7 Commandments of Marketbusting
Among McGrath’s `Marketbusters’
Corrections or additions?
These articles by Barbara Figge Fox were prepared for the April 12,
2006 issue of U.S. 1 Newspaper. All rights reserved.
Tracking Business Growth
Several weeks ago, when we last spoke to Rita Gunther McGrath, she was
out in Seattle, where she was teaching a course in strategy and
innovation at Microsoft and preparing for May’s CEO Summit, convened
by Microsoft for 120 of its top clients. McGrath is a Columbia
Business School professor who is also a consultant and the author of
two best-selling business books. McGrath commands a five-figure sum
for her keynote speeches, and so far this year she has taught in two
cities in China, negotiated with Deutsche Telecom in Germany, and
consulted for Swiss Re in Switzerland. This semester she has two more
week-long courses for executives at Columbia.
But she also keeps her eye on the greater Princeton business
community, where she has been living and raising her family for 18
years. She values her in-depth view of this community; it represents a
microcosm of the “big picture” of nationwide business but has its own
special qualities.
McGrath will share her views on the business community – the worldwide
one and the Princeton microcosm – at a Princeton Chamber breakfast on
Wednesday, April 19, at 7:30 a.m. at the Nassau Club, 6 Mercer Street
in Princeton. Her topic, “Transforming the Customer Experience,”
refers to her latest book, “Marketbusters: 40 Strategic Moves That
Drive Exceptional Business Growth,” itself a market buster.
Co-authored with Ian MacMillan of the Wharton School, it has 20,000
copies in print, has been translated into nine languages, and has been
endorsed by no less a luminary than Bill Gates, who declared it one of
the five best business books for 2005.
That same day, April 19, U.S. 1 will publish its annual business
directory, and McGrath will take a special interest in it. “I’m struck
by the variety of businesses here – however glum the news may be
regarding pharmaceuticals, this area is not dominated by
pharmaceuticals,” says McGrath. “And I am also surprised by the number
of financial firms founded by Wall Street expats and hedge fund
jockeys.”
The Princeton business community is strongly influenced by the
universities, she believes. “Raw talent gets brought here, people
bring their families, and when you think about that concentration of
really smart people, there is a spillover effect.”
McGrath was so intrigued by the Princeton business community, as
portrayed in the pages of U.S. 1 Newspaper, that in 1999 she made an
unusual proposal: to buy the U.S. 1 databases – the lists of viable
companies plus the lists of companies that have moved away or are out
of business. The database is unusual, she concluded, because the
information comes from reporters seeking stories and from a delivery
team that goes from door to door, not from what the companies
volunteer. The database not only gives a detailed record of firms that
expand or downsize, but it also tells what happens when a company
disappears from the directory – whether it moves out of town, gets
bought, or just fades away.
McGrath rounded up some grant monies and U.S. 1 opened its files to
her. Each year for six years, when U.S. 1 publishes a new directory,
she receives the updated database and puts her analysts to work. She
has written one academic paper, to be published in August, and plans
to use the U.S. 1 records for a series of papers, perhaps even a book.
“With this database you can really see how the companies interrelate
and get a deep picture of the whole region,” says McGrath. “Typically,
researchers look at an industry or at an area dominated by one
industry, but the U.S. 1 database has some diversity and is pretty
comprehensive, so we can challenge the generally accepted assumptions
about entrepreneurship.”
Academics like to lump all business failures together, but McGrath has
a different view: “Young businesses tend to have high failure rates
and that is seen as a bad thing. Public policies try to prevent that.
But we see that when young businesses fail or move, other businesses
come in, so the net effect is modest.” For instance, 905 of this
year’s directory listings are brand new, yet the overall numbers
stayed pretty much the same, with 5,545 listings last year and 5,656
this year.
McGrath also points out that many scholars do their research by taking
a snapshot of a particular economic community, but long-term studies
are hard to find. “To have this information go back as far as the U.S.
1 database is unusual. It shows how regional development plays out
over time.”
Another unusual aspect of the database is how businesses are assigned
to categories, with 32 major groups and 220 subcategories. “Because of
the way U.S. 1 assigns business categories, you can actually see when
industries start to appear and see when they declined,” says McGrath.
This year the average staff size of companies reporting information
was 48. Does she find this surprising? “This reflects an interesting
paradox,” says McGrath. “Although the huge multi-nationals get most of
the high profile business press, business in America is much more
about medium sized and small firms. In fact, David Birch began a
famous line of research that suggests that such firms are where major
growth comes from (about three percent of them are what he calls
high-growth `gazelles’). Smaller firms provide much of the employment
and a lot of the stability of the communities in which they are
located.”
