The Wall Street Journal Education Program
Weekly Review & Quiz
Covering front-page articles from Feb 17-23, 2007
Professor Guide with Summaries Spring 2007
Developed by: Scott R. Homan Ph.D., Purdue University
How Steve Jobs Played Hardball In iPhone Birth
By AMOL SHARMA, NICK WINGFIELD and LI YUAN
February 17, 2007; Page A1
http://online.wsj.com/article/SB117168001288511981.html
During a visit to Las Vegas last December for a rodeo event, Cingular Wireless chief executive
Stan Sigman received a welcome guest: Steve Jobs.
The Apple Inc. chief stopped by Mr. Sigman's Four Seasons hotel suite to show off the iPhone, a
sleek cellphone designed to surf the Web and double as an iPod music player.
The phone had been in development by Apple and Cingular for two years and was weeks away
from being revealed to the world. And yet this was the first time Mr. Sigman got to see it. For
three hours, Mr. Jobs played with the device, with its touch-screen that allows users to view
contacts, dial numbers and flip through photos with the swipe of a finger. Mr. Sigman looked on
in awe, according to a person familiar with the meeting.
Behind the scenes in the making of the iPhone, Apple bucked the rules of the cellphone industry
by wresting control away from the normally powerful wireless carriers. These service providers
usually hold enormous sway over how phones are developed and marketed -- controlling every
detail from processing power to the various features that come with the phone.
Not so with Apple and Cingular. Only three executives at the carrier, which is now the wireless
unit of AT&T Inc., got to see the iPhone before it was announced. Cingular agreed to leave its
brand off the body of the phone. Upsetting some Cingular insiders, it also abandoned its usual
insistence that phone makers carry its software for Web surfing, ringtones and other services.
The deal also calls for Cingular to share with Apple a portion of the monthly revenues from
subscribers, a person familiar with the matter says.
In another break with standard practice, the iPhone will have an exclusive retail network: The
partners are making it available only through Cingular and Apple stores, as well as both
companies' Web sites.
Mr. Jobs once referred to telecom operators as "orifices" that other companies, including phone
makers, must go through to reach consumers. While meeting with Cingular and other wireless
operators he often reminded them of his view, dismissing them as commodities and telling them
that they would never understand the Web and entertainment industry the way Apple did, a
person familiar with the talks says.
Mr. Jobs flirted with other titans of the wireless industry but not everyone wanted to play ball.
Talks with Verizon Wireless fell through. Mr. Sigman and other top Cingular executives were
willing to cede control to Mr. Jobs and tolerate his digs at cellphone carriers, all for the privilege
of being the exclusive U.S. provider of one of the most highly anticipated consumer electronics
devices in years -- and to deny rivals a chance to do the same, according to people with
knowledge of the situation.
Cingular and Apple declined to make executives available to comment for this story.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 1 of 22
Mr. Jobs is famous for making a splash with new products that upend industry models. Several
years ago, he personally lobbied music industry executives and obtained licenses for songs that
gave Apple the flexibility to build its successful iTunes store.
Apple eyed the cellphone market as both an opportunity to expand its iPod business and, if
ignored, a potential threat to the company, people familiar with its strategy say. Cellphones are
gradually offering more sophisticated capabilities and features, including increased storage
capacity and entertainment functions. That stands to make them more competitive with iPods
over time. Already, music phones like Samsung Electronics Co.'s BlackJack, Sony Ericsson's
Walkman models and LG Electronic Inc.'s Chocolate are edging onto Apple's turf.
The iPhone is Apple's second attempt to bring a music phone to market. In 2004, Motorola and
Apple announced they would launch a phone that could play iTunes songs. Motorola even said it
would put iTunes software on all of Motorola's mass-market phones.
But the Motorola ROKR, released in the fall of 2005 and carried exclusively by Cingular, was a
huge disappointment for Apple executives. As design aficionados, they weren't impressed with
the shape of the phone and felt the interface was clunky, according to people familiar with
Apple's thinking.
Apple shifted gears in 2005. By then, executives were convinced that the company would have
to build a handset on its own if it was serious about the cellphone market, according to people
familiar with the matter. Though Apple backed the Motorola phone through its launch, it had
already begun exploring other options.
Motorola spokesman Alan Buddendeck says the company's partnership with Apple was a "good
learning experience" for the handset maker. Motorola still sells some models with iTunes
software.
In early 2005, Mr. Jobs called Mr. Sigman to pitch the initial concept of the iPhone. The two
executives later met in New York, and agreed to pursue the idea.
Mr. Sigman is a Texan who wears cowboy boots and business suits, while Mr. Jobs is a former
hippie who sports black turtlenecks and jeans. Despite their vastly different styles, the two
executives found common ground. Over the next year and a half, the two sides negotiated to
reach an agreement that would make sense for both of them.
Glenn Lurie, Cingular's president of national distribution, and Apple's Eddy Cue, who runs
iTunes and had experience on the ROKR project, spoke and exchanged emails daily. Cingular's
chief operating officer at the time, Ralph de la Vega, who is now an AT&T executive, also
weighed in heavily.
Mr. Jobs played hardball. He pointed to statistics showing that carriers' traditional voice revenues
were declining. But he also made a compelling argument: He said that Apple could help Cingular
capitalize on the Internet, people familiar with the discussions say.
Early on, both sides determined it would be a bad idea for Apple to offer its own cellphone
service, leasing access to Cingular's network. Even though Virgin Mobile USA and other startup
cellphone operators were using that method with some success, Mr. Jobs was cautious. He
viewed the cellphone business as an unforgiving one, where carriers are blamed for network
problems and overwhelmed by customer complaints.
Instead, he wanted to focus on building a good handset. Cingular, realizing that Motorola's
device "didn't feel like an Apple phone," according to one executive involved in handset
decisions, was willing to give Mr. Jobs room to come up with something.
1. The development of the iPhone was different in following way(s)
a. Apple maintained control instead of the wireless carriers Correct
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 2 of 22
b. All top executives were excluded from previewing the product
c. the wireless carriers were heavily involved
d. Both a and b
2. The iPhone is a partnership between Apple and ____.
a. IKEA
b. ROKR
c. Verizon
d. Cingular Correct
Soaring Energy Use Puts Oil Squeeze on Iran
By BILL SPINDLE
February 20, 2007; Page A1
http://online.wsj.com/article/SB117165356135011378.html
AHVAZ, Iran -- Iran sits on one-tenth of the world's known oil supplies but is using so much
energy these days it may start rationing gasoline as soon as next month.
Part of the reason lies with people such as 42-year-old Seyd Jessem Moosavi. No one in Mr.
Moosavi's family had an automobile when he was growing up. He was the first to buy one,
followed quickly by his father. Now all five of his brothers have cars, and Mr. Moosavi just
bought one for his 25-year-old son.
He also recently opened a car wash, where he stood on a recent afternoon in this southern Iranian
city directing customers from the busy street to his corps of young scrubbers. "With no car wash
in the neighborhood and more and more cars, I thought this would be good," he said.
Mr. Moosavi's booming new business underscores one of the biggest challenges facing Iran
today. As the country has grown wealthier selling oil and gas, Iranians have themselves become
large consumers of energy. Government subsidies, which make energy nearly free to consumers
and businesses, stoke the demand further.
