One thing I’ve particularly enjoyed about the 40th anniversary of the Apollo Moon landing has been watching reruns of the Tom Hanks-produced docudrama series “From the Earth to the Moon“. When I saw the series for the first time in 1998, I was enthralled. My particular favourite is the episode on the development of the lunar lander. The day after I saw it, I got one of my staff to beg, steal or borrow a videotape copy from the local TV broadcaster (it hadn’t been released for sale). We showed it to all our development staff as part of a training day. Everyone who aspires to a career in engineering (of any kind), product development, or project management should watch these programmes. If you’ve got a teenager in your family who’s thinking about a career along these lines, the DVD set would make a great and inexpensive gift (just make sure you get the right regional format or have a multi-region capable player).
I was pleasantly surprised when I tried Microsoft’s Bing internet search engine. It did a far better job of finding information on products and suppliers than Google; I usually got what I wanted on the first page at the first attempt, without complex search criteria. At last Google may have a serious contender - not for general search, but for advertising dollars. If Bing delivers more actual buyers than Google, a large part of that vast advertising revenue will shift to the more effective channel. Eyeballs don’t count. Sales do.
Now comes news that Microsoft has done a deal with Yahoo, effectively taking over Yahoo’s search business, gaining access to Yahoo’s sales force and user base. That will really speed up Bing’s market penetration - reaching many more advertisers and potential buyers much faster than MS could achieve on its own. I’m impressed. (Update: Most commentators are bemused or negative. I’m sticking to my view that MS has pulled off a smart move here).
Of course, Google won’t stand idly by and let that happen without a fight.
And I couldn’t resist the urge to make a lame reference to Bing Crosby.
Disclosure: My family trust has investments in Microsoft and Google.
Why do business buyers keep confusing cheapness with value? Time and again I’ve seen the best vendors lose on price because the buyer could “get it much cheaper elsewhere”. The classic example is professional services charged by the hour. Any good manager of people knows that you pay your better staff more because they are more than worth it to you. For example, a good IT designer/developer will work out many times cheaper in the long run. They understand the business need quicker, design quicker, design better, write code quicker, write better code with faster performance and fewer bugs, and their software is cheaper to maintain. That can equate to a 10-30 fold lifetime cost difference - the saving more than outweighing any hourly rate difference. And that’s before you factor in the risk of non-delivery - much lower with better suppliers.
But many business buyers persist in penny-wise, pound-foolish buying practices. I have interests in several firms who sell products and services to other businesses, and my attitude is clear. I put a lot of emphasis on getting the price/value/cost proposition right, but if I can’t persuade you of the value for our prices, I’ll walk away before discounting. I’m not in business to subsidise anyone else’s business.
I have also big interests these days as a board member. I often see proposals brought to me for approval by a buyer proudly telling me that they’ve got the lowest input costs. All too often, I send them away to redo the basis of purchase and decision. Get me the best price and the best people to deliver the outcome, not just the lowest cost of the inputs. If it has to be input-based, hire the best you can (while avoiding bloated suppliers and being sensible on price). It may cost more theoretically on paper, but I’ve rarely seen it cost more in actuality. On the contrary, the lowest input cost approach usually blows out on time, cost, reliability and efficacy.
Managers and buying teams - take note. Top management and boards much prefer certainty and effectiveness over cheapness.
Over at The Technium, Kevin Kelly asks “Was Moore’s Law Inevitable?” You’ll recall that Moore’s Law predicts a doubling of transistor numbers in an integrated circuit chip every two years, and it has held astonishing true for nearly 50 years. Fulfilling this “law” has been a key driver in the astonishing growth of computer power accompanied by falls in the cost of that power. Kelly explores whether Moore’s Law simply sets a target which engineers strive to achieve (2 years does match neatly with typical product development cycles), or if there is some other deeper factor, and extrapolates this to a variety of technologies.
