Analysis: After yesterday, it's time to reset
By Scott M. Fulton, III | Published January 23, 2009, 6:03 PM
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Among the comments we received yesterday after our all-day, wall-to-wall coverage of the deluge that struck the technology industry, was a complaint asking, why we didn't pick some happier news?
One of the many things I've always appreciated about the movie Apollo 13 is that penchant for its historical accuracy enabled it to introduce the world, by way of actor Ed Harris, to one of the 20th century's greater heroes, former NASA flight director Gene Kranz. Sure, after the movie, folks everywhere had adopted one of Kranz' true-to-life catch phrases, and what had been emblazoned on my wall as a teenager: Failure Is Not An Option. But there was another Kranz phrase used in the movie that is applicable to yesterday, a day which revealed for us the wide extent of the damage incurred during this ongoing, global economic failure.
That phrase is: Work the Problem.
Yesterday, we saw a plethora of examples of companies being bowled over by the problem at hand -- the sharp downturn in the global economy -- and a few examples of executives who may have learned a thing or two from Gene Kranz. In one of those examples, Microsoft CEO Steve Ballmer said one of the smarter and more relevant things I've ever heard him say.
During yesterday morning's quarterly conference call, analysts tried framing the economic problem for Ballmer in a context they hoped he could address directly, and solve for them. From their perspective, they need to be able to see further out than three months down the road, to determine whether their employers' investor customers should hang on or bail out. And the volatility in the current market narrows the visibility for them somewhat, creating a "cloud" of the variety that you wouldn't want to host Windows Azure on.
Microsoft couldn't provide any firm guidance on future quarters as it has in the past, because the variables in front of it are so unpredictable. So what analysts tried to do is move Ballmer from point A to point B, ascertain where point B was, and then see if they could draw a line between it. Specifically, they wanted him to account for the degree of volatility the "cloud" brings into the picture, so that they could factor it out and derive something that had some semblance of normal.
"Our model is not for a quick rebound," Ballmer said at last, after sustaining this line of questioning for as long as he could take. "Our model is, things go down and they reset. The economy shrinks, and then it doesn't rebound; it builds from a lower base effectively...Our work on cost overall reflects that model. So no, I'm not expecting a 'bounce,' and when we did our resizing, [it was] with an eye towards margin, total profit, shareholders short-term, and long-term investment in the growth opportunities that we see.
"I would say that the economy stays down," the CEO continued, "and then builds slowly." It was the "economy of scale" concept that Ballmer had been espousing for years, applied in the opposite direction for the first time -- thinking in terms of a smaller company with smaller costs that plays in a smaller overall market with smaller revenues, but which grows from there.
Betanews asked our frequent contributor and AR Communications Senior Vice President Carmi Levy, suppose this isn't really such a bad way of thinking about it after all? If we truly do have an economy of scale in place, once we've adjusted for the seismic shift, should we truly go on paying attention to the shift itself? Or should we accept that relativity will put everything back in order, giving us a situation where the economy is smaller and thus so are we?
"Coming out of this economic phase, it'll be more likely than ever before that consumers and business leaders alike will have finally internalized the message that generations of parents have tried to instill in their children: Live within your means," Levy responded. "That means holding onto your old iPod -- or Zune -- instead of upgrading to the newest model as soon as it hits the local Best Buy. It means redefining that line between want and need and having the discipline to stay on the right side no matter how tempted we are by the latest shiny gadget. It means every purchase decision will have to first be vetted through a budget before being considered further. For much of the past decade, budget was simply an afterthought in the mind of the consumer.
"Against this somewhat more rational backdrop, the resizing of the business community to meet this new, more muted consumer demand curve will be just as painful," he continued. But at the very least it will be easier to swallow as businesses in all sectors -- tech and beyond -- readjust their messaging to reflect a more realistic approach to consumerism than we've previously seen. Opportunity will continue to be out there, and smart companies will still be able to connect with markets in ways that support sustainable growth. And in many ways, this will be a kinder, gentler way of doing business."
Next: Shrinkage as a solution...

Add my name to those who hate the redesign. The site is visually cacophonous, hard to follow, hard to read, and trust me, your traffic will steadily fall. Orange is a horrid color when most people do one thing on this site: read. We don't need orange stars, headers, titles, or orange anything on a white background. And all the boxes on Fileforum look discontinous. I've found other outlets for news, because the strength of this site is its reporters and commenters. Comments are now placed in a narrow column, forcing me to scroll forever, and now they're restricted within FileForum. FileForum was like Newegg.com, where everyone could come to get a consensus of opinion on any particular app, but now they'll get a pissy snark or an uninformative "It's great!" at best.
