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July 23, 2009

Zappos and Amazon Sitting in a Tree…

Amazon is acquiring the unique company – Zappos: we have written about Zappos previously: Paying New Employees to Quit. Jeff Bezos uses the webcast above to talk to the employees of Zappos. Excellent job. The letter from Tony Hsieh, the Zappo’s CEO, to employees is fantastic. This is a CEO that respects employees. These are leaders I would follow and invest in (and in fact I am glad I do own Amazon stock).

First, I want to apologize for the suddenness of this announcement. As you know, one of our core values is to Build Open and Honest Relationships With Communication, and if I could have it my way, I would have shared much earlier that we were in discussions with Amazon so that all employees could be involved in the decision process that we went through along the way. Unfortunately, because Amazon is a public company, there are securities laws that prevented us from talking about this to most of our employees until today.

Several months ago, they reached out to us and said they wanted to join forces with us so that we could accelerate the growth of our business, our brand, and our culture. When they said they wanted us to continue to build the Zappos brand (as opposed to folding us into Amazon), we decided it was worth exploring what a partnership would look like.

We learned that they truly wanted us to continue to build the Zappos brand and continue to build the Zappos culture in our own unique way. I think “unique” was their way of saying “fun and a little weird.” :)

Over the past several months, as we got to know each other better, both sides became more and more excited about the possibilities for leveraging each other’s strengths. We realized that we are both very customer-focused companies — we just focus on different ways of making our customers happy.

Amazon focuses on low prices, vast selection and convenience to make their customers happy, while Zappos does it through developing relationships, creating personal emotional connections, and delivering high touch (“WOW”) customer service.

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May 8, 2009

Toyota Posts Loss of $6.9 Billion in Last Quarter

Toyota Posts Loss of $6.9 Billion in Last Quarter

For January-March, Toyota booked a $6.9 billion loss, in line with consensus estimates, and cut its annual dividend nearly 30 percent — the first cut since at least 1994, when it changed its reporting period.

Toyota President Katsuaki Watanabe was more downbeat, stopping short of predicting when sales would pick up in major markets, or when the company would return to profitability as it remains saddled with excess capacity. “Of course the external environment doesn’t help, but we were lacking in the scope and speed of dealing with various problems and issues, and for that I am sorry,” he told a news conference.

For the year to next March, the maker of the Prius hybrid forecast an operating loss of 850 billion yen, more than double the average forecast in a survey of 20 analysts by Thomson Reuters. It sees an annual net loss of 550 billion yen based on the dollar and euro averaging 95 yen and 125 yen.

The bleak forecasts prompted ratings agency Standard & Poor’s to downgrade Toyota’s long-term debt ratings to AA from AA+, with a negative outlook.

To return to profit, Toyota must sell more cars or cut costs further, Watanabe said. But he predicted the U.S. market would be around 10 million vehicles industrywide at best this year, down from more than 13 million in 2008.

Toyota is bleeding overhead costs, with about a third of its global assembly lines working on single shifts. It will slash capital spending by more than a third this year to 830 billion yen as it puts expansion projects on hold, but it said it was not thinking of closing any production lines for good.

In my opinion these negative results are a sign of Toyota’s strength not weakness. The credit crisis and economic downturn has resulted in a poor economic environment. Toyota has managed to sustain the blow and hold firm to their principles and likely will come out of this downturn stronger as a company (mainly re-enforcing the importance of planning for bad economic conditions and not getting too excited about growth potential versus risks of growing too fast) and in a better position compared to their competitors. I continue to be an owner of Toyota stock and happily so.

Related: Idle Workers Busy at ToyotaFinancial Market Meltdown (Oct 2008)“2007 has been a difficult year for Toyota”New Toyota CEO’s Views (2005)Jim Press, Toyota N. American President, Moves to Chrysler

April 12, 2009

Build Your Business Slowly and Without Huge Cash Requirements

Get Rich Slow by Josh Quittner

At no other time in recent history has it been easier or cheaper to start a new kind of company… These are Web-based businesses that cost almost nothing to get off the ground

The term ramen profitable was coined by Paul Graham, a Silicon Valley start-up investor, essayist and muse to LILO entrepreneurs. It means that your start-up is self-sustaining and can eke out enough profit to keep you alive on instant noodles while your business gains traction.

