Author's Blog

What's in a Brand?

       The Financial Times ran a special section, on April 23, rating the world's most powerful Global Brands.  Google finished #1, followed by General Electric, Microsoft, Coca-Cola, and China Mobile.  Others on the top 15 include Marlboro, McDonald’s, BMW, and Bank of America. The FT’s effort is conducted by a brand consulting company – who else? – called BranZ, which is part of a company called Millward Brown Optimor.  It’s not very different from Business Week's annual cover story, ranking the world’s most valuable brands.  Each of these efforts is slightly different, using a somewhat different formula.  But they all have something in common: they define “brand” very broadly -- so broadly, in fact, that the original meaning has been lost. 

Once Again: How Industry Forces Lead to Mistaken Attributions

       A recent column in The Financial Times (April 18) had the snappy title, “Mum, what was a mobile operator?”  The idea was that an industry we take for granted – mobile network operators, including the likes of Orange, Vodafone, T-Mobile, and others – is now in danger of extinction.  Why?  Because of the dynamics of competition and the advent of disruptive technologies.  Writes the FT: “Just as Skype undermined the landline, alternative forms of mobile voice communication are going to become available.”  Network operators are vulnerable because consumers really don’t care who provides the network connectivity.  They may care about content or the handset itself, but they don’t give a hoot about the network operators – they just want a quality connection upon demand.  If a better technology comes along, network operators are toast.  No amount of brand building or efforts at differentiation are likely to help much.

       What's the relevance for clear thinking about management?  The current pressure on network operators points up, once again, the basic power of industry dynamics as a driver of firm performance.  Try as they might, network operators are up against an array of tough forces, and many of them are facing declining margins.  But of course, when these companies show disappointing returns and stagnant stock prices, we tend to make attributions about the its leadership, its culture, its people, and more.  Witness the pressure from shareholders last summer on Arun Sarin, Vodafone's CEO, a solid and smart executive who has been left to carry the company forward in very difficult times -- and has limited options given the nature of industry forces.

       If the FT is correct – and I suspect it is, based on what we’ve seen these past few years, with growth slowing in many countries and margins plunging, due both to competition and the actions of regulators – it follows that no CEO, regardless of his or her vision or brilliance, stands much of a chance in this industry. 

Not that this will stop industry analysts and shareholders and journalists from blasting a CEO for slowing performance.  The lure of quick and easy attributions – bestowing praise and laying blame – is just too easy.  But in mobile networks, as in many industries, what drives company performance is to a great extent industry dynamics, which leads us to make inferences that may not be warranted.

Consulting Pseudoscience: Mercer Delta's Study of "Growth Champions"

Faulty thinking and poor research methods show up in a number of studies by consulting companies, including one that I read recently by Mercer Delta, called "Growth Champions."

 

As with many such studies, it asks an important question—What distinguishes the most successful companies from the rest?  It then gathers lots of data and presents its findings in a glossy brochure with plenty of statistics.  But this study, like so many others, is little more than pseudoscience, and not at all what it claims to be.  In fact, it violates one of the most basic rules of research: the measure independent variables in a way that is truly independent of the thing they’re trying to explain.

Fortune's Smart Story about Apple

Fortune magazine takes quite a few hits in my book.  Whereas some of Fortune’s reporters are excellent—I am thinking of Carol Loomis’s dissection of HP’s finances in January 2005, and Bethany McLean’s penetrating examination of Enron at a time when most observers were blinded by its halo—on balance Fortune contains way too many puff pieces.  (Consider the coverage of Cisco, described in chapter 2 of my book, as well as the article elsewhere on this website, “Secrets of Success According to Fortune,” a text-book example of bad business journalism.)

So I was very interested to read Fortune’s article about Apple in its current issue with the feature about The World’s Most Admired Companies.  The article: “Simply Irresistable: Why Apple is the best retailer in America” by Jerry Useem.  Apple has become the best retailer?  Wow!  Can that really be?

Some Important Distinctions: Design and Data, Cause and Effect, Noise and Bias

Over the last few weeks, The Halo Effect has received attention on various blogs and in a few newspapers.  I’m delighted that the book is finding an audience, but it’s also interesting to read what various people are taking from the book—and what ideas seem to be a bit more elusive.  Some reviewers understand exactly what is most important in the book, while a few others like the book but focus on slightly secondary issues. In this blog, I’d like to clarify three distinctions that are very important.

1.  Design and Data

Some reviewers note that I criticize several popular business books—from In Search of Excellence to Good to Great—but miss the fact that they are criticized for very different reasons. In Search of Excellence had a basic problem of design—it looked at successful companies only, but did not compare

A Management Lesson from Chariots of Fire

       A terrific review of The Halo Effect was posted yesterday by Matt Stichnoth of Tom Brown’s Bankstocks.  Matt completely understands the arguments in my book—and I hope you’ll take a look at his review: "A Devlish Delusion".

       Matt begins by suggesting that the 1982 Academy Award for Best Costume Design went to Chariots of Fire largely because of a halo effect—it was a great film, so voters figured the costumes must be terrific, too.  By coincidence, I was watching Chariots of Fire earlier this week, because I had remembered a line that is very relevant to the ideas in The Halo Effect—it had nothing about costumes, but everything to do with the relative nature of performance.

The Matter with Dell -- According to the Press, the Pundits, and the Professors

       Just two years ago, in February 2005, Dell Computer was named the World’s Most Admired Company by Fortune magazine.  Now, with performance slumping, Michael Dell has removed CEO Kevin Rollins and taken the reins to revive the company he founded.

       The Dell saga offers one more example of the way that storytelling obscures clear thinking in business.  Of course, the decline of Dell is an irresistible story.  How the mighty have fallen.

Jim Collins's Free Ride

       Christopher Koch’s review of The Halo Effect, posted on his CIO blog on Feb. 16, provides a link to an interview in Wired magazine magazine in which Jim Collins vigorously defends his research methods.  It makes for interesting reading, because Collins does a good job of refuting some of the criticisms levelled at him—but only because his critics have been barking up the wrong tree.  So far, Collins has been given a free ride on the most important issues that undermine his research—the quality of his data.

      

       Some of Jim Collins’s critics have pointed out that many of the companies featured in Built to Last subsequently

BCG's Study of "Innovative Companies"

       In my stack of year-end mail was a publication from Boston Consulting Group (BCG), with a list of its recent research.  Included was the 2006 Business Week survey of “The World’s Most Innovative Companies," which had been based on a study conducted by BCG.

      

       Here's the Top 10: Apple, Google, 3M, Toyota, Microsoft, General Electric, Procter & Gamble, Nokia, Starbucks, and IBM.  It’s an impressive list, no doubt.  According to BCG, some of these companies were leaders at process innovation, some at product innovation, and some at business model

What's the Story at Dell? Avoiding the Halo Effect

      When company performance falters, it’s natural that we search for explanations—but very often we fall into the trap of making easy attributions based on the Halo Effect.  Take Dell, which has just fired its CEO, Kevin Rollins, after months of disappointing performance.  What has gone wrong there?  In his Financial Times column this morning, Stefan Stern offers the following quote: 

   

      "They have forgotten how to make customers happy," said Peter Morici, a business professor at the University of Maryland. "I have to believe the problems with the company are cultural and they begin at the top."

      

        A common view, but probably steeped in Halos.  As long as Dell is successful, it’s very easy to talk about great they are