Projections, markets, and what management is really about...
> from NUA surveys:
>
> Techserver: Ecommerce Predicted to Top 1 Trillion by 2002
>
> The global ecommerce industry will generate in excess of USD I
> trillion by 2002, according to the CEO of Cisco Systems, John
> Chambers. Speaking at the Gartner Group Symposium in Florida,
> Chambers said that the current eccomerce projections of USD 200 to
> 300 billion are far too conservative.
Markets are not linear things. There is always a question as to what
limiting factors are. I recall a marketing study on polyester
manufacturing equipment some decades ago, in which all the trend lines
were way up. This was THE thing! And when all THE companies had bought
the equipment... Blam, there was no one to sell to!
Similar problems happened with the first personal computers. Growth
was wonderful! And when all 20,000 engineers in the USA capable of
building them had them... most of the first generation of personal
computer manufacturers went bankrupt! Later, many of the other
manufacturers were caught in similar "home computer" market limit traps,
including IBM, Televideo, etc.
> Analysts were underestimating the importance of the
> business-to-consumer trade over the next five years, he said, arguing
> that there was excessive focus on the business-to-business market.
Business to business is easier to predict than the home markets.
Businesses have computers, and most have or will have internet access.
What happens to the home markets depends upon cheap computers and content
development.
> Speaking about the impact of the Internet on Cisco Systems, Chambers
> said that Cisco had been able to cut its expenses by USD 500 million
> by moving its business onto the Internet. The company's annual
> expenditure is in the region of USD 2.5 billion. Further, the Web
> accounted for 64 percent of Cisco's overall revenue of USD 8.5
> billion last year.
They are an exception because they sell things to people who are on
the net, and want more of the net. Their business will continue to bloom
as the net blooms... And then... when their market saturates, they will
suddenly find they don't have the market they projected. Whether that be
in two years, five years, or ten years, I don't know!
These kind of cycles are just part of the nature of business. Less
intelligent people get swept up in the upsurge, and don't realize that
there markets are composed of a finite number of people and businesses.
Read the book "Manias, Panics, and Crashes". Some of the greatest minds
have been swept up in these things.
By the way, it is awareness of such things that makes the critical
difference between a good upper level manager/CEO, and a fool who will
make your company very profitable, shortly before it goes bankrupt.
It is interesting to note the difference between Sears and Roebuck,
and Montgomery Wards. Before World War II, the economy was in a
depression. Some believed that this depression would resume after a
temporary consumer bump at the conclusion of WW-II. Montgomery Ward, then
a larger retailer than Sears, was one of them. They had hired some of the
best econometrics consultants (before that word existed,) and maintained a
cash rich position to ride it out. One factor they cited, was that most
wars were followed by a prolonged depression as people were laid off and
resources re-allocated from high value rush military manufacturing
activities. Sears looked at other indicators, predicted a boom as all the
cash rich US soldiers came home to start a new life, and positioned
themselves to take advantage of it. Montgomery Ward never recovered their
leading position.
I think Montgomery Ward was correct in their assessment of a
depression following a war. When all the WW-II related manufacturing
activity finally ended in 1991, we had the post-cold-war "recession". They
just mis-judged the date slightly... And Sears walked over them right at
that critical point. Sears management also understood what the growing
travel range of the automobile/highway system meant, nailing down long
term leases that helped fund the development of the big shopping plazas.
Montgomery Ward was late into that, ending up blocked out of a good part
of that growth. That is good management vs poor management!
I could cite some other cases of management that took the right
gambles, and those who really screwed up. I remember dealing with Arrow
Electronics before the fire in the Tarrytown Hilton. (I think that was the
place, mid 1980's.) They were really an up and coming organization,
making all the right moves, positioning themselves ahead of the curve by
making very wise gambles. When most of their top brass died in that fire,
they became a second rate organization, just following trend lines
blindly, making the easy low-risk moves, and getting blindsided by the
competition. It was obvious that the top brass was responsible for their
earlier success.
What are YOU doing to be ahead of the curve?
Management, GOOD management, deals in a lot of things the common
person rarely considers. Although I think that some of the CEO's are
somewhat overpaid, they are playing a very high stress game of high stakes
poker. Just like in athletic sports, if you want the best players on your
side, you have to offer them something to make it worth while. And if
your executive does win often... he is probably worth a very good part of
what he earns!
I remember the things I learned working with a gambler on
computerizing his dog racing strategies.
(As a college student, this kid had gotten himself through
engineering school by gambling on the dog races. With a few years of
engineering under his belt, he wanted to have some more fun at the dog
track in his spare time. And so, at the dawn of the home computer
revolution, he asked me if we could come up with some kind of statistical
modeling of the dog races... I was game, and started analyzing how all
this worked. The bottom line, was that he had had a lot more intelligence
information coming his way from friends and relatives working in the
business while he was in college. Without that, mere statistics and
cassette tape drives could not give him much of an edge that he did not
already possess. It was not numbers, but knowledge of the trainers and
other things that let him spot likely winners. Let us just say that I
didn't like what I was beginning to hear, and was mature enough to wash my
hands of the project. Later, a larger group was subpoenaed; they were
running a minicomputer out of a motel... and although technically legal...
had a LOT of explaining to do to a grand jury, the IRS, and a state
legislature.)
What I learned from his risk management strategies, was that one does
not get ahead by making all the easy gambles; one gets ahead by looking
further into the future than the next guy, structuring one's business to be
ready for the few good gambles, while hedging one's bets so as not to lose
the farm if those do not come in, as most likely won't! The sucker's bet
is to bet on the favorite. Sure, you will probably win the bet; but the
payoff will likely be less than you bet. His game was not the game of the
single race; but that of statistics vs money management. Same in
business.
What is obvious to an engineer with his feet firmly planted on the
ground, is not what makes the difference between IBM, and CDC. IBM sold
reliability. CDC and Cray sold compute power. CDC and Cray could walk
all over IBM's equipment; but most business operations were not about
compute power. They were about getting the bills and checks printed
every month, and keeping the inventory within reasonable limits. For
that, reliability was more important. IBM sold reliability, and business
needed and bought reliability.
As Sun Tsu put it: "The best general wins the war without fighting a
single battle. This is beyond the comprehension of the common man." And he
does that by following the motto: "Attack the enemy's plans". For then,
there often is no war. Just like Reagan vs Gorbachev.
What are you doing to be ahead of the curve? What are you doing to
attack your enemy's plans? How are you going to be there BEFORE your
competition?
Or are you going to be like the average soldier who wants all the
fire power here now? Will you commit all your reserve troops to the
first battle, and get cut off as your competition's troops out-flank you
and swing around your backside?
That is what Management is really about. We are just technicians,
skilled in what we do, playing as soldiers in smaller battles, trying to
anticipate smaller things like copyright and trademark squabbles, as we try
to deliver the small arms fire of web page hits. Few of us are privy to
the grand strategies we are a part of. But when a good manager gives us
to understand more of the larger picture, we can often improve our
performance, and sometimes... sometimes... suggest that critical move that
makes a major difference.
That's the kind of manager I love working for. For having once
played the game at the higher levels, I can often see that critical move
that turns a death march into a victory. And if not, at least die
gracefully when my time is up.
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