So please, please, consider redesigning the site back to the former design, or something/anything more readable than this. It's a complete mess, and until it changes, I'll be at ARS Technica for my news for now.
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Can't imagine people harping about bad news. It's a reality, and 2009 will bring increasingly bad news from every sector. Obama will look like an idiot a year from now. However, I didn't see the wisdom of Ballmer's statement; merely that he was stating brute economic fact: "We've no idea where this economy is going other than down. January is completely different from December, so making predictions is irrelevant in this climate," would be a better way to say it.
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|contrary to the other whiners, the new design of beta news does not deminish the intent of the articles or the integrity of their content.
in regards to the economy, the market models and all that crap, they are only red herrings because the problem with banks and creditors have not been addressed and they are still practicing their evils deeds.
the root cause of the problems we have today is no different than those of the 80's - greedy and unregulated creditors and banks that are othing more than organized crime. the emphasis is on "organized".
some lending practices that should have remained illegal and new contrived practices that should have been outlawed a few years ago by congress, became the financial weapon of mass financial destruction for the american people and the world.
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|Thanks for this article. I hope some time an article will exist that foxfyre does not have to complain about, but I doubt that day will ever come.
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|"Among the comments we received yesterday after our all-day, wall-to-wall coverage of the deluge that struck the technology industry, was a complaint asking, why we didn't pick some happier news?"
Scott, quite frankloy I am a bit amazed that you interpret what I said in those terms, as they could not be further from my point.
Aside from the fact that such an observation not only missed the point of the post, I couldn't care LESS about how happy or sad the articles are. In fact, being in touch with your 'feelings' with regards to earnings is exactly that for which I have little interest and even less use.
What I AM interested in, is a strategic analysis of the business model… Of the approach that lead them to their current state, and what basis they will use to identify, analyze and modify their strategy to address, adapt and deal with the existing and changing market!
Simply citing sales or earnings or market rank figures tells us little.
And listening to the ‘CEO’ of the country simply utter symbolic but empty platitudes admonishing us to continue on, doing more with less, adds NO additional nor functional understanding that might provide insight into the reasons such a state of a company exists, or how their approach to business and markets might most optimally change to most effectively impact their status in the market in the future.
And closer to the point, understanding the practical meaning and applications of Pareto's Rule, or of Juran's postulate of the "vital few and the trivial many" and an understanding of Life Cycle analysis, whereby one correctly understands the industry, environment, and business entity in which one is involved, as well as keeping a constant watch onshifting relationships and leverage pointsare a recurring theme in ALL business environments...As an analysis of Michael Porter's "5 forces Model" indicates, as entity relationships with customers, suppliers, competitors, employees, and funding sources, etc, also change as do leverage points through their respective lifecycles, typically asymetrically, it is imperative that an understanding exist of where the primary entity of focus, as well as those with which it is in business, be it as partner or competitor, is at all times in order to gain advantage relative to s***ing leverage. And that is JUST the beginning.
On the other hand, simply citing statistics and being in touch with one's emotions does not provide much useful data, let alone a course of action. Such nebulous pathos may be great for TMZ, it provides little of value to the understanding of the business market. Instead what is much more worthwhile is an analysis and evaluation based upon the examination of the strategic factors that have contributed to how they have arrived at their current state, as well as those that will form the basis for their response to the situation at hand.
And whether the news is happy or sad is superfluous. If that is the issue, referencing what HallMark has to offer would be a more proper response.
If you want a quick, but invaluable summary of the fundamental tools and approaches to evaluating such cases, I would suggest referencing Plan To Win – Analytical and Operational Tools, by Dr. John Nugent (ISBN 0-07-293161-2).
In fact, you will find that the fundamentals presented in the very first chapter go far beyond this article and present precise actionable principles, as well as the beginning of powerful practical tools, the variable of which would be the foundation for questions that would be most valuable to ask, as they not only address fundamental factors, but they enable valid options and conclusions for both analysis and for projection of future best paths of action. It goes far beyond the typical rudimentary business tools presented in most business courses and texts, and yet is designed to serve as a Strategy Primer sufficient to identify timely trends or matters needing further diligent investigation sufficient to gain a competitive advantage.
A few weeks ago, you asked for a list of suggested topics and questions for exploration. I would suggest simply using this text, which is written in the form of a cookbook for application to the analysis and establishment fundamental to the strategic planning of a company relative to any market would be most prudent.
In fact, the first several pages of the book present a view of fundamentals that go beyond what is presented here and translate them in to practical tools as opposed to amorphous admonitions that far too many end up walking away asking how suck lofty abstractions can be turned into practical guidelines for real actionable understanding.
