Week ending 12th April 2013

Last week the death of Margaret Thatcher pushed every other story about almost anything else off the front pages.  Even Fat Boy Kim who is threatening to blow up the world was relegated to the middle pages, which won’t have improved his temper I fear.

So I will not attempt to add more to what has already been written and broadcast about Margaret Thatcher.  However if there is one thing from her life and career that I think holds a lesson for us all it is that she knew what she was there for. Everything she did she did with a clear purpose to achieve a clear outcome and this is the theme for this week’s TWb4TW.

Two speed M&S.

Sales at M&S for the 13 weeks to March 30^th squeezed out a 0.6pc overall increase, down 3.8pc in clothing but up by 4pc in food.  The drop in clothing was not as bad as feared and M&S shares rose by 4.3pc in response.

Food is now 55pc of total sales and is growing faster than the grocery sector as a whole, in spite of not selling online.  Commentators were unanimous in being perplexed by how M&S can get their food offering so right but their clothing so wrong.  In food they continue to innovate whilst their competition can only emulate.  By contrast in clothing they flounder and watch the competition speed past them.  You can see clearly what M&S food is there for but as for their clothing, you wonder why they still bother.

CE Marc Bolland says he needs more time to turn round the clothing division and has bought in a new team including Belinda Earl as the company’s first style director.  A number of commentators and retail analysts are urging Mr Bolland to replicate the success of the food business in clothing – summed up as directional, not trying to do everything for everyone and value for money but skewed towards the high end of the market.  Whilst this may well be part of the answer I am not sure it is the entire problem.

When you have a problem the temptation is first too look for the new, different idea that will solve the problem.  However M&S dropped the ball in clothing about 20 years ago, just about the same time it picked up the ball in food and started to run with it.  Whilst it was some time before this showed in the numbers they gradually lost sight of what their clothing division was there for, whilst becoming steadily clearer about what they were there to do in food.

I would suggest that Mr. Bolland needs first to understand how M&S lost its way on clothing whilst at the same time finding its way on food. How did the present situation arise?  What was it that used to work and now does not and why?   This process would also help him discover what purpose would be served profitably and who for by the clothing division today and then the problem and the solution will become clear.  Perhaps M&S only has one ball!

PCHP

Talking of sales figures global sales of personal computers fell by 14pc in the first three months of the year, the biggest fall since 1994.  HP which is still the world’s biggest PC seller saw one of the biggest falls, shipping 24pc less in the first quarter.

Clearly a big change is going on and if you are the biggest loser in a product area that has “loser” written all over it you had better sort yourself out pretty soon or you’re dead.  Here are some of Meg Whitman’s (CEO of HP) responses last week.

“We are aggressively pursuing a multi-form strategy” – “In the end I would very much like to be in smart phones” – “I worry about Lenovo and all of HP’s competitors”.

And on her claim of accounting improprieties at Autonomy when HP bought them.

“When the news about Autonomy broke the remaining employees were unsettled – that’s the best word” – “HP is still incredibly committed to Autonomy”  - “This is terrific technology. It’s almost magical technology.  What it allows customers to do is to understand all the unstructured data, the application of legal and compliance – it is terrific technology”.

So that’s all clear then. Can you spot what Meg Whitman is there for and what the purpose of HP is to be?

Swann song

I have written about Kate Swann previously but it is worth looking again at her remarkable record at WH Smith as she hands over the reins to her successor as CE, Steve Clarke.  She has turned WH Smith from a loss making, uncompetitive near basket case with no clear reason to exist into a highly profitable business that knows what it’s doing and why.

Swann was very clear about her purpose at WH Smith which was to make profits.  She was not afraid to take difficult, contrary decisions to achieve this.  Taking out low margin entertainment products actually reduced sales, almost a blasphemy in the retail world, but she showed how concentrating on higher margin products made much more money.

She is ready for another challenge and she won’t be short of offers.  However whoever gets her needs to understand she will do the job her way, she’ll be clear about that.  Does that remind you of someone?

