Market-Based Management®

Looking Busy

Let me tell you about my friend Gary. I met him in the 1980s. I was in school at Oklahoma City University. Gary was a several years older, about 25 at the time. He had a family, a house, and a full time job working in a small print shop. I looked up to him and occasionally I would drop by and visit with him at his shop. This was in the era before Kinko’s, and Gary’s little print shop did a very large volume. He was always busy. Gary’s shop had state of the art duplication equipment including one giant printing machine that flared so brightly that Gary would cry “flame on!” before he pressed the button to make it go. Anyone who happened to be standing nearby would cover his or her eyes. It was great.

One afternoon I dropped by to say hello to Gary. He was busy of course but for once he wasn’t printing anything. He was sweeping the floor. Now there’s sweeping, and there’s sweeping. Gary was sweeping like he cared. He was just an employee but he was sweeping the floor as if he owned the place. Each stroke of the broom was careful. He left no inch of floor untouched. It was mesmerizing. Perfect. Zen-like. In the back of my mind I was thinking, “This is it. This is work ethic like my Dad is always telling (yelling at me) me about.”

This went on for a long time, Gary sweeping, and me watching and talking about something or other. Suddenly it hit me. Something was wrong. The dirt on the floor, and there was only a tiny bit of dirt, contained two or three little white Styrofoam packing peanuts. No matter where Gary went with that broom those peanuts went too.

“Gary!” I said. “You are sweeping the same dirt around and around aren’t you?”

“Sure am.” He replied.

“Isn’t that kind of silly?” I asked.

Gary stopped sweeping. He put his hands on the top of the broom. In a low voice he said, “I don’t have anything to print right now, Mark.”

“So?” I said.

He whispered, “So, the boss is in the back room.”

“Yeah?” I said. “So what?”

Gary gave me a wise, 25-year old smile. “So, you got to look busy at all times.” He resumed his methodical peanut sweeping pattern.

Sometimes I tell this story during MBM seminars. I ask this question at the end. Do you suppose we have people who are “sweeping peanuts” in your operation? Just looking busy? Just working for time? The answer is always yelled back at me. “YES!”

Once I even got a “peanut sweeping” confession during a break. It was from an operator at a facility that shall remain anonymous. He said, “My boss told me that some VIPs were coming in for an all day meeting. The boss said the VIPs would pass by my station several times during the day. He said ‘I know it’s a slow day for you but for heaven’s sake look busy when they come around.’ That’s what I did too. I put a piece of metal on a grinder and you better believe it that every time the VIPs walked by the sparks flew. I looked busy as H----!” The operator laughed and then shook his head.

I tell these stories to make the point that sweeping peanuts or making sparks fly might fool some folks some times but it certainly does not create value. Our customers do not care how hard we work or how busy we look. They care only about the value they receive from the products and services we provide.

Value creation is common sense. All of us must re-evaluate our work, get rid of the peanuts and the sparks, and focus on doing those things that create real value for our customers, our company, and ourselves. We can’t afford to waste a minute “looking busy.”

On the Integrity of Nations (and Business)

I find great pleasure in discovering Market-Based Management principles in books completely unrelated to business or economics. While reading The Second World War by Sir Winston Churchill, I came across this remarkable passage in chapter 16:

Honesty is the best policy, several examples of this will be shown in these pages. Crafty men and statesmen will be shown misled by all their elaborate calculations. … If a government has no moral scruples, it often seems to gain great advantages and liberties of action. But all comes out even at the end of the day, and all will come out even more even when all the days are ended.

Churchill was speaking of Molotov-Ribbentrop Pact of 1939, in which Nazi Germany and the Soviet Union agreed to ten years of mutual non-aggression and the division of Poland (the non-aggression part ended in June 1941). Neither party to this pact possessed much in the way of scruples, and both eventually suffered horribly for short-term gains. Business is much the same (minus the death and destruction), which is why MBM stresses acting with integrity and maintaining a commitment to a vision of long-term value creation. Businesses can (and do) often make strong short-term gains by sacrificing their integrity or skirting the limits of legality, but the chickens inevitably come home to roost. As Charles Koch has said many times, “if we wanted to make a quick buck, then we would just rob banks.” No business or nation can succeed long-term without integrity, which is why integrity is MBM’s Guiding Principle Number One. Too often folks respond with more than a little cynicism to the emphasis MBM places on integrity. “We’ll, your just saying that because it sounds nice,” is a common response. However, if, as Churchill suggests, lacking integrity can lead to the demise of nations, then it can spell only doom for any business. True, preaching integrity in business does sound nice, but it is also essential for long-term success and—most importantly—survival.

A Cautionary Tale

Over at Slate.com, Henry Blodget's got an interesting takedown of a web-cam interview Jim Cramer (Of CNBC's Mad Money fame) did late last year.  In the interview, Cramer recounts his glory days at a Hedge Fund, and describes some of the shady tactics he would use to make a quick buck.  A representative snippet:

What's important when you're in that hedge-fund mode is to not do anything that's remotely truthful. Because the truth is so against your view that it's important to create a new truth to develop a fiction.

