Out with a Whimper – HP, B of A, Alcoa and the DJIA

This week the people who decide what composes the Dow Jones Industrial Average booted off 3 companies and added 3 others.  What's remarkable is how little most people cared!

"The Dow," as it is often called, is intended to represent the core of America's economy.  "As the Dow goes, so goes America" is the theory.  It is one of the most watched indices of all markets, with many people tracking how much it goes up, or down, every trading day.  So being a component of the DJIA is a pretty big deal.

It's not a good day when you find out your company has been removed from the index.  Because it is a very public statement that your company simply isn't all that important any more.  Certainly not as important as it once was!  Your relevance, once considered core to representing the economy, has dissipated.  And, unfortunately, most companies that fall off the DJIA slip away into oblivion.

I have a simple test.  Do like Jay Leno, of Tonight Show fame, and simply ask a dozen college graduates that are between 26 and 31 about a company.  If they know that company, and are positively influenced by it, you have relevancy.  If they don't care about that company then the CEO and Board should take note, because it is an early indicator that the company may well have lost relevancy and is probably in more trouble than the leaders want to admit.

Ask these folks about Alcoa (AA) and what do you imagine the typical response?  "Alcoa?"  It is a rare person under 40 who knows that Alcoa was once the king of aluminum — back when we wrapped food in "tin foil" and before we all drank sodas and beer from a can.  To most, "Alcoa" is a random set of letters with no meaning – like Altria – rather than its origin as ALuminum COrporation of America. 

But, its not even the largest aluminum company any more.  Alcoa is now 3rd.  In a world where we live on smartphones and tablets, who really cares about a mining company that deals in commodities?  Especially the third largest with no growth prospects?

Speaking of smartphones, Hewlett Packard (HPQ) was recently considered a bellweather of the tech industry.  An early innovator in test equipment, it was one of the original "Silicon Valley" companies.  But its commitment to printers has left people caring little about the company's products, since everyone prints less and less as we read more and more off digital screens. 

Past-CEO Fiorina's huge investment in PCs by buying Compaq (which previously bought minicomputer maker DEC,) committed the rest of HP into what is now one of the fastest shrinking markets.  And in PCs, HP doesn't even have any technology roots.  HP is just an assembler, mostly offshore, as its products are all based on outsourced chip and software technology. 

What a few years ago was considered a leader in technology has become a company that the younger crowd identifies with technology products they rarely use, and never buy.  And lacking any sort of exciting pipeline, nobody really cares about HP.

Bank of America (BAC) was one of the 2 leaders in financial services when it entered the DJIA.  It was a powerhouse in all things banking.  But, as the mortgage market disintegrated B of A rapidly fell into trouble.  It's shotgun wedding with Merrill Lynch to save the investment bank from failure made the B of A bigger, but not stronger. 

Now racked with concerns about any part of the institution having long-term success against larger, and better capitalized, banks in America and offshore has left B of A with a lot of branches, but no market leadership.  What innovations B of A may have had in lending or derivatives are now considered headaches most people either don't understand, or largely despise.

These 3 companies were once great lions of their industries.  And they were rewarded with placement on the DJIA as icons of the economy.  But they now leave with a whimper. Their values so shredded that their departure makes almost no impact on calculating the DJIA using the remaining companies.  (Note: the DJIA calculation was significantly impacted by the addition of much higher valued companies Nike, Goldman Sachs and Visa.)

If we look at some past examples of other companies removed from the DJIA, one should be skeptical about the long-term future for these three:

• 2009 – GM removed due to bankruptcy
• 2004 – AT&T and Kodak removed (both ended up in bankruptcy)
• 1999 – Goodyear, Union Carbide, Sears
• 1997 – Westinghouse, Woolworths
• 1991 – American Can, Navistar/International Harvester

Any company can lose relevancy.  Markets shift.  There is risk incurred by focusing on the status quo (Status Quo Risk.) New technology, regulations, competitors, business practices — innovations of all sorts — enter the market daily.  Being really good at something, in fact being the worlds BEST at something, does not insure success or longevity (despite the popularity of In Search of Excellence). 

When markets shift, and your company doesn't, you can find yourself without relevancy.  And with a fast declining value.  Whether you are iconic – or not.

6 Best Apps for Business on the Go

If you're frequently on the go, then your smartphone or tablet is a simple tool that can keep you connected to work from virtually anywhere. However, your device is hardly useful without the right apps; consider downloading these top useful apps for business people on the go.
 

1. Dropbox


 Image via Play.Google.com 

Dropbox  is perhaps the best data storage app available for mobile devices, and with over 50 million downloads, it's one of the most popular on the market. Using this app, users can access documents anywhere and from any device, similar to Apple’s iCloud. Use 2GB of free storage or upgrade to 16GB per account. Don’t worry about the security of important documents as this app features permission settings, account access information and a two-step verification process. You can store any file on Dropbox that you can store on your computer, making it convenient for any type of work. It's also easy to get extra space by recruiting friends and coworkers  to sign up for this app as well. 

2. Flipboard
Flipboard is a simple personalized news app that keeps you on top of the latest stories. With more than 10 million downloads, it's a popular app rated at 4.5 out of 5 stars on the PlayStore.  What makes Flipboard so great is that users can choose which topics the app should show, and then users can post their favorite stories in a "personal magazine" which can share these magazines on social media sites. With a syncing feature, users can access the news topics on any device.

3. Expensify


Image via Play.Google.com

Expensify  is a wonderful app for business people who travel frequently, consistently earning the number one spot on lists of the best apps for business travelers.  Expensify allows users to track expenses, log mileage, upload receipts with their device's camera, file expense reports and perform various other functions to make organizing business travel simple. Use this app on an iPhone, iPad, Android device, WebOS, or Blackberry device – and download it for free.

4. Google Hangouts
With a quality video chat app, you can easily stay in touch with colleagues and business partners no matter where you are. Available on PC, Android, and Apple devices, the Google Hangouts app  is easily accessible, making it simple to talk with other business people while users are out and about. It's free to use, allows multiple simultaneous conversations and with the right Internet provider users can collaborate with coworkers even if their offices are in a rural area.  Google Hangouts downside is the user base is still small.

