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Archive for May, 2012

Tim Cook’s US Manufacturing Reality Distortion Field

Posted by Bob Warfield on May 30, 2012

Tim Cook visiting Foxconn

Tim Cook visiting Foxconn

People say Steve Jobs had a “reality distortion field“.  His powerful charisma and messages were said to have the ability to make people believe in what he wanted them to regardless of the facts.  Now Tim Cook is trying to deploy his own reality distortion field of sorts, and it’s working so far.

A number of articles have been written around the question of why Apple doesn’t do more manufacturing in the US.  After all, its super high tech products are produced in huge volumes that create thousands of jobs and our country could use those jobs, especially in the manufacturing sector.  The iPhone production line at Foxconn’s Zhengzhou Technology Park employs 120,000 people, so a lot of jobs indeed are at stake.

Great stories abound of Apple going to extreme lengths to create the world’s most potent supply chain, to the point where it has become a powerful competitive weapon.

For example, in 1998, Apple bought out all available air freight for Christmas 1998 to ensure that the company’s new translucent blue iMacs would be available.  This was done at a cost of $50 million, and the move handicapped rivals like Compaq that got to the party late, wanted to book space, and found it had already been sold to Apple.  When Apple wanted to make the little green light appear next to the webcam on a MacBook, it bought hundreds of $250,000 laser machines to drill the tiny holes in the metal.  I marvel today at the light that appears on my own Macbook when the lid is closed and it is sleeping.  The holes are literally invisible they’re so small.  It’s as if the light shines right through the metal, which in a sense, it does.

With the ability to invest so much, why aren’t more Apple products made in the good old U, S, of A?  Why isn’t Apple creating more jobs here?

Rather than just admit they do it overseas because American workers are unwilling to sleep thousands in dorms while working around the clock 12 hour shifts, so therefore it is cheaper for Apple, Cook has a more savvy response.  He blames it on a shortage of skilled workers:

All the remaining American tool-and-die makers–a key profession in preparing to make high volume products–could hardly fill the auditorium in Rancho Palos Verdes where the event was held, Cook said. In China, those skilled in that trade would fill several cities, he added.

And that is Cook’s reality distortion field hard at work.  I’ll give you some counter arguments.

First, if there really is such a critical shortage of these skills, why are so many out of work?  How is it that the US Aerospace and Defense industries manage to produce so many of the world’s highest performance and highest tech products from stealth fighters to nuclear submarines to missiles to drones?  The products produced by this industry are coveted by every country on the planet.  Are we really to believe that we can produce stealth fighters and nuke subs but we don’t have the skills to make iPhones?  That beggars belief.

Second, if there are so few machinists available, why are so many participating in online communites and sites ranging from professional sites like Practical Machinist to amateur sites like CNCZone to hybrids like my own CNCCookbook?  I get over 1 million visitors a year to my little site.  Sure, some are from overseas, but very few are from China.  Most, in fact, are from the US.

Third, how is there such a strong Maker movement in the US and so many domestically created products on Kickstarter if this is all dead and dying in the US?

The answer is simple–Cook is talking balooney.  It ain’t true.  This is not about skilled tool and die markers, this is about having 8000 workers who are willing to roll out of bed, take a cup of tea and a biscuit, and jump onto a 12 hour shift to adapt to a last minute design change Apple mandates.  It’s about dealing with a country whose factories and workers are subsidized to the hilt by the Chinese government and by the substandard conditions these workers toil under.  It’s about having the Chinese government invest capital so Apple doesn’t have to.

In fact, Cook’s message about a lack of skills is really just parroting what Steve Jobs told President Obama:

It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.

Then again, perhaps Jobs was parroting Tim Cook, who is the man credited with moving Apple manufacturing from domestic highly automated factories overseas.

Lately, the New York times and others have cried, “Foul!” over worker’s conditions in China, but I have not seen anyone calling “Bull!” on Job’s and now Cook’s claims that the skills simply don’t exist in this country.  There’s a lot more reality distortion and dust-raising-skuffling going on too.  No end of blog posts about why Apple should take this on  when other companies like HP, GE, or IBM heven’t.  Or whether it is Apple’s responsibility or whether it is fair to ask Apple to play on a field made uneven by competition.  There is hand wringing over how much good is done for workers in China who might otherwise be much worse off and whether it is fair to ignore their plight versus domestic workers or jobs created for retail clerks in Apple’s stores.

