The Science of Relationships in Business

I was going through my normal browsing routine of the Financial Times today and found an interesting article in the management section entitled “The psychiatrist of finance” which was a small story on a man named Peter Solomon. The piece talked about how Mr. Solomon’s career evolved during his career and how he has preferred a way of doing business that involves close relationships and empathy with potential and current customers. I actually felt that the piece was extremely good for any MBA student to read because it reminds us that even in today’s environment of ever more automated relationships that a human connection can be the difference between success and failure as well as necessary to ensure a long relationship with clients.

Balance: a career in banking has enabled Peter J. Solomon to pursue his interest in art


As I sat here pondering the deeper meaning of the moral of this story, I realized that the subject of the article has a point that should be heard. In fact, it can even be seen as a strong strategy that provides a competitive edge. More and more services such as investment banking are becoming a commodity. This causes firms to essentially race each other to the bottom of the profitability ladder. Firms continue to find ways to cut expenses which usually means cutting out the human factor in exchange for higher levels of automation. But the question to ask is, why? Why do firms automatically start assuming that these short term moves will help in the long term? As a product becomes a commodity, it no longer brings about a sense of product loyalty to it. A perfect example of this is how investment banking is becoming cheaper and cheaper for firms and no longer draws the same loyalty that it once did. The relationships that Mr. Solomon has built over the ages are essentially what cause consumers to stay with a company in the long term. Just look at how when a financial advisor moves to another firm, many of this clients will go with him or her.

In the article, Peter Solomon recalls an incident when one of the employees of his firm was so involved on her smartphone that she walked directly between the President and Chairman of her firm without even realizing it. After getting her attention, he says to her “You just walked between the chairman and the president of your company. Are you going to observe the world around you, or ignore it?” This small story really gets to the heart of a disease of mass automation within the entire business community. Firms are so involved in automating out the human capital that they are losing their edge in being able to find hidden gems of opportunity that a computer cannot discover. This really goes beyond the usage of customer loyalty programs that attempt to entice consumers with financial rewards, this goes to the heart of the interaction between two people, regardless of their social positions or status. While CRM systems can only attempt to use algorithms to attempt to discover patterns leading towards better sales and client management, the ultimate tool to that better relationship is the salesperson or service rep themselves and their ability to empathize with clients and their concerns.

Just looking in my industry, I can easily pick out a perfect example of this. If say an asset manager is offering service to their client but they simply are offering a commodity, they may continue to retain that line of business but no growth will be established. If that same asset manager ensured they kept a working relationship with that same firm, they might find other opportunities such as asset based lending, underwriting, etc. All of these further deepen the client’s loyalty to the firm and almost build a feeling of guilt to go elsewhere. Going even closer to home, I easily recall how my Father will go to the same mechanic faithfully for years and years because of the relationship that was established of trust. Loyalty like that is simply unquantifiable to any firm and can be the savior in the worst economic times.

What do you think? Can you name a few examples in your own industries of how such loyalty and relationship building are either being forgotten or used to build stronger ties to the client?




Financial Times: The psychiatrist of finance by David Gelles 5 Ways to Take Customer Loyalty to the Next Level by Jonanna Lord


Walmart: Ally or Villain

Over the past several weeks Walmart has made headlines for employee protests rather “everyday low pricing”. Walmart has opposed unions since they opened in 1962 and there have been several failed attempts to organize the over 1.4 million Walmart employees.  The efforts in the past few years are gaining momentum and even Walmart executives have acknowledged their efforts.

Employees of Organization United for Respect at Walmart , OUR Walmart coordinated protests on the busiest shopping day of the year. It involved 1,000 stores, 4,000 members and thousands of others sympathetic to their position. The members of OUR Walmart want more full-time positions, predictable schedules, and respect. The members of OUR Walmart say that they some of the employees aren’t making enough for a decent living. Some of the Walmart representatives rely on government support and food banks where Walmart is a contributor.

