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Thursday, March 23, 2006
China R&D
The Asian Wall Street Journal published a piece on R&D in China recently. A few numbers that stuck out:

  • Chinese Premier Wen Jiabao said that the government will increase science and technology spending this year by 20%
  • The country is planning to boost R&D spending to 2% of GDP by 2010 and 2.5% by 2020. The US spends 2.7% of GDP and China spending last year was 1.3% of GDP. India is at $4.9B (.77% of GDP)
  • Last year, total R&D spending (not including foreign investment) was $30B.
  • 90% of china's $220B high-tech exports are produced by foreign companies

The reality is that China is doing very little of their own innovation. Most of the innovation is from abroad (ie if all foreign companies pulled out, China would have essentially no real technology innovation within its borders). Clearly, the government is waking up this fact and this will likely start a 10-15 year transition to a service/technology economy (as opposed to low cost mfg...supported by a pegged currency).
posted by Rob @ 12:50 AM   0 comments
Sunday, March 12, 2006
Effective Executive
Peter Drucker's writings are always a good level-set, when things get out of control. I found these old one's recently:

What did the most effective executives do?

- They asked "What needs to be done?"
- They asked "What's right for the enterprise?"
- They developed action plans
-They took responsibility for decision
- They took responsibility for commuincating
- They were focused on opportunities rather than problems
- They ran productive meetins
- They thought and said "we" rather than "I"
posted by Rob @ 10:03 PM   0 comments
High-Tech Strategist - March 2006
Each month, I will highlight 3 key points from the High Tech Strategist. If you do not subscribe to this newsletter, I highly recommend that you do. Email me if you want subscription information.

2 Key things to highlight from this month:

1) The Money Supply
Fred makes the case that the inflated money supply is the primary cause of real estate prices, commodity prices, etc. He provides data indicating that over the past 10 years, M3 has risen from $4T to $10T (8 % a year compounded). The net: we are in an inflated world and those that can protect against this can do ok. Those that cannot....

2) Repurchases, Options, etc.
Most tech companies have grown earnings over the last 10 years. Those that have not seen corresponding stock appreciation suffer from an ever-contracting multiple. Basically, many have been achieving EPS growth through excessive share repurchases. Further, with large stock option grants, those repurchases have had a negative impact on SHE (book value). Book values are falling because of stock option dilution. The buybacks, to offset share issuance, have degraded balance sheets. Everywhere.
posted by Rob @ 10:02 PM   0 comments
Monday, March 06, 2006
Po
I just finished reading Po Bronson's "What Should I Do With My Life?". Wow. Quite a read. I am still trying to digest what I read and develop a meaningful reaction. In the meantime, these are the parts that I underlined:

p201
"Change keeps any institution, and individual, full of life."

p241
"My goal is to have one meaningful conversation every day"

p253
"If you succeed and you are unhappy it is because you are conflicted on how you accomplished it, whether or not you deserved it, or most likely, you are conflicted on how you presented yourself to the world."
p273
"Can you go to the dentist and not be angry about the 30 min that you are wasting?"
p351
"The Monkey Law- The monkey swinging in the jungle must never let go of an old vine until
he has a firm grip on a new one."
p372
"Having kids will teach you to be accepting...more flexible."
f you haven't read this book. Read it.

posted by Rob @ 5:45 AM   1 comments
Quality

At times, I think we tend to think of quality in the short term (tactical), instead of long term. For this reason, when our product quality is bad, we think "How can we fix our current quality problem?". In reality, I think we determined our product quality long before this point, and it was a combination of a few factors.

In order to produce quality products, an organization must have quality across 4 dimensions:

1) Quality of People
2) Quality of Relationships
3) Quality of Management
4) Quality of Product

If you do not have quality in items 1-3, you will never achieve quality for item number 4. What does each one mean?

1) Quality of People
If we do not have quality in this area, the organization will face long term quality issues. My view is that an organizations success is more a product of "Who" than "What". If you have the right people, in the right roles, good things will happen. This is something that you can systematize through establishing the right hiring processes, as well as career development/mentoring processes.