One method of tracking growth patterns is to compare the rosters of
companies on top 10 lists. Three categories (environmental, law, and
consulting) grew in the numbers of jobs reported by companies on those
lists. The headcount in environmental firms went from 737 in 2001 to
844 in 2006. Law firms grew from 1,085 in 2001 to 1,233 in 2006. And
consulting firms showed the biggest growth, from 896 to 1,294 in five
years.
“In my view, this probably reflects the rise of the information/
service economy as well as increasing awareness of environmental
issues,” says McGrath. “GE for instance, is making sustainability a
key centerpiece of its strategy.”
On the flip side, the categories that declined in employment were
architecture, engineering, market research, multimedia, and software.
Software had the biggest percentage drop, going from 2,145 in 2001
(following the Y2K scare) to 1,422 in 2006. “I wouldn’t be surprised
if this reflects major trends in consolidation in those industries,
although you would have expected multimedia to grow,” says McGrath.
As the population of a certain industry grows, the business categories
get more refined. “You see the knowledge emerge,” she points out. In
1990 the directory had one computer category, for example. Now it has
18 subcategories, and the newest is financial software. A brand new
category, not used five years ago, is business coaching, and the 2006
directory lists 15 business coaches.
McGrath also points to the Princeton community as a good example of
how resources can be recycled. Princeton has 177 pharmaceutical firms
including 49 companies that work on some kind of pharmaceutical
communications, but it also has 535 communications companies – ad
agencies, public relations, events, etc.- that work for general
clients, including pharmaceutical. “That resource is available to the
pharmaceutical companies,” McGrath says. “There can be much more
sharing of resources than is generally accepted.”
McGrath hops nimbly back and forth over the line between pure academic
research that is unintelligible to the average reader and shrewd
observations that are based on research but that make a lot of sense
to business people who need answers to knotty problems. In her earlier
book, “The Entrepreneurial Mind,” McGrath helps those in big
corporations figure out how to effect change. In “Marketbusters” she
shows managers, strategic planners, and entrepreneurs how to
dramatically improve their results.
Readers do not need to consume “Marketbuster” from cover to cover to
get ideas. It is eminently “browsable,” laced with intriguing examples
from more than 100 companies, including some from Princeton.
McGrath’s definition of a “marketbusting move” is an action taken by a
firm that changes the game and helps it deliver markedly superior
performance. She gives five ways to do this, starting with the easy
ones. “They involve changing something often quite small about your
customer’s experience that sets you apart in the customer’s mind in a
very definitive way,” says McGrath.
“Transform Your Customer’s Experience” is the least difficult change
to make and the one she will discuss on April 19. The others are
“Transform Your Offerings and Their Attributes,” “Redefine Your Profit
Drivers,” “Exploit Industry Shifts,” and “Exploit Emerging
Opportunities.”
Here are just a few of her 40 strategies and hundreds of examples.
Eliminate the unpleasant characteristic that everyone in your
business, including your competition, has. McGrath tells how Jet Blue
dealt with the concept of safety after the terrorist attacks of 2001.
It was the first national carrier to install bulletproof, deadbolted
cockpit doors on all its aircraft and the first to match all checked
bags to passengers on board.
From the pages of U.S. 1, McGrath drew the example of the founders of
Petty Road-based Canterbury Tales hunter-jumper equestrian stable,
featured on the cover of U.S. 1 on March 21, 2001, and now called
Silver Dollar Stables. “In 1996 they started working on their dream by
focusing on the negative aspects of existing offerings,” she writes.
“One negative they identified was smell. To eliminate this negative
they built a facility with cross-ventilating windows in the stalls.. .
. a uniquely customer-friendly environment for the horsey set.
Moreover, some see the stables as a leading provider with potentially
marketbusting consequences at a national level.”
Eliminate time delays in the links of the consumption chain. Again
McGrath cites a U.S. 1 cover subject, Rick Weiss, of Princeton
Multimedia Technologies on Witherspoon Street (U.S. 1, January 3,
2001). “Sometimes, saving time can translate into substantial cost
savings,” she writes. “Tiny Princeton Multimedia Technologies
Corporation develops software that helps nutritionists rapidly analyze
patients’ diets and develop better ones.” This software can save money
for pharmaceutical firms which spend up to $1 million per day on a
clinical trial. “Because an important control variable for a clinical
trial consists of monitoring patients’ nutrition intake, delays in
this process can end up delaying an entire trial.”
