JACK MIXNER STRATEGY

1+714.673.8578.     www.mixnerstrategy.com

Rhetoric speaks. Jack Welch used a speech writer to put into words all the things he was thinking when he ended up CEO at GE.

Sometimes, we think all of strategy is a team effort. Lane makes the case that Welch, working all by himself, decided what to say. He just needed help in saying it. Welch realized that without "world-class" (Lane, 108) communication, GE wouldn't grow the way he wanted it to.

Unsaid in the review of Lane's book is any mention that Welch is normally an introvert. Maybe he wasn't. But he was smart enough to know that everything he said and forum he said it in, had to be properly scripted.

Interestingly, in the Welch's column this month is BusinessWeek they talk about how deleterious being an introvert can be to your career. Their advice? Fight it. Present every time you are able. Ask for advice on how you did. Don't be a wall-flower.

Welch is just giving advice he received in the early eighties. It seems to have worked for him.

Reference

Lane, Bill. Jacked Up: The Inside Story of How Jack Welch Talked GE into Becoming the World's Greatest Company.  http://www.strategy-business.com/press/article/08408a?pg=0 . Best Business Books 2008. Strategy+Business. Winter 2008. Page 108.

Welch, Jack and Suzy Welch. Release Your Inner Extrovert. BusinessWeek. 8 December 2008. 092. http://www.businessweek.com/magazine/content/08_49/b4111092962041.htm

Posted by jackmixner at 03:53 PM | Permalink

1+714.673.8578.     www.mixnerstrategy.com

Microsoft had a problem. Its 90,000 employees and $60 billion in annual revenues weren't enough to leverage the company into cloud computing.

Enter Ray Ozzie. An old techie friend of Bill Gates, Ozzie has begun a transformation at Microsoft to take advantage of the disruptions taking place in the market as companies migrate from desk top bound software (like the Microsoft Office products) to a web bound process where things are a bit different.

Way back when, Microsoft successfully migrated to the Windows environment. Then they migrated successfully to the web environment. All along, they still provided software that you installed on your computer for your personal use.

A great example of a cloud product that has been wildly successful isn't a Microsoft product at all. It's from Apple: iTunes. You install it on your computer to use it as an off-line media organizer. Then you go on-line to buy songs, stream stuff, and get recommendations (Levy, 174).

Now comes the red shoes.

Normally, when Microsoft does something, everybody gets involved. That guarantees slow launches with - maybe - plenty of bugs. How to solve the fast, bug-free problem? That's where the red shoes come in.

Ozzie created a company within a company right on the Redmond campus. One thousand engineers are focusing on four new product lines all by themselves. They don't have to report to anyone else. No one else gives them permission to do stuff. They just do it. Sort of like Nike's old slogan - just do it. They all needed a uniform, thus the red Nike shoes.

Company-within-a-company. No rules. Just do it. Must be be odds against success for Microsoft to take the risk of such an organization.

Big risks translate into big pay-offs. It looks like Microsoft is about to succeed at this new risk.

We'll see.

Reference

Levy, Steven. Ray Ozzie Has a Plan. Wired. December 2008. 170.

Posted by jackmixner at 03:16 PM | Permalink

1+714.673.8578.     www.mixnerstrategy.com

I went to a football school, I have to admit it. I remember traveling to watch our game with Florida at their homecoming and winning, 42 to 3. When we came out of the stadium, our car was covered with garbage. On top of the heap was a littering ticket. Those were the days.

This past weekend, my team lost 36 to 0 to our cross state rivals. That loss was the first one to that rival in six years. Fierce battle. Big bragging rights. Huge. One of the teams is battling for the national championship this year.

Into all this our president-elect Obama steps with an opinion: the BCS poll doesn't work.

We figured that out back when my team was undefeated against all comers a couple years ago and didn't make it into the final for the national championship.

Obama says a play-off is the way to go. He might be right.

But my advice?

Football is too divisive an issue for any president to have an opinion about.

Stick with the fumbling stock market, Mr. President-Elect. No one has an opinion on that.

Reference

Curtis, Bryan. Obama's First Fumble. New York Times. 22 November 2008. http://www.nytimes.com/2008/11/22/opinion/22curtis.html?_r=1&ref=opinion

Posted by jackmixner at 02:11 PM | Permalink

1+714.673.8578.     www.mixnerstrategy.com

Michael Lewis likes to make predictions, or, at a minimum, examine what went wrong in financial blow-ups, and figure out who knew what to do first. 

