The rising cost of gasoline is a popular topic. I’ve not seen this level of conversation since the 1970s. Everyone wants to know what and where the lowest price of gas they’ve seen. Everyone is speculating from currency, to the economy, to war.

I thought I’d add a few notes that many people are missing:

1- It’s not the speculators causing the high prices nor price spikes. It’s just that world consumption is hovering near production capacity. When a system is at capacity then any little event can send a surprisingly large ripple through the rest of the economy. Compare a drive in rush-hour traffic to mid-day. Someone spills a cup of coffee in rush hour and there is a wave of traffic jams - those ones where you finally get through the jam and wonder “why was the traffic jammed up? I expected a huge accident” - nope just a distracted driver that slowed of the accelerator or touched the brakes for a moment. That little event is all it took to basically halt a system at capacity. Or if you own or run a manufacturing plant that has some challenges, never embraced any of the tenents of Lean Manufacturing for example, then you’ve experienced how a few little things can really halt production. But it’s always fun to pin the blame of high oil prices on some nameless and evil speculator. Nope, the system is too big for that.

2- War with the oil producing areas for control is futile. There is speculation that “Iran will be next”. Perhaps, but that’s based on some common idea a war will reduce the price of oil. Reality is different. Remember, the world is at capacity already. Any little hiccup in supply (like disrupting the #4+- largest oil producing country) is like someone spilling their coffee in rush-hour traffic. It’s just going to increase the price of oil.

3- SUVs and the average consumption (forget about CAFE - it’s futile). The price of gasoline will encourage people to change the consumption of their personal transport fleet. Either fewer miles, more efficient vehicles, or submitting to less flexible public transportation (you have to wait for the bus/train). Corporate Average Fuel Economy (CAFE) standards imposed on the automotive manufacturers haven’t slowed the number of miles people commute nor the scaling up of SUVs. People have been used to driving an SUV that gets practically the same mileage as those “boats” from the early 1970s or those big cars with fins from the 1950s. About as much iron and similar construction (body of frame). Meanwhile car buyers in Europe have been purchasing smaller and more fuel efficient vehicles for years.

4- High gasoline prices are good for the United States - lower consumption trends will improve the environment, reduce the need for importing oil, and reduce or slow the growing trade deficit. These are all good things we’ve been trying to do for a while now - right?

5- Energy policy in the Norway, Finland, Sweden part of the world has been artificially increasing the taxes on gasoline to purposefully make fuel dramatically more expensive. It’s a political problem to introduce that here in the United States, but it is effective in drving positive change.

6- Evaluate the price of buying a new vehicle and your driving patterns. Prices of things tend to include the cost of energy to create them (melting a ton of steel, running 100 gallons of paint through a chemical factory, carpets, plastics, casting aluminum at 1500 degrees F, transporting raw materials, etc). If you have a SUV that gets 10mpg, gas is $4 per gallon, you drive 12,000 miles per year, and you have three years left to drive it (either when the lease ends or when you might make a switch) then you will spend only $7,200 more in fuel than buying a new $20,000 vehicle that gets 30mpg. Should you spend $20,000 in energy to save $7,200? Even if the small car had residual value with nearly 40,000 miles on it, is spending $10,000 to save $7,200 ok for your budget? Obviously simplified, but hopefully thought provoking.

7- I remember asking friends back in the 1990s what price gasoline would have to get to before they would switch out of their big pickups and SUVs. They never had an answer until I switched that to how many times they fill their tank a week and if that fill-up were $100 or $200 or more would they switch. That metric was the magic one. Most people don’t have a feeling for miles per gallon and dollars cost per gallon, but it’s easy to understand the dollars per tank.

So those are some of the things to consider for discussion at your next friends or family gathering.

Cheers!

I made a comment over on “XP era ends: Will Vista step up?” (additional content added here after the **** break). Microsoft is discontinuing Windows XP pre-installed systems to force everyone to Vista (or to Mac and Linux as the trend seems to be).

Microsoft planned for Moore’s Law… right down to forecasting what people will be using “in 5-7 years” from when they started writing Vista code. They simply overshot. The reasons?

