One of the most frustrating things about succeeding in the professional services business (or rather, our place in it) is that you can’t tell anyone very much about your wins. Your client hardly ever wants to announce the project, let alone your involvement, when you win the project. Typically they’ll only agree to announcing your involvement after the project goes live, if it’s a huge success, and only in a supporting role (and sometimes. not even then). If the project fails, you and your clients are doubly damned - not only for a failed project, but for hiring you too! Guess who’s the scapegoat! And it’s even worse when you win the project, but it gets cancelled before it finishes (or even starts). By implication, it must be your fault.

We have two high points - winning the job and delivering the project. We celebrate the first internally in a low key, discreet way, but, thank goodness, our people are so good that we can almost always celebrate the second, albeit modestly. But in our unassuming way, it doesn’t do justice to the huge effort and achievement of our pre- and post-sale teams. So without revealing who the clients are and what the projects are, I want to say “Great job, thank you and congratulations” to the Fronde team for delivering some big jobs in the last few weeks and winning some huge new ones, and to those clients who’ve given us those opportunities. I know who you are, guys, even if I can’t tell anyone else, and I’m proud of you, and grateful.

You may not be aware that when foreign currency traders make most of their deals during the day, they are essentially doing so with “free” money. That is to say, they buy or sell currencies many times during the day, but only pay or receive interest on their closing overnight balance. The UK’s Financial Times suggests that if, instead of interest being charged daily on closing balances, interest is charged real-time, e.g. by the minute or second, then currency traders would trade less often and speculate far less, thereby reducing currency fluctuations.

Historically, real-time interest was not feasible because of the technology challenges (number of transactions and an inability to calculate interest, charge it, and pay it quickly enough). That no longer applies.

It’s an interesting twist - the technology that enabled the wildfire that is modern FX trading (where speculative transaction volumes are many many times greater than “real trade” transactions) could now be used to damp it down. But it would take governments and central banks to drive such a change. I can’t see trading banks doing it - using the “free” float is a core component of the current banking paradigm, i.e. how they make money.

Last night, I was at a dinner attended by a a number of the NZ technology industry’s leading lights. I fell into conversation with the CEO of a large and successful competitor. He asked me how the market saw our two companies. My response was “You’re a supermarket chain and we’re a speciality store chain.” Seeing his eyebrows raise, I explained what I meant. Supermarkets can offer goods that are available in specialty stores (and often do), but their market offer is based on their range and price point, rather than their specialisation. Our ~200 people have a reputation for satisfying a particular set of IT service needs with a particular suite of capabilities and modus operandi. Within his many times larger business, there are almost certainly 200 people who could do what we do, but that’s not what their company is primarily known for. His business has a much broader market offer and a different value proposition. It’s not that one is better than the other. We’re just different.

Earlier that day, I’d met another competitor CEO - another “specialty store chain” if you like. His company’s challenge is to decide what it’s not, as much as what it is. That’s a critical decision for any business, but especially important if you’re in the specialty store game. Many businesses think they are spreading their risk if they have lots of irons in the fire. I’d argue that’s absolutely the riskiest strategy. Strategic thinking is about making choices and meaning it. You concentrate your resources on your unique strengths, and you avoid attacking your competitor where it is strongest.

Incidentally, it’s my experience that CEOs of competing companies can enjoy a good relationship, united as we are by the common challenges we face as CEOs. We compete hard, but we usually respect each other as individuals and get along fine at a personal level. Chewing over these kind of ideas is part of that.

If you haven’t read The Undercover Economist by Tim Harford, I highly recommend it. I bought both my sons a copy each. While it’s been compared to the renowned Freakonomics, I found it to be a more practical book for business people, introducing important micro-economic ideas through story-telling contexts that relate to our everyday experience.

Tim has just written an article for Forbes Magazine, knocking the mythology around food-miles. He finishes with the wry observation that, whatever the carbon footprints of the supply chains which bring food to your outlet of choice, they are trivial when compared to your own carbon footprint driving to that outlet and back again.

Still, let’s not let the evidence get in the way of emotion.

If you’re wondering what all that Web 2.0 stuff is and how it applies to organisations, rather than just your kids hanging out in Facebook or Bebo, the very talented Mike Riversdale has put together a beginner’s introductory guide to help you. He’s certainly helped Fronde take its first tottering steps.

