Giving Products a Good Backstory
May 14th, 2009 | Posted by innovJeff Gomez is the quintessential comic-book nerd, a guy who can tell you in detail how Astro Boy went from circus performer to defender of the Earth. Not the sort, one might think, to take meetings with powerful movie producers and executives. And yet Gomez’s company, Starlight Runner Entertainment, is a hot commodity in marketing circles, with a roster of clients that includes Coca-Cola (KO), Hasbro (HAS), Microsoft (MSFT), and Walt Disney (DIS).
In a world where ideas are currency and the best ones are kept close to the vest, Gomez’s work is a well-guarded secret. His forte is taking an existing blockbuster, whether a movie, toy, or soda, and extending the franchise. Gomez and his team create a backstory, or mythology, designed to get legions of new customers, especially young ones, hooked on an existing idea. As one might expect, many of Gomez’s clients hail from Hollywood, where the franchise is king. But he also works with more mainstream companies. For example, he helped Coke devise a world based on its Happiness Factory advertising campaign, which the beverage giant may expand to include videos and games, and, of course, sell more soda. “Whether you’re selling movies or toys,” says veteran Hollywood marketing consultant Terry Press, “people will buy a good story.”
Gomez’s own backstory is a familiar one. He recalls growing up “an outsider” on Manhattan’s Lower East Side, watching Star Wars, reading Tolkien, and writing his own fantasy stories. After studying film and communications, he taught creative writing at some of New York’s toughest public schools before launching a gaming magazine and then joining toy company Acclaim Entertainment. There he wrote comic books and helped create games.
Gomez loved the work but tired of being a salaryman and in 2000 founded Starlight Runner. The name, Gomez’s own concoction, refers to friends who come running even if you call them in the middle of the night. Today, Gomez, 45, works out of a Manhattan office with his business partner, Mark S. Pensavalle, a former book editor, and seven twentysomethings handpicked, Gomez says, “because they dream up good stories.”
Gomez typically creates a “bible” laying out characters’ origins and the trials they may have experienced. He and his team meet for weeks with film directors, game developers, and marketing executives to create a phonebook-size collection of stories from which clients can pick and choose.
Mattel (MAT) was Starlight Runner’s first big client. In 2003 the company asked Gomez to create characters to help celebrate the 35th anniversary of its Hot Wheels brand of toy cars. The Starlight Runner team’s story featured a scientist who recruits 35 of the world’s fastest drivers to find a power source that will save the planet. Mattel created comic books and five animated series, licensed a video game and a children’s book, and set up an online portal. The story’s various incarnations helped boost Hot Wheels sales that year. Mattel has also licensed the Hot Wheels concept to Warner Bros. (TWX) for a possible movie. Mattel, like many Gomez clients, declined to comment.
Disney hired Gomez in 2005 to come up with a backstory for Jack Sparrow, the character played by Johnny Depp in the 2003 hit, Pirates of the Caribbean. One concept prompted Disney to launch a series of books about the swashbuckling Sparrow as a teenage stowaway searching for explorer Hernando Cortez’s sword. The books charmed fans of the first film, and Disney used the series to help market the next two sequels.
At Coca-Cola, Starlight Runner created a backstory based on the Happiness Factory, a TV commercial featuring flying fish with propellers and furry creatures that toil inside a vending machine filling Coke bottles. Gomez’s team dreamed up an Oz-like world, where the characters represent the soda’s original seven ingredients and are happy only when they are making fizzy drinks. “At first we weren’t sure how we were going to work with them,” says Coke’s global advertising strategy chief, Jonathan Mildenhall. “Within 20 minutes we were dreaming up all kinds of ideas.” Coke is considering using the characters in comic books, video games, and a slew of new ads, says Mildenhall, who predicts that the heightened visibility will also hike drink sales.
