Lessons From Coach Self

What business strategy lessons can one take from the Kansas-Memphis NCAA men's championship game? Plenty. That goes for sports in general. No joke, if you take out all the sports metaphors from business-related articles and self-help books, total word count would drop about 15%.

Mario Chalmers' three-point shot at the end of regulation allowed Kansas to get to overtime, but the key decision of the game was Coach Swift's decision to foul Memphis with 2:12 left and Kansas down by nine.

Kansas (37-3) used the strategy any smart opponent of Memphis' would -- fouling the heck out of one of the country's worst free-throw-shooting teams -- and when Rose and Chris Douglas-Roberts made only one of five over the last 1:12, it left the door open for KU.

The fouling strategy worked. Memphis reverted to its horrible regular season free-throwing shooting. And because Kansas implemented its strategy early, it had enough time to make a comeback. Two minutes isn't much time in college ball. The 35-second shot clock doesn't allow much time for the team trying to catch up.

The lesson? Don't wait to implement your strategy. Sooner is better than later.

Do Companies Need An Olympic Strategy?

For many American companies, being an Olympic sponsor is an important part of their branding and advertising strategies.

This summer the Olympic will be held in China. Already demonstrations and activists are using this event to gather attention to their causes. They are protesting China's human rights record, its involvement in Sudan's ethnic fighting and its environmental record. They're chasing the Olympic torch. The volume is sure to get louder as the Olympics near.

Using the protest vote (often in the form of a commercial boycott) to punish sponsors is the American way. Over the years, many radio and TV sponsors have pulled their support from controversial shows rather than take a hit from negative publicity. It's an effective form of protest.

It stands to reason that Olympic sponsors may be opening themselves up to great scrutiny from protest groups and, if the protests have the intended effect, the greater population. Should these corporations have an Olympic strategy? Should they consider the risks they are taking in aligning themselves with these Olympic games? How should they downplay their relationship with the Chinese government?

It depends on how much attention the U.S. media gives to the protesters. Already the press is paying a great deal of attention. Last Sunday the New York Times Sunday Magazine had a lengthy feature on Dream for Darfur, a small activist group that is using the Olympics to further spread its message. The group is calling it the "Genocide Olympics" and plans to put pressure on Olympic sponsors. Here is how the group put it:

"These companies aren’t pushing guns in anyone’s faces” in Darfur, says Ellen Freudenheim, a consultant working on corporate outreach for Dream for Darfur. “We have to be careful in how we frame this. They are not directly responsible. Yet the morality is, You are complicit when you do nothing to try to stop genocide when you can."

The issue of Darfur is not just for small, fringe activist groups. Steven Spielberg quit his job as artistic adviser to the Olympic Games over China's relationship with the Sudanese government.

Said Brad Greiner, co-founder of Team Darfur (a coalition of athletes who support Darfur refugees):

Companies need to release a statement addressing the issue of Darfurand say 'As a major worldwide corporation, we feel we need to play a positive role in ending the genocide.' If they want to get positive media from the Olympic Games, they should take into account what the world is asking.

Not only is Darfur an issue that could end up hurting U.S. sponsors, but so are the current demonstrations in Tibet. Americans have a soft spot for the once independent region -- after all, Brad Pitt made a movie about an exhibition there -- and are  offended by the harsh reaction by the Chinese government. The protests in the region are timed such that all eyes are on the Olympic host. Yesterday, protesters tried to grab the Olympic torch as it passed through the streets of London. One protester tried to put out the torch with a fire extinguisher. French President Nicolas Sarkozy has threatened to boycott the Olympic Games' opening ceremony unless the Chinese government begins a dialog with the Dalai Lama.

In 1993, the American Family Association made headlines when it protested the content of the television show "NYPD Blue." Full-page newspapers ads called the show "soft-core pornography." Blue chip advertisers shied away from the show even though it was a ratings hit.

That ruckus could pale in comparison to Olympic-related protests. Sponsors should prepare for the worst.