5. Priority Matrix
Priority Matrix is a simple-to-use organizational app that can help users stay on top of all their business responsibilities. With it, users can:

• Organize lists and agendas
  
• Set target dates
  
• Make a pro and con list
  
• And more!
  

 

6. TripIt


Image via Play.Google.com

If you're a business person who travels often, TripIt  is a must-have app. TripIt links to a user's email account and automatically picks up trip confirmation numbers for any hotel, flight, or dinner reservation then organizes it into a simple itinerary. If users encounter last-minute changes or flight delays notified via email, the app automatically updates the itinerary.

Whether you travel often or just need to stay connected when you're away from work, these apps are excellent ways to make your life a bit easier.

This blog was written as a guest blog by Peyton Spencer.  I appreciate her insights into apps that can make all of our lives easier.

Peyton Spencer is a graduate of Concordia University in Saint Paul. She studied Communication with an emphasis on marketing and journalism. Her writing is featured on reputable blogs such as Dom's Tech Blog  and now The Phoenix Principle . In her spare time, Peyton loves experimenting with the newest technology, helping small businesses market their brand, and volunteering for non-profit organizations that are close to her heart such as Locks of Love, The Humane Society and Samaritan's Purse. 

Economically, is Obama America’s Greatest Modern President?

With the stock market hitting new highs, some people have
already forgotten about the Great Recession.  If you recall 2009, things looked pretty bleak
economically.  But the outlook has changed dramatically in just 4 years.  And it has been a boon for investors, as even the safest indices have yielded a 250% return (>25% annualized compound return:)

Source: Bulls, Bears and the Ballot Box at Facebook.com

Meanwhile, trends have reversed direction with unemployment falling, and consumer confidence rising:

Source: Bulls, Bears and the Ballot Box at Facebook.com

Since this coincides with President Obama’s first term, I asked the authors of “Bulls, Bears and the Ballot Box,” (available on Amazon.com) which I reviewed in my October 11, 2012 column, to capture their opinions on how much Americans should attribute the equity
upturn, and improved economic prospects, to the President as we enter his second term.

Interview with Bob
Deitrick, co-Author "Bulls, Bears and the Ballot Box" (BBBB):

Q– Bob, how much credit should Americans give President
Obama for today’s improved equity values?

BBBB – Our research reviewed American economic performance
since President Roosevelt installed the first Federal Reserve Board
Chairman – Republican Marriner Eccles.  We observed that even
though there are multiple impacts on the economy, it was clear that policy
decisions within each administration, from FDR forward, made a clear difference on performance. And
relatively quickly. 

Presidents universally take credit when the economy does
well (such as Reagan,) and choose to blame other factors when the economy does
poorly (such as Carter.)  But there
was a clear pattern, and link, between policy and financial market performance. 

Although we hear almost no one in the Obama administration
taking credit for record index highs, they should.   Because the President deserves
significant credit for how well this economy has done during his leadership. 

The auto rescue plan has worked.  American car manufacturers are still dominant and employing millions directly and in supplier companies.  Wall Street reform
has been painful but it has re-instated faith amongst investors. 
The markets are far more predictable than they were four years ago, as VIX numbers demonstrate greater faith and less risk. 

Even for small investors, such as thoughs limited to their 401(k) or IRA investments, the average annual compound
return on stocks under President Obama has been more than
24% since the lows of March, 2009. 
This is a better result than either Clinton, Reagan or FDR who were the
prior winners in our book. 

Q– Bob, what policies do you think were most important
toward achieving today’s new highs?

BBBB – Firstly, let’s review just how bad things were in
2009.  In 2000 America was completing the longest
bull market in history. But by
the end of President Bush's tenure the country had witnessed 2 stock market crashes, and the DJIA had fallen 58%.  This was the second worst market decline in history (exceeded
only by the Great Depression,) and hence the term “Great Recession” was born.

In 2000, at the end of Clinton’s administration, the
Consumer Confidence Index was at a record high 140. 
By January, 2009 this index had fallen to an historic low of 25.3.  Comparatively, when Reagan took office
at the end of the economically weak Carter years the Confidence Index
was still at 74.4!  Today this
measure of how people feel about the country is still nowhere near 2000 levels,
but it is almost 3 times better than 4 years ago.

Significantly, in 2000 America had a budget surplus.  By 2009 surpluses were long gone and the
country was racking up historic deficits as taxes were cut while simultaneously
outlays for defense skyrocketed to cover costs of wars in Iraq and
Afghanistan.  Additionally, banks
were on the edge of failing due to unregulated real estate speculation and massive derivative losses.

Today the Congressional Budget Office is reporting a $200B decrease in the deficit almost entirely due to increased revenue from a growing economy and higher taxes on the wealthiest Americans.  The deficit is now only 4% of the GDP, down from over 10% at the end of Bush's administration – and projections are for it to be only 2% by 2015 (before Obama leaves office.)  America's "debt problem" seems largely solved, and almost all due to growth rather than austerity.

We can largely thank a fairer tax code, improved regulation and consistent SEC enforcement.  Also, major strides in health care reform – something no other President has accomplished – has given American's more faith in their future, and an increased willingness to invest.  

Q– To which President would you compare Obama’s economic
performance?

BBBB– By all measures, President Obama has outperformed
every modern President. 

The easiest comparison would be to President Reagan, who’s
economic performance was superb.  Even though Obama's performance is better.

Reagan had the enormous benefit of two major factors:

1. a significantly better economy than Obama inherited, even if afflicted by inflation
2. and his two terms coincided with the highest performing
   demographic years of the Baby Boomer generation.

Today's demographics have shifted dramatically.  The country is much older, with fewer
young people supporting a much larger near-retirement age group.  This inherent demographic fact makes
creating economic growth monumentally harder than it was 30 years ago.