Here’s a tip for when you’re trying to get a complex idea across - use pictures that tell the story so evocatively, hardly any words are necesssary. Courtesy of Frostfire Seeds, here’s one of the most powerful advocacy messages for public transport I’ve yet seen: the space required to transport the same number of people by car, bus and bicycle.

Shortly after I wrote En Avant - Get Going, I came across this helpful, but huge list of 67 tips for overcoming procrastination, from Christina Laun at Bootstrapper. I’m tempted to add a 68th: don’t spend all your time reading long how-to guides.

Bennett Medary, CEO of IT services company Simpl, complains in his new blog about:

….“poaching”, where vendors with the deepest pockets target and “buy” specific talent required for immediate deployment to meet new or unfulfilled commitments. This often has the secondary effect of wounding the competition (and their customers) - killing two birds with one stone. Neither response is good for the industry or its credibility with customers!

He concludes:

Should the industry simply accept this as “just the way it is” or should we seek to put a stop to it? We’re happy to sign mutual non-poaching clauses with anyone and publish who is and who is not willing to do the same.

Sorry, Bennett, but this is a slippery slope you’re on. Not poaching your client’s staff is one thing, but your competitor’s? Why not agree to not poach each other’s customers, as well? And while we’re at it, how about not undercutting each other’s prices? No, it’s not on.

Competition for skilled staff may be tough right now, and only likely to get tougher given current demographic trends, but that’s business! Free markets can be uncomfortable, but on the whole, they work a heck of a lot better than the alternatives.

It’s especially a challenge in the fiercely competitive IT professional services market, with low barriers to entry and productivity tools quickly available to all competitors. We face a bizarre paradox of razor-thin margins in a skills shortage. Of course, smart companies will work hard on their business model and value proposition (for customers and staff). But, all else being equal, if someone is really prepared to pay 20% more for staff, then you probably have to persuade your customers to pay more, or walk away from their business.

PS. Simpl and Fronde are competitors, but Bennett and I can enjoy a drink together.

Yesterday, I introduced Professor Paul Callaghan to you. He’s very passionate about the importance of science and technology to our future economic success. He too makes my oft-repeated point that kids will take up science and engineering if they are excited by the opportunities that those careers present.

I have a strong view that getting parents and kids (at a young age) excited about those career opportunities is the responsibility of industry, not “the government”, but I add a proviso: that children have been taught maths well in their earlier years.

The ability to understand algebra at age 13 is a key indicator of future earnings, whatever career is chosen. If children haven’t grasped algebra by the 3rd form (or whatever year/grade it’s called these days), they’ll turn away from the physical sciences and technologies. This isn’t an issue just with producing future scientists and engineers. We also need skilled trades-people and technicians, and by implication we want middling students to enjoy the physical sciences too.

I have huge respect for good maths teachers - they helped make me who I am. I just wish that there were more great teachers of mathematics - teaching at all levels, not just the brightest students. Average students who understand basic algebra have far more options.

To paraphrase Professor Callaghan, “If they have the maths, we can take care of the rest“.

To quote just one study:

Student and School Indicators for Youth in California’s Central Valley
Page 35, Chapter 5: Middle and High School Courses and Enrollment
Access to Algebra in Middle Schools

Research has shown a relationship between future earnings and courses taken in high school. Some of the strongest relationships are between earnings and the number and type of math courses (Rose and Betts, 2001). In turn, courses taken in high school depend on the preparation students receive in middle school. Therefore, it is important to look at access to algebra, type of algebra available, and enrollment in the classes that signal the most-advanced middle school students.

Footnote 1: Beginning in 2000, the CDE (California Dept of Education) identified seventh- and eighth-grade enrollment in intermediate algebra as important data to track in the CBEDS data collection.

Anne Danenberg, Christopher Jepsen, Pedro Cerdán, 2002
PUBLIC POLICY INSTITUTE OF CALIFORNIA

The long-awaited capital structure plan from Fonterra is out now, and in a nutshell, it recommends a new listed company (which owns the Fonterra assets and businesses) with ultimately 50.1% of shares held by the farmer co-op . This will free Fonterra to raise expansion money and really start building its global dairy products business.

A necessary second step (not yet fully defined) is a restructuring of the milk price mechanism later down the track.

The plan is along the lines generally expected, and looks reasonable, given the realpolitik of the dairy industry. Let’s hope the farmers will back it. The global food boom is happening, but there’s only so much room on the supermarket shelf and in the heads of supermarket buyers. Fonterra’s farmer-owners must act decisively or risk being left behind, as others pick up the huge in-market supply/processing/distribution opportunities coming up.

