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Here is a fantastic essay on the nature and problem of evil.  The Truth About Evil

I link it for two reasons. First, for friends and colleagues who are worried about the world and are having their faith in human nature tested. Second, for intelligence analysts and strategists who struggle to deal with and describe the baser and meaner motivations of human organizations.

The author of this piece calls out a universal truth: Evil exists and is and always will be part of human life.

For those of us who believe in the perfectability of human life …or merely that most people are somehow good… we would do well to step back and ask where does “good” come from? Why do we assume its existence? Why do we assume it is ascendant?

Let’s not be lulled into moral sleep by relativist thinking that says, on the one hand, do not judge but then assumes, on the other hand, that somehow good will prevail. It doesn’t work that way.

We may want to dismiss religious explanations for human behavior but the Fall is not mere allegory. Good is only a matter of your conscience and your accountability structure (i.e., whom you answer to). Bad is easy, attractive and always beckoning.

Islam, for all its wonders, is no religion of peace per se’. If anything, the doctrine of jihad promises a liberation from conscience. Do evil for the sake of the reward.

In this way, it is no different than the horrible ‘isms of the 20th century. German National Socialists promised cover for evil, parading as the good. It said crush these skulls, take that stuff and you will be like giants. Ditto Marxism.

Good requires a constant inquiry into its source and its demands. Evil is always there and far too often forms an attractive and logical opposite. Evil is necessary for us to understand and describe the good. It is not a psychological disorder, not a defect, but part of our nature.

No decent intelligence analyst can avoid this fact. We have to understand and account for the meaner or baser aspects of our rivals.

This is certainly true of the failures of those advising foreign and military policy. Looking for logical and good purpose behind bad behavior proves repeatedly fatuous. Evil cannot be placated with land deals, money, promises of rights, etc. It is serving its own purpose, not trying to solve the same problems by different means.

This is just as true in analyzing rival companies, customers or suppliers in the marketplace. Assuming that rival behavior is sane, logical and rests on some algorithmic certitude is as foolish as it sounds. Pride, envy, anger, greed and all the rest of our baser emotions are at play.

What makes the analyst job more difficult (and rewarding) is that the business world has erected so many mythologies to hide these base instincts. From GAAP to “sustainability” to “shareholder value”, companies are always trying to excuse less than good and logical choices with a cloak of good intention. Discerning this and describing it for our audience is a challenge, but critical to our success.

Now, all this does not mean we should not seek the good and not be optimistic about its promise. It does say, however, don’t let it tint your glasses!

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This is not your typical 4 quadrant chart. But it does reflect the growth challenge that faces the consumer packaged goods (CPG) industry.

Rapid expansion of the middle class in developing countries should present a windfall for consumer goods marketers. Unfortunately, harvesting this opportunity has proved more difficult than many imagined.

While the going for companies with legacy footprints -Unilever, for example, in Commonwealth countries- has been somewhat easier, most European and US CPG firms have run into real structural barriers trying to plant their brands in fertile developing market soils.

Lack of infrastructure and organization certainly present challenges. Less sophisticated retailing channels are harder to service and support. But the biggest problem is surmounting the high cost structure that comes with building a product portfolio that adequately serves emerging markets.

Organizing to sell large quantities of low to mid priced goods, often in smaller unit sizes, represents a major “trade down” in profitability for European and US CPG firms.

These firms have developed highly efficient money machines that sell large volumes of large sized and relatively high priced goods in their home markets. As growth in their home markets slowed, these firms goosed their profits by “tiering up” their portfolios. They added many “new and improved,” higher priced variants to their line-ups.

These product portfolios simply don’t match the consumer and retail needs of the developing world. The investment required to manufacture, sell, distribute and promote satchels of detergents, single ice-cream bars or trial size shampoo bottles diminishes the overall profitability of the firm.

Eventually, the consumer goods markets in many of these emerging countries will mature. But waiting is not an option if you want to establish a brand in the minds of consumers.

How long can a CPG firm accept margin-dilutive businesses on the hope of a bright future?

The fickle pundits on Wall Street are not known for their patience.

A little fun to start your weekend … From a land where the image is the message. Or where the power of fluff becomes real. LOL!