It's hard to imagine a point of view more opposed to the notion of becoming prosperous by creating real, economic value.  And it could well be that Cramer's comeuppance is on its way, since not one but three major news outlets have carried stories on his confession. 

Cramer is no dummy.  He's a Harvard grad, respected columnist, and seems to have done pretty well for himself in the investment game.  But if his interview was an honest and candid discussion of his former dealings, it's pretty clear that he didn't have virtues to match his talents.  And, of course, there's a decent chance that this will spell the end of Cramer's lucrative career in financial media.

This serves as a good reminder that hiring the best and brightest without screening for virtue is a dangerous game.  Poor performers may not make you much money, but brilliant charlatans can bring your organization crashing down.

The Trouble with Blind Loyalty

In last Saturday's Wall Street Journal Weekend Edition, on p18, Peggy Noonan had the following anecdote in an interesting essay titled, "The Trouble with Loyalty":

"There is the story of the politician who accused a follower of never being loyal.  The follower was nonplussed.  'But I always support you when I think you're right,' he said.  'Anyone can do that,' said the politician.  'I want people who support me when I'm wrong.'"

Loyalty, rightly understood, is a virtue.  It is a form of faith.  The latin word for faith is fides and there is a certain fidelity, a truthful connection, that needs to be present between the one who desires loyalty and the one who gives it. 

If we understand truth as "an agreement with fact or reality," then we begin to see that the politician in Ms. Noonan's anecdote was not asking for true loyalty -- he was asking for blind loyalty.  He was asking for unthinking, uncritical subservience.   

Ever had a manager like that?

Loyalty demands that we see things as they are and not as we (or those to whom we are loyal) wish them to be.  It requires us to speak the truth as we understand it.  And those who are deserving of our loyalty will want to hear what we have to say.  They will encourage us to speak our mind without fear of reprisal.

True loyalty is earned over time through the integrity of our actions.  It cannot be coerced through favors or threats.  As a manager, the worst time to try and build loyalty with your team is at the time when you actually need it.

Profit and Ethics

Koch Industries CFO Steve Feilmeier was the guest speaker in our MBM class at Wichita State University yesterday, and he had some interesting things to say about ethics in business. While widely-publicized recent corporate scandals have fostered in many people's minds the notion that the pursuit of profit by its very nature leads to poor behavior, Feilmeier has a very different perspective. Profit, in a system of free exchange, is an indication that someone has created value for others. When companies fall into ethical lapses, more often than not it is because they have failed to discover how to create real value. As Feilmeier noted, "At the root of many of these  scandals is a business model that isn't working."

When companies have discovered how to deliver sustainably superior value to customers, in other words, they don't need to engage in creative accounting, or political efforts to restrict competition. Their successful pursuit of profit is one of the key things that distinguishes them from unethical companies. It's an inability to legitimately turn a profit that leads some corporate actors to behave poorly.

With this in mind we can begin to see one of the ways that the concepts embodied in the term "Principled Entrepreneurship" fit together. Effective entrepreneurial action produces profit, making unethical behavior a waste of time. A culture infused with strong principles, meanwhile, makes unethical behavior a non-starter. One of the advantages of building a company based on principled entrepreneurship, then, is that it will be filled with people who, most importantly, will not tolerate any violation of law or integrity, but also who would never need to do such a thing, because they are focused on creating genuine value for customers.

The Entrepreneurship/Culture Connection

Why are some nations, cities, and companies more entrepreneurial than others? Interesting question, don't you think? A fellow employee passed on an article that summarized research conducted at the Stockholm School of Economics which studied the differences in levels of entrepreneurship across Swedish municipalities.

When faced with the above question, free market advocates automatically point to "system" issues such as tax structure, level of government intervention in the form of price controls, and the like. These policies and practices certainly make a difference on the whole and Sweden is no exception. What this study found, however, is a broad variance in entrepreneurial activity from one municipality to another within Sweden.

Why the variance? Culture. Aside from political and religious beliefs, municipalities with higher levels of entrepreneurial activity cultivate a feedback mechanism, meaning cities with more entrepreneurs tend to beget even more entrepreneurs. That is, once an entrepreneurial culture takes root, it typically spreads locally.

Economists tend to look at countries as a whole and emphasize national policies and attitudes when analyzing productivity or entrepreneurship. This study concludes that national success in entrepreneurship depends on the evolution of local cultures and their interaction with national policies.

What struck me as I read the article is our own company efforts to develop a culture of principled entrepreneurship.  Here are a few semi-random thoughts...

• It's not enough for top-level leaders to understand what they want/expect the culture to be.  All "regions" (departments, units) of the company need to embrace principled entrepreneurship as well.
• Leaders can talk about a culture of entrepreneurship, but can stifle it by micromanaging their employees, failing to delegate appropriately, and using poorly designed and/or implemented incentives.
• Company culture is obviously a combination of several things, but it is visibly displayed in the attitudes, behaviors, and actions of people.