What’s next for Gomez & Co.? Starlight Runner has been hired by Disney to help conceive the backstory for a planned remake of its 1982 science fiction flick Tron. Gomez has been meeting with Titanic director James Cameron about his upcoming 3D space adventure Avatar. For Hasbro, Gomez is helping create a backstory for the shape-shifting robots that starred in the 2007 hit movie Transformers. When Microsoft wanted to expand its Halo game franchise, Gomez helped “bring alive some pretty dry ideas,” says Frank O’Connor, the Halo development chief. O’Connor is open to working with Gomez again. “The guy loves his science fiction,” he says. “And he’s always got great ideas.”
Are the Financials a Leading Indicator?
May 14th, 2009 | Posted by stockPosted by: Ben Steverman on May 14, 2009
I’ve been asking investing pros which industries serve as “economic weather vanes,” i.e. which parts of the stock market could be expected to rebound first in an economic recovery. Many of the answers, which ranged from truckers and retailers to tech firms and commodity producers, are discussed in this story.
But I didn’t have a chance to discuss one other sector that often leads the way when the economy turns: Financials. The financial sector certainly was an early indicator of the downturn in 2007 and 2008. Could it lead the way up?
Financial stocks have certainly rallied strongly in the last two months. And that does reflect some improvement in investor psychology, and it might even indicate the beginning of the end of the financial crisis.
But is that also an early sign of a strong economic recovery? Many experts doubt it.
“The biggest thing affecting the financial sector is the solvency issue,” First American Funds economist Keith Hembre told me. In other words, financial sector investors aren’t really watching the economy closely. They’re watching to make sure their equity investments aren’t wiped out, one way or another, by the horrendous balance sheets at many banks and insurance companies.
After the government’s “stress tests” of major banks and after many banks raised additional capital, those worries have receded somewhat. But major balance sheet problems remain, Michael Yoshikami, president and chief investment strategist at YCMNET Advisors told me. In particular, financial firms face large future losses from commercial real estate and credit card debt.
Of course, financial firms will still benefit from an economic rebound. A revival in the housing or labor markets will certainly ease concerns about many of the banks’ outstanding loans. The best economic indicators among financial stocks are those who have put their fiscal house in order, says Gary Wolfer, chief economist at Univest Wealth Management (UVSP).
He cites firms like Goldman Sachs (GS) and JPMorgan Chase (JPM), which, the government says, don’t need to raise more capital. In the event of an economic recovery, “they will be out of the gate first,” Wolfer says, “and in much better shape than those entities that have to raise additional capital.”
A Slow, Painful Recovery Could Help Stocks
May 14th, 2009 | Posted by stockPosted by: Ben Steverman on May 14, 2009
According to many economists, investors and even policymakers like Federal Reserve chairman Ben Bernanke, the U.S. economy is in for a long, slow, painful recovery. A WSJ survey of economists suggests that a fully recovery could take at least three years.
The irony is that, for investors, this could actually be a good thing.
That’s what Bruce Bittles, chief investment strategist at R.W. Baird, tells me:
The best thing that could happen for the market [is if the economy remains in a mode of] very, very slow growth. Otherwise, the markets are going to be worried about inflation and interest rates rising.
The Fed and Treasury have flooded the financial system with liquidity. Under normal circumstances, all that cash sloshing around would cause inflation. It might also cause the Fed to hike interest rates too early, ending the recovery abruptly and spooking the stock market.
“It’s going to be a very slow, erratic recovery,” Bittles says. The economy might get a boost from government stimulus, the re-financing of homes and lower taxes, but, he adds, “that’s not going to be sustainable.”
A fitful, anemic recovery would allow the economy to heal, the stock market to get on its feet and corporate earnings to stabilize. But it won’t be pleasant for millions of unemployed Americans. And, the more precarious the recovery, the more likely the economy slips back into full-blown recession again.
May 12th, 2009 | Posted by innovWe believe this with all our heart: While social media are complex and often misunderstood, they have a value beyond traditional marketing campaigns. More specifically, we believe they can be used to help form your marketing strategy and be integrated into all your communications.
We have invested heavily in social media at our company. We believe in the power of online communities to help uncover insights; generate and validate new-product, service, and business-model concepts; and most important, create the necessary conversations that spark a new idea we can develop and introduce across the globe.