-Web-centric. Huge computing power is not needed for most web apps where many people spend their time. The other big use with Office productivity suites are really in refinement periods now - minor tweaks but not much extra need for power. So no consumer push other than the minority of gamers (that push graphics cards more than cpu’s), and fringe video or movie creation/editing. Look at the popularity of the ASUS Eee pc - it’s way underpowered for Vista, probably crawls under XP (but works well under Linux).

-Hardware Marketing Fog. The chip makers stumbled over the last few years with Moore’s law - they had to put gangs of cpu’s together to try and get back on Moore’s course rather than vastly more powerful singles. Most software has yet to be specially (re)written to use parallel processors. So hardware marketing is a confusing fog of brand terms (look at a Sunday advertising insert) trying to convince people to get a new computer. It’s confusing enough that many people give up and go to the Apple> store - since there is a very limited selection.

The fix for all this?

-Rescope Vista, make smaller incremental improvements more frequently (look at the release cycle for Ubuntu.. major improvements every six months). Don’t call them “service packs” but rather “improvement packs”.

-Slim down Vista. Find out how to make it run “more like XP” until hardware catches up again. Brand it “Speedy Vista”. Or put an easy to configure “turbo button” where a user can run with eye-candy or super fast by “downshifting to pass”. This includes refusing to allow hardware vendors (and MS itself) from packaging bloated advertising/trial software with new systems.

******

Microsoft made a mistake in overshooting hardware capabilities that would be available and that customers wanted/needed. Getting back on track will be difficult with Microsofts corporate system - they are not geared for what is going on in the industry. It’s much like the domestic US automanufacturers struggling against Toyota’s Lean Manufacturing system. Toyota was setup to build in small batches with continuous improvement. Much like Canonical Ltd does with Ubuntu Linux.

Ubuntu is launched on a six-month improvement cycle. Meanwhile, the production system at Microsoft is geared to produce a wonder every five to seven years.

When your forecasting needs to look five years out compared with six months out, you are bound to make larger errors that are more difficult to correct.

So a challenge. Figure out how to make incremental improvements in your process and your company. Think small, light, and quick. If you want some pointers, give us a call.

Cheers!

People want to upgrade their computer systems - for many reasons, from software to perceived hardware shortcomings. But when they look around at current options they find these problems: Windows Vista needs hardware far in excess of what people really currently have - so no real option to upgrade short of buying a new computer. Apple’s continued high priced hardware/software package (a bit of elitist market pricing - well done brand management) also prices many people out of the market. With less change in people’s pockets due to the home mortgage issues, economy fears, and concerning stock market returns, people wonder what they should do. They are looking for alternatives.

Eventually, they come across a friend or business associate talking about this new fangled “Linux” thing. And they pause when they find out that Linux won’t run their favorite (Windows) software … Many main stream computer users are not hugely technical and feel somewhat daunted by the prospects of a new system. Then they look at Windows Vista or a switch to a Mac and they see the same learning curve. So out of curiosity and perhaps need they start reading forums and blogs and try to find out if this new “Linux” thing is for them.

Here are the steps I followed, and suggest others to follow, in getting into Linux - there is nothing like trying it out for yourself with your own hardware and your own software needs.I have an engineering and project management consulting business supporting Automotive OEM and Tier1 corporations. All my business use is Linux based. Primarily Kubuntu (which is more like Windows for those thinking of switching and faster than base Ubuntu which many like because it’s more Mac-like) and Xubuntu (faster than Kubuntu for older machines - runs well on 500-700Mhz or newer CPUs, you read that right - ok on half a Ghz!). I use Open Office and trade documents with my clients using MS Office all day long and never a problem. For producing final documents - Open Office has a direct “export to pdf” option on its menu that many people find extremely useful (I know people who installed OO just to get the pdf output).

For those starting out and wanting to test the Linux waters, here are the steps:
1. Install Open Office (www.openoffice.org), Firefox web browser (http://www.mozilla.com/en-US/), GIMP (www.gimp.org), and possibly Thunderbird email (on the mozilla web site) on your Windows machine.
2. Download an .iso image and burn a Live-CD of: Kubuntu and/or Xubuntu and/or PCLinuxOS. Make sure your pc boots to the CD/DVD-ROM drive before the hard disk drive and boot them up. They will run slower than a native installation because they run from the CD and are uncompressing files on the fly. When done testing remove the CD and reboot back to Windows - which never knew you were being unfaithful.
3. Do an installation on an old PC (your last generation windows box the kids are using “that was too slow for real work” or that is moldering in the garage/basement), or get a spare hard disk drive to swap in your favorite computer, or do the “dual boot” option on your favorite computer.
4. Go native Linux.