The claims against Walmart extend beyond the complaints from the employees. Many activists say that Walmart’s growth has come at the expense of its workers, environment, and the law. The articles sited that since 2005 Walmart has paid $1 billion in damages related to unpaid work. There are also allegations of corruption in its Mexican subsidiary and a potential cover up by Walmart executives. In November there was a fire at a factory in Bangladesh that Walmart uses for sewing clothes. The previous year declined to sign an agreement among retailers that would have improved working conditions.

On Walmart’s side, CEO Mike Duke told Bloomberg that “This tension for me is not a tension.”  Walmart executives stand firmly that they are supporting their workers better than their competition and claims that their turnover rate is lower. David Tovar, a spokesman for Walmart said “we have human resources teams all over the country who are available to talk to associates”. Walmart says that their benefits are affordable and comprehensive and overall they are proud of the jobs they offer.  The protests on Black Friday only impacted one tenth of one percent of the company’s workforce. If Walmart employees unionize they are risking vacation time, bonus, discounts and other Walmart employee benefits.

Each side of the fight has brought a team of experts to tell their side of the story. Walmart brought in a strategist for the Democratic campaigns to improve Walmart’s reputation. Leslie Dach specifically focused on reducing waste and energy use and supported Obamacare. OUR Walmart is working with ASGK Public Strategies and the UFCW. ASGK is making OUR Walmart a brand and using tactics such as social media to build the base of supporters. Their efforts have been highly organized and effective compared to previous union attempts.

QUESTIONS: Walmart’s strategy to ignore the efforts is not working as it did with other attempts. I questioned if Walmart make OUR Walmart an ally rather than an opponent? Do you think Walmart employees are treated and compensated fairly?


Apple Again???

Recently reports have surfaced that Apple has reduced the orders for parts to make the iPhone 5.  There are three theories as to why Apple has taken this action.  1.  The iPhone 5 is not selling as well as they had hoped.  2.  They have designed a way to produce the iPhone 5 more efficiently.  3.  Apple is preparing to roll out another product in the Spring.  All three theories have a basis in corporate strategy, each with very different implications. 

Is the iPhone 5 not selling as well as Apple had hoped it would sell?  The iPhone 5 broke records for opening weekend sales, selling over five million units.  However analysts were disappointed because some had predicted that over ten million units would be sold in the first weekend.  Were the analysts a little over zealous in their estimates? Forecasting accurate sales numbers can make or break a company.  It is also one of the hardest numbers to figure out.  How can we expected to predict the future?  We’d like to believe the consumers will act in a predictable way, but obviously human behavior is unpredictable.  What this all boils down to is that if Apple had over estimated their original sales forecast numbers then it would make sense that they would be tapering off orders for parts to produce the iPhone 5.

Has Apple designed a way to produce the iPhone 5 more efficiently?  Jay Yarrow from Business Insider described a theory as “Apple may have put in a bigger manufacturing order under the assumption that the iPhone 5 was going to be hard to make. Turns out it’s not that hard to make, so Apple can cut its order.”  Again an important part of creating and maintaining a business strategy would be to accurately predict the resources you will need to produce your product so that you don’t over buy or under buy. 

Is Apple planning a new product rollout in the Spring?  Apple has recently moved from rolling out products once a year to doing new product rollouts twice a year.  This is a significant change in strategy for Apple, and we have to question whether or not it is a good idea for Apple to roll out products at double the pace.  Should we follow the old adage “If it ain’t broke, don’t fix it?” Or is it important to try to keep pace with new strategies and try new things?

Got Maps?

I know, I know… Many of us in the Business world are sick of talking about, thinking about, and reviewing how good Apple is doing. My CEO says we need to be more like Apple, be the market leaders, innovators… like Steve Jobs. So it is to my pleasant surprise, when an opportunity comes up to talk about Apple’s mistakes, I don’t mind going into detail.

