what makes a great company?

I had an opportunity for breakfast with Bill Sullivan, CEO of Agilent, this morning, a week after the announcement about Agilent's intention to split the company into two groups, one for Life Sciences and the other for Electronic Measurements.   I wrote a couple of days ago about the Market Capitalization issues here, but did not deal with the obviously key ingredients of why this makes sense for each of the groups after the split.

We spent a fair amount of time actually on the components of how you build value over time, which clearly has happened beautifully at Agilent over the past decade or so.

I used a slide (see below) that I have used in a number of talks about THE HP PHENOMENON.  Bill had some visceral reaction to it -- I have to say it felt a bit like talking to "the old Dave Packard" even though Bill is not nearly so tall as Dave was.  He espouses the very same values!

The point of this slide, especially when done as a PowerPoint "build" in a talk, where I move clockwise (can we still say 'clockwise' when no one remembers analog clock dials?) from the upper left corner:

1. REV, PROFITS, GROWTH are the metrics that every management team uses, faithfully

2. Share Price mostly, and ROI / ROE / ROA are Wall Street analysts metrics.  For some top managers, this is the manipulable set of numbers that drive their bonuses without creating any 'true value'.  This is where you see the "lay a bunch of folk off, outsource to some cheap locale, cut R and D, and drive your margins up' scenarios -- for awhile.

3. Ethics / Environment / Community role is the Reputation of the Company in YOUR TOWN.  Are you proud to say you work there?  Do the local community service groups look to your company for leadership in civic affairs?  Or does your company, like some, argue for years about whether their effluent is why the river caught on fire or killed all the fish.....  You've seen those "Best Company to Work For" surveys, right?  They're not just about the benefits and pay scales.

4. EMPLOYEES, which is what most managements say is "our best asset" -- what do they think about and worry about?  Most often, it is the quality of their job, the level of satisfaction, the challenge, and the learning that goes with it, plus the dignity with which they are treated that matters to them more than share price or corporate profits.  Now, this all folds together, as Packard used to say --- without profits, there are no jobs, and with no jobs it is hard to have job satisfaction.  But without high employee morale and loyalty and going that extra mile, there isn't much long-term satisfaction.

5. The CENTERPIECE here -- PRODUCTS and SERVICES -- is really what the CUSTOMER cares about.  Do they get value from buying your Products and Services?  If not, they won't be repeat buyers, and the whole thing goes to pot.  They could care less about your share price, ROA or revenue growth. Bill shared a wonderful story--he said he's multiple times had customers tell him that his competitors are all at the customer site when the sale is about to happen; but Agilent, and Bill specifically, are there afterward, making sure that it all works well.  That breeds long-term satisfaction.

6. INVENTING, REFINING, INNOVATING is what drives CONTRIBUTION in Products/Services, so this is the wellspring for all renewal efforts, and all long-term corporate survival tactics.  Shortchange INNOVATION, which seems to be the game at all too many large corporations, and the only thing left is to try to SAVE your way to SUCCESS, or try M&A, or a SALE.

The point is that each of these six perspectives are correct views to hold, and some fairly large constituency holds each of them to be TRUE.  HP historically, and AGILENT today believe strongly that these all need to be in BALANCE.  None of them are 'the long pole in the tent" -- they all are valid and they must all be done well.

Not exactly the way Wall Street views it, but Midwestern common sense would argue strongly for it

Comments?

Agilent "splitting"

The news late last week about Agilent didn't create much stir in the Valley.  Some said "who's Agilent?" but I wrote that off to short memories.

Agilent, for those of you who don't recall, is the "real HP"--the measurements company that made scads of money by producing really awesome Microwave test equipment for a communications hungry country (and world) back when radio and television were 'local' without national or international reach.

It also made a fair amount of money on all sorts of instrumentation for other engineers, scientists, and doctors, to mention just a few.  And because instruments have to measure things 'at the state of the art' they must be, in some respects, better than the state-of-the-art for whatever application they're on.  And that fuels INNOVATION to stay ahead of the curve.