I hear a lot about GIMP being ‘hard to use’ -it’s only hard for those with extensive Photoshop experience that need to ‘unlearn’ where they thought everything should be. If you’re a newer dog you won’t have any bad habits to unlearn.

While many reviewers of Open Office state that OO lacks this or that that “I gotta have to switch” they rarely point out that Open Office actually has some features and base options that MSOffice lacks such as some spreadsheet charts in addition to the direct pdf exporter. The key is to install a copy of OO and see if it does what you have to have done - if it doesn’t then you have options to install MS Office: virtualbox (run winXP and MSOffice inside Linux), WINE, Crossover or other related emulators, or just dual boot.For the adventurous.. go to www.distrowatch.com and look at the popularity ranking list on the middle of the right hand side of the web page. These are alternatives you have to choose from when considering Linux.Oh, one last thing… A frequently expressed concern is that “there isn’t any software for Linux” which they really mean is they don’t see any programs they recognize. The ‘ubuntu’s and PCLinuxOS have a software package installer that, if you open up the source sites they draw from, can get you somewhere in excess of 20,000+ programs with only a click or two to install. To best ease the concern about what software does what you do today or want to do tomorrow, go to your favorite search engine and search with “windows linux equivalent” (http://www.google.com/search?hl=en&q= windows+linux+equivalent&btnG=Search) to find equivalent programs in Linux to those you use in Windows today.

Cheers!

I was looking through the most recent Best Buy sales flier and looked at the page on desktop computers.  And was struck by the multiple layers of branding.  Stripping off the computer manufacturer layer (emachines, Dell, HP, and Gateway) and looking at just the central processors listed show the following choices:

AMD Athlon 64 4000+, Intel Pentium Dual-Core, AMD Athlon 64 X2 Dual-Core 6000+, AMD Phenom Quad-Core 9600, and an Intel Core 2 Quad Processor.

So, what sense is an intrepid desktop computer purchaser likely to make of their possible choices? Mostly, without significant research, the consumer will look for things like 2-cores are better than one and four must be really good and then look at their price budget.  But will they get value?

Where is the clarity and simplicity?

Think about the entire sales Chanel.  Everyone in that system must figure out what this all means to communicate to others in the chanel.  Or everyone uses price points as the only indicator of performance - though that is often clouded by how much ram or what storage capacities and monitors are included in the computer system purchase.

With a clouded picture created from multiple mostly meaningless brand images, a consumer is left to just pick any machine that fits their budget.

As a manufacturer in any business that’s the worst possible criteria.

A manufacturer wants lust.  They want a customer to feel they need ten cylinders instead of eight and want a Viper instead of a Corvette and pony up a $20,000 premium.

A few years ago, there was a fierce performance push in CPU chips centered around chip clock cycles.  It was much better to purchase a 500Mhz chip than a 300Mhz one.  It was easy to see the measured difference.  It was hard for the manufacturers to keep on the Moore’s Law treadmill, and when they fell off their only choice seemed to be multiple cores.  And marketing brand gimmickry.

Confuse the buyer.  Is that Quad-Core slower or faster than the Dual-Core processor?  And what’s a Phenom?  Or how do the other names bantered about over the years; Celeron, Sempron, Duron, Xenon, and such fit amongst all of this?  It’s not clear - which is a risk - a risk that the consumer may even begin to think their existing home computer is quite satisfactory, it has some sort of Core in it, and checks the email ok, so they’ll wait for next week’s flier to see if there is more sense in the paper.

So, is your company wallowing in brands?  Figure out how the customer shops and makes decisions.  Make the process simple and meaningful.  You will likely find that by simplifying your message, you will streamline your products, lean out your inventory, better focus your marketing expenditures, and thus strengthen your core marketing message - which will translate into increased sales.

Cheers!

Companies are constantly trying to reduce costs. They have elaborate off-site gatherings with themselves and their suppliers to discuss possible changes to the products in development - can they change the materials in one part? Can they fix the manufacturing process there and take out an assembler or remove a robot? Some have end-user or “client” workshops were regular people are invited to evaluate their products and help decide what is kept and discarded in the pursuit of cost reductions.

