Market-Based Management®

Sharing is Caring

What's your latest experiment with applying MBM?  A new model you were trying?  A failed attempt?  A successful or semi-successful result?  

Ann, I, and the crew of contributors here on the MBM Blog (which I tried unsuccessfully to get named the "MBlogM") hope that one day--one small comment at a time--the blog grows into a republic of science for MBM.  That is, into a network of practitioners adding content, providing feedback to one another, and sharing new and exciting ideas based around getting results.  

The great thing about Polanyi's idea of the republic is that there is no one entity with all of the truth.  Rather, there is a community of scientists--or in our case, of possibly slightly nerdy cohort of supervisors and project managers--all of whom are experts in their own field of study and who can offer good judgement on others' fields.  These overlapping areas of interest help vet new ideas as they enter the world of science.

Ann and I don't have a monopoly on good MBM ideas.  In fact, we are comically far from it at times.  But, we can help set up an area where others can share ideas about the thinking underlying MBM and about its application.

So, if you have a story or idea to share, go for it.  :-)  If nothing is at the top of your mind today, don't sweat it!  But, of course, feel free to bring up ideas, challenges and questions later on.  

The Art of MBM: Norman Rockwell

This is a guest post by Chris Cardiff. In Chris's words he, "struggles to teach and apply MBM as a member of the Charles G. Koch Charitable Foundation MBM team."

Was Norman Rockwell a great practitioner of Market-Based Management? No, not at all. He was, however, a gifted painter who specialized in telling entire stories with a single scene that epitomized everyday American life. An exhibition of his work is currently on temporary display (through the end of 2010) at the Smithsonian's American Art Museum. There are 57 original works of art on loan from the collections of famed film directors George Lucas and Steven Spielberg, both of whom admired Rockwell's story-telling prowess. 

What drew me to the exhibit was one of Rockwell's masterpieces, a piece he painted during World War II, that he titled Freedom of Speech (you were beginning to wonder where the MBM connection was, weren't you?). It was part of a series called the Four Freedoms (based on a speech by FDR) but  the other three "freedoms" did not really work. "Free Speech Personified," from the Wall Street Journal's weekly "Masterpiece" series, provides the details. 

Freedom of speech and standards are essential to a prosperous society. At the society level, we tend to take them for granted and as MBM practitioners and teachers have even overlooked them, until recently, when we developed our curriculums for the Koch Associate and Koch Intern Programs. They form the basis for the challenge process (which we have not overlooked), one of the most important aspects of an MBM culture. 

Art reaches and teaches us very differently than words, written or spoken. I have several pieces of art hanging in my office that connect me to MBM and I hope to blog about them in the future. There are some concepts I'm still trying to figure out how to connect to artistically. I'd appreciate any suggestions - please share your favorite MBM-related works of art in the comments (or email me at chris.cardiff -at- cgkfoundation.org). 

By the way, if you are planning a visit to the American Art Museum to see Freedom of Speech, you will be partially disappointed. Neither Spielberg nor Lucas own the original - however, a completed painted of Rockwell's first attempt to capture this concept is on display. I like it also but I agree with his reasons for re-doing it (the central figure is not actually speaking in the first version). However, you can pick up reproductions of the final masterpiece in the gift shop - a small rendition is now hanging in my office.

Thanks to Chris for his contribution. If you'd like to submit a guest post for potential publication on this blog, please email drafts to Ann at ann.zerkle (at) cgkfoundation.org.

Consistently Bad

Isn't MBM just a bunch of common sense?

That's a frequent refrain I've heard (and, cough, perhaps have even said a few times) over the years.  "Oh, people follow incentives?  Duh.  What--sharing information is useful?  You need a mental model for that?!"

Yes, many aspects of MBM are fairly intuitive, but despite that this stuff is just dang hard to apply.  Mr. Koch, referring to one of the mental models used frequently in Market-Based Management, lamented the fact that it's application seemed common sensical to most people; the fact that few of us actually apply it, he said, makes it more like "uncommon sense."

