Trying search advertising may not be a bad idea.....

In fact, my students in my B2B Class at University of New Haven  are trying just that , as part of the Google Online Marketing Challenge. Will report more on this as things develop....

Global Bailouts as Jon Stewart supports US Auto Bailout

Guess what ? Governments in countries all over the world are jumping onto the "we must bailout" bandwagon. There are European, Chinese,Indian and Latin American bailouts in progress of different industries. Global government bailout actions include adjusting interest rates, lowering gas prices,direct funding  and so  on.  A strange and new facet of globalization.

We have the choice of crying over the "bailout" requests by many sectors of the US economy but Jon Stewart had a point last night that made me smile. He said that Congress was much harder on the automakers for 34B$ (up from 25 B$) compared to the 700B$ for the banking and finance sector. The auto industry at least has a product to deliver, that we may complain about, but the banking and finance folks got into trouble with products that turned out to be  fictitious!  Moreover, the banking and finance issues are  difficult and preposterous for even finance folks to understand or explain. Just because we understand the auto business more than the finance business, does'nt mean that we have to be harder on them. Jon Stewart recommends that we give the auto industry their bailout !