The Retreat From Experimental, New Media Marketing
December 31st, 2008 | Posted by innovIn recent years the advertising world has enjoyed something of a renaissance. Companies pushed Madison Avenue to come up with edgy marketing—online and off—that would grab people’s attention amid the 24/7 noise and clutter. Some clever ideas emerged (Nike (NKE) built a hot social network for running geeks), as did some dumb ones (Sears (SHLD), Coke (KO), and others hung shingles in the online virtual world Second Life but attracted few visitors). Still, the main point was to get feedback and learn what worked and what didn’t.
Now, the lousy economy is prompting chief marketing officers to reexamine their priorities. “We’re not making huge bets on things that are unproven,” says Dave Burwick, head of marketing for PepsiCo’s (PEP) North American beverages division. For a campaign launching this month, Burwick says, “we’re not going to put millions of dollars behind social networking, for instance, but we’re going to be there.” Translation: The experimentation will continue because companies need to figure out how to reach consumers in this Digital Age. But CMOs like Burwick are hedging their bets—and Mad Ave. is feeling the pinch.
Few agencies have worked harder to build a reputation for outré stunts than Crispin Porter + Bogusky. To help Burger King (BKC) promote its chicken sandwiches, for example, the Miami-based agency built a much trafficked Web site where visitors can boss around a man in a rooster suit. But Crispin, says CEO Jeff Hicks, is now having a harder time selling clients on innovative tactics. So Crispin is running more focus groups and other tests to help judge the efficacy of a new ad concept before asking clients to commit money to it.
In these hard times, advertisers wield more power than ever. Packaged goods behemoth Unilever (UN) is forcing media companies to throw in experimental marketing for free. The Anglo-Dutch company made a proposition to the broadcast and cable networks, as well as Yahoo! (YHOO), Google (GOOG), AOL (TWX), and Microsoft (MSFT): Develop creative ways to reach customers, Unilever told them, and it will buy a block of traditional ads. The Food Network was happy to oblige. For Unilever’s Hellman’s brand, it created a “Leftovers” recipe menu for mobile-phone users and filmed several online cooking videos, all starring mayonnaise. “We’re shifting risk onto the media companies,” says Rob Master, Unilever’s North American media director.
Media agencies, which buy ad time and space for companies, are falling over themselves to make sure clients keep experimenting with ads placed next to online videos. “This is the kind of thing that could get back-burnered in today’s climate,” says Curt Hecht, who helps companies buy digital ads at media agency Starcom MediaVest. He is coaxing clients to pool their resources and share the risks and rewards. Allstate (ALL), Capital One (COF), Applebee’s, and Nestlé Purina have put their money together to experiment on such sites as Hulu, MSN, and Yahoo. Each company gets its own video ads, but they are collaborating to standardize them because retooled 30-second television commercials work poorly on the Web.
Not all companies are so easily persuaded. In 2007, Travelocity, the online travel agency, set up a page on MySpace for its “Roaming Gnome” mascot. But unable to verify a return on its investment, Travelocity has since stopped supporting the page. The company’s CMO, Jeff Glueck, says he will continue experimenting. But he’s putting his money into technology that can deduce where Web surfers want to travel, provide matching information on the best hotel and airfare deals available, and put it all in an online ad, either on Travelocity’s home site or elsewhere. “We love our MySpace page,” says Glueck. “But we’re not going to spend money just to acquire more friends for the gnome.”
Consumer Electronics: Innovate or Die
December 31st, 2008 | Posted by innovIn May 2008, The Wall Street Journal reported that 11%-20% of all electronics goods are returned. Sony’s (SNE) senior vice-president, Mike Abary, explained that defects “aren’t even the top three reasons for returns.” The top reason? The products “didn’t meet expectations.” According to the article, an Accenture report shows that it costs the U.S. electronics industry $13.8 billion to rebox, restock, and resell the returned items, eroding the industry’s ability to attract and then create loyal customers. Quite a high price to pay for a problem that has a solution.
This becomes especially poignant given the current decrease in spending on consumer electronics (CE). Data from MasterCard Advisor’s retail service showed holiday sales for this sector plummeted 26% from 2007. To survive the market shifts long-term, CE companies need to view this extraordinarily challenging period as an opportunity to innovate, to fix what was already broken, and revamp their business strategies. It’ll take a lot more than blanketing the media with clever ads. Here are four recommendations to consider:
The problem at the heart of the industry today is that CE companies still design for their original, early adopter geek audience. Tech geeks drove the development of the CE industry when it was new and there was a steep adoption curve. But, now that grade schoolers and hockey moms carry iPhones, consult their GPS for driving directions, bank online, and share family photos on Flickr, CE companies need to do more than rely on consumer curiosity to stay alive. The digital lifestyle is no longer one-size-fits-all, and today’s impatient and fickle mass consumer expects more than the complicated, unsatisfying out-of-the box experiences that have become an industry norm.
