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Archive for November, 2010

More thoughts on Asia & Sarah Palin on North Korea!

November 25, 2010 4 comments

I didn’t really want to discuss the recent spat between North and South Korea. I know too little about it. However I do know that there is likely to be a leadership change shortly, when Kim Jong-Un takes over from his father Kim Jong-Il and that North Korea is the only remaining Stalinist Communist state. I also know that South Korea is currently an ally of the United States.

That may all change in 2012, if Sarah Palin gets elected, based on a recent radio interview in the USA, where Palin described the North Koreans as US allies. Of course it could have been a slip of the tongue. However it won’t be the first slip of the tongue where Palin has shown ignorance of the world outside Alaska.

Listen to the Sarah Palin radio interview:

The problem is that too many Americans wouldn’t know the difference between North and South Korea – and many would love to go back to the isolationist days of 60+ years ago. They fail to realise how interconnected the world now is – and that any President, or potential President, has to have an acute awareness of America’s place in the world and global geo-politics.

I’m sure that some people will say that this is the role of the President’s advisors. If that is the case then elect the advisors – as it’s the President who signs the policy and agrees to it, and not the advisors. A President who has insufficient knowledge to be able to assess the advice given is not going to be effective or even safe. Instead of a slip of the tongue, the world will be at the risk of the slip of a button on the nuclear trigger if an unelected advisor has their own political agenda. That is a real danger with Sarah Palin, should she get elected. Palin believes that all that is needed is “common sense” and she puts down high-level (Ivy League) education. This is a problem for the USA and the Western World. In today’s world, lack of education means failure and avoiding this is a key reason why education is so important for the emerging super-powers, India and China, where there is an emphasis on self-improvement and knowledge.

Ironically, before hearing the news about Palin’s latest gaffe, I’d been reading Jon Lowder’s Blog post about an anti-elitism that’s sweeping America, and symbolised by Palin. It’s not wealth that’s seen as evil, but knowledge. Lowder quotes from a column by Frank Rich in the New York Times, discussing whether Palin could become President.

It’s anti-elitism that most defines angry populism in this moment, and, as David Frum, another Bush alumnus (and Palin critic), has pointed out, populist rage on the right is aimed at the educated, not the wealthy.

This disdain for knowledge and education is the way back to a new dark age – or perhaps, a new future, where America renames itself as Gilead (and Margaret Atwood‘s dystopian vision in her novel The Handmaid’s Tale becomes reality).

Thoughts on Asia

November 22, 2010 3 comments

A week ago I was travelling – first to Jakarta in Indonesia and then on to Mumbai in India. I left Jakarta just as President Obama was arriving, and flew to India where he’d spent a few days before moving on to Indonesia.

I’d never been to Indonesia before and hadn’t been in India for a few decades so my take on both countries may be subjective. However there were some things that were impossible to ignore.

In both hotels I stayed in, security was high. I had to pass my luggage through a scanner and pass through one each time I entered the hotel. The same applied to a shopping mall I visited in Jakarta. I’m familiar with this in Israel – and expect it. It’s the way to protect public places from terrorist attack. I was not surprised to see it in Mumbai, considering the atrocities carried out over the last few years in India. However I was surprised to see it in Jakarta – the largest Muslim nation in the world. I know that there was an attack in Bali in 2002 but Bali was a target as it was a way to hit so-called decadent Westerners (or so I thought). Jakarta, conversely, is a business centre and unlike Bali, mostly Moslem. Yet, security was tight – and it wasn’t just because Obama was visiting.

In London there is no overt security in hotels – you walk in without being stopped. The same applies in mainland Europe (or at least in the countries I’ve visited recently) and in the USA. However I suspect that over time, this will change as the terrorists inflict their damage on the ways of life and the freedom we expect. The plague that is terrorism does not distinguish between nations and religions – and it is ironic that so many terrorists claim to be followers of Islam, yet still target Moslems, as was so evident in Indonesia.

Jakarta - Rich versus Poor: A bank next to a street merchant.

Jakarta - Rich versus Poor: A bank next to a street merchant.

Another thing I noticed – especially in Indonesia was the gap between rich and poor. My hotel – a beautiful five-star hotel – was directly outside a road packed with shacks and small roadside shops. I took a walk down a lane – that would have been a downmarket slum in London. The lane joined the Intercontinental hotel that I was staying in, and the Shangri-La that Obama was booked into. Although I felt safe, I could see how resentment over the wealth that was so visible compared to what the majority survived on could spill over and destabilise the country. Whether this will happen, of course, will depend on the efforts the government makes to close the gap and allow the aspirations of the majority to be fulfilled. Without any effort I foresee trouble within a few years – either via violence, or political upheaval. Either will not be pleasant for those with the money, and potentially for those without.
In contrast, in India, even though I saw poverty, I also saw hope. People smiled and looked happy – even those with almost nothing. Children played cricket on the streets and there wasn’t the poverty of spirit you see in the West. Instead, there was an optimism that I’ve also seen in China but you need to search for in the US and Europe. 