When the first iPhone premiered, it was not Apple’s strategy to make a GPS, nor an infinitely vast search engine. No, their goal was simple; make a phone that worked, was easy and intuitive to use, and make it look amazing. On every account Apple achieved what they set out to accomplish  When they opened the app store, they revolutionized mobile computing. They changed the way software companies could make money on mobile. Instead of tiny banner adds at the bottom of your mobile web browser, you could buy an app that was worth the dollar. One software publisher was there first, Google. Google brought directions and navigation to Apple’s iPhone. Apple liked it, so it was installed by default. It was simple, easy to use, and it worked wonderfully.

At some point in the last few years, Apple has started to control the App space more stringently. They’ve frequently cited security or legal reasons as to why they would deny a software publisher’s right to sell on the online mobile store. Strangely, with the release of the latest phone (iPhone 5) and the newest operating system (iOS 6) they denied Google the ability to publish the Google Maps App (which was free to download and install), and instead released their own version of the Maps App which was installed by default.

In an uncharacteristic move by Apple. The Apple Maps App was downright awful.  It was unpolished,  difficult to use, often sporting inaccurate or inefficient directions to your destination. If you were so lucky to use it on the new iPhone 5, you have turn-by-turn navigation with a friendly voice who would sometimes get you lost. In fact, the navigation of the new app  was so bad that caused a few incidents, even causing Australia to issue a Public Service Announcement to not obey Apple Maps directions as they could be dangerous.

This week, Apple effectively conceded defeat and allowed Google to once again publish Google Maps to the App Store. Within days, Google Maps became the most downloaded App in App Store history. Indicating both that Apple’s Map application was rubbish and that Google’s Map App did not represent a major threat to Apple’s primary business strategy.

So here’s the key question, if Google and Apple are direct competitors, why would they let Google bring their Map App back? If they’re not directly competing against each other, why ever remove Google Maps in the first place? It is possible that Apple thought they could push Google out, and gain market share. Instead, they upset a huge core of their customers who are now delighted that Apple brought back the real Maps App.

Corporate “Lessons Learned” from 2012

Corporate Strategy News is a news and information resource designed to help business executives in decision-making.  Recently they published an article entitled “Top Concerns for CEO’s in 2013.”  The basis of the article came from several top executives who were surveyed about planning for the business year ahead.  There were 3 main points that were emphasized in the article: building a contingency plan, minimizing risk and managing talent.  I view these points as the “lessons learned” from 2012.

Contingency plans are a hot topic for businesses as a direct result of Hurricane Sandy and other major natural disasters that have recently occurred.  For example, many businesses have been content to keep all records and files on site.  This tactic has been proven to be deficient in emergency planning.  Contingency plans address these issues and are more than just “disaster planning.”  Managers should have several plans that address numerous scenarios.  This provides organizations with greater flexibility so they can “weather any storm.”

Minimizing risk is also vital to a firm’s success.  Risk is inherent in any industry, but there are a number of ways it can be reduced.  One of the greatest ways to reduce risk is through improved internal auditing.  If a firm is more transparent it’s easier to find errors and improve business processes.  Given some of the uncertainties for next year, risk management also becomes increasingly more important.

The last major point of the article emphasized the importance of talent management and it’s impact to a corporation.  Talent management should be a role that extends beyond the human resources department.  Unfortunately many corporations often overlook this attribute.  CEO’s and other executives should take an active role in talent management so that leaders can be identified and rewarded.  Human capital will become more important next year as the economy strengthens.

I found this article to really hit on some key issues and problems that exist within various corporations today.  None of the above mentioned points should come as a surprise, but it should be an “eye opener” for executives that haven’t taken these critical points into consideration.  Of course these aren’t the only factors that impact success, but given the circumstances and some of the recent events that have occurred, these points should not be ignored.

This past year has been an exciting one, to say the least, for many corporations.  The challenges that lie ahead with the looming fiscal cliff, problems with major money-lenders and other uncertainties will make strategic planning a priority for all businesses in 2013.   Every corporation will need to have a unique competitive advantage going forward, and addressing some of these key issues can help them prosper next year.

If you would like to read this article you can find it at the link below.


