Archive for the ‘Transformation Timing’ Category

Thinking About Tomorrow

October 28th

In 2000, I was the leader of Strategic Planning at the USPS when the agency was required to write a Five Year Strategic Plan.  The Board of Governors was extremely interested in this requirement and I soon found that the effort to write the Strategic Plan at the height of the Internet Revolution was a controversial task that was debated at the highest levels of the organization.

For me, predicting a dramatic mail volume decline seemed to be a no brainer.  But there were many smart people who had seen predictions of mail volume decline before and they remembered that the earlier forecasts had all been proven to be wrong. I had a good deal of analytic support.  Focusing on the coming loss of First Class Business Mail (businesses sending one another bills and making payments) alone explained a good deal of of the pending loss of volume.

But the opposition view was strenuously held.  There were a significant number of individuals and businesses who had a lot at stake .  Private companies in the mailing industry who had to defend their businesses to Wall Street every 90 days clearly did not want to hear about the predictions of decline.

Postmaster General Bill Henderson wanted me to find a more persuasive basis for anchoring the Strategic Plan.  He directed me to go up to Harvard to meet with one of our advisors, Professor Anthony Oettinger, the well known Harvard Professor of Computer Science.

I laid out my case.  “OK,” Professor Oettinger responded, “But how do you know that this is going to happen? It’s the future.”

I recognized that he had a point and we put three alternative scenarios into the Strategic Plan.  The graphic to the left was presented to a conference of Mailers in 2009 by the former Chief Financial Officer and me.  The Red line represents our baseline.  The Green line was the worst case.  We left the optimistic case off of this chart when we presented it in 2009 because it seemed to be a distraction that increasing mail volume could have ever seemed to be a reasonable forecast.  The actual mail volume (Blue and Purple) showed that we had been pretty close in 2000.  We were correctly forecasting the decline.  (I still don’t believe that this was rocket science given what was happening in the world in 2000.)  The purple line shows that following the financial crisis, mail volume collapsed.

One of the problems with putting scenarios into the forecast was that everyone could find their favorite theory and it didn’t force anyone to act differently.  Acceptance of the baseline prediction of mail volume decline would have allowed the USPS to construct a far softer landing than it is struggling with today and to see transformation of the institution as much more of an imperative.

But i don’t think that those who continued to have faith in growth were Neanderthals.  What the curve that represents “actual” volume (Blue) shows is that after 9/11 there was a decline that was associated with the recession.   The recovery restored volume but it left open the question of whether to interpret the growth curve as a short term reprieve or sustaining a long term growth trend.  The pattern is clear today.  But to have understood the strategic framework sooner  would have been valuable and important to the future of the institution.

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The Core Concept – Seeing the Transformation Pathway

July 3rd

The Core Concept underlying transformation strategy began here, in Murren, Switzerland, looking at the Eiger the Monk and the Jungfrau.  I had been working on better understanding what the legendary Andy Grove of Intel called Strategic Inflection Points.  I had been recruited by the Postmaster General to join the USPS to define a digital strategy just as the Internet was becoming a mainstream communications medium. There had in fact been a tsunami as we had anticipated there would be.  The traditional business models of the posts were eroded.  I found that my digital strategy was overwhelmed by the force of culture, the leverage of the competitors and many other factors that were bigger than I was.  My concept of an “access strategy” was adopted by others or perhaps they came to their own similar conclusions.  Yet life happened while I was making other plans.

I found that I had an exceptional vantage point on one of the great transformation challenges of our time.  Instead of defining a future path that was quickly adopted by the many skeptics, they were confident to the end that change just couldn’t happen because it never had before.  I was given the opportunity to call the turn (we forecast the decline in mail volume in the Strategic Plan of 2000) and to see how important it would be for the successful leaders of the future to bring the others along.  I could see that future leaders would have to learn new rules.