That’s more Balooney and hand waving–Apple is now investing in improving worker’s conditions and its margins are so large it can afford to do far more before any competitor has much of an advantage.  Why can’t it invest in recreating manufacturing that works in this country?  Imagine what an amazing and productive paradigm shift that would be?  Wouldn’t that truly be a “product” that Tim Cook, master of operations and supply chains, could be proud of in the same sense that Jobs could be proud of his fantastic innovations around personal computers, phones, and digital music?

I’ll leave the subject with one last counter-argument to this tale of how woefully inadequate US manufacturing is to the task.  Take a look at Germany.  By all accounts it should be far less competitive than the US in manufacturing.  Taxes are worse.  Regulations are worse.  Wages are higher.  Yet, Germany’s manufacturing economy thrives.  For more insights on why, see my blog post over on CNCCookbook.

Nobody there will sit still for the argument that there just aren’t enough skilled Germans to do the work.  We shouldn’t sit still for that argument either.  We’ve penalized countries in the past for dumping products here to decimate competition.  How should we deal with dumping cheap wage workers for the same purpose?

Posted in apple, business, strategy | 6 Comments »

Memorial Day, Emergency Room Doctors, Minimum Viable, Pivoting, and More

Posted by Bob Warfield on May 28, 2012

The Greatest GenerationMemorial Day has me reflecting on various things I’ve read or thought about recently.  I know there have been wars and fallen since, but I always think of World War II and the Greatest Generation  when I think of Memorial Day.  The Greatest Generation is a term Tom Brokaw coined that refers to that generation that grew up in the Great Depression, fought World War II, and then went on to make America a Superpower.  He wrote in his book of the same name of the Greatest Generation that “it is, I believe, the greatest generation any society has ever produced.”  He argued that these men and women fought not for fame and recognition, but because it was the right thing to do.

It’s clear this group of people, born from 1914 to 1927 left an amazing legacy.  The Baby Boomers, like myself, were the children of the Great Generation, and it is not clear, looking at events in the world more recently, that we’ve done as well as our Mothers and Fathers were able to.  We live in a world now that is less interested in doing the right thing, and more interested in fame, fortune, or instant gratification of one kind or another.  While we accomplished some exciting things such as putting men on the moon and inventing transistors, there is a lot more to be less proud of.

I read one of Seth Godin’s recent pieces, about Emergency Room Doctors, and it summed up a lot of the attitude for startups today.  In essence, Godin is talking about company cultures whose focus is almost exclusively on stopping whatever is bleeding or broken at the moment.  Such cultures have little time for strategy and preventative medicine.  As Godin says:

We need emergency room doctors, no doubt. I just wonder if we have too many of them in your organization. If all we do is reward fast first aid in what people do at work, is it any wonder we don’t have enough attention to the strategy and choices that would eliminate the need for all that running around in the first place?

Clearly many teams have too many Emergency Room Doctors, but the mentality seems to pervade even what startups aim for.  In a recent interview for The Atlantic, serial entrepreneur Steve Blank says Silicon Valley innovation is dead:

 I think it’s the beginning of the end of the valley as we know it. Silicon Valley historically would invest in science, and technology, and, you know, actual silicon. If you were a good VC you could make $100 million. Now there’s a new pattern created by two big ideas. First, for the first time ever, you have computer devices, mobile and tablet especially, in the hands of billions of people. Second is that we are moving all the social needs that we used to do face-to-face, and we’re doing them on a computer.

And this trend has just begun. If you think Facebook is the end, ask MySpace. Art, entertainment, everything you can imagine in life is moving to computers. Companies like Facebook for the first time can get total markets approaching the entire population.

