A consulting view of the hot air balloon tale

Andrew M. Lothian, Insights Group

A man in a hot air balloon realised he was lost. He reduced altitude and spotted a woman below.

He descended a bit more and shouted, “Excuse me, can you help me? I promised a friend I would meet him an hour ago, but I don’t know where I am.”

The woman below replied, “You are in a hot air balloon hovering approximately 30 feet above the ground. You are between 40 and 41 degrees north latitude and between 59 and 60 degrees west longitude.”

“You must be an engineer,” said the balloonist.

“I am,” replied the woman, “but how did you know?”

“Well,” answered the balloonist, “everything you told me is technically correct, but I have no idea what to make of your information, and the fact is that I am still lost. Frankly, you’ve been no help whatsoever.”

The woman below responded, “And you, you must be in management consultancy.”

“That’s amazing, I am,” replied the balloonist, “but how did you know?”

“Well,” said the woman, “you don’t know where you are or where you are going. You have risen to where you were due to an ability to generate a large quantity of hot air. Coming down to earth you need to find someone to talk to. You made a promise which you have no idea how to keep, and you expect people beneath you to solve your problems. The fact is you are in exactly the same position you were in before we met, but now, somehow, you are blaming me.”

Andy Lothian is Chief Executive of The Insights Group


Data is like water: capitalise or capsize

Everyone on the planet is swimming in an ocean of data. Within this ocean is an al- most unimaginable array of useful information being generated by a multitude of sources—everything from buoys on the ocean to RFID tags on the smallest packages. The press focuses on certain aspects of the global data culture, such as the latest fi- nancial product innovation on Wall Street or data-mining algorithms that track con- sumers’ every move on the Web. But data isn’t just for whiz kids, rocket scientists, or marketing gurus. With the right tools, everyone can benefit from data, because data can be turned into insight, and insight can be turned into action that changes lives.

Right now, using a self-service business intelligence (BI) platform called Business Dis- covery, people all over the world are using data to achieve unprecedented goals. They are improving the way they work, understanding the complex forces that shape glob- al markets, and even saving lives by using data in new ways. These are the new pio- neers. They are gaining powerful new insights, as data, alive in context, opens minds to new possibilities and solutions never before considered. Those who don’t harness data productively are putting themselves at competitive risk.

Data will be as important to improving and sustaining life on the planet in the 21st century as water always has been. CITO Research has unearthed two very different water stories that exemplify the power of Business Discovery for everyone. 

To read more, click here.

Intelligence is over rated

Albert Einstein’s was estimated at 160, Madonna’s is 140, and John F. Kennedy’s was only 119, but as it turns out, your IQ score pales in comparison with your EQ, MQ, and BQ scores when it comes to predicting your success and professional achievement.

IQ tests are used as an indicator of logical reasoning ability and technical intelligence. A high IQ is often a prerequisite for rising to the top ranks of business today. It is necessary, but it is not adequate to predict executive competence and corporate success. By itself, a high IQ does not guarantee that you will stand out and rise above everyone else.

Research carried out by the Carnegie Institute of Technology shows that 85 percent of your financial success is due to skills in “human engineering,” your personality and ability to communicate, negotiate, and lead. Shockingly, only 15 percent is due to technical knowledge. Additionally, Nobel Prize winning Israeli-American psychologist, Daniel Kahneman, found that people would rather do business with a person they like and trust rather than someone they don’t, even if the likeable person is offering a lower quality product or service at a higher price.

In Pictures: 10 Steps To Become A Successful Young Leader at Work

With this in mind, instead of exclusively focusing on your conventional intelligence quotient, you should make an investment in strengthening your EQ (Emotional Intelligence), MQ (Moral Intelligence), and BQ (Body Intelligence). These concepts may be elusive and difficult to measure, but their significance is far greater than IQ.

Emotional Intelligence

EQ is the most well known of the three, and in brief it is about: being aware of your own feelings and those of others, regulating these feelings in yourself and others, using emotions that are appropriate to the situation, self-motivation,  and building relationships.

Top Tip for Improvement: First, become aware of your inner dialogue. It helps to keep a journal of what thoughts fill your mind during the day. Stress can be a huge killer of emotional intelligence, so you also need to develop healthy coping techniques that can effectively and quickly reduce stress in a volatile situation.

In Pictures: How To Change Your Brain For The Better

Moral Intelligence

MQ directly follows EQ as it deals with your integrity, responsibility, sympathy, and forgiveness. The way you treat yourself is the way other people will treat you. Keeping commitments, maintaining your integrity, and being honest are crucial to moral intelligence.

Top Tip for Improvement: Make fewer excuses and take responsibility for your actions. Avoid little white lies. Show sympathy and communicate respect to others. Practice acceptance and show tolerance of other people’s shortcomings. Forgiveness is not just about how we relate to others; it’s also how you relate to and feel about yourself.