Mom and Pop Video Stores Loving Netflix

This Newsweek article cracks me up, and it showcases a clever strategy: Mom and pop video stores are renting DVDs from Netflix and re-renting them at their stores.

"It's nice to be able to offer the latest foreign title that no one has heard of," says one Massachusetts store owner, who typically rents out 10 to 15 Netflix discs a month, saving more than $2,000 in annual inventory costs. (The $4.50-per-disc rental revenue more than covers his three Netflix accounts.) Ted Engen, president of the Video Buyers Group, which represents 2,000 independent video stores, says a small number of retailers have been exploiting Netflix in this manner for years. He thinks the problem has waned as DVD prices have come down, but suspects it could grow as pricey Blu-ray discs (which cost up to twice as much as existing DVDs) become more prevalent. "We could see this fire back up," Engen says.

It's a dog-eat-dog world out there. Even a public library is doing this, effectively letting the town's 2,900 residents use one Netflix account. This practice is against Netflix policy, but they can do little to stop it. Reminds me of indie record stores going to Best Buy to get CDs because Best Buy's sale price can be lower than their distributor's wholesale cost for a given title. Best Buy had a "policy" to stop this, but stores found ways around it.

What Say You, Mr. Friedman?

A big part of the MBA experience is pondering the role of the corporation. Should they follow the advice of Milton Friedman and concern themselves only with generating profits for shareholders? Should they take a more philanthropist role and increase social welfare while returning value to shareholders? This is always a lively debate, to say the least.

As I prepared to leave home this morning, I caught on MSNBC a blurb about a meeting of corporate leaders to discuss charitable giving and the roles of corporations. There was a brief interview with former Goldman Sachs chairman John Whitehead, though I can't find video on MSNBC's web site. But I did find a press release with the heading, "World business leaders, UN officials discuss contribution corporate philanthropy can make to global anti-poverty goals, at ECOSOC special event." Here's an excerpt:

Mr. Whitehead noted the coincidence that this morning, 50 chief executive officers of the biggest companies in America had met to exchange ideas and experiences about their corporate giving.  They had pledged to increase the amount of money they spent on non-business activities to meet the Millennium Development Goals.  Encouraged by that meeting, he predicted that United States corporations were going to come a lot closer to meeting their Millennium Goals obligations than the first five years had indicated. Over the last 60 years, American corporations had realized that they not only had a responsibility towards their stockholders, but also to their employees, customers, suppliers and the communities in which they did business. 

Here's coverage on the event at Reuter and The Economist. This passage from The Economist is a perfect description of the gap between corporations' goals and the effectiveness of their giving:

Speaking to his fellow chief executives on February 25th, Sidney Taurel, the chief executive of Eli Lilly, said that good corporate philanthropy has three key components. First, it should be “integrated in a robust strategy of corporate social responsibility. Simply writing checks really is a waste of shareholder dollars.” Second, it must effectively address real needs, “which means we have to measure the impact of the grants we make. That requires tracking outcomes rather than activities.” Third, corporations must “report to the public on what we’re doing to fulfil our social responsibilities.” This is both to share good ideas with others and to “honour our contract with society.”

This is right, but it is also the exception. According to the CECP’s Mr Moore, a new survey of chief executives found that 90% of them felt they had a responsibility to give to the community, and to be personally involved in leading their community focused activities. But only 20% of them were satisfied that they had achieved or surpassed their goals in this area. Mr Moore hopes this number will rise due to what he describes as a new “competitive market in corporate citizenship.”

I think Friedman's view of corporate responsibility can work in today's environment. Since people -- consumers, employees, stakeholders -- today expect corporations to be active socially, corporations will maximize shareholder value when they concern themselves with social/environmental causes. Aloof, isolated corporations will be punished by consumers and investors for ignoring what others believe is their inherent responsibility to society. Those non-business activities, it will turn out, are in fact good for business.

The World Is Spikey?

It would be hard to pass up an opportunity to post something about Thomas Friedmann's "The World Is Flat," which has been assigned twice in my two years at Owen. (Since I bought it when first released, I have twice skimmed the rather large book.)

