Eddie Senatore

Survive to Thrive – A journey to business success

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Mediation and insolvency

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According to former US Judge Peck one primary objective of mediation is to restore communication between parties to mitigate against further deterioration in relationships, allowing parties to explore solutions and options without their legal position has being compromised which facilitates the discovery of mutual interests, as another objective.  Building trust is hard work, especially in insolvency.  Mediation creates the possibility of settlements so long as there is a willingness.

There have been a couple of large-scale insolvency cases in which mediation has been used successfully.  This includes the Lehman Brothers bankruptcy and MF Global Holdings Limited where the courts encouraged mediation between US, Wales and English counter parts resulting in a global settlement being achieved.

Nortel Networks Incorporated is a case were mediation failed.  Of the $7.5 billion in assets banked, over $1.3 billion in professional fees have been paid, while creditors ranging from hedge fund managers to retirees wait.

Judge Peck suggests mediation requires some key success factors. Firstly, there is a window of opportunity within which to mediate; with US Judges and attorney’s getting better at identifying this window.  An important skill I would imagine. Secondly, decision makers need to be in the room.  Decision makers not only need to understand the solutions and settlement proposals, but more importantly be part of the consensus building process. Lastly, and importantly, there must be a willingness or sincere desire to settle the dispute.  When the process is undertaken voluntarily and initiated by the parties, success is more likely; compulsion led mediation less so.

Judge Peck also recommends any resulting agreement should include a clause enabling parties to refer an agreement to the relevant court, so that the agreement has teeth.  Unusual.

I’m not suggesting for a minute litigation is irrelevant, far from it.  Litigation has its place, whether it is to set legal precedent or facilitate a quick outcome in cases where there is a developed set of procedures such as summary judgement or when courts are well placed to handle the dispute on hand.  However, there are some distinct advantages to mediation including:

·     Lower costs – costs are agreed and fixed

·     Quicker than litigation

·     Less adversarial – solution focused, claims not being forced to fit common law

·     Easy to follow and understand – less jargon

·     Less process – pre-trial, directions, request for particulars, discovery, security for costs etc

·     Private and confidential – material cannot be used subsequent to mediation

·     Can be terminated at any time

Lehman Brothers requested the Bankruptcy Court to approve a set of alternative dispute resolution procedures using the Bankruptcy Code to approve the process.  There were objections raised, with arguments against being alternative dispute resolutions should only apply to adversarial proceedings; that contracts did not provide for mediation; that mediation is inconsistent with the centralised decision-making process that bankruptcy entails and other jurisdictional arguments. Objections were also raised around impact of substantive rights, scope of procedures, mediation logistics and other special needs.

Not to be.

Alternative dispute resolution was approved by the Bankruptcy Court enabling Lehman Brothers to commence mediation prior to filing for litigation.  As the process is entirely confidential parties do not have to settle nor waive rights.  It proved successful with 77 of 202 alternative dispute resolution matters involving 224 counterparties being mediated with all but 4 settling.

In Hong Kong a scheme was used to manage the Lehman Brothers bankruptcy mediation process.  There was the pre-mediation phase which involved information gathering, pre-mediation briefings and preparatory meetings.

The Hong Kong Monetary Authority established an office, with trained staff who would educate potential users on the mediation process.  This would include simplified information, forms and guidance notes.  When information gathering is complete pre-mediation briefing sessions are conducted. Mediators discuss the suitability of mediating specific cases to both sides – in the case of Lehman Brothers both investors and bankers were briefed.

These sessions enable informed decisions to be made as to whether or not mediation could be used to resolve claims.  If so, preparatory meetings commence.  A mediator other than the mediator who undertakes the mediation itself helps prepare the parties for mediation.  This would include assisting with exploring solutions and settlement options. Parties are then required to complete a consent to mediation, claim and claim response forms.

Solutions or offers can be put at any time, even before mediation has commenced.

Then mediation takes place, either the parties resolve their dispute or narrow down the issues.  Mediation must be concluded with 21 days and mediation meetings should not last more than 4 hours.

The downside?  As mediated outcomes are confidential there is no sharing of lessons learnt or issues ventilated, nor the resolutions achieved.

Polaroid

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History is filled with stories of disruption. The Polaroid Corporation is one.

The Polaroid Corporation began its ascendency in Massachusetts around 1937. Polaroid was once described as a “juggernaut of invention”, the Apple of its time so to speak. Under the leadership of Edwin Land the Polaroid Corporation flourished.

