The Beaujolais region in central France is suffering a profound economic crisis. Largely because of the Beaujolais nouveau craze every November, that image of exuberant, frothy, simple wines has clearly led the vast majority of consumers to think of these wines as one-dimensional. In fact, there are some remarkable and serious wines from Beaujolais, all drinkable young but certainly capable of limited aging. Here are some selections from my colleague, David Schildknecht, who covers this region as one of his specialties.
88 points
2006 Chanson Père & Fils Fleurie
Recent quality enhancements under the new owners of old line Beaune négociant Chanson extend to its line of Beaujolais, as witness this 2006 Fleurie. Tart purple plum, toasted pecan, soy, and wet stone mingle in a juicy, refined, by no means simple wine that is ripe, free of superficial sweetness, and with satisfying length. $17
89 points
2006 Dominique Piron—Domaine de la Chanaise Fleurie
Dominique Piron and his American oenologist wife, Kristine Mary, are nowadays crafting some of the more interesting, not to mention delicious, wines in Beaujolais. The Piron 2006 Fleurie offers smoked meat, ripe black raspberry, mocha, and a tactile pungency suggesting mineral influence. This finishes strong and surprisingly firm, and should be worth following over the next three to five years. $21
89 points
2007 Georges Duboeuf Morgon (Flower Label)
The flower label 2007 Morgon from Georges Duboeuf reveals a charming side too seldom in evidence this vintage. Scents of fraises des bois and tart cherry mingle with hints of fennel and cocoa powder. In the mouth, this is refreshing and quite delicate, with lightly cooked strawberry, green tea, and subtle cherry stone bitterness. Saline, savory, and carnal undertones in the finish remind one of the more serious side to Morgon. Enjoy this amazing value over the next two to three years. $13
89 points
2006 Louis Jadot Moulin-à-Vent Château des Jacques
The 2006 Moulin-à-Vent Château des Jacques from Louis Jadot represents a blend of different vineyard sites. Its bright raspberry and pomegranate fruit gradually parts to reveal a deep, marrow-like meatiness typical for the best renditions of this appellation. An aura of resinous oak and (for Beaujolais) unexpected tannin clings to the sappy, bright fruit, and a saline streak in the finish adds to the refreshment that is doled out even as this wine stakes its claim to seriousness. $24
90 points
2007 Domaine des Terres Dorées—Jean-Paul Brun (Beaujolais) L’Ancien Vieilles Vignes
Terres Dorées’ flagship 2007 L’Ancien Vieilles Vignes may or may not be labeled “Beaujolais,” depending on when you buy it. Its vivid aromas and flavors of tart fresh cherry are allied to flowers and distilled berries in the nose and a positively chewy sense of fruit skin on the palate. Salty, chalky notes add complexity to the most invigorating and indelible finish you are apt to encounter in any under-$20 red wine. $19
90 points
2007 Georges Duboeuf Morgon Domaine Jean Descombes
The 2007 Morgon Domaine Jean Descombes sports a striking nose of black raspberry jam, cassis, and sweetly fragrant roses. Irresistibly luscious and bright, it saturates the palate with black fruits while also delivering persistent, wafting floral notes, tallow-like animal undertones, and hints of salt and wet stone. Enjoy this unusually successful and seamlessly ripe 2007 any time over the next four years. $15
90 points
2006 Michel Chignard Fleurie Les Mories
Ripe blueberry and black cherry fruit mingle with subtly bitter notes of black tea and cherry pit in Chignard’s 2006 Fleurie Les Mories. Suggestions of peat and tart fruit skin add interest and invigoration to a long, soothing finish. This wine should continue to be versatile and delicious for the next two to three years. $25
90 points
2007 Pierre-Marie Chermette—Domaine du Vissoux Beaujolais Vieilles Vignes Cuvée Traditionelle
Surprisingly dark in color for a wine so light in body (at 11.5% alcohol), the 2007 Beaujolais Vieilles Vignes Cuvée Traditionelle displays pure red berry and cassis fruit, sweet floral notes, citrus rind pungency, saline minerality, and a kinetic inner intensity that will leave your palate refreshed and invigorated.