This article seems to get at how most of us--unfortunately--fail at "common sense" fairly frequently, MBM or otherwise.  As the abstract says, "Empirical research as well as numerous cases studying managers across diverse disciplines, cultures, and industries reveal consistent patterns of counter-productive decision-making. In this regard, decision-makers appear to exhibit an unmistakable tendency to ‘over-intervene' in the systems (companies, organizations, cities, communities, etc.) they are responsible for. This suggests an inadequate appreciation and understanding of the dynamics underlying decision-making, generating unwarranted and excessive fluctuations and instability in organizations. Numerous studies have observed such phenomena in simulated and experimental settings."

I can't remember who I heard it from first, but one description of MBM has always stuck with me: "disciplined common sense."

I like how that phrasing gets at the obviously common-sensical nature of some aspects of MBM, while evoking also the difficulty inherent in consistently and rigorously applying so many mental models in tandem.

What's a manager to do?  Practice, practice, practice.  As Ann is fond of saying, you have to exercise those muscles in your brain to make them tough enough to do the job all of the time.  Find an MBM spotter and have fun pumping iron.  [Worst. Joke. Ever.]

ht: Charlie Bowtie for the article.

Help Us Make This Blog Better

Andy and I are working on making some changes to make this blog better. We've been working through a vision statement and brainstorming some (hopefully) great new things for the blog. I've been putting more energy in to the bigger picture than the posts lately, so I apologize for not getting to some of the subjects I've been meaning to. Next week, I hope to get to the altruism in markets and tragedy of the commons subjects that have been requested by readers.

With that said, I'd like your input on what you'd like to see on the blog. I've been thinking about some potential series:

• Reader Challenge: We vote on what article/book we'd like to read. A couple of weeks later, there are posts on the blog about the article/book. Hopefully, we'll get a critical mass reading so we can have a back-and-forth about the selection.
• Podcasts: Would you listen to short podcasts?
• Live Chats: We'd pick a TV event to watch and use some cool software that would allow everyone to chat back and forth with each other. I've seen people do this with football games and such, so I don't know how well it'd work for non-sports topics, but if you're up for it, I am!
• Connect with the Classics: This series of posts would focus in on primary source authors (Hayek, Mises, Bastiat, others in the reference list of The Science of Success).
• Talk Back: There's a neat service that takes voice mails and turns them into MP3s, which means I could give you a phone number to call in and answer a question or comment. Then, I could turn those voice mails into a series of answers, which I could put out on the blog in audio form.

Anyway, those are some things I've been thinking about. I'd like to find ways to get everyone talking/commenting and thinking about MBM and liberty.  Let me know what you think of those or whatever else you'd like to see.

Chance favors the connected mind.

With a tip o' the hat to Tim Harford (who has commented on prior posts to this blog):  If you are interested in how innovation really happens, then check out Steven Johnson's upcoming book, Where Good Ideas Come From: The Natural History of Innovation.  You can read a good essay on it here.

Here is a TEDTalk of Johnson discussing some of the ideas:

And here is a fun 4-minute video, rapidly animating the basic idea (Ann Zerkle has pointed to these before - I think they're great): 

If you enjoyed these, you might also benefit from reading Andrew Hargadon's How Breakthroughs Happen: The Surprising Truth About How Companies Innovate.

Innovation is what drives greater productivity - the engine that provides prosperity in society.  But innovation - understood exactly like you've read and viewed above - depends heavily on a set of conditions we often refer to as "economic freedom."  If you're interested in this nexus, then you might enjoy Matt Ridley's The Rational Optimist.  

Friday Links

Here's an Economist's View "Against Homework."

I found an interesting info-graphic that displays the "Job Happiness Index."

Business Pundit brings us "The 50 Best Mind Hacks on the web."

I fell waaaay behind on my blog reading this week, so if you could help me out and put some links in the comments, I would appreciate it.

Hi-Ho Fed-O

This is one of the “Man Controlling Trade” sculptures in front of the Federal Trade Commission building.  According to the Smithsonian folks, "this heroic, human figure strains to control a powerful horse…symbolizing the purpose of the Federal Trade Commission."

Is this an apt metaphor of how human minds need to be active--to some degree–-in controlling the powerful forces of markets, or is this a naive view of what’s really going on?  If you're not a fan, what metaphor would you chose instead?

