Archive for January, 2010

“Backshoring”: the new buzzword that may give you a job

Wednesday, January 27th, 2010

A recent post from Booz & Company’s “Strategy + Business” introduced a new term: “backshoring” – an emerging trend of returning manufacturing from an offshore location to the home country (”The Case For Backshoring“). This is especially important for US business, which has been a very aggressive proponent of offshoring for the past decade. Why is this reversal happening? In short, the conditions that made outsourcing look so attractive have changed utterly:

…The logic behind backshoring is compelling enough that it cannot be easily dismissed as a mere short-term aberration. Higher transportation costs as well as rising wages and raw materials prices in China, inevitable by-products of the huge gains that the developing country’s GDP has made despite the global recession, have frightened some U.S. companies away from Asia.

Another factor is the impact of distance from core customers on products with heavy user contribution:

NCR’s decision to backshore goes well beyond dollars and cents — and, in fact, may provide the most convincing rationale for the gains that backshoring can produce. The ATMs being made in Columbus now are NCR’s most sophisticated, capable of scanning checks and cash and eliminating the need for the customer to fill out a deposit slip. This feature has provided a welcome revenue lift for NCR — bringing in as much as US$50 million a year, significant for a company with $5 billion in annual sales. But these machines likely never would have been developed had large customers like JPMorgan Chase and Bank of America not persistently prodded NCR to move in that direction. That type of potentially profitable interaction between NCR and its customers is difficult, and launching desirable new products is slowed considerably, NCR’s Dorsman says, when the manufacturing facilities are offshore. “We take our cue from our customers,” says Dorsman. “They are heavily involved in the development process. And with this new approach we’re taking, we can get innovative products to the market faster, no question.”

NCR also found that having Flextronics manufacture high-end ATMs in Brazil — and relying on the vendor’s third-party suppliers, many of which NCR was unfamiliar with — left important internal constituencies in the dark, further slowing and complicating new product launches. Hardware and software engineers, sourcing executives, manufacturing and operations staff, and customer service managers all had trouble applying their expertise throughout the many remote handoffs between separate organizations.

The post does not take up whether outsourced business processes, such as customer service, are also being “backshored”–though I’ve heard of companies pulling some sales processes back from locations such as India and the Philippines due to ineffectiveness. And the same economic factors (increased costs at offshore locations) are at play. It’s good to realize, at any rate, that the trend of sending processes far away is not inexorable and there may be, in fact, good reasons for companies to keep them at home.

Department of Brandular Deception – what is a Samsonite anyway?

Monday, January 25th, 2010

The old backpack briefcase had a hole in it, and it wasn’t healthy to carry 15 pounds of stuff on my shoulders anymore, so I searched online and found a great deal on a Samsonite rolling briefcase. It arrived late last week.

My wife said, “Does that have the Samsonite lifetime warranty? Sometimes when you get something that’s discontinued, they don’t have the lifetime warranty. You should check.”

Fast forward to today. I was moving my stuff from the old briefcase to the new one, and saw a card from Samsonite. “Thank you for purchasing a fine Samsonite product… our Samsonite product is backed with a Three-Year Limited Warranty…. While our products are handcrafted using the finest materials available, our warranty is not unconditional.” And then there were lots of exclusions and exceptions.

At the bottom of the card, it said the following: “Heritage Travelware, Ltd., 430 Kimberly Drive, Carol Stream, IL 60188-1804 USA under license from Samsonite Corporation.”

Scanned ImageThis explained a lot. There wasn’t going to be an unlimited warranty, because this bag, no matter what the label said, was not Samsonite. It was Heritage Travelware – whoever they are.

Behind this simple label is a well-worn yet risky strategy. After more than 90 years manufacturing its own luggage, Samsonite has decided to trade on that name by licensing it out to other manufacturers. Designers have been doing this for decades (sometimes, much to their chagrin), but for Samsonite it’s particularly risky. I didn’t really think Geoffrey Beene designed that Dopp kit I bought years ago at Marshall’s, but I wasn’t buying a Samsonite toothbrush here, I was buying luggage. I thought – I really thought – that Samsonite, the purveyor of the lifetime warranty my wife valued so much, made that case I bought.