There is also a darker, woodsy undertone here, which will emerge interestingly as this Beaujolais matures. Enjoy letting this wine demonstrate to you its versatility over the coming 18 to 24 months. (The equally lovely 2006 should be snapped up if you find it and enjoyed over the coming year.) $16
90 points
2006 Potel-Aviron Morgon Château-Gaillard Vieilles Vignes
Potel and Aviron’s 2006 Morgon Château-Gaillard Vieilles Vignes displays admirable purity, offering fresh and distilled cherry seasoned with ginger and white pepper, the whole suffused with iris-like floral notes and deep, marrow-like, and dark chocolate richness. Clear and juicy in finish even as its deep, dark side persists, this does not betray its oak in any way, and comes off overall as a relatively lightweight and elegant, yet concentrated Morgon, worth following for at least two to three years. $21
91 points
2006 Clos de la Roilette Fleurie
Fernand and Alain Coudert’s Clos de la Roilette is the source for some of the most profound and ageworthy wines of Beaujolais (not that they neglect to be refreshing and fun to drink young). Even their regular bottling of 2006 Fleurie will be worth following over the next two or three years at least. Notes of leather, wood smoke, and forest floor mingle with ripe cherry and raspberry in the nose. Generous juiciness on the palate is allied to a slightly grainy, palpable sense of extract and fine-grained tannin, while notes of toasted nut, raw beef, moss, and wet stones well up and add complexity to the wine’s long finish. $25
91 points
2007 Jean-Marc Burgaud Morgon Les Charmes
Burgaud’s 2007 Morgon Les Charmes fills the nose and mouth with ripe plums, cherries, and violets and offers exuberantly vivid, juicy fresh fruit. With silken texture and fine-grained tannin, the wine finishes with genuine depth of marrow, smoked meat, and saline minerality. Enjoy this seductive beauty over the next two to three years. $19
92 points
2006 Daniel Bouland Morgon Vieilles Vignes
Ripe cassis and blackberry are allied to raw meatiness, pungent herbs, wood smoke, and sea breezes in the nose of Daniel Bouland’s 2006 Morgon Vieilles Vignes. The vividly juicy black fruits make this wine thirst-quenching as well as profound. As it takes on air, this true cru Beaujolais takes you to deeper, darker, stonier places, its intensity undiminished. Plan on following a few bottles for at least five years, as you will be rewarded with the experience. $22
Explaining the Late-Day Market Trading Surges (and Declines)
October 28th, 2008 | Posted by stockI was at an ETF media event hosted by NASDAQ OMX Global Financial Products and the Journal of Indexes today. One topic of discussion was the recent bout of late-day stock market volatility.
Today is a perfect example. When the panel met with the media around lunchtime, the DJIA was up some 300 points. In the last hour of the trading session, the market surged significantly to close up 889 points.
Why is this happening?
Even the featured panelists at the media event, who are among the brightest in the investment business, are uncertain. “Talk to 10 people, and you’ll get 10 different answers,” says indexing guru Gus Sauter of Vanguard Group. “Maybe 11,” chimed in Lee Kranefuss, global chief executive officer of iShares, Barclays Global Investors.
One theory for the late-day swings is that mutual funds and hedge funds are selling (or, like today, buying) stocks later in the trading session to cover expected redemptions, or inflows. Another theory is that active managers and hedge funds are meeting margin calls. Maybe it is a result of program trading.
I’m surprised no one has a concrete answer. What is your take on the late-day swings? Why is this happening now? Will it ever end, or is this part of the “new normal”?
Stocks Didn’t Crash Friday, But That’s Nothing to Celebrate
October 24th, 2008 | Posted by stockDespite all signs to the contrary early this morning, the stock market didn’t crash today. Maybe Monday?
Overnight, Asian stocks plunged, then European stocks followed suit. U.S. stock futures fell so far they hit their downside limits of 6%.
In “the couple hours leading up to the open, people were clearly preparing for Armeggedon,” John Wilson, chief technical strategist at Morgan Keegan, told me.
Those were the headlines U.S. traders saw when they woke up this morning. But by the time they got to work, hung up their coats and sat down at their computers, their mood had shifted. Wilson apparently wasn’t the only person who put in a few buy orders at low price levels, hoping to pick up a few bargains if the stock market went into free fall.
“Random Roger” Nusbaum sounds like he was preparing to do the same — “and then the panic never came or at least not yet,” he writes.
Yes the market opened lower today, but then major indexes gradually clawed their way back up a bit. A 3% or 4% decline for stocks is bad, but it’s nothing compared to the 9.6% sell-off Japan’s stock market saw a few hours earlier.
Here’s the funny thing: I’ve been talking to fund managers and strategists all day, and no one seems to be celebrating today’s escape from disaster.