So, looking at the shape of the curves across the valley from Murren I could see the Second Curve that they had described to me at the Institute for the Future.  But having lived through the experience of traveling the transformation pathway I knew how challenging an ascent it represents.

The Future of the Internet

June 4th

The Washington Post began the week with a piece on page one top left column on the latest in popular Internet security discussion, “Search Engine Shows Risks to Machines.”  (Robert O’Harrow Jr.).  The piece offers an account of the discovery that a search engine that identifies devices connected to the Internet had identified thousands of industrial control systems that have virtually no security.

On the one hand there would seem to be no surprise here.  But it doesn’t require the imagination of Ray Bradbury to see what might happen if there were someone who sought to exploit this kind of vulnerability.  There is a long period of time between the initial bombing of the World Trade Center and 9/11 that is worthy of thought when you see this kind of security loophole.  But then, no one would have thought that such destructive action was possible.

The front page of the Washington Post offers one of those moments that should cause us to think about the enormous changes that are underway…and their risks.

The Leader’s Guide to Transformation

January 29th

IBM’s Center for the Business of Government this week published my Leader”s Guide to Transformation.  In doing so the Center demonstrated the value of communicating in multiple media simultaneously.  They also included the discussion of transformation in their blog and an article about the Leader’s Guide in their magazine.  On February 2nd there will be a discussion of the guide on their radio show.

For me personally the most interesting thing that is likely to emerge from this prodigious output will be to see whether the subject engages the interest of an audience.  What often happens in cases like this one is that high visibility initiatives (Transformation of the Army, Transformation of the USPS) consume all of the oxygen in a debate.  When the smart people call them a cliche they become a dead zone of discussion and even if there is nothing to replace them conceptually they become a subject to be avoided.   Here, in interview after interview I talked to the leaders of initiatives who told me that they had no “new” word, that the concept of transformation was an important one to them.  So the question becomes: even if it isn’t news is it valuable to seek to learn what did the leaders of effective transformation efforts find to be most important?

Postal Reform 2

May 17th

What has become clear in the recent debate over financial crisis at the Postal Service is that there will be another round of debate over reform.  Round 1 began 1995 when Marvin Runyon confronted the new Republican Congress that had begun to talk about privatization almost from Election Day 1994.  There was also talk of new deals in which the revenue stream of the USPS would be tapped to pay for budget priorities.  A need for reform was clear.  But the debate lasted from 1995 through 2006 when the Postal Accountability and Enhancement Act (PAEA) was finally passed and signed into law.

In 2011, as a new Republican Congress has begun to review the financial crisis that is pending for the Service, there will again be a new debate that seeks to reform the USPS.

But as the debate emerges, inevitably there will be a question about Round 1.  What was learned from experience with PAEA?  How well did it serve the needs of the USPS?

In 2007 after the first law was passed, I wrote a paper for an international conference sponsored by the Rutgers Center for Research in Regulated Industries.  My co authors were Larry Buc and Pierce Myers, an economist and a lawyer who were as knowledgeable as any professionals working in the postal and delivery industries.  We asked “how should the new law be evaluated?”  As the Postal Reform Debate 2 began to emerge Larry Buc and I wrote another paper for the Eastern Conference of CRRI.  (Click on “paper” to see our 2011 paper.)

We reexamined the criteria from the 2007 paper and concluded that the emerging debate was going to miss the underlying question – what kind of a law will be needed to make the USPS a viable institution in the 21st Century?

Public Sector Takeover? We Need a New Powell Doctrine

April 11th

Professor Jim Heskett asks When Should the Public Sector Take Over in the Event of a Meltdown? in the newest edition of Working Knowledge.

There’s a need for a new doctrine such as the one that Former Secretary of State Colin Powell sought to define to answer the question when to intervene – remember that “if you break it you own it”.

There is strong value in the HBS “analysis-decision-reflection” framework for questions such as those of Professor Heskett – when should the public sector takeover strategy be used in the case of a meltdown? There are, as has been noted in the discussion that Professor Heskett’s question triggered, significant questions of public sector values as well as public sector competence.