CE brands need to match the right product to the right consumers and then connect with them meaningfully at every point of contact. The “360-degree experience” includes everything from packaging, design, and marketing to after-market support such as programs to help customers discover product benefits, end-of life recycling programs, and user support executed with the care of a concierge service, rather than with the complication and delay of an overwrought bureaucracy.
It’s true, we need an example other than Apple (AAPL) to demonstrate a successful 360-degree experience, but Apple nails it every time. They do not try to be everything to everybody. Packaging is elegant. The product is beautifully designed. Set-up is simple. Support is available (though there is room for improvement here). Messaging is consistent and clear at every touch point.
Make meaning: Right now, CE companies start losing before they’ve even said “hello.” Research for our own CE clients, such as Logitech (LOGI), has revealed that consumers are overwhelmed and confused at retail stores like Circuit City (CCTY.Q) (no doubt a contributing factor in its recent bankruptcy filing).
People we tracked on “shop-along” research trips found it impossible to discern the meaningful difference between, say, a $40 mouse and a $70 one, let alone penetrate the chaos that is the flat-screen TV section. Navigating the many dozens of options marketed with buzzwords like “plasma,” “digital,” or “720p LCD” was daunting, and many potential customers we tracked left the store without making a purchase. So the industry can add “loss of sale” to their return losses as well.
Few of our shoppers visited manufacturer Web sites for information. Rather, they used third party sources such as CNET, customer reviews on Amazon (AMZN) or the advice of their peers. It’s no surprise, then, that there is little-to-no brand loyalty. Except, of course, for Apple who has succeeded in translating geekspeak, like “120GB,” to terms anyone can understand, like “30,000 songs.” The CE industry needs to stop talking techspeak and speak in terms that mean something to the rest of us.
If products do make it home, many don’t make it past the out-of-box experience. Not everyone is an early adopter with an appetite (or tolerance) for splashing around a sea of techspeak to deal with hours-long product set-up guided by confounding directions, little-to-no customer support, and lots and lots of wires.
The Magellan GPS navigation system, for example, begins with a jumble of parts. Setup requires about half a day. Mac users learn late in the process that setup requires a PC. Meanwhile, the Roomba robot cleaner packaging promises it will “clean routinely so you don’t have to.” The Roomba itself, however, requires cleaning and maintenance after each use, making it more suitable for the gadget freaks who love to endlessly tweak their technology than the suburban housewife to whom it is marketed, who’s looking for hassle-free cleaning convenience. CE companies need to clearly communicate what their products are about and who they are for.
As CE firms gear up for the annual CES show in Las Vegas, which kicks off on Jan. 8, the industry stands on the precipice of a great opportunity: to not only survive the short-term economic crisis, but also to create lifelong brand loyalists from a mass of disenfranchised, frustrated consumers—and recoup the current $13.8 billion in losses. One thing is clear: Huge rewards are possible for companies and consumers alike.
Harnessing the Power of the Sales Force
December 30th, 2008 | Posted by innovCertain fundamental tensions exist everywhere. In our personal lives it’s “spend now or save for retirement?” In sports the question is often “bet it all on winning this year, or build for the long-term?”
It’s no different in business. Do you give in to the temptation of immediate gratification—satisfying Wall Street for this quarter—or increase the research and development budget?
The tension is never more apparent than when trying to balance the innovation pipeline against the needs of your sales force to have something new to sell today.
We’ve done lots of work with companies that are sales-driven. Our first customer (nearly 20 years ago) was Superior Coffee & Foods—now part of Sara Lee (SLE). We’ve also helped Keebler create new products quarterly for Sam’s Club (WMT) and Costco (COST) and worked with food-service and manufacturing giants driven by sales forces that have an insatiable desire for new products. Lately we’ve done a lot of work around agent-driven industries like life insurance. All of these experiences have made us acutely aware of the roles speed, ego, business models, instant results and inertia play in sales-driven cultures.
These are the things you need to remember about salespeople. They:
• Need almost immediate results
• Get bored with ideas quickly, so they need a short-term pipeline
• Become dependent on “innovation news” as a way to sell
• “Eat their own young” if they are not busy or happy. We once worked with a company who had gone from have the best year in history to dysfunctional feuding because they lacked a pipeline of new things to sell.
• Are numbers driven—sometimes to a fault—which isn’t surprising since the best are often paid on commission.