At the same time, a combination of Western sanctions and Iranian policies has discouraged
foreign investment in oil fields, causing production to stagnate. The result: Iran's oil exports
could dry up in as little as a decade, according to some who have studied the situation.
That's a looming disaster for Iran, which derives about 85% of its export income from the sale of
oil. "The industry is in a crisis," says Mehdi Varzi, a former Iranian diplomat and national oil
company official who heads a London-based consulting company, Varzi Energy.
The impact would be felt far beyond Iran. The country produced 3.8 million barrels of oil a day
in 2006, almost 5% of the world's total supply, according to the Organization of Petroleum
Exporting Countries. It exported an average of about 2.5 million barrels of that each day. Should
those sales decline, Iran's largest customers, Japan and China, would scramble for other supplies,
pushing up prices for everyone.
Avoiding an export squeeze is one reason Iran argues it needs to consider nuclear energy. But
that ambition has contributed to a diplomatic impasse with the West. Bush administration
officials describe Iran's nuclear program as little more than a ruse to conceal what they say is a
hidden effort to build nuclear weapons. Iranian officials deny that, arguing that nuclear plants
could handle some of the soaring domestic energy demand, leaving more oil and gas to export
and avoiding difficult domestic choices.
Indeed, several other Middle East countries -- including Egypt and the world's largest oil
exporter, Saudi Arabia -- also are investigating nuclear energy programs, citing similar reasons.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 3 of 22
More Vulnerable
Iran's energy woes could make it more vulnerable to international economic sanctions, say
officials from the U.S. and other countries who favor strengthening the set of punishments the
United Nations Security Council has placed on the country. Even many Iranian officials concede
that the longstanding ban the U.S. has placed on American oil companies working in Iran has
hampered the country's ability to develop its oil fields adequately.
Others, however, suggest that sanctions can also make it easier for the Iranian regime to blame
outsiders for the disruptions that solving the problem could entail.
Once seen as little more than a giant petrol station to the world, Middle Eastern oil suppliers are
now becoming some of the largest consumers of energy anywhere. They are attempting to
diversify their economies, often by encouraging energy-thirsty industries such as refineries and
processing of metals like aluminum. Meanwhile, record numbers of young people are growing
up and establishing households. Already, the Middle East and North Africa's population of some
300 million consumes almost as much oil as 1.2 billion Chinese.
3. Iran derives about ____ of its export income from the sale of oil.
a. 65%
b. 75%
c. 85% Correct
d. 95%
4. Iran sits on _______ of the world's known oil supplies.
a. 1 percent
b. 3 percent
c. 10 percent Correct
d. 15 percent
Government Pays Growing Share Of Health Costs
By JANE ZHANG and VANESSA FUHRMANS
February 21, 2007; Page A1
http://online.wsj.com/article/SB117203066837214609.html
WASHINGTON -- As pressure grows for the government to pick up more of the nation's healthcare tab, new data show its contribution is already at 45% and is expected to approach 50%
within 10 years.
The government's widening role in financing health care stems from the recent expansion of
Medicare to include prescription drugs, the growth of relatively new initiatives like the State
Children's Health Insurance Program, increased spending by enrollees in programs like Medicaid
-- which covers many of the sickest patients -- and cutbacks in employer-sponsored health
coverage.
Overall, health spending in the U.S. is expected to double to $4.1 trillion by 2016, consuming
20% of the nation's gross domestic product, up from the current 16%, according to a new federal
study. By then, the study predicts, the government will be paying 48.7% of the nation's healthcare bill, up from 38% in 1970 and 40% in 1990.
The stark projections come amid increasing ferment over health care in the states and
Washington. They could bolster the argument of some analysts that the U.S. is creeping toward a
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 4 of 22
single-payer system in a disorganized, piecemeal way. Under such a system, the government
essentially pays for health care and covers the cost by collecting taxes and premiums.
In any case, the changing landscape has already prompted some insurers to rethink their growth
strategies, at least in the short term, focusing more on the government end of the market.
"We are moving incrementally away from traditional sources of insurance, such as employerbased coverage, to a system comprising more federal and state government-provided health
care," said the study's authors, who work for the agency that runs Medicare, the federal health
program for the elderly and disabled. Their projections are being published today in the journal
Health Affairs.
Health care has moved to the fore of public debate recently, as several states have followed
Massachusetts's lead in fashioning plans to cover uninsured residents through a combination of
subsidies and new state pools designed to make it easier for individuals to buy insurance. In
Washington, meanwhile, lawmakers across the political spectrum are discussing the importance
of expanding coverage for children, and many Democratic lawmakers, as well as diverse
coalitions of businesses, insurers and health-care advocates, are talking up the need for universal
coverage.
But there are sharp differences about how to get to universal coverage, and especially how to pay
for it.
Some advocates of a free-market approach warn that the U.S. is nearing a tipping point in the
debate between publicly financed and privately financed health care, and urge the White House
to press its market-friendly approach now -- before the 2008 elections. They fear a new
Democratic president might press for more government-centered solutions.
Indeed, Democratic presidential contenders have pledged to make helping the uninsured a focal
point of their campaigns.
Medicare's drug benefit, introduced in January 2006, increased the program's share of the
nation's prescription-drug spending to 22% last year from 2% in 2005. The drug benefit, though
subsidized by the federal government, is offered through private insurers. Those private plans
come in two types: stand-alone prescription-drug plans, which supplement traditional Medicare,
and managed-care plans called Medicare Advantage, which cover other benefits as well as drugs.
Humana Inc., one of the biggest providers of the new drug benefit, has made no bones about
becoming more government-focused. In the run-up to the drug benefit's launch, Chief Executive
Michael McCallister declared that Humana would "get very heavily weighted toward the
government space in terms of earnings over the next couple of years."
Humana threw itself into the new market by manning its own kiosks in Wal-Mart stores across
the country, hiring an army of sales agents and contracting with State Farm Insurance Co. to help
sell the drug plans. By the end of last year, 4.5 million Medicare beneficiaries were getting their
drug benefits through Humana. That includes one million people who signed up for Humana's
Medicare Advantage plans, which are even more profitable for the company.
Earlier this month, Humana said its heavy bet on Medicare helped its fourth-quarter net income
more than double to $155 million. Its pretax profit from government business alone more than
tripled.
Robert Berenson, senior fellow at the Urban Institute's health-care center, said the projected rise
in health spending in coming years means that the government should organize various parties -including public and private payers, employers, workers, providers and consumers -- to discuss
ways to curb costs and reform the system.
"We need some kind of comprehensive approach to control costs" that goes beyond merely
shifting costs among the payers, Dr. Berenson said. Among the reform options he said should be
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 5 of 22
discussed are a single-payer, government-run system; an expansion of Medicare to cover
younger people, starting with 55- to 64-year-olds; and new limits on the use of high-tech medical
equipment.
Joseph Antos, a health analyst at the American Enterprise Institute, a conservative think tank,
said the new pressures facing the government "translate into a big political question: Can we
continue on with the program the way it is now, given continuing demand by the baby-boomer
generation?" With Medicare covering more people, the current public-private health system will
eventually be primarily a public-health system, and "at some point Medicare will be the largest
system," Mr. Antos said.