Edwin Land was the inventor of polaroid filters, the process that lines up crystals of iodoquinine sulphate and embeds them in transparent plastic.  The polarising film was used in a range of industries from 3-D movies, photographic filters, sunglasses, night-vision cameras. Polaroid even experimented with new ways of creating colour images which came good around 1963.

All upside

The late 1930s was an era of rapid development for chemistry. In 1938, German chemist Dr. Edith Weyde and Andre Rott invented a “diffusion transfer reversal” process. This was a method of transferring a negative image from photo-sensitive material (the negative) to non-photosensitive material (the positive image). This invention paved Polaroid’s way to the invention of the instant camera. It also led to the development of the first photocopiers.

It took Polaroid 20 years to arrive at the instant image camera.

The first Polaroid Land Camera delivery was a block of 57 units going on sale in 1958 and sold out within hours (think iPhone). Polaroid’s technology was embraced by a wide range of customers, including some of the greats of modern photography like Ansel Adams, Walker Evans and Andre Kertesz.

The Polaroid camera became a mainstay of scientific laboratories, who have been using it for quick documentation and measurement. Polaroid cameras made slides that were used in conference presentations when glass slides could not be produced quickly enough.

Some downside

Electronics comes to market and started to dog Polaroid. In 1977, Polaroid announced the invention of the instant self-developing movie camera named “Polavision.” The rapid decline of the company began in 1977 with the introduction of the Polavision camera. At that time video-tape based cameras were close to monopolising the market.

Management failed to see the implications of this new video-tape disruptive technology. People no longer needed a physical product when it came to imagery. Many preferred to store images electronically and view them on electronic media, rather than have them in photo albums and boxes of negative and films.

The instant camera was also in rapid decline with the rise of the digital camera. Photographers were declaring “Film is dead”!

Polavision is widely seen as the swan song for Polaroid.

Too late

By the time Polaroid got into the digital camera business, it failed to capture a large market share. Its scanner lines, Polaroid SpiritScann using 35 mm film in 1999 and outputting to print in 2000 also saw heavy competition and was discontinued when it first declared bankruptcy in 2001 and again in 2009.

Between 2005 and 2009, the Polaroid went through six CEOs. By 2006, they stopped producing Land cameras altogether. By 2008, they stopped manufacturing film for Land cameras, which left a lot of owners without.

Fujifilm took over the manufacture of instant film that would fit the older 60s and 70s Land cameras. Fujifilm also discontinued the manufacture of instant film for Land cameras in 2016 due to declining sales.

An English company called “The Impossible Project” continues to manufacture and market colour and black and white film for the Polaroid 600 and SX-70 cameras and Land large format cameras up to 8 x 10. They also make printers for duplicating Polaroid film images. There are communities on the internet that annually celebrate the fate of Polaroid. The company itself limps on under reorganisation, now making small digital cameras and other equipment.

Polaroid’s failure is widely attributed to the failure of management to recognise the way the market was moving and to move with it, taking the difficult choice of letting go of a product that brought so much success, but now had reached the end of its life.

It always pays to revisit industry value chains to identify how the moving parts are moving, identifying any changes and how these changes impact on your own business value chain.

 

 

 

 

Opportunity or distraction

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I’m back from my Strategic Breakthrough learning experience at New York University’s Stern School of Business. 18 of us worked on strategic planning and corporate culture theory and practice. One of the power plays was to lay bare our businesses to 17 CEOs and a professor of strategy, digging, probing, poking and pulling apart our business models. Daunting. Educating. Fun.

One of the participants headed up a private bank in South East Asia. The bank provided traditional banking services, commercial and retail loans, securities and insurance. The CEO wanted to invest in a fintech start-up. When pressed why, his response was that if we do not innovate we will be disrupted by some start-up somewhere.

This was fairly typical of a lot of the businesses in the room. CEOs of oil companies concerned with green energy, publishers concerned with digital, defibrillator manufacturer thinking about advancements in health technologies and so on.

Innovate, disrupt or be disrupted is nothing new. Let me explain.

Once upon a time there was this guy called Graham Alexander Bell who had an idea about voice transmission over wires.

Graham Alexander Bell, poor choice of photo I agree.