The excellent news is the innovation bar can be set fairly low when it comes to satisfying what the sales force needs. Salespeople are often happy with evolution, not revolution:
• ShinyGlow cleaner with new packaging graphics
• ShinyGlow cleaner with a new, resealable top
• ShinyGlow cleaner in an applicator pen
• ShinyGlow cleaner “now with static guard”
• ShinyGlow cleaner in an easy-to-pour package
• ShinyGlow cleaner with built-in sunshine softener
These types of ideas are usually easy to come up with and to execute, and are often created in response to a competitor’s product. If the sales group likes these ideas, they tend to be successful because the salespeople work harder to make them a reality.
Salespeople are great innovation advocates. They get excited. They know a ton about your customers and their business. They’ll fight for their own ideas and will them into success.
Here’s the best news about salespeople: They often feel neglected. Not many companies do a good job of leveraging the excitement they show for your product. If you can harness what your sales team knows and the energy they bring, you will have a huge competitive advantage.
How do you do that? Here are five ideas:
• VOS. Voice-of-the-customer research is the cornerstone of new product development. In your case, voice-of-the-salesperson research is just as important. There are many techniques to regularly enlist the minds and hearts of your salespeople. Success criteria should come largely from them. Platforms should come largely from them. Ideas should come from them. For example, arm your sales force with Flip Video cameras or explorer journals. Ask them to capture competitive insights, opportunities, or what’s on their wish lists. They see things out there that you should know about.
• Enlist the alpha influencers. Sales teams are like packs. There is an alpha. Actively tapping these influencers is amazingly powerful. Imagine having them present your (their) innovation pipeline. We recently used this technique and got a standing ovation from 200 insurance agents. They did not realize they were applauding their own new product and service ideas. (Or did they?) Planned and facilitated roundtables with sales alphas are a highly effective way of creating this type of buy-in and momentum.
• Create short-term and long-term pipeline tracks/projects. The goal is to help the sales team create their short-term innovation “fix” and sales goals while they envision what the future can and should look like. With their short-term needs addressed, we are free to help them create an exciting future via new products, services, and business models. Every meeting we review where we are in the short term vs. the long term and adjust the pipeline accordingly. An example would be to focus on their next two sell-in meetings with quick ideas. At the same time, work on ideas that are five years out.
• Make it fun. Why do all the marketing people get to come up with the ideas that others have to sell? Schedule regular, engaging, and fun brainstorming sessions. Use the insights your salespeople brought you in your VOS meetings to build innovation platforms. Let the world know that the sales group came up with the ideas. Give away innovation awards. You can plan and facilitate these quarterly meetings and more importantly, screen and prep the right alphas to be in them.
• Educate. Along the way, stop and inform the sales group about the techniques you are employing. Make them aware that the work you are doing together is critical. Help them build concepts. Share research findings with them. Make them appreciate the rigor that great ideas and their thoughts deserve.
We love working with salespeople. Companies that have learned how to use them to drive innovation are not only faster to market but more connected with their customers (and, of course, more successful).
Tax shelter house of cards claimed
December 27th, 2008 | Posted by taxBy STEVE ADAMSThe Patriot Ledger
Steve Adams may be reached at sadams@ledger.com
Publication: The Patriot Ledger (Quincy, MA)
Financial adviser Edward Okun told clients he could help them avoid capital gains taxes.
Instead, he made off with up to $150 million of their money and spent it on vacation homes, luxury cars, a helicopter and a 131-foot yacht, largely to impress his new 27-year-old girlfriend, according to a lawsuit and federal indictment.
One of Okun’s clients, Braintree auto dealer Daniel Quirk, claims in a lawsuit that he lost $2 million to Okun, who was living in Miami while running the alleged scheme.
Okun, 57, obtained clients’ money by forming six companies in 2005 and 2006 that specialize in setting up “1031 exchanges,” a type of tax shelter that lets people avoid paying capital gains on the sale of real estate.
To do so, they must buy a property of equal or greater value within 180 days. In the meantime, the first sale’s proceeds must be held in an account set up by a third-party “exchange facilitator” – which is where Okun’s companies stepped in.
Such arrangements are rife with potential for fraud, Quirk’s attorney said this week.
“In order to get the tax benefit, the government requires you to give up the money to an intermediary,” said attorney Thomas Evans of Zelle, McDonough & Cohen in Boston. “You’re required to give it to somebody else, and yet the somebody else is not regulated.”
Okun previously owned a Richmond, Va., real estate company called Investment Properties of America.
Okun got involved in the 1031 exchange business shortly after meeting a young woman named Simone Bolani in February 2005, prosecutors say.
The two bumped into each other at a Miami boat show. At the time, Okun was married and living in Indianapolis. Bolani owned a Miami Beach beauty salon, according to a report in The Miami Herald.
Okun took her shopping the next day, an anecdote she shared with guests at the couple’s wedding reception less than 10 months later. He impressed her with his generosity, she said.
