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.

Thinking Exotically

With air travel on my mind after a West Coast trip last weekend, the following strikes me as positive, (and not just because I'm a marathon runner who tends to pack light). Rather, it's the kind of thinking we do routinely when we help clients develop scenarios. E.g., what if industry 'A' adopted the business model of industry 'B'? Emphasis added:

Imagine two scales at the airline ticket counter, one for your bags and one for you. The price of a ticket depends upon the weight of both.

That may not be so far-fetched.

"You listen to the airline CEOs, and nothing is beyond their imagination," said David Castelveter, a spokesman for the Air Transport Association, a Washington, D.C.-based trade group. "They have already begun to think exotically..."

With fuel costs almost tripling since 2000, now accounting for as much as 40 percent of operating expenses at some carriers, according to the ATA, airlines are cutting costs and raising revenue in ways that once were unthinkable...

Singapore Airlines... is "trying to eliminate unnecessary quantities of extra water" to save weight, Chief Executive Officer Chew Choon Seng said in an interview...

Robert Mann, head of R.W. Mann & Co., an aviation consultant based in Port Washington, New York [said,] "If you look at the air-freight business, that's the way they've always done it... We're getting treated like air freight when we travel by airlines, anyway."

This signals that an industry long characterized by minimal innovation starting to think beyond convention (but... we've always done it that way!) The shock is external and pressing in this case (fuel costs). It needn't be so. Better to do this kind of thinking every day.

Best-practice use of scenarios involves doing this systematically, comprehensively and, over time, making it an ingrained habit of strategic thinking among management. (How could we change the rules to our advantage?) Having several contingent strategies already fully 'baked' when a crisis hits can move one ahead of more flat-footed competition who must do all that thinking while under existential, immediate pressure.

Next up: refunds for in-flight diuretics.    ;-)

David Einhorn on the Financial Crisis, Government Complicity and Why Rating Agencies Aren't Much Better Than USAToday

Working deep inside Wall Street these past eight months or so, I've had a privileged vantage point from which to observe some of the most tumultuous quakes in the industry in a generation -- and arguably in a century. (Given the near-catastrophic, and still potentially catastrophic nature of those changes, one might legitimately argue with whether 'privileged' or 'punitive' would be the right word to describe my seat in the proverbial bleachers on this one. Since I'm still being paid -- for now -- I'll stick with the former, if only because it has been quite an education.)

Readers without a direct interest in the inner workings and accounting arcana of the financial services industry though, should take a gander at David Einhorn's ten-page pdf/speech: "Private Profits and Socialized Risk". [emphases added in the excerpts below] H/T: Bob Weber.

On the credit-rating agencies:

The market perceives the rating agencies to be doing much more than they actually do. The agencies themselves don't directly misinform the market, but they don't disabuse the market of misperceptions -- often spread by the rated entities -- that the agencies do more than they actually do. This creates a false sense of security and in times of stress this actually makes the problem worse...

It is hard for me to see how the rating agencies survive this debacle with their franchises intact.

On the failure of Bear Stearns and how the SEC has enabled the entire mess:

Rather than looking at its own rules which permitted increased leverage, lower liquidity, greater concentrations of credit risk and holdings of no ready market securities, the SEC is conducting an investigation to see if any short-sellers caused the demise of Bear by spreading rumors.

Of course, Bear didn't fail because of market rumors. It fell because it was too levered and had too many illiquid assets of questionable value and at the same time depended on short-term funding.

On how none of us are really spectators in this

...before Bear Stearns failed... I [had] planned to speculate that regulators believe all of these [major investment banks] are too big to fail and would bail them out, if necessary. The owners, employees and creditors of these institutions are rewarded when they succeed, but it is all of us, the taxpayers, who are left on the hook if they fail. This is called private profits and socialized risk. Heads, I win. Tails, you lose. It is a reverse-Robin Hood system...

As night follows day, it is certain that in the absence of tremendous government regulation, this bailout [of Bear] will lead to a new and potentially bigger round of excessive risk-taking...

