Monday, March 30, 2009
Flight to Quality
by Tom Bozzo
I wouldn't be mentioning this if there weren't some lessons for the current Troubles herein.
For Ed Montgomery (congrats on the quite possibly thankless new job and Go Maryland College of Behavioral and Social Sciences!), there's a reminder that companies can run themselves out of business by efficiently producing products that cannot be sold for a compensatory price. LEGO's element production and set-packaging operations were famously efficient and automated in the crisis period. As the S+B article explains in detail, the rest of the operation was a disaster. If anything, reducing Danish labor costs was a sideshow for, if not a distraction from, the rest of the restructuring. Which is to say, there's only so much to take out of the hides of the UAW.
A saving grace for the LEGO Group was that its failures mainly were behind-the-scenes; the things that were losing them DKr by the billions largely weren't erosive of their products' reputations, so:
For observers of the Danish model of relatively open markets plus a strong social safety net, there's a warning that it's not necessarily an automatic producer of contentment under all economic conditions. From the Guardian:
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[1] This has very little to do with my recent birthday; official estimates are that there are about 250,000 serious adult fans out there.
[2] I.e., selling cool sets to build from the little plastic bricks.
[3] E.g., the LEGOLAND theme parks, which you know aren't a Company operation in part because an employee of the Schaumburg, Illinois indoor facility was using the colloquialism "Legos" to refer to "LEGO bricks" or "LEGO elements" in orienting a new employee; such talk is supposed to be forbudt for trademark protection reasons.
For a bit of an antidote to Bad News Fatigue, the Guardian has a pretty good article (via The Brothers Brick) on the turnaround of the LEGO Group, which a few years ago was on the brink of bankruptcy and/or absorption into one of the toy megacorporations but now is enjoying double-digit sales growth even in basket-case markets. [1] It's a bit long on ancient company history, but the short version is that under their ex-McKinsey CEO, the company opted largely to stick to its knitting [2], divest various non-core assets [3], and also outsource a good chunk of their production — mostly to Eastern Europe — to cut costs. The über-nerd version from a couple years back, in the supply-chain management magazine Strategy + Business, is here. An interesting additional detail omitted in the former and post-dating the latter is that the company is re-insourcing the outsourced production, though not necessarily returning it to Denmark.
I wouldn't be mentioning this if there weren't some lessons for the current Troubles herein.
For Ed Montgomery (congrats on the quite possibly thankless new job and Go Maryland College of Behavioral and Social Sciences!), there's a reminder that companies can run themselves out of business by efficiently producing products that cannot be sold for a compensatory price. LEGO's element production and set-packaging operations were famously efficient and automated in the crisis period. As the S+B article explains in detail, the rest of the operation was a disaster. If anything, reducing Danish labor costs was a sideshow for, if not a distraction from, the rest of the restructuring. Which is to say, there's only so much to take out of the hides of the UAW.
A saving grace for the LEGO Group was that its failures mainly were behind-the-scenes; the things that were losing them DKr by the billions largely weren't erosive of their products' reputations, so:
Part of this recession-busting feat, Nipper concedes, is down to the fact that in times of trouble, consumers - in this case, parents - turn to "the well-known, the safe, the durable. Lego may not be the cheapest toy, but parents know it has stood the test of time, it will last years, provide hours of quality play, represent good value for their hard-earned money."Ceding reputations for "representing good value" in favor of "having the most cash on the hood" is an obvious failing of Detroit's legacy management, in hand with reactionary product planning.
For observers of the Danish model of relatively open markets plus a strong social safety net, there's a warning that it's not necessarily an automatic producer of contentment under all economic conditions. From the Guardian:
"This town isn't just about Lego any more, you know," observes a woman who asked to be called just Birgita, perching her youngest son on the back of her bicycle outside the supermarket. "It hasn't been for a long time. We're proud of Lego, certainly, but there are lots of other companies, lots of other jobs here now. The good thing was that all that happened when the rest of the economy was still in quite good shape. Heaven knows what it would have been like today, with half the world collapsing."This account is anecdote, sure, but the apparent success of the Danish model isn't its production of armies of the happily unemployed. On the contrary, by both EU and US standards, Denmark has exceptionally high employment and low unemployment rates. At some level, there's no substitute for full employment, and the Invisible Hand does not promise to provide that.
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[1] This has very little to do with my recent birthday; official estimates are that there are about 250,000 serious adult fans out there.
[2] I.e., selling cool sets to build from the little plastic bricks.
[3] E.g., the LEGOLAND theme parks, which you know aren't a Company operation in part because an employee of the Schaumburg, Illinois indoor facility was using the colloquialism "Legos" to refer to "LEGO bricks" or "LEGO elements" in orienting a new employee; such talk is supposed to be forbudt for trademark protection reasons.
