Editor’s note: Third of a three-part series.

William Dunk, head of the consulting firm William Dunk Partners which has its headquarters in Chapel Hill, has many scathing observations and some positive things to say about the state of corporate America in his traditional review of annual reports. He longs to see more competitive thinking.Not everybody has thrown in the towel in their reports, whatever their trauma.

Dr. Robert J. Shillman of Cognex Corporation dresses up as a rapper, adding a little life to his “10-k rap,” a 10-k combined with an abbreviated version of his usual fun report. So, he says, “we’re the undisputed champ of machine vision, the baldest of the bad, knockin’ out the competition.” It’s hard to see how any old capital equipment depression is ever, ever going to knock out Dr. Bob. While our annual report readers’ panel thought that his report’s geek humor was a little far-fetched, it, nonetheless, welcomed his effort to do something different in an age of defensive, bland, and think-alike annual reports.

More to the panel’s liking was “The Art of the Meal,” Jack-in-the-Box’s 2001 report. Doing knock-offs of famous paintings by famous artists, Jack-in-the-Box sticks a logo, hamburger, shake, on every painting — all to say that this young company has become a revered, valuable brand with an ever-growing franchise and market presence. The report says Jack-in-the-Box may appear anywhere, even in the company of paintings. Like Dr. Bob, Jack-in-the-Box says it is so innovative it cannot be stopped. In some of these smaller, feisty companies, one detects a cocksureness lacking in their bigger brothers — a certainty that the best is still ahead.

Not small, not really large, The Washington Post also continues to do innovative reports that suggest that it is advancing its strategic agenda more than its cash flow. This midcap is still growing despite the exigencies of the newspaper industry, and it is clear that the company has a next act. As in previous years, the report includes interesting essays (something we recommend to every company, incidentally). This year, Warren Buffett praises Katherine Graham’s management career, while Ben Bradlee tells how Washington Post Company journalists tackled September 11 and the ensuing battles against terrorism.

Protecting base, adding value at The Post

More interesting to investors are Donald Graham’s remarks about Kaplan Education. “Kaplan fell just short of $500 million in revenue in 2001 and became the company’s second-largest business in revenues after The Washington Post.” “Kaplan has been our fastest-growing business for ten years and should be again in 2002. It is changing the face of our company. Before long, it’s likely to become our largest division…”

The Washington Post Company can talk confidently about growth. And it meets one of the two strategic imperatives investors should now be looking for when staking out long-term investments. Companies need to protect their existing franchise (“stabilize” to use Mr. Kilt’s words). But that’s not enough. They must go on to establish a new product group — virtually a new company within a company — that will supply the growth missing in old markets. That’s what The Post is doing.

Wal-Mart and a few others are dealing with both our commandments for 2002 strategy. While we weren’t watching, it became the largest grocer in the United States, providing heady competition to traditional supermarkets — at a profit. And, number 2, its International Division grew “sales by 41 percent,” well beyond the 15 percent or so experienced by the whole company. In 2002, you have to build one whole new business while forging ahead internationally to achieve overwhelming strength in the marketplace.

At the end of a recent management survey in The Economist (March 9, 2002), the author says we may be through with big ideas in business, since top managers are no longer “as obsessed as they have been in recent years with finding ‘the great idea’ that will lead to better results.” The writer appears to be right and wrong. Right because this year’s reports do show most company leaders to be without a “great idea.” Competitive thinking atrophied during the fat-cat ’90s. Perhaps this is the biggest reason business leaders feel vulnerable. Wrong, as Wal-Mart, and some others show, because you still need big ideas about your business to go somewhere.

New thinking in China

This lack of ideas, the biggest quandary of business today, only mirrors the larger predicament — the vacuum in political thought, both in the United States and abroad. Most arresting, in this regard, is Elizabeth Rosenthal’s “China’s Communists Try To Decide What They Stand For” (New York Times, May 1, 2002) . She notes that both the leadership and citizenry of the People’s Republic are looking for a new ideology and a new idealism, the Communist Party there sensing its increasing irrelevance. Even in the only major economy experiencing real substantial economic growth, people ask, “Why are we here? What are we doing?” This, too, is the dilemma of economic enterprise East and West.

But the very fact that the Chinese leadership is searching for a new ideology is testimony to the refreshing and rather singular realism with which it is confronting all its problems and opportunities. As Robert A. Theleen, chairman of China’s oldest venture capital firm, ChinaVest, puts it:

“The Chinese leadership has produced the most successful, sustained economic revolution in modern history, breaking away from a command-and-control formula to a bottoms-up entrepreneurial style. And now with entry into the WTO and the coming Olympics, it is creating a more dynamic internal market driven by consumer branding and a next-generation distribution system. The top echelon of this society knows where it has to go and that surefootedness is radiating far and wide about the countryside.”

In the Chinese case, the philosophic gap results from the torrid economic change about which Mr. Theleen speaks. Ideas have not yet caught up with events. In the U.S., the causes are different. The ’90s were a wasted decade when the country did not advance its infra-structure or its thinking. America 2002 is suffering from all the change that did not happen in the 1990’s.

Prophetic in this regard was the sleeper hit movie “Wonder Boys” (2000) in which a Pittsburgh writing professor tiptoes through an antic life that is clearly going nowhere. His long, long unfinished novel lies stillborn, finally and fortunately carried away on a breeze, never to be published. Annual reports 2001 are like that — long, unfinished, going nowhere. At the very end, the professor recovers his balance and meaning, all leading to the end of his creative impasse. Surely, too, American business will get its creativity back, now that the credit bubble, the terrible mis-allocation of capital, and comedic business practices have forcibly come to an end.

Part Two – ‘Risk Management’ a Recurring Theme in Annual Reports — Even From Warren Buffet: www.localtechwire.com/article.cfm?u=1567&k=10&l=28

Part One – Annual Reports: ‘Long on Words, Short on Ideas, Krispy Has Right Recipe’: www.localtechwire.com/article.cfm?u=1555&k=09&l=27

For more information on William Dunk Partners, visit: www.globalprovince.com