Financial Woe is Me

The recent recession and high rate of unemployment have impacted spending habits around the world in a variety of ways.  This economic period has forced many people to cut back and alter their spending habits.  Fear, a difficult emotion to overcome, has entered the picture.  A downturn in the economy can encourage people to return to a simpler lifestyle.  Financial choices become more sensible and deliberate, and for many, it is unlikely that these spending reductions will be reversed.  “Even when prosperity returns, 60% predict they will continue to spend less money than they did before” (


Table courtesy of


What is the complexion of the post-recession shopper? 

 The average consumer will shop at stores with lower prices even if it isn’t convenient.  Consignment and resale shops have become more popular during the recession, and 99.6% of consignment shoppers plan to continue to shop at these locations (  For those who are tired of sacrificing, a “do-it-yourself” solution may be the answer in order to obtain more expensive products at a lower price.  Online sales continue to increase which greatly affects the retail sales market.  Consumers are beginning to adopt a new and very conscious set of standards. 

What does this mean for the retailer?  The new consumer values deals, promotions, and reward programs.  Savings-related information must be easy to navigate and readily available.  “Retailers should review the number of price points and optimize the numbers of gaps between price points in each category” (  Private labels, used frequently during the recession, are now considered to be on par with the well-known brands.  Consumers feel that these private labels are “good enough,” as opposed to a prior mind-set making premium brands a must.  Consumers are able to go on-line to research and compare products before purchasing.  It is imperative to engage shoppers in the full path from purchase to home and in-between  (

It is not only important to understand consumer purchasing trends, but to also understand what psychologically drives his or her behaviors.  Frugality is a learned behavior, and learned behaviors are difficult to change.  Often times, these behaviors turn into habits (  Shopping has taken a more disciplined, thoughtful approach with less impulse and more reflective research before purchasing an item.  Spending to excess is no longer in vogue.

Will focusing on promotions, better values and incentives, and the right demographic be the answers to capturing the competitive retail sales market?  How else can retailers better address this new value-driven environment?  Shoppers have found a new “normal” and they aren’t looking back.



JC Penny: Adding Mannequins, Reducing Clutter

JC Penny has a long history in the American retail storybooks, however recent management changes which have led to radical shifts in marketing strategy have left a company that seems to struggle with their identity. As a reactionary measure, JC Penny decided to do away with coupons and discounts that were reducing artificially inflated prices of items, and instead charge fair and reasonable prices that in theory, consumers would have paid anyway. No longer feeling the rewarding benefits of a discount or coupon, customers have reacted negatively to JC Penny’s new strategy as they feel like they are paying “full price,” even if it is what they would’ve paid with the coupon. According to Reuters, JC Penny’s sales dropped 26.6 percent last quarter, and their stock price has tumbled 50% so far this year, showing how dramatic this shift in strategy has impacted their financial performance.

However JC Penny leadership has remained dedicated to this new approach as part of a larger effort to rebrand the tired name, and they feel that they have made some inroads in achieving their ultimate goal. JC Penny’s Chief Creative Officer Michael Fisher, wants to introduce more mannequins displaying whole outfits, while at the same time removing the clutter and amount of merchandise that traditional department stores seem to have. The goal for Mr. Fisher and executives at the company is to ultimately transform JC Penny into “jcp” which represents a new, higher end, boutique driven retail model that will attract higher end brands and younger and hipper clientele.

The results of this new strategy are mixed however. Sales per square foot of the new boutiques have increased to $269 per square foot, which is about twice as large as the old JC Penny used to produce (this compares to $391 per square foot for Gap, and $6,060 per square foot for Apple). While foot traffic has declined slightly, JC Penny executives claim that it is going to take time for customers to get used to the new store, as well as take some time to get designers on board with the new strategy. In addition, initiatives such as the increase use of mannequins and the introduction of a house hold displays similar to that of IKEA are supposed to support the overall strategy and are intended to improve the shopping experience for the customer.