For one thing, many technical traders seemed to be hoping for a crash. They’re waiting for a decisive day of sheer panic — with the counter-intuitive idea that that’s exactly the moment when it would be safe to start buying stocks again. “The faster the market goes down and washes things out, the faster you get to the bottom,” says Mark Arbeter, chief technical strategist at Standard & Poor’s Equity Research Service. (More from Mark on Oct. 24’s trading session here.)
Instead, this stock market has fallen day after day after day. For technical traders looking for a bottom, there hasn’t been ENOUGH wild panic by traders all heading for the doors at once — just a steady stream of sell orders stretching for weeks.
There seem to be three main reasons for all this day-after-day selling of stocks:
1. Panic/fear
“This has been an irrational market in a lot of ways,” Wilson told me. Many stocks and other financial assets are trading at levels that don’t make sense given their likely fundamentals (like earnings).
And some of this fear isn’t unreasonable, at least from a short-term perspective: There could be more serious crises around the corner. Maybe the federal government is on top of problems at U.S. insurance companies or investment banks, but recent events in Argentina, Hungary and Iceland reminded investors that serious trouble can come from anywhere around the world. So some plain old generalized fear might make some sense these days.
2. Forced selling
For the stock market, “the biggest challenge is the mystery around hedge fund redemptions,” says Jim Dunigan, managing executive of investments at PNC Wealth Management. No one knows how much stuff— stocks, commodities, bonds, whatever — hedge funds might still need to unload as fund investors pull out their money. Mutual fund investors are pulling out money too, but hedge funds use a lot of leverage, so they need to sell far more — to both pay off those debts and pay off their customers.
3. Pessimism on the economy
A U.S. recession? We know that already. Credit crunch? That’s getting a tiny bit better, thank you.
No, the real economic worry seems to regard emerging economies, especially those in Asia and their near neighbors. That’s one reason the Friday’s panic originated in Japan, South Korea and Hong Kong.
Some interesting thoughts on this from Michael Yoshikami, president and chief investment strategist at YCMNET Advisors:
He told me Asian and emerging economies eventually will become “a dominant force” in the world economy. But for now, “much of their fortunes are tied to developed nation’s economies.” When the U.S. and Western Europe stumble, countries like China may feel it far more than anyone expected. Emerging economies “probably have gotten ahead of themselves,” Yoshikami says. Commodity markets hit new highs this year on the expectation that “emerging economies would just inhale commodities forever.” On Friday, OPEC cut production of oil, and the price of crude dropped yet again. “It’s not a supply issue, it’s a demand issue,” he says.
For stocks, it’s a demand issue too. No one seems to want any.
UPDATE: Some extra perspective on Oct. 24’s trading session after the jump…
Floyd Norris compares the market’s performance so far in September and October with other big two-month declines in history. He comes away reassured:
Is the threat to civilization comparable to the spring of 1940, when Germany conquered western Europe? Is the current period really worse for Nasdaq companies than the bursting of the tech bubble in 2000 and 2001? If the answer to those questions is no, then perhaps the selling is overdone.
Freakonomics’ Steven Levitt asks a great question:
There are many things I do not understand about the financial crisis, but the one thing that currently puzzles me the most is how there have not been dozens of huge hedge-fund failures over the last few months.
Then Levitt’s co-blogger notes that hedge funds “are blowing up all over the place.”
Hmm. But I do think Levitt has a point: It’s surprising conditions haven’t been a lot worse in hedge fund world, which also suggests things could get a lot worse in the future.
Obama, McCain and the Stock Market
October 24th, 2008 | Posted by stockPeople love to argue politics. And one way of making those arguments is to claim that the stock market agrees with you.
Here are a few examples from the past two months:
CNBC’s Jim “Mad Money” Cramer in New York magazine:
There is a growing belief on Wall Street that Barack Obama has the capacity to lead us out of this wilderness while John McCain does not. I’ll go a step further: Obama is a recession. McCain is a depression.
Cramer’s CNBC colleague Charles Gasparino in the New York Post:
“As it looks increasingly likely that Obama will be [the next president], the markets are casting a vote of “no confidence.”
Felix Salmon strongly disagreeing with Gasparino:
He reasonably blames much of the current financial crisis on “a lack of leadership from Washington” — but somehow manages to convince himself that it’s Obama’s leadership which is lacking, rather than Paulson’s or Bush’s.
And on Sept. 4, Jim Tamny of RealClearMarkets said the stock market was “booing” John McCain’s choice of Sarah Palin as his vice presidential candidate. He wrote the Alaska governor was such a poor choice that “markets concluded last week that whatever John McCain’s true economic views, on Friday he handed the election to the anti-growth candidate,” Barack Obama.