French disconnection

If there is anything worse to be in than the PC market at the moment it is the French economy.  The economy contracts, competitiveness evaporates, taxes go ever higher and their sovereign debt accelerates to over 90pc of GDP.  Francois Hollande has managed to become the most unpopular President ever, even though voters still think they should continue to receive all the benefits the French state can no longer afford.  This also reminds me of something.  Oh yes I remember, the state of the British economy before Margaret Thatcher.

And finally

I read last week in an article by Sun Baohong in the Telegraph that when Coca-Cola first entered the Chinese market its name was represented by the Chinese characters that meant “Bite the wax tadpole”.

I can’t help feeling that somewhere there is a product for which the brand “Bite the wax tadpole” would be perfect.  Any ideas, I would be pleased to hear them.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

That was week ending 14th December 2012

This is the last TWb4TW until after the Christmas and New Year break. I started writing these articles in April and can hardly believe it is now nearly the end of the year and I am still writing them. I have been encouraged by the kind responses from you the people that read them and I thank you for those.

This week I thought it appropriate to produce my Christmas wish list, wishes for myself and others.  Here goes.

Cable not able

Last week Vince Cable took yet another swipe at big global companies that don’t pay enough or any UK tax. For Mr. Cable it is still the moral high ground that matters so no mention of our unfit for any purpose tax system. If the companies concerned are obeying the law then it is clearly the law that needs changing if it is not producing the result the country needs and that is the job of government.

Whilst Mr. Cable has done some good work at BIS underneath he is fundamentally anti business, or if isn’t he certainly sounds like it. I once heard him speak and claim that he was experienced in business because he had spent time as an economist at Shell. Anyone who knows anything about what economists do in organisations like Shell will know this doesn’t count as business experience.

So my Christmas wish for Mr. Cable is that he should get another job.  Minister for Overseas Development might suit his moralising better or perhaps being made to run an SME for a year might give him some “real” business experience.

It’s the economy stupid

Talking of experience my Christmas wish for George Osborne is that he too should find an opportunity to get some real experience. He is an example of yet another politician who is no doubt very intelligent but has done nothing but politics almost since he left primary school. This was demonstrated in the Autumn Statement and its aftermath where he was clearly more interested in scoring political points over Ed Balls than coming up with radical policies that would really get the economy moving. You can usually leave Ed Balls to score political points over himself, so why not get on with the job we pay you for, George because it really is the economy that matters and you are not stupid.

Does one more make a difference?

After the announcement that Canadian Mark Carney is to succeed Sir Mervyn King as Governor of the Bank of England last week we heard that Hector Sants was to join Barclays as head of compliance. Sants was previously Chief Executive at the FSA.

Now you can’t blame all the FSA’s failings on Sants. However he did step up to Chief Executive in time to rubber stamp RBS’ acquisition of ABN AMRO and he did publish just a 12 line press release on the FSA’s investigation into RBS, rather than publish the full report.

I understand that Barclays already have around 1800 compliance officers. So whilst Carney’s appointment does represent a new direction at the BoE you have to ask what real difference appointing a regulator to head up compliance will really make at Barclays.  My Christmas wish for Mr. Sants is good luck, but I have a feeling he will end up between a rock and a hard place with this one.

Train the trainers

The investigation into what went wrong at the DfT over the West Coast Mainline fiasco continues but with growing signs of avoidance tactics from anyone in the DfT who could possibly be blamed. My Christmas wish is that anyone at senior level in the DfT should be given a train set for Christmas and  required to assemble it in to a working model of the West Coast line in 30 minutes or be shown the door. Simple and effective.

HP used to work

I own an HP printer which I bought in the days when you could truly say buy HP because you just plug it in, turn it on and it works. What’s more my printer still does work, even though HP has had about 5 CEOs since I bought it. My Christmas wish for HP is that they should make me an offer for my old printer, with a suitable Autonomy sized premium and I would be delighted to sell it back to them. Then they could examine it and discover what it was that they used be really good at.