On the counter-party credit system

In effect, [with Bear] the government appears to have guaranteed virtually the entire counter-party system. The message is that if you are dealing with a major player -- anyone in the "too big to fail" group -- you don't have to worry about that player's creditworthiness. In effect, your risk is with the U.S. Treasury...

...regulators should consider dismantling the counter-party system... require the posting of all derivative trades, clearing them through a central system and regulating margin requirements...

Sobering stuff, with a few funny bits (check out his water-vs-Coke analogy), along with some interesting long- and short- stock picks near the end. I urge you to read it all. The reason I post it here (a scenario- and big-picture-oriented blog) is that it will eventually touch pretty much everything in the global economy. Ignore it at your peril. Understand it and you'll at least be able to tell the difference between a two-by-four and a rock when it hits you (and all of us) in the back of the head.

Core vs. Context: CBS Talks to CNN

This from today's NY Times [emphasis added]:

CBS... has been in discussions with Time Warner about a deal to outsource some of its news-gathering operations to CNN... reducing CBS’s news-gathering capacity while keeping its frontline personalities, like Katie Couric, the CBS Evening News anchor, and paying a fee to CNN to buy the cable network’s news feeds.

 

For CNN, a deal with a broadcast network would mean a new revenue stream without having to add much in costs. For CBS, an arrangement with a cable channel would allow it to cut costs while maintaining the CBS News brand...

Structural change. In any industry, it can be a long time coming. But then, when it does, it's seemingly so sudden and so obvious in hindsight, leaving many to wonder what took so long and what all the fuss was about. Acknowledging that every industry is different and that this particular deal may have at least as much to do with tactical stumbles on CBS's part as it does any notion of industry grand-strategy, please allow me a quick diversion into another industry to illustrate the point.

Once upon a time, the computer industry was vertically integrated: chips, disk drives, monitors, software, printers and even keyboards were all manufactured--quite literally--by the same company that sold them under its own brand. Digital, Wang, Prime, Data General, IBM, Hewlett Packard, Unisys (and others more easily forgotten) asked customers to settle for second- (or third-) rate components in one area in order to get the pieces they had to have and ensure it all worked together properly. (I had the privilege of consulting to all of these folks between 1988 and the mid '90s, and while I had a ringside seat for only some, I was in the tent with a clear view for all.)

Then suddenly (it seemed, but not really) along came Intel and Microsoft and Dell and Canon (whose printers account for nearly all of what's sold under the HP brand) and people scratched their heads and wondered why they'd ever settled for less, and what on earth had sustained all these second- and third-rate products hidden inside these vertically integrated 'stacks'. (Yes, I know, what came next was not necessarily the perfect competition I'm making it out to be in every case, at every layer, but it was -- at least -- a more horizontally-oriented industry all-of-a-sudden (think pancakes) instead of a bunch of soup-to-nuts, buy-it-all-from-us-or-else brands with their own factories for everything.

Similar tales can be told about the automobile and aircraft industries (among others) however I don't have firsthand knowledge of those and so I leave such analysis to others. All are different. And yet at a very high level, all have been the same:

It becomes clear who's really really good at one particular 'horizontal' aspect of the business (e.g., working 'backwards': customer relationships, brand, distribution, manufacturing (yes, even in services), product development, R&D, etc.) and who's just pretty good. Everyone knows these things, but it's hard to tell because the pieces don't compete with each other directly ('pure plays'). Instead, they're all part of larger packages.

Everyone knows though, who's passionate and committed and has totally nailed a particular discipline and is climbing a learning curve and getting to scale faster than everyone else... and who's just in it (a particular horizontal layer) because they have to be to stay in business and pride or lack of imagination have kept them from having the hard conversation about what is core and what is context.

Internal factors play a huge role here. Pride and corporate politics can be overwhelming. Managers develop fiefdoms and want to stay attached to the mother-ship because they know also that it's cold out there and that their 'stuff' is not really competitive globally.

A quick side story on the side story:

I once consulted to a large computer company that made it's own keyboards (this was ~1991). They'd commissioned me to do a study of a) what customers liked and b) how cost-competitive they were. It was the first time they'd done either thing (telling in itself) and we cast the net very wide indeed to get it right.

