The Oracle-SAP Bids For Retek and History Review

The following has been cross-posted at The CIO Weblog but is also listed here as it references some core M&A valuation studies done in the management consulting industry. What is only lightly touched upon here is the importance of program management and operations during deal follow-through (operations and execution have been my past bread and butter work [shameless plug]).

Oracle’s latest bid for Retek, a category leader in business management software for large retail chains, could be a windfall for Retek shareholders. Oracle’s bid at $504 million US ($9.00/share) outpaces SAP’s bid Tuesday for $496 million US ($8.50/share).

Where this will ultimately wind up is anybody’s guess, but here are some facts pertaining to what has happened with this deal, and what has happened historically with other companies with respect to both shareholders and customers:

  • SAP’s bid of $8.50/share represented a 42% premium over Retek’s price of $6.00/share on the close of February 25. Shares of Retek have recently soared 21% to $10.40 (source).
  • Past McKinsey studies have shown that shareholders of acquired companies have received on average a 20 percent premium on friendly M&A (source).
  • Many mergers have failed largely because bidders paid too much ("the winners curse") with average takeover premiums in the 40% range (source McKinsey).
  • Although other studies by consulting firms such as Boston Consulting Group have shown that  companies  that systematically pursue acquisitive growth outperform competitors that pursue few or no merger deals, the large majority seem to agree that if deals go through post-acquisition integration is *key*.
  • BusinessWeek investigation in 2002 and 2004 have shown that big M&A deals have left customers dissatisfied half of the time (source).

So deal makers ought to take extra pause and pay attention to operations and the customer, especially since Retek is a prized category leader. On the good news side of things, boards seem to have been getting smarter about  M&A all the time.

Steve Shu
Managing Director, S4 Management Group

Scoble’s Take on the Technorati Mini-Controversy

Just wanted to post a link to Scoble’s takeaways and reinforcements on the recent Technorati blogging happening. Numbers 8 and 9 from Scoble’s list are noteworthy to me (in the context of crisis response) as the blogging medium is a bit of a different animal as a communications medium:

8) Get into real space as fast as possible. Text is so easily
misunderstood. Why not do an audio or video podcast? That way we can
see just how sorry you are, you can cover a lot more ground, we can
hear your sincerity in your voice.

9) Overcommunicate. The more you communicate, the less serious these
problems will be. With a lack of communication people start making
things up. Or at minimum they start rattling the cage to see what’s up
behind all the silence.

I cannot emphasize enough that the blogging communications medium is different. There are delays inherent to the system, people don’t always know who the spokesperson is and who’s watching, and one’s never quite sure if everyone is looking at the same picture. Factors like these can create volatile blogosphere systems dynamics.

Steve Shu
Managing Director, S4 Management Group

Musings on a Management Consulting Premium Puzzle

This post was motivated by a recent social meeting where my friend and I talked about the management consulting industry. Both of us are University of Chicago MBAs, and as such, I think it is fair to characterize that we believe in the notion of mostly efficient markets, i.e., where buyers and sellers reach fair prices for doing business in aggregate.

Now there are a number of examples in behaviorial finance, economics, and finance areas where puzzles exist and where free market theories do not seem to hold. For example, there is the equity premium puzzle, which tries to address why required rates of return for equity securities is so high relative to risk-free rates of government bonds. There is also the closed end fund puzzle. In this case, it is perplexing why funds comprised of individual stocks trade (when the fund is closed) at a deep discount of the total sum value of the stocks. It seems as there would be close to a riskless opportunity (called an arbitrage opportunity) for someone clever to buy up the entire fund and then sell each of the shares of stock for a profit (even net of transaction costs).

So here’s why I called this post the "Management Consulting Premium Puzzle". My friend basically questioned why management consultants should be able to charge so much money for their services over the cost of using existing employees (to put this in some perspective, average annual billings for the larger consulting firms can go anywhere from $400,000 to over $1 million per year per consultant). Even though I am a management consultant (now freelance), I didn’t take this as a shot at me. I have worked in both camps numerous times, and I can see valid arguments by both operating managers and consultants as to why or why not consultants should have high premiums.

Part of it comes through calibrating the value of management consultants (as I’ve posted before), but there is another way to look at this. Consider some typical questions operating company managers raise:

  1. is there value to having a third-party facilitator (the management consultant) that is apolitical?
  2. is there value to outsourcing this vs. insourcing?
  3. is there value to having a consultant that has seen other businesses?
  4. is there value to having a specialist consultant?
  5. is there value to having extra bandwidth to get over a hump?
  6. is there value to having a high-caliber resource for a temporary period?
  7. is there value to having a well-known brand consulting firm involved (e.g., no one got fired for hiring McKinsey or IBM)?