That, more than any one thing, accounts in my view for why HP -- the 'real HP' -- was so innovative for so many years.  It HAD TO BE, to stay the leader in instruments, no choice.

I tried once to capture some of that with a personal memoir, one built around a decade of my life developing Logic Analyzers, which were tools that empowered the Computer Age as we know it.  The book includes some Take-Aways, for folk worried about 'large company innovation' today, and as such, it has gotten a modest reading.

It is Lulu Press available, just type "Permission Denied Lulu Press" into your browser, and you should see an order page with a bearded visage of me.

I mention this because it is interesting to compare the results in the stock market for Agilent, one of their competitors who play much like 'the old HP' today -- Danaher -- and today's HP.  Actually, it is fun to look at the "PC players" as well

Below, I show the chart for Market Capitalization (e.g. stock valuation) vs. Revenue for  seven companies.  Maybe these smaller innovative companies 'know womething'?  But maybe those investing in Intel and Microsoft (remember that they get 80%+ of their revenues from PCs) know something that says Dell and HP are underpriced.  Or is it the other way around?

The Music business at Apple

Faced with slow, flat sales of 'computers' and declining sales of peripherals, in 2000 Jobs noted the Napster attempts to 'free music' and he set Jon Rubenstein on a quest to look into 'what might we do?"

Napster, ruled illegal in summer 2001, gave Jobs an opening.  When the iPod launched at MacWorld in January 2002, Jobs confidently predicted that he'd sell 1 Million in a year.  Faced with a barrage of ciriticism, in fact only 339,000 machines sold.  Undaunted, and still in the aftermath of the dot.com meltdown, at MacWorld 2003 Jobs proclaimed this dismal sales record as a 'wild success' (never mind his prediction of the prior year), and he showed the next version, announcing that it would sell 2 million in 2003.

Alas, it did less than half of that, at 939,000 units.  Meanwhile, iMacs languished as well, and Apple continued with flat sales and virtually no profits.

At this point, Jobs intro'd yet a third iPod.  And voila, it worked, and when it hit, strangely, it gave a coat-tail ride to the iMac line, which was much higher priced, and profitable.  The corner was finally turning, circa Xmas 2004:

The stage was finaaly set -- in 2005, Jobs would find that the iPod lifted iMac sales, and it went viral itself.  They've never looked back.

But wow -- what tenacity, what perseverance, and what a gentle Board and shareholders to let him.

Two remarkable articles about Apple strategies from Haim Mendelson

I've been working with Haim Mendelson at Stanford's Graduate School of Business recently.  He shared two articles with me that should be of interest for our readers.

The first covers the iPod story, entitled "Apple and the Music Wars", published in August 2006.

The second covers the iPhone story, entitled, The iPhone: Apple's Third Act", published in February 2013.

Each support my contention that Steve Jobs would not have been able to 'exhibit his genius' at any other company because his track record was so ... spotty AFTER he returned to Apple, and after each of these imprimateur products launched and sold for two successive mediocre rounds

The mythology is that Jobs was perhaps the greatest genius of our age -- and I am not trying to dispel that fond belief.  But I would observe that the first SEVEN YEARS of his return to Apple in 1997 resulted in dramatically lower revenues (like, down by 40% and flat for 6 years) and profits that never recovered, and in fact for years 5, 6, and 7 were virtually non-existent.

Here's the revenue picture:

And here's the profits picture:

So, the question you might ask, is: "How did he keep his job?  Where were the activist shareholder dissidents?"

To request a copy or get permission to quote from Mendelson's two papers, email your request to Mendelson.Haim@gsb.stanford.edu

Unscientific journalism

Remember the guy who blew the cover on the HP TouchPad, going to Best Buy expecting "lines of customers" only to find that the store personnel didn't know whether they even carried the device?

Well, 'front lines' sometimes tell the story.  If they do in the case reported yesterday in the Silicon Valley Business Journal as follows, "Houston, we have a problem" at Apple.  Maybe the pundits, and not the Wired observer, have it right?