The stock market never explains why it goes up or down, so these arguments are impossible to prove or disprove. Still, there are plenty of misconceptions regarding investors and the political process. I took a crack at some of these in an article called “Five Myths About the Election and the Stock Market.”
Myth No. 1: The stock market is waiting to see who wins.
Myth No. 2: Wall Street is disappointed at Obama’s lead in the polls, because it always wants the Republican to win.
Myth No. 3: Investors and traders are watching the election closely, following the candidates’ proposals and rhetoric.
Myth No. 4: The market is alarmed by prospects the capital-gains tax rate could be raised.
Myth No. 5: Wealthy investors can breathe easier because the next President wouldn’t dare raise income taxes in a recession.
Read it all here.
Eleven Bargain German Rieslings
October 23rd, 2008 | Posted by innovThe wine world seems to be finally catching on to the terrific bargains that can be found in German rieslings. My colleague, David Schildknecht, has put together a nice selection of bargain picks. We’ve tried to indicate whether the wines are “semi-dry,” which means they exhibit some residual sugar but have so much fresh acidity that they will largely taste dry to most consumers, and those that are, in fact, dry.
87 points
2007 Alfred Merkelbach Urziger Würzgarten Riesling Spätlese A.P. #11 (semi-dry white)
The 2007 Urziger Würzgarten Riesling Spätlese A.P. #11 briefly evinces a slight cheesiness often encountered in youthful Mosel Riesling, but this shakes off to reveal abundant, site-typical aromas and flavors of fresh strawberry and lime. At only 8.5% alcohol, this riesling wafts across the palate with strawberry chiffon-like airiness. $24
87 points
2007 Künstler Riesling Trocken (dry white)
Gunter Künstler’s basic 2007 Riesling Trocken suggests that this will be a vintage of clarity and precision. Aromas of white peach, pineapple, and lemon, along with pungent herbal and spicy accents, lead to a juicy, generous palate possessed of a subtly oily texture and a brothy richness. The wine is suggestive of the fruit pits, chalk dust, and citrus zest typical of the chalky sites of Hochheim. A bittersweet finish completes the satisfying picture. This should drink well for a couple of years. $25
87 points
2007 Meulenhof Erdener Treppchen Riesling Kabinett (semi-dry white)
Stefan Justen’s 2007 Erdener Treppchen Riesling Kabinett displays a classic aromatic profile for this great site, with sassafras, pineapple, and orange sherbet persisting in a generous, juicy, yet subtly creamy palate display with undertones of toasted cashews, baking spices, and wet stone. You can enjoy this now, in its well-balanced but prominent sweetness, or put it away to “dry out” for four to five years. $22
87 points
2007 Selbach-Oster Riesling Kabinett (semi-dry white)
Johannes Selbach’s 2007 Riesling Kabinett—with its (for Kabinett) relatively high 9.5% alcohol—offers considerable appeal, even if it misses the delicacy or deft balance that characterize the top Kabinett wines from this estate. Green apple, lime, licorice, and honey are the key themes, and hints of ginger and wet stone add interest to the finish, while persistent citrus helps offset the sweetness. Anyone who cares to hold this wine for 4 to 5 years will be rewarded with further complexity and can rest assured that it will remain refreshing. $25
87 points
2007 Von Hövel Riesling Balduin von Hövel (semi-dry white)
The 2007 Riesling Balduin von Hövel is full of fresh apple and cherry with hints of lime and wet stone.
With only 8% alcohol, and balancing far more residual sugar than appears in the form of sweetness, this simple, generous Saar Riesling finishes with an especially refreshing burst of citrus. I would plan to drink it within 12 to 18 months for its fruity charm. $16
88 points
2007 Gunderloch Riesling Kabinett Jean-Baptiste (semi-dry white)
The 2007 Riesling Kabinett Jean-Baptiste from Gunderloch is a highly successful installment of that wine from the classic red soils of Nackenheim and Nierstein. Hints of sweet peach, tangerine zest, and musk melon in the nose lead to an orange sorbet-like palate with smoke, wet stone, and bitter citrus zest inflections. The residual sugar here really supports the fruit, then it backs off to permit a finish highly suggestive of minerality. This can be enjoyed for at least the next three to five years. $20
88 points
2007 Josef Leitz Riesling Eins Zwei Dry (dry white)
With his 2007 Riesling Eins Zwei Dry, Johannes Leitz has produced an outstanding dry riesling value.
