Friday, February 16, 2007

More MBA Nonsense

This past Monday's Wall Street Journal featured an article entitled, "M.B.A. Programs Hone 'Soft Skills.' Apparently, the new idea is to add 'soft skills' and people focus to the MBA curriculum.

Warren Bennis, professor at Southern Cal's business school, claims that schools are 'responding to employers' growing interest in soft skills. Executive suites are increasingly composed of managers running far-flung operations who must attract and retain knowledgeable workers. That puts a premium on skills such as communicating and brokering compromises.'

Having been to graduate business school, I must say, that's an awfully ambitious agenda for people with, realistically, 18 months of focus, little knowledge of business. In fact, the article goes on to note that the schools "are copying and adapting popular corporate techniques such as coaching, personality assessments and peer feedback."

The worst is that second year students are counseling new first-year students on these topics. And, just what great font of 'soft skill' wisdom would a second-year MBA student have? If I were a student, paying for a two-year MBA education, I'd be livid about this.

Talk about the blind leading the blind. No wonder 'average' business management remains so, well, average, throughout time. I've written elsewhere (December 28th post) in this blog recently about MBA programs churning out decades-worth of mediocre business people. I believe this new trend promises to intensify the mediocre output of MBA programs.

For example, see my recent posts on
auto inventories, or NBC ad sales. We can't even get existing senior managers to use tried and proven management concepts from the 1950s, like 20/80 analysis, let alone sensibly manage inventories to relate to sales and profit volumes.

And now they are teaching 'soft skills' in the same schools that have failed to graduate students who can get the simple, mathematical stuff right? I think, in reality, the so-called 'soft skills' are the product of one's career. You may not be able to teach some of them, and, others, need to be developed in the real world, not in some B-school game environment, or among "peers" whose motivation is to get a job, not teach other students.

How about MBA programs doing more with topics like how to identify, foster and commercialize innovation- the real driver of value-added growth and overall shareholder returns?

Thursday, February 15, 2007

Chrylser's Big Problems

I would be remiss if I did not comment on DaimlerChrysler's announcement, earlier this week, that it is embarking on a massive restructuring effort, laying off some 13,000 employees, and entertaining the option of selling or spinning off its American Chrysler unit.

The first thing I would note is that this supports my long-held contention, which I mentioned in a prior post, that no Big Three Detroit auto maker has ever really been "rescued" or "turned around," in the sense of being saved from imminent bankruptcy or serious ownership change, for a lengthy period. Iacoccoa may have fended off dissolution in the 1970s, but only with massive Federal assistance. Then again, he did set the company on the road to independence for another twenty years or so. Still, if not for government intervention, the industry would have probably taken some badly-needed capacity reduction medicine earlier, rather than later.

The 1998 merger of Daimler and Chrysler, only nine years ago, including the subsequent "turnaround" of Chrsyler by Dieter Zetsche earlier in this decade, now seems to have been a colossal mistake.

To provide a little incidental perspective on this story, Senator Tom Carper (how apt a name for a US Senator, eh?), recently-elected Democrat from Delaware, droned on for almost five minutes during Fed Chairman Ben Bernanke's Senate appearance this week about Delaware's Chrysler plant dilemmas. Among the more ill-informed comments he made was that he believed and hoped that we would keep more auto manufacturing (assembly, really) jobs in the US (read: his state), and that the workers at the Delaware Chrysler plants are good workers, and produce good cars.

These are nice sentiments, but indicate why US industrial "policy," such as it is, causes such trouble. Does anyone think Chrysler has much value anymore, or should be "saved?" Or that just because its employees work very hard producing mediocre and unwanted products, that they deserve special treatment?

Despite the many ideas floated about spinoffs, sale of the firm, or merging it with GM, who really would want the Chrysler division now? Is there more value to it than perhaps part of the legendary Jeep brand (oddly, an AMC relic), and perhaps some real estate? Are those two components possessed of sufficient value to offset the firm's pension and health care liabilities?

I don't see GM as being able to afford this one. Nor that it would help that firm. However, I think the very real question is whether any other firm would even bother to bid on Chrysler without Daimler having to pre-fund all the various employee-compensation-related liabilities. For that matter, we don't know what would be considered "safe," from a legal viewpoint, in spinning the unit off to existing DaimlerChrysler shareholders. If it isn't sufficiently capitalized, might the US come back after Daimler for 'looting' Chrysler by failing to sufficiently fund the pension liabilities?

But, back to this week's news. The job cuts will probably hasten the firm's shrinkage. Zetsche's reputation is now tarnished. This unit, and, indeed, the firm, seems somewhat stuck in neutral with a gigantic problem having resurfaced to impair its ability to compete in a sector in which fewer and fewer operational mistakes are being tolerated by the financial markets, and customers. Its hoped-for design integration turned out to be a non-starter. The Daimler engineers balked at it, and their luxury customers may be at risk if it is now intensified as a cost-cutting option.