Few people think of Reagan as a stimulus addict.  Yet, his administration’s military
build-up added $1trillion of stimulus to the national debt ($2.3trillion adjusted for
inflation) – the opposite of what is happening during the Obama years.  Many like to think
that it was tax cutting which grew the economy, but undoubtedly we now know
that this dramatic defense and infrastructure (highways, etc.) stimulus had more to do with igniting economic growth.  Reagan's spending looked far more like FDR than Herbert Hoover!

Ronald  Reagan tripled the national debt during his tenure, creating what today's Congressional austerity advocates might have called "a legacy of unpayable debt for our grandchildren.” But, as we saw, later growth (during Clinton) resolved that debt and created a budget surplus by 2000.

Q– Bob, President’s Obama detractors liken the Affordable
Care Act (i.e. Obamacare) to an Armageddon on business, sure to kill economic
growth and plunge the country back into recession.  Do you agree?

BBBB– To the contrary, ACA levels the playing field and will
be good for economic growth.  Where
previously only large corporations could afford employee health care plans, in
the future far more employees will have far more equitable coverage.  Further, today employees frequently are unable to leave a
company to start a new business because they would lose health care, which in
the future will not be true.

One leading indicator of the benefits of ACA might be the performance of healthcare and biotech stocks, which are up 20-30% and leaders in the current market rally.

Q– What policies would you recommend the Obama
administration follow in order to promote economic growth, more jobs and
greater returns for investors during the second term?

BBBB-  Obama needs to make the cornerstone of his second term creating new job growth.  That was the primary platform of his candidacy, and it is a platform long successful for the Democratic party.  If President Obama can do this and  govern effectively, this could be his real legacy.

 

 

Are American’s Abusing Social Security Disability?

Does anyone remember the 1990s?  Economic growth was robust, the stock market was exploding and unemployment was low.  Even though outsourcing was just emerging as a new business practice, there were more jobs than employees in America, and the Federal Reserve Board Chairman worried about "irrational exuberance."  If you had a degree you had a job, and you had a car (or 2) and a house as you awaited ever rising income and asset values.

Oh my, how times have changed.  A third of U.S. homes are worth less than the mortgage, auto sales fell off a cliff as GM and Chrysler filed bankruptcy, trust in banks has disappeared, savers earn nearly 0% yet investors shun stocks and laugh at declining values of IPOs.  And unemployment remains stubbornly stuck just below double digits as job growth remains anemic, despite reduced outsourcing and rising oversees costs. 

So how do Americans react to limited economic growth?  Apparently, increasingly, by feigning disabilities in order to create their own form of social welfare net similar to Europe.  Regardless of what Americans say, it is important to look at what they do. 

This week I am pleased to offer you a guest blog from Jack Ablin, Chief Investment Officer of Harris Private Bank, a division of BMO Financial:

Working conditions in the United States are getting downright dangerous if the Social Security disability statistics are any indication.  The number of Americans collecting disability is rising at an unprecedented and alarming rate.  This belies Bureau of Labor Statistics data that tells the story of workplace safety that is constantly improving.  Everyone knows that injury incidence rates have been in secular decline since, well, always. 

When thinking about worker-related risks, "Lunch atop a Skyscraper," the famous Depression era photo by Charles C. Ebbets immediately comes to mind.  What we once accepted at the workplace is now wildly unacceptable:

In 2010, there were 3.5 total recordable cases of non-fatal occupational injury and illness per 100 full-time workers, down from 5.0 less than a decade ago.  In 1973 the rate was 11 per 100.  The net decline amounts to a 3.7 percent reduction in these hazards every year for four decades. 

Of course, not all injuries and illness are work related.  Then again, is there any aspect of our lives that has not become safer in the last two generations?  For example, auto injuries are always a factor.  But those risks have collapsed with the advent of airbags, anti-lock brakes and other technological breakthroughs. 
 
The Social Security Administration’s website cites two criteria for disability eligibility:
•      You must be unable to do any substantial work because of your medical condition(s); and
•      Your medical condition(s) must have lasted, or be expected to last at least 1 year, or be expected to result in your death.

Quizzically, from 1980 to 2002 there was no change in the percentage of the workforce claiming disability, yet the “disability participation rate” has embarked on a 4.5 percent ascent each year for the last decade.  There is now 1 person collecting disability for every 12 in the workforce. 

This occurred despite the evolution toward more of a “desk job” workforce.  The Bureau of Labor Statistics reports that today only 14% of working Americans are in goods producing jobs, down from more than 25% in 1973.  Yet, somehow, claims for disability benefits have headed in the opposite direction:

 
There are people out there that truly want to work but are too sick or injured to do so.  Sadly, many are unfortunately being branded with a stigma because of the legions that are out there gaming the system.  That is the only way we can explain how almost as many people collect disability (10.8 million) as there are working in the entirety of manufacturing (12 million). 

It is plain to see that permanently stagnant labor markets are making Social Security disability the new unemployment benefit.  
 
The impact of America's "no growth decade" from 2000-2010 is clearly impacting America.  I want to thank Jack for his analysis.  I urge your to sign up for Jack's newsletter, full of insight about the economy, interest rates, investing and jobs by contacting him at jack.ablin@harrisbank.com.  Jack is a graduate of Vassar and has his MBA from Boston University.  He is a CFA and frequent contributor to CNBC, Bloomberg, Barron's and The Wall Street Journal.

CIOs – You can drive GROWTH

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"Too Add Value Through IT, Pick Up the Ball" headlines my latest article published by IDG group. For years IT leaders thought their job was to "keep the joint running." Today, that's insufficient.  Nobody can avoid being part of the growth agenda if they are to be a successful leader or manager. 

To drive success, and keep their jobs, IT leaders now have to move beyond simply being defensive.  Keeping the systems running, and cutting operating costs, is not enough to be a great CIO.  Too many have ended up outsourcing almost everything in order to lower costs, only to discover that IT becomes far too rigid and unable to support market needs when so many services are outsourced to third parties.

