When to Walk Away from a Deal

Is your company prone to “deal fever”–getting so excited while pursuing acquisitions that it skimps on due diligence? Caught up in the thrill of the chase, many firms use due diligence to justify the deal rather than to uncover potentially serious problems.

To introduce discipline into your due diligence, Cullinan, Le Roux, and Weddigen recommend putting potential acquisitions’ strategic rationale under the microscope: Probe for targets’ strengths and weaknesses, and dig for unreliable assumptions. Be prepared to walk away. Read article.

Are You Going Gray?

CHIEF EXECUTIVE—CEOs have tremendous power to control the gray market—piracy that robs firms of profits, brand integrity, channel viability and customer satisfaction. Yet few companies aggressively attack “gray market” piracy. This type of piracy is defined as real product leaked inappropriately into a market so that the manufacturer is not paid per the terms of the established value chain partner agreement. No product is immune to it.At its core, gray market leakage results from a lack of discipline over the manufacturer’s end-to-end value chain. Three major causes drive gray market leakage: poor or unstable financial health of network partners; manufacturer operating practices, such as the level of price protection, stock balancing and other allowances; and the business model, including the number of tiers in the value chain, cross border coverage and partner hand-offs needed.

The Alliance for Gray Market and Counterfeit Abatement, an initiative composed of technology companies, reports that “over $40 billion in legitimate IT products move through the gray market channel each year, resulting in $5 billion in lost profits annually to IT manufacturers.” Read article.

Building a Competitive Finance Function: An Executive Roundtable

MCKINSEY QUARTERLY—CFOs and the finance organizations they head are under intense pressure from the capital markets and activist investors to keep pace with a rapidly changing global market—to go beyond merely crunching numbers and create value on their own. Although finance organizations have a reputation for resisting change, those at world-class companies have made some progress in promoting it. Such companies require finance professionals to be competitive as well as competent, to lead activities that the finance organization is uniquely suited to direct, and to assume responsibility even for activities that some find uncomfortable, because otherwise those things just won’t get done. Such expectations mean companies must attract and retain the best finance professionals they can—which in turn perpetuates an environment where the finance organization can create more value and do higher-quality work.  These are among the perspectives of a panel of experts convened at McKinsey’s 2007 CFO forum in London. The panelists were Jesper Brandgaard, executive vice president and CFO of Novo Nordisk; John Connors, a partner at the venture capital firm Ignition Partners and former CFO of Microsoft; Jonathan Peacock, CFO and chief administrative officer of Novartis Pharmaceuticals; and Helen Weir, group finance director of Lloyds TSB. Herbert Pohl, a partner in McKinsey’s Dubai office, moderated the discussion. What follows is an edited and abridged version of it. Read article.

Marrying Marketing Science with the Front Lines: One Book Publisher’s Winning Combination

KNOWLEDGE@WHARTON—The rise of the Internet has been a boon to the National Academies Press, or NAP, the book-publishing arm of the National Academy of Sciences. But by the start of this decade, the promise of the web also posed some potential pitfalls. In 2001, the leading scientists on the board of the Academy were suggesting that NAP executive director Barbara Kline Pope take advantage of new technologies to offer its books on the web in a downloadable PDF format — free of charge.

According to Pope, the scientists told her they wanted the ability to disseminate the scientific information as widely as possible, explaining “that we could give away PDFs for free and it would build knowledge around the world. They were also saying to me, ‘Don’t worry about your business model because people will still buy printed books.’”

But Pope wasn’t convinced. So in 2002 — as befitting a leading scientific publisher — she obtained outside funds for hard research, retained two academic marketing experts and called upon the tools of marketing science. The researchers developed a study showing that free online PDF-format books would have cannibalized existing print sales on the order of $2 million a year — a potentially crippling blow to the publishing house. Read article.

Are We Having Fun Yet?

CHIEF EXECUTIVE—The day the Fox Business Channel debuted, the normally abrasive talk show host Bill O’Reilly advised anchors Neil Cavuto and Alexis Smith to “have fun with it.” Since then, the news team has taken the advice in the spirit it was offered, serving up a frothy mix of happy-face banter and chummy interviews. This reflects Fox’s strategy to make its coverage more upbeat than the style of reporting found on rival network CNBC. Since CNBC has never been thought of as especially antibusiness, this double- whammy of institutionalized chirpiness could be bad news for short sellers every where.

