• McKinsey Report on Innovation Shows Companies Come Up Short in Managing New Ideas

    In their assessment of a recent McKinsey Global survey on innovation in comparison to surveys from years past, McKinsey researchers Marla M. Capozzi, Brian Gregg, and Amy Howe find that, while more and more companies embrace the need for innovation, "core barriers to successful innovation haven’t changed, and companies have made little progress in surmounting them."

    While 55% of the 2010 survey's respondents say their company is better than the competition at being innovative, many companies appear to fall short in managing innovation.  

    Fundamentally, the biggest challenge is organization: 42 percent of respondents say improvement in this area alone would make the most profound difference in innovation performance. This figure falls between the shares of respondents to a 2007 survey who selected allocating resources and aligning talent as their companies’ top challenges to successful innovation. For this year’s respondents, organization is closely followed in importance by developing a climate that fosters innovation; commercializing new businesses, products, or services; and selecting the right ideas and managing a portfolio.

    Respondents also indicate that their companies don’t make good use of many specific tactics (Exhibit 2). For example, only 27 percent say their companies are very or extremely effective at making business leaders formally accountable for innovation. Notably, even among respondents at early-growth companies, where innovation is likely to be a particularly high priority, only 34 percent say their business leaders are effectively held accountable.

    Here is exhibit 2:

    Read the full report here.  

  • Big Changes Must Feel Urgent

    Looking to make a big change in your organization?  John Kotter, Chief Research Officer of Kotter International and Professor Emeritus at Harvard Business School, says that you must create a sense of urgency.  And if you don't have enough employees who feel that sense of urgency, you won't be able to accomplish the task:

    Watch the full interview with Kotter at Big Think, here.  

  • SF Fed Economic Letter: Effects of Immigration on US Employment

    In a new Economic Letter from the Federal Reserve Bank of San Francisco, Giovanni Peri--a visiting scholar at the San Francisco Fed--explores the impact of immigration on US workers and employment.  His is a general analysis, as he acknowledges that the impact of immigration can vary widely from industry to industry.  But in looking at the aggregate economic impact, Peri sees the "average impact per worker" as a positive.  That is, immigration shows a net growth in income per worker.

    Peri writes:

    First, there is no evidence that immigrants crowd out U.S.-born workers in either the short or long run. Data on U.S.-born worker employment imply small effects, with estimates never statistically different from zero. The impact on hours per worker is similar. We observe insignificant effects in the short run and a small but significant positive effect in the long run. At the same time, immigration reduces somewhat the skill intensity of workers in the short and long run because immigrants have a slightly lower average education level than U.S.-born workers.

    Second, the positive long-run effect on income per U.S.-born worker accrues over some time. In the short run, small insignificant effects are observed. Over the long run, however, a net inflow of immigrants equal to 1% of employment increases income per worker by 0.6% to 0.9%. This implies that total immigration to the United States from 1990 to 2007 was associated with a 6.6% to 9.9% increase in real income per worker. That equals an increase of about $5,100 in the yearly income of the average U.S. worker in constant 2005 dollars. Such a gain equals 20% to 25% of the total real increase in average yearly income per worker registered in the United States between 1990 and 2007.

    Read The Effect of Immigrants on U.S. Employment and Productivity here.

  • Where Physics and Marketing Meet

    You might remember some basic Physics.  Like Newton's second law: force = mass X acceleration.  But do you ever think about that law as an important marketing principle?  Or how about Heisenberg's uncertainty principle?  Okay, you probably don't remember that one, but Dan Cobley, marketing director at Google, does.  He says that Physics was his first love, and that it helps him be successful as a marketer.  Here is Cobley giving a very accessible Physics lesson for marketers at the TedGlobal conference:

  • A Call for More Active Monetary Policy: Clive Crook Puts the Onus on Bernanke and the Fed

    In his speech opening the Jackson Hole Conference, Ben Bernanke stated that "the Federal Reserve remains committed to playing its part to help the U.S. economy return to sustained, noninflationary growth."  And he outlined a series of tools available to him and the Fed in countering further economic decline.  (Read the speech here). But Financial Times columnist Clive Crook argues that a "divided Fed" is "letting the country down" and needs to take additional monetary policy steps now:

    Mr Bernanke and his colleagues are understandably nervous about extending the radical measures they have already taken. Divided on the point, they have taken a modest further step by preventing the maturing of debt they hold from tightening monetary conditions, as it otherwise would have. They are right to worry about their exit strategy; they are also right to be nervous about being in uncharted terrain. But the balance of risks has moved. They need to go further.

