EMI spends $50 million a year destroying CDs..but is waking up

Marc Andreesssen points to today's FT and says:

"EMI, the big music company, spends 25 million pounds a year "to scrap unsold CDs...

"To destroy unsold physical inventory in a world of ubiquitous digital distribution.

"Oh my."

I agree. It's stupid, stupid, stupid to spend money destroying CDs (because no one wants to buy them), then turn around and sue down-loaders (because you can't bring yourself to accept a digital world).

But the Financial Times article is a far more interesting read. Guy Hands, the Terra Firma buyout guy who will be leading EMI, is quoted:

He identifies three characteristics of today's music business: "The industry is based still on the phenomenon of the 1990s and the CD. It is based on the belief that if you have hits you'll make sufficient money to cover everything else.

"It's based on the belief [that] if you have conglomerates of labels they can benefit from economies of scale through manufacturing and distribution sufficiently to make enough money.

"It is based on the belief that individuals who know a particular type of music in a multicultural and multi-demographic society can push a product to the consumer.

"All three of those, in my view, are complete fallacies," declares Mr Hands, who first studied a bid for EMI in 1995 when he left Goldman Sachs to join Nomura (spun off in 2002 to form Terra Firma).

At times Mr Hands sounds despairing: "Can you imagine what would happen if most consumer industries over-shipped by 20 per cent? Can you imagine any consumer industry having 10 per cent of employees as middle management? Can you imagine only 6 per cent of staff in production?"

The record business - in which 85 per cent of artists are lossmaking and EMI pays £25m a year to scrap unsold CDs - "is stuck with a model designed for a world that has changed and gone forever", he says.

His solution is to switch from pushing CDs to pulling consumers towards music in different forms. One element will be focus groups. "People say the music industry is more creative and the customer doesn't know, only the creatives do.

"When you look at which car companies are succeeding it's the ones which work with their customers. Are clothes not creative? Is fashion not creative? Is food not creative? The only real difference is these industries have learnt to work with the customer and not force-feed them," he argues.

Surprisingly, he says that Radiohead, the band that ditched EMI last year to launch their latest album online, made the right choice. "Radiohead had the right idea. They understand their fans. They realise some of them want the premium box set. I'm one who bought one, and paid the full price. What Radiohead showed the industry was that it isn't one answer for all artists or indeed for every customer."

If it takes investment bankers buying out record companies to get them to wake up to the 21st century, then bring them on!

Technorati : EMI, Guy Hands, Marc Andreessen, Terra Firma, corporate efficiency, recording industry

Posted by Allan Jenkins at 07:08pm in Corporate Management, Music, Online Media | Permalink | Comments Welcome! (0) | TrackBack (0)

Circuit City cuts off hands to lose weight

I suppose if you really wanted to lose weight, you could cut off your own hands, so that you couldn't use a knife and fork. Effective, though radical, short-term solution. But dubious long-term efficacy, I'd guess.

Circuit City, an electronics chain, seems to be trying just that strategy, though. In an effort to cut wage costs, it has sacked 3,500 workers that it feels it was paying too much.

"Circuit City Stores Inc., the nation's No. 2 consumer electronics retailer behind Best Buy Co., says the workers being laid off were earning "well above the market-based salary range for their role." They will be replaced with employees who will be paid at the current market range, the company said in a news release."

So... you fire a bunch of retail clerks in the highly competitive consumer electronics market -- the sort of people a smart company would be spending big spondilucks training and caring for. Save a lot of money, short term. But since these 3,500 employees have 10, 20, 100 friends and family they will complain to... that's tens of thousands of people making up their mind, right now, to not shop at Circuit City and to complain further.

I was always bad at math, but I can't get that one to add up.

Hat tip Jim Horton.

Technorati : circuit city, corporate stupidity, layoffs

Posted by Allan Jenkins at 10:08pm in Corporate Management | Permalink | Comments Welcome! (0)

Welcome to the world of Karl Marx

"Welcome to the world of Karl Marx" is Arie de Geus' greeting to corporate leaders. "Capital is a commodity. Human talent is not."