I was struck by Kelly’s observation that most current new technologies have gained momentum from smallness:
The first thing to notice is that all these examples demonstrate the effects of scaling down, or working with the small. In this microcosmic realm energy is not very important. We don’t see exponential improvement in efforts to scale up, to keep getting bigger, skyscrapers and space stations. Airplanes aren’t getting bigger, flying faster, and more fuel efficient at an exponential rate. Gordon Moore jokes that if the technology of air travel experienced the same kind of progress as Intel chips, a modern day commercial aircraft would cost $500, circle the earth in 20 minutes, and only use five gallons of fuel for the trip. However, the plane would only be the size of a shoebox! We don’t see a Moore’s Law-type of progress at work while scaling up because energy needs scale up just as fast, and energy is a major limited constraint, unlike information. So our entire new economy is built around technologies that scale down well — photons, electrons, bits, pixels, frequencies, and genes. As these inventions miniaturize, they reach closer to bare atoms, raw bits, and the essence of matter and information. And so the fixed and inevitable path of their progress derives from this elemental essence.
At antenna manufacturer Deltec, we were frequently asked why our unit costs didn’t fall as fast as the electronic subsystems in mobile communications infrastructure. While we did achieve cost savings from smarter design, leaner manufacturing and experience/scale effects, the laws of physics imposed limits on what could be achieved in a shaped piece of metal whose minimum size was determined by the frequency/wavelength and performance requirements of the network design and cellsite coverage. Smallness only came from shorter wavelengths/higher frequencies or lower range/coverage (increasing the number of cellsites).
Kelly also unearthed this old chart from the US Air Force. Impulse power, Mr Sulu! You’re due about now.
I’m chairing an Institute of Directors dinner at The Wellington Club, 6.15pm on Tuesday 4th August. Our guest speaker is Rick Christie, addressing the question “Challenges for chairs of government companies - can a private sector model work?”
Rick had an impressive executive career, as a director of BP New Zealand, Managing Director of listed industrial group Cable Price Downer, CEO of Tradenz (NZ Trade Development Board), and CEO of investment group Rangatira. He’s even busier as a professional director - he is currently Chairman of Ebos, Chairman of ProvencoCadmus, Chairman of Argenta, and a Director of Tourism Holdings, Wakefield Health, and the NZ Pork Industry Board.
To name but a few of the positions Rick has held, until recently he was Chairman of crown research business AgResearch, Chairman of the government’s Growth & Innovation Advisory Board, Deputy Chairman of the Foundation for Research Science & Technology, and Chairman of the Victoria University Foundation Board of Trustees, He was a a Director of Television New Zealand, and a member of the Prime Minister’s Enterprise Council.
Clearly Rick must know a lot about chairing government entities! Given Wellington is the nation’s capital, it’s no surprise that the dinner sold out almost straight away; but one place (price $110) has come available. The dinner is restricted to IoD members with at least 5 years experience as a director. The Chatham House Rule applies to the evening’s discussion which, knowing Rick, is bound to be lively. Contact me via comment or email if you’re interested.
In January, financial commentators were praising Porsche management for a “darkly brilliant” plan which saw the company ending up with over 50% of Volkswagen and possibly €6-12 billion from hedge funds, in what became known as “the Porsche Squeeze”. At the time, I wasn’t so sure it was a brilliant plan; more likely Porsche’s management were just riding a lucky break. Six months later, it turns out that luck was bad luck. The Porsche family have just fired their CEO and CFO, and agreed to a plan which will see a radical change in the German automobile industry. VW will gradually take over Porsche (over several years), with the Qatar Emirate buying Porsche’s VW share options (equivalent to 17% of VW), the funds being used to reduce the €10 billion debt Porsche is carrying after its gambit.
Another factor in all this seems to have been been a feud within the family. The chairman of Volkswagen is a grandson of Ferdinand Porsche. The now re-united family, albeit losing control of the family business, ends up as the largest shareholder in a much bigger business. Management lost their jobs (but were paid heaps to go).
Maybe someone will make a television drama series out of all this. It certainly sounds like the plot of one.
The Valuecruncher team has posted an interesting comparison of Microsoft versus Apple, Google, HP and IBM. They rate MS a buy. What’s also interesting are the implied relative over-valuations of Google and Apple.
