In my previous post, “Competing in the Age of Bill Ackerman,” I held that many executives insulate themselves from a diversity of views. This problem doesn’t plague executives alone. Managers, unaware of the biased source of their external perspectives, seem to follow some bad habits as well.

For one, an important way managers develop external perspective is by attending conferences where they can meet people with different perspectives, and hear a variety of views, some controversial, some less.

Alas, as a recent article in USA Today claims, the conference business has gone to the dogs. Worse, dogs without perspective.

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In one of the most intriguing articles I’ve read in a long time, The Economist’s Capitalism’s unlikely heroes suggests a different perspective on the rise of activist hedge-fund investors. These brash and vocal billionaires take small positions in public companies and act to fix mismanagement by trying to convince other shareholders to support cost-cutting, spin-offs, and returning cash to shareholders.

Unlike buy-out private equity, the activist hedge funds buy only a small amount of shares, and so they neither burden the target with loads of debt nor strip companies of their assets (that’s so 1980s). Unlike Wall Street investors, activists get actively involved in management decisions. Naturally, companies’ chiefs abhor them. Critics call them vultures. Boards try to poison-pill them.

More interesting than the acrimony between companies’ top executives and tormentors like Bill Ackerman and Dan Loeb is the phenomenal rise in the level of activity of these activists’ funds. According to The Economist, they’ve got $100 billion in their war chests (about 20% of all hedge-fund capital inflows in 2014). Last year they launched 344 campaigns against public companies including P&G, Apple, Microsoft, Pepsi, and even Netflix. As shocking as it may sound, one out of two companies on the S&P 500 index has shown an activist shareholder on its stock registry in the past five years.

Why is there such an increase in activists’ funds? Have companies gotten worse and caused an immune response?

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If you were to see a newspaper headline such as “Breathing Jumps in Beijing, Even with Pollution,” you’d think it awfully odd. After all, Beijing’s population is rising, and everyone breathes as long as they can. More people, more breathing. Pollution doesn’t diminish breathing’s popularity.

You’d be right that such a headline would be odd, even if the headline appeared in one of the world’s great newspapers; say, the New York Times. Yet exactly that oddity appeared, in the Times, when 2015 was still crisp and new: “2014 Auto Sales Jump in U.S., Even With Recalls.”

Don’t worry. This essay isn’t about illogic in journalism. It’s about illogic that pollutes business, too. It’s about a dragon I thought I slew not long ago in Success Is In a Word. (Another headline: “World Doesn’t Heed Indignant Strategist.”)

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“Modular economy”? What, the economy now comes in easy-to-assemble pieces from Ikea?

Yes, except for the Ikea part. And it makes a difference in strategy for everyone from entrepreneurs to investors to competitors.

There was a time when vertical integration was in vogue. Ford, for example, could transform raw materials out of the ground into finished vehicles at its gargantuan (1½ square miles!) River Rouge Complex.1 Vertical integration is attractive because you control everything and it’s hard for competitors to duplicate. The downside is that it can be hugely expensive, difficult to modify or update, and hard to manage. Ford found it so. Other than a 3,000-place parking lot for a nearby Ford facility, the old Rouge was gone as of 2008.

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The cult of celebrity is not only present in entertainment, sports, and politics, it’s in business as well. CEOs that get the most attention aren’t necessarily competing better than the rest. In the news doesn’t mean in the know.
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Here’s a true story. A friend of mine, Bruce Hamilton, won the Professional Bowlers Association (PBA) championship some years ago. He laments that his skill is in bowling and not in golf. His prize was nice but the Professional Golf Association (PGA) championship paid seven times as much in that year. Would we say the PGA champ was seven times as skillful as my friend?

In 2013, the PGA champ was paid 28.9 times as much as the PBA champ, up from seven times. Would we say that skill at golfing is growing faster than skill at bowling?

How many top golfers can you name? How many top bowlers? (I can name one.)

We have, in business, a cult of celebrity rather than a cult of strategy. Try this: who’s the CEO of Facebook and who’s the CEO of DuPont?

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“The Sound of Competing” Episode 3: Culture Doesn’t Replace Strategy


Every corporation has a corporate culture. Is yours a competitive advantage?

Many pundits, especially those from the “soft” social sciences (psychology, sociology, anthropology), make a case that corporate culture is a critically important source of competitive advantage. They call for open and empowering cultures that they say uniquely encourage innovation and success. Yet, just as attitude can take you only so far in soccer if your stars are injured, culture can take you only so far within the competitive economics of the industry. Companies creaking with old-fashioned management styles have succeeded over decades. Startups wielding the most open, progressive, and innovative cultures have failed overnight.

The one aspect of culture which is critical is how information flows inside the organization. The reason: whether your management is an authoritarian, cigar-chomping Lord High Everything or an enlightened, organic Collective of Nice Dedicated Associates, without information you wear a blindfold during the big game.

In the podcast you’ll hear about the category of information that’s the most crucial to decision makers, why it is scarce, and what it takes to make it flow.

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“The Sound of Competing” is a new podcast from Competing.com. It’s conversations from Ben and Mark, plus the occasional reckless guest. It’s remarkable. It mixes serious concepts with humor. It’s edgy without sacrificing critical thinking. It’s the antidote to the silly and shallow. Also, there are titanic battles between good and evil. A ping pong match between two strategy giants resulting in commentary smart enough to listen to.

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Competitive advantage comes not only from a company’s products or services but also from its management style. A collaborative culture inside the company builds competitive advantage in the marketplace.

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Are your most-dangerous competitors in the marketplace or inside your own company?

As a leader in your enterprise, you may seldom talk about internal competition, but you deal with it constantly. People are competing for the next promotion, the attractive assignments, and the workspace next to the window.

Manage that competition right and it helps the best ideas and talent rise to the top. Manage it wrong and it stifles collaboration. How you manage internal competition carries substantial consequences for your company and you.

Let’s look at examples from two Fortune 500 companies. Both were industry leaders that hired top talent, provided outstanding benefits, and promoted from within.

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