Prosecutors say Okun wired Bolani $50,000 a week after they met.
Soon thereafter, Okun moved from Indianapolis to Miami. He began buying cars and jewelry for Bolani, and wired money to her family in Brazil, prosecutors said.
Okun and his wife divorced that summer, and he used $6 million in misappropriated clients’ funds to pay for his divorce settlement, prosecutors say. Okun allegedly bought a $4.1 million home and two condos in Miami for $2.6 million with clients’ funds, and used another $8.6 million of their money to buy a 131-foot yacht. He named it the “Simone” after his new fiancée.
In December 2005, the couple wed and celebrated with a $200,000 reception at the Mandarin Oriental hotel in Miami, according to court filings.
Okun remains in custody in Virginia following his March federal indictment on mail fraud and cash smuggling charges. Barry Pollack of Washington, D.C., Okun’s attorney in the criminal case, said in an e-mail that his client “strongly disagrees with the allegations made.”
In May, the parent company of Okun’s group of 1031 companies filed for Chapter 11 bankruptcy, complicating clients’ attempts to gain restitution.
Quirk’s dealings with Okun date back to January 2007, according to a civil suit Quirk Infiniti Inc. filed this month in U.S. District Court in Boston.
Quirk signed an exchange agreement with one of Okun’s companies, AEC Exchange of Boston. Quirk later sold a property for $2 million and transferred the proceeds to AEC Exchange, which deposited them in an account at Wachovia Bank.
AEC Exchange allegedly ignored demands to return the money.
The lawsuit claims Okun used approximately $150 million from Quirk and other clients to fund his extravagant lifestyle, and invest in unrelated real estate ventures such as shopping malls in Kansas and Texas and vacation homes in New Hampshire and New Jersey.
The lawsuit names Wachovia Bank of Charlotte, N.C., as the lone defendant. It seeks restitution on behalf of Quirk and others who were affected by the alleged scheme.
Okun maintained approximately 160 exchange accounts for clients at Wachovia. Wachovia failed to adequately protect clients’ money while benefiting financially from fees on hundreds of wire transfers in and out of the accounts, the lawsuit states. A Wachovia spokeswoman did not respond to requests for comment this week.
The lawsuit argues Okun’s dealings should have raised alarms among bank personnel. For instance, in 2005 Okun submitted to the bank a personal financial statement showing he had “borrowed” $30 million from AEC Exchange within months of acquiring it.
In a note on bank documents, a Wachovia bank officer wrote, “Why does Ed borrow from these entities at all (i.e., risk appearance of impropriety)?”
December 24th, 2008 | Posted by stockWhat, in a perfect world, would investors like to see under the tree?
1. A promise that stocks will move higher in January.
The Stock Trader’s Almanac argues for the importance of its January Barometer:
…the most crucial indicator will be the full-month January Barometer, which states as the S&P 500 goes in January, so goes the year. Devised in 1972 by Yale Hirsch, this gauge has provided an accuracy ratio of 91.4%. It will be especially indicative with the market reacting to the agendas and priorities being set by the new Obama administration and a new Congress convening in addition to regular slew of economic data releases, earnings announcements and market forecasts.
The barometer was correct in 2008, when stocks tumbled almost 8% in January, then dropped more than 40% the whole year.
2. An end to crazy volatility.
Since the start of the financial crisis — and particularly since the collapse of Lehman Brothers — we’ve gotten used to wild swings in the stock market. These moves occur not just from day to day, but from hour to hour, often apparently in reaction to no news at all.
It’s all a sign of investors’ confusion about where the market (and the economy and financial system) are headed. Volatility also has scared away investors who might otherwise have jumped into this market. Why buy now if later this afternoon stocks might be down another 3%?
3. More confidence for executives and analysts about where earnings are headed.
Lately, corporate executives have sounded as confused as everyone else about the state of the economy and their own businesses. Analysts are predicting S&P 500 earnings fall 8.5% in the first quarter of 2009, but analysts have been rapidly adjusting their estimates all year. Few investors take them seriously anymore. If investors could have more confidence analysts’ and executives’ predictions are right, they could consider buying stocks based on their fundamentals. But with the future so fuzzy, it’s hard to be sure that stocks are indeed priced cheaply.
4. Unemployment that stays near 7%.
It seems likely that the jobless rate is going up (from 6.7% in November), as demonstrated by news that initial jobless claims rose 30,000 to 586,000 for the week ending Dec. 20. More job cuts may be planned for the New Year as well. However, the unemployment rate can’t jump too high or consumer spending will plunge and prospects for a 2009 economic recovery become bleak.