EV[Enterprise value]/Revenue shows how a dollar or revenues is being valued by the market against the comparator set. On an EV/Revenue basis $MSFT is trading at 3.2x. This compares to $IBM at 1.7x, $AAPL at 3.5x, $GOOG at 5.5x and $HPQ at 0.9x. $MSFT’s profit margins (at the EBITDA line) are 43.3% of revenues compared to 20.6% and 12.0% for $IBM and $HPQ respectively - so those feel right. $GOOG has similar margins to $MSFT and significant growth options - but a dollar of $GOOG revenues being worth 70% more than a dollar of $MSFT revenues feels rich. But the standout - to us - is that $AAPL with profit margins halfthat of $MSFT is valued similarly on an EV/Revenue basis. A dollar of $AAPL revenues is being valued slightly more than a dollar of $MSFT revenues - despite that dollar of revenues producing less than half the profit of the $MSFT revenues. That is some big growth expectations for $AAPL.
… EV/EBITDA shows how a dollar of profit (measured in as Earnings Before Interest Taxes Depreciation and Amortization) is being valued by the market against the comparator set. On an EV/EBITDA basis $MSFT is trading at 7.4x. This compares to $IBM at 8.2x, $AAPL at 16.5x, $GOOG at 14.8x and $HPQ at 7.4x. Talk about no respect - a dollar of $MSFT EBITDA is worth only slightly more than a dollar of $HPQ EBITDA and less than the other comparators.
While acknowledging that Apple and Google have more exciting stories to tell, the Valuecruncher team is in effect questioning whether the fanboy syndrome may be causing some irrational exuberance in those stocks’ prices. I’d add that HP and IBM have more diversified and contractually repeating earning streams as well, which should make them safer investments in troubled times. Maybe the market is betting Goggle and Apple will enjoy bigger share lifts when economies and stock markets recover.
Disclosure: I have investment interests in Microsoft, Apple, Google and ValueCruncher. That’s having a bob four ways.
When you dole out several billion dollars a year in tertiary education funding, it’s easy to become cynical about the constant stream of seemingly self-interested statements from education providers. All those pronouncements on the benefits, societal good and economic potential of more student places, lifetime learning, undirected research and so on (rarely backed up by hard evidence of sustained achievements of those benefits) almost always have an underlying message of “give us more money”.
What stops the cynicism taking over are the educators themselves. We can all remember some truly awful lecturers, but there are many more fantastic ones, driven by what they can achieve as teachers and by what their students can achieve. Last night I had the privilege of seeing the cream of the crop at the annual Tertiary Teaching Excellence Awards in the Banqueting Hall at the Parliament Buildings in Wellington.
In one of the speeches, Bryan Gould (former Vice Chancellor of Waikato University and ex-British politician) told of his unexpected excitement when his PhD. supervisor admitted to not knowing the answer to a thorny question of misrepresentation law. Gould realized that he was now operating on the frontier of knowledge. That struck a chord with me. I had a similar response from my honours thesis supervisor to my need for an algorithmic solution for database search optimisation. What made both teachers so good wasn’t that they knew all the answers - they didn’t; instead they could guide us to discover/invent the answers ourselves.
I won’t get into the pros and cons of performance assessment - rewarding better teachers and institutions (and by implication shifting resources and students away from the weaker ones). It’s a very fraught, complex and politically-charged topic. There’s a lot of argument about what, if anything, is the right answer. But, like the solution to the difficult database search problem, we need to discover/invent one.
Disclosure: I am a non-executive member of the Tertiary Education Commission board. These views are mine and do not necessarily reflect those of the TEC or the government.
The Age reports that ANZ Bank is in advanced stages of planning a major brand update later this year and that ANZ’s Indonesian subsidiary Panin Bank was the pilot operation for the new look.
According to a briefing paper doing the rounds within ANZ last year, the bank’s brand did not resonate with women. Even the corporate colour of blue was considered “too male” by some respondents to a survey, thus the logic behind the bank’s high-profile sponsorship forays into netball and the Australian Open tennis, and a flower for a logo.