Labels: creative destruction, labor, LEGO
Saturday, January 26, 2008
"A Job-Killer for the Auto Industry"
by Ken Houghton
Let's see if we have this straight:
Why does James Inhofe hate American automobile workers?
Treading on Tom's bailiwick, James Inhofe (R - CloudCuckooLand) argues that selling cars internationally is not a good idea:
The lone Republican senator to attend the hearing, Sen. James Inhofe of Oklahoma, was the only one to come to the administrator's defense. Inhofe dismissed the proceedings as "more theater" and called California's law a "job killer" for the auto industry.
California's first-in-the-nation tailpipe rules would force automakers to cut greenhouse gas emissions by 30 percent in new cars and light trucks by 2016, with reductions starting with the 2009 model year.
Twelve other states have already adopted those rules - Connecticut, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington - with others preparing to do so.
Let's see if we have this straight:
- There is increasing world-wide demand for more cost-effective cars
- The mileage and emission standards required by California are remarkably similar to those required by Europe
- Cars can be sold internationally.
- Designing a car to fit two different standards is more expensive than designing it to fit one; economies of scale is still a truism.
- Economies grow, per Brad DeLong's favorite dead economist, through "creative destruction":
- That implies that producing the same product ten years later while everyone else—e.g., Toyota—has been innovating and changing the model will lose you mark share.
- Losing market share generally reduces demand (or at the least, doesn't allow it to keep up with the natural expansion of the population.
- Not keeping up means that you have to cut costs.
- Cutting costs eventually means cutting jobs.
- That implies that producing the same product ten years later while everyone else—e.g., Toyota—has been innovating and changing the model will lose you mark share.
- The preceeding notes (and remedial subnotes) do not jibe with Inhofe's "do nothing or it will cost jobs" argument.
Why does James Inhofe hate American automobile workers?
Labels: Brad DeLong, creative destruction, environmentalism, policy wonk, Politics, Trains Planes and Automobiles
Thursday, May 31, 2007
The Most Competitive Event in Sports
by Ken Houghton
UPDATE: For the video-impaired (at work, in Europe), results are available here.
Back in "the good old days," the Finals were exclusively telecast on ESPN and, during the day, on ESPN2.** Gradually, as the network realized that there was a small, deeply demented audience*** that was large enough to, say, compete easily with NHL hockey in the Late Bettman Era, or at least dwarf that of Glenn Beck.
The contest is sponsored by Scripps-Howard, which itself has been transformed over time, including owning Shopzilla.
There are memories for the ages: probably the best known is the joy of the 1997 Winner Rebecca Sealfon as she spelt "euonym" (see the video here, via Spelling Grrl).
Sealfon is now a Ph.D. student in biology at Duke; Scripps-Howard has been transformed from a chain of family newspapers into a multimedia behemoth.
Spelling continues. And, tonight, Disney/ABC has decided that "attention should be paid"**** in prime time.
*Context: Shira and I spent much of the afternoon of May 31st, 2001, in a hospital room at St. Barnabas watching the middle rounds (her initiation to The Cult). This was in no small part because the rhythm of the show matched rather well with the breathing exercises being done to encourage the possibility of a "natural" child birth.
**This was when we could really believe that there would eventually be an ESPN8 ("The Ocho") with arcane sports programming.
***Movie reference #2.
****Not a movie reference, although five movies have been made.
Tomorrow is my eldest daughter's sixth birthday, which can only mean one thing: It's Time for the National Spelling Bee Finals, the most grueling sporting event on television.*
UPDATE: For the video-impaired (at work, in Europe), results are available here.
Back in "the good old days," the Finals were exclusively telecast on ESPN and, during the day, on ESPN2.** Gradually, as the network realized that there was a small, deeply demented audience*** that was large enough to, say, compete easily with NHL hockey in the Late Bettman Era, or at least dwarf that of Glenn Beck.
The contest is sponsored by Scripps-Howard, which itself has been transformed over time, including owning Shopzilla.
There are memories for the ages: probably the best known is the joy of the 1997 Winner Rebecca Sealfon as she spelt "euonym" (see the video here, via Spelling Grrl).
Sealfon is now a Ph.D. student in biology at Duke; Scripps-Howard has been transformed from a chain of family newspapers into a multimedia behemoth.
Spelling continues. And, tonight, Disney/ABC has decided that "attention should be paid"**** in prime time.
*Context: Shira and I spent much of the afternoon of May 31st, 2001, in a hospital room at St. Barnabas watching the middle rounds (her initiation to The Cult). This was in no small part because the rhythm of the show matched rather well with the breathing exercises being done to encourage the possibility of a "natural" child birth.
**This was when we could really believe that there would eventually be an ESPN8 ("The Ocho") with arcane sports programming.
***Movie reference #2.
****Not a movie reference, although five movies have been made.
Labels: creative destruction, Journamalism, just life