Once again, inept marketing and a clear focus on customer behavior seems to have led an automotive manufacturer astray.

Wednesday, February 14, 2007

Market Value: When and To Whom?

In his Tuesday piece in the Wall Street Journal, Dennis Berman refers to situations in which executives,

"were trying to use overpriced shares to buy other companies in stock deals before the market came to its senses....executives don't dare broach- that their shares might be overvalued."

What does it mean to simply state that a company is "overvalued?" By whom? Or that the market is not 'in its senses?' Over what timeframe? Do such an unconditioned terms or statements even make sense?

Can anything be "overvalued" today? I think not. As my wise old friend and colleague, B, noted some years ago,

"A model can tell you what X was worth yesterday, or what it may be worth tomorrow, but today, it is worth what I can sell it for in the market."

Just so.

And, further, today's market price, or value, for a company, is a function of many buyers and sellers, and non-buyers and non-sellers, whose various and varying expectations constitute the forces which drive the actual price of shares of a company.

In fact, there are so many conditions on the question of "value," much less "overvalue," that it boggles the mind to consider them all.

For example, if I sell one share of a stock I currently hold, Gilead Corporation, it is unlikely to affect the market value of the company. I am essentially a price-taker. However, suppose I own 4% of the firm- a level below that requiring certain SEC filings. Suppose I wish to sell all but one share of my 4% stake in Gilead, today. Would this action affect the company's value? Almost certainly. The flooding of nearly 4% of the ownership in a company into the market at once will change its value very quickly, indeed. It may result in a price decline sufficient to bring in more buyers, who now think the company is "undervalued," relative to their own expectations, and perhaps move the market value back up again.

Thus, the use of sloppy language, such as referring to a company, or its stock, as simply, unconditionally, "overvalued," or "undervalued," obscures clear understanding of the mechanics involved in the valuation of companies. In an open trading market, a company is always "fairly" valued at the moment. That value may appear to be too high, or low, to different investors, or potential investors.

To address Mr. Berman's point regarding "overvalued" companies, I would suggest that what is meant is that there are situations in which a company is "overvalued," in the opinion of some people, relative to some other company. In such cases, there may, indeed, be takeover activity.

But that's not to suggest that either company was "wrongly" valued that day. Or on any other trading day.

"Value" is what you can get for something in a market. Any other "value" ascribed to the item is only a relative estimate, which is itself a function of a particular investor's expectations. Nothing more, and nothing less.

GM's New Shareholder: Goldman Sachs

Yesterday's Wall Street Journal noted that Goldman Sachs now holds a 5.2% stake in GM.

Are they betting on a takeover, or girding for the kind of shareholder activist campaign that Relational used to get a seat on Home Depot's board? Or of the type that Kirk Kerkorian failed with last year? Or, is Goldman simply being opportunistic, hoping for a quick "pop" in the stock price, before unloading their shares?

I haven't seen much discussion about this, for example, on CNBC. Isn't this surprising? When a noted equity house, asset manager, private equity funder and player, and M&A powerhouse takes such a large interest in an ailing company?

What's the likely implication for GM shareholders? I'd guess very good, since GS is comprised of a bunch of smart, tough financial sharks. I suppose the big question is whether Rick Wagoner is or would be more fearful of Goldman's no-nonsense bankers than he was (not) of Kirk Kerkorian.

Tuesday, February 13, 2007

NBC's New Ad Sales Approach: What's Old Is New Again

Yesterday's Wall Street Journal carried an interesting piece in the Media&Marketing Section regarding advertising.

The piece, by Brian Steinberg, featured the changes in ad marketing and sales being wrought by NBC's new ad-sales chief, Michael Pilot, late of GE's Commercial Finance Group.

Apparently, Pilot has "a history of using sophisticated analytical methods to generate sales growth."

Twenty-odd years ago, when I was a graduate student at Penn, we learned these sorts of techniques from the then-resident expert Professors, Len Lodish and Jerry Wind. The use of prior sales data from which to build models of most-likely buyers, and more productive sales and marketing efforts, is hardly new.

I think it's wonderful that NBC is making use of someone with Mr. Pilot's tendencies. Beyond his focus on more analytical sales planning, Pilot is also redesigning the entire sales and fulfillment process, something consultants like my old outfit, Andersen cum Accenture, likes to call 'business process re-engineering,' to be more efficient, automated, and electronic.

All this is, frankly, pretty obvious, low-hanging fruit. The question you should have, that I have, is, what took GE, the parent of NBC Universal, so long to effect this change? As I've written in prior posts, GE is too large to be effectively managed anymore for consistently superior total returns to shareholders. This is an excellent example of why I believe this to be so.

