Two speakers, one an author, the other an advisor to CEOs of megacorps.
Art Kleiner
Isenberg intro: Book Recommendation - The Age of Heretics
Corporations know what to do but don’t do it. Liveraldi [Help me spell this right, someone!] – saved Ford Motor. Created Taurus team. Denied promotion. Offered exile position. Left company. Heart attack. Wife bought a Mercedes. Why?
Examples at AT&T, Shell, General Foods. Looking for universal explanation, a theory with predictive power. Can come into an organization ahead of time, and actually move a corporation in the way you want.
Traditionally believe: capitalism sucks, entrenched interests, short-term ROI.
All are wrong. Counter-examples exist.
Book of his: “Who Really Matters?”. Organizations matter, they amplify human activity. Number of organizations doubles about every 25 years. Since 1840! A world of proliferating organization. In an organization, every decision matters.
Metaphor of everyone having a joystick trying to control a game. Often going in a different direction.
Most people mix a bit of where they want to go with where they think the org is going as a whole.
We base decisions partly on what we think helps us, partly on the org needs.
We carry around with us a mental map and frame of mind about where org wants to go. We anthropromophize the problem onto the people. Core group who largely control. We think about how consequences of decisions will affect our personal relationships with those people.
Core does not align with org structure. Core group, subgroup and enablers.
Whose priorities have to be considered. Annotated org charts of four example orgs. We collude with power. Susceptible to exploitation.
Enron put forward the case that EVERYONE was in the core group. But there was a secret core group based on the knowledge of existence of secret partnerships.
Employees give the core group legitimacy.
In 1970s many corporations left NYC. Common theme: all ended up withing 8 miles of CEO’s house.
How do we foster great core groups to achieve great things.
Core group feedback – Market feedback – Noble Purpose Feedback. Declines in org respectively 5-25, 50+ and 150+ years. Introduce a new product – core group will give feedback in 5 minutes. Everyone carries perceived view of what the core group needs and wants. 3 months to 2 years to know if it is successful in marketplace. 10+ years to know if it makes a better world.
Francis McInerney
Intro [DI]: Has been in many telco corporations.
Notion in 1967 that the survivability of all orgs based on the velocity of their information. Those that can process information better than other will survive, and others will not.
Prague Spring and Soviet invasion example. Televised. Slow velocity organization trying to suppress an increasingly fast one. Great idea, not very helpful.
How do you measure information velocity inside organizations. How to create something predictive?
Have worked with C level execs at telcos all over. Also work with large number of consumer electronics. Only caucasion advisor to head of Matushita. CEO of Siemens, Phillips. Global perspective.
The thing that has stunned me is that the closer I’ve gotten to measuring info velocity and the risks in persuing high-velocity orgs, the bigger the resistance to the orgs in making the changes they need to make that should be obvious.
Time and again huge mistakes get made. Example of DEC before Compaq bought them out.
First is the efficiency of sale to cash cycle. Faster in slick orgs. Second the efficiency of operating earnings.
By these measures, DEC only had 24 months to live, yet Compaq bought it.
Must be, given Art’s observations, that the core group made a decision that any fool doing due diligence is terminal.
You could predict almost to the month the unfolding of Compaq. Amazing you have these large organizations making decisions that will kill them. Same again with HP and Compaq. Latter only had 36 months to go. Why did it happen? Some sort of profound malaise, an existential crisis.
How is it that otherwise perfectly selfish human beings should make decisions that are suicidal? It is clear that there is a gene that turns companies off!
What is most interesting isn’t the failures – can read about every day in WSJ. But how do the great truly survive.
Excellent example of Dell. Sale into cash in -42 days. Gets paid 42 days ahread of incurring expense. A phenomenal cash engine. It’s the only decision they make. The entire structure of customer structure and order entry all geared to this.
By having touchpoints on all of supply chain you have unique proprietary data.
Look at HP, Compaq, DEC. These companies at all times have never had less than 70-80 days disadvantage over Dell. No matter how much improved (gone from 120 days to 35), still stuck way behind.
Concept of “more time”. A different time dimension. Look at HP learning curve on cash velocity. Drop their cash velocity along the Dell curve, project 5 years ahead. Look at HP, Matsushita, Phillips. In 2007 they will be where Dell was in 1996.
WalMart has fabulous numbers. IBM has sale to cash in 4 days. A winner. Extraordinary for large company.
Consequences of lag a 10 year competitive disadvantage. Consequence of failure to decide [partly due to slow info velocity] is to perpetuate that cash lag.
If you’re investing in those stocks it is over for those companies. Companies where high market values but slow velocity of cash. Will go bust. Market has it wrong. Dell, IBM, Southwest Airlines. Undervalued, despite high P/E.
Japan has fallen off the graph. Japan thrived as long as simple “ship a VCR”, but died as soon as complex supply chain was the issue. Could be terminal decline or a renaissance.
Q: Mechanism that has some people providing direction and other executions seems in humans tied to something that goes against grain. Can do big things if we direct/follow, but at the same time it kills itself.
F: Can’t divide accountability and authority.
Q: This reminds me of the six sigma fallacy. Japan worked perfectly until went over cliff. Is it better to have corporations die than try to get them to change direction.
A: Believe in Schumpter, but also that many corporations die before their time.
F: My favorite institution in that respect. Bank of England in 1696. Without it would be no USA, financed Spanish war. Also second bank of US, killed by Jackson. The inability to clear a cheque in a second a legacy. Still don’t have a proper clearing system in US. Remember practices in early 70s from London that you still can’t do in the US.
Q [RG]: 7 simultaneous equations. Some corporations working on lower layers. May eventually outsource stuff to IBM. Real-time biz intelligence etc all trying to replicate Dell. Good news is everyone wants to be like Dell.
A: What does HP keep? What does it do that even Dell doesn’t do?
F: Existential crisis at HP. Logic says HP should unload everything except printers. But have put it off. But Dell now entering printers. A few percent and their printer business implodes. What are these guys doing. This is madness
Q: I’ve always believed velocity of info affects wealth creation. In CA with some GM folks. JD Power said lowest ranking quality level in automobile is 20% above where highest was 10 years ago. How do you see orgs in general
A: I believe quality in consumer electronics has peaked and going downhill. Dynamics in HP improving, getting better now feuds dying down.
F: Companies that win control the sales process. Thinking of taking on one axis cash conversion ratios, and churn rates on other axis. 0.98 R^2.
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