A post at Kids Prefer Cheese gives us an opportunity to consider whether or not Friedmann was right, and what implications it has on corporations and remote businesses. (The post is about a chapter in Tim Harford's The Logic of Life: The Rational Economies of an Irrational World.) I'll start out with this humorous passage from Matt Taibbi review of "The World is Flat" at the New York Press:

Thomas Friedman in possession of 500 pages of ruminations on the metaphorical theme of flatness would be a very dangerous thing indeed. It would be like letting a chimpanzee loose in the NORAD control room; even the best-case scenario is an image that could keep you awake well into your 50s.

So I tried not to think about it. But when I heard the book was actually coming out, I started to worry. Among other things, I knew I would be asked to write the review. The usual ratio of Friedman criticism is 2:1, i.e., two human words to make sense of each single word of Friedmanese. Friedman is such a genius of literary incompetence that even his most innocent passages invite feature-length essays. I'll give you an example, drawn at random from The World Is Flat. On page 174, Friedman is describing a flight he took on Southwest Airlines from Baltimore to Hartford, Connecticut. (Friedman never forgets to name the company or the brand name; if he had written The Metamorphosis, Gregor Samsa would have awoken from uneasy dreams in a Sealy Posturepedic.) Here's what he says:

I stomped off, went through security, bought a Cinnabon, and glumly sat at the back of the B line, waiting to be herded on board so that I could hunt for space in the overhead bins.

Forget the Cinnabon. Name me a herd animal that hunts. Name me one.

That is one funny book review. Read the entire thing.

Anyway...here is a blurb from the interpretation on chapter seven of Harford's book (titled "The World is Spikey") which may get you thinking that America's entire workforce may not be farmed out to developing countries or the exurbs of Atlanta.

Cities are expensive, and that expense is above and beyond paying the necessary rents to gain access to their unique amenities. Cities are marked by knowledge spillovers, a positive externality ... where human capital grows faster when one is around more humans. And the internet, rather than reducing the positive effects of cities on productivity, actually enhances them. Thus, rather than subsidizing rural areas, perhaps we should consider subsidizing cities.

Luckily for Tim and his prospective book sales, he tells this story in a much more entertaining way than I just did. But I still have some questions, suggestions, and quibbles.

The claim is made that salary differences don’t match up with cost of living differences and the reason for this is knowledge spillovers, but it is not spelled out exactly how that would work. An alternative seems to me that zoning restrictions create these big rents and pre-existing property owners are sucking a lot of the consumer surplus out of people with high valuations on cool experiences. There are a lot of experiences that are simply unavailable outside of a big wealthy city.

Such as the presence of Vermeers, for starters. And then this paragraph:

In discussing the advantages large cities have in producing quality services (another reason why mechanical cost of living comparisons are not very accurate), I would suggest that Tim consider work like Murphy Shleifer & Vishny’s “The Allocation of Talent” which shows how the most able entrepreneurs will run the largest firms (which for services would be located where the largest populations are concentrated).

Miscellaneous 'Shoe: Coke Acquires Tea Company, Wal-Mart Opens Banks in Mexico

-- Coke has taken a 40% interest in Honest Tea. More noncarbonated growth for the biggest seller of sugar water in the world. (Okay...high fructose corn syrup and water, and articificial sweetener and water.) This acquisition is considerably smaller than last year's purchase of Glaceau, maker of Vitamin Water, and we probably won't see 50 Cent pitching Honest Tea any time soon. Browse the Honest Tea site.

-- Hulu is hosting Super Bowl commercials after the game. That's called added value. If you haven't tried Hulu yet, sign up for the private beta and maybe you'll get an invitation. It's a great service. The videos are at this page, and a few commercials are being shown at the Hulu blog, so everybody will be able to see them. That's a great way to get eyeballs before Hulu exits beta.

-- Viktor Schreckengost, Master of Product Design, Dies at 101. According to the obit, Schreckengost's impact on the U.S. economy was more than $200 billion.