The question of the public’s right to know is a good example of the issues underlying this concern. In Japan there has been strenuous debate following the near meltdown at the Fukashima plant about the right of the public to know about the risks and the state of the crisis. Here the comparison of last year’s BP oil spill is instructive. In 2010 when BP was finally forced to make the video from the undersea camera available on-line, expert estimates of the extent of the damage of the oil flowing into the sea jumped by tenfold in 24 hours in comparison with previous assessments that were limited to company data after it was screened. Disclosure would seem to be one area where there are strong public sector values at stake.

But takeover? Even assuming that the issue of competence could be resolved, that some form of expert conservatorship could be established (as for example, in the case of Fannie Mae in 2008) there are two questions that will require analysis in every meltdown case: What’s the cause of the problem? And what are the public interests at stake?

The day may come when some will argue that there should be a takeover of the money losing Postal Service for example. (See RReisner, “When a Turnaround Stalls”, HBR 2002.) After all, it will be argued, the post office is losing billions each year.

But in fact, analysis will show that the Postal Service would have broken even so far this year if it had not had to “pre pay” the health care costs of its retirees, a special multibillion dollar provision added to postal reform in 2006.

So is the Postal Service a dinosaur of the information age that could meltdown? Should there be a public takeover? You have to first analyze what’s the problem?

In the short term the postal service is losing billions so that Congress can sustain its pay/go rules. This is an accounting problem having to do with federal cash cow status.

But the long term? Is there a need to move paper and packages? Through a public infrastructure? For how long? What’s the 2030 forecast? How can revenue exceed costs? What should the Postal Service be permitted to do to make money? What should it be free to do to cut costs?

Before the rhetoric that the Postal Service is “not too big to fail” starts and someone decides that creating a postal meltdown is a good idea, its useful to analyze the causes of crisis and decide whether there is a public interest at stake.

The public sector does some things very well, but not everything. Public takeovers are like invading Libya. We want to be very careful to understand where the problem is coming from, what can be done about it, and to continuously improve the performance of interventions before we try them.

We have vast social and economic systems like the Postal Service and Medicare and Medicaid and Social Security that will have to be realigned in coming years. There may have to be a threatened meltdown before the political consensus will support action. But public takeover? Even by a competent designated management team, we should be clear on causes and remedies, very clear, before we move there.

Then and Now

March 10th

In the late 1960s a French journalist named Jean-Jacques Servan-Schreiber
wrote The American Challenge, one of the most popular books ever published in
France, about the silent economic competition between Europe and the US. The
popularity of the book was partially based on its strategy for European
Unification to match Americaʼs emerging power. As de Gaulle resigned in 1969, Servan-Schreiber offered a contrasting view for a resurgent, unified Europe.

Even more importantly for Americans, the book offers a high water mark
documenting American economic strength. In spite of American preoccupation
with Vietnam, there were many others in the world who envied the economic
power of the US. At this moment in 2011,  it seems as though a peak had
been reached some time ago.  The American Challenge documented a high point of economic
achievement emerging from the 60s.  In light of the challenges that face the US today, when many are beginning to take stock of the economic vitality that appears to have been lost, that moment in 1970 documents an interesting point of perspective.

To contrast the world of 197o with today it’s useful to seek data that might give content to the comparison.  The 1970 Fortune 500’s top 30 companies compared with the Fortune 30 from 2010 seemed to be an appropriate comparison.  Primarily, I wanted to see whether a comparison of the top firms in the U.S. economy – then and now – would tell any stories.

Table 1 lists the top 30 firms from the Fortune 500 of 1970 and makes the
comparison with 2010.

