NJ Economy: Half Full…?

7 Commandments of Marketbusting

Start-Up Advice

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."

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Top Of Page
NJ 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 Page
7 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

Top Of Page
Start-Up Advice

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 Page
Among 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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