    George Magnus of UBS argued on this page last week that deflation poses a greater risk for the US than inflation. That seems right: inflation expectations, as revealed by rates on index-linked US debt, are very low. Mr Magnus was surely correct to say this points to the need for further monetary easing – but wrong, I think, to say that “unreconstructed monetarists will not be persuaded”. His point was that monetarists would see the policy rate at zero and banks holding enormous reserves at the Fed and conclude that money was already too loose.

    As the monetary economist Scott Sumner has pointed out, Milton Friedman – name me a less reconstructed monetarist – talked of “the fallacy of identifying tight money with high interest rates and easy money with low interest rates”. When long-term nominal interest rates are very low, and inflation expectations are therefore also very low, money is tight in the sense that matters. When money is loose, inflation expectations rise, and so do long-term interest rates. Unreconstructed monetarists ought therefore to agree with Mr Magnus’s main point: under current circumstances, better to print money and be damned.

    Read It falls to the Fed to fuel recovery here.  

  • Real GDP Estimates Revised Downward for 2nd Quarter

    The Commerce Department announced this morning that GDP growth during the second quarter was smaller than previously estimated.  The increase in real GDP from the first quarter to the second quarter was 1.6%.  Here's what the Bureau of Economic Analysis tells us were the key factors:

    The increase in real GDP in the second quarter primarily reflected positive contributions from nonresidential fixed investment, personal consumption expenditures, exports, federal government spending, private inventory investment, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

    The deceleration in real GDP in the second quarter primarily reflected a sharp acceleration in imports and a sharp deceleration in private inventory investment that were partly offset by an upturn in residential fixed investment, an acceleration in nonresidential fixed investment, an upturn in state and local government spending, and an acceleration in federal government spending.

    Read the BEA release here

  • Conditions May Be Ripe for More M&A

    M&A activity is picking up.  Seeking Alpha contributor Charles Rotblut reports that "last week saw the largest dollar amount of announced global mergers ($93 billion) since November 2, 2009."  (Data is from Dealogic).  Acquisitions were not following the same trajectory, and in fact, had a down week. 

    William Tyson, head of BB&T's investment banking division, believes conditions are ripe for more M&A activity, especially among "middle-market companies."  He explains what he sees as the key variables that will drive M&A in the Dow Jones video:

  • Employee Loyalty Begets Customer Loyalty Begets Profitability

    Over at MarketingProfsDianne Durkin writes that "employee loyalty builds customer loyalty, which builds brand loyalty."  So it is logical that her list of key steps to "building loyalty and corporate profitability" is centered on strategic management of a company's workers.  Here is the list:

    1. Clearly define the purpose and values of the company, and share them with everyone

    2. Align and communicate

    3. Listen to employees

    4. Engage people in solutions

    5. Invest in training

    6. Celebrate successes

    7. Invest in your managers and leaders

    8. Create a responsibility-based culture

    Read Durkin's detailed descriptions of each of these steps here.  

  • Cleveland Fed's Drawing Board: The Dangers of Debt Overhang

    Too much debt can cripple a person, or a company.  That seems an obvious statement, especially two-three years into a global economic crisis.  But taking on debt has many advantages, so it is always helpful to have some basic reminders.  Cleveland Fed researchers have put out  a paper on the effect of "debt overhang distortion" on business activity and, in turn, the economy as a whole.  And that paper also prompted this Drawing Board video, which is a nice primer on debt.

    You can read more about Filippo Occhino and Andrea Pescatori's research here

  • Adopting Social Media Practices May Mean Giving Up Some Control

    Charlene Li, founder of Altimeter Group, says it is past time for companies to recognize that social media is now a central part of consumers' lives, and their employees lives.  And successful managers need to give up "control" over how workers use social media, and develop policies that match behavior with larger goals:

    Watch the full interview with Li at BigThink here

  • Online Funding Model for Startups Relies on Kindness, or Buy-in, of Strangers

    A couple of web businesses are trying to facilitate crowd-sourcing as a means of funding startups.  Kate Lister profiles one of those companies at Entrepreneur.com, IndieGoGo:

    Project owners from 120 countries have participated in more than 5,000 projects on IndieGoGo.com.

    Here's how it works: Once you've created an IndieGoGo account, the website walks you through setting up a project description, fundraising goals and perks. Perks entice people to contribute at various levels (Ringelmann says there are three sweet spots in contribution levels--$10 to $25, $50 to $100 and around $500). The average project goal posted on the site is about $7,500, but they range from $500 to $50,000.