Here are my notes from the Don'tStop01 Business Innovation Conference we are holding here in Copenhagen. Arie de Geus was head of Shell Oil's Planning Unit for 38 years.

People have little loyalty to companies:

New MBAs stay in their jobs less than 5 years
CEOs stay about 2-3 years.
Shareholders hold their shares about a year

This isn't loyalty.

Why is this? What does it mean.

It's certainly very contrary to the view that I have of what constitutes a successful company. My view is very different... my view is based on some interesting things we learned at Shell.

In the 70s, we asked ourselves "who should be our example?" What companies should we look up to?

We made a study. We asked a team to go out into the world, and find companies that were older than Shell, more than 100 years old, who were leaders in their industry, and who still had their corporate identies intact.

27 companies met the definition.

Siemens, more than 150 years old
Dupont, more than 200 years old
Mitui, 300
Sumitomo, 400
Stora, 700 years old

What characterizes these old companies? What let's them survive. It's clearly not "cultural" because we have American, Swedish, German, and Japanese companies on the list.

We found they shared these traits:

1) Financially conservative. This is bad news for investment bankers. These companies want to keep their own money in their own pockets, and don't want someone else's money. Surviving for centuries means never having a banker pull the rug out from under you.

2) The leaders of these companies are sensitve to the world around them. Leaders were outward looking people, and are often highly active in the society around the company. Dupont has produced generations of US senators. If your leaders are out there in the world, active, they will note changes in society and keep asking "what will this mean for the company?"

3) Strong sense of cohesion and company idenity. Leaders and staff know what the company stands for, and are happy to identify with those values.

4) Management style of tolerance. Lots of space on the margins for new or different activities.

That led me to my definition of a corporation: a good firm is financially conservative, has staff that identifies with the company values, and has management that is tolerant and sensitive to the world in which they live.

That's not what they taught me in the economics department when I was in university in Rotterdam. There we were taught that  companies are institutions that produce goods and services for which other people are prepared to pay a price. The successful company combines labor, capital and land in an optimal way: Minimize cost, maximize price, maximize profit.

This is still taught.

Three definitions. Three different implications.

1. Where there is no loyal relationship to the company, it's every man for himself. It becomes the tragedy of the commons. The measure of success is maximation of  shareholder value.

2. If we accept the classic definition, the one still taught, we must accept the company as an economic machine. The measure? Efficiency and maximization of profit at short notice.

3. And my definition: human work community aimed at continuity from generation to generation. Goal is survival and self-development in a changing world. Measurement is life expectancy.

Which is the right definition? Which company would you want to work for? If you lead a company, which would you want to create?

Let's think about three things.

1) A study done at Stanford in the early 1990s showed that long-living companies produced, on average, 15 times more profits over 60 years than the stock market average. Human work community meets the goals of life expectancy, profits, and shareholder value.

2) When we look at the oldest companies, we must remember the hundreds of thousands of companies that died. The average life expectancy of a company is less than 17 years -- as low as 4 years according to a recent UK study. If you have to choose what sort of comapny you want to create, your choice is quite stark. Choose wrongly, and your company will be dead before you are.

And let's not say "oh, that's just survival of the fittest, that's the market at work." The death of a company is not gratuitous. People suffer. And if we accept that companies are like people -- they get wiser and better as they grow older -- then the death of a company is a tragic loss of knowledge and wisdom.

You may say "survival of the fittes, free markets". But I cannot believe the death of a company is gratuitous. People suffer. And don't companies get better as they get older, much as we do in life.

3) Finally, we are in an age of fundamental change. Capital is now a commodity; it is no longer a scarce production input. This is enormously significant: in the last 50 years, we have had near constant GNP growth, and we have saved 20% to 30% of this a year. Our world is simply awash with capital. Capital is no longer dominant.

In fact, capital is a commodity -- the capital market is a buyer's market, not a seller's market. So if you are choosing what business to create, why on earth would you structure it to maximize the return to the supplier of capital, the shareholders? That is very short sighted.