Today's CIO has to spend more time figuring out how to flexibly, adaptively, bring new solutions to both insiders and customers.  It's important CIOs not just track historical (and accounting) data, but behave like the offensive team, identifying and tracking considerably more market-based data.  And creating various future scenarios to help the company spot trends and opportunities.  On top of this, IT must demonstrate how using emerging solutions – from Salesforce.com to Groupon, Foursquare and Facebook (examples) – can reach more customers, faster – driving higher revenues.

Read how important it is for IT to become part of the growth engine at one of the locations where this article has been published:

@ CIO Magazine – @ PC World – @ Network World – @ IT World Canada – @ CIO Australia – @ ComputerWorld Norway

Additionally, read my latest article on effective strategic planning – for IT or any part of the organization – published by the Strategic Planning Society of the UK "Disrupting the Marketplace".  This article describes how to add maximum value, growing revenue, cash flow and profits, by identifying and implementing opportunities to disrupt the marketplace.  And allowing those disruptions to invade your own organization for more dynamism.

 

 

Will you grow in 2011? Create wealth like Apple, Amazon, Priceline, DeVry, Colgate

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“Goodbye 2010, the Year of Austerity” is the  headline from Mediapost.com‘s Marketing Daily.  And that could be the mantra for many, many companies.  Nobody is winning today by trying to save their way to prosperity!  As we move into this decade, it is important business leaders realize that the only way to create a strong bottom line (profit) is to develop a strong top line (revenue.)  Recommendations:

1. Never be desperate.  Go to where the growth is, and where you can make money.  Don’t chase any business, chase the business where you can profitably growth.  Be somewhat selective.
2. Focus efforts on markets you know best.  I add that it’s important you understand not to do just what you like, but learn to do what customers VALUE.
3. Let go of crap, traditions and “playing it safe” actions.  Growth is all about learning to do what the market wants, not trying to protect the past – whether processes, products or even customers.
4. More lemonade making. You can’t grow unless you’re willing to learn from everything around you. We constantly find ourselves holding lemons, but those who prosper don’t give up – they look for how to turn those into desirable lemonade.  What is your willingness to learn from the market?
5. Austerity measures are counterproductive 99% of the time. Efficiency is the biggest obstacle to innovation.  You don’t have to be a spendthrift to succeed, but you can’t be a miser investing in only the things you know, and have done before.
6. Communicate, communicate, communicate. We don’t learn if we don’t share.  Developing insight from the environment happens when all inputs are shared, and lots of people contribute to the process.
7. Get off the downbeat buss. There’s more to success than the power of positive thinking, but it is very hard to gain insight and push innovation when you’re a pessimist.  Growth is an opportunity to learn, and do exciting things. That should be a positive for everybody – except the status quo police.

Realizing that you can’t beat the cost-cutting horse forever (in fact, most are about ready for the proverbial glue factory), it’s time to realize that businesses have been under-investing in innovation for the last decade.  While GM, Circuit City, Blockbuster, Silicon Graphics and Sun Microsystems have been failing, Apple, Google, Cisco, Netflix, Facebook and Twitter have maintained double-digit growth!  Those who keep innovating realize that markets aren’t dead, they’re just shifting!  Growth is there for businesses who are willing to innovate new solutions that attract customers and their dollars! For every dead DVD store there’s somebody making money streaming downloads.  Businesses simply have to work harder at innovating.

Fast Company gives us “Five Innovative New Year’s Resolutions:”

1. Associate.  Work harder at trying to “connect the dots.”  Pick up on weak signals, before others, and build scenarios to help understand the impact of these signals as they become stronger.  For example, 24x7WallStreet.com clues us in that greater use of mobile devices will wipe out some businesses in “The Ten Businesses The Smartphone Has Destroyed.”  But for each of these (and hundreds others over the next few years) there will be a large number of new business opportunities emerging.  Just look at the efforts of Foursquare and Groupon and the direction those growth businesses are headed.
2. Observe.  Pay attention to what’s happening in the world, and think about what it means for your (and every other) business.  $100/barrel oil has an impact; what opportunity does it create?  Declining network TV watching has an impact – how will you leverage this shift?  Don’t just wander through the market, and reacting.  Figure out what’s happening and learn to recognize the signs of growth opportunities. Use market events to drive being proactive.
3. Experiment.  If you don’t have White Space teams trying figure out new business models, how will you be a future winner?  Nobody “lucks” into a growth market.  It takes lots of trial and learning – and that means the willingness to experiment.  A lot.  Plan on experimenting.  Invest in it.  And then plan on the positive results.
4. Question. Keep asking “why” until the market participants are so tired they throw you out of the room.  Then, invent scenarios and ask “why not” until they throw you out again.  Markets won’t tell you what the next big thing is, but if you ask a lot of questions your scenarios about the future will be a whole lot better – and your experimentation will be significantly more productive.
5. Network. You can’t cast your net too wide in the effort to obtain multiple points of view.  Nothing is narrower than our own convictions.  Only by actively soliciting input from wide-ranging sources can you develop alternative solutions that have higher value.  We become so comfortable talking to the same people, inside our companies and outside, that we don’t realize how we start hearing only reinforcement for our biases.  Develop, and expand, your network as fast as possible.  Oil and water may be hard to mix, but it blending inputs creates a good salad dressing.

ChiefExecutive.net headlined “2010 CEO Wealth Creation Index Shows a Few Surprises.” Who creates wealth?  Included in thte Top 10 list are the CEOs of Priceline.com, Apple, Amazon, Colgate-Palmolive and DeVry.  These CEOs are driving industry innovation, and through that growth.  This has produced above-average cash flow, and higher valuations for their shareholders.  As well as more, and better quality jobs for employees.  Meanwhile suppliers are in a position to offer their own insights for ways to grow, rather than constantly battling price discussions.