    IndieGoGo earns its perks in the more traditional manner--taking 9 percent of whatever you raise. If you meet your fundraising goal in the time you've set, you'll earn a 5 percent bonus from the site. If you don't meet your goal, you still keep the money you raised (less the 9 percent). Contributions can be paid directly to you via Amazon, PayPal, credit card or check.

    Not all projects are funded, but Ringelmann points out that the process offers valuable lessons regardless. "Sooner or later, you're going have to engage customers and get them to pay money for what you do," she says. "Careful selection of your perks can help you gauge interest in your product or service. It's basically free test marketing."

    Read From Friending to Funding here.  

  • Housing Data From Bad to Worse

    The National Association of Realtors' report on July home sales was expected to show a big drop in sales, but this big?  

    Existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million in June, and are 25.5 percent below the 5.14 million-unit level in July 2009.

    Sales are at the lowest level since the total existing-home sales series launched in 1999, and single family sales – accounting for the bulk of transactions – are at the lowest level since May of 1995.

    Though we may not see month-to-month percentage drops like that in coming reports, Calculated Risk looks more closely at the data and predicts that a lot of unsold houses will be on the market for a long, long time.  And that means prices will have to fall. One reason: inventory.  A lot of houses have been on the market for a long time.  Here's a look at how long houses have been on the market, from Calculated Risk:

    Read the full post here.  

  • Old Spice Campaign Provides 'Back to Basics' Lesson in Marketing

    Old Spice has put together one of the most popular ad campaigns of recent memory, especially for a campaign that utilizes the web to spread its message.  The Old Spice Man has become a popular figure on television and online.  This ad, for example, has been viewed nearly 19 million times (and counting) on YouTube:

    And yet, the popularity in viewing has yet to turn into a rise in sales, according to marketing consultant Stephen Denny.  Denny writes that those who expected big sales numbers from the highly entertaining campaign forgot some basic rules of marketing, and he believes Old Spice's stumble provides some good lessons for small business owners.  He writes at Small Business Trends that the basic rules of marketing remain in place, even in a world where entertaining ads spread in new, faster ways:

    There’s nothing wrong with spending money on video aimed at viral success. Go ahead. It might work. And there are many, many people who will tell you how to go down this path. But the real point of spending money at all in business is to get more business, so ensure – regardless of what you’re promised – that everything you do is pointed towards converting that casual viewer into a buyer.

    The secret of many successful advertising campaigns is that they can be leveraged in-store or online. Look at the Pepsi Challenge. It wasn’t just a brilliant campaign – every time a consumer walked into the store and saw those two pallets next to each other, the ad replayed in their heads – but the fact that it was running the campaign at all gave Pepsi the opportunity to convince those retail buyers to stack its pallets next to King Coke. Advertising drives merchandising, and merchandising drives sales. Especially when it’s paired with advertising.

    Am I being unfair to the Old Spice brand and the agency? No, not really. The campaign ran for six months, and the brand experienced a 7 percent volume decline, with a spike driven by coupons. It lagged many of its competitors in the category. And yet, the campaign is held up as a paragon of marketing genius. Careful there; that’s dangerous talk.

    Read Old Spice Revisited: Lessons and Cautions for Small Business here.

  • Hanesbrand CEO Outlines M&A Standards

    Earlier this month, Hanesbrands acquired Gear for Sports, a maker of licensed apparel that earned $225 million last year.  The two companies have worked together, with Gear for Sports selling some of its products with the Hanesbrand Champion label.  But the acquisition makes for an interesting case study.  It comes at a time when Hanesbrand has some debt to pay down, but instead is spending $55 million to buy Gear for Sports, and taking on the latter company's $170 million debt.  Hanesbrand CEO Richard Noll explains why, and outlines his company's M&A criteria in this short interview with the Wall Street Journal:

  • Planet Money: Better Toilet Training Through Economic Incentives?

    If you want to understand consumer behavior, you might be able to learn a lot by just watching your family.  For example, do your children work harder if they get an allowance?  Are they likely to do what you want them to if you provide some sort of incentive?  Australian economist Joshua Gans, who teaches at the University of Melbourne, wrote the book on family economics.  Parentonomics tells the story of what happened when Gans tried some interesting experiments out on his children.  Gans, and his daughter were guests on the Planet Money podcast, where they discussed their experiences with a "toilet-training economy."  Take a listen:

  • Warning Signs of a Coming Trade War

    Michael Pettis, finance professor at Peking University and a senior associate at the Carnegie Endowment, warns of a coming trade war in today's Financial Times.  Pettis argues that China, Japan, and Germany depend on their large trade surpluses, and so they aren't likely to change policies to help mitigate the growing trade deficit in some European countries and, more importantly, the United States.  In turn, he is afraid the US will "overreact."  The economic crisis, Pettis writes, has "undermined the precarious decade-long equilibrium between these blocs."  