In essence, what he is saying is that rather than innovate, there are vast platforms–mobile devices, the web, and social platforms–that can be cashed in on too easily by focusing on facile non-innovative applications.  You know, what Facebook, Pinterest, Twitters, and a hundred others do.  Why innovate when you can just troll for the next fashionably popular thing on one of these mega-platforms.  GigaOm’s Derrick Harris makes a half-hearted attempt at disputing this claim in his article, “Innovation isn’t dead, it just moved to the Cloud.”  I say half-hearted, because his money quote is this one:

Much of Silicon Valley’s most-innovative efforts might be coming out of Google and Elon Musk’s mind, as Blank says, but cloud computing has made innovation something anyone can do.

Is something anyone can do innovation?  Isn’t true innovation, the innovation we used to see, all about enabling people to do something new that they never could before?  Let’s not confuse the doing of it with the enabling of it–one is innovation and one is mere execution after the innovation is done.

In the world of today, we substitute many things for innovation.  We pivot because we don’t have the patience to make it through what Seth Godin calls “The Dip“.  The Dip is that period when you have to decide whether to give up or not.  Things look bleak during The Dip.  One could argue it is an ideal time to Pivot.  In fact, Godin will tell you that is what separates the winners from the losers:  the winners stick with the right idea through The Dip.  The key insight is not in quitting when things get tough, but in knowing when not to quit.  His book by the same title is all about understanding when to stick with it and how to tell if it is worth it:

Every new project (or job, or hobby, or company) starts out exciting and fun. Then it gets harder and less fun, until it hits a low point-really hard, and not much fun at all.

And then you find yourself asking if the goal is even worth the hassle. Maybe you’re in a Dip-a temporary setback that will get better if you keep pushing. But maybe it’s really a Cul-de-Sac, which will never get better, no matter how hard you try.

What really sets superstars apart from everyone else is the ability to escape dead ends quickly, while staying focused and motivated when it really counts.

Winners quit fast, quit often, and quit without guilt-until they commit to beating the right Dip for the right reasons. In fact, winners seek out the Dip. They realize that the bigger the barrier, the bigger the reward for getting past it. If you can become number one in your niche, you’ll get more than your fair share of profits, glory, and long-term security.

It’s a very subtle distinction, and I wonder how many who Pivot really understand The Dip?  Just because it’s hard and things don’t seem to be working doesn’t mean you shouldn’t stick it out.  A great test is Godin’s probative question,  “if you accomplish that, will you be seen by your audience as the best in the world, or will you be seen as doing your best?”

Are Startups focused today on seeking out The Dip, because that’s what winners do, or are they focused on pinging as much of the success search space as they can looking for an instant hit?  Are VC’s helping their portfolio companies seek out and navigate The Dip, or are they avoiding any sign of The Dip in hopes of making their early stage investments in companies that either got lucky or already got through The Dip on their own?  How many VC’s rub their hands together in delight when a company comes in having hit The Dip and needing help, but with no clear idea how to get through it?  Are teams composed of Emergency Room Doctors fighting for fame and recognition, or are they strategists who seek out The Dip and navigate it carefully, knowing that few ships can make it through the rough seas around the Horn, but that the New World and its riches await those that do?

What would the Greatest Generation do today, if they were in our shoes?  Those people lived through some of the greatest dips in history.  Take a moment to honor and think about their sacrifices on this Memorial Day 2012.

Posted in business, strategy | Leave a Comment »

Facebook’s Next Business Model

Posted by Bob Warfield on May 16, 2012

Chillin with my PeepsVC Chris Dixon muses in a recent post that Facebook has yet to uncover a business model that will support its IPO valuation and drive future growth in that valuation.  As he puts it:

Facebook relies on an old internet business model: display ads. Display ads generally hurt the user experience, and are also not very efficient at producing revenues. Facebook makes about 1/10th of Google’s revenues even though they have 2x the pageviews. Some estimates put Google’s search revenues per pageviews at 100-200x Facebook’s.

The good news for Facebook is there is a lot of room to target ads more effectively and put ads in more places. The bad news is that, if there is one consistent theme in both online and offline advertising, it’s that ads work dramatically better when consumers have purchasing intent.

I think he’s right about the ad model.  Google has uniquely cornered the market in delivering an ad at precisely the moment the user is searching for something to buy, hence the remarks about purchasing intent.  A banner ad, on the other hand, lurks in hopes that someone with purchasing intent will happen to see it at exactly the right time and place to make a difference.  Given the odds, it’s no wonder the ads make 1/10 the revenue despite 2x the pageviews.  Unless Facebook can engage the timing and content properly to capture purchasing intent, that isn’t likely to change.