Everything it has done for us, we believe it can do for your organization as well. Our research shows that marketers intend to invest more in social media in the months ahead, but they have yet to allot substantial budgets for them. That isn’t the way to go. And if you continue to fund social applications only as experiments, you’re unlikely to be able to make an impact.
Our purpose here is twofold. First, we want to clarify exactly what we (and you) should be talking about when using the term “social media,” and then we will address the three biggest worries about implementing it: the loss of control, the related concern that someone in your employ will make a mistake during real-time interactions with customers, and perhaps the biggest misconception of all, that there is no way to measure its impact.
Simple definition first: Social media are a technically enhanced—think Internet and mobile-based—way of discussing ideas with people in communities. (Twitter, blogs, niche communities, and giant communities like LinkedIn and Facebook are the sorts of things we are talking about here.) Social media use words, pictures, audio, and video to foster interaction.
It is that interaction that makes some business people nervous. We understand.
When you advertise in a publication or on radio or TV, you decide on the words, the imagery, and everything else. When you use social media to get that message out, that ownership is fleeting. While you maintain absolute control over the initial content, what happens afterward depends on the audience. Is there any way to alter that? No.
But instead of worrying about it, we think you should see it as an opportunity, one that you already have some (analogous) experience with.
Most companies have call centers, places where they handle orders and provide customer service over the phone. The people in those centers are trained and given various “scripts” to follow, but no interaction with a customer (or potential customer) goes exactly as the company has drawn it up.
Still, just about every company finds call centers an effective way to maintain service levels and boost sales. Why should social media be any different?
“But suppose employees make a mistake and say or promise something they shouldn’t during these interactions?” we are often asked.
The answer to that is simple: You handle it exactly the way you would any other mistake or problem. You fix it and put steps in place to minimize the chances it will happen again.
And if you use that worry as an excuse for not engaging in social media, you are putting yourself at a huge disadvantage. We recently addressed a national association of hotel executives, and one, a vice-president at a huge chain, raised the “what-if-a-customer-writes-something-bad-about-us?” issue. We listened patiently and then hit him with some research we’d done about his company in preparation for the meeting.
“We did a Google (GOOG) search about weddings held at the biggest hotel in your region,” we said. “And while we found all the wonderful pictures you posted about the facility on your Web site, we also found troubling items that came up on wedding-related blogs—in particular, two women who went on at great length about the problems they had with their receptions at this hotel. There was no response from the hotel anywhere. The posts were three years old. What kind of impact do you think their comments are going to have on someone looking for a place to have their wedding?” The point is, if the company had been monitoring mentions of its hotels on social media, it could have responded to the complaints for all the world to see. Instead the company missed its chance to redeem itself.
(When we encounter situations like this, we always imagine executives in a boardroom with fingers in their ears repeating “Lalalalalalalala.”)
As for the last objection, that there is no way to measure the impact social media have on revenues and profits: That is just wrong. Take a look at two resources we found on the Web: a post about Web ROI by blogger Phil Baumann and an ROI calculator from Dragon Research. They will prove that you can measure the return on your investment.
(Ironically, if we probe deeper, the executives suggesting that social-media impact is not measurable don’t have many metrics or ROI in place with most of their other marketing efforts either. You should align all your marketing with key financial outcomes/objectives and measure it in the context of those objectives.)
But knowing you can measure the bang you get for the buck is not the end point when it comes to social media. The real question to ask is: “Are we getting what we want out of the conversation?”
That will be the subject for next time.
