CEO Pay – A Systemic Failure

Doug Smith has a brilliant post on his blog about Treasury Secretary John Snow who “maintains the widening gap between high-paid and low-paid Americans reflects a labor market efficiently rewarding more-productive people.”
What a joke.
The Economist spoke to this a while back. As did good old Drucker, who called executive pay “looting.”
See here>>

Customer Experience: Starbucks vs. Petsmart

Monica (my sister) recently told me about this interesting experience she had with Starbucks. I told her to write about it for my blog.
What struck me about her experience was how different it was with one that I had with Petsmart. I’ll tell you about that after she tells her story which, btw, happened in San Francisco:
Starbucks wins… today
I left my wallet at home today and didn’t have the
time or inclination to drive all the way back home and
pay an extra 18 bucks to repark so I could go get it.
By 2pm my stomach started growling in protest.
When I realized my wallet was at home that morning I
started thinking about my options. I had my checkbook
with me, but hardly anyone will cash one without ID
(yes, in my wallet). I don’t think you can get money
from an ATM without a card…yet. And, although someone
only suggested it after the fact, I didn’t really
think calling Visa or MC for a money transfer was
worth it. I have no idea what that involves but it
just sounds complicated. I may be forgetful but I’m
also lazy.
When I stopped by the Starbucks just down the street
by my office though, I picked up a Starbucks gift card
(with no money on it) because I was starting to form a
little idea in my head. Any yes, I bought a latte and
a morning bun with a few bucks I borrowed from a
coworker…but I just hate borrowing money from anyone
not related to me. So I decided that was not a plan
for lunch.
I was thinking about whether I could eat the tortilla
chips that were still in my desk drawer from a few
weeks ago, but for a transplanted Texan, that’s a
pretty unappetizing thought without melty cheese or at
least some salsa. Nope.
I have a Starbucks card that I refill regularly so I
don’t have to carry cash, and so I can keep track of
how much I spend there…not that I want to know these
days, it’s the closest food and coffee place to my
work. Anyway I hardly know what money looks like
anymore. I got a new 5 dollar bill the other day and
thought it was counterfeit because his head was so
big. I hadn’t looked at one in a long time. Did I
mention I registered my Starbucks card on their
website a couple of weeks ago? I remember it said
that if I lost my card they could restore the balance
on another one. Hmm…
So I called them up around 2pm and spoke to a
friendly, knowledgeable customer service rep. I could
hardly believe my luck!
I asked if they could transfer the balance from my
card at home to the one I had just picked up at the
store. I wanted a sandwich. The rep had to check with
a supervisor to make sure, but after about five
minutes they informed me that they had done just that
and my new card would be active in another five. Yes I
had to answer questions and give them the “secret
word” or whatever, just like any other authentication
process, but after a few minutes my card in my hand
had my money on it. Brilliant.
I was impressed as usual by my problem solving skills,
but even more so by Starbucks. I had lunch money at
home, lunch money in the bank, lunch money on any
number of credit cards from Chase, from Citi, you name
it, that all boast fancy rewards, but when all I
wanted was a sandwich and maybe an iced latte,
Starbucks was the only company to come through…fast.
– Monica Sarkar
By contrast, I had a terrible experience with Petsmart. I took three so-called “gift cards” to them in the hopes of buying an aquarium for the kids. They told us the cards didn’t work- they were “not in the system.” So how does one get in the system? You have to go home, call up their customer service- read them out a 20-digit code on each card and wait to here them tell you: “OK, that card has $10.00 on it.”
When you ask: “What happens if they tell me there is no money on the card at the store?” the reply is:”Then have them call us and we can transfer them to tech-support.”
Is this what Tom Peters calls a WOW experience? Maybe we can call it a “BOW-WOW” experience.
Sadly, multi-channel integration is a challenge for many companies. Jeffrey Rayport and Bernie Jaworski write about it in their book Best Face Forward: Why Companies Must Improve Their Service Interfaces With Customers.
Personally, I hate shopping- so as far as I’m concerned, I never want to see Petsmart again.
Finally, if you want to picky, you can argue that “customer service is not the same as customer experience” as Mark Hurst does in this post.
It’s still a “BOW-WOW” experience as far as I’m concerned…

9 Prophecies from Peter Drucker

[cross posted at]
The latest newsletter from Geoffrey Moore’s TCG Advisors has a cool tribute to Drucker:
Peter Drucker, the most influential thinker on the practice of organizational management, had many admirable qualities that kept his mind young and active right up until the day he died in early November at the ripe old age of 95. One of them was his uncanny ability to interpret trends and foresee critical socioeconomic changes.
Examples cited in a recent Wall Street Journal article by magazine publisher Steve Forbes include the following nine amazing insights:
In the fifties and sixties:
– The rise of knowledge workers, resulting from the bulge in education that occurred as a direct effect of the post-war GI Bill;
– The breakdown of the traditional, integrated, hierarchical industrial corporation;
– The rise of Japan as a major economy, when many experts thought that it would remain a nation of small farmers and cheap and shoddy goods;
In the eighties and nineties:
– The decline of the Japanese economy as a result of an aging population and a lack of vigorous entrepreneurship and worker flexibility;
– The adverse impact on corporate governance of the rise of corporate and government pension funds;
– The backlash against the rise of CEO pay that eventually occurred after the bursting of the late nineties bubble;
More recent predictions:
– The threat to conventional higher education institutions to come from the rise of satellites and the internet;
– The positive effects of outsourcing on the U.S. economy, resulting from the fact that “we import two to three times as many jobs as we export”;
– The huge and enduring advantage that the U.S. has over Europe and Japan due to American workers’ flexibility, not only for changing jobs but for physically moving from one geographic area to another in order to pursue a new opportunity.
There’s some more good stuff in the newsletter, including an article on deliberate innovation. (That’s a separate post!)