The jury is still out as to whether this strategy will work, and investors seem to be very bearish on the new strategy. Critics have argued that this brand revival is too little, too late, and that JC Penny is behind in the market in terms of being able to attract consumer retail dollars. This has not deterred company management as they are dedicated to this new strategy and believe consumers will come around with time. Only time will tell if JC Penny can whether this storm and become a new boutique destination retailer for consumers, or go the way of Borders, Circuit City, or Montgomery Ward and find this dramatic strategy shift has accelerated their path to their demise.

When will *this* bubble burst?

As student debt recently surpassed the $1 trillion mark, the delinquency rate on student loans has also exceeded that of any other type of consumer loan – including credit cards and car loans. Even worse, chances are that many will default, even though there are now more options for debt relief than ever. Private loans offer choices that include forebearance, deferment, and reductions in monthly payments; federal loans offer some additional options for the employed, unemployed, students, and military. Unfortunately, for those who decide to default anyway, the consequences can be severe. The government can garnish wages, as well as Social Security disability and retirement income. The loans are unaffected by bankruptcy, and charges for collection can reach 20%. Lenders even get first dibs on any lottery winnings. And, just like any other loan, defaulting can damage credit scores, affecting the borrower’s ability to get future loans.


So, how did it get so bad? After all, student loans are just loans, right? Well, not really. Unlike other types of loans, there’s no collateral involved (an education can’t be repossessed) and loans aren’t given out based on creditworthiness or ability to repay. Beyond that, tuition has skyrocketed to a level at which the higher projected earnings of having a degree are all but wiped out by the burden of the debt incurred, to the point that many debate the value of having a college degree. What money schools do have often times is not given to those who need it the most – for example, it is sometimes used to lure higher-paying students rather than low-income ones. In fact, financial aid is like a legal form of price discrimination – a method of lowering the price of admission to what someone is willing to pay, so that everyone pays different amounts for the same education.

Several ideas have been proposed to help the “industry” (which involves mainly schools and the federal government) revamp their operations. Most obvious is to bring down the cost of higher education to a reasonable level, which can be done partly by online learning and automation (eg. recorded or online lectures for intro classes). Also, make the schools somehow feel the burden of loan default, which may encourage them to offer more aid as grants rather than loans – or to come up with better ways of financing education. Disclosure might also prevent some from overleveraging their finances if, for example, they knew what the projected payback from their degree is, or if they were better informed on how much of their aid package was actually from loans. Finally, come up with better terms for the overburdened, such as income-based payments and writing off additional debt after a specific repayment period.

It seems strange to think of higher education in business terms, but ultimately most of us are in it for some form of financial gain. What are your thoughts on student loans and the high level of delinquency? Is the value of higher education (financially) worth the cost anymore? How can institutions adjust their operations to reduce the risk of default?

Made in America – Jobs Trickle Back to U.S. Plants

U.S. manufacturing employment was reduced by about six million jobs, or one-third, between 1997 and 2010 but the new trend that has been growing over the past two years is the re-shoring of some manufacturing work that was “off-shored” to low-cost producers like China in the past few decades. Producing in Asia is not as big of a no-brainer as it was 10 years ago.

U.S. manufacturing has become attractive for some companies as Asian wages have surged over recent years and the wage gap between the U.S. and China has narrowed. The drop in the dollar over the past decade has also made U.S. produced goods more competitive. And higher oil prices have increased the cost of shipping goods across oceans, making domestic manufacturing more appealing.

The U.S. also suffers from a shortage of trained workers in some areas vital for manufacturing, such as engineering and operation of computerized machinery. U.S. corporate taxes are higher than those in most other industrial nations.

Products more likely to be re-shored include heavy or bulky items for which the shipping costs are high in relation to the price, such as heavy machinery. Other candidates for re-shoring include expensive items subject to frequent changes in consumer demand for certain colors or styles, such as high-end clothing, home furnishings or appliances. Makers of products for which safety is a paramount concern—such as food or baby products—might choose to make them at home so they can closely monitor all of the suppliers of parts or ingredients.