So what’s a poor Facebook to do?

Let’s get back to basics: what exactly is Facebook?  If Google, from a monetization standpoint, is the place you go to find something when you want to buy, what is the analogous elevator pitch for Facebook?  It’s pretty simple, really:

Facebook is a platform for chilling with your friends.

Doesn’t that really capture in a nutshell what people do with Facebook?  Put aside what marketers wish they were doing (yeah, we all go there to worship the sugary soft drinks that use those adorable polar bear cartoons as mascots), this is what’s really going on with Facebook.  And guess what, isn’t owning the world’s leading platform for chilling with your friends apt to be extremely valuable?  It’s got to be.  If for no other reason, look at how big a part of the economy entertainment is.  In 2010, Arts, Entertainment, Recreation, Accomodation, and Food Services amounted to 3.6% of the nation’s GDP.  That’s the platform Facebook has available to tap into.  It’s not as good as say the 5.9% that is the retail trade Amazon and Google tap into, but heck, it’s still not bad at all.  It is a sufficient market on which to base a huge business.  Look at what Apple has been able to do with music alone, for example.

The key for Facebook is to get focused with laser-like precision on how to monetize their Chillin’ Platform before the opportunity seeps away.  Eyeballs and leisure time are fickle as those old enough to remember things like pet rocks and CB radios will tell you.  Right now, Facebook is focused on advertising revenue, but they could get a lot more creative and, given all the capital they’re raising and the opportunity available to them, they should be getting very creative and testing everything under the sun.

What are some potential ways to monetize a platform for chillin’?

–  Social games are an obvious first choice.  Facebook has to relentlessly build this platform and creates as many barriers around it as possible.

–  Making Dates:  Dinner anyone?  They should own Open Table.  Movie Times?  Why am I going to Google to figure that out.  Hook me up.  Make it easy for me to plan and coordinate a date.

–  Music:  Gotta be part of any chillin’ for me.  While we’re at it, plug in media of all kinds.  If Google is gonna do hangouts, Facebook needs to up the ante in some chillin’ fool kinda way.

–  Vacation and Travel:  The ultimate chillin’ game and big bucks involved too.

–  Party Time:  Coordination, invitation, planning, decorations, photos (oops!), eats and drinks.

–  Devices:  What devices do we have around when chillin’?  What facilitates communicating the vicarious virtual thrill of chillin’?  Video, phones, cameras, yada, yada.  But what else, and how does Facebook uniquely home in on all that?

Being successful with all of this will require Facebook to think BIG.  I mean Steve Jobs kinda BIG.  They have to seriously simplify and amplify the act of chillin’ in ways that only a platform can accomplish.  If they do that.  If they can reinvent chillin’ the way Apple reinvented music and the phone, they’ll be here for a long time and folks buying in at today’s market caps will stand to make a lot of money going forward.

This is a big time innovation and UX problem: reinventing the art of chillin’ with your peeps.

Posted in business, Marketing, strategy, user interface | 2 Comments »

Hewlett Packard and the Many Curious Paradoxes of Micro-Management

Posted by Bob Warfield on May 8, 2012

I just finished reading Fortune’s massive write up on the ills at Hewlett Packard. What an amazing story, and as I was going through it, I kept seeing the same thing repeated over and over again: Micro-management trumping Leadership and creating a disaster in its wake.  Instinctively, we all know Micro-management is something bad, but the first paradox for me is that we need this term.  What are the variations of Management that are good?  I prefer to contrast the term “Manager” with “Leader”, and ascribe all the bad things about Micro-management to Management in general.  It’s unfair, I know, and it doesn’t apply to all organizations, but I’m helpless to avoid it because I’m an entrepreneur and not an employee.

What then, is the difference in HP’s case between Management (or Micromanagement as I prefer) and the Leadership that should have been available?

