I have the opportunity to work with hundreds of executives every year.  I hear it all, from the upbeat to the melancholy. Quite regularly I hear a group whine: why don’t we do have controls for this, or why don’t we have a strategy for that.

The reality is that organizations on their face are dysfunctional.  To have perfect systems, processes, communication and human capital requires a tradeoff between investment in the long term, and profit in the short term. It is easy for organizations to fall into a trap where organizational priorities can become confusing or clouded.

I often compare the prototypical U.S. corporation to capitalism itself: it is not a perfect system, but it is the best one we have. Corporations are built around functional departments, such as accounting, sales, engineering and operations.  It is typical for such departments to have naturally occurring silos and it is easy for a silo mentality to create aggravation and despair.  But it doesn’t have to be that way. Once one recognizes that silos are a function of structure and not of people, one can chose to fight through the bureaucracy, and divergent objectives and lead people to find solutions.  It really comes down to challenging your own paradigm about the natural order of things.

If you work in accounting and you don’t think the sales team gets it in regards to receivables or collecting valid information from customers, it is incumbent upon you to understand their business requirements, and to educate them on the importance of your procedures. Whining is easy, but solving problems requires managerial courage, often in the form of making difficult decisions.

This structural dysfunction often manifests within non-profits which have the same organizational problems, but lack the resources to address them. Volunteers cannot provide the same level of focus as full time employees.

Whether you are working within a for-profit or non-profit organization, the answers lie within you. If you are the leader and your people are not getting along, it is your responsibility to find harmony. If you have a member of your staff who cannot play nice with others, it is time to wish him the best of luck in his next position, wherever that might be.

The publication of my first book, “Intended Consequences” has opened many doors for me.  The book is a manifesto on strategic planning and explains in some detail “how to” go about the formation of strategy. In effect, I gave away all my secrets for a mere $17.95, and our business is thriving.

I often hear objections from clients that they fear that their strategy could fall into the hands of competitors. They become tight lipped about their intentions, even with their own employees. 

I remember fondly the Lakers of the 1980’s. Magic Johnson would dribble the ball down the court, and throw a high pass to Kareem Abdul-Jabbar on the right block, and he would take a hook shot, time after time. The opponents, their coaches, the radio commentators, and the fans all knew it was coming, yet no one could stop it.

Extraordinary companies exhibit superior execution. The irony is that those organizations who take the time to explain their objectives in detail to employees and vendors are the ones most likely to achieve superior results. Being clandestine about a strategy can limit its effectiveness.

Competitors eventually figure out what others are doing, but they may or may not have the talent, cost structure, technology or acumen to emulate it, or execute with the same level of quality or rigor. On balance, customers want information, and providing detailed information in the form of white papers, marketing materials or specifications in an easily digestible format provides value. In most cases the incremental value created by giving away information to customers outweighs the risks.

I am not for a minute advocating that you publish your strategic plan. I am suggesting that the more people on your team who are committed to it and accountable for your initiatives the greater the likelihood you will realize your objectives. It wouldn’t hurt to have a Magic Johnson dishing it out to your team.

Yelp just scares the crap out of me.  For those of you who are unfamiliar, Yelp is a service where you can rate anything from the local bicycle shop to your CPA.  From Zagat to Trip Advisor, satisfaction ratings on the internet are in vogue. On eBay, potential buyers have three criteria, item, price, and supplier rating.

Imagine the ramifications.  How long will it be before your product or service is rated on the Internet by consumers or professional buyers?  The trend speaks to a need to get ahead of the curve and acquire real time, unfiltered feedback from customers.

All clients tell me they listen to their customers but their approach varies dramatically. Many are reliant on salespeople to do the listening for them. During the downturn and a period of massive discounting, many salespeople have become more tactical and often lack the consultative selling skills required to diagnose and synthesize customer problems.  Having the salesperson as the sole lifeline to the customer is like having the fox in the hen house; it is not as if many salespeople will self report eroding customer relationships when they may be the cause or at least a contributor.

While much has been written about customer satisfaction, many of the most common approaches are impractical for the small and mid-market business.  Electronic surveys are impersonal and yield poor results.  Snail mail surveys (sometimes with a spif or prize) get poor response rates and feel so 90’s.

We often complete client satisfaction and perception audits for clients as a pre-curser for strategic planning.  By far, live phone surveys are the most effective method, as they provide instant, unfiltered feedback and the ability to ask follow-up questions that garner more specific commentary.

While live surveys are more expensive than the other types of survey tools, client satisfaction seems like an endeavor worthy of investment.  Ultimately, the real value of such surveys is the problems you discover and the responses to open ended questions which can be the source of innovation. We never advocate an “annual” survey because you could wait up to a year to uncover customer issues.