Long story short: their manufacturing costs for these keyboards were roughly 8X what others were charging in bulk including shipping from faraway places with factories that had dirt floors and workers who subsisted on meager if not wholly inadequate diets.

But the clincher was this: when we did focus groups, the customers liked the cheap stuff better. It 'felt' better on their fingers. The keyboards were lighter. They could type faster. Case closed. With a vengeance. (I recall the client choking on their diet sodas behind the glass, struggling for something positive amidst the rubble of damning customer consensus... and then explaining to me why their stuff was technically much better and they had the charts to prove it. It didn't matter.)

My client had all but exited the business within a year, redeploying the capital to focus on other things they did much better (and still do).

What does any of this have to do with CBS and CNN? Why the rant?

Just this. As it becomes easier to coordinate assembly of the 'pieces' in a particular industry -- due to better communications, global capital flows and a host of other things. I.e., when the efficiency-driven, convenience-driven reasons for being vertically integrated and settling for best-in-house instead of best-of-breed begin to fade away and Coase's Law and the theory of the firm begin to dissolve (just as he predicted seventy years ago -- he's still with us, btw), we begin to see these kinds of changes in these headlines.

An organization with kick-butt field reporting and the scale to support it far into the future beats out an organization that once used to be known for that... but no longer. And the firm with the pretty faces decides that that's not such a bad thing to be... the face to the 'customer'. The brand. It's a perfectly honorable (and sometimes even very powerful) position to be in (though my personal opinion is that CBS may eventually lose that also). But regardless, clarity is good: You do this. We'll do that. And let's do business together because we're not really competing anymore.

Firms re-invent themselves as pancakes rather than bamboo shoots... horizontally-oriented, best-bar-none specialists rather than vertically-oriented best-in-house behemoths.

Yeah, I've taken some liberties here. Coase talked about other aspects as well. And CBS may merely be in its long-awaited death throes as CNN ascends. But this is a blog post, not a masters thesis.

Here's what I find funny: the obligatory denial-of-reality that's needed to keep the staff of the doomed division from defecting en masse and decimating any negotiating leverage that may remain:

Sandy Genelius, a spokeswoman for CBS News, said, “We are extremely pleased with and proud of our news-gathering operation. No outside arrangements are being negotiated...”

Someone's got to play calming music for the passengers as the deck tilts steeper and steeper.

What if They Published a Newsmagazine and Nobody Read It?

More than any high-level statistics about the print news business, the following quote, from the bottom of an article ("What's Next for Newsmagazines") on the front page of the 'B' (Marketplace) section of today's Wall Street Journal made me sit up and take notice [emphasis added]:

At a recent speech at Columbia University, [Newsweek Editor Jon] Meacham delivered a blistering response after he asked who reads Newsweek and none of the 100-odd students in attendance raised their hands.

He can 'blister' all he wants, but I don't know of any industry in which that's proven effective as a means to enticing potential customers into buying your product. The blow-by-blow of that speech from early February is even more pitiful [emphasis added]:

After about an hour, there seemed to be no more questions for him, so Newsweek editor Jon Meacham turned to his audience—about 100 graduate students at Columbia journalism school—and said he had a question for them: Did anyone in the room read Newsweek or Time? There was a small, awkward rumbling before finally, a man shouted, "No!" ...

"Have you looked at Newsweek?" [asked Meacham]

"Sure," said the J-schooler.

"And it's not up to your standards?"

"I find [it] less useful honestly. The news? I don't get it from Newsweek..."

"Look, I need you," said Mr. Meacham... "It's an incredible frustration that I've got some of the most decent, hard-working, honest, passionate, straight-shooting, non-ideological people who just want to tell the damn truth, and how to get this past this image that we're just middlebrow, you know, a magazine that your grandparents get, or something..."