Oh no it's Silvio

You could not make it up; Silvio Berlusconi is running for Prime Minister of Italy again. This proves the view of a previous British ambassador to Italy who said “it is not difficult to govern the Italians, it is simply unnecessary”. Sr B’s first public pronouncement was to state “who cares about how much interest we pay to people who invest in our debt obligations compared to Germany”. This will be music to many Italian’s ears but maybe this time not enough of them will buy the message. So I wish Silvio Berlusconi everything he deserves.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. TWb4TW will be back in the New Year so have a great Christmas and New Year holiday.

That was week ending 7th December 2012

The theme for this week’s TWb4TW is “and now for something completely different” or not as the case may be.

This is the Autumn of our discontent - or should that be Winter?

Last week the Chancellor delivered his Autumn Statement. Now I may be a bit pedantic and old fashioned but for me December is winter. In fact over the last few weeks I kept thinking I must have missed the Autumn Statement, we seemed to wait a long time for it to appear. Given that it required the Chancellor to admit he is going to miss almost every target that he has been telling us are essential to achieve, he may have needed more time to think of plausible excuses.

Much has already been written and spoken about the statement so I am not going to add to that. However one thought did strike me.  Suppose you are on the board of a holding company reviewing the performance of the MD of one of your subsidiaries, which has been making losses for some time. He tells you that sales are static, that whilst he has cut some costs overall they are still increasing and that several new projects he announced either haven’t started or are taking longer to deliver results. However he assures you that everything is on track, but it may take 2 or 3 years longer before profitability is restored. When you quiz him about what he is doing different that might get a different result he mutters vaguely about taking some of the spend from one part of his operation to spend in another.

How long would you put up with an MD who keeps on doing the same things and assuring you that this will deliver a different result? Not long I suspect. Did the Autumn Statement contain anything really different that looked like it might deliver a different result? Well I couldn’t spot it.

What could be different?

Most commentators had some sympathy for the Chancellor saying that he had a difficult hand to play. However I am grateful to Fraser Nelson of the Daily Telegraph who highlighted some countries that have tried something completely different and are getting different results.

Estonia is a tiny country surrounded by large and powerful neighbours, with every reason to blame global forces for its own economic problems. However throughout the downturn it has kept its tax rates low at 21pc. It cut state spending by a tenth in one year compared to our average of 2.5pc a year. The result is Estonia now has the fastest growth in Europe.

Socialist Sweden made a permanent tax cut for the lower paid that encouraged so many people back to work that the extra revenue covered the cost of the policy. The tax cut amounted to a whole extra month’s salary a year. The increase in tax allowances here will benefit about 20 million people, but the tax cut amounts to 90p a week. Not enough to spend in pound shop, much less kick start the economy!

The Swedes also reduced corporation tax from 26pc to 22pc, but they did it in 3 months, whilst our reductions are being phased over several years. So is it time to try something completely different like significant tax cuts, delivered hard and fast that will stimulate significant economic activity that in turn will deliver higher tax revenues and lower government spending? Just a thought.

No change from Tesco

It is now a year since Tesco’s Chief Executive Philip Clarke launched a £1bn turnaround plan. However like for like sales fell again in the third quarter and now around 29pc of UK consumers choose to do the majority of their food shopping at Tesco, down from 35pc in 2011.

Some analysts have said it may be too early for consumers to have noticed the improvements Tesco has been making in staff and products. I believe that the problem is more that they have not noticed anything really different and that’s because it isn’t. Some of you may recall the experience recently of my business partner who when he was unable to access an offer on Tesco’s website reported it to customer services. They insisted first that there wasn’t a problem with their site it must be with my partner’s system. They went further suggesting ways he could spend his time fixing what was their problem and of course “nobody else has complained”. Eventually last week he was contacted by a technical person (significantly not from customer service) who admitted there was a problem with the Tesco website and there had been hundreds of messages about it.

So does £1bn to revitalise stores and products and hire 8,000 extra staff make a difference? Not so far apparently and maybe it’s because it won’t make the slightest difference to Tesco’s attitude to its customers, because Tesco doesn’t think it has an attitude problem.