Of course client satisfaction is not the end game. It is customer loyalty that is nirvana and is much more difficult to measure. The book “The Ultimate Question” points out that there is one question that is the best predictor of loyalty and ultimately profitability. The question is “how likely are you to refer a friend or colleague” as referring a product or service meets a higher standard than just being satisfied with it.

Like many things, survey tools may be imperfect but querying customers on their attitudes about your company is always better than no feedback at all. “Hey, hey, hey, that’s what I say!”

Ten years ago organic foods represented 1.2% of foods sold in grocery stores. Organics were hot and going mainstream as soccer moms stuffed lunch boxes with the purist carrots and over-priced apple juice.  A decade later only 3.4% of grocery sales are organic, merely a blip on the radar. 

It is often difficult to predict if the latest and greatest is a fad or legitimate trend. Is the iPad merely an extension of the iPhone or is it a game changer? Certainly tech savvy early adopters are already scooping up the new device, but will the masses adapt to a new way of viewing media?

Our mantra in our firm, in my book and in this blog is that marketers must consider converging factors, and no more is that more true than in evaluating fads.  Within a complex socio-economic environment, changing quickly with the advent of technology, there can be immediate swings in demand of a given product or service.

The key to converging factors and understanding trends is the acquisition of current and relevant information.  The ability to understand trends, and convert the opportunities presented into competitive advantage is both art and part science.  Science is required in the accumulation of hard data, whether it be from public sources such as government statistics or through private sources such as market research or trade associations.

The art is focus on customer wants and needs in order to preempt the market with products, services or features that may not be offered or are framed differently. Often innovation is not presented in the formation of a new product but through the delivery system by which it is presented. The iPad, like the iPod before it is not delivering new media but is providing an improved gadget for accessing music, books and the Internet.

Often, the best way to define a new delivery system is to reverse engineer problems that customers have, and try to find new ways to solve them. This requires a significant intimacy where the vendor can gain a deep understanding of how the customer functions.

In the fashion industry, designers and buyers must accurately predict styles as far as a year in advance, and move quickly to capitalize on emerging styles. Whether your source of information tends to be closer to science or art, the successful marketer has their ear to the ground and is paying attention to all the inputs that determine fad or fashion.

The golfing world is bracing for the return of Tiger Woods at the Masters this week (in case you missed it, he had an unfortunate incident involving his wife and a golf club). Amongst the many looking on with interest will be Jennifer Brown, an economist with Northwestern University.

Ms. Brown has tracked and plotted every Tiger Woods appearance, and the affect he has had on the game.  As it turns out, in the tournaments he played in between 1999 and 2006, the field scored an entire .8 of a stroke higher than in the tournaments he didn’t play (he does play in the hardest tournaments, but nearly a stroke difference in such a precise game is just staggering). Ms. Brown’s conclusion is that the presence of such a dominant player forces the field to press harder or just quit.

Jonah Lehrer, the author of “How we Decide” took the phenomena a step further and wrote an article wondering if “the superstar effect” applies in other competitive environments. This mindset has daunting implications for strategists. It suggests that dominance in an industry may be something of a self-fulfilling prophecy; that a dominant competitor may dissuade others from entering a market space, only fortifying its position.

This way of thinking only reinforces an accepted strategic principle; an organization is always better off owning a significant share in a smaller market than trying to penetrate many markets at the same time.  Every attempt to enter a new market requires the marketer to expend resources in a space where they have high R&D costs (unfamiliarity with the market), less brand awareness and less of a chance to achieve market leadership. 

Poor targeting is chronic in American businesses. It is typical for marketers to attempt to penetrate the largest market possible; usually at their peril. Generally speaking they are well advised to seek out smaller, undefined markets (white spaces) instead of competing within crowded larger ones.

I was recently working on a project for one of the nation’s largest professional services firms. In my research on the Internet I came across a firm that specialized in marketing and public relations for CPA’s. While I have no imperial data to prove it, my educated guess is that such a market is lucrative (as CPA’s are notoriously poor marketers). What grabbed my attention was how narrow and well defined the target was. Any CPA viewing the website would think “these people understand my business, because that is all they do.” Experts in everything are experts in nothing. In a competitive bid for an accounting firm’s business, such a company would have a significant competitive advantage over a generalist. They would be positioned as the superstar.

Now that Tiger has lost some of his luster, it will be interesting to see how quickly he can return to intimidating the field.  Of course at this point, it is Tiger who is probably more intimidated by; Elin.

