Small Firms Are Taking On Second Jobs: Franchises

THE WALL STREET JOURNAL—While Maury and Beth Frankel’s events company had grown in size and clientele over the past 10 years, it still had months when business was pretty slow. The company sets up inflatable attractions in town festivals and other events in the Pittsburgh area, most of which happen outdoors from May to October.

So this past summer, the couple took on a second job of sorts to fill the gap during the slow months: They added on a franchise to their existing business, E.L.F. Entertainment Inc. of Gibsonia, Pa.

The Frankels opened a Christmas Decor Inc. franchise, which provides installation and removal of outdoor holiday lighting for homes and businesses. They already have 20 houses signed up. A typical Christmas Decor franchise decorates between 80 and 125 houses on average.

“It will keep our business and our employees busy 12 months out of the year,” says Laura Rodavich, E.L.F.’s director of sales and marketing. Read Article.

Music Industry Changes Its Tune

FINANCIAL TIMES—As the music industry struggles to reinvent itself for the digital age, some of its most bankable artists are the ones calling the tune.

Madonna this week neared a landmark deal to leave Warner Music, her long-time label, for Live Nation, the concert promoter.

The 10-year contract would pay more than $70m in cash and stock advances for albums, tours and merchandise, according to people familiar with its terms. Altogether, it could be worth well over $100m for the Material Girl. Read article.

When to Break Up a Conglomerate

THE MCKINSEY QUARTERLY—When Chris Coughlin stepped into the CFO role at Tyco International in March 2005, the conglomerate had already put its scandal-scarred history under former CEO Dennis Kozlowski behind it. The new CEO, Ed Breen, had orchestrated the departure of the entire board of directors, replacing them with new members eager to turn things around. Indeed, the company was in the midst of a rebound, with solid earnings, moderate growth, a strong capital structure, and a share price hovering just under $30—up from a low of $8.25 during the crisis several years earlier.

Investors were reassured, but Coughlin was joining a management team pondering the best way to deliver growth to the company’s widely diverse businesses over the longer term. Their conclusion, announced in January 2006, was as bold as it was unexpected: spin off Tyco’s health care business, now called Covidien, the world’s second-biggest maker of disposable-medical products (behind Johnson & Johnson), as well as Tyco Electronics, the world’s largest manufacturer of electronic connectors. Over the following 18 months, Breen and Coughlin extricated overlapping functions, contracts, and procurement agreements, appointed two new senior-management teams, addressed securities regulations, and recruited new boards of directors. The result: parent Tyco International is today a $20 billion company, half its former size, but more focused and still the world’s biggest provider of security and fire protection products and services, as well as the largest maker of industrial valves. Read article.

The Love-In

THE ECONOMIST—Berkeley seems like a fitting place to find the godfather of the open-innovation movement basking in glory. The Californian village was, after all, at the very heart of the anti-establishment movement of the 1960s and has spawned plenty of radical thinkers. One of them, Henry Chesbrough, a business professor at the University of California at Berkeley, observes with a smile that “this is the 40th anniversary of the Summer of Love.”

Mr Chesbrough’s two books “Open Innovation” and “Open Business Models” have popularised the notion of looking for bright ideas outside of an organisation. As the concept of open innovation has become ever more fashionable, the corporate R&D lab has become decreasingly relevant. Most ideas don’t come from there.

To see why travel to Cincinnati, Ohio—which is about as far removed culturally from Berkeley as one can get in America. The conservative mid-western city is home to P&G, historically one of the most traditional firms in America. For decades, the company that brought the world Ivory soap, Crest toothpaste and Ariel detergent had a closed innovation process, centred around its own secretive R&D operations. Read article.

Can Fox Win Its Frontal Assault Against CNBC?

THE NEW YORK TIMES—The team leading the Fox Business Network into battle with CNBC, the entrenched leader in cable business news, has made no secret that it intends to do in the realm of business news exactly what the Fox News Channel did in general news. As in: conquer.

And even before today’s premiere, there are already indications of just how fiercely the battle will be waged. In a pep talk to his troops Friday afternoon, Roger Ailes, the chairman of both networks, said, “I’m not interested in anything short of a revolution.”

After Delay, Airbus Delivers First 380

THE NEW YORK TIMES—Airbus finally delivered its first A380 superjumbo jet today as the European planemaker tries to rebound from a string of legal and technical troubles.

Singapore Airlines took delivery of the double-decker jet, the world’s largest passenger plane, almost two years late.

“Until now, the A380 has been Airbus’ baby. Today we are here to celebrate this beautiful mature aircraft coming of age,” the president of Airbus, Thomas O. Enders, said at a handover ceremony that included a sound and light show.