My gut feel is that the answer to at least five of these questions must be yes for a company to feel very comfortable in using an outside consultant. Therein lies the reason for the premium.

What would be an interesting study, however, would be to run a statistical analysis that regresses the $ cost of using either internal employees or outside consultants against the factors above (although the factors above are not entirely orthogonal). By doing this, one could get a more scientific idea about which factors clients weigh most and how much those factors contribute to the value proposition (in terms of $, how much value is attributed to the brand, etc.).

Steve Shu
Managing Director, S4 Management Group

Five Executives and Five Tips to Blogging Prosperity

Phil Windley points me to Information Week’s article. Covered are five tips for executives that are considering or already using blogging as a new communication medium. The tips are:

  1. Use your clout
  2. Don’t mix work and play
  3. Keep it human
  4. Find the time
  5. Don’t be afraid to take stock and eat crow

My prior posts relate to #2 (consider separate blogging platforms for employees at work). For blog readers outside the US, here’s some explanation on the eating crow business … ahh, who am I kidding here? I’ve heard a lot of expressions in the management consulting industry, but for some reason I have not heard of the eating crow thing before. Sheesh. Maybe management consultants are a bunch of laggards after all.

Steve Shu
Managing Director, S4 Management Group

Updates on Prior Post

Scott Johnson (Founder of Feedster) indicates that Scott Rafer (CEO of Feedster) notes an inaccuracy in my prior post (it would not be the first time I was wrong!). Scott Rafer elaborates on the timing of Feedster’s blogging policy release. Scott, thanks for pointing out Scott’s post.

Other updates include that Dave Sifry has posted an update regarding Niall Kennedy. I think this is a good release of pressure on all parties. I don’t generally make comments on individuals in cases where I’m many steps removed, but support for Niall Kennedy was something that I was looking for in the communications. Clearly Technorati would not have put Niall Kennedy in the position of Community Manager if they didn’t have faith in him, so Dave’s post is consistent.

All updated posts by Niall, Feedster, and Technorati clearly outline the values of the parties. Plus the posts do a good job mark out the boundaries. All looks to be on track. As alluded to in the same prior post I wrote, I still wonder whether best practices would be to have employees have separate personal and professional blogs if only to put the blogger in an elevated psychological mindset.

Dave indicates that sometimes things get overblown in the blogosphere. The events that have erupted here are probably special in the sense that Technorati and Feedster are market leaders. These two companies watch a lot of blogs. Additionally, there are a lot of blog authors that watch them and utilize their services.

I suppose best practices for posting, measuring volume levels, implementing policy, and communicating are still being developed. To date, the Harvard Business School has only one written case that covers employee-company dynamics in the context of blogging, so I think the case here is very worthwhile to trace through.

Maybe in addition to the best practices of identifying "sponsored posts", the blogosphere needs to identify "satirical posts" as well. Satire has always made me uncomfortable.

Steve Shu
Managing Director, S4 Management Group

Perspectives on the Technorati Employee Blogger Controversy

Hat tip from SiliconBeat. Hard to trace through some of the threads, but both SiliconBeat and uber-independent-blogger Jason Kottke have good accounts (here and here) about what happened at Technorati. Kottke also has commentary on the Technorati community manager’s (Niall Kennedy) apology.

From my vantage point, where things appear to have gone wrong first was the lack of a disclaimer early on in the situation. From there, the wheels spun downhill. Key snips from Niall Kennedy’s post include (note use of term "republish" in the first bullet point):

  • "… I republished my original post and Flickr entry and added a disclaimer of individuality thinking it would be enough …"
  • "… Technorati received some feedback about the image … I saw the feedback channel did not pass through me …"
  • "… I have since realized the imagery was in bad taste, especially to the organizations involved …"
  • "… I failed to comprehend the effects of my actions on Technorati. I have
    always operated under the assumption that until I reach executive
    status at any company I work for I remain an individual voice and do
    not represent the organization …
    "

If that isn’t enough to scare the bejesus out of employees on the edge of deciding whether to blog.

Now I’m not sure whether Technorati has a corporate blogging policy, but Feedster was surely opportunistic to post its new corporate policy. Based on this case, and analysis of a number of other cases, as far as best practices for companies go, it looks like shoring up the corporate blogging policy is #1.

To digress a bit, confidentiality still seems to be a concern with the adoption of corporate blogs (regardless of whether the confidentiality problems already exists without blogs). There’s no evidence that confidentiality became an issue with the Technorati case, but I just got back from a lunch where there was general concern about guarding the corporate fences with respect to confidential information and blogs. The fear is still out there with respect to leakage of information.

