Contrarian thinking can be a big help when it comes to business theory. Anne-Marie Fink, an analyst at J.P. Morgan Asset and Wealth Management, has written a useful book that posits that thinking like an investor can help business managers do better at making money.The book, “The Money Makers, How Extraordinary Managers Win in a World Turned Upside Down,” (310 pages, Crown Business books), sets up 11 points and “myths” about business and then either backs them up shoots them all down in insightful ways.
Here are the 11 points:
- Think like an investor: Advanced Micro Devices (AMD) realizes that it can’t go against much bigger Intel, so it watched what Intel did wrong and profited. In one case, it produced chips that increased processing speeds faster than Intel’s chips.
- Avoid roach motels: When you see one roach or problem it is likely there are plenty more. An example is Enron where CEO Key Lay had plenty of warning that his CFO was getting into fraudulent deals. The lesson? Don’t resist bad news.
- Avoid profitless growth: Growth for growth’s sake is bad when it uses up too many resources. Southwest Airlines, for instance, managed to keep its planes flying 50 percent more of the time than competitors. Exxon has been able to reuse the same platform design for offshore drilling in Africa several times.
- Don’t be a customer fanatic: Sure, respect your customer but don’t assume he understands your business. An example is Illinois Central. The railroad used to get calls from a Gulf Coast plastics producer that it was ready to ship pellets to Illinois. IC used to send a locomotive on Monday but the cargo would sit in a classification yard until Wednesday waiting for a train big enough to go to Illinois. After a reorganization, when the customer called on Monday, IC would send a locomotive on Wednesday. Initially, the customer was annoyed until he learned that the pellets actually got to the final destination sooner this way.
- Get more reward for risk: If you take on more risk, make sure you know what you are doing so you won’t get burned and maximize profits.
- Economics trumps management: Cisco misinterpreted the market for telecom back in the 1990s. It didn’t realize that there were distinct economic limits for all the servers and routers it was selling to WorldCom and Global Crossing which were contributing to vast overcapacity. They went bankrupt and Cisco was badly burned.
- The best companies to invest in are the worst to work for: High performance firms with high standards are often tough places to work. Also, forget the socialistic “all for one” rewards. That ignores individual achievement.
- Good performance requires inefficiency and duplication: If you get hyper-efficient and have absolutely no duplication, you might actually miss out on those lucky mistakes that give you insight into new and profitable products.
- Megatrends start as ripples: Identifying huge trends when they are still small ones can’t be better than pouring money into long-shot ventures that won’t bear fruit for years.
- Use small steps to achieve big results: Big transformations aren’t always the way to grow. Sometimes incremental steps are wiser.
- Shrink to grow: If you grow in a lopsided way by pouring money into areas that don’t earn their cost of capital, you are jogging on a treadmill and not getting anywhere. It might be better to shrink down to a profitable core and set yourself up for long-term prosperity.
Not bad ideas. Your thoughts?