THE TOP OF THE FORTUNE 500[1]

1970 List 1970 Sales 2010 List 2010 Sales
1. General Motors $24.3 billion 1. Wal-Mart Stores $408 billion
2. Exxon [Mobil[2]] $14.9 2. Exxon Mobil $285
3. Ford $14.8 3. Chevron $164
4. General Electric $8.4 4. General Electric $157
5. Intl. Business Machines $7.2 5. Bank of America $150
6. Chrysler $7.1 6. ConocoPhillips $140
7. Mobil $6.6 7. AT&T $123
8. Texaco $5.9 8. Ford Motor $118
9. ITT [Industries] $5.5 9. J.P. Morgan Chase $116
10. Gulf Oil $5.0 10. Hewlett-Packard $115
11. AT&T Technologies $4.9 11. Berkshire Hathaway $112
12. U.S. Steel $4.8 12. Citigroup $109
13. Chevron[Texaco] $3.8 13. Verizon Communications $108
14. LTV $3.8 14. McKesson $107
15. Dupont $3.7 15. General Motors $105
16. Shell Oil $3.5 16. American International Group $103
17. CBS $3.5 17. Cardinal Health $100
18. Amoco $3.5 18. CVS Caremark $99
19. General Telephone & Electronics $3.3 19. Wells Fargo $99
20. Goodyear Tire & Rubber $3.2 20. IBM $96
21. RCA $3.2 21. United Health Group $87
22. Esmark $3.1 22. Proctor & Gamble $80
23. McDonnell Douglas $3.0 23. Kroger $77
24. Union Carbide $2.9 24. AmerisourceBergen $72
25. Bethlehem Steel $2.8 25. Costco Wholesale $72
26. Boeing $2.8 26. Valero Energy $70
27. Eastman Kodak $2.7 27. Archer Daniels Midland $69
28. Proctor & Gamble $2.7 28. Boeing $68
29. Atlantic Richfield $2.7 29. Home Depot $66
30. Rockwell $2.7 30. Target $65

[1] With appreciation to Fortune Magazine and CNN Money.  From http://money.cnn.com/magazines/fortune/fortune500_archive/full/1970/

[2] Their convention is to show the current name of the company. I have put the changed part in brackets.

My conclusion is that there are almost too many stories to tell. Just this
comparison shows a number of the dramatic transformations of the economy in
our time.

  • The dramatic consolidation of the oil and gas industries and their continuing geopolitical problems stands out. Perhaps as we watch the run up in oil prices and recognize once again that American dependence on conventional oil has not been broken, the vulnerability of the worldʼs economy to an exceptionally fragile set of political arrangements is still clear. The missing names are particularly obvious (Texaco, Gulf, Chevron, Shell, Amoco, and Atlantic Richfield) and with revolution in Tunisia and drama unfolding in Libya and Bahrain this is not a story that is complete.
  • The automotive industry’s crisis has been a long running story over 30 years of American competitiveness but the loss of Chrysler, slippage of General Motors and Ford’s almost surprising success is still notable.
  • Part two of this story is the dramatic loss of the American industrial base.  The missing companies like US steel, LTV, Union Carbide, Bethlehem Steel, and Rockwell are interesting and itʼs apparent how much has been hollowed out of the American economy.
  • Perhaps a related part of this story is the financial crisis and the loss of thefinancial base. Bank of America and J.P. Morgan Chase, Citigroup, AIG, Wells Fargo all have substantial sales. But they acquired substantial parts of their modern portfolios when icons of finance collapsed. General Electric is fundamentally a different company today then it was 10 years ago when GE Capital was playing such an important role in its success as Jack Welch retired.

Oil, manufacturing and finance, all showing the effects of significant turmoil now
are managed with exceptional attention to managing risk. The picture of
consolidation and continuing exposure to powerful global forces can be seen in
each sector.