Bell was an educator, taught elocution and with his father innovated and fostered new ways of communicating with the hearing impaired; sign language and lip reading to name two. Bell invents the telephone and lodges a patent with the US Patent’s Office on 7 March 1876.

The patent

Bell has a benefactor, an investor – Gardiner G. Hubbard. Hubbard supports Bell through his early attempts (failures) to bring the idea of the telephone to some level of usefulness from at least 1874.

G G Hubbard, lawyer and investor

So far we have an idea, an investor and failure. Sounds familiar right.

Bell’s family moves from Scotland to Canada. Subsequently, Bell moves to Boston to teach. Unwell for travelling between Boston and Canada and working on the telephone, Bell quits his job, remains in Boston and focuses on his idea. Now a real start up.

To get his idea on track Bell on-boards, Thomas Watson in 1875 and by 1876 they created a device enabling voice to be carried over wire caused by changes in currents.

As is usual with start-ups, Bell has no money. So Bell pitches his idea and device to Western Union’s boss William Orton.

The savvy Weston Union’s boss, Orton

At the time, Western Union was a big deal. Western Union owned the telegraph wires enabling telegrams to be sent over the short, mid and long distances throughout the USA. Later Western Union would enable international connections.

Orton thanks Bell for his pitch and declines the offer to purchase Bell’s patent. Unconfirmed reports suggest Bell offered his patent to Orton for $100,000. One of the issues at play was that Orton and Hubbard didn’t get along. Hubbard is an attorney and on occasion had cause to challenge Western Union. Orton is self made, having suffered business failure himself, he works his way up by consolidating the assets of various telegraph companies existing at the time merging a number of them, ultimately creating Western Union. During this time Orton studies to become an attorney himself.

Subsequent to Bell’s pitch, Orton buys some patents, in particular, the provisional patent (the intent to lodge a patent – a caveat) by Elisha Gray. Gray’s intention to lodge a patent or caveat was lodged on 14 February 1876 (recall Bell lodges a patent on 7 March 1876). I can’t seem to verify this but google tells me that Bell fights about 600 patents challenges over his time. But this fight – who was first, Bell or Gray was pretty important. Anyway Bell holds the patent, Gray does not. Bell wins.

Not only does Western Union buy Gray’s ideas in 1876, it also employs Edison. This is a real problem for Bell, Western Union has the telegraph poles that hold the wires needed to transmit the voice, a provisional patent and Edison.

Bell bats on. Hubbard approaches another potential investor, Chauncey Depew, and attempts to secure $10,000 as an initial investment. Unfortunately, Depew knew Orton well and seeks an opinion and you can guess how that went. So in little over a year after Bell pitches to Western Union, he and his cohorts set up, Bell Telephone Company and start to exploit the market and in about 1878 the creation of a telephone exchange enabled people to connect to each other within a 15-mile radius – short point or neighbourhood distances.

Clearly, mid point and long point services were next and for a time Western Union was focused on serving these two markets with essentially commercial telegram transmitted information – such as stocks etc.

Western Union tries to take its telephone to market. Bell challenges Western Union on the basis it was exploiting his patent and for 2 years fight it out when on 10 November 1879 Western Union settles with Bell.

Western Union yields up about 80 of its patents, hardware and 56,000 telephones in 55 cities together with providing a non-compete until 1896. In return Bell pays a 20% royalty Bell telephones to Western Union for use of the wires.

So then, the telephone, opportunity or distraction?

If you search biggest business strategic blunders you will find the classics Blockbuster, Kodak or the new Coke stories. You will also find Western Union’s decision not to take up Bell’s offer to buy his telephone patent for a miserable $100,000 in 1876 as one of the biggest strategic blunders of all time.

But was it? On all accounts Western Union was a progressive and innovative business. What David Melki tells us is that Western Union was kept busy by the demand of its short term commercial messaging, for example, stock trades and at this stage technology was able to transmit up to 4 messages per line, compared to a unreliable and scratchy audio over short distances. Western Union could argue that it was focused on its core business. If you think about how stock market data is transmitted today, the telephone is not at play but a new type of wire is.

The ability to leverage its assets through a licence to Bell was a smart play and perhaps all Western Union needed to do.

Western Union’s strength was in its infrastructure, wires and its ability to reliably message commercial messages such as stock trades and market information over short, medium and long distances. Even today after Western Union closed its telegram business in 27 January 2006 it continues to provide money transfers including on line and mobile.

