Market-Based Management®

Avoiding Change...

I've been thinking (and reading) a lot about change lately -- and the effort expended to avoid it... In the process I've come across some great quotes:

Faced with the choice between changing one's mind and proving that there is no need to do so, almost everybody gets busy on the proof. -- John Kenneth Galbraith

To exist is to change, to change is to mature, to mature is to go on creating oneself endlessly. (my poor translation of Henri Bergson's beautiful french phrase).

Here's the one I've been ruminating on the most, because it encapsulates for me the great lengths to which we all go in order to square incompatable or inconsistent information with our firmly held beliefs... it is an anecdote told by Howard Gardner in his book Changing Minds:

When my son Benjamin was five, I asked him about the shape of the earth.  He responded immediately, "It is round, Dad."  Bouyed by this display of scientific knowledge (or at least cultural literacy), I decided to push him.  "Tell me, Benjamin," I prodded, "where are you standing?"  "That's easy," he responded, "I am on the flat part underneath."

Early Warning Signs

Organizations almost always suffer declines in performance after experiencing success. Humility is often the first thing to go -- we might start to think we're teflon-coated and can do no wrong, for instance. This is especially true of large businesses that experience repeated success. It's difficult to recognize the signs it's happening, but not impossible.

Peter Lorange (Wharton) and Robert Nelson, in the spring '87 Sloan Management Review, suggested that there are early warning signs which might allow managers to take action quick enough to avert potential disaster. The article contains much food for thought...

Here are the early warning signals that, although faint and thus difficult to measure, managers should stay alert for:

1. Excess Personnel
2. Tolerance of Incompetence.
3. Cumbersome administrative procedures.
4. Disproportionate "staff power" (centralized corporate groups).
5. Replacement of substance with form.
6. Scarcity of clear goals and decision benchmarks.
7. Fear of embarrassment and conflict.
8. Loss of effective communication.
9. Outdated organizational structure.

Paying attention to the five dimensions of MBM (Vision, Virtues & Talents, Knowledge Processes, Decision Rights, and Incentives) and following the MBM Guiding Principles hopefully allow us to avoid such problems -- but none of us is perfect and the nine warning signs will appear from time to time.

How can you be sure to recognize them sooner rather than later? That would be a good discussion topic to bring up with your management team.

Hat tip to Tony Woodlief for passing me the article.

Profit is Good - Part I

The business world is a tough place.  It’s so tough, in fact, that most of us aren’t all that interested in being our own employer.  The majority of us would prefer to have a job working for someone else.  Why?  A paycheck.  We don’t have to worry much about how much we’ll have in the bank come next Friday.  We made an agreement with our employer – in the form of a salary, a hourly wage, or an amount per piece of production.  We can predict pretty accurately what that amount is going to be. 

Entrepreneurs – business owners – those folks who choose to go it on their own and work for themselves, don’t have that luxury.  They have zero ability to predict how much money is going to be in the bank come Friday.  Going into business they face rather daunting odds (most businesses fail within the first three years of starting up).  There’s a lot of uncertainty: are people really going to want to buy what I am selling?  Can I make it better, cheaper, or faster than my competitors?  You can’t really know until you try. 

And the risk – holy smokes!  Sometimes you have to plunk down some serious green to get started.  It might be a store front, a piece of machinery; it might be employee’s salaries.  The list is endless…  And what if you fail?  How do you face your kids, your spouse, your friends?  Why in the world would you do this to yourself voluntarily?!

There’s got to be something in it for people to want to take on that level of uncertainty, to bear all that risk.  And there is.  It is called profit.  Profit is the reward that the market gives a successful entrepreneur – one who has marshalled scarce resources responsibly, efficiently and has rearranged the pattern to create something that enough customers value more than their present alternatives to pay more than the costs to produce it.

Entrepreneurs are motivated to do their thing because they know if they do it well they’ll receive a reward.  Profit is a powerful incentive.  It inspires people to take on daunting risks, keeps them alert to new opportunities no one may have thought of before, and gives them a sense of urgency to make things happen before others beat them to it.  Profit acts like a spur to the side of a horse, propelling innovation, discovery, and economic growth.  Where I come from, that's a good thing.