Weighing in at a mere 12% alcohol (dry wines from Leitz’s top holdings in the steep Rüdesheimer Berg frequently top 14%), this crisp, sappy, satin-textured riesling displays salted peach and lemon, and a subtly piquant, smoky, stony, saline, peach-kernel finish. It will be a joy to drink over at least the next two years. $18
88 points
2007 Mönchhof Riesling Spätlese Mosel Slate (semi-dry white)
Robert Eymael’s 2007 Riesling Spätlese Mosel Slate represents excellent value and an archetype of Mosel Spätlese. With suggestions of orange sherbet, nectarine, sweet lime, and sassafras, this wine saturates the nose and palate with fruit and spice, finishing with an exuberance that helps keep its considerable sweetness from seeming at all out of place (and don’t miss the 2006!). Enjoy it over the coming three to four years. $23
88 points
2007 Zilliken Riesling Butterfly (dry white)
The latest installment of Hanno Zilliken’s “brand” (dry-tasting, although by no means analytically dry), the 2007 Riesling Butterfly broadcasts aromas of peach, cherry, lemon, and wet stone. Generously stuffed with orchard fruits on the palate (despite its modest alcohol), this wine also displays an imposing depth of saline and wet-stone mineral manifestations. While meant to be enjoyed over the coming nine months, it will keep for a couple of years with no problem. $18
89 points
2007 Reichsrat von Buhl Riesling Halbtrocken (dry white)
The latest von Buhl riesling (featuring musician Maria Schneider’s signature and a jazz theme on the label) is labeled “medium dry” on one side, but that’s a highly misleading translation, since it tastes essentially dry. It also tastes delicious. Suggestions of sweet corn, nut oils, and citrus zest on the nose usher in a subtly oily-textured, expansive, yet refreshingly bright (and with merely 11% alcohol) palate. The piquant bittersweet finish features white peach, maize, peach pit, toasted nuts, and citrus oils. It will have you smacking your lips. Besides the impeccable balance of this halbtrocken wine, you’ll find it amazingly versatile if you give it a chance to perform at the table over the coming year or two. $17
90 points
2007 Fritz Haag Riesling (semi-dry white)
The Fritz Haag estate frequently bottles memorable wines even at the generic level, and their 2007 riesling is a case in point. With an effusive nose of white peach, grapefruit, mango, peony, and nut oils, it displays a superb balance of residual sugar and acidity on the palate (at 11% alcohol). The effect is one of only very subtle sweetness. Rich nut oil and ripe fruit flavors, as well as stony minerality, are perfectly set off in a long finish. The high extract and vibrant acidity that seem to characterize the 2007 vintage are here on impressive display. One can enjoy this beauty over the next four to five years. $24
Caterpillar Plunges on Fears of Global Infrastructure Bust
October 22nd, 2008 | Posted by stockStocks like Caterpillar (CAT) are one reason (though just one of the many reasons) the stock market is having such a terrible week.
Caterpillar shares are trading at a four-year low, down 13.4% in just the last five trading sessions.
Part of this is to blame on a weak earnings report on Tuesday morning. But the market is looking ahead, and, when it comes to this maker of heavy equipment, investors are scared.
Over the past year, the slowdown in the U.S. housing market and the weak U.S. economy has hurt Caterpillar somewhat. But nonetheless the stock was celebrated by some investors for its role in the much-discussed “global infrastructure boom.” Sales abroad were brisk as Caterpillar equipment was used to help build roads, bridges, oil pipelines, skyscrapers, sewer systems in both the developed and developing world.
Much of this infrastructure build-out was fueled by high commodity prices. Places like Brazil, Russia and oil-rich Middle Eastern states had billions to invest on new infrastructure.
On Wednesday, the price of a barrel of crude dropped $4.80, or 6.65%, to $67.38. That’s less than half its peak earlier this year. Other commodity prices are also in the doldrums as a global economic slowdown saps demand.
For Caterpillar, this potentially knocks out the last leg propping up its business.
From the AP story on Caterpillar’s earnings report:
Jim Owens, Caterpillar’s chairman and chief executive, [said] demand in emerging markets and commodity prices that have encouraged investment in mining and energy had helped offset negative economic conditions in much of the developed world. He pointed to “recessionary conditions in North America and growing weakness in Europe and Japan.”
In other words, Caterpillar hasn’t even begun to feel the effects of a global emerging markets slowdown. If you’re an investor betting it will occur, you’ve probably already sold your Caterpillar stock.
Of course, lower commodity prices may actually help Caterpillar a bit because its raw material costs will fall. But that won’t help very much if Caterpillar sells less of its equipment.