Sep 11, 2013, 11:56am PDT

Apple's new iPhone doesn't impress in Beijing

Vincent Lara-Cinisomo, Web contributor

Apple's iPhone 5C and 5S were unveiled to much fanfare in the States. But what about in China, where the Cupertino company is hoping to make inroads? Eh.

Bloomberg reporter Christina Larson made the rounds in Beijing, asking a cross-section of folks what they thought of the new phones.

Larson said the 5C is mocked as "not attractive;" Zhang Ao, a cameraman for Beijing Television and iPhone 4S owner, told Larson that the bright-colored 5C looked "like a cartoon," said the Apple "wow factor" had long worn off.

A colleague of Zhang, Angel Kang, said Apple releasing the phones in the U.S. and China around the same time was a "nice friendship gesture," but doesn't plan to buy one.

It's hardly a scientific study, Larson admits. But at a time when Apple greatly desires to penetrate the market, China's lukewarm reaction to the new devices, plus the higher-than-expected price, could put a crimp into the plans.

The POINT of the last four posts

The previous four posts, noting the 'significant' enhancements embodied in Apple's new iPhones, illustrate in several ways the theme that I find difficult for many people to appreciate about corporate, as opposed to individual, innovation.  Corporate innovation, for all the reasons we discuss in this blog, struggles -- top managers stifle it, middle managers fear it, developers get frustrated and leave, etc.

And granted, these ideas were all spawned by individuals, most at tiny start-ups, some of which were researched and followed by Apple researchers, enough to get excited to buy the company.

But they couldn't result in a game-changer until a large company built 'the contribution' into a mainstream product.  Take the fingerprint recognition idea.  This has been around 'forever' along with retinal scan.  Microsoft's "Home of the Future" featured retinal scan more than a decade ago at the 'front door' (one small difficulty there, they mounted it high, by the doorbell, so a kid coming home from school would have to buy a pogo stick {know what that is?} to get high enough for the retinal scan to see their eye).

Fingerprints are pretty foolproof, a clever design if there ever was one, and they also are pretty simple--we never forget to carry them around, we cannot misplace them (unlike keys, or iPhones for that matter), they cannot be easily phished... wow, what a natural.  How come it has taken so long might be the right question, instead of snarky comments like, "Wow, BIG DEAL, what a gimmick" as I heard yesterday in too many Silicon Valley contexts.

So, too, the color and image appeal of the iPhone 5C.  Henry Ford stuck with black cars, GM trumped him by putting in a paint spray booth.  He was incensed, but he also was beaten.  GM introduced the annual model update, and color.  Wow, so innovative.  It worked.  It worked well enough for fifty years that they perennially beat Ford, once the largest car company by an order of magnitude.

So will the iPhone 5C work?  Remember the Swatch watch craze?  The purists are all sniffing, humff -- it lets the riff-raff in, meaning 'the kids'    Well, the kids are the market, let's face it.

Guess who made the Apple II and the Mac successful -- it was the kids.  What they learned in the process, especially with the Apple II, was how to be comfortable in a new gagdet age, and incidentally, how to put and keep America ahead in the SW-writing age (never mentioned in Walt Isaacson's book about Steve Jobs, becuase Walt didn't understand this HUGE contribution -- I know, I asked him).

We might ask, why couldn't HP have come up with all of these ideas in order to enter the phone business as CEO Meg addressed a year ago.  She said, "we're looking at how to do this without copying and we're having trouble."  Somehow, Apple was able to do it -- and while the pundits laugh, the changes are stunning in their insight, their potential contribution, and their inclusion.

Thank you, Apple

The Fourth (of 4) new ideas in the iPhones 'today'

The fourth of four ideas 'seen' in the new iPhone announcements, as reported  by Kyle Vanhemert at Wired:

Body and Context Aware

The iPhone 5S’ fingerprint sensor isn’t the only way the device more closely links itself to our meaty selves. In addition to the new A7 processor, Apple announced something called the M7–a “motion coprocessor” that taps into the phone’s accelerometer, gyroscope, and compass to give the device a better picture of what you’re actually doing from moment to moment. Instead of just knowing “moving” or “not moving,” developers will be able to tell if you’re standing, walking, running, or driving. Accessing this type of sensor data isn’t anything new, but with the M7, the iPhone 5S is going to be collecting it continuously, figuring out what it means, and serving it up for apps to integrate as they will–all without draining the battery.