    But global trade must balance. The rest of the world will have to absorb, with rising trade deficits, the combination of rising surpluses among surplus champions and declining deficits in trade-deficit Europe. Given its openness and financial flexibility, the US will, in practice, absorb most of the adjustment, its trade deficit rising inexorably – until Congress implements vigorous anti-trade policies. The US lacks the industrial, currency intervention and interest-rate management policies available to the main trade-surplus countries, and so will be forced to use other forms of trade protection – tariffs and import quotas.

    This should not be allowed to happen. Instead of supporting policies that shift the adjustment elsewhere, the other main economies must agree to absorb a large share of the European shock. If they do not, they will force the US to retaliate. It is up to the surplus countries to ensure their urgent dependence on foreign demand does not result in a collapse in the willingness of deficit countries to continue providing that demand.

    Perhaps it is already too late. Trade-deficit Europe has no choice but to adjust quickly. Opposition from uncomprehending domestic constituencies in the trade-surplus champions will prevent them from taking steps to adjust. Meanwhile, US anger over trade is rising quickly and has made bashing foreigners an easy and obvious vote-getter.

    Read The last chance to avoid a global trade war here.

  • Founder of SCVNGR On How Game Behavior Will 'Reshape' Education and Commerce

    Many of us have come to terms with the idea that as we are living our lives in the "real world," we are also maintaining our existence in a virtual world through social media sites like Facebook, LinkedIn, MySpace, or even Google and Yahoo.  Seth Preibatsch of SCVNGR, a business that builds scavenger hunts for mobile devices, calls this additional living space the "social layer."  And now that a lot of people are comfortable with that layer, many are adding a "game layer."  In this presentation at TEDxBoston, Preibatsch described how he thinks games are beginning to help steer behavior in education and business:

  • NYT: Forecasting an End of an Era in Housing Investment

    National home sales data will come out tomorrow, and economists are bracing for a big drop in sales from last year.  And that may have significant implications on economy overall.  It may also signal a shift in long term economic thinking among many families.  Over the second half of the Twentieth Century, a lot of Americans built "wealth" through their homes.  After the housing bubble burst three years back, and helped drag down the global economy, the days of netting big returns on housing appear to be gone, but for how long?  David Streitfeld has a front page article in the New York Times in which he writes that "more than likely, that era is gone for good."  And he shares the thoughts of some leading analysts:

    “There is no iron law that real estate must appreciate,” said Stan Humphries, chief economist for the real estate site Zillow. “All those theories advanced during the boom about why housing is special — that more people are choosing to spend more on housing, that more people are moving to the coasts, that we were running out of usable land — didn’t hold up.”

    Instead, Mr. Humphries and other economists say, housing values will only keep up with inflation. A home will return the money an owner puts in each month, but will not multiply the investment. 

    Dean Baker, co-director of the Center for Economic and Policy Research, estimates that it will take 20 years to recoup the $6 trillion of housing wealth that has been lost since 2005. After adjusting for inflation, values will never catch up.
    “People shouldn’t look at a home as a way to make money because it won’t,” Mr. Baker said.

    Read Housing Fades as a Means to Build Wealth, Analysts Say here.

    Related Post: Read Richard Green's Is housing the best way for low-income people to build wealth? here.

  • Why Women Might Be Better At Investing

    MoneyWatch editor-at-large Jill Schlesinger is happy to share data that suggests women are better investors than men.  One study shows that women outperform men in their returns by 1%.  Men may be more active with their investments, but Schlesinger thinks that women do better overall because they are more likely to stick with a game plan:

    Schlesinger's MoneyWatch colleague Allan Roth writes about the gender differences in investing as well.  Read Smart Women-Smart Investors here.  

  • 'Economic Dynamism' Pushes US to #11 in Newsweek's Best Countries Rankings

    One of the five key measures in Newsweek's Best Countries rankings is economic dynamism.  This is the area in which the US did the best, coming in with the second highest economic dynamism rating (behind Singapore).  Overall the US ranked #11 (Finland, ranked #1 overall--and after living there for part of the year, this author understands why).  The Newsweek team has a useful interactive tool to see where each country ranks in all the categories.  Here is what it looks like for the US:

    Click here to use the interactive tool.  You can find the methodology behind the rankings here.  And click here for all of Newsweek's Best Countries articles and analysis.  