Eli Lustgarten, a savvy analyst at Longbow Research, is seriously worried about an overall drop in demand for Caterpillar products. He wrote:
The key issue is whether the unfolding economic weakness extends into 2010, or whether a potential market upturn in developed countries occurs in time to offset any potential weakness in the large equipment demand if commodity prices/energy price weakness results in further postponement of capital projects in these areas.
I’m certainly not suggesting Caterpillar is in any serious financial trouble. This is a strong company with a solid balance sheet. But it is now clear that Caterpillar’s recent good times have come to a grinding halt.
Q4 DIVIDENDS PAYMENTS EXPECTED TO DECLINE 10% – WORST SINCE 1958
October 21st, 2008 | Posted by stockI expect the Q4,’08 S&P 500 dividend payment to decline 10% over Q4,’07, making it the worst decline since 1958. Outside of the index (NYSE, ASE, NASD common) things are worse, as companies take the necessary steps to improve liquidity. There are however many issues increasing their rates, and in this environment that takes a significant level of confidence in future earnings and cash flow.
Below are the highlights, with a link to the press release, as well as a link to the S&P Dividend area, which contains several downloadable dividend lists.
Reducing 2008 payment from $28.85 to $28.05, 2007 was $27.73
The 1.2% expected 2008 increase is the lowest growth rate since 2001 when payments were down 3.3%
Full impact of the annual dividend reductions won’t be felt until 2009
Q4,’08 over Q4,’07 payment expected to decline 10% – worst quarterly change since 1958
14 Financial dividend decreases since September reduction dividend payments $14.8B; net impact, including increases, is a -4.8% cut in dividend income
For 2008, due partially to when the decreases were implemented, over half the S&P 500 are expected to pay out more this year than last
Concern over tax qualification of 2008 dividends for issues not paying Federal taxes: qualified pays 15% (Federal max), non-qualified 35%
Due to the recent events, including government actions that might limit dividend payments, we are reducing the indicated dividend rate from $28.85 to $27.35; this is not our 2009 estimate (later this quarter)
Given the current economic climate, 2009 dividends increases are expected to slow with the main issue being concern over dividend cuts
Outside the S&P 500 (NY, ASE, NASD common) the situation continues to deteriorate:
September was the worst month for dividends since we started keeping dividend records in 1956
October-to-date has 36 decreases compares to 7 for all of October 2007 (2006@8, 2005@10, 2004@5)
October-to-date has 64 increases compares to 203 for all of October 2007 (2006@192, 2005@195, 2004@184)
Year-to-date Financials accounts for 60% of the decreases and over 90% of the dollar damage
Year-to-date Energy accounts for 13.5% of the increases and 22.3% of the dollar gains
For the press release, please click here
For additional information, please click here
Why Not Mass Produce Green Homes?
October 21st, 2008 | Posted by innov“Those who cannot remember the past are condemned to repeat it,” wrote philosopher George Santayana.
Most of us know that, and that’s why we study the magazine stories, business review articles, and books written about successful companies. We want to know what worked—and what didn’t.
But when a once-innovative company gets into trouble, it’s easy to start thinking that its business model was fatally flawed and there’s nothing to be learned from the company’s history. And that, as Santayana pointed out, is a huge mistake.
An upstart homebuilder, who happens to be a former client of ours, is not making that mistake. It is learning from the once-great Ford Motor (F). With all the troubles Ford is going through, it is easy to forget just how innovative Henry Ford was. To understand just how clever he was, let’s go back in time to the late 1800s.
You want one of those new-fangled horseless carriages that everyone is talking about. So you meet with a person who draws one up for you. You talk about the size, what it will look like, what kinds of bells and whistles yours will include, and how it will be nicer than the guy’s across the street. You make a deposit. Months pass. Your designer comes back to you with drawings. You make changes. When you finally agree on the design, a team of craftsmen get to work building you a car.
Flash forward to 1908. Henry Ford, with a magnificent stroke of process innovation, puts most carmakers out of business almost overnight with the introduction of the Model T, which was produced on an assembly line, not by hand.
But that was 100 years ago. Today, Ford Motor’s executive chairman is William Clay “Bill” Ford Jr., Henry’s great-grandson, and the company is in trouble. There is serious doubt about whether it will survive as an independent company. And most people are convinced there is nothing to learn from the company’s past.
Not so fast. Consider the housing industry, which like the auto industry, is under immense pressure.