“At this point, it would be hard for companies to get any cheaper,” Graham said. Since everyone already has an Internet-connected computer, “it’s gotten to the point that you can’t detect the cost of a company when added to a person’s living expenses. A company is no more expensive than a hobby these days.”

I see a great deal of truth to this and it provides interesting opportunities. Including being able to build a business slowly while still working full time. I have written about Y-combinator previously they have helped make this model popular. And the services these companies make seem to me to often be much more refreshing than ideas so watered down they lose much passion (so common from so many companies). Though some large companies provide great web sites.

Related: Some Good IT Business IdeasFind Joy and Success in BusinessOur Policy is to Stick Our Heads in the SandSmall Business Profit and Cash Flow

February 28, 2009

Warren Buffett’s Letter to Shareholders 2009

Warren Buffett published his letter to shareholders yesterday. As usual, it is of great interest to anyone interested in the economic, investing and management ideas.

In 1995, MidAmerican became the major provider of electricity in Iowa. By judicious planning and a zeal for efficiency, the company has kept electric prices unchanged since our purchase and has promised to hold them steady through 2013. MidAmerican has maintained this extraordinary price stability while making Iowa number one among all states in the percentage of its generation capacity that comes from wind. Since our purchase, MidAmerican’s Wind-based facilities have grown from zero to almost 20% of total capacity.

Our long-avowed goal is to be the “buyer of choice” for businesses – particularly those built and owned by families. The way to achieve this goal is to deserve it. That means we must keep our promises; avoid leveraging up acquired businesses; grant unusual autonomy to our managers; and hold the purchased companies through thick and thin (though we prefer thick and thicker).

Our record matches our rhetoric. Most buyers competing against us, however, follow a different path. For them, acquisitions are “merchandise.” Before the ink dries on their purchase contracts, these operators are contemplating “exit strategies.” We have a decided advantage, therefore, when we encounter sellers who truly care about the future of their businesses.

Some years back our competitors were known as “leveraged-buyout operators.” But LBO became a
bad name. So in Orwellian fashion, the buyout firms decided to change their moniker. What they did not change, though, were the essential ingredients of their previous operations, including their cherished fee structures and love of leverage. Their new label became “private equity,”

Berkshire Hathaway is a very well run company. Warren Buffett is a great investor. He is also a great executive. He hires honest and able people and lets them do their job. He ensures managers retain constancy of purpose by focusing on the long term and not getting overly focused on quarterly results. And have you ever read an annual report that talks of so many employees with such respect (granted it is a rare situation – something similar in an annual report could well seem disingenuous if it were not Warren Buffett writing)?

Related: 2005 Annual Report from BuffettWarren Buffett’s 2006 Shareholder LetterWarren Buffett Webcast on the Credit CrisisBerkshire Hathaway Annual Meeting 2008
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June 29, 2008

Printer Product Development Using Design of Experiments

MEMS development in less than half the time by Christopher N. Delametter, Eastman Kodak Company

The traditional approach to optimizing a product or process using computer simulation is to evaluate the effects of one design parameter at a time. The problem with this approach is that interactions between design factors and second-order effects are likely to result in a locally optimized design that will provide far less performance than the global optimum. Kodak researchers use DOE to develop tests that examine first-order, second-order, and multiple factor effects simultaneously with relatively few simulation runs. The result is that the analyst can iterate to a globally optimized design with a far higher level of certainty and in much less time than the traditional approach.

By using DOE to drive CFD, Kodak researchers were able to optimize the design of the printhead in considerably less time than competitors. The advantages of simulation were especially apparent late in the project when researchers discovered a more optimal ink formulation for one of the colors.