TAX PLANNING: Alternatives to pensions
May 7th, 2009 | Posted by taxThis year’s Budget proposed some radical taxation changes that will undoubtedly have an impact on the choice of the most appropriate tax wrapper or wrappers for an individual’s investment portfolio. Prime contenders include the raising of the Isa allowance to #10,200, the scrapping of higher-rate tax relief on pension contributionsmade by high-earners, the introduction of a 50 per cent top rate oftax for top-earners and the introduction of an effective 60 per cent rate for income falling between #100,000- #114,000 (ish). And let’s not forget the important changes to the taxation of UK and offshore funds. I will look at all of these changes in a little more detail over the course of the next few weeks. Most will conclude, without the need for a detailed analysis, thatthe post-2011 tax saving appeal of a registered pension for a taxpayer with income over #150,000 will undoubtedly be reduced. At the most superficial level, the constraints of a registered pension (for example, 75 per cent of the fund used to provide an income that could be taxed at 40 per cent or 50 per cent and no access to cash) may be thought to be an unreasonable price to pay in return for tax relief at 20 per cent. But let’s also not forget that the removal of higher-rate tax relief on pension contributions will only apply to a very small number among the population and so the thinking that has underpinned retirement planning for individuals so far will continue to be valid. And even for these, some will have chosen other than pension vehicles as the only or part of the basis for providing for retirement. The proposed removal of higher-rate tax relief will, for those affected, accelerate this dynamic. What are the pension alternatives that could be considered? Let’s look at Isas first. These are the most obvious pension alternative, offering tax freedom on the underlying fund. OK, no tax relief on the way in but tax-free benefits on the way out. The value of tax freedom on emerging benefits in a world where tax rates look to be on a one-way (high) street to pay for our burgeoning public sector borrowing looks to be highly desirable, assuming that you can trust future Governments not to remove tax freedom from existing Isas. Despite the undoubted current tax attraction of pension contributions, though, if there is a risk of the investor being over the threshold above which higher-rate relief is not given, the “invest in an Isa and dump into pensions later” strategy might be a little risky. For potential high-fliers looking to put in place a “deferred pension” strategy, it may make sense to review these plans in the light of the possible constraints on securing higher-rate tax relief in the future when they may be caught by the restriction. Subject to all of this, the Isa is still the main non-pension method of investing savings with freedom from income tax and capital gains tax on the fund and on extracted benefits. From April 6, 2009, the annual contribution limit is maintained at #7,200 with the maximum contribution to a cash Isa being #3,600. From October 6, 2009, the maximum contribution for those aged 50 and over is raised to #10,200, with the maximum contribution in cash being #5,100. This means, rather oddly, that while the total contribution limit for the whole of this tax year is #10,200 for the over 50s, only a maximum of #7,200 can be invested before October 6. From April 6, 2010, the new increased limits will apply to all qualifying Isa investors. This substantial increase in the investment limit (for older investors first), while valuable to all, will be particularly welcome forthose who will be adversely affected by the removal of higher-rate tax relief on pension contributions and those who will pay the higher 50 per cent rate of tax on income. It may also be welcome for 40 per cent taxpayers who are not enamoured with what they may perceive as the constraints of a registered pension. The value of the tax freedom on income delivered by the Isa will effectively increase for prospective 50 per cent taxpayers and thosewho could be caught in the 60 per cent trap in which personal allowances are removed. Of course, apart from not qualifying for tax relief on the Isa investment, the Isa is also non-assignable and so will remain in the taxable estate of the investor for inheritance tax purposes. More on pension alternatives next week. Copyright: Centaur Communications Ltd. and licensors
May 7th, 2009 | Posted by innovThe global recession doesn’t seem to have slowed Nintendo’s momentum much. On May 7, Nintendo (7974.T) reported a 14% gain in operating profits, to $5.6 billion, for the fiscal year through March, and a 10% rise in sales, to $18.6 billion. Both figures shattered the previous year’s all-time highs and were in line with what analysts had expected for the Japanese video game maker.
Nintendo has been a bright spot in an otherwise dismal Japanese tech sector. Its Wii living-room console and newly released portable DSi have been a big draw for both nongamers and hard-core gamers. In the past year the company has racked up a return on equity of around 22% and operating-profit margins of 29%—well ahead of other Japanese tech and video game makers, analysts figure.
But the company’s latest record-breaking figures could be its last for a while. In fact, Nintendo’s own not-so-optimistic forecasts have analysts and investors wondering whether the company is helpless to keep its streak from ending. For the fiscal year ending next March, Nintendo expects a 12% pullback in operating profit—its first in four years—and a 2.1% slide in revenues. That’s not bad given how the sudden slowdown has slammed other sectors. Still, the skepticism partly explains the drop in the value of Nintendo’s stock by half since last June, and its 21% fall since early January. (The benchmark Nikkei average has rebounded 6% so far this year.) Following the announcement, the company’s shares fell 0.1%, compared to the Nikkei’s 4.6% rise.