The year is 2008. You want one of those beautiful green homes that everyone is talking about. So you meet with a person who draws one up for you. You talk about the size, what it will look like, what kinds of bells and whistles yours will include, and how it will be nicer than the guy’s across the street. You make a deposit. Months pass. Your designer comes back to you with drawings. You make changes. When you finally agree on the design a team of craftsmen get to work building you a new home.
Where’s Henry Ford when you need him?
Enter Rick Lavers, a modern-day Henry Ford. Rick is CEO of Coachmen Industries, whose subsidiary, All American Homes, is doing to homes what Ford Motor did to cars. All American may put traditional homebuilders out of business in the same way Ford was responsible for winnowing the car industry a century ago.
You don’t believe us? That’s because when you think of manufactured homes you think of mobile homes. That’s not what we are talking about. You may believe that all quality homes (think cars, 100-plus years ago) are custom-built. How could a quality home (again, think car) be built in a factory? You’ll believe it when you see it.
But what does an innovator see?
“Would you build your car by dumping all the parts in the driveway and assembling it in the rain?” Lavers asks. “Why do you build your home that way?” He points out that the homes his company sells can be manufactured rain or shine, every day. “Building indoors, out of the weather, and under rigorous quality controls, allows us to improve quality [and] productivity and eliminate defects over virtually every aspect of a site-assembled home,” he says.
You’ve probably already seen a manufactured home but you don’t know it, because they look as good, if not better, than homes that were built on-site.
This is Lean Six Sigma at work. This is process innovation. There are fewer steps, and the right parts are in line when you need them. Everything fits together with amazing precision. These homes can be delivered just-in-time from a central location. They can be built 24 hours a day. They can employ innovation—like green technology—because the installation and training has been centralized. Sure, other folks can build a customized “green” home. But finding someone who can mass produce them is rare.
Why are we excited about this innovation? Two reasons. First, by centralizing the manufacturing function, innovation can go into warp speed. Think about where the car industry would be today if all the builders were craftsmen spread out across the country. Building cars in central locations makes experimentation, improvements, and learning possible every day.
So the takeaway seems clear: If you don’t learn from history, you just may become extinct—an irony that may be wasted on Ford Motor.
October 20th, 2008 | Posted by innovTo compete in the marketplace and maintain relevancy, service companies need to innovate constantly. But while there is a desire to innovate, actually getting new services to market is rare, and what we call radical innovation—new services that dramatically change the marketplace—is even rarer.
When asked about the pathway to radical innovation, service company executives will also tell you that ideas are a dime a dozen. What’s more important is the execution: the alignment of the right idea, the right team, the right development process, the right leadership, the right level of risk management, the right target, the right time to market, and so on. Innovation is not just a matter of “Aha” ideas. It is rather a process that requires a disciplined approach to rigorously identify and execute the most promising ideas. Here is a five-step framework for implementing innovation projects successfully.
Develop insights about customers, the business, and technology in parallel. Simply observing customers may not be enough to drive the kind of innovation that changes markets. Inspiration can come from many areas, so be as insightful as you can about alternative business models, market landscapes, and operational and technology infrastructure. Innovations will come from the union of these perspectives and will be successful when aligned with customer needs.
Develop frameworks that clearly describe the “pain point” and the opportunity space. What you do with market insights is more important than the insights themselves; too often, companies don’t take advantage of their full potential. Excitement over customer insights alone can lead teams to jump the gun and start brainstorming service solutions that solve only specific issues. This tends to result in incremental service improvements rather than the more substantial leaps the team is looking for.
It takes time for a team to immerse itself in the nuances of a problem. But it’s critical to take that time to develop meaningful frameworks that can structure ideation. A team knows it is ready to move on to ideation and prototyping when it sees an opportunity for a radically different way to serve customer needs.
Radical innovation is about acquiring new customers and tapping underserved markets, as well as retaining those people once they become customers. Giving people a reason to try your service in a crowded marketplace requires going a step above what they experience with their current service. And if what you are offering is a new class of services—think Zipcar, for example—then you’ll have to help your customers recognize the value of trying something new. Sometimes, radical services fill an obvious gap in the marketplace—think Google (GOOG) 411 and SMS information services. At other times, they help steer markets in new directions by capitalizing on existing but fragmented behaviors—think Apple’s (AAPL) iPod and iTunes.
Prototype extreme service propositions early to stretch the organizational mindset. Quick, low-cost mockups allow emerging ideas to be expressed, explored, modified, and shared with customers, experts, and stakeholders in a very tangible and emotive way. They encourage informed decision-making more than a paper description could ever do, and they encourage the idea to continually evolve. Since they often deal with the intangible, service ideas may also require simulation or even the acting out of a scenario. For example, simulating a customer’s experience of interacting with a service can be an invaluable tool.