Who destroys wealth?  In the Top 10 list are the CEOs of Dean Foods, Kraft, Computer Sciences (CSC) and Washington Post.  These companies have long eschewed innovation.  None have introduced any important innovations for over a decade.  Their efforts to defend & extend old practices has hurt revenue growth, providing ample opportunity for competitors to enter their markets and drive down margins through price wars.  Penny-pinching has not improved returns as revenues faltered, and investors have watched value languish.  Employees are constantly in turmoil, wondering what future opportunities may ever exist.  Suppliers never discuss anything but price.  These are not fun companies to work in, or with, and have not produced jobs to grow our economy.

Any company can grow in 2011.  Will you?  If you choose to keep doing what you’ve always done – well you shouldn’t plan on improved performance.  On the other hand, embracing market shifts and creating an adaptive organization that identifies and launches innovation could well make you into a big winner.  Next holiday season when you look at performance results for 2011 they will have more to do with management’s decisions about how to manage than any other factor.  Any company can grow, if it does the right things.

 

 

Play To Win, Not “Catch up” – Colgate’s Opportunity

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Summary:

• We too often think of competition as “head to head”
• Smart competitors avoid direct competition, instead using alternative methods in order to lower cost while appealing directly to market needs
• Proctor & Gamble has long dominated advertising for many consumer goods, but the impact, value and payoff of traditional advertising has declined markedly as people have switched to the web
• New competitors can utilize internet and social media tools to achieve better brand positioning and targeted marketing at far lower cost than old mass media products
• Colgate is in a great position to blow past P&G by investing quickly and taking the lead in internet marketing for its products
• Eschew calls for investing in old methods of competition, and instead find new ways to compete that allow you to end-run traditional leaders

According to a recent Advertising Age article (“To Catch Up Colgate May Ratchet Up Its Ad Spending“) Colgate has done a surprisingly good job of holding onto market share, despite underspending almost all its competitors in advertising.  This is no mean feat in consumer products, where advertising dominates the cost structure.  But the AdAge folks are predicting that to avoid further declines, and grow, Colgate will have to dramatically up its ad spending.  That would be old-fashioned, backward-thinking, short-sighted and a lousy use of resources!

Colgate competes with lots of companies, but across categories its primary competitor is Proctor & Gamble.  In toothpaste, P&G’s Crest outspends Colgate by over $25M – or about 35%.  In dishsoap Colgate spent nothing on Palmolive in 2010, compared to P&G’s spend of $30M on Dawn.  In deodorant/body soap Colgate spent about $9M on Softsoap, Irish Spring and Speedstick while P&G spent 9 times more (over $82M) on Old Spice and Secret. (Side note, Unilever spent $148M on Dove and a whopping $267M when adding in Axe and Degree!)  In pet food, Unilever spends $35M dollars more (almost 4x) on Iams than Colgate spent on Hills Science Diet.  Altogether, in these categories, P&G spent almost $158M more than Colgate (2.5x more)!  As a big believer in traditional advertising, AdAge therefore predicts that Colgate should dramatically increase its annual ad budget – and maintain these higher levels for 5 years in order to overcome its historical “underspending.”

But that would be like deciding to trade punches with Goliath! 

Why would Colgate want to do more of what P&G does the most?  While advisors try to pit competitors directly against each other, head-to-head “gladiator style” combat leaves the combatants bloody – some dead.  That’s a dumb way to compete.  Colgate has long spent in other areas, such as supporting dog rescue operations and with product specialists gaining endorsements while eschewing more general advertising.  Now, if Colgate wants to take action to grow share, it should pick up a sling (to continue the (Biblical metaphor) in its ongoing battle.  And the good news is that Colgate has an entire selection of new, alternative weapons to use today.

Across all its product categories, Colgate can utilize a plethora of new social media marketing tools.  At costs far lower than traditional mass advertising, Colgate can build promotional web programs that appeal directly to targeted consumers.  Twitter, Facebook, Foursquare, Groupon, YouTube, Google and many other tool providers allow Colgate to spend far, far less than traditional advertising to provide specific brand promotions, product information, purchase incentives (such as coupons) and product variations targeted at various niches. 

With these tools Colgate can not only reach directly into buyer laptops and mobile devices, but offer specific information and incentives.  Traditional advertising, whether print (newspaper and magazine), radio, television or coupons is a low percentage tool.  Seeking response rates (or even recall rates) of just 1 to 5 percent is normal – meaning 90% percent of your spending is, quite literally, just “overhead” cost.  But with modern on-line tools it is very common to have response rates of 50% – or even higher!  (Depending upon how targeted and accurate, of course!)

Colgate is in a great position! 

It has spent much less than competitors, and maintained good brand position.  It’s biggest competitors are locked-in to spending vast sums on traditional tools that have low impact and are in declining media.  Colgate could now decide to commit itself to using the new, modern tools which are lower cost, and have decidedly more targeted results.  In this way, Colgate can get out of the “colliseum” where the gladiators are warring, and throw rocks at them from the stands.  Play its own game – to win – while letting those in the pit whack away at each other becoming weaker and weaker trying to use the old, heavy and unsophisticated tools.

Now is a wonderful time to be the “underdog” competitor.  “Media” and advertising are in transition. How people obtain information on products and services is moving from traditional advertsing and PR (public relations) focused through mass media to networks with common interests in social media.  Instead of delays in obtaining information, based upon publisher programming dates, customers are seeking immediate, and current information, exactly when they need it – on their mobile devices.  Those competitors who rapidly adopt these new tools are well positioned to be the new Davids in the battle with old Goliaths.  And that includes YOU.

 

Facebook’s new email client is a big deal for business

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Summary:

• Many companies block employee access to Facebook and other social network applications
• But these environments actually improve performance
• Social networks like Facebook allow people to be more productive, and are very inexpensive
• Facebook’s new email client is an example of how these environments can provide companies better services at lower cost – supplanting existing email, for example
• Those who embrace advances early gain an information advantage, as well as a cost advantage
• The new Facebook email client is a big deal for business, and should be explored by everyone

A year ago I was on a panel at the Indian Institute of Technology global conference.  My fellow panelists were mostly IT heads from major corporations.  When it came to Twitter, Linked-in, MySpace and Facebook – the world of social networking – universally they all blocked access.  The reasons given were primarily data confidentiality (fear company information would escape) and productivity (fear employees would unproductively apply their time to personal efforts.)  They saw no advantages to social network applications, only risk.  Most of those companies – from pharmaceuticals to airlines – still deny access. 