5. An end to scandals, collapses and other confidence-shaking events.
The Bernard Madoff debacle is the latest of the big financial headlines to shock investors this year. It started with the collapse of Bear Stearns, continued with the demise of Lehman Brothers, the trouble at AIG and the Bush Administration’s request for a $750 billion bailout.
All these big headlines have rattled investors. It’s important to the stock market’s psychological health that conditions quiet down for a bit.
But if the bad news won’t stop, perhaps investors would settle for a more aggressive Securities and Exchange Commission. An aggressive federal regulator could help assure people their money is safe from the unscrupulous investment managers.
If you put together an investing wish list, what would be on it?
The Net Generation Takes the Lead
December 22nd, 2008 | Posted by innovEditor’s note: This is the eighth in an eight-part series of Viewpoints by author Don Tapscott, who draws on the $4 million research project that inspired his new book, Grown Up Digital, to explain how digital technology has affected the children of the baby boomers, a group he calls the Net Generation.
In the second half of the 20th century, baby boomers set the stage for how we live and work. The medium that boomers grew up with, broadcast TV, helped to create our consumer culture. The fixtures of suburban life—the SUVs, the expanding floor size, the family room off the kitchen—were created by and for boomers. The many ways that we organize ourselves at work and in our civic lives are based on models that were defined or reinforced by the dominant demographic, the boomers. Their influence is so powerful we hardly notice it.
But now, these old ways are starting to be shattered by the new Web and this new generation. The new Web, which lets people contribute to knowledge and not just consume it, is revolutionary. The great powers, such as the titans of broadcast TV, no longer control the distribution of knowledge. People no longer have to follow the leaders and do what they’re told. Now they can organize themselves, publish themselves, inform themselves, and share with their friends—without waiting for an authority to instruct them.
What’s more, this new generation, the biggest ever, knows how to use this awesome tool. They’ve grown up digital. The Net Generation, as I call Americans ages 11 to 31, has been trained since early childhood to collaborate, to hunt for information, to move fast.
With reflexes honed to use the Web effectively, the Net Generation will change the world in unprecedented ways.
They are already challenging the way business should be conducted—by suggesting that business leaders look outside the company for fresh ideas rather than burrow inside the “silo,” a business cliché that is revealing because of its origin, in the bulk storage of grain. They’re challenging the assumption that work should take place at the office between 9 a.m. and 5 p.m.—rather than, say, at home on a mobile device. They’re just starting to generate ideas that change the old order, such as Rypple’s just-in-time performance reviews. They’ve already rocked the foundations of the music business, and now they are changing the rules of marketing.
They’ve just shown their incredible power by helping President-elect Barack Obama win his stunning victory, thanks in part to an innovative online campaign steered by young people. Now they’re counting on Obama to keep his promise to make government more open, so that it fulfills President Abraham Lincoln’s great dream, to be a “government of the people, by the people, for the people.” If he doesn’t, watch out. This generation has the technological means to make the demonstrations of the 1960s look like a tea party.
This generation is setting records for civic action and is now using the global reach of the Web to change the world on the ground. One example: TakingITGlobal, a Toronto-based social network for people who want to do good, was founded before Facebook was conceived, by Michael Furdyk. As an adviser to the network, I’ve watched it grow. Now it has more than 4 million visitors per year, in nearly 250 languages.
Most Net Geners are seeking to protect the planet, and they find racism, sexism, and other vile remnants of bygone days to be both weird and unacceptable. There are always, of course, evil people who will try to use the Web to spread hate—for example, by creating sickening games that urge the player to kill members of minority groups. But there are far more who want to use this technology for good. It is entirely possible, as Nobel Prize in Literature winner Jean-Marie Gustave Le Clézio put it earlier this month, that Hitler’s genocidal plot might have failed in the Web 2.0 world: “Ridicule might have prevented it from ever seeing the light of day.”
Young people today want power in every domain of economic and political life. This doesn’t mean hierarchies will vanish. Society still needs authority and control in areas ranging from child rearing and executive decisions to law and order. But as the Net Generation grows in influence, the trend will be toward networks, not hierarchies, toward open collaboration rather than command, toward consensus rather than arbitrary rule, and toward enablement rather than control. As students, children, and consumers, Net Geners are pressuring schools, families, and markets to change. As knowledge workers, educators, government leaders, entrepreneurs, and customers, they will be an unstoppable force for transformation.
In the past, many of these so-called postmodern concepts were ideas whose time had not come. They were ideas in waiting—for a new generation that could embrace and implement them. Now they’re here. The big remaining question for older generations is whether that power will be shared with gratitude—or whether we will stall until the Net Generation grabs power from us. Will we have the wisdom and courage to accept them, their culture, and their media?