Experience prototypes that look like and behave like, but are not built like, the innovative new service allow a diverse range of customers, as well as stakeholders (those involved with brand, marketing, technology, customer care, delivery, and so on), to engage with and build on the new service from their specific perspectives. A good prototype will prompt questions around consumer desirability, business viability, and technical feasibility.
Innovations that have the ability to change the marketplace usually require radical or fundamental changes within an industry, as well as creative solutions to make these new service offerings viable from a business perspective and feasible from a technology perspective.
Challenge the existing operational realities. Successful innovation requires business and technology team members to be as creative as their design counterparts—think of Google’s service model, which allows it to monetize offerings through ad revenue without compromising the value provided by the service. It is critical to remember that the success of these offerings rejuvenated the advertising industry, which was not showing too much promise at the time. Facebook is still refining how it will use information about users’ interests and activities to support highly targeted advertising, and it hopes to offer a similarly revolutionary ad scheme as Google did with AdWords.
Champion customer desirability as the reality of viability and feasibility are considered. It’s easy to revert to traditional benchmarks and models, but doing so dramatically reduces the innovation from radical to incremental. Championing the desirability of an innovation forces the organization to build new constructs that will nurture radical innovations. And this is not an easy task.
Get permission to fail. Radical innovation is risky in the sense that getting it right the first time, every time, is highly unlikely. Companies should expect failure as a part of the innovation process. Teams need to have buy-in from leaders so that they feel confident trying new service concepts that have many unresolved questions. Teams that are afraid to fail make radical innovation, by definition, impossible. Set up for successful experimentation by getting buy-in from leadership, and then use that buy-in to get permission to fail.
Design new metrics for measuring success. Rules about metrics can be a huge barrier to innovation. This is especially true within service organizations that have adopted Six Sigma methodology. Funding guidelines that work well for the evolution of incremental improvements to services are often at odds with the scale and ambiguity of radical innovation. Radical service concepts may not have a business case that meets Six Sigma guidelines; waiving those criteria can open up opportunities that would normally be squelched. Innovation efforts are likelier to be successful if they are funded and measured separately from the rest of the organization.
Radical innovation is inherently risky as it involves new-to-the-world offerings. Piloting a service is the best way to manage this risk—before it is scaled. But most service organizations are paranoid about exposing their intent to the market. Therefore, they are reluctant to pilot in order to protect their first-mover advantage. That reluctance needs to be balanced against the advantages that pilots offer in informing investment decisions.
Don’t wait for the service to be perfect; get comfortable with beta. Radical innovation is fundamentally based on evolving customer behaviors and market trends. These changes are hard to predict accurately, and the success of a service can hinge upon a small nuance that is hard to pinpoint unless it is highlighted in a pilot. A works-like prototype can be easily piloted on a small scale to drastically reduce development cost, and it allows for iterative refinement that is critical to risk management.
The market landscape for services is evolving constantly and rapidly. Both the market and customers expect nimbleness when it comes to innovative services. Frequent and radical innovations are key to being relevant in such a landscape.
October 20th, 2008 | Posted by stockA “dead cat bounce” is the Wall Street’s evocative phrase for a brief rally that follows a deep stock slide. I guess it comes from the notion that, when dropped from a height, even a dead cat will bounce. (As horrifying as that image might be to cat lovers.)
Harry Shearer is the satirist who provides voices for The Simpsons (Mr. Burns, among others) and appeared in movies like This Is Spinal Tap. He just wrote a song about the current stock market called “Dead Cat Bounce.” Here are some of the lyrics:
You know things were getting depressing, Hard to shake free of our cares, Couldn’t buy my car on credit, Baby was selling her shares. […]Then when the news seemed the darkest,
Here comes the best news yet:They were doing the dead cat bounce,
Just watchin’ the big bulls pounce,
When only one day counts,
That’s when you do the dead cat bounce.Two days later we sliding,
Right back into the hole,
Red arrows pointed downward,
Warnings blacker than coal.
You know baby was pruning her Christmas list,
eBay had my guitar.
Sure didn’t feel like dancing,
Until we heard this news from afar.They were doing the dead cat bounce,
Stocks rising obscene amounts,
Only in my dream accounts,
Could we do the dead cat bounce.
The song appeared on his public radio show “Le Show.” To listen to the whole thing, here’s the audio file, or go check out the Oct. 19 program.
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