Regardless of use of disclaimers, I wonder companies will need to provide blogging platforms to their employees to augment their personal blogs. While this may not circumvent the need for disclaimers, it does seem like it might orient the blogger as to what hat the blogger is currently wearing. Separate blog platforms would be a tougher thing to accomplish culturally though … many people have blended their personal and professional lives.

Although most people tend to focus on the policy aspects only, the communication aspect also seems important. The volume in the blogosphere on the Technorati subject has surely been elevated. I find it a little surprising that it’s hard for me to find any official company postings (by Technorati) or announcements on the matter to date.

Update (3/9/05): An update posted here.

Steve Shu
Managing Director, S4 Management Group

Good Post On Link Policy

Fellow Dallas blogger, Jennifer Rice, has an interesting post on personal "Link Policy and Building Traffic". She makes a comment that really grabbed me:

"I believe that my blogroll is a reflection of my brand."

Here’s why it grabbed me. I started using blogs last year as e-newsletter and as an extension to my website. As far as websites go, I have a personal dislike for websites that have too much to click on. It is hard to guide your audience to the right message with so many links all over the place. But blogging is a different genre and more conversational, so I’ve reached some semblance of a comfort zone by adding some names (you may note that in my prior blog I never had any blogroll). In support of blogrolls, while they can detract from direct messages one is trying to deliver, they can strengthen the overall feel and brand to one’s blog. That said, I think in some ways they can also make people that you network with (whom are also bloggers) feel excluded.

At least for me, perhaps one day blogging platforms will advance such that corporate bloggers are not as canned in by the technology and can design their blog sites to fit the business needs better. Sometimes the tradeoffs one has to make with respect to blogging strikes me as more of a technology limitation. I have a growing list of features I would like to see for corporate blogging.

In any case, here’s my current link policy (which differs from Jennifer):

  • The people I link to are not necessarily my friends. I may not even follow them that regularly or agree with what they blog about. Since I’ve never met some of these people, I may not even like them (just making a point here)!   😉
  • That said, based on impression, they embody and represent an area that is important to me from a business perspective. There are three areas: 1) ventures, 2) technology, and 3) evangelism.
  • I have also been thinking about adding a fourth category on management, but this category is broader, and it is not yet clear in my mind as to what flavor of management I would add.
  • I may change my link policy (and hence, the bloggers in the list) from time to time. The purpose of the links (for me) is not to build traffic, but to expose my readership to other areas without overwhelming them.

Steve Shu
Managing Director, S4 Management Group

 

Corporate Blogging Book Table of Contents

Thought I would put out the table of contents of the Corporate Blogging book that I was potentially going to write in two months time (those following here may know that I was approached by a publisher out of the blue earlier this year).

Now those that are following the blogging book games, the two competitive offerings that I needed to address during the proposal phase was Hugh Hewitt’s book (on general blogging) and the forthcoming Shel-Scoble book (on corporate blogging) open for development at the Red Couch. Things had been moving along pretty well, but the original book idea had been killed (friendly-fire) by the release of more details on the book at the Red Couch. The essence of things is that the Shel-Scoble book looks like it will be too strong. The publisher had received feedback from the buying community, and the buying community (purportedly) did not feel that there was enough space in the market for another book with as wide of a coverage of corporate blogging. The publisher wanted me to consider addressing three case studies in-depth instead. I haven’t quite found my passion for that type of book, so there you have it.

A few more comments on the TOC:

  • I thought it might be useful to publish this TOC for those considering developing or currently developing a book on Corporate Blogging. This TOC had made it to the final stages with the acquisition editor and publisher before getting killed in informal network reviews with buyers, etc.
  • Shel and Scoble’s current table of contents are published here.
  • I had hoped to have a forward by a prominent person recognized by CEOs (who is basically opening the door to the audience of executives) with an afterward by 1 or 2 venture capitalists (which would provide some perspective on the future). This would also help me to build a base of support as the Hewitts, Scobles, etc. are much more widely known in the blogging space than I am.
  • I wanted to provide an underlying framework that would help to extend the life of the book. There are some who claim that blogging books will be outdated by the time they hit the market. One of my counters to this is that there are some books that have stood the test of time (e.g., more than 25 years and still used in business schools) as foundational works (I am not saying my work would be foundational, but I am saying that putting in a base that is solidly grounded in a foundational work helps a lot). As far as business books go, one foundational work is Michael Porter’s book on corporate strategy and competitive advantage. Although in the end a major portion of the book I envisioned was influenced by Michael Porter’s book on Competitive Strategy, I also kept coming back to works like Treacy and Wiersema’s book on the Discipline of Market Leaders. I had also consider leveraging frameworks from the Fifth Discipline. Getting back to Michael Porter’s book, there are cases in there back from the days when Ivory soap used to be marketed as the "soap that floats". While the case itself may be outdated, the lessons within these frameworks still hold to be true because his framework was grounded in economics and accepted business theory.