On a basic level, those situational smarts will allow for more context-aware behavior throughout our devices. The new iPhone, for instance, will sense when you’re driving and won’t try to connect you to every Wi-Fi network you speed past. That’s just one annoyance smoothed out, but the M7 could let Apple fine-tune the iOS 7 user experience to an unprecedented degree.

The iPhone 5S will pass along that capability to third party apps, too. As Phil Schiller explained on stage, a new CoreMotion API will include some sort of standardized analysis of all your movements and what they mean in real world terms. So it won’t be up to the Nike app to figure out if you’re running, walking or biking–the app will be able to rely on Apple for that analysis and design around it accordingly.

That again might seem like a small thing, but looking forward to the future of wearable, context-aware devices, it’s an important foundation to establish. Companies like Nike and Jawbone hire people solely to do this type of analysis, figuring out algorithms that let their devices understand how, specifically, their users are being active. By standardizing it all, Apple’s paving the way for apps that have a more agreed-upon understanding of what’s going on around you, or with you, and opening up the potential for more nuanced and sophisticated responses to it. If your iPhone senses that you’re swiveling slightly side to side between the hours of 9 and 5, say, it could be able to tell that you’re probably at work, at your computer–maybe a situation where it makes more sense to route iMessages to your main screen.

It will be up to developers to come up with ways to make use of this sort of data–experiences beyond just more sophisticated fitness apps. But the M7 and new CoreMotion API are indeed forward looking. They’re the first small step toward a much richer body computing platform. And plus, peering ahead a product cycle or three, the M7 shows shows Apple dabbling in components that can continuously monitor sophisticated sensors on a tight battery budget. The type of budget you’d have to work with for something like an iWatch.

***

So here we are, living in a two iPhone world. Both the iPhone 5S and the 5C are just what we expected, but they hide within their designs some key insights to Apple’s future. The iPhone 5C is the iPhone for today, where growing segments of people might not care about the iPhone’s cachet or its processing power so much as the ability to own a new, different, funky, and thoroughly personalized gadget. The iPhone 5S is the iPhone for tomorrow, where, thanks to sophisticated sensors and smarter software, we won’t need to take our phones out of our pockets nearly as often in the first place.

Idea Number 3 in the new iPhones

The third of four ideas 'seen' in the new iPhone announcements, as reported  by Kyle Vanhemert at Wired:

A True Digital Self

Tim Cook called the iPhone 5S the company’s “most forward-thinking phone yet.” What else is he going to say? But moreso than the new 64-bit processor, the improved camera, or even iOS 7 itself, there’s one iPhone 5S feature that truly is forward-looking, in a potentially game-changing way. It’s the fingerprint sensor.

On the surface, it does seem a bit gimmicky. Just like those Android phones that unlocked themselves by scanning your face, there’s an element of a cheesy sci-fi that tags along with the idea of fingerprint scanning. But as Ive reminds us, “it’s not just rampant technology for technology’s sake.” Apple has a plan for Touch ID, and the fact that the idea of the fingerprint scan is such a familiar one gives it a head start.

The thumbprint is a psychologically powerful mode of authentication.

Your average person doesn’t know anything about RFID or PGP or how secure any of it all really is (perhaps as they’ve gleaned from the news lately, not very). But they do know that scanning into a building with a fingerprint is good enough for bank vaults and high-level government clearance, at least from what they’ve seen in the movies. Apple knows that in a world consumed with privacy concerns, the fingerprint has a decent chance of being accepted as the password of the future. In a clip dedicated to the feature, Apple’s Senior VP of Hardware Engineering, Dan Riccio, comes right out and says it: “The fingerprint is one of the best passwords in the world. It’s always with you, and there’s no two alike.”