Trouble at Home
The bearish investor sentiment is putting more pressure on Nintendo President Satoru Iwata to come up with more hit games or services. In Europe and the U.S., the company has continued to rack up big gains. In those markets, the Wii and DS remain the top-selling consoles. In the U.S., Nintendo sold 601,000 Wii consoles in March, compared with 330,000 units for Microsoft’s (MSFT) Xbox 360 and 218,000 of Sony’s (SNE) PlayStation 3, according to researcher NPD.
The concern for Nintendo is at home: Wii sales are beginning to slow even as the number of software titles—1,323 at last count—for the machine continues to grow. Last fiscal year, Nintendo sold just 2.06 million Wii consoles in Japan, down 47% from 3.9 million the previous year. Even a refurbished DSi, which is thinner and has more features than the DS Lite and went on sale late last year, couldn’t save the portable gizmo’s tally from coming up short. Tokyo game-industry publisher Enterbrain said last week that Sony’s PS3 outsold the Wii in Japan in April for the second straight month (and only the second time in 17 months), with Sony selling 108,530 units to Nintendo’s 67,116.
The data in Japan are a concern for Nintendo because the domestic market tends to act as a leading indicator for global trends. Historically, Japanese consumers have been faster to flock to new gaming machines but also faster to tire of them. The dip in Wii sales in Japan suggests that Nintendo could start to see a similar pattern elsewhere.
Hideo Kojima: Gaming’s Designer-in-Chief
May 6th, 2009 | Posted by innovAs a young video-game designer working for Konami, Hideo Kojima was handed what seemed an impossible task: create a shoot-’em-up game with only three combatants and little gun play. Kojima didn’t think that would fly, but home computers back then were too primitive to handle the heavy data-crunching required to do more.
So Kojima improvised. One of his first thoughts was to have players control a commando who would sneak out of a POW camp, but all the running and hiding seemed cowardly. His next thought: What about having a commando go the opposite way and infiltrate enemy territory? “It would still be a hide-and-seek game, but I would create tension by adding a story to go with it,” recalls Kojima.
Released in 1987, the game, Metal Gear, was an original: a combat game without much combat. Kojima became a star. Metal Gear and its sequels created a whole genre of so-called stealth games. Over the years, Kojima has redefined the conventional wisdom by designing games with complex storylines that rival movies, tackling issues such as nuclear war and nanotechnology. On Mar. 25, Kojima received one of the industry’s top honors for lifetime achievement at the Game Developers Choice Awards in San Francisco.
At 45, Kojima seems at the height of his creativity. His seven-game Metal Gear series has sold 26.5 million copies worldwide. (The industry considers any game whose sales exceed 1 million a hit.) The latest, Metal Gear Solid 4: Guns of the Patriots for Sony’s (SNE) PlayStation 3 console, is a romp through a 3D urban battlefield and focuses on the story of a clone commando. Within a month of its launch last June, Metal Gear Solid 4 had sold nearly 1 million units globally, at a list price of $49.99, demonstrating the strength of Kojima’s brand.
“Nobody has successfully managed to imitate Kojima’s unique combination of storytelling and stealth-action game play,” says Jonty Barnes, director of production at Kirkland (Wash.)-based Bungie, creator of the Halo games.
As a teen in Kawanishi in western Japan, Kojima’s obsessions were movies, Japanese manga comics, and novels. But while in college—he won’t say where—he played a video game that would influence his career choice: Super Mario Bros., developed by Nintendo‘s Shigeru Miyamoto. “I saw the future,” Kojima says, about the experience. “If it weren’t for Miyamoto-san I wouldn’t be where I am.”
Kojima entered the industry long before games had 3D computer graphics, orchestral soundtracks, and motion-sensing handheld controllers. The first Metal Gear didn’t even have sound effects. “It ended up being more like a puzzle action game,” he says.
