Category Archives: Miscellaneous

How The Mighty Have Fallen

The past decade has been rough on many companies, but technology companies appear to have bore the brunt of it. Check out Fortune’s biggest losers over the past decade over on CNNMoney.com. Eight are technology companies, and all make Ariba’s Market Cap Loss of 46 B [as chronicled in James Kwak’s The Myth of Ariba and discussed in my post on Will Private Equity Players Offer You Better Value Than Public Equity Players] look like pocket change!  (Ariba Peak: 47 B, Recent: 1 B, approx.)

Company Loss Peak Market Cap Recent Market Cap
Cisco Systems  425 B  557 B 132 B
General Electric  423 B  601 B 178 B
Intel  400 B  509 B 109 B
Microsoft  390 B  642 B 252 B
Nortel  283 B  283 B     0 B (bankrupt)
Lucent Technologies  274 B  285 B   11 B
America Online  219 B  222 B     3 B
WorldCom  186 B  186 B     0 B (bankrupt)

Lesson learned? Besides the fact that market valuation should never exceed a reasonable multiple of revenue (10X might be okay in extreme situations for true up-and-comers, but 100X is ridiculous), I’d have to say that this also teaches us that Software and Hardware is not worth more than the value you are able to extract from it.

Twitter Will Make a Twit Out Of You!

As highlighted in this CNet video which asks “does Twitter make you stoopid” (at the 2:35/4:15 mark), “students [are] failing because of Twitter, texting” (Canoe.ca). The University of Waterloo in Ontario, which has world renowned programs in mathematics, computer science, and engineering (among other disciplines), requires all students they accept to pass an exam testing their English language skills. Almost a third are failing. “Thirty per cent of students who are admitted are not able to pass at a minimum level“, a failure rate that has increased five percentage points in the past few years. Poor grammar is the major reason students fail. “Emoticons, happy faces, sad faces, and cuz are some of the writing horrors being handed in”. “Punctuation errors are huge, and apostrophe errors”.

According to the news release, experts in the field are saying that “cellphone texting and social networking on Internet sites are degrading writing skills. And since Twitter is both, I think it’s finally safe to say that Twitter will make a twit out of you, and that’s not a good thing. After all, the proper definition of twit is an ignorant or bothersome person. Do you really want to be uninformed (dumb) and annoying? I don’t! (And while those of you who know me might say I already am, Twitter takes ignorance and annoyance to a whole new level. Let’s not go there. After all, now that it’s been demonstrated that when a twit speaks in the Twittersphere, no one hears, there’s just no point. )

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Yet Another Feather in Private Equity’s Cap

A recent article in CNNMoney.com on best places to work pointed out that if you look at Fortune’s latest list of the 100 Best Companies to Work For, you’ll note an interesting trend: you can’t buy stock in four of the top five. In fact, 9 of the top 20 best companies are privately held and 40 of the top 100 do not have stock you can buy and sell on the NYSE or Nasdaq. There are also 15 non-profits, 2 partnerships, and 1 cooperative. In all, only 42 companies of the top 100 are public.

What gives? The author’s theory is that without having pesky shareholders to satisfy, these firms can probably worry more about keeping employees happy than satisfying the whims of Wall Street. And, more importantly, these employees can, in turn, worry more about keeping the customers happy, which generally boils down to better products and better services, which they can focus on instead of trying to meet artificial sales numbers or profit estimates. After all, the “over-promise now, make up later” strategy generally only results in under-delivery, which triggers cancelled contracts or bad publicity, which lowers profitability, which in turn demands layoffs, which stresses out the people who are left, who either leave or perform worse, which exacerbates the situation and puts the company into a funk it might not recover from.

So when you’re upgrading that platform or looking for world-class consulting services, remember this: just like bigger is not better, public is not necessarily better either. In fact, this recent survey on “the voice of experience” in the McKinsey Quarterly indicates it might actually be worse!

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Will Private Equity Players Offer You Better Value Than Public Equity Players?

Last June, I pointed you to an article in the McKinsey Quarterly on “the voice of experience” where not a single executive respondent ranked public equity better than private equity. This report, which surveyed 20 chairmen or CEOs from the UK who had served on both public and private equity boards, found that 75% of respondents firmly believed private equity boards had more value.

Then in December I pointed you to a piece in Supply Chain Digest on the intersection of Wall Street and Private Equity with the supply chain that printed that:

one large retailer had the opportunity recently to save an expected $50 million from a supply chain network redesign project, included shifting from a number of smaller distribution centers to larger ones. The project had a great ROI and the capital was available — but the company delayed the project just because of the potential for Wall Street to view the project as too risky operationally and financially.

And then a week or so ago I came across this piece on The Myth of Ariba on The Baseline Scenario by James Kwak who was reading Past Due that used Ariba, which at one point had a market capitalization of over 40 Billion on quarterly revenues of roughly 100 Million, for his case study of the internet bubble in Chapter 2.