“Effective 2006-01-27, Western Union will discontinue all Telegram and Commercial Messaging services. We regret any inconvenience this may cause you, and we thank you for your loyal patronage. If you have any questions or concerns, please contact a customer service representative.”

The answer to whether the telephone was a missed opportunity or a distraction for Western Union will depend on your answer to question: What business was Western Union really in?

Back to the bank. For bank’s region many of the population do not have a bank account; preferring to do basic financial transactions through mobile technology. No margin and little volume in security trading and insurance, with high reputational risk make it a low return investment for the bank. Perhaps sponsoring incubators specializing in fintech start ups is be a better way to keep on top of the trends and future disruptions rather than hedging a bet on one fintech start up.

So the question you need to ask is – What business am I really in?

What went wrong at Borders

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July 22 this year marks the 7th anniversary of the fall of Borders. Barnes and Noble on the other hand seem to be making it. Retailing is hard. Really hard, that’s for sure. So, what went wrong with Borders?

Borders’ press releases state they were the victims of the times.  They cited the maturity of the book industry, the development of the e-reader and the shaky economy during the 2000’s. The rise of e-books and digital music created an environment that didn’t have a place for a bricks-and-mortar book franchise, Borders’ insisted.

One of the clear differences between Borders and say Barnes and Noble was the on-line strategy. Borders approach was “our online investment will be channelled to support our in-store platform, while Borders.com will continue to be utilized as a convenience retail channel”. Investing in the in-store platform was simply a cost reduction strategy; automating processes; reducing the need for in-store sales people. Reflect on that for a minute; physically go into a store to then simply go onto an amazing in-store on-line platform to find a book. Yes!

Borders passed the on-line sales channel to Amazon. Amazon managed the platform, customers, books and music. Borders’ clients did receive books, but Amazon held key customer information and customers got more – low transaction costs, quick turnaround time and money back guarantees.  Amazon. Winning.

Barnes and Noble took the approach “[if we] pay a visit to our customers at their home through Barnes & Noble.com, they will return the favour at our stores”.

Borders invested in music and DVDs and for a while seemed to be gaining some market share. But by the time it invested enough to expand its range, on-line music providers and Netflix crashed the party.

Borders were also late with the e-reader. Missed completely. First Amazon with its Kindle (2007), next Barnes and Noble’s with the Nook (2009) and the iPad.  Borders came out with its e-reader – the Kobo (2010/2011).  How many customers were lost to the Kindle when Borders’ passed the on-line business to Amazon?

These were big moves and I haven’t even discussed nor mentioned Border’s large and rapid physical expansion!  More investment in stock and higher fixed costs. No wonder cash was at a premium.

It’s great being in business, it has its rewards and challenges. When you are so close to your business and constantly working the day to day its hard lifting your head to see what is developing around. There’s just not enough time to Focus on performance improvement and mitigate or take advantage of digital disruption, so it gets pushed out.

As always, touch base to discuss.

If you would like to receive updates, please let me know and I will add you to my private circulation list.  [email protected]

Thank you

Change

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Unscrew the back of a watch. If you’re not handy at pulling things apart and putting them back together again, don’t try this with your watch. The workings of a watch are fascinating, a centre wheel, an outer wheel, a spring, bridge, pallet and balance are just a few of the bits making a watch tick. If you take any one piece away, say the spring the watch stops working, if the pieces are worn or dirty the watch will work, but it will not be reliable, then again if you loose the crown, the watch will work, but it just doesn’t look right.

Like watches, businesses are is multi faceted and layered with interconnecting parts. Part of the challenge in business survival is to recognise the various components of a business and how they interact.

I am often asked what the main causes of business failure are. Whilst each case has its own tale to tell, poor management ranks the highest. I agree, poor management is a broad reason.   It includes lack of planning, budgeting, failure to monitor or review a business or to look at strategies to meet market changes and developments.  Not anticipating change is another.

Those who try and stick by the principle of ‘if it ain’t broke, don’t fix it‘ are unwittingly starting to walk down the path of business failure. Just like a watch which is slowly losing time needs a service, so it is with a business.  It is important to recognize that nothing stays the same. Change is always around us and to do nothing because everything seems ok is to invite failure.  Part of the trick is to scan and identify trends that may have an impact on your business.

In my experience, those business managers that stay on top or anticipate change will have a higher probability of preventing change from adversely impacting on their business.