A lot of "volatility" underlies the overall growth rate in health-care spending, including shifts in
whether public or private sources are paying the bills, said John Poisal, who wrote the report
with colleagues at the Office of the Actuary at the federal Centers for Medicare and Medicaid
Services.
"We will continue to face tough questions about how we finance our health care bill," he said.
Americans' out-of-pocket spending is expected to grow to $440.8 billion by 2016 from $250.6
billion last year.
According to the study's projections, Medicare spending grew by 22% to $418 billion in 2006,
up from $342 billion in 2005. The study said the growth would slow to 6.5% this year, due to
scheduled cuts in payments to physicians and smaller payment increases to Medicare Advantage
plans. But because Congress has already reversed the cuts in physician payments for this year,
the actual growth rate will likely be higher. The authors also assume that by 2016, 32% of those
eligible will be enrolled in Medicare Advantage plans, up from 13.5% in 2005.
5. Overall, health spending in the U.S. is expected to double to ______ by 2016, according to a
new federal study.
a. $4.1 billion
b. $44.1 billion
c. $1.4 trillion
d. $4.1 trillion Correct
6. The US government's widening role in financing health care stems from the recent expansion
of Medicare to include _________.
a. adoption programs
b. fertility programs
c. prescription drugs Correct
d. dental plans
Global Economy Shrugs Off Oil, Housing Strains
By YUKA HAYASHI, JOELLEN PERRY GREG IP
February 22, 2007; Page A1
http://online.wsj.com/article/SB117211360522115735.html
The Bank of Japan's move to raise interest rates for the first time since July underscores the
surprisingly upbeat state of the world's major economies, which continue to perk along despite
the damage done by high energy prices and sagging housing markets.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 6 of 22
The world's central bankers are so confident that growth will remain steady and inflation under
control that their main worry is less the immediate future than whether conditions are breeding
excessive speculation in financial markets.
Yesterday's move by the Bank of Japan reflected that confidence in its own economy as well as
the broader world economy. Lifting rates to a still very low 0.5%, the bank said it "judged that
our economy is likely to continue its...virtuous circle of production, income and spending," and
that "uncertainties over the future course of overseas economies, including that of the United
States, are abating."
Indeed, though the U.S. economy has slowed substantially from its torrid pace of a year ago, it
has kept growing fast enough to keep unemployment down despite the housing slump. In the 13
countries that use the euro, growth is expected to abate from last year's six-year high but remain
well above the sluggish pace of prior years. Data released yesterday show Spain joined Germany
and Italy as standouts in the fourth quarter.
Globally, inflation is still low by recent historical standards, though higher than some central
bankers would prefer. U.S. consumer prices, excluding food and energy, rose 2.7% over the past
12 months, the government said yesterday. Oil prices are off their peaks. Global stock markets
are buoyant.
"It's a pretty benign picture," said Nariman Behravesh, chief economist at U.S. forecaster Global
Insight. "You've got at least moderate growth and inflation that looks for the moment like it's not
out of control." The biggest risk he sees: too much of a good thing -- namely, a global economy
so robust that it pushes up prices and prompts the U.S. and European central banks to boost
interest rates.
Despite the rise of China, the U.S., Japan and Europe account for more than 70% of the global
economy, according to J.P. Morgan Chase economists.
Central bankers' latest concern is that investors are underpricing risk, and bidding up prices of
assets from corporate bonds to houses and in the process driving down returns on those assets,
such as long-term interest rates. While for now that fosters global growth, some policy makers
worry this can't last, and that an abrupt reversal in market perceptions about risk could trigger a
drop in asset prices as investors pull back that could threaten growth.
Concerns about excessive risk-taking are being aired more frequently. "We want markets to be
aware of the risks in one-way bets in general," European Central Bank President Jean-Claude
Trichet said after meeting with his counterparts from other banks earlier this month. "We, in
particular, think of carry trades" -- borrowing in countries like Japan with low rates to invest at
higher rates in Europe and the U.S. -- "but not only carry trades."
Mr. Trichet and other policy makers also have expressed concern about a herd mentality in
markets, possibly exacerbated by hedge funds piling onto similar trades, increasing the potential
for excessive loss if the bets go bad.
Most central bankers remain more inclined to deem complacency a risk than a reason to raise
rates. But in Tokyo, while attributing yesterday's rate increase primarily to confidence in the
Japanese economy, Bank of Japan officials expressed concern that persistently low interest rates
could fuel the carry trade, distorting markets in ways that could produce convulsive impacts on
currencies, interest rates and global growth.
The BOJ governor, Toshihiko Fukui, said at a news conference that "extremely distorted
movements in the financial market," including the yen carry trade, could "eventually have a
negative impact on the real economy and prices." The central bank wanted to squelch
expectations that Japanese rates would stay so low for very long in order to discourage investors
from taking "extreme positions," he said.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 7 of 22
U.S. Federal Reserve officials offer differing interpretations of markets' recent calm. Chairman
Ben Bernanke attributes much to fundamental factors, such as emerging countries' funneling
plentiful savings to the U.S. But Vice Chairman Donald Kohn sees more cause for worry.
"It would be imprudent to rule out sharp movements in asset prices and deterioration in market
liquidity that would test the resiliency of market infrastructure and financial institutions," Mr.
Kohn said in a speech in Washington.
Afterward, Mr. Kohn said markets are currently priced for "a very benign situation....I do get a
little concerned -- or I wonder maybe -- at some of the low levels of volatility and the low levels
of expected volatility."
Fed officials generally don't see market speculation as a reason to tighten monetary policy, or
even keep it tight. Rather, they have cited the lack of spare economic capacity and an elevated
inflation rate as a reason to maintain short-term interest rates at 5.25%, with a bias to raising
them further.
Minutes from the Fed's Jan. 30-31 meeting, released yesterday after the customary lag, indicate
that Fed officials had become less worried about the prospect for both growth and inflation. Data
show "somewhat smaller risks to economic growth as well as improved prospects for core
inflation," the minutes said.
Data released since that meeting show retail sales, housing starts and industrial production all
weakened in January, and the strong fourth-quarter growth number, 3.5%, is likely to be revised
down substantially next week. If unemployment also starts to edge higher, as Fed officials
expect, they may begin to signal more concern about slowing growth and less about rising
inflation in coming months. The minutes suggest there was more debate than usual in January
about whether to continue saying inflation risks might yet require higher interest rates, as the Fed
statement ultimately did.
back of consumer spending after six months of very slow growth.
7. Economic data released yesterday show _______ joined Germany and Italy as standouts in the
fourth quarter.
a. Japan
b. Canada
c. Spain Correct
d. Korea
8. US consumer prices, excluding food and energy, ______over the past 12 months, the
government said yesterday.
a. rose 2.7% Correct
b. rose 7.2%
c. fell 2.7%
d. fell 7.2%
Faltering Family MDs Get Technology Lifeline
By GAUTAM NAIK
February 23, 2007; Page A1
http://online.wsj.com/article/SB117201140861714109.html
ROCHESTER, N.Y. -- After eight years as a staff doctor at a hospital-owned medical practice,
Gordon Moore began to really dislike his job.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 8 of 22
To increase revenue, the hospital pressured him to see more than 30 patients a day, usually for 15
minutes each. Many patients couldn't get appointments for weeks. Dr. Moore determined it took
19 separate actions and 253 feet of corridor-walking to order a prescription refill. He says he was
so rushed he often failed to provide the best medical care, and once mistakenly prescribed a
blood-pressure drug for a toddler.