This follows a long list of things denied employees by large employers on the grounds of confidentiality and productivity

• employees don’t need a phone at their desk, who could they need to talk to and what do they need to say at work?  They can write letters or memos.
• employees don’t need a personal computer.  All data should be kept on secured tapes and accessed by productive data center professionals when it makes sense.
• employees don’t need a hard disk in their personal computer.  We must keep all data away from employees and keep them focused on using applications tied to central data repositories for productivity
• employees don’t need laptops.  Who knows where they will go, and what employees will do with them.  They could let data escape, or spend time on personal letters and spreadsheets.
• employees don’t need their own printers.  Send all jobs to a central printer location so we can control what is printed for confidentiality and to make sure somebody isn’t printing more than is necessary
• employees don’t need their own cell phones.  What in the world do they need to say that can’t wait until they are in the office?  How will we keep them from wasting time on personal calls?
• employees don’t need internet access at work.  There’s nothing on the web that is important for their work, and it opens a security hole in our operations.  If we give them internet access they’ll waste hours and hours browsing instead of working.

This list could go on for a long time, as I’m sure you can now imagine.  Confidentiality and productivity are merely excuses for those who fear new tools.  Reality is that all these new products improved productivity dramatically, helping employees get more done faster – and making them smarter on the job as well.  Organizations that rapidly adopted these (and other) technologies actually achieved superior performance, and rapidly saw their costs decline as these lower cost solutions gave more productivity at lower prices.  In most cases, something formerly proprietary and costly became available from an outside source much, much cheaper that worked a whole lot better.  Like how the Post Office displaced private messenger services – even though it did have security risks and made it possible for anyone to send a letter (see what I mean, you can go back in time forever with these examples.)

Today social media is the next “big thing” to improve productivity.  Facebook, Twitter and its counterparts offer full multi-media, real time interaction with people you know, and don’t know that well, globally.  You can find out about everything remarkably fast, and often quite accurately, at practically no cost.  No server need be bought – and you don’t even need a PC.  A cheap smartphone or tablet will give you all you want – soon to include conferencing and video chat.  And you don’t have to buy any software.  And you can connect to everyone – not just the people in your company, or on your server, or even on your network or your network service provider. According to Gartner, at MediaPost.com “Implications of a Facebook email Client” will be noticable by 2012, and universal by 2014!

And that’s why “Facebooks Not email Announcement” (as reported in LiveBlog Twitter style on ReadWriteWeb.com) is important for business.  Facebook email is going to be better, faster and cheaper than existing email – especially if you’re still using 2 decades out-of-date products like Lotus Notes!  Something Facebook doesn’t even want to call email because of its advancements.  

An email client for Facebook goes far beyond the value of a Microsoft Live server (think Hotmail+ if you’re not IT oriented).  Even GMail, for all its great features, doesn’t offer everything you get in Facebook, due to how Facebook provides integration into everything else that makes its network wildly productive for those of us who realize we live in networks.  You even have an archive, searchability – and the capability of creating multiple virtual private networks for doing all kinds of business activities in different markets! And practically free!  Using incredibly cheap devices, in multiple varieties and platforms, that employees might well purchase themselves! 

For use by everyone from execs to salespeople, businesses will soon be able to stop buying and handing out laptops.  Even PCWorld addressed the opportunity in “Social Networks to Supplant email in Business?” Businesses will soon quit operating server farms for most communications.  Even quit supporting networks for things like printing sales documents, or creating document-loaded USB drives to hand out.  With everyone on tablets and smartphones, and connected over social networks, in a couple of years “leave behinds” will be unnecessary.  Those in sales and purchasing will be able to obtain competitive reviews, and prices, and configurations almost instantaneously by asking people on their network for input and feedback. Email will become slow, and a siloed application less useful than products that sit on the network.

With each advance, new opportunities emerge.  Doctors have long been notoriously unwilling to carry laptops, or email patients.  From the operating room to test results, finding out from an M.D. what’s going on has been problematic.  Now MediaPost tells us in “Doctors Without Social Media Borders” how patient communication is rising dramatically from adoption of social media.  It lets the physician, and others in medicine, communicate faster, more productively and cheaper than anything before. And this is just one example of how behavior changes when new capabilities arise.  Formerly unmet needs are satisfied, and people shift to where they achieve greatest satisfaction.

Once email was considered the “killer app” that made everyone need a PC – and access to the web.  Social media takes email into entirely new orbits.  Getting more done, faster, with more people, using more current data, verified by more access points, across multiple media creates competitive advantage.  Those who ignore this trend will fall behind.  Those who adopt it have the opportunity to beat their competition.  Everyone knows that those who know the most, first, and are able to apply it have a big first mover advantage.  If you’re not promoting this in your company – if you are in fact blocking it – you’ll soon have no chance of remaining competitive.  You’ll just start falling behind – and the gap will widen. 

 

It’s About the Economy, Stupid – Lessons from the election

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Summary:

• Voters whipsawed from throwing out the Republicans 2 year ago to throwing out Democrats this election
• Americans are frustrated by a no-growth economy
• Recent government programs have been ineffective at stimulating growth, despite horrific expense
• Lost manufacturing/industrial jobs will never return
• America needs new government programs designed to create information-era jobs
• Education, R&D, Product Development and Innovation investment programs are desperately needed

“It’s the Economy, Stupid” was the driving theme used during Bill Clinton’s winning 1992 Presidential campaign.  Following the dramatic changes produced in Tuesday’s American elections, this refrain seems as applicable as ever.  Two years ago Americans changed leadership in the Presidency, Congress and the Senate out of disgust with the financial crisis and lousy economy.  Now, Congress has shifted back the other direction – and the Senate came close – for ostensibly the same, ongoing reason. What seems pretty clear is that Americans are upset about their economy – and in particular they are worried about jobs and incomes.