Related: Design of Experiments articlesUsing Design of ExperimentsStatistics for ExperimentersWhy Use Designed Factorial Experiments?Kodak Debuts Printers With Inexpensive Cartridges

March 24, 2008

Losses Covered Up to Protect Bonuses

Does it surprise you to learn traders would cover up losses to protect bonuses? It shouldn’t, it happens over and over. Would it surprise you that almost any bonus (or quota) scheme increases the odds that the data will be doctored to meet the goals? It shouldn’t. Intelligent measures to make such doctoring difficult can help reduce the practice. But it is a likely risk of any such goal. As we have quoted Brian Joiner as saying: there are: “3 ways to improve the figures: distort the data, distort the system and improve the system. Improving the system is the most difficult.” So it is no shock that distorting the data is often the tacit people use (especially when the rewards are great or the punishment for missing is severe).

Of course the people that take unethical or illegal action are responsible for their actions. But managers that set up poor systems and then get poor results should not be surprised. You mainly read about the exciting distortion of data – but there is much more such distortion that doesn’t seem interesting enough for the press.

Traders at top investment bank ‘covered up losses to protect their bonuses in £1.4 bn scam’

A top investment bank said yesterday that some of its traders had tried to protect their massive bonuses with a £1.4billion scam. Credit Suisse was forced to admit it will pay the price for the traders’ ruthless scheming by sinking into the red. All the traders involved – some of them based in London – have been fired or suspended.

Shares in the bank, which is based in Zurich, tumbled 7.5 per cent yesterday. Credit Suisse admitted it had discovered intentional “pricing errors” by a small number of traders involved in complex investments linked to the mortgage market.

Related: Problems with BonusesBe Careful What You MeasureMeasuring and Managing Performance in OrganizationsAnother Quota Failure Example

March 4, 2008

Management Advice from Warren Buffet

As usual, Warren Buffett’s letter to shareholders is packed with wisdom. He is best know for his investing genius but his writing provides great thoughts for managers also: Berkshire Hathaway 2007 Letter to Shareholders:

We will soon purchase 60% of Marmon and will acquire virtually all of the balance within six years. Our initial outlay will be $4.5 billion, and the price of our later purchases will be based on a formula tied to earnings.

This deal was done in the way Jay would have liked. We arrived at a price using only Marmon’s financial statements, employing no advisors and engaging in no nit-picking. I knew that the business would be exactly as the Pritzkers represented, and they knew that we would close on the dot, however chaotic financial markets might be. During the past year, many large deals have been renegotiated or killed entirely. With the Pritzkers, as with Berkshire, a deal is a deal.

Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag. We like to buy the whole business or, if management is our partner, at least 80%

A truly great business must have an enduring “moat” that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business “castle” that is earning high returns.

Susan came to Borsheims 25 years ago as a $4-an-hour saleswoman. Though she lacked a managerial background, I did not hesitate to make her CEO in 1994. She’s smart, she loves the business, and she loves her associates. That beats having an MBA degree any time. (An aside: Charlie and I are not big fans of resumes. Instead, we focus on brains, passion and integrity.

I should emphasize that we do not measure the progress of our investments by what their market prices do during any given year. Rather, we evaluate their performance by the two methods we apply to the businesses we own. The first test is improvement in earnings’ with our making due allowance for industry conditions. The second test, more subjective, is whether their “moats” – a metaphor for the superiorities they possess that make life difficult for their competitors – have widened during the year.

You will recall that in our catastrophe insurance business, we are always ready to trade increased volatility in reported earnings in the short run for greater gains in net worth in the long run.

What is no puzzle, however, is why CEOs opt for a high investment assumption: It lets them report higher earnings. And if they are wrong, as I believe they are, the chickens won’t come home to roost until long after they retire.