Lewis' first book, Liar's Poker is a classic. We talked about it back in August (Mixner). Basically, the book talks about what went wrong when Salomen Brothers went from being a partnership (where the owners took a big, personal, hit if things went wrong) to a corporation (where, yes, the partners were now very rich employees, and where, yes, no one seemingly cared about what happened to the shareholders, who now held all the risks) (See Lewis, Liar's Poker).

An article in Portfolio magazine probably summarizes Lewis' next book (Lewis, The End). If you read anything about the current meltdown in the market, read this article. You're going to have to work to read the article, but every line is worth reading. The only problem is, once you've read the article, you are going to have to figure out who are you going to trust to invest your money.

Key points:

1. Meredith Whitney forecast Citigroup's current problems on October 31, 2007 (Lewis, End, 116). She identified Steve Eisman as one of the folks who helped figure things out.
2. Steve Eisman figured out at the end of 2004 that Greenspan's decision to lower interest rates would lead to a "terrible day of reckoning" (Lewis, End, 120). He didn't have a full handle on the situation yet.
3. Greg Lippman at Deutsche Bank explained how Eisman could make money on his realization: don't short the stocks of financial institutions or home builders - short their sub-prime bonds (Lewis, End 120).
4. Now Eisman, who didn't have a lot of money to invest, wanted to know which were the worst bonds of all the bonds out there. It ends up that the worst bonds were those tranches of bond financings that were rated BBB (Lewis, End, 122).
5. Now for the kicker - Wall Street figured out how to take the BBB bonds and repackage them. When rated the new bonds were rated - get this - AAA. A wonderful transformation. Lewis doesn't use the word, but I will. See if you agree: this was a "smirk, smirk" transaction, at best (Lewis, End, 122). He calls it "smirk," - I call it corrupt.
6. Eisman's last act in making money on the downfall of Wall Street was also insightful: He bet on the downfall of the rating institutions like Moody's (Lewis, End, 156).  

Like I said, read the article, line by line. It is totally worth the effort if you want to understand what has just happened in the markets. It may help you figure out what to do the next time someone tries to sell you a bond.

When the book comes out, read the book. I'm going to.

References

Lewis, Michael. Liar's Poker. Rising Through the Wreckage on Wall Street. Penguin Books. 1989.  

Lewis, Michael. The End. The era that defined Wall Street is finally, officially over. Conde Nast Portfolio. 114. http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom

Mixner, Jack. When Mortgages Were First Bundled - in 1979. Mixner Strategy blog. 25 August 2008. http://mixnerstrategy.com/blog/2008/08/when_mortgages_were_first_bund.html

Posted by jackmixner at 01:24 PM | Permalink

1+714.673.8578.     www.mixnerstrategy.com

Paul Krugman just won the Nobel for economics. He took a job as a commentator at the New York Times some time ago. When he took the job, he was concerned that it might ruin his changes at winning the Nobel. Two things happened: he became an outspoken critic of the current administration and he won the Nobel (Raines, 70).

Most recently, Krugman took on U. S. Treasury Secretary Hank Paulson. Paulson wanted to bail out the banks by buying their bad debt. Krugman said not to buy debt, but to buy the bank's stock to give them added liquidity, the action Paulson ultimately received permission from Congress to do.

An interesting factoid: Paulson changed his mind. Early on, he wanted to buy stocks in failing banks. Then, he changed his mind. Now, he wanted to buy debt. Finally, with Krugman's input, and a whole lot of other folks, he went back to buying stock.

Personally, I got all this wrong. On the Monday when the first vote occurred, I was incensed that some of our local legislators voted against the initial Paulson request. Of course, we all lost a lot of money that day in the market, but that doesn't mean I was any less wrong. When they finally voted to invest in the markets with the $700 billion bailout, the money went to buy stock, not bad debts.

Luckily, Krugman got his way. Yep, we all lost some money. Luckily, the delay took us down the right path.

Strategy works the same way, sometimes. Taking your time to make important decisions does make sense. Asking advice - and actually listening to it - also makes sense.

I'm glad the Congress took the time to pause and re-consider. It worked out better that way.

Reference

Raines, Howell. Don't Believe the Hype. The press bought into the $700 billion bailout, hailing it as a necessity. Why so many got it wrong-and how Paul Krugman got it right. Portfolio. December 2008/January 2009. 69. http://www.portfolio.com/views/columns/media/2008/11/19/Paul-Krugmans-Bailout-Dissent

Posted by jackmixner at 04:06 PM | Permalink

1+714.673.8578.     www.mixnerstrategy.com

Back in business school, I had a gold standard professor who had us all convinced about the efficacy of an American gold standard, and its renewed need. That was quite a while ago.