So in early 2001, Dr. Moore took a risky step. He borrowed about $15,000 to start a solo medical
practice in a tiny space with no nurse, receptionist or waiting room. He bought computer
software to help him track patients' appointments, illnesses and medications, and to process
insurance claims.
Patients at his "micropractice" can call or email to get appointments the same day. Visits last 30
minutes. Dr. Moore can be reached day or night on his cellphone. To refill a prescription, he
walks "zero feet," he says, and taps a few keys on his laptop. "I was able to build a Norman
Rockwell practice with a 21st-century information-technology backbone," he says.
Dr. Moore belongs to a small but growing number of physicians converting to high-tech, lowoverhead practices to try to preserve a disappearing style of care often provided by lone family
doctors. They are working to counter a sustained decline in primary-care medicine, long the
mainstay of the U.S. health system.
Primary-care doctors -- family physicians, general practitioners, pediatricians and obstetricians -address patients' health comprehensively and usually over a long period of time, aiming to catch
problems early on. Their numbers have dropped by half in the past decade, according to a series
of surveys by the American Academy of Family Physicians.
A series of surveys of several thousand doctors by the Center for Studying Health System
Change, a nonpartisan Washington, D.C., group, found that primary-care physicians made about
$121,000 in 2003, about a third less than most specialists, and were losing ground. Their
inflation-adjusted average income dropped by 10% in the previous eight years, the survey found,
while specialists' income was stable. Today, only about a third of doctors in the U.S. are
primary-care physicians, compared with roughly half in most other industrialized countries.
Studies have shown that primary care tackles many medical problems early on, before they turn
into difficult and expensive-to-treat conditions. That partly explains why other countries spend
far less per patient, often getting similar health results.
Harnessing Technology
Some physicians and institutions are trying to harness technology to make family practices more
manageable and profitable for doctors. In April, the American Academy of Family Physicians
attracted 300 applicants when it offered to put 20 primary-care physicians in a pilot project to
help better manage patients and their ills. In Washington state, a dozen family-health practices
have linked up on a private high-speed network. They all use electronic records, give same-day
appointments, and offer patients email consultations for a $7 monthly fee.
9. Some physicians and institutions are trying to _____ to make family practices more
manageable and profitable for doctors.
a. work weekends
b. schedule one hour sessions
c. harness technology Correct
d. lower insurance coverage
10. A series of surveys of several thousand doctors by the Center for Studying Health System
Change found that primary care physicians made about _____ in 2003.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 9 of 22
a. $101,000
b. $121,000 Correct
c. $201,000
d. $221,000
Questions from Marketplace
CIO Jobs Morph From Tech Support Into Strategy
By PUI-WING TAM
February 20, 2007; Page B1
http://online.wsj.com/article/SB117193647410313201.html
As the longtime chief information officer for Northrop Grumman Corp., Tom Shelman's duties
mainly consisted of managing the defense contractor's vast network of computer systems. So he
was shocked when the company suddenly changed his job description several years ago.
Mr. Shelman was asked to be more "strategic" and "transformational." He was told he would be
expected to meet with customers, use technology in new ways and help win new business -- in
short, to help the Los Angeles-based company grow.
I had to sit down and do some soul-searching," says Mr. Shelman, 48 years old. "It was a
significant change; it sounded exciting, but it also scared the hell out of me."
Mr. Shelman, who has been Northrop's CIO for the last decade, ultimately decided to stay in the
job. Since then, a wireless network that Mr. Shelman started in late 2004 at one of Northrop's
shipyards in Pascagoula, Miss., has blossomed into a new source of revenue. Last September,
New York City awarded a $500 million municipal contract to Northrop for a citywide wireless
network for its police and fire departments, as well as other city agencies.
Other CIOs are going through similar transformations. The computing systems they manage
have long been seen as an essential resource but also an operating cost to be controlled. Now,
technology is increasingly being recognized as a vital tool in corporate strategy -- and CIOs are
helping to wield it. Web sites, for example, have evolved at many companies from the equivalent
of corporate brochures to huge direct-sales channels that must be skillfully designed and tightly
managed.
According to recent CIO polls from research firm Gartner Inc., 50% of CIOs surveyed said they
now have duties outside of core technology, such as helping to craft corporate strategy. That is
up from about 20% three years ago, says Mark McDonald, a Gartner analyst.
"Companies are requiring CIOs to be more thoughtful about strategy," says Reynold Lewke, a
partner in the Palo Alto, Calif., office of recruiting firm Egon Zehnder International who leads
the firm's CIO practice. "Many CIOs have become business partners."
In recognition of this job shift, more CIOs are now reporting to top executives such as chief
executives, chief financial officers and chief operating officers than to other parts of an
organization. Last year, 74% of CIOs surveyed reported to a CEO, chief financial officer or
operating chief, up from 69% in 2003, according to Gartner.
While CIOs now pull in an average total annual compensation of $185,240, up from $180,000 in
2004, according to CIO Magazine, some make far more. Randy Mott, who was hired from Dell
Inc. to become Hewlett-Packard Co.'s CIO in mid-2005, is paid a base salary of $690,000 a year
and obtained a hefty package of stock options and restricted stock, according to H-P's public
filings. In addition, Mr. Mott got a $2.2 million signing bonus and will pocket at least another $5
million under a long-term-performance bonus plan.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 10 of 22
Mr. Mott arrived when the role of technology chief became more important at the Palo Alto
computer and printer maker. Immediately before Mr. Mott, the H-P CIO job wasn't a stand-alone
position and had been melded with the job of head of global operations. That changed when
Mark Hurd arrived as chief executive in early 2005 and decided the company needed to overhaul
its tech systems to facilitate new sales and growth.
Now Mr. Mott is in charge of whittling H-P's 85 data centers world-wide down to just six in
three years. By improving the efficiency of the internal systems, H-P hopes to free up Mr. Mott's
team to spend less time on tech support and more on helping H-P in other ways.
11. Chief Information officer jobs are changing in the following ways
a. have had their salaries decrease
b. have become business partners
c. now have duties outside of core technology
d. both b and c Correct
Cable TV's New Aim: Free Us From Tangle Of Boxes and Remotes
By PETER GRANT
February 21, 2007; Page B1
http://online.wsj.com/article/SB117202137143714352.html
When it comes to innovation, the cable TV industry has been long on talk but slow on action. For
years, cable executives have promised viewers they'd soon be using remotes to shop, play games,
interact with advertisers and vote contestants off the island. But these and many other features,
for the most part, haven't been delivered.
Meanwhile, innovations appear daily on the Internet. Some prognosticators predict the Internet
eventually will beat cable in the battle for the living room, with most of the entertainment
Americans consume piped over the Web to television sets. That would leave cable operators with
the unglamorous and less lucrative job of providing the pipes.
But now something is happening that may tilt the playing field more to the cable guys'
advantage. After more than six years of development by CableLabs, the industry's research and
development arm, cable operators are rolling out technology that could facilitate new
applications and help cable TV maintain its dominant position in home entertainment.