Vision

Athletes often use "guided imagery" to enhance their performance.  Jack Nicklaus describes how he does it:

"I never hit a shot even in practice without having a sharp in-focus picture of it in my head.  First, I 'see' the ball where I want it to finish, nice and white, sitting up and high on the bright green grass.  Then the scene quickly changes, and I 'see' the ball going there: its path, trajectory, and shape, even its behavior on landing.  Then there's sort of a fade-out, and the next scene shows me making the kind of swing that will turn the previous images into reality.  Only at the end of this short private Hollywood spectacular do I select a club and step up to the ball."

This approach is useful in the business world also.  Industrial / Organizational researchers call it a "visioning process."  The idea is to imagine yourself in the future achieving some goal or result that is difficult to do now.  Then, like Mr. Nicklaus, work your way back in your imagination to where you stand today.  What will it feel like, look like, what will it take to get there, who can help you, etc.  The more you work at this visualization, the better you get at it.

Having such personal visions can be powerful.  Just like when you're driving, it keeps your eyes looking to where you want to go.  You don't tend to get sidetracked, and setbacks don't seem to matter as much.   Your chances of achieving the result also go way up.

If this works so profitably at the personal level, imagine what a shared vision can do for a team or a larger organization. 

A Communist's View of Marxism

In this Miami Herald article on Alexander Yakovlev there's a gem of a quote at the end:

My conversation with Yakovlev ended with a question from me and a succinct reply from him.  'Why doesn't Marxism work?' I asked.  He fixed his eyes on me, tapped his wooden leg with his pipe and said, with a certain melancholy, 'It does not adapt to human nature.'

Yakovlev was the engineer of Glasnost.  Worth the short read.  Hat tip to Andrew Roth at Club For Growth for pointing to the article.

More on Oil Profits, Deux

The New York Sun has an editorial today castigating various members of Congress for entertaining the notion that converting oil company profits into federal government profits is somehow good for the American consumer. Analysis of the flaws with this approach, by the Mercatus Center's Al Walling, is again mentioned.

And Russ Roberts, who's critique of these schemes was featured on National Public Radio this week, will be a guest tonight on CNBC's Kudlow & Company at 5:30 EST, where once again he will discuss the problems with a "windfall" tax on oil companies.

Through the Eyes of a Child

While driving down the road just a few days ago, my son (seven years old) asked me a fun question, "Mom, have you ever ridden in a convertible?"  After thinking for a moment, I said, "Yes, but it's been several years."  As you can imagine, he likes cars and thinks we should have a convertible.  I told him there are several reasons why we don't have a convertible, one being that the weather in Kansas is such that there are several weeks out of the year that we wouldn't be able to enjoy the "convertible" top.   

I wasn't expecting his next comment.  He proclaimed, "I bet there are a lot of convertibles in Africa."  "Why do you say that?" I asked.  "Because it's hot there.  They would have great weather for convertibles!"  After a few seconds of thinking "Should I go there or not?" I decided to expose my son to some harsh reality.  I briefly explained to him that there probably aren't a lot of convertibles in parts of Africa because many of the people there are poor--not because they aren't smart or hard-working, but because they live in societies where they either can't own property or where their property can be taken away by those in power.   I gave him a little more context, but that was the gist of my explanation.

His response..."What's the point in working or building a house or buying a car if someone could just come a take it from you?"  "Exactly," I said, "what's the point?"

More on Oil Profits

Speaking of Russ Roberts, check out his appearance yesterday on National Public Radio to discuss the U.S. Senate's hearings on fuel prices. A quote:

"Those Senate hearings on the high cost of gasoline prices should be really brief. Three words: Supply. And. Demand."

You have to sign up for a trial subscription to read all of it, but Al Walling's op-ed in The New York Sun assessing Senator Clinton's call for an additional $20 billion tax on oil company profits is also worth a read. Choice quote:

"Threatening to make businesses give back their money is a surefire way to prevent their expansion and push gasoline prices even higher. . . Senator Clinton somehow believes that $20 billion in new taxes will lead to lower gasoline prices, but since when has taxing something ever made it cheaper?"

Walling, like Russ Roberts, is a scholar with the Mercatus Center at George Mason University, a top economics-oriented research organization, in my not-so-humble opinion.