The Age also reports that, surprise surprise, executives are split over the change. I’ve never seen a branding change with unanimous support. Everyone’s an expert; arguments always rage over the new look, colours, logo, fonts and the need for a change at all.
… the M&C Saatchi-designed logo is meant to be a “three-petalled lotus” that represents the “trinity” of Australia, New Zealand and Asia, which are ANZ’s core markets.
Update: In the comments, Rob points us to this article and preview - better than I earlier thought it might look.
I assume the new badge will be something like this (replace Panin with ANZ). Hmmm.
People often think of contractual and business relationships lasting a few days or years, but rarely think about ones that might last decades and beyond. I’ve seen several organisations bitten by seemingly unimportant or just plain forgotten undertakings given in the dim and distant past.
One company received a letter from the city council announcing that the city would start charging the company for 10 up-til-now free CBD carparks that the city provided. No big deal; after all, who expects to get a free CBD carpark these days? But one of the company old-timers remembered that the city had traded the free CBD carparks some 15 years earlier for some company-owned carparks where the city wanted to build a motorway. Imagine the value of 10 car parks in the CBD close to the motorway exit - in perpetuity. A search of the city’s records (better than the company’s) produced the documentation. After some haggling, the city bought the car parks back - a very nice windfall for the company given CBD property inflation over that time. It was pure luck that someone remembered the original deal. Bad luck for the city; good luck for the company.
It’s not just property deals:
A letter offering a job to an overseas immigrant which promised repatriation if he was fired or made redundant - which he was, 20 years later. He had no intention of returning, but it paid for a nice visit home.
An enduring exclusivity clause in a services contract. After several years, the work tailed off. Some years later still, the contractor was invited in by another company - a possible rival The defunct client invoked the clause to stymie its competitor.
And so on.
Partly these problems are down to poor negotiating, poor contract drafting and poor record management. That’s not my point. In these cases, at least one of the parties had forgotten all about the original deal. In each case, someone remembered and was able to take advantage of the situation. It also makes you wonder how many times such deals have been forgotten by all concerned, and whether they won or lost as a result.
I held off saying anything about the 40th anniversary of the first moon-walk because I had nothing to add beyond the usual awestruck adolescent wonderment of the time (which hasn’t diminished, by the way). Fortunately, UK IT commentator Richard Holway reminded me of something that is very relevant in my own career track:
The computer in Apollo 11 had just 64K of RAM. It seems amazing when we’ve now even stopped talking about megabytes in favour of gigabytes. In 1969 though, much of my programming was still in assembler code and I was expert in reading the holes in punched cards. I worried constantly about saving a bit here and a bit there. This was when dumping the ‘19’ bit from ddmmyy was common - and thus was born the Y2K bug!
My thoughts today are not about ‘Wow, look how far we have progressed in 40 years’ . It is more a wonderment that mankind could achieve a mission to the moon armed with such seemingly archaic tools. Truly incredible.
Indeed!
Just 3 years after the 1st moon landing, I wrote a complete business application - orders, inventory, billing, accounting, etc. - to run on an ICL 1901A with 8kb of RAM and 2×4Mb of exchangeable disk drive storage, written in NICOL (ICL’s version of RPG1, taught to me by David Nicholson, one of my oldest friends, who by happenstance ended up in Wellington NZ a few months before me and is still here). I was a dab hand with the old 3-finger card punch too!
Most currency relative value tools look at some mix of goods in each country (purchase power parity). The Economist cuts through the complexity by looking at just one ubiquitous product sold by a single organisation - the McDonalds Big Mac. Although the Big Mac index is really just a bit of fun, it has proved surprisingly effective over many years alerting people to significant disparities in currency fair values.
As with all international currency matters, the US dollar sets the base point. In effect, this implies that the US dollar price of a good is fair value. Clearly that’s not always so. The Europeans and, more recently, the Chinese have argued for an alternative, but there’s no sign of any real contender to be the new reserve currency. With that caveat, right now a Big Mac costs the Anglos and Japanese about the right price, the West Euros way too much, and most of the rest of the world way too little. Sounds fairly accurate to me!