Related: Buffett’s Letter to Shareholders (from last year)Buffett’s Shareholder Letter (2006)Overview of Warren BuffettAnnual Report by Warren Buffett (2005)Hiring the Right People
(more…)

February 5, 2008

12 Stocks for 10 Years – Adding Danaher

With Microsoft’s offer for Yahoo I am replacing Yahoo with Danaher in the 12 Stocks for 10 Years portfolio. Other stocks in the portfolio include Google up 137% since purchased, PetroChina up 132%, Amazon up 106% and Toyota up 44%. I have considered Danaher since creating the portfolio and now looks like an attractive time to make the change. Other stocks I like now are Google, PetroChina, Toyota and Tesco. The bias toward companies that practice what I discuss in this blog is very intentional – I believe this stuff works and believe companies that manage using the ideas discussed here will prosper.

Curious Cat Management Improvement Blog previous posts on: DanaherToyota, Tesco and Google.

Related: Curious Cat Investing SearchCurious Cat Investing Blog10 stocks for 10 years

September 24, 2007

Danaher Expands Lean Thinking One Acquisition at a Time

Sybron Focuses on Operations

Nearly 18 months into becoming part of Danaher Corp., life is different at Sybron Dental Specialties Inc. “Sybron was really a sales and marketing focused organization … and operations (were) part of supporting that,” said Don Tuttle, president of specialty products for Sybron, which is moving from Orange to Anaheim next year. “What Danaher brought to us, and has been successful with, is bringing us an operations focus.”

Sybron has adopted principles known as Danaher Business Systems, which he called a “playbook” to make the company run as a more efficient team. It’s centered on “kaizen,” a quality improvement process that grew out of the teaching of W. Edwards Deming. The focus on manufacturing and operations, combined “with our sales and marketing expertise (has) made us a much stronger company,” Tuttle said.

Danaher continues to do a good job improving management practices one purchase at a time. I continue to eye Danaher as a stock to buy but have not bought yet.

Related: Danaher Practicing Lean ThinkingLean Thinking at DanaherTilting at Ludicrous CEO Paylean manufacturing directory

July 24, 2007

Amazon’s Amazing Achievement

I have mentioned I like the way Amazon, and Jeff Bezos, have been managing in several posts. Recently Amazon has added very strong financial results to that portfolio of things they do well. Amazon earnings announcement:

Net sales increased 35% to $2.89 billion in the second quarter, compared with $2.14 billion in second quarter 2006. Excluding the $46 million favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew 33% compared with second quarter 2006.

Operating income increased 149% to $116 million in the second quarter, compared with $47 million in second quarter 2006. Net income increased 257% to $78 million in the second quarter, or $0.19 per diluted share, compared with net income of $22 million, or $0.05 per diluted share in second quarter 2006.

Pretty impressive. It seems Amazon might be able to begin delivering strong current financial performance (they have done so at least twice, and maybe longer depending on how you look at it…) and continue to build and innovate for the future. That is when a company really sets itself apart from the crowd. Previously, from the investing perspective, the argument was largely based on the belief that the steps taken today were building for the future (a fine thing, but risky – without the evidence of success actually making real profit it is often easy to make a good case for why the future will be good). In an investment it is more comforting when current earning provide some evidence the profits predicted in the future have some basis in reality.

Since the beginning of April Amazon’s share price has gone from $40 a share to $70. And based on the after hours trades today it is going to be in the $80s tomorrow (though after hours trades can often be misleading – there is some more confidence based on the large volume of hour trades in Amazon, but still…). I must admit this price does seem like it might be getting a bit ahead of itself but Amazon is making an impressive case for strong future performance.

Related: Amazon Innovation10 stocks for 10 years (April 2005)12 Stocks for 10 Years Update (June 2007)Very Good Amazon EarningsBezos on Lean ThinkingIs Amazon a Bargain?

July 19, 2007

Google Exceeded Planned Spending on Personnel

Often people have trouble understanding Dr. Deming’s disapproval of arbitrary numerical targets. What he was trying to prevent is what many see every day, such as managing to quarterly earnings targets. There are several problems with numerical goals but in here lets focus on one. The change from managing for what is best for the business to managing to hit a target. Google Profit Trails Analyst Estimates; Shares Slide:

The company hired more people than expected last quarter, Chief Executive Officer Eric Schmidt said on a conference call. Google added 1,548 jobs, mostly in sales, marketing and engineering, bringing its total to 13,786. “We overspent against our own plan on headcount,” he said. “We decided it was not a mistake. The kind of people we brought in were so good that we’re glad we did this.”