  • The Dangers of Hiring an Outsider

    The Economist's Schumpeter blogger expects Nokia to replace its CEO soon.  And reports are that Nokia is seeking an outsider to take over for CEO Olli-Pekka Kallasvuo, who has been in charge for the Finnish giant's steady decline in stock value since 2006.  Is that a bad idea?  From the Schumpeter blog:

    One of the few things that management theorists agree on is that recruiting bosses from outside is something that you should avoid if you can. Listen to über-guru Jim Collins: in “Good to Great”, he observed that more than 90% of the CEOs of his sample of highly successful companies were recruited internally. Or consult Rakesh Khurana of Harvard Business School: in “Searching for a Corporate Saviour”, he described how companies that invest their hopes in a charismatic outsider are usually disappointed. Or read the painstaking studies that come out of the Academy of Management: they show that even companies that are having a hard time are better off sticking with an insider. The curse of the alien boss is particularly potent in the high-tech sector: think of John Sculley’s disastrous reign at Apple or Carly Fiorina at Hewlett-Packard.

    Nokia is especially likely to prove allergic to a foreign CEO. For a start, the firm is headquartered in a country that is dark for half the year. That will surely limit its ability to attract the best and brightest. (The rumour mill suggests that one prominent American has already rejected the job because he or she does not want to live in Finland.) To make matters trickier, Finns deem Nokia a national treasure: it accounts for about a fifth of the value of their stock exchange and a huge share of their exports. A foreign CEO would be under intense scrutiny from day one.

    Read The curse of the alien boss here.

  • Simplifying the HR Playbook

    An organization's human resources division is supposed to make for a more efficient workplace, and help foster an environment where employees develop into more productive and valuable workers.  But Miriam Ort, Senior HR Manager for PepsiCo, argues that too many HR offices are ineffective because they are too complicated.  In One Page Talent Management, Ort and her co-author, March Effron, lay out a roadmap for an approach to HR that centers on three core principles: "Simplicity, accountability, and transparency.  Ort sat down recently with Sarah Green of the Harvard Business Review and talked about making HR practices more efficient: 

  • MarketingSherpa: Breakdown of How Companies Use Social Media

    MarketingSherpa's latest research surveys show that social networks like Facebook and LinkedIn have been used for marketing purposed by over three-quarters of businesses.  Here is the breakdown from MarketingSherpa's research director, Sergio Balegna:

    For more on this chart, click here.  

  • Fallows and Roach on China's Economy

    We noted earlier this week that China appears to be passing Japan as the #2 economy.  So what does that mean for the world's #1 economy?  On Monday Charlie Rose spoke with James Fallows of The Atlantic Monthly and Morgan Stanley's Stephen Roach--both respected in their fields for their work on China--about the view from China on the US's economic standing today.  Here is an excerpt of that conversation:

    Watch the full discussion here.  

  • Economists Weigh in on What the Fed Should be Doing Now

    In its Economics by Invitation series, The Economist asks economists to weigh in on vital contemporary issues.  Last Friday, the question was "What actions should the Fed be taking?", and compelling answers keep rolling in from top academics.  Rutgers economist Michael Bordo calls for a "credible" commitment to a price level target. The University of Oregon's Mark Thoma puts forward ways in which the Fed can continue to lower interest rates.   Columbia's Guillermo Calvo thinks the first order of business is to "address Main Street's credit crunch."  And Boston University's Lawrence Kotlikoff argues that "if the Fed is ultimately going to need to print money to pay the government's bills, this is the time to do it or, at least more of it."...

    The danger, though, is that when the economy returns to normal, there will be so much money sloshing around that prices will rise dramatically.

    The Fed is very worried about this outcome having printed $1.152 trillion since August 2007 and jacked up the monetary base by a factor of 2.4. Indeed, the Fed is so worried about this extra money getting into the economy's bloodstream that it's been bribing banks to horde this money as excess reserves. The bribe is coming in the form of paying interest on the excess reserves. This bribe has also been used to pass money under the table to the banks so they could "earn" money in a completely safe manner and, thereby, remain solvent.  

    In worrying about inflation and in keeping the banks afloat via payment of interest on excess reserves, the Fed has undermined its other objective, namely getting the banks to make more loans to the private sector. I think it's time to focus on that objective. Hence, I'd also recommend that the Fed stop paying interest on deposits and take the risk on inflation. Jobs, at this point, are more important than prices.

    Read Kotlikoff's full post here.