Let me offer you a word or two of advice. If you want to formally pitch something to me as an investor, as a director, or indeed in almost any capacity, send me some information to read before we meet. Send me a pithy pre-meeting email, document, brochure, proposal outline, webpage link; something which gives me the gist of what you are presenting or proposing. Then I’ll have had time to study it, think about it, perhaps do some background research myself, so that when we do meet, we’ll be able to focus your time and mine on clarification, criticism, suggestion, discussion and, above all, decision. You’d be amazed how often we can save us both time, by quickly saying “Go ahead “or “No, thank you”.
Ask most CEOs and board members, and they’ll tell you the same thing. Senior executives and board directors are usually fast readers and quick decision makers. It’s part of how we got there. So we get very irritated by people who want us to sit through long-winded presentations and discussions on topics where they won’t give us the key information until the meeting. Especially when the “big reveal” is neither big nor revealing.
Ever wondered what colour you are? Rick Smith, author of career-planning book “The Leap“, has made an online personality testing tool available. It explores 3 facets of your persona - leadership, curiosity and execution - and plots them on a 3-sided chart with different shades of green, red and blue. You’re placed in a colour zone, which is “your primary colour”. There’s a further set of questions to test if your current role fits your personality.
I’m not convinced that the questions are discriminating enough to give accurate and consistent interpretations - I could have made equally valid different responses to several questions - but it seems harmless enough, and could be fun to do at home or with your mates. Before you ask, I was assessed as “blue velvet” (top line, centre right). Make what you will of that.
Regular readers will know that I’m an admirer of Toyota, in particular its lean thinking and unity of purpose. This is not unconditional admiration. Toyota can be bureaucratic; its brand marketing is usually uninspired me-too (the NZ emotive campaigns in the ’80s and ’90s being rare exceptions); and its designs are worthy rather than exciting. However, I’m quibbling; that worthiness has helped Toyota climb from humble beginnings to overhaul the once-mighty General Motors as the world’s No. 1 auto-maker.
Toyota is renowned for incredibly flexible and efficient manufacturing, with a ruthless attention to eliminating waste in all its forms (rework, shoddy materials, unnecessary movement, set-up time, inventory, and so on). But, according to a Bloomberg-sourced article appearing in major newspapers, as Toyota started to close on GM over the last decade, Toyota has been more driven by numbers. It started to build inflexible single-purpose manufacturing plants, not training its people properly, and operating these new plants in a very un-Toyota way. Toyota recently reported its first operating losses since 1950, and has suspended production in many plants. Blame can be partly ascribed to the global recession, but that just exaggerated these other problems.
I usually take such journalistic analyses of companies with a large pinch of salt, but this story passes my “gut feel” credibility test. It isn’t a story of a company being stuck in a mindset that no longer works. That’s the GM problem. No, this is a story, if true, of being blinded by success, of losing sight of what made Toyota great.
However, Toyota’s leadership is onto the problem. After the numbers went wrong, Toyota’s honorary chairman and founding family figurehead, Shoichiro Toyoda gave a stinging rebuke to the company’s top 400 executives. The company has a big job on its hands, although not as big as that facing Bill Ford 10 years ago when he took over the helm at the business founded by his great-grandfather. Unlike Chrysler and GM, Ford’s award-winning product range, operational methods and funding management have enabled it to avoid bankruptcy. That precedent did not go unheeded by Toyota’s board. New CEO Akio Toyoda, a car nut like Bill Ford, is the grandson of Kiichiro Toyoda, the founder of Toyota Motor Corporation. He is steeped in the Toyota credo. Expect a back-to-basics Toyota in future, although maybe with a little more excitement added to the mix.
First it was the XF, and now the new XJ. Jaguar is getting its style smarts back. I hope what’s underneath lives up to the exterior. Vista Group compadre Jack Yan was first with this official picture at his fashion magazine Lucire:
How’s this for a new slant (literally) on a product? Idealog magazine features the Thinair 102, a small scale wind turbine from Powerhouse Wind. It’s innovative in several ways, most notably using a single blade, rather than 2 or 3, saving weight and reducing noise. I like how they solve a major operational hazard for wind turbines; when the wind gets too strong, the blade parks itself horizontally. Now that’s novel thinking.