No doubt the commentary will flow thick and fast. Bernard Hickey was first out of the blocks.

PS. For my readers in other countries who have no idea what this is all about, Fonterra is NZ’s biggest company and the world leader in cross-border trade in dairy products. Its global expansion has been constrained in recent times  by its farmer ownership model (in the opinion of many, but not all). This new plan aims to give Fonterra access to expansion capital while retaining effective control by farmers, who have reaped downstream value beyond the farm gate, and don’t want to lose that. You can get a sense of the challenges in achieving that buy-in by the 2 year farmer consultation programme. That’s right - 2 years! Let’s hope they can speed that up.

NB Fonterra is a client of Fronde, and I have investment interests in Fonterra.

I enjoyed listening to a radio interview of Professor Paul Callaghan last Sunday morning. I was supposed to be in the gym, but ended up sitting in the car for an hour until the interview ended. Paul is the director of the MacDiarmid Institute for Advanced Materials and Nanotechnology, one of NZ’s newest research institutes, based at at Victoria University in Wellington. He’s a leading physicist, a superb teacher, and the 2007 Royal Society of NZ Distinguished Speaker.

Paul described himself as an enthusiastic late-comer to the overlap between science and business. He is on something of a campaign right now to extol the importance of science and technology to the future well-being of the NZ economy. His message could apply to almost any nation. If you’ re in NZ, go along to one of his upcoming lectures. You’ll enjoy his presentation and hopefully be moved by his messages.

In Shopping Choices: Attractions or Distraction? IT services giant EDS has reported that, while shoppers demanded more information on products, in reality they ignored it and focused on price.

“Not the response that manufacturers and retailers hoped for,” writes global adman Kevin Roberts. “…we have to stop obsessing over the information we provide and start responding to shopping as an essentially emotional experience. ”

I agree, which is why I was somewhat surprised by Kevin’s suggestion that electronic shopping carts may be a solution, to give supermarket shoppers access to all the information they could possibly want on the products they buy (ingredients, country of origin, carbon footprint, health risks, factory conditions, etc, etc).

Hang on. Isn’t that just a super-jumbo version of the current supposedly wanted, but in reality, largely ignored information? Most people say they want to Buy British, Buy American, Buy Kiwi-Made; but in reality, they look at the product, the price, and the brand, and almost never at the country of origin (except when it’s a prominent part of the brand value, as in wine). It’s not that people wouldn’t understand detailed information; they just don’t look at it, despite what they say.

Better brand values are the answer; not more data. People trust or aspire to a brand, e.g. shirts from a Jermyn St shirtmaker, Marks and Spencers underwear, or a Toyota car. Accrediting agents, outlets and countries of origin can be brands, as well as products. The term “farmers’ market” has many brand characteristics. Products sold in a farmers’ market have an implied endorsement as locally produced, high-quality fare, and people get a feel-good emotion from buying there. Ditto “fair-trade” coffee or “organic” meat, labelled prominently as such. (Hmmm; ever seen “inorganic” meat?)

I don’t see people using the data look-up capabilities of a smart cart any more than they look at country of origin or ingredients lists now. Their behaviour suggests that they rely on the brands of the retailer and the product, with simple, easy-to-comprehend endorsements.

As Kevin has said often enough, once functional, aesthetic and price needs are met, the prime driving factor in a buying decision is usually emotion.

Do you get angry when you order a product or service, only to get stung by unexpected extra charges? Over-hyped product specifications? Deceptive project bids with swingeing prices for subsequent changes to requirements? Of course you get angry; everyone does.

Mark Di Somma has just written about the EU finding that half of all European airlines’ websites are guilty of misrepresentation, and many of actually breaking the law. Mark comments:

Perhaps these companies think they’re being clever behaving this way. Perhaps they think they have no option. They’re wrong on both counts.

Deceiving people isn’t just stupid, it makes no sense commercially, because all these airlines are doing is setting themselves up to disappoint their customers.

As for the no option argument, that’s equally dumb. If everyone else is behaving this way, simply following them is lemming behaviour. Instead, there’s an immediate and important opportunity to put distance between your brand and others, and to take the moral high ground by doing so.

I totally agree. Most people I know would agree. Most businesses are not run by evil people, so what is going on? Why do some businesses (or rather, the people who work in those businesses) do it?

• Either they don’t think their product and their price represents value for money; or they don’t know how to demonstrate that value.
• They are looking for excuses as to why that is so.
• They don’t know what to do about this problem; or they do, but can’t/won’t take the necessary steps.
• They don’t personally face the consequences of their deceptive actions.