A Mumbai Street Scene

A Mumbai Street Scene - Night-time cook-out on the pavement.

Children playing Cricket In the Street in Mumbai

Children playing Cricket In the Street in Mumbai - perhaps why India is now better than the UK at Cricket, as kids still play actively outdoors.

We were duped – EMI, Terra Firma and its argument against Citigroup

November 5, 2010 1 comment

“We were duped – Terra Firma closes its argument against Citigroup” (news item available to subscribers only) is the headline in the London Times (3 November 2010) reporting on Terra Firma‘s case against Citigroup relating to its 2007 purchase of the music group, EMI (which they lost).

I’ve been watching this news story, and EMI, for a number of years – as an example of a classical competitive intelligence failure. In fact, it’s not just one – but two failures. The first is the failure of the once great company, EMI, while the second is the failure to check sources and do appropriate due diligence, by Guy Hand’s firm, Terra Firma. As a case study in business failures, I believe it is a classic.

EMI’s history dates back to the early days of recorded music and it was once at the pinacle of its industry. Artists on EMI labels included The Beatles, Pink Floyd, Queen, Kylie Minogue, Coldplay, Lily Allen, KT Tunstall, Robbie Williams, and many many more. I grew up listening to albums such as David Bowie’s “Ziggy Stardust“, the Beatles “Sgt. Pepper’s Lonely Heart’s Club Band” and the unforgettable “Dark Side of the Moon” from Pink Floyd (the latter during free periods in my last year at school – that dates me 🙂 )

However EMI never adjusted to the idea of music downloading and the Internet. Rather than accept that there was a new technology that meant that the old model was dead, it tried to use court case after court case to kill the emerging hydra. Rather than fighting peer-to-peer online sharing of music it should have seen it as inevitable and that this reflected a new way for distributing music.

Music sharing was not new. People would regularly tape records and CDs – and although this was a problem for the recording companies, it was usually small scale and so could be overlooked. Even if one person didn’t purchase a record, their friend had. I believe that many records would be purchased just so you could hear a decent recording – rather than the bootleg taped version, so this copying served a purpose by publicising the music.

The Internet changed this – especially when services such as Napster emerged. The view of companies such as EMI was that such services had to be smashed – and that the old models had to be preserved. This did not mean that there were no new approaches that could have been adapted, and that they had no choice: there were. Last.fm, Pandora, Spotify, boxee and iTunes are all examples of services that take account of the web, online music streaming and similar to make money (albeit not all have yet broken into profit). Each of these offers a new model for distributing music – via low-cost downloads (iTunes), to subscription services (with a mix of free and paid versions) such as Spotify – backed up by advertising. Had EMI investigated such options the problems that led to its failure and eventual sale may have been avoided.

This is the first competitive intelligence failure and lesson.

Competitive Intelligence doesn’t just look at competitors. It also looks at the competitive environment and attempts to anticipate business change. It assesses the business change – and looks at the implications, allowing decision makers to develop strategies that cope effectively with the change. EMI certainly recognized the change represented by the Internet, but failed to understand its significance and so failed to adapt to what should have been obvious i.e. that the Internet was a radical change rather than an evolutionary development.

Such change occurs periodically – but always has a massive impact on businesses that fail to adapt their business model. Classic examples include the

  • development of commercial flight on shipping – why spend days sailing across the Atlantic from Europe to the USA when you can fly?
  • electric light – much safer and better than gas lights or candles
  • internal combustion engines and especially the mass production of cars, as initiated by the Ford motor company. The horse and cart, and all the equipment linked to horse and cart transport lost out.

The Internet was another such development. When such events (sometimes called Black Swan events) occur, only companies that recognise the threat and adapt quickly survive. EMI has failed in this – trying to stop the new models for music distribution, rather than embrace them and look for ways to make money from them.

Then we come to Guy Hands and Terra Firma’s acquisition of EMI. This is the second competitive intelligence failure – and in my view the more serious, as Terra Firma should have known better.

Private Equity firms such as Terra Firma’s make their money by buying and selling other businesses. Before purchasing a business, they need to do due diligence so that they can assess what they are buying.

Terra Firma’s court case revolved around a claim that they were mislead by Citigroup into believing that another company, Cerberus, was also bidding for EMI. They apparently were not told that Cerberus had dropped out on 19 May 2007, and so rushed through the due diligence process to ensure that they remained the prime bidder. Terra Firma claimed that David Wormsley, a Citigroup banker, had told them that Cerberus planned to place a rival bid of 262p a share and so Terra Firma offered 265p and walked away with what they thought was their prize.

Essentially there were three mistakes made here. The first was believing a single source without attempting to verify it through standard competitive intelligence approaches i.e. was Cerberus still bidding? Terra Firma relied on the word of a single individual whom they trusted, but who had a vested interest in upping the price that would have to be paid.

