Mapping Strategy

The Sun Never Sets... on the Orange County Register

The English language has, arguably speaking, been one of Great Britain's most prolific and resilient exports. Now it has become the basis for a new kind of international trade. That, along with cost pressures and reliable networks made the following virtually inevitable.

An Indian company will take over copy editing duties for some stories published in The Orange County Register and will handle page layout for a community newspaper at the company that owns the Pulitzer Prize-winning daily, the newspaper confirmed Tuesday.

Orange County Register Communications Inc. will begin a one-month trial with Mindworks Global Media at the end of June, said John Fabris, a deputy editor at the Register.

Mindworks' Web site says the company is based outside New Delhi and provides "high-quality editorial and design services to global media firms ... using top-end journalistic and design talent in India."

Substituting 'z's for the new copy editors' instinctual 's's in words like 'institutionalized' won't be enough. As the saying goes: Britain and America are two countries separated by a common language. Perhaps more so with the other former colonies.

It will be interesting to see how they separate pure copy editing from tasks like fact-checking, local context, style and cultural nuance -- a lesson Dell and others learned the hard way, as faraway call center personnel (perfectly nice and perfectly competent) just didn't 'click' with their U.S. callers for a host of subtle reasons.

One demographic irony: in the not-so-distant future, the Indians may lose out to the Mexicans for the OC's outsourcing contract.

How Much is a Brand Worth?

About ten years ago, I ran across a piece of analysis I haven't seen since and can't seem to lay hands (or search-engine bots) on at the moment. It ran in CFO Magazine and -- according to a set of accounting calculations I don't claim to fully understand -- listed hundreds of major brands whose brand value had ascended or descended the most in the preceding years. I recall such brand icons from the '70s as Peugeot and Nikon as being near the top of the latter category (i.e., the bottom of the list one would want to be on).

What was striking -- at least to this non-accountant -- was how rapidly brand values can change and by how much (many billions of dollars, in some cases).

From the standpoint of the kind of work I do helping clients to think about future strategic imperatives under a wide range of possible scenarios, the implication was clear: even if it hurt in the short term, the value of preserving (or failing to preserve) the brand could be enormous. Take that into a financing event and the advantages (and disadvantages) multiply even more, creating (or precluding) a whole range of strategic options, and so on, and so on. Brands are some of the slipperiest and yet most important assets any firm has. (The same could be said for individuals, but that's a different post.)

All of it can seem tremendously academic to companies that don't deal with consumers directly -- and tremendously obvious to companies that do... which doesn't mean that all of the latter do it well.

Thus it was that this piece in today's WSJ caught my eye:

It all started about two years ago, when a ship carrying 4,703 shiny new Mazdas nearly sank in the Pacific. The freighter, the Cougar Ace, spent weeks bobbing on the high seas, listing at a severe 60-degree angle, before finally being righted.

The mishap created a dilemma: What to do with the cars? They had remained safely strapped down throughout the ordeal -- but no one knew for sure what damage, if any, might be caused by dangling cars at such a steep angle for so long. Might corrosive fluids seep into chambers where they don't belong? Was the Cougar Ace now full of lemons?

The Japanese car maker, controlled by Ford Motor Corp., easily could have found takers for the vehicles. Hundreds of people called about buying cheap Mazdas. Schools wanted them for auto-shop courses. Hollywood asked about using them for stunts.

Mazda turned everyone away. It worried about getting sued someday if, say, an air-bag failed to fire properly due to overexposure to salty sea air.

It also worried that scammers might find a way to spirit the cars abroad to sell as new. That happened to thousands of so-called "Katrina cars" salvaged from New Orleans' flooding three years ago. Those cars -- their electronics gone haywire and sand in the engines -- were given a paint job and unloaded in Latin America on unsuspecting buyers, damaging auto makers' reputations.

Mazda saw no easy way to guard against these outcomes. So it decided to destroy approximately $100 million worth of factory-new automobiles. "We couldn't run the risk of damaging the brand name that Mazda worked so hard over the years to develop," says Jeremy Barnes, the company's corporate-affairs director for North America.