No, today, labor -- human talent -- is the scarce production factor. And if you would succeed you must have a management style that makes the most of that human talent. 

Corporate leaders: you live in the world of Karl Marx. Your core asset, the asset that is the value of your company, goes out the door every day. I really wonder how you sleep at night, because you have no idea if they will come back. So you better create the conditions so that they do.

Technorati: business innovation, dontstop01, Arie de Geus

Posted by Allan Jenkins at 11:35am in Business, Conferences, Copenhagen, Corporate Governance, Corporate Management, Management | Permalink | Comments Welcome! (5)

Want good hires in 2007? Read Boothby’s Web Office whitepaper — today!

Rod Boothby at Innovation Creators has published a terrific paper on Web Office: the Next Wave in Productivity Tools. (The PDF looks far better).

Boothby notes that today's MBA students are used to using social media tools (blogs, wikis, IM, etc) for ease and productivity and that they will expect to have those tools at hand when they join your firm.

They are young. They are smart. And they are better connected than anyone you have ever met. In the summer of 2006, twenty-somethings will be busting out of graduate school powered by a brand new set of productivity tools. Think about the jump from typewriters to word processors. Think about how, in the 1980s, our parents had to struggle to learn to use spreadsheets like VisiCalc and Lotus 1-2-3. We are on the verge of experiencing a jump in the capabilities of office tools that is just as significant as the jump that occurred when the first PCs landed on people's desks. Why is this jump so big, and what does it have to do with the class of 2006? What are these people capable of? Well, to begin with, for most of them, the internet has been around since before they started high school.

The average MBA graduates in 2006 are not just knowledge workers. They are capable of being highly networked internal entrepreneurs and innovation creators. Their ability to connect is not just about email, BlackBerries, text messages and voice-mails. They are intimately familiar with all those tools, but ultimately, expertise with those one-to-one connectivity tools is just the price of admission.

What makes these new graduates so effective is their ability to work efficiently with large virtual teams and their amazing ability to maximize the power of their personal networks.He then covers the main tools and uses.

I'll go Boothby one further and predict that the graduates of 2007, 2008 and thereafter will expect and demand to use Web2.0 tools to do their jobs. If you don't have the tools, or have a corporate culture that looks askance at them, you won't get good hires. Period.

Related post: My five favorite clicks... what are yours?

Posted by Allan Jenkins at 12:52pm in Corporate Management | Permalink | Comments Welcome! (0)

Business Week: Email is so five minutes ago

Clip this article -- Email is so five minutes ago -- for clients and coworkers:

Although all these tools are gaining momentum, it's easy-to-use and practically free wikis that proponents say offer the promise of collaboration beyond e-mail, even though big editing kinks remain and other quirks and security flaws are sure to surface. Internet research firm Gartner Group predicts that wikis will become mainstream collaboration tools in at least 50% of companies by 2009. At Ann Arbor (Mich.)-based Soar Technology Inc., an artificial-intelligence company that works on projects for the Office of Naval Research, wikis enable the company to slash in half the time it takes to complete projects. Soar engineer Jacob Crossman says that's because the wikis eliminate the usual flurry of back-and-forth attachments and resulting document-version confusion that's rife in e-mail.

Link

Posted by Allan Jenkins at 03:14pm in Communication, Corporate Communication, Corporate Management, Social Tools | Permalink | Comments Welcome! (1) | TrackBack (0)

Management fears the Internet? Five steps for the corporate communicator.

Friend Shel Holtz is pretty jovial in person but, Lord, he can sure bring depressing news.  In Can You Read This?, he notes:

If you’re behind a company firewall, there’s an increasing chance that you’re not able to read this—or any other—blog.

Fear of the Internet in the C-suite is nothing new; and consultants have exploited that fear from the get-go.