Reconstruct the consumption chain. Find something in your customers’
experience that could be moved and improve it. Coinstar is one of
McGrath’s favorite examples; it converts loose change into paper cash,
thus revolutionizing the world of loose change processing. To the
amazement of Europeans, who can’t understand why Americans can’t sort
and roll their coins for free, Coinstar customers feed their coins
into machines that sort it, count it, and issue a coupon that can be
used for groceries or redeemed for cash. For this, it charges nearly
nine percent. “Who would have thought there is money to be made in
helping people convert their own money into money,” she asks. Last
year Coinstar converted $1.5 billion into loose change.
Add a compelling parallel offering. Victoria’s Secret stores has five
of the top-selling classical music CDs. “As consumers shop, the music
plays, and then right there at the checkout is the CD,” she writes.
“If one is shopping for a special occasion, why not pick up the music
that would . .. uh . .. enhance the experience? Further, unlike a
classical music expert who might venture unafraid into a music
megastore, lingerie shoppers can buy albums already put together by
experts, with an assurance that the music will be appropriate.”
McGrath’s father is an organic chemist and her mother a
microbiologist. Both were born in northern Germany and, after World
War II, met in Great Britain and emigrated to the United States, where
they worked at Yale University. McGrath and her younger brother spoke
only German at home. When she was eight years old, the family moved to
Webster, a suburb of Rochester, New York, where her father worked for
Xerox and then for Kodak.
The dinner table talk changed from discussions based on science to
discourses on the internal politics of big companies. “Sometimes
company politics interrupted what my father thought was the right
technical solution,” she remembers. “My dad is brilliant when he is
working on his own and not necessarily brilliant at managing teams.”
At Kodak McGrath’s father joined an in-company start-up pharmaceutical
business. It was his daughter’s first encounter with a big company
encouraging its own staff to be entrepreneurial. McGrath would later
write a book about that, “The Entrepreneurial Mind,” and dedicate a
chapter of “Marketbusters” on entrepreneurial activities within big
companies.
Meanwhile McGrath’s mother went into small town politics. She had quit
working as a microbiologist and did technical translations from home,
but she also ran for school board, taking her children with her as she
went from door to door to meet constituents. When her mother objected
to the plans for a bandstand in front of a school, she made a scale
model of what it would look like, how it would be ugly and dominate
the scene. “Reporters called, and she had her picture in the paper,”
says McGrath. “You could really could see the difference one person
could make.”
“Both parents totally encouraged me to do whatever it was I wanted to
do. That there was a world of opportunities, that I needed to be open
minded to what they are.” When McGrath enrolled at Barnard, the
women’s college of Columbia University (Class of 1980), she majored in
political science and earned her master’s degree in public policy,
later getting her MBA from Wharton.
As a young graduate she started her first business, a political
consulting firm that combed voter registration lists for “frequent
voters” and sold the lists to political candidates. Even then she was
on the cutting edge of technology. She bought one of the first
computers, a KPro, and took it to the elections office to copy the
names. She also used an Apple computer to desktop publish brochures.
“The problem with that business, which we didn’t realize when we
started, is that elections don’t happen every year,” she says. The
four full-time employees morphed the business into a word processing
shop, Unworried Words, to do 24-hour word processing and copying
around college campuses. “I got an offer of $100,000 from the Small
Business Association to grow the business. I spent one of the worst
weekends of my life, agonizing over whether I should take the money. I
decided I didn’t want to be in that line of work. I let my partner
take it and found a real job in the purchasing operation for the
City.”
Technology played a big role here too. McGrath helped design the first
city-wide automated purchasing system, which converted the manual
system to an online system. By the time she left she was running a
team of 24 people. Along the way she met and married her husband, an
actuary in Manhattan with Bucks Consultants. They have a teenaged son
and daughter, both attending the Hun School.
This week McGrath is teaching in New York, a four-day Columbia
Executive Education course, “Executing Breakthrough Strategy,” for
mid-level executives who are responsible for strategic planning. Next
month she will participate in Microsoft’s CEO design team conference,
when 120 of Microsoft’s top customers share their wisdom. Also in May
she teaches another Columbia course, “Leading Strategic Growth and
Change,” six days for $7,750 including board and room, for upper to
senior-level executives.
Whether as a consultant, a speaker, or a teacher, McGrath has learned
that change within a company will not necessarily be welcome. The
manager of the slow growth division will be threatened, she warns. Who
has control of the sales force, who gets the best people, who gets
mentioned first in the annual report – all will be contentious
resource questions.
Identity problems could also cause trouble. “It’s a subtle thing. If
you always made tires and have an opportunity to move into related
services such rust proofing, the people who have their identity in the
tire business are not going to feel you are legitimate. It will seem
like a rejection of the culture, and this needs to be managed very
carefully.”