So why can’t the politicians seem to get it right?  After all, economic improvement allowed Bill Clinton to retain the Presidency in 1996.  If smart politicians know that Americans are “voting with their pocketbooks” these days, you’d think they would be doing things to improve the economy and jobs.  Wasn’t that what the big big bailouts and government spending programs of the last 4 years were supposed to do? 

What we can now see, however, is that programs which worked for FDR, or Ronald Reagan and other politicians in the late 1900s aren’t working these days.  Everything from Great Depression Keynesians to Depression retreading Chicago School monatarists to Laffer Curve idealists have offered up and applied programs the last 8 years intended to stimulate growth.  But so far, the needle simply hasn’t moved.  Recognizing that the economy is sick, looking at the symptoms of weak jobs and high unemployment, could it be that the country’s leaders are trying to apply old medicine when the illness has substantially changed? 

What’s missed by so many Americans today – populace and politicians – is that the 2010 economy is nothing like that of the 1940s; and bares little resemblance to the economy as recently as the 1990s.  Scan these interesting facts reported by BusinessInsider.com:

• In 2009 there were 12M Americans in manufacturing jobs.  That’s the lowest number since 1941 (in 1941 there were 133.4M Americans; today there are over 300M)
• In 1959 manufacturing was 28% of U.S. economic output.  Today it is 11.5%
• Since 2001 42,400 factories have closed in America
• Since 2000, America has lost 5.5M manufacturing jobs (32%)
• Fewer Americans are working at making computers in 2009 than were doing so in 1975 – when mainframes were the dominant technology and buyers were severely limited.
• From 1999 to 2008 jobs in foreign affiliates of U.S. companies grew by 2.3M
  
• A list of products no longer made in America includes Gerber baby food, Levi jeans, Mattel Toys, Dell computers, major league baseballs, dress shirts, vending machines, incandescent light bulbs, televisions, canned sardines, ordinary silverware and dress shirts. 

These lost jobs are NEVER coming back.  The American economy has fundamentally shifted, and it will never go back to the way it was.  Clocks don’t run backward. 

In 1910 90% of Americans were working in agriculture.  By 1970 that proportion had dropped to 10%.  Had American policy in the last century remained fixated on protecting farming jobs the country would have failed.  Only by shifting to industrialization (manufacturing) was America able to continue its growth – and create all those new industrial jobs.  Now American policy has to shift again if it wants to start creating new jobs.  We have to create information-era jobs.

But government programs applied the last 12 years were all retreaded industrial era ideas (implemented by Boomer-era leaders educated in those programs.)  They were intended to grow industrial jobs by spurring supply and demand for “things.”  Lower interest rates were intended to increase manufacturing investment and generate more supply at lower cost.  These jobs were expected to create more service jobs (retailers, schools, plumbers, etc.) supporting the manufacturing worker.  But today, supply isn’t coming from America.  Nobody is going to build a manufacturing plant in America when gobs of capacity is shuttered and available, and costs are dramatically lower elsewhere with plentiful skill supply.  We can keep GM and Chrysler on life support, but there is no way these companies will grow jobs in face of a global competitive onslaught with very good products, new innovations and lower cost.  Cheap interest rates make little difference – no matter what the cost to taxpayers.   

Other old-school programs focused on increasing demand. TARP, cheap consumer lending, tax cuts, rebates and subsidies were intended to encourage people to buy more stuff.  Consumers were expected to take advantage of the increased supply and spend the cash, thus reviving the economy.  But today, many people are busy paying down debt or saving for retirement.  Further, even when they do spend money the goods simply aren’t made in America.  If consumers (including businesses) buy 10 Dell computers or 20 uniform shirts it creates no new American jobs. Spurring demand doesn’t matter when “things” are made elsewhere.  In fact, it benefits the offshore economies of China and other manufacturing centers more than the USA!

If this new crop of politicians, and the President, want to keep their jobs in the next election they had better face facts.  The American economy has shifted – and it will take very different policies to revive it.  New American jobs will not be created by thinking we’ll will make jeans, baby food or baseballs, so applying old approaches and focusing on increasing supply and demand will not work.  America is no longer an industrial economy.

The jobs at Dell are engineering, design and managerial.  Hiring organizations like Google, Apple, Cisco and Tesla are adding workers to generate, analyze, interpret and gain insight from information.  Jobs today are based upon brain work, not brawn.  An old American folk song told the story about John Henry’s inability to keep up with the automated stake driving machine – and showed all Americans that the industrial era made conventional, uneducated hand-labor of little value.  Now, computers, networks and analytics are making the value of manufacturing work low value.  Because we are in an information economy, rather than an industrial one, pursuing growth of industrial jobs today is as misguided as trying to preserve manual labor and farm jobs was in the 1960s and 1970s.

Directionally, American politicians need to implement programs that will create the kind of jobs that are valuable, and likely, in America.  Incenting education, to improve the skills necessary to be productive in this economy, is fairly obvious.  Instead of cutting education benefits, raise them to remain a world leader in secondary education and produce a highly qualified workforce of knowledge workers. Support universities struggling in the face of dwindling state tax funds.  Subsidize masters and PhD candidates who can create new products and lead companies into new directions, and do things to encourage their hiring by American companies.

Investments in R&D and product development are likewise obvious.  America’s growth companies are driving innovation; bringing forward world-demanded products like digital music, on-line publications, global networks, real-time feedback on ad links, ways to purify water – and in the future trains, planes and automobiles that need no fossil fuels or drivers (just to throw out a not-unlikely scenario.)  For every dollar thrown at GM trying to keep lower-skilled manufacturing jobs alive there would be a 10x gain if those dollars were spent on information era jobs in innovation.  America doesn’t need to preserve jobs for high school graduates, it must create jobs for the millions of college grads (and post-graduate degree holders) working today as waiters and grocery cashiers.  Providing incentives for angel investing, venture capital and other innovation investment will have a rapid, immediate impact on job creation in everything from IT to biotech, nanotech, remote education and electric cars.