A parting thought...Do the actions, attitudes, and behaviors of the all employees (front line, supervisors, middle managers, etc.) match those described by leaders as being "our culture"? A potential trap for any large entity is this: when the nation/company's overall results are positive, there is a false sense that the culture throughout is positive as well. Something to ponder...

Leading Change

Recently, McKinsey Quarterly (membership required) interviewed Corrado Passera, CEO of two successful corporate transformations.  He led revitalization efforts at Italy's state-owned postal service, Poste Italiane, and Banca Intesa, a bank/financial institution. 

A number of Passera's tactics for leading change should sound familiar, as they are closely aligned with some key components of market-based management.  Here are a few words from Passera describing his approach. 

...at the beginning you really have to understand where you are, what happened in the past, and why it happened.  You have to identify the remaining strengths and assets you can use to build for the future.  You have to appreciate the main constraints on developing the organization.

You need to propose a mission that is, at one level, a dream but is also achievable. Too much of a dream and people will not believe in it.  Too much emphasis on survival and they will not accept the sacrifices. I personally wrote what amounted to a short book -- not like an analyst's presentation, with figures and graphs, but a book written in human language, telling people where we were, where we wanted to go, and how we were going to get there.

Each person in the organization has to find a credible reason for making an effort and supporting the project.  I call this the 'return on sacrifice.' If you fail to get the right mix of sacrifices and benefits, the process will either start with various components moving in different directions or it will not get under way at all.

Change initiatives only take root through a well-functioning top team and committed leadership across the organization....And in each of the big boxes of the organizational chart, you must have people...who not only support your business but share your values.

Obviously, there are healthy tensions...If necessary, you have to get rid of individuals -- even the talented ones -- who quarrel and cannot work together.  If you choose the right people, everything else is a lot easier.

You also have to be clear about which responsibilities are individual and which are collective....That calls for a compensation mechanism that simultaneously rewards personal results, groups results, short-term results, and long-term results.

Finally, Passera says that you have to manage restructuring AND growth at the same time.  Efficiency/cost initiatives alone won't likely save a dying company and focusing on growth without getting expenses in line will not work either.

Employee selection - reducing the gamble

Why should a company do background checks when evaluating potential hires?

A recent survey reported in an Australian national newspaper (available here) found that of 1000 respondents 21% had deceived their employer to get the job. You might think that lying to get a job is problematic - people are simply putting a huge 'spin' on their past in order to get the job.

Unfortunately for the hiring firm, the candidate who lied to get a job is more likely to lie to keep the job, lie to secure a bonus or pay-raise. Background checks help minimize, but certainly don't eliminate a firm making a very costly hiring mistake.   

What Makes MBM So Great?

Reading this book review ought to get you thinking about things... I especially like the letter to management (hat tip to Arnold Kling over at econlog):

"Dear current Management-Generation of Cublicle Land, please understand that:

1. My generation was misinformed -- by elders and fortune -- about the value of our college degrees.  $120,000 of your / our money now buys, career-wise, just a hair more than your free high-school diploma used to.  As many of my peers now lament, 'A law degree is the new B.A.'  We're the best-educated generation in American History, yet the job requirements haven't changed. [...]"

If you read this review, and the rest of the letter in it partially quoted above, you might ask yourself, "How are things different from the MBM perspective?"  Would a college grad hitting the ground with an organization or team that embraces the Guiding Principles and practices the five dimensions of MBM have the same persepective? 

As a practioner of MBM, what letter would you write?  Hit the "Comment" link and let us know.

Book Review: Winners Never Cheat

Jon Huntsman articulates in a short, easy reading book what it means to conduct business with integrity.  One of my favorite quotes is:

“One might even be tempted to believe that the near-sacred American Dream is unobtainable without resorting to moral mischief and malfeasance.  Nonsense.  Cutting ethical corners is the antithesis of the American Dream.”

He articulates that what’s needed in today’s business environment is a booster shot of commonly held moral principles from the playgrounds of youth:  be fair, don’t cheat, play nicely, and tell the truth. 

Much of Jon’s message is in line with our company principles:  surround yourself with people who have the courage to say no; treat others with respect; leadership requires risk and responsibility; and compete fiercely, but no cutting in line.

There is one chapter that I didn't fully agree with.  It is titled “The Obligation to Give Back.”  I don’t like the term “give back,” as it implies that a successful business must have conned its customers and communities in order to make a profit.

Philanthropy is great and Jon Huntsman is a very generous man.  In his situation (private, family-owned company), donating company profits to charities and other philanthropic endeavors is fine.  I’d be cautious about making the statement that all businesses have the obligation to do this.  A publicly-traded company (which is what Huntsman Chemical is now) is obligated to be profitable for its shareholders.

Overall, worth a read. It contains some great quotes!