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Earlier this week I had the pleasure of attending the Fall Convention of the Adhesive and Sealant Council (ASC) in beautiful Greenville, South Carolina. I was on their docket to talk about the consumer packaged goods industry (CPG) and we had quite a good conversation.

ASC members, like all suppliers to this industry, need to understand and navigate the not insignificant challenges facing their CPG customers.  Let’s talk about a few of those challenges here.

The first and perhaps most daunting challenge facing CPG is their own success. The question is:  Is it possible to be too rich?

Every major CPG executive goes to work with an albatross hanging over his or her head. That albatross is a stock price and profit structure that require incredible and unrealistic results to sustain. The chart above lays out the problem.

On average, CPG companies put more than 20 cents of every dollar of sales into their pockets as cash. Wall Street loves this profit structure but values CPG stocks based on totally unrealistic growth expectations.

CPG’s most profitable markets  -North America, Europe and Japan- aren’t growing anywhere near the rates needed to justify current stock prices. In fact many big product categories in these markets are flat or declining.

Meanwhile, the attractive growth coming in developing countries actually puts a drag on CPG earnings because that growth comes with significantly lower profit margins. While developing countries are rapidly minting new middle class families -CPG’s prime prospect- these markets lack the infrastructure, distribution systems and optimized supply chains that account for CPG’s current profitability.

This creates a difficult and unhealthy dynamic. ROI on expansionary investments -new plants and equipment, new subsidiary operations, brand development, etc.- is less attractive than cost cutting or stock repurchases. And juicing growth in home markets could require expensive and dilutive price and marketing battles that CPG players have, up to this point, largely avoided.

Simply put, CPG’s fuel mixture is too rich to power their best potential growth vehicles.

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Here is a fascinating essay by Isaac Asimov authored back in the 1950’s as part of some consulting on a government funded research project. Assimov’s thoughts on where ideas come from, how to spur creativity, and the right team size and location to conduct brainstorming are very revealing. Fundamentally, Asimov describes the process as making connections between new facts and experiences with older ideas and insights … what he terms “the ability to make cross-connections.”

Undoubtedly in the first half of the 19th century, a great many naturalists had studied the manner in which species were differentiated among themselves. A great many people had read Malthus. Perhaps some both studied species and read Malthus. But what you needed was someone who studied species, read Malthus, and had the ability to make a cross-connection.

That is the crucial point that is the rare characteristic that must be found. Once the cross-connection is made, it becomes obvious. Thomas H. Huxley is supposed to have exclaimed after reading On the Origin of Species, “How stupid of me not to have thought of this.”

But why didn’t he think of it? The history of human thought would make it seem that there is difficulty in thinking of an idea even when all the facts are on the table. Making the cross-connection requires a certain daring. It must, for any cross-connection that does not require daring is performed at once by many and develops not as a “new idea,” but as a mere “corollary of an old idea.”

As they say, read the whole thing.

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Building from my post about intelligence being a well-informed “opinion”, this item in the Wall Street Journal last week reminded me of another story of good intelligence informing smart decisions…highly opinionated intelligence, I might add!

The crux of the story is no amount of wishful thinking changes the laws of thermodynamics.

We are often told that the “promise” of the new age will be storing energy. Well, this promise isn’t new. In fact, it is very old.

Volta invented the first battery around 1800, and it is believed Persians may have had batteries in the early centuries AD (the “Baghdad Battery”). Unlike our ability to manipulate silica to double computing capacity every 18 months, advances in battery technology are SLOW moving.

Which brings us to our story.

Not long after Procter & Gamble purchased Gillette in 2005, my technical competitive intelligence team was asked to look into a potential investment the company was considering in a firm called A123 Systems.

A123 was a spin-out from the Massachussetts Institute of Technology (MIT) that claimed to have a breakthrough in lithium iron phosphate battery technology that could revolutionize electric cars.

The Duracell brand, which had only a weak position in the lithium ion space, saw big potential: Get in on the ground floor of the mass production of “good & cheap” electric car batteries and stick the Duracell brand on them. Tie the brand to environmental friendliness and innovation. Be a key part of the electric automobile future. Management appetites were whetted, to say the least. Plus, A123’s technology came out of MIT, so it must be great, right?

A certain consulting firm was hired to vet A123 and they pronounced the plan to be good.