HP full steam on to the rocks

Last week HP’s market value fell to $27bn which is now below the $31bn it has spent on acquisitions in the last 5 years. Research has consistently shown that mergers and acquisitions usually destroy value. HP’s management seem bent on proving this by setting an all time record for value destruction. Indeed they may have already achieved it.

Market speculation is that the company may be broken up as the sum of its parts now looks significantly greater than the whole. What is clear is that it needs to do something radically different as the current strategy which is to straighten out the huge mess that is today’s HP seems highly unlikely to succeed.

Other stories from last week, worth a mention

Starbucks offer to pay voluntary corporation tax was an appropriate way to kick off the pantomime season and it was different!

Sir Philip Green’s 25pc sale of TopShop leaves his Arcadia Group debt free and with £600m to fuel further growth. Sir Philip doesn’t have to do anything different, just carry on doing what he is really good at. Unlike HP who seem determined not to do what they used to be really good at.

The report into the West Coast rail bid fiasco was published confirming what we already knew about the levels of incompetence and dishonesty at the DfT. Now it’s official will it make a difference? Not holding my breath.

The Tchenguiz brothers started their claim for £200m against the Serious Farce Office for losses incurred as a result of their wrongful arrest. This is the largest claim ever brought against a government department. You could almost wish them well until you remember it is us the taxpayers who will have to stump up the £200m. Those responsible for the mess at the SFO at the time have all left with large payoffs, again paid by us. So no change there then.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

That was week ending 23rd November 2012

What goes down must come up

I have emphasised before that I am not any kind of expert on the stock market. If I was, I would not be writing these articles every week. However I have learnt that in general good news from a company tends to lead to a rise in the share value and bad news to a fall.

So what do think might happen to a company that has issued 5 profit warnings since May, whose loss will now be 6 times higher than it forecast in July and is under investigation by the FSA for how it handled inside information? Following the fifth profit warning its shares increased last week by 17pc!

The company is Lamprell an oil rig maker and wind turbine installer. This story seems to demonstrate that you can't have too much of a bad thing. However incoming Chairman John Kennedy has moved fast and cleared out the former CEO, CFO and COO. He also brought in PwC to give the big projects a good going over and although this produced a lot more bad news the markets seem to prefer to know the worst. The better news is that there is still a pretty good and now verified order book and the company’s bankers are supportive.

Now this may not last and I for one will not be piling in to the shares any time soon. However maybe the lesson is that if you have the courage to front up on all the bad news and to take decisive action then this just might be the beginning of some good news.

Did, didn’t, did, didn’t

By far the biggest business story last week has been the Hewlett Packard (HP) Autonomy pantomime. HP paid $10.4.bn for Autonomy in 2011, an 80% premium and 34 times projected revenues! Then in May, just seven months later, HP announced a disappointing quarter for Autonomy and 25,000 job losses, including Autonomy founder and CEO Mike Lynch. Last week they went further and alleged that Autonomy had misrepresented its financial results resulting in HP paying more than the company was worth. Not surprisingly Lynch disagrees, claiming that HP has mismanaged the business.

HP have taken an $8.4bn ($5.4bn for Autonomy) write down and their shares fell 10% to their lowest for a decade. Naturally investors are hopping mad and are asking about what happened with the due diligence. The list of advisers (and £40m of fees) appears to back Meg Whitman’s (HP’s CEO) claim that “we did a whole host of due diligence”, there were certainly enough of them. However she went on to say “it is a little challenging to go in and say gee we need to double check Deloitte (Autonomy’s auditors)”. This must qualify as the “I wish I hadn’t said that” CEO quote of the year.

HP has been thrashing around for years trying to find its way to a future away from the dwindling PC and IT peripherals market. The future is software they decided hence the purchase of Autonomy, which they appeared determined to do at almost any price. This is just the latest in a series of expensive accidents for HP. It demonstrates they simply don’t have the capability to make the changes needed in their own business, much less be capable of taking on other businesses they knows nothing about.