In terms of labor costs, China still had a big edge, despite rapid wage increases there. Assembly workers at plants in the U.S. typically earn about $12.40 to $16.50 per hour, plus benefits. By contrast, manufacturing wages in eastern China’s big manufacturing hubs are as much as $3.40 to $3.50 per hour. While those Chinese wages are only about a quarter of the level in straight comparison, the effective difference is narrower with estimates that U.S. manufacturing workers on average produce about three times as much per hour as their Chinese counterparts because of greater use of automation and more efficient manufacturing processes.

Call centers in India were having typical turnover of 100% or more each year, while typical turnover in U.S. call centers that handled more serious problems was in the single digits which allows U.S. call centers to provide much better service and customer satisfaction. Also currency fluctuations and rising wages in emerging markets are making the United States a lot more attractive in the long run.

Chinese labor costs are rising about 15% to 20% a year, which makes producing goods in China not nearly as cheap as it used to be. For many manufacturers, that narrowing is enough to tip the balance back to U.S. plants.

One factor that is helping the U.S. manufacturers is that many companies were forced to cut back and are reaping the benefits of restructuring. GM is a prime example of how the most drastic form of reorganization — bankruptcy — can work.

The news are great but U.S. still has to re-shore a considerable amount of manufacturing jobs in order to improve unemployment and every American can help by choosing “Made in America” products over products made elsewhere.

“Worst Corporate Deal Ever” – How Did It Happen Again?

Last year, Hewlett-Packard bought Autonomy, a software company focused on data analysis and intelligent searching, for $11.1BN, or 12.6 times their 2010 revenue. Last week, HP announced an $8.8BN write-off related to the acquisition, effectively admitting that they overpaid for Autonomy by 79% (HP had a lost of $6.9BN this quarter, in large part due to this write-down). HP is now claiming that fraud was potentially committed by Autonomy during the acquisition process. However, HP was not the first company to look at Autonomy, and potential fraud aside, the deal was overpriced according to the earlier “courters” of Autonomy (like Oracle).

The AOL-Time Warner deal in 2000 is largely considered the worst acquistion in history, but there is now speculation that this deal is worse. For example, the AOL-Time Warner deal resulted in a 50% decrease in value, while HP-Autonomy is approaching 60%, and the fallout is still unfolding.

So, how did it happen? There is quite a bit of “he said, she said” going on in the public eye, and likely more of it privately.

In both of these acquisitions, the acquiring company was a “has been” in the industry looking for a way to transform. HP bought Autonomy to transform their software division for the 21st century. If we speculate a bit, it is not hard to draw the conclusion that instead of trying to transform what HP currently had, they chose to buy a transformation, and thus overpaid for it – either out of optimisim for the deal, desparation for a solution, or both.

If we read a bit into the “he said, she said” that is public, it appears as though a couple of things are going on:

(1) HP overpaid for Autonomy, regardless of potential fraud (based on earlier companies that passed on Autonomy, and former Autonomy executives admitting publicly that HP “paid a full price”);

(2) No one besides HP’s board or CEO thought the acquisition was a good idea for HP;

(3) There were power struggles within HP that caused speculation and indecision on whether they would be a hardware company, software company, or both; and

(4) The cultures of the two companies were not taken into consideration.

This last point is potentially the most important from a longer-term strategy perspective. HP, a larger, mature company that has not kept up with industry changes, was likely “stuck in its ways” in terms of how the company operated – from R&D all of the way through sales and support. Autonomy, a smaller, “trendier” company was likely more nimble and able to respond to market demands, which was one of the reasons they were more relevant in the market. Based on some of the public comments, it seems as though Autonomy was bought, and then forced to change it’s ways to the “HP way”, instead of integrating the two sets of cultures and processes to get the best of both worlds. If you take a successful company and force it into the processes for a struggling company, it will not reach the revenue potential that was the basis for the price paid – hence the current situation.

It will be interesting in the coming months to watch the fallout of this situation. There will most certainly be litigation that comes out of this as a result of the write-down and potentially the accusations of fraud. There is already speculation that HP could become a takeover target. And, most importantly, this is likely a “make or break” situation for HP – they could either become yesterday’s news, or if the embrace the need for change, transform the company.