The technology addresses an age-old problem at the root of the cable industry. Because the
industry grew up as thousands of separate systems, there was little consistency in the technology
used, making service upgrades difficult. This remained true even though many systems were
consolidated by giants such as Comcast and Time Warner. Just to add a feature like a news ticker
on the bottom of the screen, for example, software has to be modified many times to fit different
set-top boxes and network gear in a multitude of systems.
The new technology, with the cumbersome name of OCAP, for Open Cable Application
Platform, is software that behaves like an operating system that runs on digital cable set-top
boxes and other devices. OCAP, then, is to set-top boxes what Microsoft Windows is to
computers. Adding a new feature, like the ticker, is an easy task regardless of the cable system.
That ease is expected to spark a flurry of creativity among software companies, as new
applications will no longer have to be tailored to fit separate cable systems.
Even better, manufacturers such as Panasonic, Samsung and LG already have designed OCAP
TV sets that will eliminate the need for set-top boxes, the scourge of many a home-entertainment
center. With OCAP TVs, scheduled to be available as early as this year, users just have to attach
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 11 of 22
a cable and the set will get video-on-demand, advanced program guides and other interactive
features from cable.
OCAP also enables manufacturers to design a unit combining DVD players, digital video
recorders and other devices within a set-top box. So, cable subscribers won't need to lease boxes
from their operators -- income hardly worth the capital outlay -- to get all of the interactive
features. Any OCAP device they buy from an electronics retailer will do the trick, as long as the
cable system has been upgraded for it.
Some manufacturers predict a slew of new devices to follow, such as one that could pipe in cable
TV while grabbing photos, music and videos off home computers. Some see OCAP even helping
to solve that other curse: multiple remotes.
But be patient. Like any new technology, OCAP still faces significant obstacles and uncertainty.
It will have an impact only if it's used in enough cable systems to attract the attention of software
companies and device makers who need to sell in large volumes.
The good news is that a few of the largest cable operators are moving quickly to deploy OCAP,
hoping to head off growing competition from phone companies, satellite TV and the Internet.
Time Warner plans to install its first OCAP set-top boxes in subscribers' homes in May, and is
scheduled to have all of its systems OCAP-ready by July. Time Warner Cable subscribers will
first see the benefit of this later this year, when the company uses OCAP to enhance its program
guide.
Other cable operators aren't far behind. Comcast, the largest cable company with more than 23
million subscribers, plans to deploy OCAP in two markets before year's end. Cox
Communications, another large operator, hopes to be able to begin trials for OCAP devices in a
half-dozen markets this year.
But no matter how fast cable operators move, their progress in deploying OCAP is going to be
limited by the tens of millions of digital cable boxes already in place. Most of those boxes don't
have the memory or the processing power to run OCAP. For OCAP to reach critical mass, cable
operators must offer enough advanced features -- at a good price -- to convince consumers to
order the new devices.
Cable companies don't have a luxury of time. While some consumer-electronics companies are
working with OCAP, others -- like Sony, Hewlett-Packard and Apple -- are developing devices
that bypass cable operators altogether by routing movies, TV shows and other content from the
Internet to the TV.
The race is on.
12. OCAP, which stands for ________ is software that behaves like an operating system that
runs on digital cable set top boxes and other devices.
a. Operational Computer Application Program
b. Open Cable Application Platform Correct
c. Other Cable Ability Processor
d. Open Computer Alternative Program
When Neighbors Become Rivals
By WILLIAM M. BULKELEY
February 22, 2007; Page B1
http://online.wsj.com/article/SB117211194007115696.html
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 12 of 22
For most of their 40 years of coexistence as the two biggest companies in Rochester, N.Y.,
Xerox Corp. and Eastman Kodak Co. have been friendly neighbors, avoiding poaching on each
other's territory. Xerox copiers ruled the office; Kodak film owned the consumer. But digital
convergence and financial travails are increasingly turning the two imaging companies into
rivals.
In a sign of the growing competitiveness, Xerox today plans to announce a deal with Fuji Photo
Film Co., Kodak's longtime nemesis in traditional film, to put high-quality Xerox printers into
retailers' photo minilabs. The devices will let consumers create calendars, greeting cards and
photo books at store kiosks rather than going online to Web sites like KodakGallery.com. The
enhanced machines may also lure some retailers from using Kodak-made photo kiosks -- one of
the company's most successful businesses.
Xerox and Kodak are already competing to sell color digital presses to commercial printers, a
market that Xerox now leads and that Kodak entered through a string of acquisitions beginning
three years ago. Both regard the commercial printing industry as a key strategic market,
accounting for one-quarter or more of their revenue, but their product overlap remains limited.
The new competition illustrates how rapidly changing technology can force companies to
challenge corporations that once moved in parallel universes. Telephone carriers and cabletelevision companies are now battling it out, while cellphone makers will soon compete with
Apple Inc. for a mobile-music market once dominated by Sony Corp.'s Walkman.
Xerox and Kodak both owe their fortunes to products that place images on media. Xerox -whose roots and biggest plants are in Rochester, though its headquarters is in Stamford, Conn. -ruled the office market with copiers that fused toner to paper. Kodak, which long ago abandoned
its copier business, has built a consumer brand, selling film and photo-finishing services.
But the digital revolution hit both companies hard. First, inkjet printers slashed demand for
Xerox copiers. Then digital cameras devastated Kodak's film business. Xerox skirted bankruptcy
in 2001 before beginning a painful turnaround. Kodak is still in the midst of a restructuring that
will see world-wide employment cut to 28,000 by the end of this year from a 1984 peak of
145,000. In many ways, each company is a shadow of its former self. Xerox stock, which hit a
high of $63 in 1999, closed yesterday at $17.97 a share. Kodak's high was $85 in 1996;
yesterday it closed at $25.05 a share.
13. In a sign of the growing competitiveness, Xerox plans to announce a deal with ____.
a. Kodak
b. Sony
c. Fuji Photo Correct
d. Walmart
Census 2010 Plays Six Not-So-Easy Questions
By JUNE KRONHOLZ
February 23, 2007; Page B1
http://online.wsj.com/article/SB117219704360416828.html
Who knew that asking people their age, gender and how they're related to the folks they live with
could be so complicated?
Three years before the next census -- just around the corner by the deliberate pace of the U.S.
Census Bureau -- the nation's enumerators have come up with the six seemingly simple questions
they want to ask everyone in the country on April 1, 2010.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 13 of 22
Simple, it seems, is quite hard. The bureau has spent years developing and field testing questions
to make them so user-friendly that everyone understands them -- and answers.
"You only get one chance with the census," says Preston Waite, the associate director of the
decennial census. "If the wording isn't right, it's 10 more years before you can ask that question
again. You only get one chance at bat."
The old long-form census questionnaire, with its queries about house size, commutes to work
and other details about daily life is out -- spun off in 2000 to the new American Community
Survey, which questions 3 million households a year. For the 2010 census, every member of the
country's 120 million households will get a one-page form asking for information that Congress
has said it wants to know. (The final form of the questions is subject to congressional review.)