Kojima adopted filmmaking techniques for his games as console technology advanced. In Metal Gear Solid, the third game in the series, Kojima used storyboards and miniatures made from Lego blocks to help programmers visualize how scenes should look—a technique he learned from watching a documentary about James Cameron’s Terminator 2 movie. To knit together separate episodes within a game, Kojima inserted mini-movies, known as cut scenes, some up to an hour long. For Metal Gear Solid 2: Sons of Liberty, he outfitted human actors in motion-capture bodysuits to create characters with more natural movements. His latest game has split-screens that show cut scenes as gamers play.
But the core of a Kojima game is its story. When he introduces features, they help reinforce the antiwar tone of the series. For instance, he penalized players who preferred run-and-gun tactics to stealth and came up with psychological and stress gauges to show the toll on the body and mind. Analysts and gamers have marveled at Kojima’s ability to write plots that are as complex as his game’s make-believe worlds. “Kojima was the first in the industry to produce a body of work that plays out like a story, with a beginning and end, which is still rare,” says Hirokazu Hamamura, CEO of Tokyo-based market researcher Enterbrain. “He sees games as the crystallization of ideas, not just about creating moving images.”
Kojima calls himself a designer, but avoids comparing his work to art. The goal, he says, is to “make players feel the environment inside the games.” One model for his work: Disneyland (DIS). “Inside the park you can’t separate yourself from the fantasy,” he says. “At Disneyland you never go ‘backstage’—even when you’re in the bathroom.”
Despite all the praise, critics—and even some fans—have found his warnings about war and cloning too preachy and his cut scenes too long. “The philosophical waxing goes a little bit overboard toward the end of the game,” Frank Caron wrote last year in an otherwise positive review of Metal Gear Solid 4 on Web site Ars Technica. Kojima’s rebuttal? “Games shouldn’t only be fun,” he says. “They should teach or spark an interest in other things.”
Over the years, as his production team and budget have ballooned, Kojima has fought for control of the creative process. It hasn’t been easy: His first Metal Gear game involved only a couple dozen people. Metal Gear Solid 4 had a staff of 200. In 2005 he set up his own studio, Kojima Productions, inside Konami, so he could have the final word on design, planning, production, and marketing. “I won’t make games with senseless violence,” he says. “There has to be a reason for it, such as war.”
Lately, the kind of big-budget games Kojima is known for have come under fire, as the economy has soured and multimillion-dollar development costs have run ahead of the industry’s annual double-digit revenue gains. Even so, Kojima hints that a new Metal Gear Solid game for living-room consoles is in the works. At the same time, he has released low-cost games that cater to the explosion of portable gizmos such as Apple’s (AAPL) iPhone and iPod Touch.
And he holds out hope of one day directing a full-length film. “Making a game is very similar to making a movie,” he says. “It would be ideal if I could spend two years on a game and then the next two on a movie.”
May 5th, 2009 | Posted by tax“It’s a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, N.Y.,” the president said Monday.
To level the playing field, Obama would bar firms from taking deductions for expenses that support their overseas investments until they pay U.S. taxes on the profits. He would also crack down on firms that overstate their foreign tax bills.
And he would reverse a Clinton-era rule known as “check the box,” which permits firms to more easily transfer cash between countries. In practice, Obama officials said “check the box” has been used to shift income away from higher-tax countries and into tax havens such as Bermuda and the Cayman Islands, allowing firms to reduce their tax bills both at home and abroad.
Those provisions would take effect in 2011 and would raise about $190 billion by theof the next decade.
Obama also proposes to crack down on wealthy individuals who evade taxes through offshore bank accounts, primarily by targeting financial institutions in tax-haven jurisdictions. That plan, which would net $9 billion over the next decade, appears to have few opponents.
By contrast, more than 200 U.S. companies and trade groups have signed a letter asking congressional leaders to oppose Obama’s proposal to limit their ability to defer U.S. tax payments. The letter, signed by Alcoa, General Electric, McDonald’s and Microsoft, among others, warned that restricting the deferral rules would make it difficult to compete abroad.