If you must use a horse to symbolize the market, I think I prefer this one--it's much more hopeful, if you ask me.  [And yes, that's a circa 2002 Andy Gillette.]

 

Tocqueville's Democracy in America

Recently, I've been trying to fill out some of my knowledge on thinkers who are "primary sources" for MBM. Alexis de Tocqueville's book Democracy in America is one of the references in The Science of Success. I've had the pleasure to read parts of it, but haven't read the entire thing. While preparing for a reading discussion on Tocqueville's "Interest Rightly Understood" (a portion of Democracy in America), I started looking for a clip that could better explain a little about the author and put the reading in context.

I stumbled across a lecture series by a Yale professor. I've been watching as much as I can because he does a fantastic job of putting it in context (as far as I can tell). It's a bit dry, but not too bad as far as lectures go.

What thinkers would you like to learn more about? If you flip through the references in The Science of Success, what names/sources would you be interested in understanding better?

While We're On the Topic of Incentives....

Don't know why, but I've been on incentives kick lately.  These links were accordingly fascinating to me.

Blatantly stealing from Tabarrok over at the wonderful Marginal Revolution blog (which you should definitely check out), here's a fun question:

What is the smart response to this sign (assuming you're carrying drugs)?

And Seth Godin's Blog gives us this little gem relating to incentives and transaction costs.  He notes that in New York City, following the mandatory insertion of credit-card capabilities in taxi cabs, "tips are up, way up."  He explains that it's only one or two clicks on the screen to give a pre-defined $2 or $3 tip; to be a cheapskate and only give $0.75 on that short taxi ride, you have to bear the cost of additional clicks and precious seconds--in technology terms, the equivalent of running a marathon uphill....

Finally, and in similar transaction-costs-and-incentives fashion, a new employee that I work with has used glucose-based incentives to great effect (to protect her anonymity, I'll call her Shaq-Attack (because she's awesome (and because her name resembles one of the words))).  

Shaq-Attack has an office tucked off in an out-of-the-way corner of the office.  Despite this, she receives more friendly visits than most of us.  It's hard to determine causality, but it's either her dry wit or bottomless bowl of candy.  Good candy, too, not those little traffic-cone-Halloween things or knock-off Jolly Ranchers.  Either way, I'm there at least once a day....

Hooray incentives!

Zombies and Creative Destruction

This is a guest post by Chris Cardiff. In Chris's words he, "struggles to teach and apply MBM as a member of the Charles G. Koch Charitable Foundation MBM team."

Now here's something you don't read about every day - zombies and creative destruction in the same editorial. Unfortunately for horror fans, the article does not focus on the living dead. "Zombie" was just a metaphorical adjective for certain financial instruments and institutions that should be allowed to die but are being kept alive by government subsidies.

In "From Zombie Banks to Zombie Mortgages," financial journalist Greg Ip draws lessons for the U.S. from Japan's financial crisis of the last two decades. Japan's mistake was to prop up "zombie banks" and companies instead of letting them go under - capital was misallocated to these failing institutions and was not available for new ventures. The result: economic stagnation. He suggests the U.S. faces a similar danger in propping up "zombie mortgages" with extensive government subsidies.

Ip notes that Japan's post-WWII economic miracle was driven by emulating the best ideas of the West. It's a lot easier to play catch-up than innovate at the technological frontier. Developing new ideas requires Schumpeter's creative destruction and, compared to the U.S., Japan is not very good at that. The article includes some good measures of creative destruction: in the U.S., companies are born and die at a rate of 10-12% a year while in Japan the rate is only 4%. In Japan, it costs 10 times as much to start a business as in the U.S.

What does this look like inside an organization? Which projects, products, or processes qualify as zombies - being kept alive artificially in the hopes that their market will rebound? Or that the next marketing plan will change customers' mind? Or just from fear of admitting a mistake? Where are we misallocating resources that could be spent on more promising opportunities? And how difficult is it to get a new idea started inside your organization? Feel free to share examples in the comments!

 

Thanks to Chris for his contribution. If you'd like to submit a guest post for potential publication on this blog, please email drafts to Ann at ann.zerkle (at) cgkfoundation.org.