In another post, I characterized Micromanagement as forcing people to do things not because they believed they were the right things to do, but because the manager had sufficient Political Capital to make the employee do what was desired.  This seems to have been the order of the day in the HP article if you read it through the lens of this definition.  There were executives at all levels who acted on enforcing their decisions largely by means of political capital expenditure and without the necessary leadership step of making the hearts and minds who actually had to execute these plans believe.  What made the Political Capital bill much more expensive is that this went on through a succession of leaders.  The descriptions of all the nastiness, snarkiness, hubris, and ego are all symptomatic of individuals who were so certain they were right and so certain they were entitled to make others obey, that they need not do the work of persuasion.

In fairness, perhaps this was coupled with a sense of desperation; that there might not be time for persuasion; and that with that certainty comes the notion that since the plan was going to work out spectacularly well, persuasion would come later.  The results could speak for themselves and would persuade even the harshest critics of the wisdom behind the plan.  Such reasoning is obviously circular and even a bit lazy in retrospect, but we’ve all been guilty of it at one time or another.

Another of the curious paradoxes of Micro-management is it can only work in a very few cases.  The ideal opportunity for Micro-management success involves these ingredients:

–  The situation and group you intend to Micro-manage must be small enough relative to your talent that you can be right personally making every decision of consequence.

–  The individuals have to be willing to be Micro-managed so that the consumption of Political Capital relative to its replenishment can proceed at a net positive.  Perhaps it is an assembly line job where Micro-management is such an established part of the job that it is totally expected.  Perhaps the individuals are in a training mode of some kind and you are a recognized expert who they all look up to and respect.

–  You have to be right often enough to assist in the replenishment of Political Capital.

–  If any of these ingredients are going to be missing, you had better make sure that the application of Micro-management is so brief, with so few people, and affects so little of what’s going on that you don’t use up too much of your Political Capital.  For example, it is often more important to have a decision that is sub-optimal than no decision at all.  An insightful executive will realize when they are faced with no decision and will Micro-manage the sub-optimal substitute as needed.  It will be a rare executive practicing Micro-management who strikes the proper balance and doesn’t overdo it because Micro-management is addictive.

Unless you disagree with that set of ingredients, you can see that Micro-management is a tactic that can only be employed very sparingly.  The type of people who tolerate it are not high in an organization.  The HP story seems to be one where the Team has so little cohesion, that they’re all trying to Micro-manage each other incessantly.  Each new CEO is tasked with immediate transformation, dives in and tries to Micro-manage some momentous decision to fruition, but is thwarted:

–  Because they are new, they have little Political Capital.

–  Because the long timers have seen these tactics fail again and again, they insist on a higher Political Capital price each go round.

–  Ultimately, the Political Capital is insufficient to pay the bill, so the managers become insubordinant, unresponsive, and they flip the bozo bit.  That’s always the cost of an overdrawn Political Capital account, and it leads to worse.  Once you default on Political Capital, it’s much harder to replenish.

Another irony or paradox of Micro-management is the type of people who practice it are often those who should most readily understand its failings.  They’re those who’ve exceled in some way.  They are the brilliant young leaders of new startups.  Or the successful old warhorses of companies like Hewlett Packard or SAP.  These people know they’re good, and it is that knowledge that bolsters their certainty to the point where they’re unwilling to invest in Leading.  They’re too impatient.  Once you know you’re right, you shouldn’t have to persuade others.  It is their deficiency if they can’t understand your plan.  They need to get on board with it because the train is leaving.  This is important stuff and we don’t have time for the laggards.

I believe HP fell into a culture of Micro-management through no fault of their own.  If Micro-managing leaders jerk the organization through manuevers without ensuring true alignment of hearts and minds (not just lip service), it breaks down the bonds of a Team and creates silos in a hurry.  Once you break apart an organization that large, and do so over a long enough period of time, you create problems that cannot be solved quickly.  Even Leaders will be tempted to force change through Micro-management because they know results will be expected before they can deliver true Leadership.  That’s a great pity, because one of the roles of the Leaders at the top has to be to take that kind of pressure until results can be produced.  A little Micro-management of big issues will have to be tolerated, but at the same time, room has to be made for Leadership principles to take root again.

It’ll be interesting to see if Meg Whitman is able to pull that off.  Her predecessors and Board have left her facing an uphill battle.

Posted in business, strategy | 2 Comments »

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