Anyone who thinks their product and price doesn’t represent value for money needs to either change their product, change their value proposition, or both, or get out of that business. Those are tough choices, but that doesn’t mean they shouldn’t be made.

Many years ago, new in the job, I heard a product manager say to me in front of a dozen people, “We have to pump our specs up - if we don’t, our products will look bad. But don’t worry - the competitors all lie about their products, too.” I realised straight away that my reaction to this would set the tone for my leadership. In a very firm and measured tone, I declared that we did not deceive our customers, and that anyone who set out to do so would have a very short tenure while I was in charge.

Here’s a simple set of principles:

• Be proud of your product, price and value proposition.
• Never deceive the customer (or yourself for that matter),

PS. The product manager left soon after. I never saw any evidence that the competitors lied. Fortunately, we had a great product, and we did find a better way of demonstrating its value.

The BBC has interviewed Dr Gordon Moore, who first put forward what was to become known as Moore’s Law in April 1965

• The number of transistors on a chip doubles approximately every two years

As the good doctor says:

…what had originally been just a prediction by Dr Moore became a self-fulfilling prophesy…”It’s a peculiar feature of this technology that by making things smaller everything gets better,” says Dr Moore. “The transistors get faster, you can put more of a system on a chip.” But more importantly, and perhaps more curiously, the chips also become cheaper.

… “I am not sure that having Moore’s Law held up there as a yardstick increases the pressure [on chip manufacturers] because the need to remain competitive is so strong.” As a result, the industry has grown “far beyond” what he could have imagined in 1965, he says. “It is surprising that any of the things we predicted are still valid.”

He is most impressed with the industry’s inventiveness, he says, allowing it to overcome a series of seemingly insurmountable technical hurdles as it grew.”… “It has been much more successful than I probably would have predicted.”

But, Dr Moore says, the industry can only go on shrinking transistors for so long. Eventually, the features will become so small that the atomic structure of the materials will be a limitation, possibly spelling the end of Moore’s Law

I love his closing remark, when asked what he thinks will happen in the next 40 years:

“I’m through with making predictions. Get it right once and quit.”

Keith Turner, the founding CEO of Meridian Energy, has just announced that he plans to depart from the company in March 2008. I’ve known Keith since the early ’90s, when I was CEO of local electricity company Electra, and he was a senior executive with the Electricity Corporation of NZ. Keith was given the job of setting up what was to become Contact Energy, the privatised power generator, and did it well. After completing that job, he returned to Electricorp, where they then made him redundant - which didn’t go down well with many people. When Electricorp was itself split into 3 more companies, there was a rich irony in seeing Keith get the leadership of one of them.

At Meridian, Keith has led the company’s expansion of renewable energy generation in a very substantial way, as well as making his shareholder a tonne of money from Meridian’s foray into Australia. He’s regarded as one of NZ’s most influential people, and he’s also a nice bloke. He’ll be a hard act to follow.

Disclosure: I have investment interests in Contact, and most of the major players in the electricty sector are clients of Fronde.

This blog is named En Avant, after the personal motto of Isambard Kingdom Brunel, the 19th-century engineer (and my personal hero). En avant is a French phrase with several meanings, including Charge! and Forward pass, as I learnt in France recently. In Brunel’s case, it meant Get going!

In an article urging people to “Just do it,” Jamie Quint wrote that,”Rarely do people regret things they did in life more than things they wished they had done.

I can relate to that. Apart from remorse for unintentional hurt I have caused to others, my regrets are never about wrong decisions, or things that didn’t work out, or investments that bombed. That might sound like chutzpah to some, but you need a little to have the confidence to make decisions quickly. No, my regrets are about things I didn’t try. Mind you, I don’t dwell on them - what’s the point?

When things go pear-shaped, and they will sometimes, it’s easy to get demoralised by the stress and tension of the situation, but in the grand scheme of things, “This too shall pass“. Life goes on, and you’ll have learnt from the experience.

By all means identify and manage your risks, but don’t be paralysed by them. If you’ve got an idea or a dream, En avant - get going!

Extending my earlier “strategic thinking” themes, I was going to write an article about branding, with the key message:

• What you’re not is as important as what you are.