Unless I'm missing something (and there's not a whole lot more to the interaction than what I just posted) Meacham's entire argument for why people ought to read traditional news magazines rests on three things:

1. He's got 'good' people. That may be true in terms of writing skill, interpersonal integrity, reportorial drive, courage in the field and the like, but here's the bottom line: what 'good' means without reference to customers and their needs is anybody's guess. His assertion that those people are 'non-ideological' is a tip-off that he just doesn't get the blogosphere or Gen-Y, much less how mainstream media has evolved since the '70s.
2. He's frustrated. (He'd do better to have been paranoid, as Andy Grove was at Intel).
3. His business is tanking; he needs more customers. (The big three Detroit automakers circa 1980 come to mind here.)

Short take: it's an insular, supply-side argument for relevance that only a very few, slow-moving institutions (like higher education) can get away with, and even there, not for as long as they used to.

Whither Print Advertising? Whither Newspapers?

I note this new data from the Newspaper Association of America

...total print advertising revenue in 2007 plunged 9.4% to $42 billion compared to 2006 -- the most severe percent decline since the association started measuring advertising expenditures in 1950.

The drop-off points to an economic slowdown on top of the secular challenges faced by the industry. The second worst decline in advertising revenue occurred in 2001 when it fell 9.0%.

Total advertising revenue in 2007 -- including online revenue -- decreased 7.9% to $45.3 billion compared to the prior year.

There are signs that online revenue is beginning to slow as well. Internet ad revenue in 2007 grew 18.8% to $3.2 billion compared to 2006. In 2006, online ad revenue had soared 31.4% to $2.6 billion. In 2005, it jumped 31.4% to $2 billion.

What's neglected here is the basic idea that advertising -- as it has traditionally been conceived -- is merely one of many possible direct and indirect elements in the complex and constantly changing process of convincing customers to buy what you have to sell for more than it cost you to make it.

To the degree that print advertising -- on paper, in electronic form or otherwise -- is less-than-effective compared to the alternatives (mascots, blimps, billboards, word-of-mouth, guerrilla tactics, etc.) it will fade. And as with any such sea-change transition -- long anticipated but still somehow shocking when it finally arrives -- it is much easier to say what is going away and to eulogize it than to say exactly why that is so or what (usually plural) is most likely displace it.

In a related vein, this piece, "Out of Print: The death and life of the American newspaper" in The New Yorker's March 31st edition is also worth perusing though perhaps not for those faithful stockholders with a tendency towards melancholy:

...trends in circulation and advertising––the rise of the Internet, which has made the daily newspaper look slow and unresponsive; the advent of Craigslist, which is wiping out classified advertising––have created a palpable sense of doom. Independent, publicly traded American newspapers have lost forty-two per cent of their market value in the past three years, according to the media entrepreneur Alan Mutter. Few corporations have been punished on Wall Street the way those who dare to invest in the newspaper business have. The McClatchy Company, which was the only company to bid on the Knight Ridder chain when, in 2005, it was put on the auction block, has surrendered more than eighty per cent of its stock value since making the $6.5-billion purchase. Lee Enterprises’ stock is down by three-quarters since it bought out the Pulitzer chain, the same year. America’s most prized journalistic possessions are suddenly looking like corporate millstones. Rather than compete in an era of merciless transformation, the families that owned the Los Angeles Times and the Wall Street Journal sold off the majority of their holdings. The New York Times Company has seen its stock decline by fifty-four per cent since the end of 2004, with much of the loss coming in the past year; in late February, an analyst at Deutsche Bank recommended that clients sell off their Times stock. The Washington Post Company has avoided a similar fate only by rebranding itself an “education and media company”; its testing and prep company, Kaplan, now brings in at least half the company’s revenue.

Yes, that appeared as a single paragraph in the New Yorker piece -- more than a bit ironic for a publication pontificating over the doom of its peers as a generation of multi-tasking, ADD-addled information consumers come up.

LinkedIn... to Twinkies?

Fascinating piece by Nicholas A. Christakis (Professor at Harvard Medical School) over at edge.org on the impacts and dynamics of social networks:

...it turns out that all kinds of things, many of them quite unexpected, can flow through social networks, and this process obeys certain rules we are seeking to discover.  We’ve been investigating the spread of obesity through a network, the spread of smoking cessation through a network, the spread of happiness through a network, the spread of loneliness through a network, the spread of altruism through a network.  And we have been thinking about these kinds of things while also keeping an eye on the fact that networks do not just arise from nothing or for nothing.  Very interesting rules determine their structure. 