External challenges include dealing with investors, who have to be
taught to think about your firm in a different way. “Analysts will
have to figure out a new matrix, and that is difficult; it will cost
them money.” Customer acceptance can also be a problem. “Even the
Ipod, the iconic product of the moment, has been around for three or
four years and experienced slow growth. It didn’t burst on the scene,”
says McGrath. “The more your product or service requires customer to
change the less likely they are to adopt quickly.”
Of all the problems with marketbusting, McGrath says, timing is one of
the hardest things to get right. “Companies get swept up in hype.
Changes tend to be slow but we perceive them happening quickly. Take
smart phones. Everyone has been talking about digital conversion but
my guess is that the mobile phone we use three years from now will
have a lot in common with what we use today. Companies tend to
overreact.”
She speaks of a new state-of-the-art panty hose manufacturing plant.
Shortly after construction, it had to be shut down. “Within two or
three years women went from wearing panty hose two or three times a
week to nearly not at all, thanks to the change in dress at work. It
had a ripple effect.”
One of McGrath’s specialties is strategic planning, and she sees that
market diminishing. With downsizings, strategic planning departments
of major corporations have been decimated.”People are running so flat
out it leaves no time to think. We find time to fix something after a
crisis occurs, but no one can take time to see the bigger picture.”
McGrath says that many companies have descended to the level of amoeba
management – stimulus/response, stimulus/response – all day long.
But that leaves the way open for individuals within big corporations
to seize the moment and do some of their own strategic planning. “In
today’s flat organizations, your own career advancement depends on
what you can create – creating business and adding value versus
executing tasks.” Instead of being absorbed by your E-mail, take the
initiative to find your company’s marketbusting opportunity, something
that if you don’t do it and another company does, you are doubly
disadvantaged, something that would make the typical person go `Wow!’”
“The challenge is persuading a critical mass of people that some
change will move the performance of the company in a positive
direction or alleviate a risk. You must make it absolutely clear what
benefits would be there if the recommendation is followed, or what
would happen if it is not followed. Good companies go bad when they
get complacent and don’t initiate change before a crisis.”
n
Top Of PageNJ Economy: Half Full…?
It’s hard to imagine anyone who has studied New Jersey economic trends
longer or more thoroughly than James Hughes, dean of the Edward J.
Bloustein School of Planning and Public Policy at Rutgers University
and a man whose planning career began at Rutgers as a graduate student
nearly 40 years ago.
“A good part of planning,” Hughes says, “involves looking into the
future.” For years Hughes has analyzed potential land uses, looking at
what types of structures are feasible to build where. He has drawn on
demographic data to figure out what type of housing a community would
need in the future. And over the years he has unrelentingly tracked
employment data – if you’re trying to figure out where to build more
office buildings, you have to know whether there will be jobs and what
the shape of the future economy will be.
To paraphrase the old stockbroker commercial, when Hughes speaks,
people listen. These days he portrays the national economic picture as
a “goldilocks economy, not too strong, not too weak, just right.”
But in New Jersey, Hughes says, the economic cup can be viewed as
either half full or half empty. On the one hand, he says, the state
“has an enormously potent, leading edge, core economy – and an
employment base that is the envy of most states.”
New Jersey, Hughes reminds us, enjoyed a spectacular reinvention
between 1980 and 2000, when it “was transformed from a fading
manufacturing dynamo into a leading edge, post-industrial,
knowledge-dependent economy – with Mercer County a major participant.”
Job gains were in high-paying sophisticated services in the financial
activities, information, and professional and business services
sectors – the core of the new “information age economy.” This growth
counterbalanced the state’s loss of manufacturing jobs, cut in half
between 1970 and 2002.
More recently, however, employment growth has slowed significantly in
the state, newly created jobs are generally lower paying than those
lost, and some of New Jersey’s core economic assets have eroded.
Although the state’s reinvention of itself as a knowledge-driven
economy in the 1980s and 1990s resulted in a per capita income that
was 29 percent higher than that of the nation as a whole, that edge
had worn down by 2004, from 29 to 26 percent.
With the new millennium, total employment in New Jersey also started
to change. Between December, 2000, and July, 2002, New Jersey lost
62,200 jobs. As the national economy resumed its growth in 2004 and
2005, New Jersey’s employment growth has been lagging badly. Job
growth in 2004 and 2005 averaged 40,000 jobs per year as compared to
77,000 jobs per year in the last two expansions. And now in January
and February of this year the state has added only 2,200 jobs total,
which translates into an annual growth of just 13,000 jobs. In 2005
New Jersey ranked 35th among the 50 states in the rate of growth of
total employment.
To make matters worse, all of the state’s employment gains so far in
this decade have been in low paying sectors like leisure and
hospitality, and education and health services, with no growth in
high-paying office jobs. Between 2000 and 2005, New Jersey has lost
118,000 high-paying jobs, replacing them with 115,000 low paying jobs.
