Book Review: Back to Basics
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Living on the Fault Line: Managing for Shareholder Value in Any Economy
By Geoffrey A. Moore
HarperBusiness, Aug. 2002
304 pages, $26.95
In the first version of this book, published just two years ago, consultant Geoffrey Moore predicted that Web-based companies would unleash a tidal wave of innovation that would wash over economies all over the world, changing everything in its path. You either had to be prepared to deal with this brave new world or drown. Indeed, his subtitle was "Managing for Value in the Age of the Internet."
Is he chastened? You bet. "Much of my celebration of a new economy was just a lot of old baloney," he writes today.
So why give him a second chance? Because he got the details right back then, even if he came to the wrong conclusion, and there is a huge danger, as we continue to dig out of the wreckage caused by the implosion of the Internet bubble and a vicious bear market, of saying "the hell with everything" and scrapping sound ideas.
Moore had a sound idea, and he's expanded it this time around. In version two, Moore has eliminated the "Internet-as-Tsunami" stuff—the new subtitle is "Managing for Shareholder Value in Any Economy"—and he's concentrated on his initial analysis. At its heart, he is arguing for a premise that has become known as "managing for shareholder value," running your company so that the share price climbs as high as possible. To do that in today's depressed economic landscape, Moore writes, "is going to require ever more effective utilization of financial capital. And the first demand of capital is that it be deployed in efforts that can raise the value of the company invested in."
When you think that through, Moore argues correctly, managing for shareholder value is really about managing for competitive advantage. The absolutely best place to put capital is in the things that will give your firm an edge. If you do that, the share price will rise. If you don't, you are just wasting your employees' time—and your company's money. (It's worth mentioning, in light of the financial shenanigans at places like Enron and WorldCom, that Moore is talking about increasing shareholder value legally.)
What Moore is really doing is proving the value of companies concentrating on "core competencies." But this time around, he is starting from the other side of the argument.
Traditionally, proponents of focusing on what your company does best, and outsourcing or eliminating everything else, begin by stressing that you build around your company's best products or services. If you do, increasing margins and share price will follow.
Moore's premise is just the opposite: The most efficient way to get your share price up is to set out to dominate one particular part of the market, he maintains. The niche itself is secondary to making sure you are the best at it. It doesn't matter how you get to that conclusion; what's important is that you do.
This time around, Moore tries to convince readers that there will be a fresh economy, but not the one he used to imagine. "I believe the age of the Internet and the age of outsourcing will become synonymous," he says, "and that together will make for a truly new economy."
You can believe that or not. But just like the last time around, he got the fundamental analysis right. That is worth paying attention to.
Reviewed by Paul B. Brown, the author of 13 business books including the international bestseller Customers for Life. Doubleday will publish a revised version of the book, written with Carl Sewell, in November.