Whether HP’s allegations or Mike Lynch’s claims of mismanagement are eventually proved to be right is frankly irrelevant, this result was always going to be the same. Ms Whitman insists that Autonomy will remain a key part of HP’s future. However with Autonomy personnel leaving in droves as I say, the result is always going to be the same.

Euro Crash?

I was at the CBI conference on Monday to hear speeches from David Cameron and Ed Milliband and to witness a “performance” from Boris Johnson. (If you want to see Boris’ speech there is a link to CBI website below)

Both Cameron and Milliband had much to say about Europe. Cameron talked tough playing shamelessly to the euro sceptics even though he has no intention of taking Britain out of Europe. Milliband talked about how he would not let the country “sleepwalk towards the exit” and the need for Britain to be “in the room and at the table”. Quite how much of this is Milliband’s sincere belief and how much is political opportunism to prise open the cracks in the coalition and the Tory party on Europe is hard to tell. His answer to the short comings of Europe and the Eurozone is that he would seek to bring about reform. He did not explain what reforms or how they might be achieved. The fact that the European commission is building itself palatial new premises in Brussels and the wine served to Europe’s leaders this week cost £120 a bottle might give him some idea of the challenge involved.

The sentiment amongst the business people at the conference was to support what Milliband had to say. Most, though not all UK business leaders do not want us to end up outside of Europe.
However what nobody appears prepared to talk about is the very real possibility of the Eurozone imploding. Greece is supposed to have run out of money this month, yet still the tranche of bailout funds they need to avert this has not been cleared, even though the Greek government managed to get its latest austerity measures through its parliament. Several other countries are just spiralling down with no bottom to their economic well in sight. France lost its AAA credit rating last week, mainly because there is no sign the French government has even recognised, much less is prepared to deal with its fundamental uncompetitiveness.

If the roof does fall in then I would rather be near the exit or even through it. Could it happen? Maybe, maybe not. However remember when Russia defaulted everyone said it would never happen and it did, in just one day!

Boris at CBI

Is it a bird, is it a plane? No it’s a black swan

Talking of the unexpected and unthinkable last week Nassim Nicholas Taleb published a new book – “Antifragile”.  This is the latest of his extended argument about the requirements for business success in our modern world.  Starting with “The Black Swan”, he has now produced a number of densely written and intensely demanding publications. A reviewer pronounced “Antifragile” as probably a good idea but almost unreadable.

For me, this is maddening and frustrating – because Taleb is right but has failed to communicate an immensely important idea that I and my business partners identified in 2004 and have been promoting from our tiny corner ever since! So I am able to explain a concept that could really matter for your survival and prosperity in this uncertain world and save you reading a series of books and still being none the wiser for it.  Here goes –

Idea 1 -– Unexpected things are inevitable and can have totally unpredictable consequences.  Taleb calls these Black Swans.  We say S*** Happens!

Idea 2 – A few Organisations can withstand unexpected events substantially better than most others.  We call this Competitive Strength, (Taleb’s “Antifragile”)

Idea 3 – Outfits with outstanding Competitive Strength have extraordinarily agile, adaptive and flexible mindsets, combined with superb operational competence (i.e. not HP!) and so deal rapidly and effectively with whatever happens – either bad news (Black Swans) or good news (Market Opportunities).  We call this Changeability, (Taleb conflates this into “Antifragile”, wrongly)

And there you have it, 3 challenging ideas you should pay attention to and no need to read 4 or 5 challenging books on the subject. The future is massively uncertain, S*** Will happen. Only outstanding Competitive Strength can deliver the Changeability to secure the future for you and your business in an uncertain world.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

That was week ending 25th May 2012

I had intended that this week’s look at last week would focus on the more humorous side of business, the economy and politics.  However there have not been many stories to chuckle about.  Even those that contained some vaguely amusing aspects left me not knowing whether to laugh or cry.  So here are a few of last week’s stories that illustrate some interesting aspects of human behaviour.