But they didn’t. And the licensor offered its own Three-Year Limited Warranty in place of the lifetime one. Brands take decades to create, but can fall apart in a flash. The easy money offered by licensing can come at a price – the erosion of goodwill and trust that has been built up over the years. Let’s hope my new bag lasts long enough for me to forget it’s a “Heritage.”

[Below is what luggage companies used to promise, before Three-Year Limited Warranties.]

Risk is risk: an idea for spotting emerging asset bubbles

Thursday, January 21st, 2010

One of the causes of the recent financial meltdown was a bubble in the value of housing assets that emerged over a number of years. Some people saw this while it was happening, but could do little to impact things. When the bubble burst, institutions and individuals suffered tremendous damage that is still hurting people today.

An important question is this: can asset bubbles be spotted earlier, and, if so, can measures be taken that can minimize the impact of these bubbles? Sendhil Mullainathan of Harvard Business School thinks to the answers to both questions is yes. In one of the 10 Breakthrough Ideas discussed in the current issue of Harvard Business Review, Mullainathan postulates that, as structural engineers can design buildings to withstand much of the force of earthquakes, a well-designed system can help absorb and dampen the negative effects of asset bubbles.

bubbleHe proposes an “early warning system” composed of a committee that could look at markets and see when contrarian views are underrepresented (according to Mullainathan, this happens often during bubbles – investors betting against the prevailing views are eventually chased from the market as prices rise inexorably). By publicizing this situation, and even, perhaps, placing counter bets, the early warning committee can help dampen prices and keep bubbles from overinflating.

I have a lot of questions on this approach – for one, wouldn’t investors create political pressure for such a public group betting against price rises? But, nonetheless, Mullainathan’s proposal deserves careful study. Because anyone who’s lived through this last bubble (John Paulson excepted) doesn’t want to relive it.

(Photo by Viking_79 via Flickr creative commons)

Top 5 HBR Breakthrough Ideas 2010

Tuesday, January 19th, 2010

Each year we’ve narrowed down the Harvard Business Review list of 20 Breakthrough Ideas to a manageable five. For 2010, the magazine has done half our work for us; in the Jan-Feb issue, they present only 10 ideas. Here are the best of them:

1. “What Really Motivates Workers,” Theresa Amabile & Steven Kramer. Amabile & Kramer continue their fascinating diary study (see this earlier post discussing Amabile & Kramer’s work on creativity) & discover a key hidden link to worker motiyvation: the desire to see & understand their own progress toward a goal. Perhaps feedback (see this related post, and be sure to read the comments) is important after all? (There’s a similar sentiment behind one of last year’s breakthrough ideas, “The Gamer Disposition” – gamers need to know where they stand in relation to their goal.)

2. “The Technology That Can Revolutionize Heath Care,” Ronald Dixon. Electronic Medical Records are fine, but how about enabling more virtual contact between doctor & patient? Increasing such contacts can reduce expensive office visits & nip potentially-serious problems in the bud.

3. “What The Financial Sector Should Borrow,” Lawrence Candell. The government employs nonprofit research centers like Lincoln Labs & MITRE to provide guidance on military innovations. A parallel effort focused on the financial market would yield better insight & decisionmaking when it comes to regulating markets & financial instruments.

4. “A Market Solution For Achieving ‘Green,’” Jack Hidary. Municipalities can tap the power of the bond markets to finance environmental building retrofits. Borrowers are assessed increased property taxes to pay off their loans. Developers & municipalities win: property values rise & reduced utility costs exceed the tax increases immediately.

5. “Hacking Work,” Bill Jensen & Josh Klein. Seek out the “benevolent” rule-breakers in your company, & instead of crucifying them, study what they do & determine whether their workarounds can improve your business. [I haven't worked with a company yet that is ready to take this one on.]