2) Quality of Relationships
In this increasingly complex business world, effectiveness is normally a product of relationships and teamwork. This means having the ability to develop/sustain relationships, and using those relationships to enhance team work. You must have quality people to create quality relationships. In the coming years, the value of an organization will be determined more and more by its role in the ecosystem (partners and relationships) than its internal capabilities. In this environment, quality of relationships is essential.

3) Quality of Managment
Organizations and people are at different levels of maturity and expertise...constantly. Management is responsible for balancing this imbalance and leading (not managing) the team. It is not possible to attract/retain quality management, if you do not have the right people, in the right roles.

4) Quality of Product
All of these factors lead us to quality of product. If you have 1-3, you rarely need to worry about number 4...it just happens! I think many organizations make the mistake of trying to solve quality problems tactically (fixing a specific project), without thinking about the bigger picture of what caused it. In most cases, quality problems develop if any of items 1-3 are missing.

Quality is an essential metric as ulitmately, it determines client satisfaction (internal or external). I ask that everyone think about how we are addressing quality today and consider the 4 dimensions of quality that I identified above.

posted by Rob @ 5:44 AM   0 comments
Jim Collins on Decision Making

1) The greatest decisions are not "what", but "who".

2) A decision maker needs to be able to say "I don't know yet, but, I know we have to get this right."

3) Great decision makers start by increasing their question to statement ratio.

4) The decision process is conflict and debate...leading to an executive decision. Consensus is not required.

posted by Rob @ 5:44 AM   0 comments
Remarkable

I read The Big Moo last week. The tagline of the book is “Stop trying to be perfect and start being remarkable”. It has stories/advice on what it takes to be remarkable as a person and as an organization. Here are some of the highlights:

Imagine that global competition will cause your company to rely on donations to survive (ie we cannot charge for our products/services…clients just have to like us enough to make a donation). How will you prepare? How will you change your relationship with clients?

The book tells a story about a person that fixes bicycles. For every bike, he does his best job. Then, he spends last 5 minutes doing something unique…something that the client did not ask for. Those last 5 minutes make it easy for clients to find the difference between you and everyone else. What do we do with our clients in the last 5 minutes?

The book talks about how most people have their days consumed by urgent tasks or “fire fighting”. It asks the question, do you really think that you are too busy to work on something remarkable? In fact, you are too busy to do all that emergency stuff. For the emergency stuff, you really have to ask the impact of putting it off or not doing anything…

Fear vs. Anxiety. Fear is one of the most useful emotions we have. It keeps us sharp and focused. Anxiety, on the other hand, is a killer. Anxiety is false fear that corrupts our lives. Anxiety is what happens when you imagine possible negative outcomes instead of embracing the reality of right now. Of things that you are anxious about, how many actually occur? If you had ignored that anxiety, wouldn’t things have gone more smoothly?

Think in metaphors, to apply the lessons you learn from one context to another. Embrace the power of storytelling to ring it all together. Storytelling has an emotional appeal that trumps all the raw data in the world.

Your attitude is your life. Solve problems without a crummy attitude and everyone wins.

Don’t let the seeds stop you from enjoying the watermelon. Tell yourself this every day. It will change your attitude.

Juggling is not what you think it is. When you are juggling, you are both throwing and catching. Most people spend their time trying to learn how to catch. However, in reality, the skill they need is throwing. Applying this to the business world, many people run around chasing emergencies, etc…just trying to catch and react. Be a thrower instead. Organizations need more throwers…people that create, instead of just reacting.

Focus on the journey…not just the outcomes. The lack of guarantees is what makes work so compelling.

posted by Rob @ 5:44 AM   0 comments
Praising Japanese Management

Recent praise of the Japanese management style from James Abeggglen, an expert on Japanese management for over 50 years. As James highlighted the advantages (group motivations), he identified 4 things that Japan will need for further development in the 21st century:

1) Shifting to strategies appropriate for mature economies (as opposed to high growth). This means profits, strong balance sheets, focused product strategies, etc.