Acknowledging the planemaker’s difficulties, Mr. Enders told Airbus employees: “I realize how unsettling these last times, particularly the last 18 months, have been.”

He thanked customers for sticking with the aircraft and said that increasing production to meet demand for the A380 “remains our greatest challenge for the next few years.”

The chief executive of Singapore Airlines, Chew Choon Seng, said the plane was “well worth the wait.” Read article.

Supply Chain Clout

CHIEFEXECUTIVE—Ah, the good old days—25 years ago when uniform-maker Cintas bought fabric from a North Carolina mill, made the uniforms in Kentucky and distributed them to customers. In later years, the Carolina fabric was shipped to Mexico or the Caribbean for stitching, then sent back to the United States.

Now much of the fabric is spun in China, and the manufacturing is done in North Africa. Or Eastern Europe. Or other parts of Asia. All this, said CEO Scott Farmer, is “so that we can drive the cost out of it.” But those lower costs come with costs of their own, and headaches with logistics, supply chains and internal corporate structural issues. In short, said Farmer, “it’s getting a lot more complicated.”

Farooq Kathwari, chairman and CEO of Ethan Allen Interiors, knows this all too well. In the past four or five years, he said, the amount of furniture crafted overseas has burgeoned, with 35 percent now originating in Asia. “It changed our distribution network,” he said. “Our national distributions were set up where our manufacturing was in the U.S. Now, we have to change it because in good furniture, 50 percent is coming from overseas.” The company is now building a national distribution center on the West Coast and closing a major center in North Carolina because the products are not being made there anymore. Read article.

The Race to RFID

CHIEFEXECUTIVE—By embracing radio-frequency identification technology wholeheartedly, Wal-Mart Stores and the U.S. Department of Defense have given CEOs across the country reason enough to follow suit. But they’ll be way behind Chris Hornung, whose company, Pacific Cycle, started working with RFID three years ago, has invested nearly $3 million in its implementation and has already begun using RFID in some shipments of its bicycles. “We’re the only bike company that is even beginning to look at this technology,” says Hornung, CEO of the Madison, Wis.-based concern he founded 30 years ago. “We’re light years ahead of everyone else.”

Hornung already has gotten his arms around a technological challenge that many CEOs are just beginning to tackle. The technology is still relatively expensive and many CEOs appear to have refrained from making the necessary investment, waiting to see whether it wins rapid adoption. Read article.

A Strategic Approach to Climate Change

HARVARD BUISNESS ONLINE—What are companies to make of the news in late September that two environmental groups, along with state and city financial officers, had petitioned the US Securities and Exchange Commission to require companies to reveal their financial exposure to climate change risks? On the one hand, it’s doubtful the petition will be adopted (writing in the New York Times, Joe Nocera put the chance in the ballpark of “Zero. Zilch. None.”); on the other, you’d have to be living under a rock not to appreciate that investors, regulators, and the public are getting aggressively curious about companies’ carbon footprints. In Europe, companies’ greenhouse gas emissions are already capped; whatever becomes of this petition, it’s surely just a matter of time before all companies’ emissions will be measured, regulated, and priced.

That fact alone is a good reason for companies to be getting ahead of the curve on measuring and mitigating their own emissions; and many companies have shrewdly undertaken green initiatives as part of their overall corporate social responsibility (CSR) activities. But risk management and CSR shouldn’t be the main events when it comes to carbon. As Harvard Business School’s Michael Porter and Forest Reinhardt argue in Harvard Business Review this month, many companies that think strategically about their carbon exposure will find sources of sustainable competitive advantage. Read article.

“Blank” Inside: Branding Ingredients

HARVARD BUSINESS SCHOOL—Why do we pay more for an orange with a Sunkist sticker? Because inspecting the outside of the orange doesn’t guarantee the quality of what’s inside. We need the assurance of the Sunkist brand. A variant on this theme is ingredient branding: putting the brand of an ingredient on the outside of a product to increase its appeal.

When is the provider of the final product or service willing to compromise its own brand-building to add the ingredient brand on the package as well as in advertising? There are 4 conditions:

1. The ingredient is highly differentiated, usually supported by patent protection, and so adds an aura of quality to the overall product. Think Gore-tex for water resistant rainwear.

2. The ingredient is central to the functional performance of the final product. Think Shimano gear systems on performance bicycles or Monsanto’s Nutrasweet, added to Equal sweetener.

3. The final products are not well-branded themselves, either because the category is relatively new, because customers buy infrequently or because there is low perceived differentiation among the options. Think about all of Dupont’s ingredient brands for clothing, from Rayon through Lycra.

4. The final products are complex, assembled from components supplied by multiple firms who may sell the “ingredients” separately in an aftermarket. Think cars with Michelin tires, Dolby stereo systems and Champion spark plugs. Read article.

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