Wage Inflation as a Result of Offshoring

Another article from McKinsey…
On the supply side
What, for instance, would be the effect on the wages of engineers in emerging markets if labor costs were the most important factor for US companies choosing offshore locations? Our analysis shows that salary levels for engineers in the lowest-cost countries would likely double (exhibit). But salaries in emerging markets wouldn’t reach the prevailing level in the United States or Western Europe, since they will be capped at about 30 percent of average US wages, or the current level in Brazil and Mexico.
Local wage inflation will probably continue in some offshoring locations as long as the multinationals concentrate their demand in a few cities. Because of the sunk costs of setting up an offshore facility, if demand in that location begins to outstrip local supply, the wages paid by individual companies may rise above the levels prevailing in neighboring countries. Dispersing demand will slow down overheating in the hot spots.
Overall, although wages in the supply-side countries will probably rise, they won’t reach the level of wages in the demand-side countries.
On the demand side
Companies are moving their operations offshore at a slow pace, which means that over the next five years offshoring will have a negligible effect on overall employment in the demand-side countries for the occupations we analyzed.
Consider the impact in the United States. Over the past 30 years, the share of manufacturing jobs in total US employment has declined by 11 percentage points, to 21 percent, from 32 percent. By comparison, we estimate that only 9 percent of all US service jobs could, even in theory, be performed remotely, and it is unlikely that all of them will move offshore during the next 30 years. Wage levels too are unlikely to drop, for the same reason. Indeed, in the United States, growth rates for wages and the number of jobs in computer and data-processing services—a sector where offshoring is prevalent—are higher than those in the economy as a whole.1
This moderate impact and generally slow pace won’t soften the blow for people who do lose their employment to offshoring. A sustained effort to retrain them is likely to yield results, since most of them are college graduates.

I think this is much too narrow a view. There will be another effect as well: wage deflation in the West.
Management consulting firms to always paint a narrow picture without looking at social costs. Let’s talk about this again in three years. Predication: India will eat our lunch, China our dinner, and we’re going to eat one meal a day – breakfast – like the poor in so many third world countries.

Advertising ROI: Google Changes the Game – “Pay-for-Listing” to a “Pay-for-Performance”

CEO Eric Schmidt: “I have this fantasy that goes like this. You are the C.E.O. of a large company, and I come to you and say, ‘Give me $1 million and give me your Web site, and we will guarantee you will get $100 million in sales.’ Which C.E.O. would turn that down?” from paidcontent
Google continues to push the advertising ROI envelope. This time it’s the classifieds:
Classified Intelligence Editorial Director Jim Townsend told that making classified ads available through an organic Google search would definitely change the game, but exactly how remains to be determined.
There are two schools of thought, he said. On the one hand, search provided additional distribution of the ad.
“If someone pays to place an ad in a newspaper, wouldn’t it make sense to throw that paper on as many streets as possible? It’s distribution, distribution, distribution,” he said.
On other side of that coin, Townsend said, ads that are freely available through search could destroy the pricing model used by print and online classifieds publishers.
Adds John Zappe from Classified Intelligence:
“Commercial classifieds sites such as CareerBuilder, and others have to weigh the additional audience Google could deliver against the potential loss of revenue. Analysts, including us, predict that advertisers will move to free sites if they become convinced that they will reach an audience as large – or larger – on a search engine than on a paid advertising site.”

Microsoft: Flawed On-Demand Business Model

” Advertising isn’t enough to fund on-demand” says Phil Wainewright in his ZDNet blog, and he’s right:
“I am frankly bemused that anyone seriously believes Microsoft or anyone else is going to fund their on-demand applications from advertising revenues. The idea is complete bull, on two counts.
“First up, ads in applications don’t work. All the evidence from the past ten years of online services is that the more engaged the user is in pursuing an activity, the less likely their attention will be diverted by an ad. The sole exception, which of course is why Google AdWords has been so spectacularly successful, is search, for the simple reason that clicking on relevant ads is a natural extension of the search activity.”
So, what’s wrong with Microsoft?
I think they’re trying so hard to play catch up to Google, they are now resorting to launching stupid “me-too” business models which try to one-up Google. This is typical geek-panic.
What they need to do, is sip some tea, listen to JSB and John Hagel (aka JH3), and build a future “beyond-Google.”
What do I mean by this? Simply that they should build for the future without the shadow of Google crimping their thoughts. Seriously. If Microsoft would spend a little less time blogging and a little more time thinking, they could get their groove back.
Just ask JSB and JH3 what to do, MS!
And listen.

The Blog of the Eternal Return

Well, here it is. I’m blogging again. The old site is still available here.
One thing about blogging: once you start, truly start, it’s hard to stop. I took over a year off, but I’m glad to be back in the blogosphere.
The danger with blogging is, of course, that you might take yourself too seriously.