-- Wal-Mart finally gets into banking...in Mexico, not the U.S. Its first consumer bank opened in Toluca. Eighty more are on the way this year.

--  There are a few decent kernels of wisdom in this NFL-themed article about  hiring talent at BusinessWeek.com. (Side note: I'm glad the Super Bowl is over so football-related stories will stop showing up in business publications.)

"Most business leaders—like most NFL teams—can only dream of achieving such sustained high performance, in part because they don't take the time to really align their talent to drive their business strategy. Instead, they view talent management as an HR-driven initiative with little direct involvement of top leadership and separated from the explicit requirements of the business. Rather than start with strategic context, they focus first on individual talent."

-- Everybody's talking about Microsoft's bid for Yahoo. Some think it will be bad for Silicon Valley startups. Here's a well-crafted position by Marc Andreesseen that says an acquisition would have no impact on Silicon Valley M&A.

-- Related: Flickr users are protesting the potential deal by uploading protest images. (Flickr is owned by Yahoo.) That's what I call a passive protest -- but par for the course in the Internet era. View the photo pool here.

Common Guy Vs. Trendsetter

Fast Company has an article on Duncan Watts, a former Columbia University researcher who is at Yahoo! while on sabbatical. It's mandatory reading for any marketing MBA because it tells of Watts' research into how word-of-mouth spreads from one person to another and mainly because it challenges some popular notions in marketing. What he found was that regular people are just as good at setting trends as trendsetters and that the likelihood of a hit is a function of how susceptible that society is at any given time. 

Watts set the test in motion by randomly picking one person as a trendsetter, then sat back to see if the trend would spread. He did so thousands of times in a row.

The results were deeply counterintuitive. The experiment did produce several hundred societywide infections. But in the large majority of cases, the cascade began with an average Joe (although in cases where an Influential touched off the trend, it spread much further). To stack the deck in favor of Influentials, Watts changed the simulation, making them 10 times more connected. Now they could infect 40 times more people than the average citizen (and again, when they kicked off a cascade, it was substantially larger). But the rank-and-file citizen was still far more likely to start a contagion.

Why didn't the Influentials wield more power? With 40 times the reach of a normal person, why couldn't they kick-start a trend every time? Watts believes this is because a trend's success depends not on the person who starts it, but on how susceptible the society is overall to the trend--not how persuasive the early adopter is, but whether everyone else is easily persuaded. And in fact, when Watts tweaked his model to increase everyone's odds of being infected, the number of trends skyrocketed.

Malcolm Gladwell ("Tipping Point," "Blink") chimes in and Steve Levitt ("Freakonomics") is mentioned. Go read it!

Starbucks Strategy Incites Many Articles, Many Clever Headlines

"Ooh, that smell" proclaims the Forbes.com article on Starbucks' plan to remove warm breakfast sandwiches from the menu. The strong smell was taking away from the aroma of coffee, the company's bread and butter (so to speak).

There were other instant classics after the coffee giant announced its restructuring plan: "Starbucks Stinks," "Starbucks Expansion is Losing Stream" (a coffee pun rather than a sandwich pun?), and "Overhaul, Make It A Venti."

The New York Times could only come up with, "Starbucks to Close Stores and End Sandwich Sales." I guess they leave the bad puns to the sports writers. More from the Times on Starbucks' store situation:

Mr. Schultz also announced that his company would close 100 underperforming locations in the United States while scaling back the rate of store openings domestically. At the same time, Starbucks will move more aggressively to open stores overseas, where business remains robust. He did not identify the locations that will be closed.

In all, Starbucks will open 1,175 restaurants in the United States this budget year, down from its previous goal of 1,600. The company will open 75 more stores abroad than originally predicted, for a total of 975.

Much has been made about McDonald's entry into premium coffee market and how that would impact Starbucks, but the company's same store sales had already slowed -- down 1% in the U.S. last year.