The U.S. Chamber of Commerce also denounced Obama’s plan. And John Castellani, president of the Business Roundtable, a coalition of the nation’s largest firms, called it “the wrong proposal at the wrong time for the wrong reasons” that will “make us less competitive in the international marketplace, where, by last count, 95 percent of the world lives.”
Needed: A National Innovation Agenda
May 4th, 2009 | Posted by innovIn the coming months, our government is going to throw a lot of money at some very big problems. The amount is staggering—a $787 billion stimulus package combined with a proposed $3.6 trillion federal budget. That kind of market-making money should be able to drive the bold changes we need in health care and education.
I fear it will not.
It would be a shame if the nation’s palpable hunger for fresh ideas and approaches resulted only in incremental change. The problem I see is that most of the money is about to travel through existing pipes to sustain the way the health-care and education industries currently operate. This path simply maintains the status quo.
If we want bold change, we have to allocate more of the federal investment to the design and testing of new approaches that are not constrained by existing ones.
A report last year from the nonprofit network America’s Promise Alliance showed that 1.2 million students drop out of high school each year. Only about half of the students served by school systems in the nation’s 50 largest cities graduate from high school. The U.S. public education system, especially in the country’s urban centers, must be transformed.
Only about 40% of the U.S. adult population earns a college degree. That may have been fine in the 20th century when an industrial economy supplied good jobs to those without post-secondary education. It is not fine today when a college degree is a necessity for a good job.
Our education and workforce development system was built for the 20th century. Stimulus money spent solely to support the current system will not result in a population of life-long learners prepared for the new economy.
An example of how to channel resources toward bold change is the Labor Dept.’s WIRED (Workforce Innovation in Regional Economic Development) program. Launched in 2005 to catalyze the creation of a new 21st century workforce development system, WIRED has made three rounds of grants to 39 regions. Each grant recipient gets $5 million per year over a three-year period. The funds must be used to integrate a region’s economic and workforce development activities. WIRED funds are targeted to accelerate state agency coordination and system change in order to demonstrate that talent development can drive economic transformation in regions across the country.
WIRED is the right idea, but it doesn’t go far enough. There is not enough money allocated to it, and it is not bold enough in holding regions accountable for experimenting with truly transformative workforce development approaches.
The first baby boomer turns 65 in 2011. By 2030 there will be 71.5 million Americans over the age of 65, vs. 36 million today. Our health-care system struggles to deliver quality care today at an affordable price. Imagine the implications of the coming silver tsunami, when 10 million to 12 million elders will need long-term care—and an estimated 5 million will need nursing-home care.
The current federal prescription calls for a big investment in electronic health records and making insurance options available to all. Ensuring access and increasing efficiency in today’s system is necessary but not sufficient.
We need bolder solutions to deal with the impending crisis. We need to transform from a sick-care system to a well-care system, with the patient at the center. Patients must become more responsible for their personal wellness and sick-care choices. Too much of the stimulus money is allocated to institutionally driven electronic health records, which will only increase the efficiency of today’s health-care system. A meaningful share (20%) of the funds should go toward electronic records controlled by the patient and to experimenting with patient-centered health-care approaches.
Every federal agency must be held accountable for channeling resources toward transformative and systemic change in its respective area. That should be the focus of Aneesh Chopra, America’s new chief technology officer, or Sonal Shah, head of the new Office of Social Innovation & Civic Participation. They should be armed with resources moved from agency budgets and tasked with driving bold change to build a national innovation agenda. While we balance the management of today’s systems, it’s imperative that we also experiment with new configurations that are not constrained by existing ones. It’s not easy, but all of the public and private sector levers and capabilities should be up for analysis—and reform—in order to enable these experiments.
I used to think you could catalyze innovation by proselytizing. You can’t. It is more important to network today’s innovators from every imaginable silo, sector, and discipline in purposeful ways. It is the innovator’s day. This is the time to experiment with bold new solutions. We must invest in the capacity to explore and test systems-level innovation. Our future depends on it.