Great statement. And if more people could manage that way, one of the problems with numerical goals would be eliminated. But with so many organizations tying huge bonuses to meeting arbitrary numerical targets you will have a great deal of difficulty getting managers to hire 3 extra people this quarter, who will help the business, but will ruin their chance at a bonus. Or even if they just take a hit on their performance appraisal compared to the other managers that meet the headcount target – even if it meant turning away talent the organization could have benefited from greatly – and then the manager that missed their target loses out in the next promotion opportunity.

I am happy to own a tiny portion of Google and glad they are making decisions like this. Now just because I think there is a good case to be made for exceeding the targets that doesn’t mean that hiring more people is necessarily good. It is perfectly possible Google is hiring too many people and making a bad prediction about how these people will benefit Google in the long run. I am just saying I strongly support not tying yourself to short term numerical targets, if you predict a better decision requires taking actions that will cause the target to be missed.

Google increased profit by 28%, from the second quarter last year, to $925 million (and down from $1.0 billion in the first quarter of 2007). Lest you think personnel can’t really cost Google that much can it, just the stock based compensation in the second quarter reduced earning by $242 million in the quarter (an “expense” that wasn’t reported just a few years ago). Google had 13,786 full-time employees as of June 30, 2007 (up 1,548 in the quarter) – so that is over $17,500 per full time employee. If anyone at Google wants to talk I am open to considering an employment offer.

May 25, 2007

Eliminating Quarterly Earnings Guidance

It is good to see more people understand the bad practice of excessive short term focus on quarterly profits. It is also a bit amusing to see the Chamber of Commerce pushing an idea Deming was called unrealistic for pushing.

The right way to handle a surprise:

The U.S. Chamber of Commerce is calling for companies to halt “earnings guidance,” or coaching analysts, toward a precise target for quarterly profit. “The incentive to meet that number is an incentive to manipulate,” says Robert Pozen, head of the MFS mutual funds. The negative surprise comes in the end: Remember Enron.

Roughly a quarter of the companies in the S&P 500 have stopped giving guidance (or never started), including Berkshire Hathaway, Coca-Cola and Google. Check the investor-relations area of a company’s web site to see whether it plays what David Hirschmann of the Chamber of Commerce calls the “fool’s game” of earnings guidance.

Related: Management: Geeks and DemingDeming’s Seven Deadly Diseases of Western ManagementGoodbye Quarterly Targets?Distort the System

March 10, 2007

Investors Business Daily on Deming

He Pointed Firms To Quality by Kirk Shinkle:

Management responsibility took on an almost moral role for Deming. Failure in business and the resulting unemployment could be blamed almost entirely on leadership. Leaders, he believed, should commit to their employees, not hop around from job to job. He would likely have eschewed today’s renewed climate of zealous private equity buyouts and an increasing trend toward mobile management.

In the introduction to his 1983 book “Out of the Crisis,” Deming called hostile takeovers and leveraged buyouts “a cancer in the American system.” “Fear of takeover, along with emphasis on the quarterly dividend, defeats constancy of purpose,” he wrote. He also derided a focus on short-term profits that comes with traditional benchmarks used by many corporations.

“Back in 1980 when he talked about working with your suppliers, people would just back up against the wall. That was heresy,” Orsini said. “Now we’re teaching courses in supply chain management, and most people have no idea the roots of it are in Deming’s thinking.” Deming opposed protectionist laws and policies, calling trade between nations “an essential component of peace and prosperity.” Deming’s influence on managing people’s skill was built on a solid foundation of quantifiable fact.