It could be argued that a) $100M is fairly cheap to preserve (and, arguably enhance) a major brand name like Mazda (paltry in comparison with some product recalls, or lack-of-recalls that should have happened but didn't), b) it isn't even that much because both the cars and the demolition operations that Mazda had to invent and undertake were largely overed by insurance and c) it's a tremendous waste, even if it does make sense from a business perspective.

From Risk to Uncertainty

I don't agree with everything in this piece by Thomas Homer-Dixon that appeared last week in the Toronto Globe and Mail, but this quote is an absolute gem (emphasis added):

Our global financial system has become so staggeringly complex and opaque that we’ve moved from a world of risk to a world of uncertainty. In a world of risk, we can judge dangers and opportunities by using the best evidence at hand to estimate the probability of a particular outcome. But in a world of uncertainty, we can’t estimate probabilities, because we don’t have any clear basis for making such a judgment. In fact, we might not even know what the possible outcomes are. Surprises keep coming out of the blue, because we’re fundamentally ignorant of our own ignorance. We’re surrounded by unknown unknowns.

It's something I've said for a long time:

It's tempting to think that all things are predictable given enough information, enough minds, enough time and enough computing power. It's just not true. (Which is not to say that some things are not predictable... and with incredible precision... a phenomenon that leads to overestimating the scope of problems and questions that lend themselves to such methods.)

Telling which is which is the trick...

I would go even further to say that really smart people who, by life experience know that some things are fundamentally unpredictable still draw an unvoiced sense of emotional comfort in their business life from the idea that some wise expert somewhere has been to the future (for all intents and purposes) and if we could just find him or her things would be OK... and/or that a really sophisticated computer model or prediction market (the 'collective mind') can provide crystal ball-level insights.

Sometimes yes. Often, no.

I liken Mr. Homer-Dixon's observations to those tragically massive car pile-ups that happen a few times of year in fog-prone areas like the Central Valley of California. Everyone is driving along at a reasonable speed, with reasonable spacing between vehicles. People are sipping coffee, tuning radios, maybe talking on cell phones. Slightly distracted, but mostly responsible. All is normal.

Then the first guy hits a fog bank and can't see squat. He taps his brakes. The second guy sees red lights and fog coming up fast and taps his brakes just a little bit harder, and so on. In just a few seconds, hundreds of cars end up in a tangled heap and people die. All because the guy in front was convinced by every one of his senses and not without justification based on experience that the visibility on the next 100 yards of road would be the same as on the last 100 yards of road.

China's GDP Changes Hands Every Day...

Well, almost. In my business it has become habit to scoop up watershed factoids like this and--along with other bits and pieces--make sense of them in a larger context of multiple future scenarios.

...the Bank for International Settlements in Basel, Switzerland... [tracks] the size of foreign-exchange markets. In April, daily turnover in currency markets rose to $3.2 trillion, the bank said yesterday.

That's more in value than the annual economic output of Germany or China, changing hands in currency markets every day around the world. It's also up 71% from the BIS's last survey in 2004, the largest jump in volume since the institution began conducting its benchmark survey in 1989.

Reviving the Personal Touch: Netflix Bucks a Trend

Interesting piece in the NY Times yesterday about competing on personal service. Michael Osier, Netflix VP for IT, operations and customer service, observes:

Netflix’s decision to eliminate the e-mail feature was made after a great deal of research, Mr. Osier said. He looked at two other companies with reputations for superb phone-based customer service, Southwest Airlines and American Express, and saw that customers preferred human interaction over e-mail messages. “My assessment was that a world-class e-mail program was still going to be consistently lower in quality and effectiveness than a phone program,” he said...

The company has tried to give the service representatives more discretion in deciding when to assuage disgruntled callers with bonus discs and account credits — and they are allowed to err on the side of generosity. More often than not, a month’s credit will be issued or a missing disc marked simply as lost, and the customer will not be charged. Netflix places no particular requirements on call duration, preferring that customer service representatives take the time they need to keep a customer happy and loyal.