What's the professional communicator to do? Here's my take:

• Education of the C-Suite: Unlike in the mid-1990's, almost all senior managers today use the Internet. Most will admit, if only to themselves, they use the Internet at work for personal reasons. From there, it's often a short leap to "It doesn't affect my productivity" to "It probably doesn't affect my staff's productivity, either".
• Policies: Work with management to make them clear. If management is worried about Internet porn (or gambling, or whatever), remind them that porn is porn -- and a medium is just a medium. In other words, ban the content -- in all media -- rather than wasting time and resources controlling one medium.
• Policies (2): "Confidentiality" is often cited as a reason for restricting net access. Yeah, right. When I was in the US Navy, I worked in the same (top secret) office as Samuel L. Morrison. Naturally, given the time and place, there was no net access. Morrison simply walked out of the place with the stuff hidden in his briefcase. If security is really a concern, Internet access probably isn't the first place to start.
• Work with the Legal Department: Working with clients, I've often seen a "least common denominator" approach to Internet policy. That is, the cheapest and easiest legal solution is to throw some blanket bans out there. But that won't work in a modern organization. Work with them to take the time to develop a more nuanced policy that allows work to get done, while protecting the firm from liability.
• Make policies clear to the staff: Most people want to keep their job, and will abide by common-sense rules. I've run a company of 125 employees, and know that people can just screw up -- but it's almost always by accident. Whenever I had to sort out a major case -- a firable offense -- I almost always found that my employee's poor judgement was connected to a muddy (or unwritten) policy of mine.

What bemuses me about corporate "Internet access restrictions" is that it's all about control. Corporations who focus on Internet access are afraid... afraid they cannot command employee loyalty.

Bad news for them. The company that cannot command employee loyalty almost certainly cannot command customer loyalty or shareholder loyalty.

Technorati tags:
IT policies
Internet access policies
Employee policies

Posted by Allan Jenkins at 10:46am in Communication, Corporate Management | Permalink | Comments Welcome! (0) | TrackBack (0)

Shoreline Cruises Disaster Shows Why Little Businesses Need Crisis Communication Plans

Crossposted from my post on the MarcomBlog.

The good ship Ethan Allen rolled over the other day on Lake George, drowning 21 people. This is when crisis communication comes into play. Where, if you are smart, you listen to your lawyers, listen to your heart and head, and start communicating. Actively.

When Alaska Airlines lost a plane a few years ago (1998-99, if I remember right), they had a new homepage up within 40 minutes of the pilot declaring an emergency. That page stated, bluntly, that one of their planes was missing, and presumably crashed. It had phone numbers to hotlines. Constant updates. A passenger list. Maps. Links to the FAA and the Coast Guard (the plane crashed in the Pacific). It had a press inquiries section, with contact information to the airline, and links to breaking news being published about the crash.

They updated it constantly in the first days. About a week after, they moved it away from the front page, but kept it going, and linked to it from the front page. And when investigators decided that Alaska's own mechanic was at fault? They reported that, without spin.

Superb crisis communication.

Superb, because they had thought it through in advance. They'd asked themselves "What if we lose a plane? How do we react?" Part of their response to those questions was to create a "plane crash" page in advance. A phantom page to be filled in and uploaded if the unthinkable happened.

Which it did.

Let's compare that response to that of Shoreline Cruises, owner of the Ethan Allen. You'll search in vain for any mention of the disaster (Update: their website is now mentions the event. In their note, they ask the public to refer inquiries to the NTSB and other "authorities"... without providing any clue as how to do that). Indeed, there's still a page for the Ethan Allen (Update: still not taken down). Moreover, as I search Google News, I can find no response from the operators -- but plenty of "it was impossible to contact Shoreline for a statement".

You may be thinking "Well, it's a Mom-and-Pop business, they didn't need a crisis communication plan." Except they do need one, now, right?

Every company needs a crisis communication plan. Call it insurance. You don't expect the plant to burn down, but it might. You don't expect someone to be killed on the job, but people die on the job every day. Your CEO probably won't be hit by a bus today, but busses hit people every day. Your repairmen never drive the van too fast through a school zone....

PR students who don't get internships... look around. Family or friends with a small business? Do a pro bono crisis communication plan, with a mentor's help if necessary. Valuable training for you. A little more insurance for them.

Hat tip to Sara.