Question No. 1 is simple enough: name, which the Census Bureau will use if it needs to call for
clarification about the other five questions. Census workers will make an estimated 11.5 million
call-backs in 2010, the bureau estimates. But question No. 2 -- "How is this person related" to the
head of household -- gets quickly complicated.
Respondents can choose among 14 possible answers, but to the dismay of some child advocates,
a 15th answer -- foster child -- has been deleted since the 2000 census counted 335,000. William
O'Hare of the Annie E. Casey Foundation, which helps disadvantaged children, says researchers
were counting on the question to tell them more about the size, composition and relative wealth
of the families caring for foster children, who frequently have been taken away from abusive
parents by the government.
But that extra line made the question so long that it extended into the page fold, and tripped up
the optical scanners that read the answers. "Real estate is always a big problem," Mr. Waite says.
The remaining relationships include spouses, in-laws, housemates and biological, adopted, step
children and two choices for "other," related and nonrelated. The 2000 census asked about
"natural-born" instead of biological children, but in a 2005 test that sent alternative questions to
250,000 households, the Census Bureau reported, some people took that to exclude children born
by Caesarean section, under anesthetic or out of wedlock.
Question No. 3 asks gender, with the admonition to "Mark ONE box" -- male or female.
Whether the Census Bureau included that instruction or left it out in the 2005 field test, the
results were the same. Either way, 0.05% of those asked -- that would mean 150,000 in a
population of 300 million -- still checked both. But the instruction made the question longer and
more visible, and fewer people skipped it.
Question No. 4 asks age -- and for a computer double-check, date of birth -- because so many
people seem to get it wrong. Adding instructions to "report babies as age 0" when they're less
than a year old, offends some people, census research suggests. But in the 2005 trial it improved
the response rate among people who otherwise couldn't decide how to answer for a six-month
old.
The national headcount -- required by the Constitution once a decade to apportion congressional
seats and redraw congressional districts -- has become hugely important to government agencies
that distribute taxpayer funds, businesses trying to identify markets and policy planners with an
eye on the future.
14. The Census Bureau will survey the entire US population on April 1, _____.
a. 2008
b. 2009
c. 2010 Correct
d. every 3 years
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 14 of 22
Are You Overinsured?
By M.P. MCQUEEN
February 17, 2007; Page B1
http://online.wsj.com/article/SB117166903758411689.html
It used to be that one of the biggest mistakes people made was not having enough insurance.
Now, it's likely that the opposite is true, as insurers flog all sorts of new products and features -from a free tow when your car breaks down, to special help paying off debts if you get sick.
Some consumers also are paying too much for extra and perhaps unnecessary coverage.
The changes take many forms. In the past few years, Acura, BMW, Mercedes-Benz and other
auto makers have added emergency roadside assistance in their car warranties. Playing identitytheft fears, coverage also is cropping up that promises to repair damage if you become a victim.
Such insurance can cost anywhere from $25 to $200 a year -- even though it's already part of
some homeowners' policies and credit-monitoring services.
Complicating matters: As competition among life and auto insurers heats up, those prices are
tumbling. It's partly because of longer life expectancies and safer cars, but also increased
competition from Geico, a division of Berkshire Hathaway Inc., and Progressive Corp., two
insurers that sell directly to consumers and are shaking up the traditional insurance-agency
business. Anyone who bought as recently as a few years ago, then stuffed the policy into a
bottom drawer, should re-evaluate.
TERM LIFE INSURANCE: There are a number of ways to trim insurance fat. Perhaps the
biggest is in term life insurance, where premiums have dropped about 50% in the past 10 years.
The reason for the drop is improved life expectancy -- we're living longer. While that's good
news in itself, it also means a healthy 40-year-old man today can buy a $1 million policy in some
cases for less than half what the same person would have paid 10 years ago, at age 30.
Sharon Emek, 61 years old, a New York-based insurance broker, says she recently replaced her
old $500,000, 20-year term life-insurance policy with a new one and saved 20%, even though
she was five years older than when she bought the previous one.
Get price quotes on a replacement term-life policy at Web sites like Insure.com1 or
Accuquote.com2, or compare policies at term4sale.com3.
The catch? Insurers now use a plethora of health classifications, as opposed to just "smoker" and
"nonsmoker" of years gone by, and few people qualify for the best rates.
15. Some ways to save money on insurance include
a. purchasing new term life policies whose premiums on have dropped up to 50%
b. consolidating policies if you and your spouse/partner both have insurance
c. purchasing separate life insurance for children
d. Both a and b Correct
For Investors, Strong Enough Is Good Enough
By E.S. BROWNING
February 20, 2007; Page C1
http://online.wsj.com/article/SB117193195664913123.html
It is the kind of surprise investors love to get: The economy seems to be just a little stronger than
most people expected. Not enough to worry anyone; just enough to push stocks higher.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 15 of 22
Data on items such as fourth-quarter economic growth and consumer spending have come in a
tad better than markets expected late last year.
As a result, the Dow Jones Industrial Average has continued its steady rise, and stocks that do
better in a strong economy have been among the leaders.
The Dow Jones Transportation Average, which sagged late last year amid worries about an
economic slowdown, has become a leader again. Smaller stocks, which depend more than big
ones on the ups and downs of the economy, are back on the rise, with middle-size stocks among
the big gainers.
The mood is downright bullish.
"The economy is operating in a very sweet spot," says David Kotok, president of moneymanagement firm Cumberland Advisors in Vineland, N.J., which manages $850 million in
stocks and bonds.
Amid solid growth with minimal inflation world-wide, the world's stock markets are feeding on
one another's success. "With a little bit of good news, the surprise could be that they could work
their way a lot higher," Mr. Kotok says.
That kind of optimism has powered stocks higher since July. Skeptics, who have been wrong so
far, point out that things look so good that it would be hard for them to get better. Few money
managers see signs of any serious trouble, and that is a disquieting sign of complacency to some
of the most skeptical investors. Some predict small gains, some predict big gains, some predict
small declines -- but almost no one sees a big decline on the horizon.
Investors have heard such warnings for months now and, by and large, they have ignored them -to their profit. Some see the sweet spot continuing for months or even years, with the economy
resilient and the inflation rate moderate. If the skeptics are right, it would be time for a pullback.
Neither the Dow industrials nor the Standard & Poor's 500-stock index has seen as much as a 2%
pullback from a high since July 14 -- the longest period without such a pullback since 1954. The
markets are getting "positively giddy," says Russ Koesterich, senior portfolio manager at
Barclays Global Investors in San Francisco. He sees a pullback coming.
16. Data on items such as fourth-quarter economic growth and consumer spending have come in
_____ than markets expected late last year.
a. a tad better Correct
b. a tad worse
c. much better
d. much worse
Is Inflation View From Fed Worth Taking to Bank?
By JUSTIN LAHART
February 21, 2007; Page C1
http://online.wsj.com/article/SB117202305522514376.html
Federal Reserve policy makers don't see inflation heating up this year. But be careful banking on
that forecast.
Today's consumer price report from the Labor Department will probably show inflation is on the
warm side of what Fed officials want. Economists estimate the consumer price index was just
0.1% higher in January than it was in December, contained by lower fuel prices.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 16 of 22
But the "core" CPI, which excludes food and energy prices, could be a trouble spot. It is
expected to be reported up 0.2% for January. That would put it 2.6% above last year's levels, not
far below the decade-high 2.9% yearly change it hit in September. The Fed pays close attention
to such core measures of inflation because they're less volatile than measures with food and
energy.