Simply reporting facts and figures and empathetically grokking the emotion of a situation is great for TMZ. But a site like this has the potential, and the folks available to actually go further and to achieve a level of understanding of situations that far too many sites simply eschew.
Might I suggest taking a look at the book and perhaps considering the tools when querying data in interviews, and perhaps even applying some of the tools in analysis and in speculation of where various stories fit into them. Folks might be amazed at what can be accomplished in articles, aside from simply stimulating flame wars between fanboys and emotional catharsis for others.
And, as you have suggested that I was concerned about the emotion, of that I in any way support a victim mentality, would suggest that you need a better metric by which to evaluate stories. As, unfortunately, you could not have further missed the meaning of the post by more in either reading.
May I suggest checking out the book. It quickly cuts to the chase - and is effectively a strategic management course in an approachable and practical cookbook form. It would be nice if instead of simple facts, that we encorporate such factors to present and add info of real value to what people read. Facts and emotion notwithstanding.
The fact is, I actually think we desire the same result. But it takes more than simply transient amorphous symbolism. It takes real actionable insight that begins before the symbolism fades away.
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|Foxfyre, I didn't say the comment came from you, or in the comments section. The site does have other readers.
-SF3
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|Yeah, sure, but both you and Angela made point of responding specifically to me personally and charging me with such!
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|Well you have to understand fox, its lately become more about the clicks. That's why you see the type of writing you have seen lately. When you go to a blog, you know you're going to get something raw, more emotional. On a news site, its supposed to be just the facts, but now that line is blurring. It's honestly something I don't care for at all.. but alas.
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|I fear you are not far off the mark. Alas.
But, as to what is to be done by businesses, and in a similar vein, by individuals in this time of uncertainty as so many ask "But what do we do now", as if there might be some magical solution, the answer is really rather simple. Now that is not to say the answer is simply achieved, but the process is not new. And when I say that his is ‘simple’, I do not mean that it is trivial, rather I would suggest that the concept is fundamental.
The (simplified) answer is: Pay attention to (business) fundamentals.
Recall the dot.com bust. Many still do not understand the fundamental cause for this. The irony is that the cause was actually very simple. And if you can understand what happened then, it offers much to aid in understanding the challenge that faces both businesses and individuals now.
Many dot.com companies were founded upon novel ideas and even innovative ideas - concepts. And after the first several IPOs proved that folks with expendable income available for investment were able to drive the value of stocks from a few dollars to hundreds of dollars per share in almost no time at all, investors, not wanting to be left out of the next opportunity to see their investment skyrocket in value, began to literally throw their money at each subsequent IPO opportunity.
So what happened? That’s easy.
The companies became fat with cash from the initial capitalization generated by the influx of cash generated by the IPO. No surprise here, for capitalization is the fundamental purpose for an IPO.
But then most of the companies were content to live off of this cash – some in very exorbitant manners, and when they had run through their cash, they folded.
So what should we have learned?
Was there some mysterious karma directed at online businesses? Or was there something more fundamental at play here?
These businesses violated the most fundamental rule of business. They failed to move beyond the hype to develop a viable product or service capable of generating and sustaining real cash flow. In simple terms, they failed at the most fundamental of business principles…developing and providing a real service or product that provided their customers with Real value.
Now, for a variety of reasons we are experiencing a contracted economy.
Companies are restructuring and downsizing (hopefully) in accordance to Juran’s concept of ”vital few and the trivial many”, better known as what he labeled Pareto’s Rule. This is the concept whereby 20% of the members are responsible for 80% of the return. This applies to employers and customers alike.
So what does this mean?
Using the strategic analytical tools that are available, along with fundamental business concepts, job 1 is to focus on those services and products that effectively provide REAL value to customers.
There is no magic bullet. Whining and the wringing of hands won’t solve anything. Companies and individuals alike must return to sound business principles/fundamentals focused upon efficiency and those activities that most effectively generate real value and jettison or at least put on hold those ideas that cannot be effectively turned into asset generators while employing such proven tools such as those available to analyze and evaluate their own strengths and weakness, real compelling market needs from a customer driven perspective, and efficiently implement these insights.
Again, it’s the fundamentals. And this calls for a focus upon strategic analysis, planning, efficient operation and setting realistically achievable goals within the that sphere of influence over which each has control that satisfy/provide services and products that deliver real strategic value to customers.
Its not a quick fix. Nor does it guarantee that all will survive. But it is the prudent approach until the flow of capital becomes looser in the economy, and it will insure the greatest potential that the services and products will present a compelling value.