The company is choosing to swim (smartly, in my view) against a tide of late-'90s conventional wisdom that's still surging--quite perversely and mono-maniacally--towards the fixed and narrow vision of a low-cost, homogenized, arms-length, location-agnostic world in which everyone is wired and cultural nuance, emotion, politeness and human connection don't matter in business-detectable terms. It's a perfectly appropriate vision for some kinds of organizations. It's just that I don't see any of its advocates pushing for it for their children's education, their church or their therapist.

Netflix' strategic turn is remarkable more for the clarity and swiftness with which it has been agreed and executed than for its originality. Theirs is a classic, almost textbook service differentiation strategy, necessitated by the entry of a rival (Blockbuster) with a more established brand, broader distribution channels, and greater scale economy. Pursuing this course is risky, no doubt. Delay in pursuing it could have been fatal. (Cue obligatory if overused 'deer-in-the-headlights' metaphor).

Good for them for recognizing that their primary innovation lay in the company's founding. Their future depends on clear-eyed resolve and flawless execution--with a human touch.

The Hidden Complexities of 'No-Brainer' Decisions: Off-Shoring, Wage Inflation and Those Stubborn Circadian Rhythms

The front page of Tuesday's W$J featured an interesting piece on the hidden challenges of hiring workers in faraway places, especially when the goal is saving money ("Some in Silicon Valley Begin to Sour on India") Emphasis added:

Last year, Mr. Shah paid his engineers in India about half of Silicon Valley levels. By early this year, it was 75%... India's software-and-service association puts wage inflation in its industry at 10% to 15% a year. Some tech executives say it's closer to 50%. In the U.S., wage inflation in the software sector is under 3%, according to Moody's Economy.com.

Rafiq Dossani, a scholar at Stanford University's Asia-Pacific Research Center who recently studied the Indian market, found that while most Indian technology workers' wages remain low -- an average $5,000 a year for a new engineer with little experience -- the experienced engineers Silicon Valley companies covet can now cost $60,000 to $100,000 a year. "For the top-level talent, there's an equalization," he says...

Some Indian outsourcing companies are themselves looking to other countries -- mostly as a response to the globalizing nature of their business, but also to tap new labor pools amid a tight hiring situation at home. TCS recently opened a center in Mexico and is planning to move into Morocco. Wipro has two centers in China and is thinking about adding one in the Philippines...

[Wage] increases... have spurred a lot of job-hopping in India. Pervasive Software Inc. of Austin, Texas, opened a Bangalore unit in 2004 and hired 45 people. But soon its turnover was more than 25% a year, says the company's CEO, John Farr. The company kept having to invest in training workers, only to see them leave. A year ago, it shut its Bangalore unit.

Hidden outsourcing costs surfaced for other tech companies as well. To bridge the geographic and time gaps, some have found they need to hire more U.S. managers to handle their Indian teams. Kana Software in Menlo Park has one engineering manager for every 25 to 50 engineers, but it found it needed one for every five to 10 engineers it employed in the Indian city of Chennai. In December 2005, Kana decided to close its Indian operation.

Mr. Khan, Riya's California-based vice president of engineering, says he often stayed up until 4 a.m. so he could talk with the team in Bangalore. Mr. Shah, the chief executive, flew to India six times a year to make sure things were running smoothly.

Straddling time zones slowed development work. Sometimes a researcher gets stuck on a problem. "It's not really a good thing to keep bugging people at midnight every day, so that introduces some delays," says Mr. Dalal. He also felt cut off. "For us sitting here in India, it's hard to get the business aspect of the problem," he says...