Luckily, an old gray hair P&G engineer sent the package to my team to have a look.

We came to a very different conclusion. Our “opinion” was that A123 was mostly promises and not much property.

First, the “technology” A123 promised didn’t diverge far from existing lithium ion processes. Its promise of industrial scalability, uniform quality and long life didn’t seem very convincing.

We determined this by looking at lithium ion battery intellectual property (i.e., patents).  The consultants hired to do due diligence looked only at US intellectual property. They did not look at the massive record emanating from Japan.

Japan was the pioneer and leader in lithium ion technologies. The Japanese IP record was rich and included many “inventions” that led to commercial dead ends, most especially in the area of fabricating large, stable power cells. These lines of development in the Japanese IP record were exactly the same pathways A123 intended to pursue if they could find a deep pocket investor.

Further, we asked the strategic question: If the promise of A123’s technology was so convincing, why were they coming to P&G? Wouldn’t a firm in the automobile industry or in power and controls be a more logical and enthusiastic audience?

We presented our findings to key finance and R&D leaders. Needless to say, we were not very popular. In fact, we were surprised by much of the vehement blow-back from executives in the battery business. It was angry and accusatory … potentially career impacting.

People trusted A123 because of their legacy and position. They wanted to believe that very smart technologists given enough resources could coax a rapid breakthrough into existence.

We stuck to our opinion. Our assessment was fact based, and historically and intellectually sound.

Management listened. They compared our analysis to the opinion of internal advocates and the third party due diligence effort. We won on the merits and P&G avoided making a huge financial mistake.

Years later, of course, A123 Systems filed for bankruptcy after they attempted to scale up manufacturing for Detroit.

They were purchased out of bankruptcy and have indeed created novel and interesting batteries for automotive and industrial applications. The power quality produced by the A123 process is impressive. But the promise of scaled up, mass produced “good & cheap” electric car batteries continues to be elusive. (We’ll have to wait and see if Elon Musk can deliver on the promise.)

In business, well informed opinions -what we call “intelligence”- need to drive decision making. Wishful thinking and conventional wisdom, not so much!

Check out this video of a Red Tail Hawk taking out a drone. Old answer to a new problem … Falconry, anyone?

I can remember way back in ancient history when I got a 64 count box of Crayola Crayons … the box even had a sharpener incorporated into the package. How could it have gotten any better than that? Well, now look how far they’ve come. Pretty cool! And check out Data Pointed … many cool visualizations of data.

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Our friend, Ben Gilad, has a great post up on LinkedIn Pulse about the difference between data, information and intelligence. He uses this week’s story about H-P’s pending split-up to illustrate:

Take the case of the failed merger talks between HP and EMC. Assume you are a competitor (or a customer, or a potential partner, or a start-up looking to be bought, etc., etc.). The information about HP/EMC is all over the place but it means virtually nothing. If in your company, all you get is information, it means you have no intelligence capability.

Data (not fully verified): The talks lasted for about a year, and failed. Some speculated they failed because both Tucci (EMC’s boss) and Whitman (HP’s boss) feared shareholders will reject the proposal (which would have forced Whitman to leave? Tucci is retiring anyway).

Information (verified): After the failure of its talks with EMC, HP announces it is splitting itself up into a Printer/PC and an Enterprise divisions.

Competitive intelligence (specific perspective on “facts” and information): This is not a strategic move at all, it’s a financial move. Who cares (except for the financial markets)? What would the two separate divisions do differently than what they have done before?

OK, you get it.  But you’re thinking:  Isn’t this “intelligence” example just opinion?

Of course it is!

It is informed opinion that gathers together facts, experience and knowledge and provides an “accurate” assessment of the situation. It is not the hip shooting, unicorn conjuring kind of opinion. It is reality based.

Somehow in our fascination with data and information we have banished “opinion” to the dunce corner. We forget that data and information are inanimate … they just sit there. It is opinion that gets things done. It makes sense of the facts and points to a course of action.

Intelligence is the process of creating well informed, data based opinions. No decent business leader, investor or entrepreneur can operate without these “opinions.”

When Steve Jobs looked at the emerging electronic music market in the late 90’s and said “this sucks,” it was his opinion. It was a well informed opinion that changed the world!