Very early in my career, I had a character building event that I will not soon forget. I was a category manager at the time for a somewhat sizable retailer when our company President suggested that it may not be a bad thing if we overstated our reporting of rebates owed to us from a Fortune 500 company.  I declined based on my twenty something ideology, and perhaps ignorance with how the world really worked. Within two months I resigned and took a job with a vendor.

The last 60 days provide an interesting contrast in principle based leadership, and the affect it can have on customers, employees and branding. As Toyota’s troubles deepen, its President’s admission that the company lost sight of its values is somewhat startling.  Evidently, a zeal for cost cutting and competitive advantage may have triggered a chain of events that has significantly eroded shareholder value.

In a stunning contrast, Google announced this week that it would not comply with China’s censorship rules, and had shifted users to a Chinese version of its search engine housed on servers in Hong Kong.  Facing the real threat of losing access to the world’s largest market would seem like strategic suicide.  Yet the decision was clearly made on principle, Google’s commitment to uncensored information trumped strategy, revenue and access to hundreds of millions of users. Founder Sergey Brin, who grew up on totalitarian Russia described China’s stance as “quite troubling.” Google has drawn the line in the sand and sent a message to the world that some customers may not be worth having when your values are called into question.

Conversely, China is a nation who wants the fruit that capitalism can bear, but is not willing to align with free market values, which will only limit growth in the long term.  Many feel threatened by China, as we were by the Japanese in the 80’s. Yet as was proven in Russia and elsewhere in Europe, capitalism cannot work in its purist form without the rule of law (contracts must be enforceable and criminals prosecuted) or the preservation of intellectual capital.  While the U.S. may have suffered a setback, our economy is still based on values protected by our constitution (someone remind Congress) that have stood the test of time. 

So raise a glass to Google who reminds us that we have to make tough choices in our businesses, and they may not be the ones that are politically tenable, convenient or most profitable.  There is a reason why Google has exploded on to the scene as one of the world’s most valuable and powerful brands; people want to feel a part of something bigger than themselves. To have the vision and discipline to remain focused on your values demonstrates the best that capitalism has to offer.

As our economy slipped into recession, private equity investors retreated and sat on the sidelines. As a result, the wizards of Wall Street find themselves in a tenuous position. Without their capital deployed, they cannot generate the management fees required to sustain revenue. They are like caged tigers waiting for their prey to enter the den.

The average multiple in smaller transactions (less than $250 Million) fell in 2008 to 6.9 times EBITA from 8.7 in 2007. Yet, business owners waiting out the recession may be eager to pull equity out of their businesses, even though the stock market offers a poor investment alternative.  In Q4 of 2009, mid-market transactions spiked 77% from Q4 of 2008, reflecting a changing mood and the need for investors to see their money put to work.

Private equity firms currently sit on a projected $609 Billion in un-invested capital. The S&P alone has an aggregate $1.4 Trillion in cash. This may seem unintuitive to many, but any business that is growing and has positive cash flow is in a tenable position to attract investment from financial or strategic buyers.

May the sellers beware that tigers seek the slaughter and are highly selective about which businesses they acquire and under what terms. Those organizations that performed well in the downturn present less risk and are desirous to those seeking safe harbor from economic fluctuations.  One would imagine that private equity fund managers, with more time on their hands, may be even more difficult than under normal conditions. Almost always in control of senior debt, equity managers are notorious for buying organizations, moving out management and strangling corporate cultures.

In the ten years starting in 1997, the U.S. share of global public equity securities fell from 49% to 34%.  The turmoil in the European and Asian markets may be the impetus for more investment in the US of A. For those entrepreneurs that have run their businesses prudently, who offer growth and profit, the M&A market may offer significant opportunity in the years to come.

You may have fantasized about visiting exotic places such as Portugal, Spain, or Greece, but you may not want to plant any money there anytime soon.  All it took was tiny Greece to signal a potential default on its debt to send the U.S. markets spiraling like something out of a Greek tragedy.  With its deficit ballooning to 13% of GNP, Greece is one of many European countries saddled with debt.  With lower reserve limits, European banks carry more risk at times when liquidity is low.  European banks represent merely a microcosm of a bigger problem; the outliers, the seemingly trivial and unpredictable events, can trigger a global panic.

Volatility is not a recent trend. Over the course of a decade, we have experienced Y2K, 9/11, Katrina, Enron/WorldCom, the Asian Financial crisis, mad cow, the tsunami, the bird flu (H1N1), and influenza strains that have not yet been named. Volatility has become the norm.

In this age of uncertainty, entrepreneurs must have a greater level of preparedness because there are more variables to prepare for. We must be prepared for the things that we control and even the things that we cannot.