  • The story of the telecommunications sector, the Internet, the changes in the computer industry almost offer to many stories to create a meaningful summary. In the information sector alone the story of revolutionary change has involved changing government roles and regulations, Globalization, technology innovation and social trends that were rarely anticipated in 1970. CBS is no longer the company that it was in 1970. Verizon and AT&T barelyresemble their 1970 counterparts. Above all, this sector explains why market capitalization rather than sales is probably a better measure of todayʼs marketplace.
  • The rise of retail in the current list is astonishing. Not only is Wal-Mart sitting in the lead position but the appearance of Kroger, Home Depot, Costco, and Target is fascinating. And of course
  • Finally, there is the story of an aging population and the appearance of Cardinal Health, CVS Caremark, United Health Group Amerisource Bergen on the list.

That’s only seven stories from a small shard of data. Yet it was surprising to me
that in this shifting picture there would so much that could be seen in this
comparison of the world of 1970 and the present.

My memory of the time dwells on the disruptions of Vietnam, civil rights
struggles and Watergate, but what is striking to me now about the two lists is the way in
which the “externalities” to corporate strategies have proven over time to be the forces that defined the companies that disappeared and the evident trends that are shaping the largest
companies that remain in the marketplace today.

I am not reassured by looking at the top 30 companies of the Fortune 500 today.
They would seem to illustrate an economy of accumulated wealth sitting at the
end of a global supply chain expanding its consumption of what other people
make. How long could such a picture be sustainable on todayʼs terms?

A Transformational President

November 15th

Two weeks later the political engine that drives public policy continues to serve up one of the most interesting moments in memory.

Returning to Washington on Sunday after a 10-day Asia trip that was marked by a pair of key setbacks on international economic issues, President Obama said that even though the U.S. has gone through a tough two-year period, America’s preeminent position on the world economic stage has not been forgotten. (Scott Conroy, Real Clear Politics, “Returning to Washington to New Domestic Reality”)

Two years ago when Barack Obama was elected President, there was a widely shared sense that he would be a transformational President.  Indeed, in the sense that he might have meant that, he has been.  Passage of Health Care Reform and recovery from the financial crisis (along with the new Dodd Frank financial regulations) were remarkable legislative achievements.  They are filled with policy change that will reshape core American industries.  At this point it would appear that the green agenda has been challenged and certainly a Cap and Trade and does not appear to be possible in the near future.  So the pattern is not uniform.  Isn’t that to be expected?

But the election of 2010 has conveyed the message that these were not popular historic changes in direction.  Returning from Asia President Obama still stands at a critical crossroads of transformational choices.  But the way forward is not at all certain.

Radical Transparency

September 10th

Daniel Goleman, the author of Emotional Intelligence and other related works, has written a new book Ecological Intelligence: How Knowing the Hidden Impacts of What We Buy Can Change Everything. He wrote about his ideas in a Harvard Business Review blog (“Winning in an Age of Radical Transparency” May 27) on the dynamics of the competitive marketplace in coming years.   Given the new transparency that is made possible by technology Goleman argues, everything will change.

The theory, Goleman notes, is that the more transparent a market the healthier it will be.  Giving customers the benefits of social welfare, holding back prices, enforcing consumer protections with competitive services and growing a more concerned and aware consumer constituency for the products that they purchase – all of these are the benefits of the open market and information symmetry.

In seeking to remedy the ills that lead to the financial crisis, there has been a great deal of discussions of using transparency to facilitate the self-regulation that was missing leading to the market crash.  When President Obama took office, he asserted that his administration would use transparency to improve the ethics of government and the performance of programs.  Government-wide there is more access to the inner workings of federal program expenditures and acquisition in ways that has never been possible in the past.

In his new book, Goleman explores the implication for consumer markets of the parallel between transparency in financial regulation and revealing the ecological impacts of consumer goods.  “There are signs of a trend toward greater marketplace openness about the environmental and health consequences of products.”  He notes that the launch this year of Goodguide.com is a significant departure in giving consumers inside information.