2) The hiring and integration of top-notch foreigners, in order to be globally successful.

3) More R&D emphasis on the R...not just D.

4) Companies must join in moving Japan to a full partnership in the regional structuring of East Asia.

posted by Rob @ 5:43 AM   0 comments
Sales Reality

The reality of sales comes from a retired McKinsey partner:

______________________

The CIO of one of the largest retail banks in the US recently told me that he has about 60 new projects under evaluation. About half of them will pass technical, functional and investment hurdles. He will then fund 4 to 6 over the next two years.

That means that 25 or so projects that meet all objective criteria will not go forward.

Sales people need to understand and deal with this reality.
______________________

posted by Rob @ 5:43 AM   0 comments
High Tech Strategist

I read a monthly newsletter called "The High Tech Strategist". It is written by an individual investor in the US, who does a tremendous amount of research on companies in the technology industry. I highly recommend the newsletter. In the November addition, a few key points were made about the technology industry:

1) Comapnies with large exposure to the consumer sector did relatively well in Q3, while those whose businesses were more enterprise-driven did not.

2) Semiconductor companies are particularly vulnerable to a consumer sales shortfall, as consumer end markets accounted for a greater percentage of their sales in Q3 than ever before.

3) The seasonal inventory build for consumer goods peaks in Q3, which means that we could face a higher than normal drop-off in Q4.

This near-urgent situation reminded me of analysis that I read in a book called "The Experience Economy". The contention of this book is that there are 5 kinds of things that a company can charge another company for. Each of these 5 things sends a different message about your company. Here they are:

Commodity- If you charge for "stuff", then you are a commodity business

Goods- If you charge for tangbile things, then you are a goods business

Services- If you charge for activities that you execute, then you are in the service business

Experiences- If you charge for the time to help clients create experiences, then you are in the experience business

Transformations- If you charge for the demonstrated outcome the client achieves, then and ONLY then are you in the transformation business

Given the facts that I described from "The High Tech Strategist", I think it is time that we enter the "transformation business" with our clients. What do you think?

posted by Rob @ 5:42 AM   0 comments
Soft Power

I have lived in Asia for 6 months now. I have blogged about management in Asia. I have learned that motivation is fundamentally different in this part of the world. I finally found someone who put it into words: soft power. More here and here.

If you do not understand this, you will not ever be successful in Asia. Period. I now understand it, but, I certainly have not mastered it. I have found that at times "carrots" work in Asia but, I do not think that "sticks" ever have an impact. Even worse, when you break out the "stick", you might as well hit yourself, because you will feel all of the long term pain of your stick.

China is a master at soft power. I do not think the US makes effective use of this in our international policy, which is why our approval ratings abroad are at an all time low.

By the way, I think the use of soft power is equally important in the US, however, at times, you can get buy with hard power. Hard power simply does not work in Asia.

posted by Rob @ 5:42 AM   0 comments
Sales and Assessing Talent

A consultant friend relayed a story to me recently about a sales effectiveness study that was done at a leading sales company. The consulting team analyzed the best practices of sales across the company. They collected them all, put them in a book, and published the book to the sales team. The result?

Sales doubled. The catch: Sales nearly tripled for the top sales guys, yet, there was no change for all of the other sales people. The moral of the story: Good ones are good...bad ones are bad...There is not much of anything that you can do to improve bad sales people. All of the help in the world might help a few of them, but, it certainly won't help all of them. Success in sales normally comes down to efforts and intellect. Or, to put it as my friend did, you have to find the people that have the right balance of insecurity, capability, and confidence. You want your sales people to have alot of each.

posted by Rob @ 5:42 AM   0 comments
I've Always Done it This Way

Good article in Fortune this month about Sheldon Adelson. He is the other casino tycoon in the world (other than Steve Wynn). Turns out, he is alot more successful, with a net worth of 5x Mr. Wynn.

One part of the article stuck out for me:

Adelson says" For me, businesses are like buses. You stand on a corner and you don't like where the first bus is going? Wait ten minutes and take another. Don't like that one? They'll just keep coming. There's no end to buses or businesses."