Harrah’s New Twist on Prediction Markets
December 22nd, 2008 | Posted by innovAlmost 15 years ago, Lew Platt, the former chief executive of Hewlett-Packard (HPQ), observed that, “if only HP knew what HP knows, we would be three times more productive.” This quote became a mantra for the knowledge management movement. Companies invested large sums of money to codify knowledge and connect people.
Unfortunately, many of these initiatives foundered. There were at least two problems. The most valuable knowledge is difficult, if not impossible, to codify. And tools for connecting people run afoul of widespread incentive structures and cultures that strengthen walls rather than foster networks.
There’s an even more fundamental issue. Knowledge management, at least as conventionally applied, focuses on tapping into existing knowledge. It spends much less time finding better ways to generate new knowledge.
Harrah’s, the casino entertainment company, is beginning to explore how to create commercially useful knowledge by applying a much-hyped knowledge management tool—prediction markets—in a very new context.
Prediction markets are platforms that invite participants to speculate on uncertain future events (such as probability or timing) by buying “shares,” with payoffs tied to the eventual outcomes. These hit public attention 20 years ago, and the first corporate prediction market launched a couple of years later. Since then, they have been used in a broad range of industries, most often to estimate the actual release dates for, and likely success of, new products.
Harrah’s is setting up a pilot prediction market to forecast customer activity in one of its domestic casino operations. In this market, Harrah’s employees will forecast customer spending activity in Harrah’s casino based on the employees’ front-line experience and perspectives. Harrah’s hopes to understand better employees’ diverse approaches to generating these forecasts and to explore possible initiatives to increase revenues. The company has also configured “inclusion to innovation” teams to draw on the cognitive diversity among its employees. This taps into the thinking of Scott Page, a professor at the University of Michigan, who published a fascinating book last year, The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools and Societies.
Page argues that diversity should not be confined to differences in identity—for example, race or gender. He makes a powerful case that harnessing differences in how we view the world helps us generate more insight about that world and to be more innovative in our business initiatives. Since the power of prediction markets hinges on effectively tapping into cognitive diversity throughout an organization, Page also argues convincingly that if members of a group do not have enough diversity in their perspectives, prediction markets can actually produce dismal results.
Fred Keeton, Harrah’s vice-president for external affairs and the chief diversity officer, clearly agrees. “We need to focus more broadly on cognitive diversity, rather than only on identity as a source of diversity,” he observed to us in an interview. “This will allow us to configure teams that generate superior economic value by coming up with better solutions to real business problems. In this way, diversity becomes much more than a compliance issue or an abstract ethical value—it becomes a commercial necessity.”
The “inclusion to innovation” teams are relatively small teams formed on an ad hoc basis to address specific business challenges within Harrah’s more broadly. Team members are selected based on the scope of their relevant experiences as well as on a cognitive diversity profile emerging from answers to a questionnaire designed to reveal differences in approaches to problem-solving.
While still at an early stage in these efforts, Keeton views prediction markets and diverse-by-design business teams as complementary ways to harness the diversity that already exists within Harrah’s. Longer term, Keeton sees prediction markets as a way to bring additional pools of diversity to the surface and put together unexpected groups of participants in business teams.
Until now, few of the companies sponsoring successful pilots or tests have deployed prediction markets on a broad or sustained basis. Why not? One explanation is that prediction markets are deeply subversive. After all, lots of midlevel executives are consumed with the task of forecasting. If prediction markets do a better job of it, doesn’t that discredit the efforts (and perhaps even the motives) of these executives? But as prediction markets shift their focus toward new knowledge creation, they may become less threatening within corporations.
Knowledge creation trumps knowledge transfer
As Lew Platt pointed out, it isn’t easy accessing and connecting all the knowledge that resides within companies. Ironically, the most effective way to improve knowledge transfer may be through more effective knowledge creation, with knowledge transfer as a valuable by-product.
Diversity trumps ability
We all have faith in experts, but superior insight—especially in a rapidly changing world—can often be generated by tapping into distributed knowledge held by large numbers of diverse participants. The Wisdom of Crowds by James Surowiecki popularized this concept, but Page’s The Difference provides rigorous analytical support and shows when and why it can go wrong. We have few analytical tools to measure the scope of diversity within our organizations, much less to determine how to harness it within our business teams. Prediction markets can be extremely valuable in making diversity more visible and accessible.
Diversity across firms trumps diversity within companies
We can increase the value of the diversity within companies by identifying and connecting with those from other companies. Suppliers, distributors, product designers…all business partners bring a broad set of experiences, perspectives, and analytic frameworks that augment the abilities of any individual firm. Prediction markets have the potential to tap into this broader diversity.