In Pictures: 10 Worst Body Language Mistakes

Body Intelligence

Lastly, there is your BQ, or body intelligence, which reflects what you know about your body, how you feel about it, and take care of it. Your body is constantly telling you things; are you listening to the signals or ignoring them? Are you eating energy-giving or energy-draining foods on a daily basis? Are you getting enough rest? Do you exercise and take care of your body? It may seem like these matters are unrelated to business performance, but your body intelligence absolutely affects your work because it largely determines your feelings, thoughts, self-confidence, state of mind, and energy level. Top Tip For Improvement: At least once a day, listen to the messages your body is sending you about your health. Actively monitor these signals instead of going on autopilot. Good nutrition, regular exercise, and adequate rest are all key aspects of having a high BQ. Monitoring your weight, practicing moderation with alcohol, and making sure you have down time can dramatically benefit the functioning of your brain and the way you perform at work.

What You Really Need To Succeed

It doesn’t matter if you did not receive the best academic training from a top university. A person with less education who has fully developed their EQ, MQ, and BQ can be far more successful than a person with an impressive education who falls short in these other categories.

Yes, it is certainly good to be an intelligent, rational thinker and have a high IQ; this is an important asset. But you must realize that it is not enough. Your IQ will help you personally, but EQ, MQ, and BQ will benefit everyone around you as well. If you can master the complexities of these unique and often under-rated forms of intelligence, research tells us you will achieve greater success and be regarded as more professionally competent and capable.

The empire of desire

FRANCE’S tradition of making exquisite luxuries dates back at least to the court of Louis XIV. The sun king financed ébénistes(cabinet-makers), tapisseurs(upholsterers), menuisiers (carpenters) and other artisans who made beautiful and largely useless things for the court of Versailles. Bernard Arnault might be his heir.


FRANCE’S tradition of making exquisite luxuries dates back at least to the court of Louis XIV. The sun king financed ébénistes(cabinet-makers), tapisseurs(upholsterers), menuisiers (carpenters) and other artisans who made beautiful and largely useless things for the court of Versailles. Bernard Arnault might be his heir.

Mr Arnault is the chairman, chief executive and controlling shareholder of Moët Hennessy Louis Vuitton (LVMH), the world’s largest luxury group. Over the past quarter-century he has transformed a small, nearly defunct clothing manufacturer into a conglomerate that controls more than 60 luxury brands. Credit Suisse, a bank, predicts that LVMH’s combined sales will reach €27 billion ($33 billion) this year. Its profits in 2011 were €3.5 billion and its market capitalisation is a cork-popping €62 billion. LVMH is more profitable than other luxury groups.

“LVMH is like a mini Germany,” boasts an insider. Like that country’s Mittelstand, it has built a reputation for craftsmanship and quality that people are happy to pay extra for. The difference is, the Mittelstand makes unsexy things such as machine tools and shaving brushes, whereas LVMH makes champagne, handbags and other objects of desire (see chart).

From Louis XIV to Louis V

Also like the Mittelstand, LVMH energetically pursues opportunities abroad. After years of hard marketing, it has persuaded much of Asia’s new middle class that its wares confer a whiff of European sophistication. Sales in Asia (Japan excepted) accounted for 27% of the total in 2011, up from 17% in 2001. In Japan, which generated 15% of the group’s sales a decade ago, a startling 85% of women now own a Louis Vuitton product. It takes a rare talent to be ubiquitous and yet retain an air of exclusivity.

A final similarity is that, like the Mittelstand, LVMH is made up of lots of family firms. The difference is that the ones that make up LVMH have been swallowed by a hungry conglomerate.

Some didn’t object. Last year LVMH bought Bulgari, an Italian jeweller, for €4.3 billion. The Bulgari family were happy to take the cash. Their business had hit a rough patch after the collapse of Lehman Brothers in 2008, and they thought Mr Arnault would make a good sugar daddy for their brand.

Other prey tries harder to fly away. The Hermès clan is appalled that Mr Arnault is stalking their posh-bag-and-silk-scarf firm. The LVMH boss quietly amassed shares in Hermès. The Hermès family did not twig until 2010, when he revealed that LVMH owned 17% of the firm. Patrick Thomas, Hermès’s chief executive, likened the assault to the rape of a beautiful woman. (A sense of perspective is not essential in the luxury business.) Mr Thomas asked Mr Arnault to reduce his stake to 10% to show that his intentions were not hostile. Fat chance. LVMH now owns 22.3%.

The Hermès family have scrambled to defend their empire. A separate family holding company now owns 50.2% of Hermès shares. On May 29th Hermès announced that a family member, Axel Dumas, would succeed Mr Thomas (an outsider) as chief executive some time after 2013. And the family proposed a statute requiring all stakes exceeding 0.5% to be registered in the shareholder’s name, so that predators can be spotted from afar.

