Lessons Learned From the "Fog of War"

Watching the war coverage and listening to its "expert" commentary is another reminder of how people can fixate on one particular thing and lose track of the bigger picture.

We have journalists traveling with troops and cameras in fixed positions in Baghdad. Yet there are many things happening away from these places. The slightest hiccup in expectations gets overblown. The military refers to this as "the fog of war" and looks for corroboration of every data point or trend because they know even field reports can be wrong. It’s all too easy to be too close to situations to make good judgments. And it’s essential to realize that there are things going on that are not within camera range. We’ve become a culture that believes if there is no video, it must never have happened.

Managers can learn a lesson from this "fog." The old adage "you can’t see the forest for the trees" holds true when interpreting economic and business data. Thankfully, this is not as life-threatening as military action.

Too many managers seek hard data when none exists, or wait for more data while they delay action. Sometimes they seek the wrong kind of hard data. A saying of mine (they used to be called "Joe-isms" by my cohorts) was, "Give me an old, large, declining industry, and I’ll give you all of the hard data you want, for all the good it will do you. If you want to be in a new, growing, cutting edge industry, there are no hard data. You’ll have to use estimates and your experience. That’s your job. That’s why you get the big bucks."

While that advice may have been extreme, it is the reason I have always relied upon and cultivated the hardest data I could find--industry demographics—and used that as a springboard. And that was not my idea; it was an admonition of Peter Drucker that I took to heart. I’ve been in too many situations where managers want hard, final data that relieves them of the responsibility of decision-making. Unfortunately, life is not that simple. So decisions were delayed even though the market estimates were the best that could be. Hard data is a byproduct of history. To wait for history to be written is to let opportunities slip by.

Other reasons for delayed decisions? Even though estimates might be based on hard demographics, these estimates might be lower than managers "needed" to justify funding, a budget, or an already submitted sales forecast, and thus estimates would be disparaged. The end result would be a misallocation of budget to an improper media mix, under- or over-configured products, or poorly planned sales efforts. These managers created their own "fog of marketing." The fog of war is something that happens; the fog of marketing is self-inflicted. That’s the worst fog of all.


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Congress and the Tax Plan

I’ve been harping on the tax plan and how Congress has been dawdling the past few months. Speaking of fog, the fog of economic misunderstanding has always ebbed and flowed in Washington, and it is doing so again. In my mind, the Bush plan was not aggressive enough. Just one example: dividends should be expensed by corporations and taxes on them paid at the personal level. Too many companies have lots of cash to perpetuate their bad habits, and stockholders should be given that money back. Companies use the excuse of double taxation to keep the cash. Many high tech companies are sitting on huge amounts of cash that should be freed from their bondage. But that’s another discussion for another time.

Supposedly, the proposed Bush tax cut needs to be cut in half because of fear of deficits. This is a misplaced and irrational fear, as deficits are really quite benign, especially of the kind being bandied about with the outmoded accounting practices Congress uses to evaluate these matters.

The real problem is that of slow growth, and there is little desire in Congress to fix it. The deficit is caused by lower revenues, and it won’t be stimulative (this is why Keynes is dead, as this part of his theory doesn’t work, though his ideas about productivity do). Historically, it was felt that deficits could stimulate the economy, but what was learned in the 80s and 90s was that monetary policy was stimulative. Historically, the citations about deficits being stimulative were generally accompanied by an accommodating central bank. Now the Fed has virtually no more room to lower rates, although I still think a cut will come, however meaningless.

With no Congressional action and a powerless Fed, economic growth on an annual basis will not make it much over 3%, if that much. The tax cuts will work, as the history of the Coolidge, Kennedy, Reagan, and Clinton rate cuts showed (NAFTA and other free trade actions cut prices on goods, giving a stealth tax cut, and capital gains rates were slashed as well, and those revenues skyrocketed beyond what budgeters ever expected). Congress is too divided to take action, it seems. I hope that situation changes and something happens to turn the economy around, but I’m not holding my breath.

As I’ve said, slow growth means more time for new media to take hold, and creates more pressure on print prices, more pressure to consolidate, and less interest in capital investment. This is not good at all.


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More Economic News

The revised fourth quarter GDP data indicated some positive news, but not enough. Business investment was up 2.3%, an increase so small that it does nothing but maintain the status quo. No industry retooling is underway that would help capital equipment suppliers, that’s for sure. Replacing equipment is more the norm in a slow growth economy. Computer expenditures increased, but not enough to pull these companies out of the doldrums. Technology has never been cheaper, and buyers have unbelievable negotiating power. Since 1992, the inflation rate for computer technology is negative, now costing about one-tenth what it did at that time. Any wonder why digital media is getting a bigger share of the media mix?

The best news in Thursday’s economic reports was that after-tax profits were up by 4.1%, the biggest quarterly increase in three years. (Remember that things started to slow down in Spring 2000, when the NASDAQ peaked and then started its 70%+ decline, and not on 9/11/2001, as is still misperceived). For the year, profits were still down, and are about 15% lower than in 2000. Most of the profit rebound has come from cost-cutting, and that strategy has probably yielded almost all that it can.

How will we know things are getting better? Watch the NASDAQ for now, as profit expectations will start to show up in stock prices.


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Consolidated Graphics Earnings Reflect Change in Industry Seasonality

In my Valentine’s Day column, I talked about how seasonality has changed in the printing industry, that the rules of thumb no longer apply, and my usual constant drone about how, even though the economy is picking up slowly, that doesn't mean that print is doing the same. Consolidated Graphics’ recent earnings conference call (See Raine Radar Report) reflects the same theme -- the media mix has changed, and you can be sure that more consolidation is on the way. Last week I mentioned that it looked like Quebecor was "blindsided," and the other day Donnelley issued an earnings statement that implied the same thing. Are these executives thinking "tomorrow will be a brighter day," or are they looking at hard facts? Perhaps a review of my Valentine’s Day "wake-up call" would be in order.


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Corel Up for Sale . . .

Corel announced a potential acquisition by Vector Capital in a press release earlier this week.

Corel really has two distinct businesses – office and professional graphics – which may be worth more separately than as a consolidated business. Who might potential buyers be should Vector decide to split up the company – which is most likely what will occur? On the office side, there have always been rumors that Adobe would be a good buyer, but I doubt that Adobe will opt for that type of low-margin struggle.

On the graphics side, Adobe is unlikely for antitrust reasons, and they lead the market anyway. Microsoft has always expressed a desire to be in the professional graphics business, but if they think the Office for Mac business is not "big enough" to support, then Corel’s professional graphics business doesn’t have a chance in their hands. Then there are companies like Macromedia, ScanSoft or Sun Microsystems -- and there is always Apple, who has a stated intent to be more active on the software side of the business. This might be the best answer.

Regardless of who ends up with the pieces of Corel, I worry about the ultimate fate of Ventura, just out in version 10, which actually works, and Paradox, which could be spun off to a specialty software company. I can’t see anyone owning Corel and keeping it together.


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More Cool PC Tools from Dr. Joe

Internet History Eraser: I have never seen anything quite like this. It stops cookie and temporary file buildup (you can protect the cookies you want to keep). It cleans your hard drive of all kinds of unnecessary files, even from MS Office and others. If you use AOL, too, it even cleans up clutter from that. I regularly can free up another 20mb of hard drive space using this, and you can even program it to run automatically when you shut down. It's a 14-day free trial, and after that, it’s $30 for a download. If you use Norton Systemworks' Fast & Safe Cleanup (part of CleanSweep), Internet History Eraser does a much more thorough job. Go to www.internet-history-eraser.com.