Power trumps accuracy
We often believe accuracy will prevail on its own. The experience with prediction markets challenges that assumption. Accuracy can be deeply threatening, especially if it is viewed as undermining the authority of managers or specialists. The experience with prediction markets to date suggests that different approaches will be needed if these tools are to be scaled and sustained within most companies. Perhaps prediction markets need to be viewed as part of a broader change-management program that explicitly acknowledges the political dimension of information within organizations.
IF YOU THOUGHT 157 CHANGED THINGS, TAKE LOOK AT 140
December 19th, 2008 | Posted by stockA year and a half ago the Financial Accounting Standard Board, FASB, announced a new regulation, FAS 157, requiring companies to use more stringent mark-to-market appraisals for their portfolios. That opened the gates for all those mega-billion dollar charges that are continuing into this quarter. The charges have resulted in the Financial sector reporting negative earnings for the past four quarters, with this one very much in doubt for turning positive.
That however was last year’s regulation change. Now, the FASB has turned its attention to off balance sheet items. They have issues an amendment to FAS 140 that is effective with periods ending after December 15, which means that we are expecting to start hearing from companies on it soon, and that it will be in the upcoming annual reports. While 157 dealt with what was already on company’s books, the 140 amendment deals with what isn’t on their books, and therefore what investors don’t know. The current off balance sheet items are in a separate corporation known as Special Purpose Entities (SPE), Qualified Special Purpose Entities (QSPE) or Variable Interest Entities (VIE). They typically hold transferred assets, from the original owner, which is the public corporation, to the new private entity (SPE, QSPE, VIE), and consists of loans or securities from mortgages, credit cards, and student loans. The value of these assets, along with any obligation of the company is the main unknown to investors – the items do not currently appear on the books, there is no disclosure of the potential liability and there is little commentary about them in the footnotes. The new rule requires companies to disclose and discuss these off balance sheet items, but not put them back on their books. Additionally, they will have to disclose what their potential liability is under any agreement, as well as what event may require them to take the liability back on to their books.
For some issues the disclosure will help alleviate investor fears of the unknown, and therefore help stabilize the stock. For other however the news may add uncertainty, as analysts construct proforma balance sheets which quantify potential obligations and increasing liquidity fears. The transition will be quick, and in this market so will any reaction. But the additional information will assist investors in making more informed financial decisions, and therefore over the long term will be beneficial. Knowing the liability doesn’t change the reality of the situation, but it does change your knowledge, and it could change your choices.
Funds: An Awful Year for Active Managers
December 19th, 2008 | Posted by stockIn the past year, fund managers have flopped.
I’m not just talking about the likes of Bernard Madoff. Your honest, everyday mutual fund stock picker has also done a lousy job.
According to TrimTabs Investment Research, the net asset value of equity mutual funds is down 45% in the last year. According to Morningstar, the average domestic stock fund is off 42% this year. (The broad S&P 500 stock index is off “only” 38%.)
Of the thousands of domestic equity funds tracked by Morningstar, not one is likely to provide a positive return in 2008.
Active managers of stock funds usually have a hard time beating the performance of the broader market. That’s one reason I and many other people choose to invest in low-fee, passively managed stock index funds rather than managed mutual funds.
Many assume, however, that active managers will do better in tough markets, when they can take advantage of volatility and market irrationality to make money for their investors.
Tim Byrne, Director of Wealth Management Research at Robert W. Baird & Co., studied the issue and found it is true historically — at least over the last 20 years — that “active managers tend to perform best (i.e., provide the most excess return) in negative return environments. [They] have proven to be better at down market protection than up market protection.”
So why this year, during the toughest market in a lifetime, have active managers flopped?
This is not like other bear markets, Byrne says. “The sell-off was broad in nature, offering little opportunity for avoidance.” Only 7% of the S&P 500 posted a gain in the 12 months ending Oct. 31, 2008, Byrne notes. In the terrible year for the market ending Sept. 31, 2001, however, 45% of stocks moved higher.
“There has been no place to hide in the equity market,” Byrne says. Large, mid or small-cap, value, core or growth, U.S. or international — all the categories dropped 30% or more.
Some active managers may still be providing value for investors, though it’s never easy to know who those will be in advance. A vast array of respected managers are struggling, Byrne notes, including Bill Miller, Ken Heebner, Fidelity’s Will Danoff and others.
I wonder if this market might eventually move from a crisis mode into more normal bear market conditions, i.e. conditions more typical of past recessions. If such progress occurred, active managers might make themselves more useful. For now, it’s a tough time to be picking stocks.