How does one justify viewing GE as either visionary, or well-led, if something so large and prominent as the ad sales function in one of its six business groups, is so hopelessly antiquated and poorly-managed?

I think this also speaks to the reality of business education in America, and, possibly, the world. Michael Pilot is most certainly not the only business school graduate to have learned these techniques over the past thirty years. Where are all the other graduates with similar knowledge, and their successful sales management changes?

Where does all that learning, knowledge and skill go? Thousands of graduates from the top ten or so US business schools in the past few decades, and when one of them actually implements a decades-old idea, it's considered breaking news in the Wall Street Journal.

How sad.

Monday, February 12, 2007

Detroit's Continuing Stupidity: The Inventory Dilemma

The Wall Street Journal featured a lead article Friday discussing the big three American auto maker's dilemma with unsold cars.

My favorite line in the piece is this quote from GM's head of North American sales and marketing, Mark LaNeve, "It's not like we have some crisis." Then there is this gem from his colleague, Troy Clarke, president of GM North America, "Today, we are much better in balancing production and demand than we were two years ago....If the trend continues, we will be right where we want to be."

Actually, they do. A crisis so bad that the CEO of AutoNation, Mike Jackson, routinely finds the wrong types of cars on the lots of his dealerships. According to the Journal article,

"AutoNation's Toyota and Honda stores typically carry enough cars to last 35 to 42 days. Its GM, Ford and Chrysler locations used to have 65 to 70 days of inventory. These days.....that number has climbed to between 80 and 120 days."

The other interesting item reported in article is that AutoNation hired McKinsey and several other consulting groups to perform some rather basic 20/80 rule analyses. That is, to identify the relatively few (usually around 20%) vehicle variations that account for most ( the 80%) sales. I'm not sure why AutoNation couldn't do this with its own marketing staff, but, for now, never mind that.

When Jackson approached GM about co-developing a predictive modeling system based upon this age-old 'wisdom,' Mr. LaNeve said GM was "seriously considering joining" the effort.

At least Alan Mulally, Ford's new CEO, said, of Jackson's idea, "He's absolutely right on. When you have big inventories, you get further and further away from that customer decision."

This is hilarious. The Journal piece, which is quite long, lavishes examples with lots of details, illustrating some howling mismatches of cars and US locations, thanks to GM's and Ford's insistence on guessing at consumer preferences, and then cranking out models according to those guesses.....ah...."forecasts."

This alone ought to tell you why you shouldn't be betting on either GM, or Ford, to return to a consistently superior total return performance path anytime soon. They may not even have sufficient funding to do so independently, at the rate their senior executives are moving on the inventory issue.

As I wrote in a post early on in this blog, the real question is why the manufacturers continue to use dealerships as they do at all. Why not simply establish kiosks or third-party locations, such as Wal-Mart, etc., to site sales offices with elaborate online 3D software programs to showcase their vehicles. Consumers could then order their cars, custom-made, on the spot, paying a deposit. The third-party location would accept the drop-shipped car, which could be built within weeks. And would this not eliminate much of the auto manufacturers' inventory and work-in-process financing issues?

There is another, related challenge which was mentioned in a glancing fashion in the article.

Right now, Detroit seems to need about 18 months, minimum, and often, up to 3 years, to adjust its product offerings to major changes in consumer behavior. I'm referring to, of course, what happens to demand for various product types every time gasoline prices either skyrocket or plummet. What to do? How do the auto manufacturers handle such volatility in the price of a major complementary good used by consumers of their product?

Actually, the answer already exists, in pieces. Shell pioneered scenario planning over forty years ago, and Detroit needs to implement that skill as well. The variability in consumer demand for vehicles can probably be reduced to a few major sources of discontinuous uncertainty and, thus, modeled as several most-probable scenarios.

Under each scenario, the auto producers could determine what sorts of models would be best-suited for the particular situation forecast. The manufacturers could then simply keep designs current for at least a few models under each scenario, and several factories ready to switch over production upon a few months' notice.

Does it not seem likely that the first producer to arrive in the market with vehicles tailored to something like a radical change in gasoline prices would be rewarded with increased market shares and pricing power, offsetting some of the costs of simply keeping designs current?

The truth is, today's global scope and volatile gasoline and oil prices make the auto industry a far from simple business to manage. Judging by the statements in the Journal's Friday article, and AutoNation's CEO, Mike Jackson's cool reception with some solutions, the current leaders of GM and Chrysler remain questionable as being up to that challenge. It also remains to be seen whether either Ford or GM have the financial staying power to continue to play a game in which the manufacturers remain so far from consumers' decisions points.