In the ever-changing economy, the factors that can impact the viability of a business can be gradual or sudden. There is no pattern. In a global sense, think of a change in oil prices, a currency change or a decline in the Chinese economy. Locally, factors may include a change in legislation, a new competitor entering the market, or a loss of a major contract or customer.

I’ve picked some obvious ones to start you thinking:

6 things you can’t control

# 1 Environmental

A business may be susceptible to adverse environmental factors such as climate change and drought. Change the lens, whilst climate change may present challenges for some businesses, it may also present new opportunities, remember there are always winners and losers.

# 2 Economic

This may include interest rate changes, a change in the price of oil, currency fluctuations or a correction in international markets.

# 3 Change in legislation

These are generally industry specific changes which can adversely affect a business. For example water restrictions, carbon omissions and anti-smoking laws.

# 4 Technological Change

The big ticket item – digital disruption. Whilst some industries are more susceptible to technological changes than others, all businesses are impacted by advancements in technology at some level. At one end this may simply be an improvement in accounting, payroll, stock control or point of sale systems whilst at the other this could involve a new manufacturing or processing technology revolutionising a particular industry, Paypal, Uber or AirBnB.

What’s the internet done to your business?

At various times I have come across business managers who have persisted with old systems which are either not being used to their full potential or are no longer supported by the original developer. Missing out on productivity gains, means competitors will take the lead.

# 5 Social Factors

Social trends can adversely affect sales if a business is unable to keep up with the latest fashions and consumer demands. Anthony Robbins talks about missing a cultural change will lead to business failure. Think iPod.

# 6 Market Changes

Competition presents a challenge for any business. Business managers need to be aware of their competitors, possible mergers, new product offerings and new business models within their market in order to retain their market share. Why didn’t the taxi or hotel industries see Uber or AirBnB coming?

the 5 things you can control these

# 1 Loss of Key Customer/ Contract

No business manager likes losing a customer or contract. However, this should not result in the demise of your business. Good management would be to employ risk minimisation strategies to ensure you can deal with theses losses.

# 2 Loss of key personnel

The loss of key personnel may destablise a business and lead to the loss of other staff. In addition, skills shortages in certain industries can make retaining or replacing valuable personnel extremely difficult.

# 3 Fraud       

Business managers need to have adequate controls in place to manage the risk of fraud within their business. These controls need to address both internal and external fraud possibilities.

# 4 Poor pricing

Increases or changes in business costs can easily impact the profitability of a business if such costs are not monitored and pricing adjusted accordingly.

# 5 Data 

Whether it is a short-term problem resulting in some ‘downtime’ or a major crash causing the loss of data IT failure in today’s business environment is serious.

The wrap up

Good management has the ability to not only identify the current position of a business but also anticipate changes that threaten the business. Unfortunately, sometimes even the best prepared can get this wrong.

The key is to identify the warning signs, get involved, talk to people and seek professional advice.

I helped a business that was experiencing a down turn. It wasn’t the business so much but more what had happened around the business and the effect these changes had on the business as a result. The biggest change was in technology; there were also environmental and legislative changes. We had to ensure we complied with the the law. So this was prioritised. In doing so we effectively caused an audit of the operations to be undertaken. We used the information from the audit to then prioritise technology, followed by the environmental issues.

Staff where challenged by the advancement in technology, they were no longer seen as the keeper of information, the go to people that could provide answers and solutions. Like buying a used car. We can gather up more information about cars before we walk onto a car yard, and car dealers who are not transparent are found out, very quickly.

Somewhere along the way, someone had changed the way the game was played. No longer did we answer questions; there was a movement away from ‘teaching’ to understanding how we learn.

To successfully turn this business around staff had to be engaged and take control. Staff help develop a new business plan. Consultations took place with key stakeholders. Motivated staff with high energy and an improving business is now the situation.

What this case study demonstrates is that the business environment is as complex as your standard Rolex watch movement.

Whilst you can keep the watch working by winding the crown, a series of interlocking mechanisms keeps the time on track. Speaking of Rolex, the famous Sea Dweller and Submariner are two of Rolex’s most popular pieces. James Bond made Rolex famous in the 60’s.

If you have a good look at the beautiful 1960’s Sea Dweller and compare it to the modern day one (have a look at the ceramic bezel to start with), with slight changes on the face, its compound, make up and technological differences are astounding; but it’s still a Sea Dweller after 40 years.