December 18th, 2008 | Posted by innovMy assistant Antonio Galloni states unequivocally (and I agree) that Gianfranco Gallo, the proprietor of Vie di Romans, produces some of the most brilliant dry, crisp, pure-as-a-mountain-stream, light-bodied whites that can be found in the world. The viticultural area he has helped make famous is Friuli-Venezia Giulia in northeast Italy, and these wines, for the most part, are all tank-fermented and aged, have laserlike precision, crispness, and vivid fruit. Their elegance is unquestionable, and their refreshing characteristics and food-friendliness are remarkable. These wines generally don’t age more than two to three years, so they are best consumed in their vivid and vibrant youthfulness.
89 points
2005 Vie di Romans Dut Un
The 2005 Dut Un is a blend of Chardonnay Vie di Romans and Sauvignon Blanc Vieris. This is one of the estate’s few wines that are less than convincing. Yes, there is beautiful integration of the two wines, but this bottling lacks the definition and sheer personality that is the calling card of the estate’s top wines. Anticipated maturity: now-2016. $75
90 points
2006 Vie di Romans Malvasia Istriana Dis Cumieris
The 2006 Malvasia Istriana Dis Cumieris opens with a soaring bouquet of ripe apricots, honey, jasmine, and cloves. This perfumed, medium-bodied wine flows with gorgeous texture and tons of finesse. Anticipated maturity: now-2012. $38
90 points
2006 Vie di Romans Sauvignon Piere
The 2006 Sauvignon Piere exhibits grassy notes, along with suggestions of mint, minerals, crushed rocks, and white peaches. This medium-bodied sauvignon offers outstanding length and tons of balance. The Sauvignon Piere was aged in steel. A recent bottle of the 1996 was still in fine shape, although admittedly I prefer these wines on the younger side. Anticipated maturity: now-2012. $38
91 points
2006 Vie di Romans Chardonnay Ciampagnis Vieris
The 2006 Chardonnay Ciampagnis Vieris reveals a vibrant, minerally expression of rich, tropical fruit, flowers, and spices. This fresh, poised chardonnay was aged in steel. As is often the case, the Chardonnay Vieris is one of the highlights in this lineup. Anticipated maturity: now-2012. $38
91 points
2006 Vie di Romans Dessimis
The Dessimis represents an extreme expression of pinot grigio, but from time to time this French oak-aged wine outperforms, as it does in 2006. To be sure, there is not a lot of varietal character here, but the wine does offer terrific harmony in its pears, spices, flowers, and sweet toasted oak. This richly textured, stylish wine finishes with outstanding length and tons of polished style. The 1996 is still going strong. Anticipated maturity: now-2014. $42
91 points
2005 Vie di Romans Riesling Renano Prin Freet
The 2005 Riesling Renano Prin Freet reveals beautiful, varietal aromatics. Although the wine is leaner on the palate than the open bouquet suggests, there are expressive notes of white peaches, apricots, petrol, flowers, and minerals to be found in this pretty, delicate offering. The Riesling was aged in steel. Anticipated maturity: now-2012. Price not available.
92 points
2006 Vie di Romans Bianco Dolée
The 2006 Bianco Dolée (tocai) presents an unusual expression of this indigenous variety. This French oak-aged tocai offers up generous notes of honeyed peaches, minerals, mint, nutmeg, and flowers. There isn’t anything in particular that stands out here. Rather, this is a wine that conquers the palate through its uncommon grace and harmony. Anticipated maturity: now-2012. $42
93 points
2006 Vie di Romans Chardonnay Vie di Romans
The 2006 Chardonnay Vie di Romans is quite possibly the most elegant chardonnay I have ever tasted from this property. A multitude of ripe, tropical fruit, toasted oak, spices, and truffles emerge from this richly textured, generous white. Despite the wine’s ripeness, there is more than enough minerality to provide balance as well as freshness. The Chardonnay Vie di Romans was aged in French oak (40% new), with frequent bâtonnage (stirring of the fine lees). Anticipated maturity: now-2016. $42
93 points
2006 Vie di Romans Sauvignon Vieris
The Sauvignon Vieris has never been better than it is in 2006. The French oak has given this wine an extra dimension of weight and richness without sacrificing varietal character. There is superb integration of aromas and flavors as layers of ripe peaches, apricots, mint, and minerals emerge from this wonderfully harmonious, seamless wine. Anticipated maturity: now-2016. $42
94 points
2006 Vie di Romans Flors di Uis
The 2006 Flors di Uis is a blend of tocai, Riesling Renano, and malvasia. Here the whole is clearly greater than the sum of its parts. This weighty, rich white flows from the glass with a multitude of apricots, candied orange peel, flowers, honey, minerals, and sweet spices. The wine possesses remarkable finesse, not to mention a clean finish that lingers on the palate for minutes. Flors di Uis is one of Italy’s great whites, and in 2006 it is a pure jewel of a wine. Anticipated maturity: 2009-2014. $42
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