Regardless of the new competition, Starbucks was in need of a change. It is time for that step that former growth kings tend to take: Go back to their roots.

The company is testing $1 cups of coffee (including refills) in Seattle. Hmmm.

Interesting note: CEO Howard Schultz said the company will not report same store numbers during the turnaround ("at least temporarily," as the Times put it).

Qtrax: The Non-Launch

Qtrax, a legal P2P service, has been all over the news for a few days. First came news that the service, free to users and supported by advertising, would launch today. The company played up the launch at the MIDEM conference in France.

Then came word that none of the four major music groups -- EMI, Sony BMG, Universal Music Group and Warner Music Group -- have a licensing deal with Qtrax.

Oops.

The company admitted to its exaggerations. "We are not idiots," said CEO Alan Klepfisz."We wouldn’t have launched the service in front of the whole music industry unless we had secured its backing. We feel we have been unfairly crucified because a competitor tried to damage us." Oh really? There's a big difference between general backing of the business model and the iron-clad legal backing that comes with a contractual agreement.   

There could be a number of reasons for the problem, but labels aren't saying much other than Qtrax does not yet have the proper licensing deals to offer their music on the service. Perhaps the service had changed and the original deals are no longer valid. Maybe Qtrax used the pre-launch media blitz to speed up the negotiation process -- a risky way to force the labels' hands. Or maybe Qtrax isn't very good at paperwork and should have had this taken care of long ago. My money is on the latter.

Here's my best guess: There was no way Qtrax was going to let MIDEM -- the best launching pad it would have for the next 12 months -- to come and go without grabbing the spotlight. So, without licensing deals, it weighed getting no hype at MIDEM versus finalizing the product and launching at a future date. It chose MIDEM as its coming out party and went full steam ahead. Not a textbook way to launch a product. Qtrax has had to publicly admit its original claims (regarding licensed content) were not true, and the press and blogs have got in a few jabs. Those are negatives, though, that can be erased if users see a great product when it's eventually rolled out.

Here's the bad news: My early impression of the site is that it is an unattractive, clumsy service. The site does not yet offer a download of the application, but Qtrax sent me an email this morning with a download link. Installation was fast and easy. Everything after that was a mess. It doesn't help that Qtrax doesn't yet allow for downloading or even streaming. (How can I judge a P2P service without streaming or downloading? Easy. I can tell how good a site is without listening to the music. It's the searching, navigating, indexing and layout that differentiates music services. They all sound the same.)

Had Qtrax thoroughly tested the site, worked out the bugs, cleaned up the rough edges and finalized the proper deals with labels, the launch would be a success. No such luck. Qtrax has teased reporters, techies and some music fans with grandiose promises it may never fulfill. Overcoming that initial stumble will take a lot of time and elbow grease. Eventual users of the product probably aren't aware of what has just transpired, but their perceptions will be shaped by those who have just witnessed this huge misstep.

How Not To Run An Organization

Today I will mix business strategy and sports and organizational design. From the Atlanta Journal-Constitution (via TrueHoop) comes an example of ineffective management and a convoluted organization structure at Atlanta Spirit LLC, owner of the Atlanta Hawks NBA team and the Atlanta Thrashers NHL team.

On Tuesday, Atlanta Spirit LLC dumped a CEO and a CFO.

I know. First reaction: Don't care. They'll eat it up at the Wall Street Journal, and maybe Staples. In terms of tangible product impact, this isn't quite like the Hawks or Thrashers dumping a center, which is to assume either team has one of those, either.

The fact Bernie Mullin (the outgoing CEO, president and traffic cop for the nine-headed ownership group) and Bill Duffy (bean-counter) are out of work illustrates that this remains sports' most dysfunctional executive unit.

The owners basically eliminated a layer between themselves and the teams. But Michael Gearon confirmed they also have created a new seven-person committee of relative department heads that reports to the nine-membership group, which runs the two teams, which have a combined zero playoff wins.

So, once again, the Atlanta Spirit math: Nine over seven divided by two equals zero.

Classic.