He then talks about how to spot business opportunities:

"It isn't enough to have a good product. The most important thing is to understand the direction of the industry. Study any industry, and you inevitably hear two things: 'I've always done it this way', or 'Everybody does it this way.' When you hear that, know there's an opportunity to do something different and add value."

posted by Rob @ 5:41 AM   0 comments
Game Theory

IHT had a good week last week. Alot of good articles. However, since IHT is operating in Web circa 1995, I cannot link to the article.

In recognition of Thomas Schelling's Nobel prize, one article discussed the application of his Game Theory work during the Cold War and in business/life today.

The key takeaways:

1) Lending credibility to a threat/promise is not as easy as it seems.

2) The biggest problem with making a credible threat is that backing out is easy and sometimes less painful than making good on the threat.

3) The best way to structure your threats/promises is to limit your options. Look for tricks that limit options and back people into doing what they really want to do, but are afraid they will not.

Best quote from the article:

"Nay, if the result of crossing is to place a difficult gully behind us when we are are on the point of engaging, surely that is an advantage worth siezing" - Xenophon (Greek historian)

This discussion makes me think about motivating teams. At times, my motivation style becomes brute force (imploring people to take action), as opposed to leading them to believe that they must take action. Applying the tactics above can often combine the two techniques, leading the circumstances to motivate the employees, as opposed to the manager having to do it. (I think of Cortes and his decision to burn the ships)

More on Schelling here and here.

posted by Rob @ 5:41 AM   0 comments
Real Estate Growth in China

For all first time visitors to Shanghai, the comments on the way in from the airport are the same, "Wow. Alot of buildings. Have these always been here?".

Let's put some numbers to that observation:

From a recent IHT article:

"This year alone, Shanghai will complete towers with more space for living and working than there is in all the office buildings in New York City. That will happen in a city that already has 4,000 skyscrapers, almost double the number in New York. And there are designs to build 1,000 more by the end of this decade."

And we think that there is a real estate bubble in the US? (By the way there is...but, misery loves company). All unnatural acts, regardless of how they are financed, return to the mean over time.

posted by Rob @ 5:41 AM   0 comments
Deal Making

I had the chance to hear a legendary deal maker speak today. The purpose of the discussion was to educate a sales team on how to grow a new business. A few key insights:

1) Big Deal Atmosphere

When you are trying to do big deals (or anything wild that is against the norm), everyone will be against you. The internal team will be against you, the client will have objections, the lawyers will be against you, and finance will be against you. You have to ACCEPT this as a fact of deal making. If you don't, you will wear yourself down worrying/complaining about this. Accept that this is a reality of trying to do something big. I am reminded of a quote from Machiavelli:

"There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its outcome, than to take the lead in introducing a new order of things."

Once you accept this, you can have the resolve to focus on the big picture and keep pushing forward.

2) Openers vs. Closers

There are very few people that can proactively create deals (Openers) and close deals (Closers). The biggest mistake that many organizations make is thinking that their great Closers should be great openers. They are not...it is a different skill set...and you need both. The question then becomes, "How do you incent Openers vs. Closers?". They must be on different incentive plans. But ultimately, you have to measure your Openers on closed deals. The challenge is the time lag between when deals are opened and when the Openers get paid.

3) Win Themes

At the start of any engagement, a value proposition is instilled with the client (typically instilled by the Opener). If this reasonates, it becomes a "Win Theme", which has to stay at the top of your mind throughout the deal. You cannot forget that this is what attracted the client in the first place. The Opener should periodically be reminding the Closer of this (ie "Hey, don't forget the value proposition/win theme that got us here). The Win Theme is what holds the deal together, when things get tough.

Sage advice, even in its simplicity.

posted by Rob @ 5:40 AM   0 comments
CTO Conference

I am at the IBM CTO conference in New York this week. The theme is "Collaborative Innovation". The general thesis of the conference is that technology innovation in the future cannot use the old model of single sourced, monolithic R&D centers. Instead, technology innovation will require collaborative innovation based on technology partnerships.