The second mistake was even worse. By rushing through their due diligence they didn’t investigate sufficiently the state of EMI and whether it was actually worth what they ended up paying. In fact it should not have made a difference whether or not Cerberus was bidding – if the company was not worth the price being asked then it would have been better to let a rival bidder grab it. Failure to do the due diligence meant that this assessment was not done effectively – it seems that Hands was blinded by his desire for EMI and wasn’t interested sufficiently in the process of ensuring that he got the value from his money.

The third mistake was hubris – instead of learning a well taught lesson, Hands attempted to blame Citigroup for being mislead, ignoring the old rule of Caveat Emptor . Had Terra Firma won, it would have meant that any advisor in any business sale would be at risk of being sued by purchasers who for whatever reason, failed to do adequate due diligence, and instead trusted totally the word of their advisors on what was or was not a good buy. Fortunately the court saw otherwise, and said good bye to Terra Firma’s claim.

In a way, the date of the judgement against Guy Hands is ironic – as 5th November is known as Guy Fawkes day in the United Kingdom.  Guy Fawkes attempted to blow up Parliament in 1605.  Instead of Trick-or-Treat on Halloween, British children used to make an effigy of Guy Fawkes to be burned on Guy Fawkes night, along with fireworks. Traditionally they would then use this effigy to collect money, with the chant “Penny for the Guy“.  This 5th November that slogan will have a new meaning for Terra Firma and Guy Hands.

Sharing ideas, creativity and intelligence

November 3, 2010 4 comments

I was recently pointed to a great YouTube video from Steven Johnson on where good ideas come from:

A key point that Johnson makes is that many creative ideas often take years to develop and depend on the input of other people. It is only through the sharing of partial ideas and hunches that fully fledged creativity can happen.

This is also important for competitive intelligence. Some managers view competitive intelligence as a “cloak & dagger” type process that needs to be enshrined in secrecy. They view it as of strategic importance and accordingly not for their corporation’s rank and file.

I believe that they are wrong! Competitive Intelligence IS strategically important but all employees need to be involved in the process. What often happens is that one employee will hear some information that by itself seems meaningless. It is only when combined with information from several others that a coherent picture emerges, turning disparate data pieces into important intelligence. Management needs to encourage such information sharing throughout the organisation – and only through such cooperation will the CI information gathering process be 100% effective. The role of the CI personnel then becomes that of coordination and facilitation – putting together the jigsaw of pieces gathered throughout the organisation and building a picture that management can safely use to make strategic decisions. Failure to do this can mean that several jigsaw pieces are liable to be missed or found too late – and so decision-making will suffer and the chances of making a wrong decision increase.

There is a story told by Sheila Wright of DeMontfort University. I’ve slightly adjusted it – partly to protect the innocent (and guilty) – apologies, Sheila.

Baked Beans TinApparently a number of years ago, there was a senior managers’ meeting at a food canning factory. Six months earlier, the factory had installed new machinery for wrapping the cans in plastic. Plastic wrap allowed them to reduce pallet sizes, and so ship products at a lower cost. Unfortunately the factory was having problems.  Too often the plastic was tearing – and not doing the job of keeping the cans immobile on the pallet. This meant that cans got damaged and costs got higher than anticipated.

As is common in senior management meetings, lunch and coffee is delivered during the meeting. A junior staff member was bringing in the coffee when he overheard his bosses talking about the plastic wrap problem.

“Er hmm….. can I interrupt…. I know what the problem is and how to fix it….I thought that you already knew the answer to the problem….” he said, to the incredulous stares of his bosses. The junior staff member then explained that he played football every Sunday and was friends with an operations manager who worked for a rival company. Apparently this competitor had installed similar machinery and come across the same problem. A few Sundays before, the operations manager had come to the football game in an ebullient mood. “We’ve fixed it” he’d explained. “All it needed was to recalibrate the machinery to take into account our cans and the plastic wrap we were using. It took us months to work out, but we’ve done it“.

By not encouraging the sharing of information, the canning company had compounded their problems. Nobody knew that this staff member had friends in a rival company or that this competitor had also been having problems with their packaging – and had solved it. There was no process to communicate the information – that would have helped and saved time and money. Essentially, information flowed down but there were no processes to allow it to flow up or be networked within the organisation.

Effective competitive intelligence builds systems that encourages the flow of information throughout the company – up, down and sideways. Of course there does need to be a respect for secrecy – and some conclusions should be kept secret. Business, strategy, and product development plans and so on do need to be protected.  However this should not be at the cost of failing to encourage all staff to contribute to the overall intelligence process and provide any information they come across – whether obviously relevant, or seemingly irrelevant or unimportant. There needs to be a balance between secrecy and openness. Anything else is a flawed system – that deserves to be canned!