A stalled economy is a horrible thing.  Economies, like companies, thrive on growth!  Everyone hurts when tax receipts stall, government spending rises and homes go down in value while inflationary fears grow.  And Americans keep saying they want politicians to “fix it.”  But the “fix” requires thinking about the American economy differently, and realizing that programs designed to preserve/promote the old industrial economy – by saving banks that invest in property, plant and equipment, or manufacturers that have no money for new product development – will NOT get the job done.  It’s going to take a different approach to drive economic growth and job creation in America, now that the shift has occurred.  And the sooner politicians understand this, the better!

Get aboard, or risk getting run over – Huffington Post, Tribune Corp., Forbes.com

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Summary:

• Traditional news formats – such as magazines and newspapers – are faltering
• On-line editions of traditional formats are not faring well
• Important journalists are transitioning to blogger roles to better provide news consumers what they want
• Important journalists from Newsweek and the New York Times have joined HuffingtonPost.com as bloggers
• Forbes.com is transitioning from traditional publishing to bloggers in its effort to meet market needs
• The new era of journalism will be nothing like the last

In early 2006, before it completed the leveraged buyout (LBO) that added piles of debt onto Tribune Corporation I was talking with several former Chicago Tribune executives who had been placed in senior positions at the acquired Los Angeles Times.  Their challenge was figuring out how they would ever improve cash flow enough to justify the huge premium paid for the newspaper.  Unfortunately, 90% or more of their energy was focused on cost cutting and outsourcing, with almost none looking at revenue generation.

In the face of a declining subscriber base,  intense competitiion from smaller, targeted newspapers in the area, and a lousy ad market I asked both the publisher and the General Manager what they were going to do to drive revenue growth.  They, quite literally, had no ideas.  There was a fledgling effort, dramatically underfunded for the scale of the country’s largest local newspaper, to post part of the LATimes content on-line.  But the entire team was only 30 people, they were restricted to re-treading newspaper content, and mostly they focused on local sports reports (pages which drew the largest number of hits).  About a third of the staff were technical folks (IT), and half were sales – leaving very few bodies (or brains) to put energy into making a really world-class news environment worthy of the LATimes.com name.   The group head was trying to find internet ad buyers who would pay a premium to be on a well-named but woefully content-weak web-site.

Lacking any plans to drive growth, in old or new markets, it was no surprise that lay-offs and draconian cost cutting continued.  Several floors in the famous newspaper building right in downtown Los Angeles, like the Tribune Tower in Chicago, became empty.  By 2008 as much of the building was used as a movie set as used by editors or reporters! Eventually Tribune Corp. filed bankruptcy – where it has remained going on 3 years now.

When asked if the newspaper would consider adding bloggers to the on-line journal, the entire management team was horrified.  “Bloggers are not journalists,” was the first concern, “so quality would be unacceptable. You cannot expect a major journalistic enterprise to consider blogging to have any correlation with professional journalism.”  I asked what they thought about the then-fledgling HuffingtonPost.com, to which they retorted “that is not a legitimate news company.  The product is not comparable to our newspaper.  It has nothing to do with the business we’re in.”  And with that simple attack, the executives promptly dismissed the fledgling, fringe competition.

How things have changed in news publishing.  Four years later newspapers are dramatically smaller, in both ad dollars and staff.  Many major journals – magazines as well as newspapers – have discontinued print editions as subscriptions have declined.  Print formats (physical size) are substantially smaller.  While millions of internet news sites attract readers hourly, print readership has only gone down.  Major journals, unable to maintain their cash flow, have been acquired at low prices by newcomers hopeful of developing a new business model, and many well known and formerly influential news journalists have been laid off, or moved to on-line environments in order to maintain employment.

About a week ago the Wall Street Journal reported “Newsweek’s Howard Fineman to Join Huffington Post.”  This week Mediapost.com headlined “The HuffPo’s Hiring of NYT’s Peter Goodman Is More Significant Than You Think.” Rather rapidly, in just a few years, HuffingtonPost.com has become a major force in the news industry.  Well known journalists from Newsweek and the New York Times add considerable credibility to a new media which traditional publishers far too often ignored.  Much to the chagrin, to be sure, of Sam Zell and the leadership at Tribune Corporation.

Today people want not only sterile reporting, but some insight.  “What does this mean? Why do you think this happened?  Is this event important, or not, longer term? What am I supposed to do with this information?”  People want some analysis, as well as news.  And readers want the input NOW – immediately – not at some later time that meets an arbitrary news cycle. Increasingly news consumers want Bill O’Reilly or Keith Olberman (depending upon your point of view) rather than Walter Cronkite – and they’d like that input as soon as possible.

Bloggers provide this insight.  They provide not only information, but make some sense of it.  They utlize past experience and insight to bring together relevant, if disparate, facts coupled with some ideas as to what it means.  Where 4 year ago publishers scoffed at HuffingtonPost.com, nobody is scoffing any longer. 

And it’s with great pleasure, and a pretty hefty dose of humility, that I’ve become a blogger at Forbes.com (http://blogs.forbes.com/adamhartung/).  Hand it to the publisher and editors at Forbes that they are moving Forbes.com from an on-line magazine to a bi-directional, real-time site for information and insight to the world of business and economic news.  Writers aren’t limited to a set schedule, a set word length or even set topics.  Readers will now be able to visit Forbes.com 24×7 and acquire up-to-the-minute news and insight on relevant topics. 

Forbes.com is transitioning to be much more like HuffingtonPost.com – a change that aligns with the market shift.  For readers, employees and advertisers this is a very, very good thing.  Because nobody wants the end of journalism – just a transition to the market needs of 2010.  I look forward to joining you at Forbes.com blogs, and hearing your comments to my take on business and economic news.