As Hughes describes it, offices are “the factory floors of the new
economy.” A total nonplayer in 1980, the 11-county northern and
central New Jersey office market, which includes Mercer, emerged as
the fifth largest metropolitan office market in the country by 1990.
Much of this growth was in sprawling suburban growth corridors, like
the Princeton-Route 1 corridor, which by 1990 was a world center for
the activities of the new economy.
It’s not a surprise then, that while the nation’s Class A office
vacancy rate now stands at 15 percent, New Jersey’s is 21 percent.
So why is New Jersey being left in the dust? “It appears that we have
been maintaining our standard of living the old fashioned way,” says
Hughes, “by borrowing and living off of our core set of economic and
income assets.” Although New Jersey still has a high relative income
position, a very powerful core economy, and a vast repository of
wealth, the state’s economic realities have changed.
“For more than two decades, New Jersey had been the economic
locomotive of a lagging region,” says Hughes, “but now it is a
caboose, a full participant in the Northeast regional lag. Our current
prosperity has been obscuring the start of a long-term erosion of our
once unique and powerful economic assets.” One contributor to the
state’s loss of high-paying jobs is the loss of employment in the
science and technology sector. Between 1990 and 2004, New Jersey’s
share of the nation’s high-technology employment has declined from 5.2
to 4.1 percent. During that period, New Jersey lost 9,800 high-tech
jobs, while the nation gained 1.3 million: 150,000 in Texas, 115,000
in Virginia, 73,000 in Georgia, and 47,000 in North Carolina.
One example is the high technology wired telecommunications sector,
which cut its employment in half between 1995 and 2004, from 50,000 to
25,000 jobs – led by the falls of AT&T and Lucent. In 1990 NJ had 7.8
percent of the nation’s wired telecommunications jobs, but by 2004 it
had only 4.7 percent.
Although one of the replacement sectors, wireless telecommunications,
has been growing in New Jersey, its share of this sector nationally
has declined from 4.2 percent in 1990 to 2.8 percent in 2004. And for
every eight wired telecommunications jobs lost since 1990, New Jersey
gained only one wireless job. “New Jersey is losing its national role
as `telecommunications central,’” says Hughes, especially with Fort
Monmouth due to close, SBC’s purchase of AT&T, and the Lucent-Alcatel
merger.
Another hard-hit area is the pharmaceutical industry. For a state that
has often been called the nation’s “medicine chest,” New Jersey’s
share of total national pharmaceutical employment declined from 20.2
percent in 1990 to 13.8 percent in 2004, with the state losing 4.1
percent of its pharma jobs in that period. During the same period,
national growth in pharma employment was 40.4 percent. California,
which in 1990 had barely half the number of pharmaceutical jobs in New
Jersey, replaced New Jersey in 2004 as the state with the highest
number of pharma jobs.
And Princeton, Mercer County, and central New Jersey cannot forever
count on being exceptions to the state’s circumstances, argues Hughes.
“It has done a little better the last three or four years. Mercer has
one of the lowest office vacancy rates of any of the submarkets in New
Jersey.”
Hughes also cited as positive Merrill Lynch’s decision to consolidate
many of its New Jersey facilities in Hopewell in the late 1990s. “We
have a pretty strong diversified economy, and in the current decade
have done better than the state. Ultimately Mercer will track the
state as a whole; it is pretty hard to deviate too far for too long.”
The big picture, statewide changes “should serve as a wake up call
that we can no longer take our economic and technological well-being
for granted,” says Hughes. If New Jersey is to escape, Hughes believes
that the government will have to step in with changes in public policy
– “because every other state is doing it.”
As a first step, New Jersey needs to regain the confidence of
corporate America. Last month, the Tax Foundation in Washington
released its 2006 State Business Tax Climate Index, which ranked New
Jersey as 49th, with only New York behind it. This image, says Hughes,
“portends a continued pattern of lagging economic growth in New
Jersey.” To change our future, according to Hughes, “we need to
totally reinvent and rebrand.”
So Hughes is speaking up and people are listening. Earlier this week
he testified at a state senate committee reviewing the details of
Governor Corzine’s proposed budget and tax increases. Last week he
appeared at a meeting of 55 Plus, the nonsectarian group of senior age
men and women who meet at the Jewish Center of Princeton to socialize
and discuss contemporary issues.
A member of that audience asked Hughes to elaborate on the reasons for
this hostile business environment. Hughes pointed out that the
business climate is basically the flip side of the tax environment,
and New Jersey’s business taxes are severe. One problem, which Corzine
is proposing to change, is the absence of a provision that would allow
businesses to carry forward a loss to shelter future income. This has
been particularly injurious to small entrepreneurial firms, according
to Hughes.