Statistical quirks make the core index hard to read. When energy prices fall, it can push up the
housing rental piece of the core price index. That's because of how the government accounts for
changes in utility costs. Still, traders would view any outsize increase in the core CPI as trouble
for the Fed and the markets.
Recent economic data have been mixed, and the housing downturn could still slow growth, so
inflation is unlikely to become a front-burner issue now. But Bruce Kasman, J.P. Morgan Chase
head of economic research, sees a pickup in the economy later this year potentially changing
that.
Mr. Kasman also sees little economic slack around the world. Companies are using up more
capacity and the pool of skilled labor is tightening. Yet he says interest rates are lower than they
have been in the past when slack was just as tight.
Mr. Kasman says central banks will raise rates quickly before letting inflation return, reason
enough to keep investors on guard for now.
Organic Price Pressures Could Hurt Whole Foods
One small slice of the economy is seeing its own version of price pressures: organic food. That
could mean trouble for organic-food specialist Whole Foods Markets, which reports fiscal firstquarter earnings today. Analysts polled by Thomson Financial estimate the company earned 40
cents a share, including stock-option expenses, unchanged from last year.
Grocery chains such as Safeway and Kroger have been elbowing into Whole Foods' bread-andbutter organic-food business. Wal-Mart Stores has also beefed up its organic offerings. That's
boosting some food prices as organic farmers charge more for products such as apples and
lettuce. Global organic sales rose about 20% in 2006 to nearly $40 billion from the previous
year, according to Organic Monitor, an industry trade group, which says higher demand is
causing supply shortages.
The trouble for Whole Foods is that it's having a hard time passing on these higher costs, because
of the increased competition.
In November, Whole Foods' shares plunged after the company cut its same-store sales forecast,
citing tougher competition. Since then, shares have been treading water. If sales weakened
further in the latest quarter, or profit margins slid, investors who hung on hoping for good news
may cut and run. If Whole Foods posts better-than-expected results, it means it has more pricing
power than investors thought.
17. CPI stands for
a. customer product indicators
b. complex profit inflation
c. consumer price index Correct
d. competitive produce increase
Even Now, Big Miners Dig Away
By PATRICK BARTA in Cape Town, South Africa
February 22, 2007; Page C1
http://online.wsj.com/article/SB117211414673415751.html
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 17 of 22
Prices for some of the world's commodities have slipped in recent months. But big mining
companies continue to pump up investment and make plans to carve out more mines -- moves
that could bring prices down further in the years ahead.
Anglo-Australian giants BHP Billiton Ltd. and Rio Tinto PLC and other megaminers collectively
have projects valued at tens of billions of dollars in the works.
Among them are large expansions in production of iron ore, coal, nickel and other raw materials
whose prices have soared in recent years amid demand from China and elsewhere.
The spending spree could mark a turnaround. In the past, mining companies touted their desire to
move slowly in adding supplies. Mining executives have said they wanted more time to gauge
the strength and durability of China's economic boom. Those executives remembered past busts,
when mining companies moved too quickly to approve projects, leading to a glut of metals.
Now, after several years of hefty profits, shareholders are pressuring mining companies to show
they have projects in the pipeline to sustain growth over the next decade.
At the same time, banks and other providers of capital are becoming more comfortable financing
mining ventures, including higher-risk projects developed by lesser-known "junior" companies.
These include outfits like Nautilus Minerals Inc., a Vancouver, British Columbia, company that
said it has raised $300 million for a project to mine gold and copper from the ocean floor near
Papua New Guinea, with backing from several major mining houses.
"It almost seems at the moment, if you have a piece of paper that has an outline for a project, you
can" get money, said Mark Tyler, head of mining and resources at Nedbank Group Ltd., a South
African bank.
18. Prices for some of the world's commodities have slipped in recent months and big mining
companies ________.
a. have stopped all mining operations
b. have made plans to close mines
c. continue to pump up investment Correct
d. have let go large numbers of workers
Mutual Funds and the Buyout Boom
By DIYA GULLAPALLI
February 23, 2007; Page C1
http://online.wsj.com/article/SB117219868407216912.html
Some mutual-fund investors are getting a boost from the frenzied pace of private-equity firms
cutting deals to buy publicly traded companies.
The takeover deals have some fund managers tweaking their approach to stock selection. They're
hunting for buyout candidates -- because targets' share prices often surge on deal announcements
-- or companies that benefit from the deal-making business.
Keeley Funds had stakes in eight companies that announced they were going private last year.
That fund company and Third Avenue Funds also are buying more stocks of investment banks
that advise companies on deals or of publicly traded private-equity-type firms.
For investors, it can be hard to tell exactly how much of a lift their fund is getting from the
buyout binge. "Fund investors should not get caught up" in trying to pick funds based on which
will profit from buyouts, says Morningstar Inc. fund analyst John Coumarianos. More important,
he says, is finding funds with a consistent long-term strategy.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 18 of 22
About $415 billion in such U.S. public and private buyouts were announced in 2006, almost $70
billion more than in the previous three years combined, according to data-tracker Dealogic. The
trend is continuing this year, with 90 deals worth almost $30 billion announced so far, including
buyouts of Triad Hospitals Inc. and a unit of Eastman Kodak Co.
Brandywine Fund benefited from investments in numerous companies that were bought out in
recent years, including Christian-themed publisher Thomas Nelson Inc. Brandywine is up an
average of 13.3% a year for the past three years, outpacing the Standard & Poor's 500-stock
index including reinvested dividends by almost three percentage points.
19. Some ______ investors are getting a boost from the frenzied pace of private equity firms
cutting deals to buy publicly traded companies.
a. mutual fund Correct
b. bond market
c. real estate
d. currency
Home Depot Tries To Make Nice to Customers
By ANN ZIMMERMAN
February 20, 2007; Page D1
http://online.wsj.com/article/SB117194000815113283.html
John Parsons of Shreveport, La., owns a 50-year-old house that needs constant repair, and for
years he was a regular customer of a nearby Home Depot store. About a year ago, he switched to
a Lowe's Cos. home-improvement store, even though it is farther from his house, because he
received better service there. "The people at Home Depot don't want to talk to you," he says.
"They hide or they say they're busy."
Home Depot Inc. grew to become the world's largest home-improvement chain largely on the
strength of its skilled workers, many of whom were former plumbers, electricians and carpenters
who were eager to impart their knowledge to do-it-yourselfers. They took pride in helping
customers find just the right shade of latex paint or an elusive-size screw.
But service began to slip over the past six years. In order to cut costs, the company started hiring
more part-timers and added a salary cap that drove off the more seasoned workers. The retailer
also moved about 40% of workers to overnight stocking positions, ostensibly to clear the aisles
of clutter. But it left customers searching in vain for someone in an orange apron to ask about
picking out the proper power tool.
Now, as it attempts to ignite sluggish sales under a new chief executive, Home Depot is trying to
reverse a reputation for shoddy service. Under former Chief Executive Robert Nardelli, who
resigned Jan. 2, Home Depot management focused on measuring all aspects of the stores'
productivity and too often ignored shoppers. "We were busy writing reports instead of taking
care of the customer," says Shane Moore, manager of a Home Depot store in Mesquite, Texas.