Regan of the SFO

This is an extraordinary story.  The Serious Fraud Office’s pursuit of the Tchenguiz brothers is more like an episode of the Sweeny than a serious investigation. Last year the brothers were arrested in a dawn raid on their properties (screeching tyres and “go, go, go" no doubt). Whatever the SFO hoped to find clearly they didn’t as neither of the brothers have been charged and both continue to deny any wrongdoing.

Not finding evidence never seemed to bother the Sweeney and it doesn’t seem to bother the SFO either. They continue to pursue the case and are now threatening a high profile investigation lasting 5 to 10 years (which we would pay for) if the brothers don’t agree to a financial settlement. Not even being accused by a high court judge of “sheer incompetence” has deterred the SFO from blundering on. I don’t know whether the Tchenguiz brothers are laughing or crying but I do have this mental picture of senior SFO investigators snarling “shut it” at anyone who suggests they don’t have a case.

En garde c’est Lagarde

IMF director Christine Lagarde endorsed the coalition’s austerity policy as the right course for the UK. However she also warned that further measures were needed to get the economy growing again. So a sort of “has done well, but now must do better” school report from the economics mistress.

She also used a new term to describe austerity measures, “fiscal consolidation”. Amazingly no politician has picked up on this so far. It is difficult to get people to vote for austerity as we all know what that means. Or if we didn’t we do now. “Fiscal consolidation” on the other hand might just sound sufficiently nothing really to do with the rest of us to sneak under the radar.

Talking of politicians, the shadow chancellor Ed Balls leapt up to claim that Ms Lagarde was right because she was agreeing with him. In her statement “when trying to imagine what the situation would be like today of no such fiscal consolidation programme had been decided, I shiver” she was clearly talking about him, but not necessarily agreeing with him. When challenged in interview, Balls responded that where she did not agree with his views she was wrong. Right and wrong at the same time it seems.

Yell no more

I had thought that the most extreme example of pointless rebranding had been the renaming of Norwich Union, one of the most well established and trusted brand names in the financial services industry. This became subsumed into Aviva, which sounds like a cross between a bus company and a 1970’s Vauxhall.

However Yell have hilariously gone way beyond this and announced last week that the new name for the business will be, wait for it ….. “hibu”. Heavily in debt and making huge losses this is the best they can come up with. Mike Pocock, Chief Executive said that the company needed a new name because it was “viewed as a dinosaur”. Was he suggesting that if Tyrannosaurus Rex had changed its name this would have saved it from extinction? Another step down the road to extinction for Yell, sorry “HIBU”.

HP and Autonomy

HP announced 25,000 jobs cuts. It was going to be 24,999 but they decided to include Mike Lynch, CEO of Autonomy that HP had paid $10.3bn to acquire just seven months ago. “Licence revenue was disappointing, sales execution was a challenge and big deals were taking longer to close”, said HP’s finance director, Kathie Lesjak.

However long before the sale to HP UK stock market analysts were critical of Autonomy and advising investors to sell. Mike Lynch claimed these critics did not understand complex software businesses like his. Apart from one, the critics could not quite put their finger on what made them uncomfortable about Autonomy. The one who did was Marc Geall and he had actually worked for Autonomy for 2 years, before joining Deutche Bank in June 2010. Here are some extracts from a note Geall issued in October 2010.

“The management structure, control and systems at Autonomy are more representative of a start-up than a major global player … Autonomy's sales force are "hunters not farmers" …the investment in the business has lagged revenues ... [which] could affect customer satisfaction towards the product and value it delivers."

Most of the other analysts applied conventional analysis criteria to Autonomy. These were easily batted away by Lynch, who believed they did not really apply to his business. By contrast Geall comments on aspects of the core characteristics of Autonomy's organisational culture, how it thinks and behaves and how these could impact on future performance. You can read the full article we published in 2010 by clicking here.

Much is being made of the bureaucratic HP culture stifling the entrepreneurial spirit in Autonomy, with some justification. However what Geall’s analysis showed was that Autonomy’s culture which was once its strength was becoming its weakness and this has now manifested itself under HP’s ownership after just seven months.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.