Such volatility requires a different mindset, where infrastructure is more flexible.  Depending on the nature of one’s business, we need to have more flexible labor structures, less inventory, and the ability to be nimble.  Perhaps more importantly, we must be ready to change like a chameleon, on a moment’s notice.

In October of 2007, DuPont’s CEO, Chad Holliday, visited a customer in Japan who reported a sudden squeeze on cash flow. Upon his return to the U.S., Holliday heard that U.S. automakers (who order paint from DuPont only 48 hours before applying it to new vehicles) were dramatically curbing orders.

Holliday took swift action. The following morning, Holliday deployed the company’s crisis management plan and put 17 teams in charge of curbing production. Within 10 days, every manager in the company had met with their employees to “re-clarify expectations.”

If a company of DuPont’s size can change on a dime, so can mid-market companies.  The volatile market place requires that we prepare cautiously, move quickly, and act decisively.

For years, various employment surveys have yielded the same results. They tell us that employees value encouragement and trust over money, yada, yada, yada. Such surveys are inherently flawed, because we know that responses to such surveys often differ to the way people actually respond to various stimuli.

A study published in the Harvard Business Review reveals a vital lever in the execution of strategy. It appears that what employees truly value most is “progress”. In other words, workers want to feel a sense of accomplishment about their activities and that they are contributing to something that is creating value in some way.

This point may seem subtle but it has tremendous ramifications for the strategist. It reinforces a paradigm we have long since advocated; the more people who are involved in the formation of strategy, the better the execution will be.  It means that:

* As organizations develop strategies, they should retrieve data from a wide breadth of internal and external stakeholders.

* To tap innovation, companies should plunge deeper into the organization and seek out information from front line employees on what pain is being felt by customers and how the customer experience can be enriched.

* Key strategies must be communicated to all employees so that they have a better sense of how their daily activities align with the greater good.

* Measurement and accountability for execution must be shared throughout the enterprise.

* Decision making is vital to the pulse of an organization, and executives are well advised to push the envelope (and perhaps make a few bad decisions) as opposed to making slow decisions via paralysis by analysis.

The study, conducted by Harvard professors Teresa Amabile and Steven Kramer, was based on a more rigorous scientific method than merely asking for employees to provide their opinions. Instead of measuring their satisfaction on a given day, they measured their attitudes, behaviors and motivations in a diary format and synced them against achievement of specific milestones. When obstacles were overcome or key objectives were met, employee satisfaction and engagement spiked dramatically.

Amabile and Kramer concluded that management has control of the levers of both employee engagement and execution of strategy, and that they are one and the same.

As many view the holiday season as a glimmer of hope, I was struck by several news items this week:

 Apple vs. Google

The battle for Silicon Valley supremacy has heated up in the last few weeks as the two behemoths vied for two start-ups:  La La Media (bought by Apple) and Ad-Mob (purchased by Google in November).  As technology often drives M&A activity, these deals may be a spark for a wave of acquisitions, as investors who have been sitting on the sideline may re-enter the fray.  The release of operating systems from Microsoft have often been the trigger for waves of technology spending, and it will be interesting to see how the sector fares this year.

Retail Discounting

I was struck by an offer by a local golf course this week. It read “What Rain, Play all Day on Friday for $39”. It used to be that marketers offered discounts when demand was low. Now, everyone from carpet cleaners to retailers are trying to drive demand to offset over-capacity or excess inventory. Such a combination creates a double whammy, where high costs are only exacerbated by diluted margins. It appears as if our worst fears for the retail sector are coming to fruition.  A shocking 95% of Americans say they are holding off purchases to take advantage of last minute sales.

 The uber discounting in the retailer sector is truly horrific. Retailers used to make all their margin in the fourth quarter, but they are sabotaging any enterprise value by giving away the store.  If you feel compelled to start a price war in your business, do it at a time when you want to introduce new customers to your product or services, not when they are going to buy from you anyway.

Boeing Tests 787

 The aerospace sector has also been crushed by high oil prices, the recession and the delay of new products.  Yet this week Boeing’s 787 airliner will make its inaugural flight and begin a year of field testing. The 787 is Boeings’ response to the European Airbus A350, a generation of planes built using up to 50% composite materials.   

United Airlines ordered twenty five 787’s and twenty five A350’s, suggesting that airlines may be ramping up capacity, especially in more profitable long range routes.   With the exception of military suppliers, the American aerospace industry has been in a deep freeze and is eagerly awaiting a rebound.

It appears that some sectors of the economy are starting to improve while others remain stagnant.