CEOs’ Diminished Power Could Prove Costly
May 4th, 2009 | Posted by innovThe last 18 months have been the economic equivalent of the Vietnam War, with waves of bad news and daily casualty reports eroding confidence and hope. Beyond the enormous financial cost of the crisis, the most enduring loss may ultimately be the end of the notion of American economic invincibility. In the same way as the Vietnam conflict diminished our faith in our political leaders, this crisis has shaken our collective trust in some of our most prominent business leaders.
It wasn’t that many years ago that business leaders were truly respected, if not revered. Certain CEOs were the rock stars of the 1990s. Not anymore. Today, CEOs are rarely cast in a positive light, with media, financial pundits, lawmakers, and others seemingly lining up to criticize corporate chiefs—sometimes with good reason. But efforts to punish and discourage bad behavior on the part of a few CEOs may actually have some unintended consequences—discouraging chief executives from making tough but necessary decisions, or even keeping qualified candidates from accepting CEO spots.
So how did CEOs as a class go from cultural icons to scapegoats in less than a decade? While CEO prestige was already fraying at the end of the 1990s, the beginning of the end of the era of the so-called imperial CEO can almost certainly be traced to 2001-2002. In the space of a few months we absorbed the start of a recession, the September 11 terrorist attacks, and the uncovering of the misdeeds at Enron, WorldCom, and Tyco. As stock market gains evaporated, so did admiration for business leaders.
Actually, many of the factors that led to this shift were in place long before 2001. The rise in significance of institutional investors since World War II has been a primary catalyst. According to Federal Reserve data, the proportion of shares of U.S. public companies held by institutional shareholders has gone from less than 10% in 1950 to well over 60% today. The concentration of equity and the tendency of institutional shareholders to follow the recommendations of a handful of proxy advisory firms amplify their power.
Institutional investor voting power is not simply theoretical. Activist hedge funds have leveraged this growing power to pressure companies to take decisions to achieve short-term gain. Even household names such as Heinz (HNZ), Home Depot (HD), Motorola (MOT), and Office Depot (ODP) have caught the attention of activist hedge funds.
Pressure from institutional shareholders has led to a trend toward majority voting for directors and the elimination of multiyear terms for directors. The relatively rapid departures of Carly Fiorina, Jim Donald, and Chuck Prince were not merely high-profile aberrations, but rather, reflections of this focus on short-term results and the intolerance of failure to deliver those results that rule today’s markets. It all adds up to a significant reduction in CEO power.
Most analysts agree that the drive for short-term results led to the increasingly risky behavior that encouraged borrowing and inflated the credit bubble. If we are to move beyond the current financial crisis, we will need business leaders who are permitted to take actions that will have a positive impact beyond the next quarter or next fiscal year. But at a time when businesses need long-term, strategic decision-making the most, the new corporate order actually impedes decisive action.
Agreeing on who is a great CEO is a bit like debating who is the Pablo Picasso of our generation; criteria will differ and ultimately history will make the final call. However, there is quick agreement on the proposition that good CEOs are strong leaders who understand competitive challenges, show foresight, evidence courage, and have a willingness to take risks. Limits on executive power, the continual focus on short-term results, and ever-shorter CEO tenures all work to undercut the ability of many chief executives to realize their full leadership potential.
The return of the imperial CEO, supported by an uninformed, lethargic board of directors, is not likely to happen, and any such development would be decidedly unwelcome. Boards and management that understand and act in the interests of the company and its shareholders represent best practice. But a key ingredient for long-term success must not be forgotten for the sake of political correctness: No matter the company, the industry, or the economic environment, businesses can only be successful when their CEOs are empowered to make bold, strategic decisions. It’s right there in the acronym: CEOs must be permitted to be effective chief executives.
As management guru Peter Drucker once noted, while most effective CEOs differ in “personalities, strengths, weaknesses, values and beliefs, all they have in common is they get the right things done.” Now more than any time since the Great Depression, we need business leaders who can get the “right things done.” If Tom Watson or Alfred Sloan or Walter Wriston were CEOs today, would they have the authority to do what is necessary to get the “right things done”? Hopefully yes, but that conclusion is far from certain. We may not know whether their modern counterparts will be allowed to rise to the leadership challenge for some time to come.
Recent Blog Posts:
Popular Blog Posts:
Subscribe to our RSS