Posted by Allan Jenkins at 01:15pm in Communication, Corporate Management, Current Affairs, Public Relations | Permalink | Comments Welcome! (5) | TrackBack (2)

Google Adopts Prediction Markets

First published, in slightly different form, at the MarComBlog of Auburn University.

Last week, I wrote some about prediction markets. These are markets where hundreds, even thousands, of participants, each armed with "some" knowledge, pool their thinking to make better predictions than pollsters, better decisions than "experts".

(Note: Wikipedia's Prediction Market article is a good starting place if you want to learn more, as is James Surowiecki's The Wisdom of Crowds (search inside at Amazon).)

But what applications do prediction markets have for business and PR practitioners? The evidence is thin to date, but last week, Google announced it's using prediction markets to make better internal decisions:

At Google, we're constantly trying to find new ways to organize the world's information, including information relevant to our business. Building on the ideas of Friedrich Hayek and the Iowa Electronic Markets, a few Googlers (Doug Banks, Patri Friedman, Ilya Kirnos, Piaw Na and me, with some help from Hal Varian), set up a predictive market system inside the company.

The markets were designed to forecast product launch dates, new office openings, and many other things of strategic importance to Google. So far, more than a thousand Googlers have bid on 146 events in 43 different subject areas (no payment is required to play).

We designed the market so that the price of an event should, in theory, reflect a consensus probability that the event will occur. To determine accuracy of the market, we looked at the connection between prices of events and the frequency with which they actually occurred. If prices are correct, events priced at 10 cents should occur about 10 percent of the time. (Read more)

Google claims the prediction market is working: prices quickly reflect what's likely, and entropy declines significantly over time. Just as you would expect in a functioning market.

The next step (and Google doesn't say if they have or will take it) is to use prediction markets to make better management decisions. To do so would be a significant departure from management doctrine, which is that -- no matter how "flat" your organization -- most important decisions are made by the CEO/COO/CFO. But if markets, no matter how much the participants are laypeople, make better predictions than experts, then that's the logical next step.

Looking back on my own tenure as CEO of a 125-person agency, and as Finance Director of a 13,000 member association, I am pretty sure the "market" -- had we had them -- would have made some different decisions than I and my management colleagues made.

What's this mean for PR practitioners? Probably little, now, since prediction markets are only now slipping in to management's minds. But if I were doing PR for Microsoft's MSN Virtual  Earth, I would be concerned about this graph, for example. Taken from the Yahoo Research Buzz Game, a prediction market, it shows how poorly the "buzz" around MSN Virtual Earth (red dots, bottom graph) has been compared to GoogleEarth (blue dots). And how the "market" views the two properties (top graph). (Note, the green lines denote NASA's product).

I've had only a few clients where a prediction market could have been deployed effectively (it takes a fairly good-sized pool, I believe), but I've no doubt the market would have made some of our marketing decisions easier and faster.

Posted by Allan Jenkins at 09:53pm in Advertising, Communication, Corporate Management, Economics, Prediction Markets, Public Relations, Smart Communities, Social Tools, Society, Technology | Permalink | Comments Welcome! (0) | TrackBack (0)

Rise of the Micro Multinational

Hal Varian discusses the rise of the micro multinational in this NYT article.  In it he describes how businesses with a half-dozen employees spread across 3 continents can still do business effectively, using socia media and micro-media.

He goes on to muse:

"The internationalization of small and medium-size enterprises has got to be a big plus for the American economy. It allows the small players to have access to labor markets that only the big boys could afford a few years ago.

"It is no surprise that many of these small, high-tech, international entrepreneurs are foreign-born. They have the contacts, the connections and that most critical ingredient, the ambition, to assemble the pieces needed to start a business.

"It is almost impossible for an entrepreneur to put a foreign development team together without some strong connections on the ground. Even large multinationals have found out that outsourcing is not the panacea it was proclaimed to be. Paradoxically, it is easier for the micro-multinationals to deal with the inconvenience of outsourcing than it is for the big international corporations. Entrepreneurs are willing to do things that big international corporations will not do - like staying up until 11 p.m. and using cheap voice-over-Internet technology rather than expensive international telephone service."