(Disclosure: Jack Hidary invested in a customer of my former employer and I met him once. I’d be stunned if he had any recollection of that meeting.)

A PC game-development environment for kids

Wednesday, January 13th, 2010

koduMy wife pointed out this item from the Wall Street Journal today, announcing a project called Kodu from Microsoft Research. Kodu is a graphical programming framework that kids can use to create their own video games. I had spoken to her about Fred Wilson’s recent post bemoaning that school computer classes are teaching kids word processing and spreadsheeting rather than programming. We’ve also talked a lot about how limited the opportunities are for kids to use their creativity. Kodu seems to have the potential to help in both areas.

Our sons (8 and 6 years old) want to be video game designers when they grow up. We’ll download Kodu, and perhaps they can get a head start on that starting, like, tomorrow!

You can download the Kodu PC development platform from a link in this Kodu blog post.

Risk is risk – the year in risk 2009

Wednesday, January 13th, 2010

bernie madoffIf you’d like to make yourself nervous, you need to peruse this photo essay from Risk Management magazine, “The Year in Risk.” In 10 stark pictures and brief captions, the magazine reviews occurrences that had big impacts in 2009.

While reading through the list can be anxiety-provoking, it’s worth remembering the lesson that highly unlikely events that have big impacts (”Black Swans,” in other words) happen. And your risk plans should not discount that possibility.

[Pictured: Risk is Risk 2009 Man of the Year Bernard Madoff.]

Harvard Business Review editor responds to critique

Tuesday, January 12th, 2010

My post last week on the Harvard Business Review redesign drew a thoughtful response from Scott Berinato, Senior Associate Editor of the magazine. He was kind enough to allow us to repost it here.

Hi, John,

I’m Scott Berinato, senior associate editor at Harvard Business Review. We of course are watching out for reaction to our redesign and your thoughtful critique has been discussed among the editors here. We thought it was appropriate we provide a loyal reader with some (almost) real-time feedback.

I’m the editor in charge of Idea Watch, so I was particularly interested in your comments. Rest assured I’m not trying to give you a headache and I understand your initial reaction to the color and use of bold visuals. Indeed, it was startling to most of us as we started living into the new design. I think the color especially surprised me. I hope and believe some of that will wear off for you, as it has for me.

I’ll try to explain some of the thinking that went into our visual approach in Idea Watch. As this section opens the magazine, we were seeking to distinguish it from other sections of the magazine and make the magazine less daunting. I won’t get too nerdy about magazine architecture, but very short, very visual elements here help readers make that distinction, which our research said they weren’t making before and thus they were feeling daunted by prospect of starting to read the magazine. Thus by changing the pacing we help carry the reader into and through the magazine, the same way a meal changes from one course to the next. Idea Watch is bacon-wrapped scallops to the middle of the magazine’s steak dinner.

My section is devoted to showing off new and interesting business research, so we knew it would be heavy on data. Data lends itself to a visual approach. Without going this way, few of the stories in that first issue could have been told in the space they were told. I would argue they’re told more effectively using visuals as well (and when text works best, as with the piece on brain science, we didn’t force the issue). Especially in my section, where we have such limited space, visual representations of data and information is not just a style choice, but an important tool.

One good example is the trust piece you cited. The author submitted that as an 1,800-word text essay. It was a ‘tweener, too short (and not a big enough topic) for a full feature but too long for an Idea Watch piece. After taking the visual approach, the author was more pleased with the outcome than he was with his draft. He said that we lost none of the important information while making it a more attractive, readable piece of content.

Did we get all the charts right? Probably not. As first efforts go, and for a design staff not used to producing visual information, I’m proud of the results and looking forward to watching as they improve in coming issues.