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|You may be a nice guy Scott but most of your articles suck. Angela is a breath of fresh air but unfortunately this forum now sucks. I know I'm breaking my promise of never posting again, but you guys have to change this forum. It's just eye candy now and the colums for replies are too narrow, the whole page reloads when you give a thumbs up or down, and replies don't seem to follow any pattern. It's another case of more pleasing on the eye - but that's all. (No more posts now).
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|I'm visiting betanews less and less after the redesign. I still visit fileforum, but betanews is delegated to my "I'm really bored, what is on this site" list.
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|Alas, indeed.
The site is going downhill. Big time. The redesign alone is majorly messing up the comments section (one can only hope the devs are still working on getting it to thread properly), and lately, the only articles worth reading have been Angela's. At least the wry humor and occasional obscure references are a breath of fresh air in the face of the flamebait that's been passing for articles from the rest as of late.
Perhaps an option in preferences to allow users to select the old or new interface?
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|PC: a redesign had to happen - betanews was stuck in a 1999 like news interface.... Although I'm not seeing the difference here between the CES 2008 attempt (which I think I spent an entire workday putting out the fires from the flames in comments for), which I had hoped the over-textiness would have been dealt with. I guess not.
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|Ed,
I believe the majority of complaints are directed toward the redesign of the comments section. The layout could use a bit of tweaking, to say the least. I like the new look... I never had a problem with it. However, it seems that the functionality has suffered somewhat in the process.
One area of frustration expressed by quite a few individuals is the formatting of the comments in regards to replying to others. Initial replies are indeed indented in relation to the original poster's comments, but any further replies are not indented any further than one layer deep. That makes it rather cumbersome to keep track of who has replied to whom after a while. There have been a few articles where the comments section bordered on chaos, and the conversations simply became too difficult for me to care about following... no matter how much I wanted to sometimes.
With the current layout, I understand the space restrictions. Indenting any deeper than the one layer that it already does would simply squeeze the comments section much smaller than it already is... but it is already FAR too slender, due mainly to the real estate consumed by the 'Featured Stories' and 'FileForum' column on the right side of the page (which is another issue altogether).
I like the 'Featured Stories' section, but the way it is currently presented seems incredibly redundant. Since the redesign, many times I would look at the main page of BetaNews and see the same article on both sides of the page... sometimes directly side-by-side. If it's a featured story, it seems rather silly to have it in two different places. Label it as such if it truly is a noteworthy piece and remove it from the rest of the articles of lesser importance on the left side of the page.
May I also suggest trimming down the sheer number of featured stories as well? Yes, what is important to some may not be important to others, and I'm sure it's a tough judgment call sometimes to make that distinction... but I just feel that there are simply too many of them. Also, perhaps more scrutiny should be given to what exactly earns the title of 'Featured Story'. As just one example... the Myka BitTorrent box article. I have a hard time believing that it should have been a featured story when nobody actually seems to know exactly what it even does. :-)
If you are intent on leaving the content on each page as it is, may I suggest rearranging the layout to allow the comments section to occupy 70-75% of the page, and shrink the 'Featured Stories' and 'FileForum' column down to 25-30%? 50-50 or 45-55 just does not seem to work well. That should allow the space for further indention of additional replies to existing replies and help the flow of the conversations.
Eh, for what it's worth... I just thought I'd add more than the typical "This sucks, that does it... I'm never coming back" crap from some. ;-)
By the way, good luck with your other endeavors. I hope life is treating you well.
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|Guys, the praise is sweet but please -- my colleagues rock. I wouldn't have come aboard if it hadn't been for the opportunity to work with Scott, the only one of the crew I really knew before I got here, but there ain't a bad one in the bunch.
(Obscure references? I don't know *what* you're talking about, PC_Tool, and I don't know how that Yeats reference got into the Apple-vs-Palm post on Friday either :-D . I *am* trying to tone it down in the headlines by popular request, but any day that gives me an opening to quote "The Second Coming" is a good day.)
And now back to Working The Problem.
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|What Scott said, and adding that I'm only capable of responding to those comments that I don't fall asleep reading. Something about the term "inappropriate footweaZZZZZZZZZzzzzzzzzz....
*ahem* Anyway, not trying to horn in on Scott's thread here but I wanted to add my own thank you to those who *have* advanced the discussion -- even if (especially if) those folks weren't so vain they probably thought the song was about them, so to speak. And it's good to see a few vets here after their various silences.
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|Well I no longer obviously have an employment association with this site.. so as to whether your suggestions will ever be used, it beats the hell out of me. As for life treating me well, I would say yes... thanks for asking. I'm sure you've seen me elsewhere.. I've been around since September :)
(this was to tmj.. wow this threading system IS confusing)
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|That's good to hear.
Yes, I apparently missed the announcement of your... departure. I saw the news on your blog and Technologizer, actually.
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