There was an interesting presentation this morning from Eric Brynjolfsson of MIT. A couple highlights/assertions from his presentation:

1) There are a number of factors that people normally attribute to driving economic growth (skilled workers, access to capital, etc.). Economic growth in the future will be a product of one thing: Productivity. Productivity is defined as Output divided by Input. Therefore, the key to increasing productivity is doing more with less....through technology/business process innovation.

2) The amount of digital information is DOUBLING every 1.1 years. That is an incredible statistic. I can only start to imagine the implications that this has for search, storage, processing power, etc.

3) The most scarace resource in the future will be: Attention. With all of the digital content and ways to access it....the battle will be to grab and hold people's attention. Over the past 10 years, the annual hours/per person spent conusming information has not changed. In 1993, each person spent 3,324 hours consuming information. In 2000, each person spent 3,380 hours consuming information. A mere 1.7% increase! The implication: Attention is the scarace resource. How do you grab the attention of customers?

4) Dell's approach to innovation is very unique. On a continuous basis, they look to reduce the floor space that they are using in their factories, while increasing output. This is business process innovation through technology and it is reducing their capital expenditures. They are improving their business through "intangible" inputs (ie business process innovation) as opposed to "tangible" inputs (ie building a new factory).

posted by Rob @ 5:40 AM   0 comments
American Idol, Venture Capital, and Making Money

I am sure that anyone reading this is fairly curious to find out how the title of the post, could lead to any sort of structured thought. I will give it a try...but, no guarantees.

A couple data points to start:

1) Recently, the finale of the Chinese version of American Idol (known as Super Girl) was held. There were 400 million viewers for the finale. That is more people than the
US and Canada combined. However, only 8 million of the 400 million voted, primarily because you had to pay to vote. While the show itself is meaningless, it demonstrates exactly what business in China feels like. The volumes are impressive, the opportunity is enormous, but, it is nearly impossible to monetize...at least right now.

2) I read last week that over the last 20 years, 90% of the returns in venture captial came from 200 companies. That's right...20 years...200 companies...that's it. The message: it is really hard to generate excessive returns betting on immature markets/companies.

3) I am struggling to identify foreign companies that are currently making money in
China. There are many companies making money as a result of China (i.e. cost benefits, etc.)...but, I am talking about companies that are making money IN China. I can think of a few, with most being confined to infrastructure (raw materials, telecom systems, etc), but, not many.

When you look at they dynamic of Super Girl, mixed with the dynamic around venture returns (by the way, start-ups in the US are often more "mature" than "established" companies in China), it is not hard to see why few foreign companies are making money IN China.

How will this change? When will it change? I think it alot further off than hype artists would lead you to believe.

I am sure that anyone reading this is fairly curious to find out how the title of the post, could lead to any sort of structured thought. I will give it a try...but, no guarantees.

A couple data points to start:

1) Recently, the finale of the Chinese version of American Idol (known as Super Girl) was held. There were 400 million viewers for the finale. That is more people than the
US and Canada combined. However, only 8 million of the 400 million voted, primarily because you had to pay to vote. While the show itself is meaningless, it demonstrates exactly what business in China feels like. The volumes are impressive, the opportunity is enormous, but, it is nearly impossible to monetize...at least right now.

2) I read last week that over the last 20 years, 90% of the returns in venture captial came from 200 companies. That's right...20 years...200 companies...that's it. The message: it is really hard to generate excessive returns betting on immature markets/companies.

3) I am struggling to identify foreign companies that are currently making money in
China. There are many companies making money as a result of China (i.e. cost benefits, etc.)...but, I am talking about companies that are making money IN China. I can think of a few, with most being confined to infrastructure (raw materials, telecom systems, etc), but, not many.

When you look at they dynamic of Super Girl, mixed with the dynamic around venture returns (by the way, start-ups in the US are often more "mature" than "established" companies in China), it is not hard to see why few foreign companies are making money IN China.

How will this change? When will it change? I think it alot further off than hype artists would lead you to believe.

posted by Rob @ 5:38 AM   0 comments
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