The immediate plans for the technology are clear. The thumbprint will be your pass code into your phone. It will let you buy things from iTunes with the single mash of a thumb, no fingertip pecking required. In combination with iBeacon, the Bluetooth Low Energy protocol baked in to iOS 7, the tiny new finger-sensing home button could be the biggest, smallest step we’ve seen towards a future where we’re buying stuff with our phones, not our wallets.

But Touch ID has farther reaching implications than simply letting you walk out of Walgreens without stopping at the register. Right now, we’re at a delicate locus where privacy is a greater concern than ever and where our digital selves are fragmented across countless platforms, apps and services. The catch, though, is that the next generation of interactive, digital experiences could well depend on some sort of unified personal profile–a more portable digital identity, including your preferences, your apps, your content, your settings and the rest, that could be brought from device to device. The fingerprint could be the key to all that.

It doesn’t solve issues of privacy and security out of the gate–not by a long shot. Armchair critics responded to the news of the iPhone 5S sensor with a common refrain: one more thing for the NSA to collect. Still, though, the fingerprint is a psychologically powerful mode of authentication. As we’ve seen, our usernames and passwords are simple puzzles to be cracked; the rise of sophisticated phishing makes them as insecure as ever. Two-step authentication remains a slightly mystifying pain in the ass. A thumbprint is essential, and elemental. It’s convenient and, at least in theory, uncrackable. These are all things Apple’s evoking when they write, on the website for the new iPhone, that the Touch ID system is “inspired by a perfect design: your fingerprint.”

Those unique qualities give the fingerprint the power to usher in a totally new paradigm for mobile computing–one where your “digital” identity isn’t just a bunch of different sets of usernames and passwords and a scattered assortment of data profiles, but something that is actually, fundamentally, you–a digital version of your real, flesh-and-blood identity, as linked by your thumb.

As designers look to the future–one where real world experiences that seamlessly blend devices and services are privileged over discrete use cases and sandboxed apps–this type of centralized digital identity will be paramount. Services like IFTTT have showed us the power of linking up isolated services and features; how jerry rigging Twitter to talk to Dropbox to talk to your Photo Roll can come up with some novel workflows. In much the same way, the thumbprint is poised to be the connective tissue for the cross-platform experiences of tomorrow, where data profiles can be shared in vastly more flexible ways. Walk into a room, and all the devices inside it–not just the computers and TV screens but the lightbulbs and thermostat, too, potentially–will know it’s you. Apple wants to be at the center of all that. When Jonny Ive says “Touch ID defines the next step of how you use your iPhone,” he’s not just talking about how you unlock the thing. What he’s hinting at is use cases we’re just now starting to dream up.

IDEA Number 2

The second of four ideas 'seen' in the new iPhone announcements, as reported by Kyle Vanhemert at Wired:

A More Harmonious Gadget

The iPhone 5C is noteworthy for another reason: reconnecting the design language of Apple’s mobile hardware and software. The disconnect between the soul and body of the iPhone, up until this new, cheaper one, has been profound. Game Center’s ham-handed skeuomorphism was silly enough on its own, but viewed in the context of its space-age aluminum container, it was positively jarring. The iPhone 5C and iOS 7, on the other hand, are a perfect match. As Ive says in the product video, the new iPhone “dramatically blurs the boundary” between the hardware and the software. The phones even come pre-loaded with wallpaper matching the color of the device itself.

What it amounts to is the most harmonious marriage between Apple software and Apple hardware since the Bondi Blue iMac and the lickable baubles of OS X. And that’s totally by design–though it shouldn’t come as a surprise. Whereas before we had Jony Ive taking us to the moon and Scott Forstall taking us to the craps table, now Ive’s responsible for the user experience through and through. Apple’s always had a leg up on competitors thanks to the fact that they’ve made their hardware and software. The iPhone 5C is the first time in a while it’s actually looked like it.

This is the hallmark of the original MacIntosh.  Built famously around XeroxPARC's GUI (graphical User Interface) with the novel WYSIWYG (What You See is What You Get), it combined 'intutive' icons and their invoked actions, along with the 'amazing' ability to print just what you saw on screen.