According to Kwak, Goodman says that “there were obvious limitations to how much money Ariba could make selling its software. It was aiming its product at the big Fortune 500 companies” and asked “what happened when Ariba ran out of customers”? And that, during the boom, “the stock was the only thing that mattered. A valuable stock gave Ariba currency it could use to buy other companies”. Now, while Goodman’s book, as per Kwak’s summary, might blame the executives of technology companies like Ariba for consistently making unrealistic claims and projections, it’s important to note, as Kwak pointed out, that, back in 1999, industry and financial analysts were talking up the Business-to-Business e-commerce boom at a time when B2B e-Commerce didn’t really exist. And, in Ariba’s case, since, with the launch of the Ariba Network, it was as close as anyone else, big, and public, the analysts latched on like leeches. Then market expectations rose, and everyone started watching the stock price, because that’s what Wall Street told everyone the indicator of whether or not you were meeting expectations and being successful was.

And the end result was a massive market crash that wiped out, in Ariba’s case, over 97.5% of their peak market capitalization, led to a temporary revenue loss, and, most likely, stunted their growth for years. Why? All that focus on the stock price, and the marketing and public relations that went around it, shifted focus away from the true value of the offering, which was the platform itself and what it could do for your business, especially if taken to the next level. Imagine where the platform could have been today if all of the money that went into marketing, industry, analyst, and public relations, and all the money that went into patent filings and lawsuits to defend those patents — which could get tossed at any time with a proven claim of prior art or a decision to abandon software patents altogether (like they have done in Europe), had went into research and product development. I’m sure we’d be better off for it.

And if they had stayed private, and were run by a private equity firm interested in steady, profitable growth over the long term, we could be looking at a very different Ariba today. And that’s why private equity players can offer you a lot more value than a public offering. When you have the room to breathe beyond next quarter, real innovation happens.

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Not All CRM Ideas Will Translate to the Supply Chain

A recent article in Stores offered up “20 Ideas Worth Stealing”. It was interesting, but what really struck me is how sometimes even the greatest ideas don’t translate when we take the supply chain as a whole into consideration.

Specifically, the following ideas in particular don’t translate well:

  • 15 Seconds of Fame
    In supply chain, this usually results from a late shipment, a crisis, or a supply chain disaster, such as lead-painted toys, poisoned toothpaste, or tainted food.
  • Downward Dog = Upward Momentum
    You don’t get the same kind of collective experience in a classroom that you get at a concert, movie theatre, or yoga class. (And that’s probably a good thing.)
  • Lickity-Split Product Trail
    Try-before-you-buy is a great strategy, but it only works if you’re offering SaaS supply chain software. You can’t try out a custom made component before it’s built, and no plant is going to invest tens of thousands (or millions) to make a custom product before you commit to paying for it.
  • Luxury Goes Recession Chic
    “Good-enough” is not always “good-enough” where health and safety are concerned.
  • Temporary Stores, Lasting Impressions
    While it’s relatively cheap to put up a temporary store (just lease some available retail space), it’s very expensive to put up, or even lease, a temporary factory.
  • Tweet Success
    Please, No! Please, Please, No! (Like your suppliers are really going to care about your random thoughts.)
  • Putting the Gas in Gastronomy
    While a proliferation of easily configurable options might please the customer base of the food and beverage industry, a proliferation of SKUs will strain your operations.
  • Prime the Sales Pump
    The equivalent would be telling suppliers you’ll pick up the tab no matter how they ship. This is dangerous if they always ship late and you have to expedite every order.
  • Experts on Call
    Why is it your responsibility to hold all of the expertise? Shouldn’t it be a collaboration between you and your supplier?
  • Partnerships for Change
    Change is good, innovation is better.
  • Social Colonization Shifts the Power of Influence
    Customers usually know what they “want”, not what they “need”. They know the “problem” they want solved, but not the “solution”.
  • Crowd-Sourcing Flavour
    Again, customers can provide input, but not solutions. That’s why you’re in business.
  • Appetite for Apps
    While you need good technology to get ahead, application overload, or big-bang system upgrades, can kill you.
  • Door to Floor in a Flash
    While JIT sounds great in theory, too much in practice can be costly. Better demand management and demand planning is a smarter option.

On the other hand, these ideas do translate well:

  • Tapping Outside Expertise
    You should bring in outside expertise regularly to complement your own.
  • Driving Sustainability
    Sustainability helps you stick around for the long term.
  • Keeping Gen Y Engaged
    You need to keep them interested, if they are not already your employees today, they are your employees of tomorrow.
  • Credit Where Credit’s Due
    You should always credit your suppliers for the value and service they provide you.
  • Channel Shifting
    If you can shift, you have flexibility, and that can be a good risk mitigation strategy.
  • Smart Assist
    If you help your suppliers in their time of need, maybe some day they’ll return the favour.

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