Goleman envisions a world of radical transparency in which Life Cycle Assessments are not only available to consumers but are required of future companies.   As secrecy is rendered ineffective by such trends as the obligation to publish the contents of the product, the competitive advantage that could have been gained from surprise will be lost.  Competitors will find it far easier to benchmark the high performing enterprise in their markets.  They can accelerate their movement to the high performance frontier and take away any performance related competitive advantages that their competitors might have enjoyed.

Quoting from Andy Grove’s book, Only Paranoids Survive Goleman notes “When Intel faced its first Valley of Death — the drying up of its market for chips — the company survived because it had a ready alternative: a small microprocessor business it had built on the side.”  The examples of Intel suggest a lesson for companies today, “companies would be prudent to have a strategy ready for an era of radical transparency.” Goleman argues.   “Remember, revolutions that seemed impossible will, in retrospect, seem inevitable.”

The Sound of the Falls

September 2nd

In an ongoing tableau of changes taking place at the center of the U.S. economy, the following notices appeared in the trade press that covers the mailing and delivery industries, postcom.org:

  • Downsizing the workforce.  “In the wake of mounting financial losses, the U.S. Postal Service has offered 30,000 employees financial incentive to retire by the end of this fiscal year. The USPS has targeted two of its major unions, the American Postal Workers Union (APWU) and the National Postal Mail Handlers Union (NPMHU) to accelerate reduction of employees. The majority of employees eligible for the incentive work in mail processing facilities.”
  • Reducing the facility footprint.  “The U.S. Postal Service has finally released its Facilities Plan that it submitted to Congress on June 19, 2008 in accordance with the Postal Accountability and Enhancement Act (PAEA) section 302. The 51-page document lays out what the Postal Service is looking to do in the near future to continue cost cutting and matching its resources to revenue.”
  • Anticipating the policy debate to come.  American Postal Workers Union President William Burrus talks with his members about the challenges and the future of the U.S. Postal Service.  “In his thought provoking piece, APWU President William Burrus summarized the challenge facing the Postal Service and its employees succinctly…as Congress rethinks the business model for the Postal Service, the union President asks…”Is the Postal Service’s business still a governmental function?”
  • Meanwhile the Postal Service and its customers discuss service cuts…”The U.S. Postal Service in conjunction with the Mailer’s Technical Advisory Committee (MTAC) has issued an industry survey regarding 5-day delivery…

In the meantime, in the September Union Newsletter of the American Postal Workers Union contains the following call (unsigned):

“I believe that APWU members should join with other groups and unions that are confronting corporate power. There is a need for education and communication to understand our class interest, not only to enlighten and motivate current members, but to also broaden our base by bringing in new activists.

The Postal Service is suffering from a financial hardship created in part by modern technology. With the use of faxes, e-mail, the Internet, and teleconferencing, there has been a decrease in mail volume. But the Postal Service is also suffering from the failed economy and failed business models.

The result has been the excessing of postal employees at installations all over the country, with jobs continuously being lost or at risk of being eliminated. If the “no-layoff clause” ceases to exist in our next collective bargaining agreement, postal workers would be just as susceptible to losing their jobs in the future as other workers are today.

The time to become alarmed about our welfare as workers is not after a catastrophic event, but before it happens. Our concern, however, should be not just for our jobs and our potential loss of benefits, but for all working-class people in this country who are being denied the opportunity for a decent life.

The problems that we continue to face are numerous. Millions of Americans lack health insurance and have inadequate coverage for prescription medication; the child poverty rate is on the rise; there are serious deficiencies in our education system; and we have major environmental challenges.

America’s poor and its workers are losing the class war. The poor, minorities, immigrants, members of unions, progressives, and environmentalists must join in a national effort to challenge the corporate order and empower themselves so that they can control their own economic and political destinies.

Working-class men and women must unite. There has to be an unrelenting focus on breaking the iron grip that big corporations have on our country and our lives.

Wake up, postal workers! We have a class war on our hands whether we like it or not!”