Unfortunately, the key prop for this article is no longer available. I’m referring to the Steinlager Pure beer advert, featuring Harvey Keitel eulogising New Zealand for those things it’s rejected - e.g nuclear weapons, genetic engineering (the jury’s still out on that one) - and, by implication , endorsing NZ beer Steinlager Pure for being additive-free. I thought it would make a nice post, but, unfortunately, YouTube has made the video clip unavailable. Even the Steinlager Pure website doesn’t feature it. That weakens the branding and promotion strategy, I’d say.

So I’ll leave it to you guys to figure out what I was going to write, or what I wasn’t.

Yesterday I passed on a list of tips for directors published in Boardroom. One of them I didn’t like:

• The CEO should be the most valuable asset and should be maintained as such.

Most directors I know would say that the most important decisions they make are who to hire as CEO and whether or not to fire the CEO. That’s, I assume, the intent behind this tip. But otherwise, I find the statement ridiculous.

At some point in building or changing a business, the CEO may well be the most important asset, but no long-term business should be dependent on one person. In the long run, the business model, the intellectual property, the institutional knowledge and processes, the customer base and the company’s staff (taken as a whole) should be more important than any one person, including the CEO. (Update: Not to forget the brand - how did I forget that - me, self-proclaimed strategy and brand fanatic?)

The CEO is clearly important (try working for a bad one), and can have huge positive or negative impact on value, but except in special circumstances, there’s no way he or she is the most valuable asset.

I like most of this list of tips for company directors from the October issue of Boardroom, the Institute of Directors’ monthly magazine:

• If management are not making mistakes, then you (the directors) are either not driving the business hard enough or you are not being told the truth.
• If you have doubts as a director, share them. If you still have doubts, action them.
• You can tolerate failure at times, but you cannot tolerate failure to perform.
• Good boards set the environment in which management can excel.
• You don’t get high performance by threats.
• Set out to make the CEO successful.
• The CEO should be the most valuable asset and should be maintained as such. (Ed. that’ll get Chris Dillow fuming! Nor the way I’d have put it, but I understand the intent. )
• The working relationship (board/CEO) must be clear from day one.
• Boards are there to make judgements; you have to trust your judgement.
• The chairman should have a direct relationship with the CFO and the CEO should be comfortable with that.
• Whether a CEO is also on the board is irrelevant. A CEO will always be present for all business decisions and would be excluded on matters relating to him or her in any event.
• Abstaining from board decisions is a ‘crime’. You are there to make decisions and an abstention is an abdication of your responsibilities as a director. Take a view! Sitting on the fence contributes nothing and can be hazardous to your health. (Ed: except, of course, due to conflict of interest).

Some commentators still enthuse about the Google warm fuzzies, (bean bags, pool tables, free gourmet staff cafes, extensive paid time on “feel-good” activities), but to me these are the indulgent squanderings of a company that has a temporary margin and cashflow advantage which over time will get eroded by real competition.

(Update: I was in a grumpy mood when I wrote that.  I do believe that companies should invest in people and workplace culture; it’s just a question of why and how much.  See comments below)

Likewise, Businesspundit writes :

… Google seems that way for now, but the question is where they will be when their growth slows. It’s easy to build a good corporate culture when money is flowing and everybody is happy. It’s much harder to stick to your guns in the face of criticism and underperformance. Google may be a few years from that, but it will happen. Will the free cafeteria stay? Will employees still spend 20% of their time on pet projects? Watch what happens when the company starts taking a financial hit or two, and then you will know how deeply their beliefs about corporate culture are actually held.

Other commentators are starting to question Google’s behaviour and Businesspundit asks if its share price is justified:

Google has limited success outside of their core search product. Gphone? OpenSocial? So what? Maybe those will be two other areas where Google will fail. Weren’t people talking about how revolutionary GoogleBase was at one time? Until I see them make serious money from a second act, I’m not willing to pay a price for the “potential” of the Gphone.

Somewhere, someone is working on a natural language search engine that will blow Google out of the water. The company is too tied to old ways of thinking about search (does anyone care about Pagerank anymore?). Once I can go to a site and ask “What is the average rainfall in Kentucky” without having to use funky ANDs and ORs and quotes, and instead of getting pages that have similar words, I get an answer, I think Google’s traffic could drop dramatically within just a few months. I follow A.I. research, and I think this day is coming, and it won’t come from Google. (This is why I like Yahoo better. Content is a more stable play.)

Google has inevitably started to suffer from tall poppy syndrome, as its success mounts, but some of these concerns sound very plausible to me.

PS. I have shares in Google, so I hope my concerns are unfounded.