Related: Deming on ManagementThe purpose of an organizationdistorting the systemManagement: Geeks and DemingCurious Cat Deming ConnectionsRed Bead ExperimentCurious Cat Investment BlogWillam O’Neil (Investor’s Business Daily founder) – not exactly a Deming based investing approach

February 26, 2007

Firing Workers Isn’t Fixing Problems

I commented on a post on Evolving Excellence that Jim Jubak is a wall street guy who has good ideas. He has posted another good article: Firing workers isn’t fixing problems

Both CEOs, Edward Zander at Motorola and Jeffrey Kindler at Pfizer, of course, kept their jobs and their paychecks. According to Motorola’s latest proxy statement, Zander received a salary of $1.5 million, a $3 million bonus and $2.3 million in restricted stock in 2005.

For this kind of money, investors — let alone the workers who are being fired — deserve something a little more imaginative as a turnaround strategy. Cutting jobs has become a reflex, not because it works especially well at fixing the real problems at companies like these but because firings produce the kind of immediate earnings improvements that help CEOs keep their jobs. Getting rid of workers, you see, lets a company forecast the kind of immediate cost savings and surging profit margins that keep shareholders from marching on the executive suite.

Right. Wall street is not incapable of seeing past short term “thinking.” Even if many on wall street can’t seem to understand. I am far from convinced short term thinking is Wall Street’s fault, it seems to me many executives have this problem and blame “Wall Street.” I believe short term thinking is mainly management’s fault.

Short term thinking is part of the management system. Exorbinant executive pay exacerbates the problem. A failure to understand variation exacerbates the problem. (more…)

February 14, 2007

Danaher – Lean Thinking

A Dynamo Called Danaher

DBS, as it’s called, is a set of management tools borrowed liberally from the famed Toyota Production System. In essence, it requires every employee, from the janitor to the president, to find ways every day to improve the way work gets done. Such quality-improvement programs and lean manufacturing methods have been de rigueur for manufacturers for years. The difference at Danaher: The company started lean in 1987, one of the earliest U.S. companies to do so, and it has maintained a cultish devotion to making it pay off.

Short term lean thinking payoffs are nice, but the long term benefits are much more powerful.

Over 20 years, it has returned a remarkable 25% to shareholders annually, far better than GE (16%), Berkshire Hathaway (21%), or the Standard & Poor’s 500-stock index (12%).Over 20 years, it has returned a remarkable 25% to shareholders annually, far better than GE (16%), Berkshire Hathaway (21%), or the Standard & Poor’s 500-stock index (12%).

Related: Danaher’s Low Profile Lean ExcellenceLean Bloglean manufacturing articles10 Stocks for 10 years update (Danaher was in serious consideration)

December 11, 2006

10 Stocks for 10 Years Update

In April of 2005 I wrote: 10 stocks for 10 years. At that time I also created a fund through Marketocracy. Thus far the portfolio is up 15.8% annually (versus 15.3% for the S&P 500) – see more below…

I have made minor changes to the fund during the year (less than 4% turnover). As I mentioned in June I would buy Tesco, but Marketocracy does not support it. Google is still doing quite well, up 122% since inception. The second largest gain is for Petro China, up 106% and Toyota is up 67%. Dell is the worst performer down 25% followed by Yahoo down 16%. I am comfortable with the original 10 stocks and don’t have any significant changes I would make to the portfolio now. For the small change I would make now see more…
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September 4, 2006

Housing and the Economy

Graph of home prices

Chart of home values from 1890 through 2006 (the chart is a misleading because it crops the lower end at 60 (not 0). The values go from 60-200 (it is an index showing the cost of the standard house in thousands of 2006 $s. House prices have ranged from $66,000-200,000 for the standard house from 1890 to 2006, and never above $130,000 until 2001. Larger view of the graph (via the New York Times) and the data set from Robert Shiller. Graph source: Irrational Exuberance, 2nd Edition, 2006.