An area that is frequently ignored are the test requirements that products are subjected to. These stress-tests are intended to validate any design to “real-world” conditions and ensure the company is protected. One example is there is a machine that is called the bite tester - it’s purpose is to bite body parts of Barbi dolls and ensure no 2-year old can chew off chunks from their doll and create a choking hazzard.

Automotive (and virtually every industry out there) has their own specific tests. Sometimes they are the same from company to company, sometimes vastly different. My experience has been that product groups within a company often use different criteria (organizationally caught in silos) or bend the rules one way or another as whims or instances or needs dictate.

Then many employees in a company almost never know the origin of a particular test. No one thinks about the appropriateness of continuing those tests. They just accept them. The most dubious of these tests create excessive costs, increase weight of the product, impare fuel efficiency, compromise package space, and generally inflict harm to the company’s financial viability.

Which validation tests make sense and which are costing you too much? Some tests are needed. A few should be embellished as they ensure safety and long term durability. The trick is to know which is which and be judicious in fixing the testing parameters.

You’ll improve the product and streamline the testing process - saving costs all around the Land.

Cheers!

The following article covers quite a few areas of the business problems facing the traditional music industry - well written and insightful. However, there is a little bit of the medicine man rain dance in the solution, or at least the way it’s projected, rather than a formal process. One quote stood out - that is important for any business:

“I’m not sure they realize that they are selling art. Right now they could be selling any product. That’s why we have to move — we’re in the art business.” (source)
Every successful business has the elements of art. Look at Apple’s resurgence. Or Mondavi once said they strived for beauty, harmony, and balance in their wines. Or as Bob Lutz in the car business likes to point out that you need to be both right- and left- brained regarding products and services.

If you are designing car parts - see how you can achieve a form of art in the function - even if that part will never be seen by the end user - it will be seen, at least by the service technician while changing the oil, and influence the quality perception and market presence of your product.  Fueling desire and increasing demand.

Art and beauty transform desire - I know from experience - it’s nice to be married to a beauty.

Cheers!

(double ear lobe tug … for my wife who sometimes reads these … hiya honey!).

Microsoft is struggling. The Internet has proven to be a worthy adversary. The old model that Microsoft used successfully was the upgrade cycle at corporations where software was bundled with hardware and everyone else was forced to upgrade their home computer systems to remain compatible. Since the Internet came along, the upgrade cycle has been extended - bandwidth provided by most Internet connections is trivial for most five or even ten year old computers to handle. Business IT departments have found ways around the prior three year desktop refresh cycle. Apple has been though a resurgence and Linux has become a huge force in the market place. It is difficult for Microsoft to compete against free software produced by evangelical programmers with a purpose greater than making money. So what is Microsoft (MS) to do?

1. Embrace Linux - Microsoft has threatened Linux coders with patent infringements (real or imagined) and has tried to negotiate agreements with a few of the larger Linux providers (and had only about a 50% success rate). Apple computer went out and purchased a version of Linux and then added some new graphics and features. Think about how to join the Linux revolution and make a better world. MS might consider starting with contributions to WINE to improve future use of legacy software.
2. Create a core around graphics and gaming. The overwhelming reason for anyone to profess keeping a computer around with MS Windows instead of 100% Linux is the games. More game programmers code for Windows than Linux (though that is changing). MS can choose to expand the niche they are already in (remember they make XBOXs for TV gaming) by going into Linux. Use the Adobe model - give away the viewer and charge for the writer software. Given the headway that Ubuntu / Debian Linux have I would suggest starting with solutions there.
3. Improve Linux. That’s right - improve Linux and open source it too. Many programmers are out there coding day and night against what they see is a common enemy. Remove the enemy and much of the free programming will disappear. MS as a company will have to play nice and be a great corporate contributor to the open source space for any benefit to be received.  Great corporate contributor.  Repeat.
4. Take back servers. Who wouldn’t believe MS support for Linux server software?

5. Reintegrate with Dell and others. So many consumers are demanding alternatives to MS Windows that Dell recently started offering Ubuntu Linux on many server, desktop, and laptop computers.