Another problem is the alternative minimum assessment, which requires
a minimum tax payment even in the face of a total business loss. This
provision has pressed hard on the struggling new firms that are
responsible for major job creation.
Yet another problematic feature of New Jersey’s taxes, which Corzine
has proposed removing, is the 8.9 percent assessment on people earning
a half million or more. This provision is pushing high-wage earners
out of the state, as tax accountants advise their clients to move to
places like Florida or Jackson Hole, Wyoming. To avoid this tax, high
tech entrepreneurs who are planning to sell off their companies move
out of New Jersey before the sale to avoid this tax.
Another element of the rebranding New Jersey needs has to do with
support for research. In response to a question about the proposed
budget cutbacks at Rutgers, Hughes says that, “at the scale proposed
for the Bloustein school, I will have to find $650,000 to cover the
cutbacks, assuming no tuition increase. This will force a significant
restructuring of the entire university enterprise if the cuts hold.”
Then he broadens the perspective. “The high-end, new industrial
research model in the United States is not large freestanding labs,”
he explains, as it was in the past. “The new model is to partner with
universities and locate near centers of university excellence,” he
adds, citing Merck’s major research center in San Diego, and
Novartis’s in Cambridge, Massachusetts. Rather than taking advantage
of its own existing and potential “centers of excellence, says Hughes,
“New Jersey has systematically under-invested in its research
universities.” But to successfully compete for research dollars, we
need to not only maintain, but to build up our resources.
Corzine has proposed the Edison Innovation Fund, which would combine
state bond money with investments from biotechnology firms and private
foundations to spur embryonic stem-cell research and offer research
funding for nanotechnology and alternative energy. Despite the risk,
says Hughes, “we must take some part of our tax resources and invest
in the future.”
When establishing a new research venture, politics sometimes
undermines what is in the best interest of the state. Take the Stem
Cell Institute, which Governor McGreevey proposed as a joint project
of Rutgers and UMDNJ, situated in New Brunswick. The current proposal
includes research labs in Newark and Camden, and Hughes observes, “Now
we will have will have three mediocre centers rather than one
excellent one.”
One area that Hughes believes will not strongly affect New Jersey is
outsourcing. “How destructive will the impact of outsourcing be on
white collar jobs in New Jersey and the post-industrial economy?” a 55
Plus attendee asked.
Although Hughes admitted that this had hurt to some degree,
particularly in telecommunications, he urges a longer view. “If we
straight-line current trends, we’re doomed. But we can’t do that
because ultimately costs will equalize,” he says, citing anecdotal
evidence that China has a shortage of skilled labor and labor costs
are growing dramatically. He says there are also economic benefits to
outsourcing: We can acquire technology more cheaply and buy more
computers, thereby increasing the efficiency of our economy.
Hughes is not shy about his prognostications – he is well prepared for
his chosen role as economic prognosticator, even though he followed an
unusual path. Born and raised in Elizabeth, New Jersey, his bricklayer
father died in 1957, when Hughes was in junior high school. His
mother, who had been a homemaker, went back to work in various
positions at the Berry Biscuit cookie factory.
A state scholarship enabled him to be the first in his family to
attend college. As an undergraduate at Rutgers University he chose an
unusual major, one that combined civil engineering and city planning.
“I took it seriously; I felt I had an obligation,” he says.
After two years in the Army, including a stint with the United Nations
command in South Korea, he came back to New Jersey in 1967. At that
time the Rutgers campus was starting an urban planning program, and
they told him, “We need students.” He stayed on as part of the new
Ph.D. program, and in 1971 was offered a job as an assistant
professor.
At Rutgers in the early 1970s he met his wife, Connie, who also has a
degree in planning. She is now commissioner of the Board of Public
Utilities and she herself is a former U.S. 1 cover subject, profiled
in 1990 when she was with the State Data Center in the Department of
Labor, linking the Census Bureau with data users, assisting them if
they had questions on demographic or population trends.
At that time Hughes was contributing editor to American Demographics,
“We got a lot of razzing,” he recalls. “People wondered what we talked
about at dinner.”
When he is out in public, as he often does, Hughes does manage some
optimistic observations, despite his humorous observation that he is
often called the Doctor Kevorkian of economics. Despite all the
state’s problems and relative erosion, Hughes acknowledges, New Jersey
does maintain several demographic strengths:
1. In 2004, according to the American Community Survey, New Jersey
continued to have the highest median household income among the 50
states. The one caveat here is that New Jersey also ranks first among
the states in median housing costs. While New Jersey incomes are 38
percent higher than that of the nation, housing costs are 52 percent
higher.