Shutting down in India isn't cheap. Teneros, which closed a 30-person operation in New Delhi in late 2005, says it spent $2 million to do so. It had to get out of contracts, and it brought 12 of its Indian workers over to the U.S. on work visas, incurring immigration fees. Teneros left partly because of wage inflation and a lack of information-technology infrastructure that was slowing its work, says its CEO, Steve Lewis. Mr. Shah says Riya's shutdown costs, such as immigration charges and a broken lease, will be in six figures.

He has cleared eight desks in San Mateo for the eight Indian engineers coming over and is waiting for their paperwork to clear, hoping they'll be in Silicon Valley by the end of the year. "I thought I understood India," Mr. Shah says, "but now I know it's so much more effort to have a remote office as a start-up."

The article is instructive in its particulars. One of the things I find most fascinating are the hidden risks  some may be incurring in dealing with a partner in one  highly stable country ('A') who is turning around and outsourcing to countries B, C, D, and E, each of which is exposed to far more significant risks. (Pop quiz: what former world power used to be talked about enthusiastically in the 1990's as a major source for technical talent... but isn't much anymore? Hint#1: they have some of the highest rates of alcoholism, TB and premature death on the planet. Hint#2: they're sometimes referred to as a deflationary authoritarian kleptocracy with nukes. Hint#3: they use the Cyrillic alphabet.)

As both customer and service-provider, I've dealt with companies operating in India (as well as some headquartered there). The former experience, e.g. talking to a remote call center, is far less unique than it used to be. Few in the U.S. have not been forced at some point to try and deal politely and expeditiously with the intangible but very real challenges of accent, culture, pacing and shared interpersonal communication conventions easy to take for granted--until they're missing.

Dell's withdrawal from India is the most well-known case illustrating that even if all aspects of it cannot be fully defined in advance, customer experience eventually translates to the bottom line--for good or for ill. There's something jarring and difficult that I've never quite been able to put my finger on about sitting down at the end of a long day and dealing with some poor sleep-deprived third-shift worker in India. It's just as difficult--in a different way--to re-read my 2AM e-mail response to a colleague on the other side of the world over coffee the following morning  and wince a la Hunter S. Thompson at how poorly my brain must have been working when I wrote it. It may be true that money never sleeps, but like it not we must.

I find the article even more interesting however as a lesson in the increasing fluidity of a global economy and the fundamental uncertainties and complexities of contingent strategic decision-making on such a stage.

Painting with a deliberately broad brush for a moment, I'll assert that difficult-to-revoke choices entailing 'big-bet' consequences tended--in the past--to match the scale of uncertainties with the resources the decision maker had at his or her disposal.

A small business (or her banker) needing to choose a retail location for (say) a bakery has always been able, without much trouble, to scope out the key dimensions of site risk (e.g., sidewalk traffic, local competition, parking, utilities, rent, wage rates for counter help, etc.). By contrast, large multi-national corporations have always been able to afford (whether they chose to or not) to devote several individuals--if not an entire planning department--to analyzing a vast array of long-term economic scenarios and political risks for operating around the globe.

In today's super-connected world however, it's much easier for smaller companies to find themselves making massively risky geopolitical decisions without fully realizing they are doing so and without the ability to assess or the scale and diversity to hedge such decisions. The anecdotes in the WSJ article prove that out.

The point? It's easy to read about globalization and come to the premature conclusion that one is missing out on riches by not plunging in headfirst and surfing a trend that's pervasive. As a friend and former colleague enthusiastically put it to me recently: the future is all about Dubai, Mumbai and Shanghai! That's fine insofar as it goes. This post is not about ignoring globalization but about assessing its complexities and the myriad strategic options it presents with thorough research, appropriate reverence for what is unknowable and sufficient thought about alternatives and contingencies.

Depending on one's business, Dubai, Mumbai and Shanghai may be fine choices--provided one stays aware of (respectively) increasing political and cultural extremism, the aforementioned inflationary flies in the ointment of international wage arbitrage, and the perniciously arbitrary nature of operating in a Communist country.

All may be risks worth taking if one goes in with one's eyes open. Unfortunately some don't. Sound bytes and rumors about the grass being greener make for lousy strategic planning.