September 21, 2006, Distribution
Channel Commentary (DCC) # 90
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TOPICS:
1. QUOTES RE FORECASTING AND INVENTING THE FUTURE.
2. FORECASTING HOUSING AND PRODUCT INFLATION? GOOD LUCK!
3. NORMING, STORMING, FORMING, REFORMING, PERFORMING.
4. MORE FOOD FOR THOUGHT ON “INNOVATION”.
5. MY MEMO TO BRANCH MANAGERS RE 2007 PLANS.
1.
QUOTES RE FORECASTING AND INVENTING THE FUTURE
“When
memories exceed dreams, the end is near…the present state isn’t good enough…we
have 40 days until our board meeting presentation and another 60 days to be up
and going on January 1st…the enemy of execution is perfection, we
just have to be good enough to succeed”
A paraphrased, medley of quotes used by one of the best distribution
chain CEOs whom I’ve ever worked with at the kick off a Fall Management
meeting.
Be
prepared for the worst and hope for the best…Since hope alone isn’t a strategy,
consider:
“Don’t
worry about what anybody else is going to do… the best way to predict the
future is to invent it. Really smart people with reasonable funding can do just
about anything that doesn’t violate too many of Newton’s Laws”. Alan
Kay (US computer scientist in 1971)
“Innovation
efforts have a pathetic hit rate….firms can now reliably get a dramatic increase
in innovation success - 9 to 17 times the norm.” Larry Keeley, Managing Director, Doblin,
Inc.
2.
FORECASTING HOUSING AND PRODUCT INFLATION? GOOD LUCK!
Have you
ever seen weather map forecasts for the path of turbulent hurricanes? They
really could go anywhere at many different speeds, because there are too many,
inter-dependent variables that are all moving too fast. Forecasts go into the
scientific wild-ass guess (SWAG) zone after about 15 minutes. Well, global
economies are equally difficult to forecast when: 1) we are at the end of a 5
year global expansion; 2) bubble excesses exist in both global housing values
and the commodities that go into construction, especially China; and 3)
commodity prices have been skewed by 10,000 hedge funds investing over 5
trillion dollars with mostly what’s-hot investment strategies.
Here are some
economic data points and sources to consider:
a)
The
US Fed paused on its interest rate increases for a second month in a row. The
Fed, historically, has never paused and then resumed increases, but
instead has always dropped interest rates, because of economic
softening.
b)
The
housing market has continued to deteriorate far faster than all of the
“experts” have been forecasting. Key signals have been: (9-18) home builders
“optimism” sank for an eighth consecutive month in September to the lowest
level in more than 15 years....” builders continue to report increases in
cancellations of sales contracts” which, in turn, is swelling the inventory of
unsold homes.
c)
What’s
different about this housing downturn? Since 2000 an increasing, record number
of homes have been bought by “investors”, “flippers”, and sub-prime credit
buyers using zero down, ARM, interest-only types of financing. Much of the
risky mortgages were sucked up by Fannie Mae and Freddie Mac and transformed
into mortgage-backed bonds. How will this all end? Could over-leveraged owners
and investors become upside down on the “investments” and turn more “housing
inventory” over to banks and go back to living with mom and dad? In Las Vegas, 40% of the
homes that are for sale are empty. For more up to the minute reading on
deteriorating “flipper” indexes see this 9-21 article in USA today: http://www.usatoday.com/money/economy/housing/2006-09-20-flipping-usat_x.htm.
d)
And,
check the housing futures index which, since my last commentary, is now
forecasting that the national median value of a home will drop by 7.33% by next
August. Two weeks ago the forecast was about 5%. A year-over-year deflation for
the national housing average hasn’t happened since the depression. Here’s a
link: http://www.futuresource.com/quotes/quotes.jsp?s=SFR.
e) Many distributors of products that go
into construction and/or that are sensitive to commodity metal prices have had
wonderful numbers for the past few years. What do we do when deflation hits
quickly? The commodity index is down 16% since early May. Why? And how much
further might it go even if, in the long-run, we are in a “commodity
super-cycle” because of the economic growth of Asia?
Here are two articles that present first a short-term detailed analysis of the
decline and its causes, and then another by Stephen Roach with a more big
picture view:
http://www.321gold.com/editorials/saville/saville091906.html
and
http://www.morganstanley.com/GEFdata/digests/20060918-mon.html#anchor0.
3. NORMING, STORMING, FORMING, REFORMING, PERFORMING.
Have you ever had two or
more similar, but different things happen to you close enough together to make
you wonder whether the events were mere coincidences or whether there was some
bigger pattern at work? The bigger pattern idea has a term - “synchronicity”- which was coined by Carl
Jung to describe the "temporally coincident occurrences of acausal events".
In other words, similar events that seem coincidental actually have, at a
different level of perception, a common reason for happening. Synchronicity was
a principle that Jung felt encompassed his concepts of archetypes and collective
unconscious in that it was descriptive of a governing dynamic that underlay the
whole of human experience and history — social, emotional, psychological, and
spiritual. In a more common way, you may note that when you become preoccupied
with a specific topic you start to notice stuff about that topic and/or have
“accidental conversations” all around you, because your unconscious selective
perception has been tuned into that topic.
Well, in the past few
weeks I have attended two different management meetings for two different
distribution chains in two different channels in which the CEOs actually named
the “next year we are going to have changed what we are doing” process. They
used different descriptions for the same process steps. In one case, the CEO named
three steps as: (step one) “everyone presents their plans for how they are
going to do lots of things which are really only “trying harder in the same old
ways” ideas; (step two) I and others ask for different ideas which ushers in
the “uncomfortable, confusing, defensive, even-threatening discussion”; and
(step three) is a consensus (more or less) view that “well, I guess we could try some different
solutions on an experimental basis”. In
the other case, the CEO referred to a formal process that he and his
heirs-to-the-family-business had been through a number of times which he
called: 1) forming; 2) storming; 3) norming.
What is not coincidental about these two meetings is that: 1) both
companies are 1 in 1000, or fewer, as far as their high-performance,
perpetually innovating track records; 2) both have had great financial years
for the past few thanks to construction booms and product inflation; 3) both
have already had significant product deflation and softening in key customer
segments; and 4) rain or shine, these companies have always outperformed their
respective channels in downturns.
So, Jung might ask what is the
underlying “archetype” for these two case studies? And, if you are good with
doing google searches, you might find a pithy, 4-page document on “team
development” that involves “5 classic stages that groups go through” in order
to become a team going in a renewed, high performance direction. If you are
interested in getting your management team to move together in new ways to confront
new business conditions or opportunities, then check out this link: www.willitseconomiclocalization.org/Papers/TeamDevelopmentModel.pdf.
4. MORE FOOD FOR THOUGHT ON “INNOVATION”.
Regular
readers of my commentary and other Merrifield.com postings know that I’ve been
on an “innovation management” kick for some time. Here are a few slide show
presentations which you can skim through for those few compelling slides that
might speak to you.
For a good
overview on the “state of innovation” go to the following link, scroll to the
bottom of the page and click on the powerpoint slide show entitled “State of
Innovation 2005”
http://thinksmart.typepad.com/convergence_2005/
.
5. MY MEMO TO BRANCH MANAGERS RE 2007 PLANS
To tie all
of the themes in this commentary together into one memo that you might send to
branch managers in advance of a management meeting about how and why we need to
do things differently in 2007, you are welcome to repurpose the disguised memo
that I wrote to the managers at one of the companies that I advise. Here it is;
I hope it helps!
http://www.merrifield.com/exhibits/Ex42.asp.
That’s all for this week!
Happy trails to you and yours,
Bruce