That said, here is the table of contents. I am no longer pursuing the corporate blogging book endeavor, but thought that it might be interesting for some.

FOREWORD

Chapter 1 A Call To Action
1.1 Rise of the Blog

1.2 Competitive Advantage and Speed

1.3 Corporate Blogging Chasm

1.4 Three Core Corporate Blogging Strategies: Based on
Michael Porter’s Foundational Work in Competitive Strategy

1.5 Types of Teams for Executing Blogging Strategies

1.6 Execution 

Chapter 2 The Elements of Corporate
Blogging

2.1 Encouraging Voices, Angle, & Personality

2.2 Managing The Conflict Between Individuals and Corporations

2.3 The Good: Leveraging Networks, Gatekeepers, and Grassroot
Connections To Suit The Corporate Agenda

2.4 The Bad: Lacking Transparency and Murdering The Company
or Yourself

2.5 The Ugly: Getting Greedy While Managing Risk

PART I –Case
Studies of CORE Corporate Blogging Strategies

Chapter 3 The Strategy of Differentiation
3.1 The Strategy of Creating Something Unique

3.2 Leaders Live Longer

3.3 Marketing Magic


3.4 R&D Resources Required

3.5 Comprehensive Coordination

3.6 Acquiring A-Players

 

Chapter 4 The Strategy of Cost Leadership
4.1 The Strategy of Operating Efficiently

4.2 Why Process
Engineering Matters


4.3 When Supervision Works

4.4 How Customer Care and Product
Development Connect

4.5 How More Structure Can Work

4.6 Where Reducing Transaction Costs Works

 

Chapter 5 The Strategy of Focus
5.1 The Strategy of Serving Particular Market Segments 

5.2 Connecting With Customers


5.3 Creative Coordination

5.4 Creative Flair Using Chronology

5.5 Harvesting Competitive Information


5.6 Building a Micro Blogosphere

5.7 Testing Customer Reactions to
New Ideas

 

PART II – TYPE OF TEAMS FOR EXECUTING BLOGGING STRATEGIES
Chapter 6 Employee Bloggers
6.1 Any Employee Can Blog – Crisis?

6.2 No Policy Models


6.3 Heavy Policy Models

6.4 Technology Control Models

6.5 The Fear of Getting “Dooced” 

6.6 Perspectives on Effectiveness
of Models

 

Chapter 7 CXO Blogging Models
7.1 All Eyes Are On the CXO Blog

7.2 Visionary Types


7.3 Market Leader Types

7.4 Traditional Types

7.5 Extreme Types

7.6 When Crises Calls

7.7 Perspectives on CXO Blogging
Models

 

Chapter 8 Accidental Evangelist Models
8.1 From Out of Nowhere And Into Swarms of Scrutiny

8.2 Inside the
Commenting Tornado


8.3 Outside the Commenting Tornado

8.4 The Authority and Trackback Labyrinth

8.5 Not So Accidental Hired
Blogging Guns 

8.6 The Dark Fiber Network Equivalent
of the Blogging World

8.7 Perspectives on Evangelist
Blogging Models

 

Chapter 9 Functional Department Models
9.1 It’s About the Starting Point Stupid

9.2 Going With
Corporate IT or Going Alone


9.3 Getting to Know One Another Better

9.4 Getting to Interdependence

9.5 Frankestein Experiments and
Markets of Ideas

9.6 Perspectives on Departmental
Blogging Models

 

Chapter 10 Entrepreneurial Models
10.1 Leveraging and Taking Risks

10.2 Extreme
Personalities


10.3 “Fisking” Foes and Friends

10.4 Building Buzz

10.5 Venture Capital Bloggers

10.5 Riding the Search Engine Wave

10.6 Reaching Round The World

10.7 Perspectives on
Entrepreneurial Blogging Models – You Needed to Ask?

 

PART III – Execution

Chapter 11 Aligning Everything
While Not Getting Wrapped Around the Axle

11.1 Strategy

11.2 Skills and
Resources

11.3 Organizational Requirements

11.4 Technology

11.5 Project Structure

 

Chapter 12 Getting Familiar
with Tools of the Trade

12.1 Blogging Platforms and Content Managers

12.2 Group Blogging
Platforms and Content Managers

12.3 Browsers 

12.4 Directories
and Search Engines

12.5 Portals

12.6 Syndication

12.7 Measurements

12.8 Wikis

Chapter 13 Conclusions

 

AFTERWORD

 

Appendix A: Summary Guidebook Corporate Blog For
Competitive Advantage

Steve Shu
Managing Director, S4 Management Group