The first Idea Watch isn’t perfect; as with most magazine redesigns, it really takes place in two phases. First the new design debuts, then it’s tweaked over the coming issues as we learn. I think you were right about questioning the use of those top spaces and whether or not that content is and/or should be related to the rest of the content on the page. That’s a question we’re still working out the answer to. One change we’ve already made in March is to eliminate bylines and bios from those top spaces entirely, instead making them staff-written, uncredited data shots. This change alone, I believe, removes some of that frenetic energy you felt in the section. We will continue to tweak the section as we learn and process feedback like yours.

Finally, on the information graphic about bailout and stimulus monies, the Vision Statement. This is a format we’re committed to (we’ve received positive feedback on this as well). Even more than information graphics contained within article, such as those in the pricing story, creating these large-form graphics is a unique skill, practically an art form in itself. We learned quite a bit from this one (which I happen to love) and I’m hoping you continue to give them a chance as we approach different topics and improve our visual storytelling. (The next one I’m equally excited about, it’s on new ways of thinking about markets in China).

Once again I’d like to thank you for your thoughtful critique. We love to hear from readers like yourself and take any and all constructive criticism seriously. Happy to hear your reaction to this email as well. Write any time.

Cheers,
Scott Berinato
Senior Associate Editor
Harvard Business Review

From the Mistake Bank: the players dissect the AOL-Time Warner failed merger, 10 years later

Monday, January 11th, 2010

Mistake bank logoI’ve learned, after working on the Mistake Bank for the past several years, that the most powerful lessons can be learned years after a mistake is made. This is especially true with a colossal failure. Only after much time has passed can the people involved shed their self-protective impulses and see clearly what happened.

There has been much written (for example here and here) about the 10th anniversary of the failed AOL-Time Warner merger (AOL again became an independent company in mid-December 2009). But nothing has been as compelling and rewarding to read as this New York Times article recounting the history of the merger from the viewpoints of the principal actors involved. Did you know that Gerald Levin and Steve Case first met at the 50th anniversary celebration of the People’s Republic of China? I didn’t either.

Once back in the States, Case began his pursuit:


MR. LEVIN We’re now back in the United States and I think Steve Case called me on the phone and in that conversation more than alluded to putting the companies together. I had my traditional script and quasi-legal background that when someone calls you on the phone, make sure they understand you’re not for sale, which we certainly weren’t, and decline any overture, which I did over the phone.

And the story goes on from there. It’s riveting, candid, and revealing, and a must read for anyone who is eager to do a big merger. It might make them stop and think a bit.

Why I don’t like the Harvard Business Review redesign

Wednesday, January 6th, 2010

I feel a bit like those folks who complained about the new Tropicana orange juice carton.

The editors of my favorite magazine, Harvard Business Review, have completely redesigned the look of the magazine. Editor-in-chief Adi Ignatius writes in his editor’s note, “we are excited to bring you a more modern, accessible magazine.”

He may want to hold off on the “accessible” comment. For me, the magazine has gotten busier – much busier. Bolder text, more graphics, more color. Everywhere from letters to the editor (now called “Interaction”) up front to the recommended reading list in back. I actually put the magazine down the first two times I started to read it. My eyes were boggling from all the colors and graphics.

In particular, the upfront IdeaWatch section (formerly Forethought) is a mess. Longer articles weave among sidebars – some relevant to the article at hand, others completely separate. And I had trouble differentiating. Is “Faith In Firms – as Low as You’d Expect,” on p. 22, part of the article “Can Technology Really Save Us”? No, it’s not. But the sidebar on p. 23, “Gauging the Impact of New Energy Technologies,” is.

This picture with its brilliant coloration and large, cartoonish numbers seems like what Edward Tufte calls “chart junk.” With four pie graphs, two outsized percentage numbers, the picture was utterly confusing to me. It took me a minute or more just trying to figure out what the graphs are trying to say.

And what of this?

(Full-size version here.)

If you can make heads or tails of this without referring to “How to Read this Chart” two or three times, I admire you.

Unfortunately, these examples are emblematic of the whole redesign. It’s far too busy for my taste. The great content is still there, it just takes more time and energy to wade through the clutter to reach it.