The gold folks are back, only they don't talk about gold standards. They talk about "commodity" standards of some sort (O'Driscoll).

I'll let others debate about the need of the American currency to rest on a valuation based on a commodity like gold. O'Driscoll raises another interesting point:

The period between boom and bust cycles seems to be shortening. The next bust might occur during Obama's second term. Thus O'Driscoll's suggestion: Solidly force the value of the dollar to follow some commodity, thus preventing the formation of another boom/bust cycle, especially during Obama's watch.

O'Driscoll is trying to help Obama by pointing out that he needs to help a Democrat be elected in 2016. That seems like a long time from now.

Honestly, I don't want another bust. We're not over this one yet - I certainly don't want another one. Is going to a gold standard the way to go? I have no idea. I did learn something, however, and I hope I remember it:

The next bust may occur more quickly than we think.

Having a plan for it might be in order.

Reference

O'Driscoll, Gerald P., Jr. To Prevent Bubbles, Restrain the Fed. Obama would be a fool to trust his economy to the discretion of central bankers. Wall Street Journal. 17 November 2008. http://online.wsj.com/article/SB122688652214032407.html

More from O'Driscoll:   Sweden's Model Clean-up

Sweden did things differently during the last banking crisis during the early nineties.

They stabilized their currency, reversed contractions in the gross national product, and reversed rising unemployment, by allowing some banks to fail, recapitalizing others and isolating bad debts (Cronin).

Japan attacked the same problems piecemeal and over a longer time.

Sweden's formula worked better.

We should have a look.

Reference

Cronin, Brenda. Sweden's Path, Not Japan's, Can Guide Cleanup. Wall Street Journal. 1 December 2008. A2. http://forexdaily.org.ru/Dow_Jones/page.htm?id=357115

Posted by jackmixner at 03:32 PM | Permalink

1+714.673.8578.     www.mixnerstrategy.com

Michael Porter is doing a little politicking. He sees a need for a national economic strategy, something that the US government hasn't tackled since Porter last participated in such a session - in 1983 (Porter, 42).

Strategists think in terms of strengths and weaknesses. Porter sees these strengths of American economics right now (Porter, 40):

1. Environment for entrepreneurship
2. The best science, technology and innovation "machine" in the world.
3. The world's best institutions of higher learning.
4. The world's strongest commitment to competition and free markets.
5. Strategic policy is de-centralized across states and regions.
6. Deepest and most efficient capital markets in the world.
7. The willingness to restructure, take our losses, and move on.

That's a list every American should be proud of. That's the strengths. Now America's weaknesses according to Porter (Porter, 40-42):

1. Belief in competition is waning
2. Lack of competitive oversight and capital requirements is undermining American financial markets.
3. No plan to improve access to American universities and colleges.
4. Federal government is ignoring the strengths of regional economies evidenced by lack of support for individual clusters.
5. Lack of a transitional safety net for Americans laid off and seeking new jobs resulting in an inefficient protectionism harming growth.
6. Cost of doing business is too high. It is ignored by government. This includes health care and energy costs.
7. Theft of intellectual property abroad and barriers for entry for services is tilting the world trading system against a knowledge-based economy.
8. Citizens retiring today are better educated than the young people replacing them.

These are nice lists. Everybody gets it. So, what do we do?

Porter, of course, has a recommendation: form a President's Commission on Industrial Competitiveness. Make a plan that isn't reactionary. Make it visionary. Porter even recommends a couple strategies to start things off like consolidating local educational systems to generate efficiency and inequality. Up above we quoted a strength about local control of industrial clusters. That local converts, really, to a regional approach to clusters. Porter is recommending a regional approach to education. Combine districts. Equalize investment. Focus on results.

Michelle Rhee (Ripley, 36) is doing that in Washington DC schools. Some people, indeed, hate her. However, and here's the however, things are starting to change for the better. Schools are starting to change. Results are better since she arrived.

The message for a nationwide economic policy addressing long term strategic goals like education? It's not going to be easy. True leaders have to be involved.

Now is the time for a lot of things in America. Strategy is one of them.

References

Ripley, Amada. Can She Save Our Schools? Teachers hate her. Principals are scared of her. How Michelle Rhee became the most revolutionary-and polarizing-force in American education. TIME. 8 December 2008. 36. http://www.time.com/time/magazine/article/0,9171,1862444,00.html 

Porter, Michael E. Why America Needs an Economic Strategy. BusinessWeek. 10 November 2008. http://www.businessweek.com/magazine/content/08_45/b4107038217112.htm

Posted by jackmixner at 02:46 PM | Permalink