The art of the luxury makeover

Mr Arnault’s empire-building creates economies of scale. A study by the Boston Consulting Group finds that a retail brand saves around 30% of its commercial costs (advertising, rent, shop assistants and so forth) each time it doubles in size. But this is not why Mr Arnault keeps buying brands, says Erwan Rambourg of HSBC, a bank. Rather, he is driven by the belief that he can take any fine luxury brand and make it bigger, while still maintaining healthy profit margins. His record is pretty good.

For example, when he bought Christian Dior in 1984, the French fashion firm was in poor shape. Its founder had licensed his name to legions of firms, which slapped it on everything from sunglasses to nighties. The brand was cheapened. Mr Arnault spent more than a decade buying back 350 licences. He revived the Dior name by hiring a brilliant designer, John Galliano. Mr Galliano later fell from grace, but the brand was healthy again, and profitable.

Sometimes Mr Arnault overpays for his trophies. Sephora, a cosmetics retailer, and DFS, a duty-free shop, started to leak cash almost as soon as LVMH bought them (in 1997 and 1996). Céline, a fashion brand, did not make money for years. Nor did Kenzo, another fashion firm.

It took Mr Arnault years, and several false starts, to fix these businesses. Early on, Sephora’s shops were too big: they looked like supermarkets, which created the wrong mood. In 2003 Mr Arnault appointed Jacques Lévy, a former manager at Staples, an office supplier, as Sephora’s chief executive in Europe. Mr Lévy shrank the stores, added nail bars and hair salons, and introduced a wide range of own-brand lotions and potions. Sephora now reports good profits. So does DFS. LVMH does not publish the figures for its individual brands, but analysts estimate that fewer than five of them lose money.

Though he would be loth to admit it, Mr Arnault’s other reason for gobbling up new brands is that his empire is dangerously overreliant on a single one. Louis Vuitton, a maker of monogrammed bags and belts, accounts for 37% of the group’s sales and most of its profits.

Under Yves Carcelle, who has run it since 1990, and Marc Jacobs, its creative boss since 1997, Louis Vuitton has been a cash-stuffed suitcase that never empties. It finds the best leather, turns it into flawless products and markets them deftly. So as not to dilute its cachet, it never offers discounts. It has grown at a staggering pace. At some point, however, it must slow down.

In the first quarter of this year, sales of LVMH’s fashion and leather-goods division (ie, Louis Vuitton plus a couple of smaller brands such as Fendi) jumped by 18% in America, 12% in Europe and 10% in Asia. That may sound zippy, but investors were accustomed to much zippier growth in Asia. LVMH’s shares slipped on the day of the announcement.

Insiders say they are not worried. Results for the group were otherwise excellent: a forecast-beating 25% increase in sales, to €6.6 billion. Chinese shoppers are not falling out of love with Vuitton handbags. They are simply buying them while on holiday in France, where they are roughly half the price. And even if China slows, there’s always India and Indonesia, where the bag-buying has barely begun.

Granted, some shoppers may be tiring of the ubiquitous monogrammed logo. (In Japan, it hardly makes you stand out.) So Vuitton is moving away from the monogram, which today adorns only about a quarter of its products. Sofia Coppola, a film director, has designed a range of single-coloured bags for the company.

Luggage’s lustre lost?

Still, the firm is showing signs of maturity, which it fears as its customers fear old age. Mr Carcelle is leaving his job at the end of the year. A former luxury executive recalls that Louis Vuitton’s bosses used to say that “the day we launch a fragrance, we don’t have growth any more.” After shelving the idea in the past, Louis Vuitton is about to launch its own scent.

Bags of money

Small wonder Mr Arnault wants to spread his bets. Today, LVMH is the world leader in what industry folk call “soft luxury” (leather accessories), plus champagne and cognac. Mr Arnault wants to be number one in “hard luxury” (watches and jewellery) as well. This is why he paid so much for Bulgari; there are not many global jewellery brands and they are seldom for sale. Still, some analysts have doubts. LVMH needs to bolster its watches business, but Bulgari’s strength is rings and necklaces, argues Luca Solca of Cheuvreux, a broker.

The next target will be harder to catch. LVMH will buy any Hermès shares it can get its hands on. The family’s defences look robust, but Mr Arnault will not give up easily. Hermès is a great brand; Mr Arnault no doubt thinks he can make it bigger. Plus, he is anxious to pre-empt a bid for Hermès by Richemont, which would make the Swiss group a serious rival to LVMH.

Mr Arnault is 63. Two of his five children already work for his group. His daughter Delphine is helping to run Christian Dior; his son Antoine is in charge of Berluti, an Italian shoemaker. One of them might one day lead the group. But their father’s stylish shoes will be hard to fill.