Hat tip to elearningpost.

Posted by Allan Jenkins at 07:07pm in Communication, Corporate Management, Management, Social Tools | Permalink | Comments Welcome! (0) | TrackBack (0)

Study Shows Instant Messaging Builds Workplace Relations

This may come as no surprise to those experienced in internal communication, but the Journal of Computer Mediated Communication recently published a Korean study indicating that use of IM builds cross-company relationships.

It's an academic report and hardly likely to sway reluctant management to install IM for workers. But communicators should be aware of it.

Posted by Allan Jenkins at 06:48pm in Communication, Corporate Management, Management, Social Tools | Permalink | Comments Welcome! (0) | TrackBack (0)

Michael O'Connor Clarke Lifts the Veil on Agency Billing

Michael O'Connor Clarke continues his "Seven Deadly Agency Types" series, this time skewering the "If it Moves, Bill it!" Syndrome:

"Irregular, creative, or downright unethical billing practices are the dirty secret in too many PR agencies. Some of them don’t even realise they’re doing it – or they just don’t recognize that what they’re doing would, at best, raise serious questions were their clients to find out."

"In one agency I knew, a senior executive who spent a good part of every day playing solitaire at her desk would routinely add an hour of time every month to each of the firm’s client accounts – whether or not she’d actually contributed anything of value. This was described, when challenged, as “conventional executive oversight”."

Yikes! An entertaining, useful, and all-too-true account...

Posted by Allan Jenkins at 11:00am in Corporate Management, Ethics, Public Relations | Permalink | Comments Welcome! (0) | TrackBack (0)

Steve Crecenzo Arrested; Flirts with Communication Heresy

We may need to burn Steve C. at the stake. Why? Communication orthodoxy holds that you can never communicate too much or too often, especially when you're telling employees bad news.

But bronchitis and a run-in with the law (somehow the "Dude Meets the Law" scene from The Big Lebowski keeps jumping into my forebrain) leads Steve to flirt with heresy.

Go here, leave comments, and bring our brother back into the flock.

Posted by Allan Jenkins at 09:00am in Communication, Corporate Management, Management | Permalink | Comments Welcome! (0) | TrackBack (0)

Should We Pony Up for New York Times Op-Ed Columns?

I missed the New York Times' recent announcement of its plan to charge US$ 49.95 a year for on-line access Op-Ed columnists. While I am full of sympathy for the business managers of the Times -- surely it cannot be easy watching lucrative classified ads being sucked away by Craigslist and eBay -- I suspect they overestimate the willingness of many online readers (such as me) to pony up.

Virginia Postrel takes the same view on her Dynamist Blog noting that much of the content will remain free in other places because of syndication:

"...it seems likely that the Times is underestimating online readers' elasticity of demand and is risking its status as the most-talked-about (and blogged-about) newspaper in the world. Besides, as various blog commenters have pointed out, (examples here and here), since the columns are syndicated you can find many of them on other newspapers' sites."

The sweetener that the Times is almost surely betting on -- and it nearly catches me -- is that the service also gives access to the Times archives back to 1851. Moreover, the service is free for dead-tree version subscribers, giving many Americans an incentive to subscribe for home delivery.

Still, if the major political bloggers are no longer able to link to the NYT Op-Ed columnists, will it reduce those columnists' influence? Every one (well, except the President)  who matters in politics already reads the Times, so maybe columnist influence won't take much of a hit.

All in all, a gamble for the NYT. I'll lose out, of course, because I live in Copenhagen. If I lived in the States, I probably wouldn't notice.

Posted by Allan Jenkins at 01:02pm in Corporate Management, Journalism, Online Media | Permalink | Comments Welcome! (0) | TrackBack (0)

Can Corporate Blogs Be Conversations?

Friend Shel Holtz looks at some basic philosophy underlying what I call "bandwagon blogging" -- that is, the rush by CEO's to have their very own blog.

Posted by Allan Jenkins at 07:50pm in Blogging, Corporate Management | Permalink | Comments Welcome! (0) | TrackBack (0)