It took Microsoft -- the leading SW company of its day, a mere six years to copy this, poorly.  And in the process, eventually we've all come to expect such behavior from our machines.

As Vanhemert points out, until Jove 'got control' of the SW and HW 'integration' this was not happening in the iPhone world.  Pity.  Thank goodness it is now addressed

GREAT EXAMPLE of TRUE INTRAPRENEURING INNOVATION

The hype, ballyhoo and disappointment with Apple's new phones yesterday was both predictable and in many ways discouraging to those of us who follow (and believe in) large company innovation.

First, check out this Wired columnist assessment -- which to my mind GETS IT RIGHT (because of the length, and the disparate ideas, I will break this into four posts

4 Big Ideas in the New iPhones That No One’s Talking About

• BY KYLE VANHEMERT
• 09.11.13
• 6:30 AM

Yesterday, Apple had its annual iPhone bonanza. On one hand, it was the biggest announcement since the original iPhone. Today, for the first time ever, there are two iPhones. At the same time, though, the event held few surprises. The colorful iPhone 5C had been unveiled prematurely by a flurry of leaks, and the iPhone 5S, with its gold flavor and fingerprint sensor, had been similarly sniffed out. Still, in the finer points and features of these new products, Apple is laying the groundwork for its future as a company–and, potentially, the future of mobile computing. Here’s what we’re reading in the tea leaves.

The Power to Personalize

The iPhone 5C, a phone which Jony Ive called “beautifully, unapologetically plastic,” was assumed to be a foray into cheaper territory–a defensive move against the lower priced Android handsets that have been gaining ground worldwide. But to understand the iPhone 5C purely as an cheap play, or one for the international market, is all wrong. What the device is, really, is a bold step by Apple into the world of fashion, customizability, and personal preference. For years, your decision when you picked an iPhone had been limited to black and white. Now, you’ve got five options to pick from.

But that’s just the start. The iPhone 5C’s weird swiss cheese case, with a grid of circles carved out on the back so you can see the candy-coated hardware underneath, is an even more unambiguous sign of how important Apple thinks personalization is at this point. Accounting for the five colors of the phones and the six cases, there are 30 color combinations you can pick for the 5C. Maybe not enough to guarantee your team’s colors, but certainly enough to go a few weeks without seeing anyone else on the subway with the exact same phone you have.

One of Android’s big draws, especially in the first few years of the smartphone era, was the customizability of its software. But kids don’t care about ROMs and launchers. They care about colors and expression. With the iPhone 5C, Apple’s tapping into the allure of outward, broadcasted preference–something that the Android ecosystem, though diverse in its SKUs, still doesn’t really offer. This time next year, the iPhone 5c is going to be the phone coveted by everyone age 13 to 23.

To see what a departure the case really is, it’s worth looking at it in the context of Apple’s past storage endeavors. The iPhone 4′s bumper was colorful, sure, but its design was informed purely by functionality–the insulating rubber ring was a direct response to concerns about signal loss when gripping the iPhone 4′s antenna band. The iPad’s ingenious magnetic cover added a dose of color and preference too–but more than spunk, the draw was again functionality: it kept your screen a little bit cleaner and safer and let you stand the iPad up in bed while you were watching Netflix.

The holes on the iPhone 5C’s case, on the other hand, have zero functional purpose. They’re purely aesthetic. And in that light, you can see them as a sort of admission on the part of Apple. Jony Ive’s fanatical attention to detail, in a way, painted the iPhone into a monochrome corner. Maybe the iPhone 5 did really represent some sort of end of the road for smartphone design–at least in the current understanding of those devices. Maybe it had reached an iterative dead end, leaving no outward surface left for Ive to work his magic. Maybe they’d chamfered all they could chamfer. There’s a chance that they’ll start over with the iPhone 6, chucking everything out the window and coming back with some wild curvaceous glass shoehorn, but in the meantime, the iPhone 5C is a clear signpost to the places where Apple thinks smartphones are still worth getting excited about: personality, color, and customization. In other words: fun.