UPDATE: Taking a somewhat more serious tack than my snarky, early-morning title would suggest is friend and colleague Patti Anklam over at her blog, 'Networks, Complexity and Relatedness'. (She actually specializes in this stuff and can speak with authority on it). She writes:

This work is truly boundary-crossing... His research indicates that it's the norms that are most influential because, as he says, "they can fly through the ether" whereas for behaviors to propagate we need to be physically together. He echoes many of the themes I've developed in my book (Net Work): one of the the things that I have been saying for years is that the key distinction of this 3rd generation of knowledge management is that knowledge is in the network. (In generation 1, we assumed knowledge was in artifacts; in generation 2 it was in people.) Christakis comes to the same conclusion...

Forward Into the Past! (A Tale of How Not to Listen to Your Customers)

Jason Fry's 'Real Time' column in today's WSJ is worth checking out (subscription required).  He writes:

Earlier this month, Nielsen Soundscan released 2007 data painting yet another portrait of a music industry struggling to make the transition to a more-uncertain, less-profitable business model. For the year, overall units sold rose 14% -- and sales of digital tracks rose 45%. But not all units are created equal: Total album sales fell 15%, and that blow was softened by a 53% rise in sales of digital albums. Subtract digital-album sales, and physical-album sales declined 19%, to 450.5 million in 2007 from 555.6 million in 2006. (Dig into the numbers yourself here¹.)

Or, if you prefer, take this arresting anecdote from the Economist² (found via Nate Anderson's interesting read³, in the always-great Ars Technica): In 2006 EMI honchos invited some London teens to the label's headquarters to discuss their listening habits. By way of thanks, the kids were offered whatever they wanted from a big pile of CDs. Offered free CDs, the kids took … nothing.

[Bold added; links and italics in the original.]

And why should they take anything? The perceived price of zero isn't even the issue, as more folks fall into line and eschew P2P sharing networks in favor of obeying the law. My daughter's latest iPod is the size of a cookie (and not those super-sized ones they sell in airports, or even Oreos, but more like a thin Chips Ahoy). Continuing to sell CDs into this climate is like selling 78s when I was young.

Popping up Like Mushrooms

Not clear that there's anything new here conceptually but the presence of another news-oriented prediction market during a U.S. election year is further evidence of the power of a good idea whose time has come.

Hubdub - a new Web site [Nigel] Eccles and three colleagues in Edinburgh, Scotland, assembled - where customers will bet for fun, not money, on the outcomes of real news stories. The site launches Monday [1/28]...

After signing up, you'll receive 1,000 "Hubdub dollars," play money that works only on the site. You can look at stories about, say, whether Gregg Williams will be named the next head coach of the Washington Redskins or who will win the Florida Republican primary.

Guess right, and you'll win more Hubdub dollars. Lose, and your account will draw down. In the spirit of the board game Monopoly, where simply sticking it out is rewarded, you'll also get 20 new Hubdub dollars ever day you log in.

Hmm... can you say millisecond-scale auto-logins leading to hyper-inflation?   :)

"What I realized was it wasn't the fact that I had lost money, but my pride and feeling of self-worth had taken a real knock," Eccles said. "I think that's the case for a lot of people - it's not so much the cash, it's being right."

Or in his case, being wrong. Methinks someone needs to re-write his press-releases. H/T: Bob Weber.

One of the Benefits of Working in "Cube Land"

Your choice of seating at work may affect much more than your sensory pleasure at knowing when someone is eating tuna fish or onions versus citrus fruit or chocolate. Google has discovered that it's the most important factor in your being in the loop: in particular, whether you win or lose based on your close colleagues' prediction market trading.

(See 'heat map' at right: successful traders are depicted in green; losing traders in red).

(H/T: Jeffrey Henning)

'Real' traders take note! (Pick your desk-mates carefully.)

Random thought: this adds a whole new dimension to the elaborate strategies seasoned business travelers use to get primo seating on airplanes. Exit row? No thanks. Just give me the seat next to Warren Buffett.