The Right and Left Brain Blog

In 2007 I wrote:

Between the years 2001 and 2006, if you bought 100 shares each of the following large prestige leading companies : Coca-Cola, Citigroup, Dell, Exxon-Mobil, GM, GE, IBM, Disney, 3M,  Johnson & Johnson, Microsoft, Wal-Mart, Pfizer and Proctor & Gamble,  you would have invested about $50,000 and gained about $500.”

In contrast, if you invested equally a total of $50,000 in Cognizant, Ralph Lauren, Cheesecake Factory, Google, Hanes, Coach, VMware, Costco, Apple, and Amazon in 2002 or whenever they went public it would be worth about $ 200,000 or about a 30% annual return. The numbers today say you would have lost $12,000 in the large stocks and even in the market decline made $41,000 in the growth stocks.

Our financial experts, corporate leaders and government experts discuss the financial aspects of these results every day, but vastly underestimate other key impacts. In particular, they are ignoring the structural and competitive assumptions that are dooming these large companies.  The reality is the president of General Motors and a bunch of others deserve to get fired. As we are learning with the auto companies, forget the bailout money, bonus controversies, and regulation debates, etc. These companies need completely new structures and managements.

Why is this phenomenon so apparent when these large companies have so many resources to effectively compete? The obvious answer is that the economy and society are changing so quickly those major corporations lack the flexibility to respond and that:

Bigger is not Better.

I try look at the positive things that are happening in our country like Madoff going to jail, the market being up for a few days or CitiBank saying they may be profitable. However there are some really dumb things going on that I don’t understand.

• A few weeks ago, I wrote a blog about the 80-20 rule. This week Saks announces the following program: Saks Inc., which operates high-end retailer Saks Fifth Avenue, is on a campaign to get shoppers to pay full price again, working with designer brands to lower prices, boosting service at the stores and throwing more special events. It also hopes that stocking less of the items shoppers want will entice them to buy now. In other words, they are committed to having less of what the customer wants rather than figuring out people aren’t buying $1000 shoes and purses and that they should offer a little value.

• President Obama announced a new education plan to show how much change he can stimulate that focuses on teacher incentives and charter schools. However he completely ignored just expanding things that are a proven to work and don’t need new bureaucracies like Pre-K education, smaller class size and no student left behind.

• Everyone agreed last fall to reduce earmarks and then Democrats and Republicans passed a bill with over 9,000 earmarks. In addition, in order to avoid the criticism, they are reclassifying earmarks so they don’t show up as earmarks. That is simply not transparency.

• Employees at Goldman Sachs are complaining about the changes in traveling rules. They are now required to stay at The Embassy Suites instead of The Ritz-Carlton, according to an article in the March 12, Wall Street Journal. Hooray for Goldman and why aren’t these spoiled employees getting it.

What’s your take? Why is the world so topsy turvy right now?

Many operations experts have long promoted that 80% of sales are with 20% of your products. Yet, suppliers continue to proliferate styles, colors, sizes, models and features to presumably serve more customers and provide more features. There is even a book that promotes the concept of The Long Tail, which explains a theory that the internet provides a great opportunity to offer consumers almost unlimited variety and flexibility.

The flexibility rule is a myth. We are nearly drowning in a sea of choice, and it’s killing us and the economy.

The 80-20 rule rocks in business, marketing and our personal lives. A Harvard Business Review article analyzed numerous business examples and found that virtually all products seldom increased profits by increasing offerings with little real impact. We waste time, money, inventory dollars and frequently add confusion by adding complexity. Nowhere is this more evident than the opportunity to custom build a computer. You have to make 10-15 decisions with 2-6 options and usually have no clue what you are answering.

It’s not just computers. This tough economy offers a great opportunity to reduce proliferation of products that just aren’t producing. The selection of brands, products and colors in cosmetics is simply nuts and confuses the customer more than it helps. It took crises for GM to realize Pontiac sales have been declining for over 20 years and should be eliminated. However, the auto industry has still not figured out that it doesn’t need all the models, companies or dealers because it is easier to ask for government money than face the reality of making the tough decisions. Have we really lost anything in the last few months without the endless proliferation of credit card offerings that no one needed? No one wants to admit that much of the success of Wal-Mart is eliminating thousands of inefficient retailers.

The rule even applies to government. Is more or less regulation really the issue? In contrast, it may be increasing the effectiveness and integration of the regulations we have. We added Sarbanes-Oxley in accounting, which costs billions of dollars in fees and clearly did nothing to prevent the recent financial fiascos. Imagine the savings of consolidating some of the local, county, township and state government activities rather than spending more money and more taxes.

Keep reading to learn how we can simplify the process.