6. Force hardware driver improvements and availability. All the hardware vendors must support MS Windows if they want to sell anything - what if that same zeal were pushed into Linux? It’s been a competitive advantage for MS but that is quickly eroding as hardware vendors see the number of products running under Linux steadily increase.
7. Outsource coding. With the underlying structure of Linux (and security benefits etc built-in) the ability to manage ad-hoc teams of professional programmers is a key strength MS has. MS can work on improving the ease of use and consistency of the interface (think Apple).
8. Understand that MS will be smaller but more profitable. There will be a free open source version and then a more feature-full premium version. A few large Linux distributions are on a six month refresh cycle - where Windows seems to be on a five year refresh - isn’t that dangerous for Windows?
9. Start an open source community or begin to work with one of the larger existing communities - or do both and cross-link with web sites.

10. Project Management. MS has hundreds of project managers currently working on existing programs. Redirect the focus and efforts to the Linux and open source projects and soon MS will have made a transition into a new business model.

Microsoft needs to transform itself or it will perish. There is a small Window of opportunity and it shouldn’t be missed. Or MS can continue spending all its time chasing “Pirates!” and walling itself off with “Genuine Advantage” and end up as a small footnote in Wikipedia. What is the choice? Are you in or are you out?
Cheers!

As many are aware, DCX has agreed to sell the Chrysler Group to Cerebus, a private equity company which will take the Chrysler Group private (no more quarterly financial fluffing required).

It will be a good solution for Chrysler and while some anguish will be felt, overall the company will be successful - and successfully spun back into the public stock market in five to seven years in a stronger position that now. I think GM missed a good opportunity to reduce competition and get some good brands on the cheap - but those are the “brakes”.

Rumors are flying and the people shuffle is underway. Some talent is leaving and other talent is arriving. It will be a great opportunity for some of the sharper employees.

Suppliers and employees should expect to see more Lean Manufacturing programs internally - LaSorda recently replaced the exiting Peter Rosenfeld with an ex-GM and ex-Toyota manufacturing executive to run Purchasing. And there are rumors that Wolfgang Bernhard is stepping around in the shadows yet. It will be an eventful year or two ahead.

If you need a head start on the Lean Manufacturing process - please contact me soon and our team can quickly help you pull out system costs - don’t be shy, there are always costs that can be reduced or eliminated - and no up-front fees if you’re willing to share what we find.

Cheers!

A lot of news energy has suddenly been released in the last couple of days regarding the Chrysler Group of DaimlerChrysler. All speculation on who will purchase Chrysler from the Daimler parent company.
It would seem to be a mistake for DCX to spin out Chrysler and undo the acquisition. I worked at Chrysler when the merger was announced, in fact I went up the elevator with two of the executives in the inner circle of that endeavor the day the European Wall Street Journal broke the news (one very interesting elevator ride). One of those two executives would later become CEO of the Chrysler Group, briefly. I was on some of the high level merger integration teams, worked through some of the concepts and processes that would be used to generate the savings to pay for the project. Some original research I did directly helped a later Chrysler CEO understand the company background and future for an improved company.
What DCX shareholders and their board of management forget is the Chrysler Group, while now troubled (again) does really offer more opportunities and strengths. Chrysler thins out the massive Mercedes R&D to shoulder some of the financial burden. A couple of years ago Mercedes was deep in loses and the Chrysler Group generated cash that kept Mercedes going. That give and take is what the original acquisition was meant to do. And the two companies are still integrating, sharing concepts both directions across the Atlantic. But it appears that the decision has been made to spin out Chrysler on its own.
General Motors has been the most frequently cited suitor for the company. Many experts are pointing out that GM doesn’t need Chrysler because they directly match each other in every segment. But I think a lot of reasons make the deal attractive for GM, provided the price is kept reasonable. GM has been down, but I think they have been improving on many fronts and are way ahead of the news reporters on their real comeback. Buying Chrysler would give them a little more swagger and defend their market share numbers against Toyota.
Here are the best reasons that GM should pursue Chrysler:
1- Jeep. Chrysler purchased AMC in 1987 to get one brand, Jeep, which still ranks in the very top of globally recognized brands. DCX may have been squandering the brand a bit in the last few product launches, but the name has meaning for a lot of consumers. And Bob Lutz was involved with some of that purchase the prior round.
2- Minivans. GM and Ford announced they are exiting their own minivan programs. Cross-overs get more press, but minivans offer the room and fuel economy that truck based SUVs certainly lack and generally more cargo space than CUVs. Chrysler’s minivans have generally filled two assembly plants with product while producing innovations that Toyota and Honda end up benchmarking.
3- Powertrains. (a) Transmissions. GM and Chrysler are already partners at New Venture Gear to produce transmissions for each other. So why not bring this all in-house? (b) Hemi. A strongly branded platform in its own right. The only engine that “average consumers” know about, unless you count “V6″ and “V8″ as “brands”… Look what Intel did with their “Intel Inside” stickers for the potential value.
4- Assets. GM can purchase the assets of Chrysler without pulling through the pension liabilities and other headaches that GM already struggles with. GM (actually any buyer) can come in and offer everyone a job at the new company but under radically different terms. They might even be able to choose which plants they really want (Hemi, Jeep, and Minivan) and pass on the others.
5- Costs. There is a lot of opportunity to reduce and eliminate costs between the two former competitors. Redundancies are expansive and can easily be uncovered (contact me if you’d like some help, whether your GM or the corner grocery, we can help).
The risk is that GM gets in a bidding war and pays too much for Chrysler. There is a fine line between determining value and folly. As long as GM keeps their wits in the heat of the inevitable auction they will do fine.
So Detroit will once again be on the nation’s newspapers and for something a little more interesting that the typical read.
Investment disclaimer: While I don’t currently own any shares of DCX or GM, I have owned shares in the past, as well as worked at both companies in various capacities.
Cheers!