Paul Quickenden cautions aspiring entrants to the software-as-a-service industry against trying to match the functionally-rich features of their competitors (which include both on-premise software vendors and established SaaS players). It’s good advice for any innovator, no matter what industry. So I’m unashamedly stealing it for you.
Classic strategic thinking (originally military, but also applicable to business) says that unless you have overwhelming force, you don’t attack your opponent where he or she is strongest. Instead you attack where they are weak or not paying enough attention. Or look for an unserved related market or unsolved related problem which the incumbent ignores or is spurned by.
Clayton Christensen wrote a deservedly acclaimed best-selling book, The Innovator’s Dilemma, to explain how weak new entrants overcome much stronger incumbents. It’s well worth reading. If you haven’t got the time, here’s Paul Quickenden’s synopsis:
There is an incumbent business model.
These incumbents enter into a cycle (arms race even) of continually adding features to their products in an attempt to keep adding value to the clients, and hence maintain their pricing.
The cycle continues until you get to a point where the products are over spec’d compared to client NEEDS or even requirements, and accordingly over priced.
Then someone finds or offers an alternate product or delivery method, which is much cheaper and actually more suited to the clients real needs.
The incumbents, talk to their clients (who have sunk investments and a political agenda to support their buying decisions) who say they aren’t interested in this new product approach etc. The incumbents completely miss the new trend, because hey…the customer base aren’t asking for it.
The disrupter gains a foothold in a niche part of the market, gets scale over time and eventually becomes acceptable to the mainstream. They then enter the arms race cycle (they are the new incumbents), while the old incumbents struggle belatedly to meet the market.
Watching a bird in flight, you can’t help but be struck by the elegance of its design. For centuries, designers have tried to replicate not just the adjustable wing, but also the propulsive and flight control dynamics of birds. Bird-like dynamics have always been an impossible dream, at least until now. Wired magazine reports on a humming-bird robot prototype that may finally crack the problem. The video clip below shows how much has been achieved by US firm AeroVironment in less than 2 years, starting with a clumsy hovering device and evolving to something increasingly evocative of a real humming-bird. The firm has just been awarded further US-government funding to continue its development.
The progression reminds me of the early stage of many other product developments - extremely clumsy early prototypes, yet showing the promise to evolve into workable fit-for-purpose designs, which will continue to evolve with each new generation of product release and underlying design platform. If you haven’t ever been part of such a project, add it to the list of things you should try. It’s a fascinating experience, full of challenge, disappointment and excitement. A bit like a young bird learning to fly.
We’re still a long way from emulating the flight of an eagle, but that engineering dream doesn’t seem so impossible now.
One thing I’ve particularly enjoyed about the 40th anniversary of the Apollo Moon landing has been watching reruns of the Tom Hanks-produced docudrama series “From the Earth to the Moon“. When I saw the series for the first time in 1998, I was enthralled. My particular favourite is the episode on the development of the lunar lander. The day after I saw it, I got one of my staff to beg, steal or borrow a videotape copy from the local TV broadcaster (it hadn’t been released for sale). We showed it to all our development staff as part of a training day. Everyone who aspires to a career in engineering (of any kind), product development, or project management should watch these programmes. If you’ve got a teenager in your family who’s thinking about a career along these lines, the DVD set would make a great and inexpensive gift (just make sure you get the right regional format or have a multi-region capable player).
Regular readers will know that I’m an admirer of Toyota, in particular its lean thinking and unity of purpose. This is not unconditional admiration. Toyota can be bureaucratic; its brand marketing is usually uninspired me-too (the NZ emotive campaigns in the ’80s and ’90s being rare exceptions); and its designs are worthy rather than exciting. However, I’m quibbling; that worthiness has helped Toyota climb from humble beginnings to overhaul the once-mighty General Motors as the world’s No. 1 auto-maker.