2. New Jersey ranks third among the states in the percentage of
foreign born, 18.8 percent in 2004, and demographic diversity can be a
key advantage in a global economy.
3. New Jersey ranks second in mass transit usage among the 50 states,
and very few states have equivalent public transit infrastructures. On
the other hand, we rank third in length of commute (a ranking that
Hughes chooses to see as an illustration of our “unique transportation
fortitude”).
One member of the audience took umbrage at this supposedly positive
characteristic, saying: “You can’t get anywhere in this state on mass
transit,” except New York. Hughes agreed and disagreed. Yes, the
development patterns of the 1980s and `90s were suburb sprawl and
office corridors on the freeways; homage to the automobile was a
given. But, no, the Northeast Corridor line is actually excellent,
making sites along it a good place for new office buildings.
Hughes cited the Gateway Center in Newark, which is accessible from
the Northeast Corridor as well as from Morris County, which is
connected by a light rail extension. “The existing rail infrastructure
is there, and we must take effective advantage of it,” he says. “These
can be job nodes even if people do not live there.” He added that Rush
Holt’s concept of Einstein Alley is based partly on New Jersey’s
unique concentration of higher education on this one railway, which
goes through Princeton, New Brunswick, and Newark.
4. The state ranks first in density. With 1,173 people per square
mile, New Jersey is more dense than either Japan or India. Again
looking on the bright side, Hughes suggests this demonstrates “our
demographic resiliency.”
5. Despite this density, a higher proportion of New Jersey is covered
by forest even than states like California and Alaska, which, says
Hughes, “demonstrates our unique environment and quality of life – a
key advantage in a knowledge-driven economy.”
Speaking to a small group after his talk, Hughes sounded hopeful. The
necessary first step he mandates for a positive future is that “we
must straighten out the fiscal mess first and must do it this year.”
He thinks Corzine is headed in that direction, starting with selective
business tax cuts. The state also needs to bring in more money, and
Hughes suggests that a one percent increase in the sales tax would
probably be the best step: “Since food and clothing are not taxed,
it’s not that regressive.”
His conclusion combines the pragmatism of an engineer with the trust
in the future that fuels a prognosticator: “I’m a pessimist at heart,
but Corzine gets it.”
Top Of Page7 Commandments of Marketbusting
Every company wants to make more money, and Rita Gunther McGrath’s new
book, “Marketbusters: 40 Strategic Moves that Drive Exceptional
Business Growth,” suggests some ways to do just that. Authors McGrath
and Ian C. MacMillan define a “marketbusting move” as an action taken
by your firm that changes the game to deliver markedly superior
performance. A marketbuster might be measured by a two percent change
(gain or loss) in market position, or by annual growth in sales or
shipments of 10 percent or more, charted over at least two years and
based on an innovative new entry.
The book gives techniques to identify opportunities and tools to
profit from them. Hundreds of case studies, including several drawn
from Princeton-based firms, illustrate the whys and wherefores of the
advice. Dishing out some advice on how to make these changes happen in
small firms or large corporations, McGrath suggests seven rules for
making a marketbuster work:
Agenda: Taking time and attention. “Setting your agenda to create
focused attention on marketbusting should be your top priority. If you
aren’t paying that level of attention, neither will anyone else in the
organization.”
Norms or organizational values: “Norms that reward challenging
assumptions are critical to the success of a marketbusting strategy.
You want to avoid two cardinal sins: first, the sin of disagreeing
with an observation or fact and saying nothing; and second, the sin of
not actively participating in the debates that will reveal the correct
information. And without norms that stress personal accountability and
follow-through, you waste a whole lot of time on following up and
checking on people.”
News, or the information collection and communication processes. “For
marketbusting, leading indicators (often fuzzy warnings of what is to
come) are critically important because they give you indications of
whether you are heading in the right direction or are about to plunge
over a cliff. Know how you will get meaningful information.
“As for communication, the CEO of Charles Schwab and Company, David
Pottruck, banks on having to do a lot of repetition. He suggests
repeating the message 700 times before assuming that the organization
has gotten it.”
People Structures and Processes. “Will the new idea sustain the way
you do business right now, or will it possibly cannibalize or weaken
the existing business? The more it threatens the people in the
existing business, the greater the value in locating the marketbuster
team in a separate organizational structure.”
History. “Like the tail of a kite, an organization’s history can be
enormously important for its stability.”
Leadership. Among the leadership questions listed, have you thought
through where you will personally need to intervene to clear paths for
your people?
Resource Allocation. “A good rule of thumb is that when making
allocations to new business opportunities, you need to give them
disproportionate resources relative to their size. A fledgling
business will need more intellectual power, more design skills, and
more technology, proportionately, than a larger, established
business.”