Home prices certainly seem like a bubble there doesn’t it? Many news stories now talk about the bursting housing market bubble: The housing collapse heard round the world, Fighting Inflation and Housing Bubbles, Pop Goes the Real Estate Bubble, Bubble Blog, Once bubble bursts, cities feel the pain, Housing bubble has burst, Housing bubble is finally at bursting point

I wrote about the housing bubble in April of 2005:

I doubt we are at the end of the bubble. However, financial bubbles are very difficult to time. My guess is the bubble will continue for over a year for most, if not all locations in the USA. And unless the bubble continues and prices reach levels much higher than they are now, the end of the bubble will not be a dramatic decline of prices (say an drop in prices of over 25%) in most locations.

I am not convinced that we are seeing a bursting bubble. Certain location are at a risk to experience such declines (most of those areas went up more than 100% in the last 5 years so they still would have large gains over the last few years). The market certainly has moved to the point where a transition to a bursting bubble is much closer than it was a year ago. Even several years ago many proclaimed the bubble was ready to burst, in the face of continuing rapid increases in prices. Today we are essentially at a flat market but the momentum is all toward a decline in prices. So it is certainly possible this post will look foolish in 6 months or a year but I’ll take that chance.
(more…)

August 22, 2006

Danaher Practicing Lean Thinking

Manufacturer’s Acquisition Strategy Sets It Apart From The Pack, Investors Business Daily:

“It’s adapted from the Japanese Kaizen system,” Holmstead said. “Kaizen is a way of removing waste and standardizing processes and bringing underperforming or slow-growth companies with maybe single-digit margins up to midteen margins.”

The keys are standardization, measurement and innovation — all directed toward the goal of continuous improvement.

“It’s basically a set of tools that allows Danaher to make whatever widget they are manufacturing at a cost less than most of their competitors,” said Morningstar analyst Eric Landry. “Over the past decade they have (also been moving) DBS into the back office and into sales. It produces a culture where you are never satisfied.”

The quotes are from Wall Street Analysts. I think basically they like the ever increasing cash flow and then use the story the company gives for why they are successful. Still they are playing up lean thinking.
(more…)

August 21, 2006

Gladwell (and Drucker) on Pensions

The Risk Pool by Malcolm Gladwell (author of The Tipping Point and Blink):

The most influential management theorist of the twentieth century was Peter Drucker, who, in 1950, wrote an extraordinarily prescient article for Harper’s entitled “The Mirage of Pensions.” It ought to be reprinted for every steelworker, airline mechanic, and autoworker who is worried about his retirement. Drucker simply couldn’t see how the pension plans on the table at companies like G.M. could ever work. “For such a plan to give real security, the financial strength of the company and its economic success must be reasonably secure for the next forty years,” Drucker wrote. “But is there any one company or any one industry whose future can be predicted with certainty for even ten years ahead?” He concluded, “The recent pension plans thus offer no more security against the big bad wolf of old age than the little piggy’s house of straw.”

Pension plans did work well for a short period of time. But recently they (along with the attached retiree health care) are one of the big problems facing large old companies: like GM. Gladwell talks about the dependency ratio for an economy and the dependency ratio of companies. Worsening dependency ratios can cause pension plans to kill companies (if they are not funded when the obligation is incurred) – as the company is forced to pay for more and more retirees with fewer and fewer workers.
(more…)

August 18, 2006

Improving the 401(k) System

401(k)s are a great retirement investment vehicle (for those in the USA). Since the introduction of 401(k)s they have proved very advantageous to those saving for their retirement. See our previous post on: Saving for Retirement.

However, the experience thusfar shows a weaknesses in the system. Many people don’t even take advantage of a 401(k) to save for their retirement. From a public policy perspective it creates a huge long term problem. The economy will end up with millions of people that didn’t save for retirement and will be a drain on those who did save for retirement and the rest of the economy.

So Congress actually passed a good revision to the law. Employers will now be required to default to having employees save for their retirement in 401(k) plans. The employee still has the option to decline doing so, but now, without such a choice, they will automatically save for retirement. Great news, if like me, you believe many who would have not saved for retirement now will, and that doing so will be a good move for them and for the overall economy.

(more…)

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