Digg.com has a thread running about a comment that Steve Ballmer at Microsoft made that Windows Vista sales are behind the sales curve of prior launches of Windows 95 and Windows XP at the same point of their respective sales histories.  Here are a few thoughts about what Microsoft should be considering:
It’s not Piracy, it’s just that the world has changed…

Large corporations don’t upgrade until they have had their IT departments fully test the new operating system for 12-18 months or longer.  As time goes on they spend more time testing because there is more complexity in the OS and the other programs the company runs and more potential for problems.

Savvy corporations are looking more at client-server applications and cutting hardware (and software) costs - not putting a Thick-client on every desk anymore - especially since most work is being done on or feeding Internet applications.

Consumers take longer to purchase replacement computers (why the hardware manufacturers have languished).  Most don’t have major performance needs (email, web surfing, and documents/spreadsheets don’t require fancy equipment).  So most consumers are getting by with computers still running Windows 98.  Or if they want more security than 98/ME/etc affords since Microsoft discontinued support they look at Linux.  The major performance issue for people comes at the bottle-neck of Internet access - more are moving from dial-up to DSL/Cable but still the speed of an average ten year old computer still far exceeds the access bottleneck.

There are more than one pc in many families - so some upgrades begin to be considered like a corporation - file compatibilities, system stability, home network issues, and so on.

There is still support for XP by Microsoft and no killer-app for upgrading to Vista.  Windows XP was a good stability upgrade for most people so they are not getting too angry at their existing OS to be looking for something better.

A major competitive threat used by Microsoft in the past was the cost advantage they could apply vs new entrants - they could offer products for nearly free until people were hooked and then charge later after competition is removed (early MS Office tactics, real and imagined).  Or offer as a bundle with new equipment purchases (that appear to be free to the buyer).  Now Linux and other open source projects are out there that are more free than Windows.  And Linux is improving, rapidly.

Gamers, that drive a lot of hardware upgrades, have other competing options to consider spending on - XBOX’s, PS, Wii, etc.  They then have less disposable income for the high-end computer purchase.  Then some game consoles can access the Internet, so some don’t bother buying a family computer.  Microsoft is contributing to cannibalizing their own OS sales with their consoles and game offerings.

Linux is improving and more consumers are learning about it and experimenting.  They find it works on their machine and keep going.  Programmers write a lot of expensive code for Linux because they are fighting for freedoms against the huge corporation.  Rebels will work exceptionally hard for a cause they believe in.  Comments about Pirates and so on just renew their resolve.

So Microsoft’s world has changed from the launch of Windows 95 and Windows XP.  Their launch curves will be slower and longer.  Eventually Vista will be installed in a large base in corporations as they upgrade equipment and home users will upgrade slowly to do work at home.

But don’t blame the Pirates, blame market competition.

Cheers!