Maybe they should start their own network where the anchors frown and grimace all day. It would surely find a home on PBS.Buried inside O’Reilly’s seemingly lighthearted, throwaway counsel is a revolutionary idea. Is there any good reason that business coverage can’t be chipper and festive even when things go a bit sour? Why does business news have to be so ominous and negative? Why does everyone in the press corps always have to be the Grinch? Read article.

Masterful Web Entrepreneurs Hit a Snag in Miami’s Condo Market

THE NEW YORK TIMES—Jim Clark and Tom Jermoluk cut a swath through Silicon Valley in the 1990s with companies like Silicon Graphics, Netscape and WebMD. But they are finding that it is a lot harder to maneuver through the real estate market than to master the Internet.

Five years after they decided to put their entrepreneurial talents and technology fortunes to work building Miami condominiums, the first two projects by their company, Hyperion Development, are plagued with delays and unhappy buyers. Some residents at the first tower, named Blue, are threatening to sue the company for not delivering on amenities, while other owners at the 330-unit complex are trying to sell their condos for less than they paid. Read article.

Strategies That Fit Emerging Markets

HARVARD BUSINESS ONLINE—What’s the fastest-growing market in the world for most products and services? Developing countries. Yet many companies shy away from doing business in these nations. CEOs are all too aware that such countries lack the market institutions needed to do business successfully—such as consumer-data experts, end-to-end logistics providers, and talent search firms.But avoid investing in developing countries, and you won’t remain competitive for long. How to mitigate the risks? As authors Khanna, Palepu, and Sinha recommend, first analyze each country’s institutional context,including political and social systems; openness to foreign investment; and quality of product, labor, and capital markets.Then decide: Should you work around your target country’s institutional weaknesses? Create new market infrastructures (for example, your own in-country supply chain)? Or stay away because adapting your business model would be impractical or uneconomical? Read article.

The World’s New Financial Power Brokers

MCKINSEY QUARTERLY—One glance at the distribution of wealth around the world and the shift is obvious: financial power, so long concentrated in the developed economies, is dispersing. Oil-rich countries and Asian central banks are now among the world’s largest sources of capital. What’s more, the influx of liquidity these players have brought is enabling hedge funds and private-equity firms to soar in the pecking order of financial intermediation. New research from the McKinsey Global Institute shows that the assets of these four groups of investors—the new power brokers—have nearly tripled since 2000, reaching roughly $8.5 trillion at the end of 2006. This sum is equivalent to about 5 percent of total global financial assets ($167 trillion) at the end of 2006, an impressive number for players that lay on the fringes of global financial markets just five years ago. Read article.

Best Companies for Leaders

CHIEF EXECUTIVE—Peter Drucker was quoted as saying that “the army trains and develops more leaders than do all other institutions together—and with a lower casualty rate.” Not to be outdone, some corporations have developed good leadership programs that are the equal of those in the services because they retain an essential principle: in order to win, one needs leaders to perform and inspire at all levels—not just at the top. Strategy, though important, is meaningless without motivated and qualified people carrying it out. Technology and money are fungible; performance capability is not. Leadership development has always been important.

Today it has become a competitive differentiator. Those that do it well will win more often than not. Those that do it poorly or not at all will lose. Bank on it. Also, the impending shortage of leaders as a result of the pending retirement of baby boomers now underway, and combined with the continued growth in emerging markets, begs the question of how does one develop the right kind of leaders? Read article.

Craft capitalism: Just do it yourself

INTERNATIONAL HERALD TRIBUNE—The declaration from the Handmade Consortium materialized on a Web site called buyhandmade.org in late October. “I pledge to buy handmade this holiday season, and request that others do the same for me,” it said, and you could type in your name to “sign” on. Within weeks, more than 6,500 people had done so.”Buying handmade is better for people,” a statement on the site read in part, and “better for the environment,” because mass production is a “major cause” of global warming, among other things. There were links to an anti-sweatshop site and a Wal-Mart watchdog site.The pledge echoed the idealistic language of an environmental advocacy group, but actually the consortium’s most prominent member was the online shopping bazaar Etsy, a for-profit entity. Etsy is an online craft fair where individuals from all over the world sell things that they have made.How many such people can there be? At last count, more than 70,000 – about 90 percent of whom were women – were using Etsy to peddle their jewelry, art, toys, clothes, dishware, stationery, ‘zines and other objects. Each seller has a profile page telling shoppers a bit about themselves, and maybe offering a link to a blog or a MySpace page or a mailing list. Read article.

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