In the past year, Mr. Nardelli moved to improve the shopping experience. The retailer spiffed up
displays, added workers and rewarded stores for improved customer service. A customersatisfaction survey published today by the University of Michigan indicates Home Depot
narrowed the gap with Lowe's last year. But Home Depot executives say they still have a long
way to go.
Customers can only hope Home Depot gets it right. The Atlanta-based chain sells roughly $90
billion of merchandise every year, making it the No. 2 retailer in the country after Wal-Mart
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 19 of 22
Stores Inc. But whereas a Wal-Mart customer may be willing to accept indifferent service in the
name of cheaper bananas or underwear, a Home Depot customer attempting to fix that leaky sink
has very different expectations.
Last summer, James McAvoy of Ophelia, Va., hired Home Depot to install sliding glass doors in
a room in his house overlooking the Chesapeake Bay. It turned into a nightmare that isn't over.
The subcontractor Home Depot hired installed the doors incorrectly and the room flooded,
ruining the carpet. Furniture is still strewn throughout the house as they wait to have the problem
resolved. "Home Depot just got too big, too fast and took their eye off the ball," Mr. McAvoy
says.
Frank Blake, Home Depot's new chief executive, has made restoring Home Depot's oncevaunted customer service his No. 1 priority. Home Depot announced last week that it was
considering selling or spinning off its $12 billion wholesale-supply division in order to devote
more attention to its 2,000 home-improvement stores. Mr. Blake will soon divulge just how
much money he plans to devote to shoring up customer service and refurbishing the stores.
20. In order to cut costs Home Depot
a. moved about 40% of workers to overnight stocking positions
b. started hiring more part-timers
c. imposed a salary cap that drove off the more seasoned workers.
d. All of the above Correct
Ever Cheaper: Getting a Deal On Your Term Life Insurance
By KAREN DAMATO
February 21, 2007; Page D1
http://online.wsj.com/article/SB117201455856714186.html
A key financial product -- term life insurance -- continues to get cheaper and easier to buy.
Prices for coverage have plummeted, partly because people are living longer. A healthy 40-yearold man who doesn't smoke can now get a $500,000 term-life policy for as little as $350 a year
for 20 years -- down from $375 two years ago and $674 a decade ago, according to AccuQuote,
an online insurance broker. In the early 1990s, the same policy cost more than $1,000 a year.
Another important change: Over time there's been a fundamental change in the nature of term
policies. Years back, the standard product was annual renewable term, on which the premium
rises inexorably each year. Today, the bread-and-butter offering is level-premium term, with
charges that are fixed for, say, 10, 20 or 30 years.
The shift is significant. If you've held an annual-renewable policy for many years, you may be
able to move to a level-premium policy with an annual charge that is less than the current cost of
your rising-premium plan.
Similarly, if you bought level-premium term life insurance years ago, you may be able to switch
to a new policy with a lower annual cost -- and possibly also extend the time period for which
the rate is guaranteed.
Easier shopping. The shift to level-premium policies has made comparing prices easier. A single
number -- the steady annual premium -- gives you most of the information you need to compare
costs among policies with the same term. Be sure, though, that the insurer is guaranteeing, and
not just "projecting," to charge that rate for the specified term.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 20 of 22
Stick to companies that get high ratings for financial strength from firms such as A.M. Best Co.
(whose top rating is A++). Also, be sure not to drop your existing policy before you get approval
for the new one, to make sure you don't get stuck without coverage.
The initial premium you are quoted by an insurance company or broker isn't necessarily the price
you'll be charged once your health is evaluated. (That's typically done at no cost to you by a
medical technician who'll come to your home or office and depart with specimens of your blood
and urine.)
You can increase the odds of getting a realistic quote by passing along some key numbers -recent blood-pressure and cholesterol readings, if you have them, along with your height and
weight. Also, be sure to ask what your premium would be if your health is deemed one or more
grades worse than you initially think.
Term limits. Insurance sellers have always said that term coverage is just that -- appropriate for
people who want life insurance only for a limited term, such as until your children are grown or
you reach retirement age. The shift to level premiums sharpens the focus on when you'll
terminate your term coverage.
With annual-term policies, you might hem and haw over the rising charges for a few years before
deciding to bail out. But level-premium plans go from affordable to absolutely astronomical in a
single year -- typically Year 11, Year 21 or Year 31. On one 20-year policy, for instance, the
premium in Year 21 skyrockets from $237 to $6,131.
That policy design means you should act now if you are, say, halfway through a 20-year policy
and realize you'll need coverage for more than the remaining 10 years. Assuming you are still in
good health, shop around as soon as possible for a new 15- or 20- or 30-year plan to replace or
augment your current coverage.
If you want to extend your coverage and you aren't in good health, you might do better to convert
your term policy to a cash-value policy at the same insurer, says New York insurance adviser
Glenn Daily.
Cash-value plans have higher premiums because they include a savings component along with
the death benefit; many insurers give term holders the right to convert to one of the company's
cash-value plans without a medical exam. To keep that option open, Mr. Daily suggests buying
term policies that are guaranteed convertible for the entire level-premium period.
21. Term life insurance continues to get cheaper partly because _____.
a. low interest rates
b. people smoke less
c. cars are safer
d. people are living longer Correct
Dealing With the Dead Zone: Spouses Too Tired to Talk
By SUE SHELLENBARGER
February 22, 2007; Page D1
http://online.wsj.com/article/SB117210337394315471.html
Michael Hickey knows better than to try to start a conversation with his wife when she gets
home from work.
After a hard day at the office, "I'm definitely too tired to talk at night," says Karen Ambrose
Hickey of Palo Alto, Calif., a senior marketing director. "I put up a brick wall." Michael, an
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 21 of 22
engineer, says he's resigned: Regardless of what's on his mind when Karen comes home, he says,
"you just have to wait" until later. Finding time to talk is "an ongoing struggle."
Too tired to talk after work? You're not alone. About 45% of high-earning managers enter a
conversational dead zone after a long workday, when they're too pooped to say anything at all to
their spouse or partner, says a December Harvard Business Review study of 975 global managers
by Sylvia Ann Hewlett and Carolyn Buck Luce. Such strains are "wreaking havoc" on family
and personal life, the study says.
When Julie Danis's husband asks after work, "How was your day?" she usually says, "I really
don't want to talk about it," Ms. Danis says. After a day when "either you're always talking to
somebody, or you're in one meeting after other where everybody is talking at the same time, I
want to come home and I don't want to be listening or responding to anybody," the Chicago ad
executive says. She needs an hour of "re-entry time," when her husband "generally waits for me
to break the silence."
Several dead-zone habitues I interviewed said they decompress after work with a glass of wine. I
spent a fair amount of time in the dead zone myself, during my years as a manager; my
questionable solution was a glass of brandy. While it loosened my tongue, it also turned me into
a loose cannon, clouding my focus on family matters, and later, impairing sleep. Some
"remedies" replace one problem with another.
22. About 45% of high earning managers enter a _____ after a long workday.
a. taxi cab
b. bar
c. church
d. conversational dead zone Correct
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WSJ Professor Guide: Page 22 of 22