Perhaps I will grow used to the redesign. For certain my comfort level with the old design hasn’t helped me adapt to the changes. But I won’t ever love it, and I would be surprised if too much time passed before a “re-redesign” to improve readability and reduce the noise level.

Related post:
Customers are talking: Tropicana brings back old juice carton

Nuts & bolts: a simple collections procedure

Wednesday, January 6th, 2010

[Nuts & Bolts is a new category focusing on basic business practices for the entrepreneur or established business. Look for new Nuts & Bolts posts approximately weekly.]

I saw my brother-in-law over the holiday, and he mentioned a friend who had started a business selling duck calls. This friend was having trouble collecting from his retailer customers, with the result that he had outstanding receivables of $20,000. Did I have any advice as to how he could collect better?

Collections is the lifeblood of any small business. It’s easy to get intimidated by big customers’ payment processes, or get distracted by other urgent matters in the business. You can also lose confidence in the value you’re delivering to customers. The result is tolerating slow-payers, short-payers, or no-payers. I have three words of advice for you if you’re in this situation:

CHANGE THINGS IMMEDIATELY.

At my last full-time job I ended up being the collector of last resort, which was a bit stressful, but also rewarding when I was able to collect on a long-overdue, big invoice. I also helped a lawyer friend unstick a bunch of payments tied up in the bureaucracy of his state government customers.

My experience taught me that collections is 1/3 attitude (If I give you service, you need pay me), 1/3 strategy (invoice timely, and don’t delay on collections activities), and 1/3 raw tactics.

I wrote up a simple procedure for my brother-in-law to share with his friend, and I thought it might be useful to print here.

Simple Collections Process:

Recommend setting these reminders automatically in QuickBooks. Be especially vigilant of new clients, with whom you don’t have a payment history. The longer you take to collect, the less chance you’ll collect 100% of your invoice. This process stops, of course, when you receive full payment for the invoice.

Day 1: Invoice, net 30. (If payment terms are shorter or longer, adjust timing of following steps accordingly.) Send invoices by email if possible, rather than snail mail, to save some time.

Day 20: Courtesy letter/email. “Making sure you got invoice; any questions, any disputes?”

Day 30: Call. Payment now due. Have you sent it? If not, what is holding up the process? Any questions? When will you send it? Try to ask closed-ended questions to eliminate ambiguity, such as: “You’re telling me, then, that the payment has been approved and a check is being cut Tuesday?” Ambiguity in payment processes helps the payer, not the collector. [If client blames his accounts payable process for the delay, ask him/her to detail that for you. Who approves what? What is the next step? Etc. Then you can follow up on individual steps… but if the amount is not large, say less than $10,000, you shouldn’t have to get involved in this level of complexity.]

Day 45: Follow-up Call. Where is payment in process? When can I expect it? What if anything is holding it up? Is there anyone else I need to talk to to get this moving? (The last question often spurs people to action.)

Day 60: Letter. Demand payment. Reinforce that you have provided value and that value must be repaid. Refer to contractual terms (ability to terminate contract, cease providing services) if appropriate.

Day 90: Registered letter. Demand payment immediately. Make it clear that you will not service clients who don’t pay. Don’t sell any more to this client (assuming your contract allows this) until all old amounts are paid. If they hold unpaid inventory, demand that it be shipped back to you. Consider moving past due amount to bad debt.

Notes:

— if client wants new products or services from you, make sure payments are up to date before shipping new product or doing any new services. Make new shipments contingent on receiving past payments.

— if client promises to send a check “Monday,” call on Monday to ensure it was sent as promised.

— the client’s cashflow issues are not your problem. If they bought your product, got value from it, they need to pay. It’s the most basic transaction of business. Let them short-pay someone else.

— always assign payments to oldest outstanding invoice. That is, don’t let them pay the current invoice but keep the older ones unpaid. If they send a payment, they pay the oldest ones first.

If you have any suggestions or recommendations to improve this process, please post them in the comments. Businesspeople everywhere will appreciate it.