– Barbara Figge Fox
If she had a nephew or niece who wanted to start a business, Rita
McGrath would give this advice:
Be very parsimonious. Use the rubric, don’t buy it if you can lease
it, don’t lease it if you can borrow it, don’t borrow it if you can
beg it. You will have a lot more freedom if you are not tied down by
financial obligations.
Work on your idea, market test it, until you are sure there is a need
for it. Don’t just start an idea because it’s cool. Don’t fall in love
with your own assumptions. (For instance, the early speech recognition
devices companies falsely assumed a bigger market than actually
existed.)
And for those who work in corporations, don’t underestimate the
benefits of the corporate structure you now enjoy. You will be making
your own coffee and taking your own mail to the post office.
Top Of PageAmong McGrath’s `Marketbusters’
Digitize to combine or replace an existing consumption chain. For
instance, CarsDirect.com digitized the car buying experience.
Make some links in the consumption chain smarter. RFID tags from Texas
Instruments allow ExxonMobil consumers to pay for gas without having
to swipe a credit card or pay cash.
Monopolize a trigger event. Elevator companies invested in
technologies to provide early warnings of events that might trigger a
maintenance call.
Dramatically improve positives. Proctor & Gamble re-engineered the
electric toothbrush to make it affordable.
Break up existing segments. Retailer Hot Topic re-segmented a portion
of the market for apparel, accessories, and clothing by focusing
entirely on young men and women aged 12 to 22 with a passion for
music-licensed and music-influenced clothing and other items.
Infuse the offering with empathy. Hot Topic has a retail concept,
Torrid, with clothing for young obese women who felt ignored by
existing providers.
Eliminate complexity. A hotel chain, Extended Stay America, stripped
down its services, substituting daily housekeeping for amenities like
kitchenettes, and lowered prices.
Capture the value you deliver. Standard & Poor now charges the
companies it rates for the ratings that help them raise capital.
Radically change the unit of business. Cable companies changed the
profit structure of television, moving from advertising to consumer
subscriptions.
Radically improve your productivity. A gasket company built an
integrated E-commerce website with customer-specific pricing.
Improve your cash flow velocity. American Home Mortgage built systems
that let it take advantage of a boom in home mortgage refinancing.
Improve your customers’ personal productivity. Lending Tree uses
web-based technology to reduce customer acquisition costs and obtain
leads on loans. It claims to empower borrowers by making lenders apply
to them.
Help improve your customers’ cash flow. Knowing that shipping time is
crucial for computer repair jobs, United Parcel Service took over
repair service for Toshiba. Now it does both shipping and repairing.
Help improve your customers’ quality. KLA-Tencor makes equipment and
software that can detect defects in silicon wafers.
Capitalize on second-order effects of industry cycles. Saddle
River-based Sealed Air Corporation offers a full packaging solution
through its website (www.e-packaging.com) and drop ships high quality
packaging supplies directly to E-commerce customers of other
companies, such as Easy Closets.
Exploit shifts in industry constraints or barriers. When China invited
foreign companies to build power plants, a consortium – by planning
ahead – successfully captured a contract for a 700-megawatt coal-fired
plant in southern China.
Use a shift in a key constraint to disrupt the industry. Botox is
replacing plastic surgery as a less dangerous and less costly
alternative.
Exploit a shift in the value chain. When sanctions against South
African companies were lifted in the early 1990s, a South African
brewing company with a lean business model bought other companies and
is now the second largest brewer in the world.
Reduce costs or abolish bottlenecks to disrupt the value chain. MBNA
works with trade groups to sign up low-risk users of affinity cards.
Shift the dimension of merit. Subway exploited the concept of healthy
fast food with the Jared Fogel weight loss advertising campaign.
Build a better mousetrap. Finland-based Kone Corp., a McGrath client,
introduced the first elevator that does not need a machine room and
captured market share before competitors could catch up.
Undertake inventive missionary work. C.R. Bard came up with a new line
of products that reduce the time and difficulty for having hernias
repaired.
Create a niche to win. Osim International created a market for home
health devices such as blood pressure monitors.
Make a land grab. More than 3 million Swanson TV dinners are consumed
each week in the United States. They were introduced in 1954,
supposedly by an employee trying to figure out what to do with 520,000
pounds of leftover Thanksgiving turkey. His Eureka moment came on an
airline flight, when he saw the crew serve meals in metal trays.
After Title IX legislation, the market for women’s sporting equipment
skyrocketed. As pressure to stop smoking increases, Nicorette gum, a
GlaxoSmithKline product, will profit.
Corrections or additions?
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