Market-Based Management®

Friday Links

The Entrepreneurial Mind brings us "Value Proposition to Customers is Key to Differentiating your Business." I've been thinking a lot about value propositions lately, so it's nice to see others are as well.

The econ blogs have been buzzing about this new research paper: Did France Cause the Great Depression? I've not had a chance to read it yet, but it's caused so much ado, I thought it was worth passing along.

Thanks to Patrick for passing along John Maxwell's blog. Maxwell has an article about trust called "Build your relationships on the solid ground of TRUST." I've been reading/thinking a lot about trust lately. I think trust is connected with courage somehow. Maxwell puts it like this, to gain trust "Do the right thing regardless of personal risk."

Thanks to Paul who sent me this article called "Your Weakness Are Not What You're Bad At." I don't know if I agree, but it's a different perspective than I usually hear around these things.

Next week, Associates will watch some clips about entrepreneurs as part of their reading assignment. I added these clips to the curriculum in hopes to generate discussion about who exactly an entrepreneur is. I specifically picked clips that we could compare and contrast with Principled Entrepreneurship. Check out sections 2 and 3 of this video if you are interested.

If you have any interesting links, please leave them in the comments and/or send me an email: ann.zerkle (at) cgkfoundation.org. Thanks and have a great weekend!

Dork Out MBM Style

Ann and I sit near each other at work.  Besides discussing sci-fi, Lord of the Rings, and Austrian business cycles (all things that ANN brings up, mind you--I, of course, only discuss 'hip' and 'sophisticated' topics such as Lady Gaga and her misapplications of MBM), we often find ourselves deep in esoteric MBM conversation.

Now, of course it's probably most useful to focus on thinking about how MBM can help us get better results, but sometimes it's just fun to have a bit more of a philosophical discussion (and heck, sometimes that helps me better understand how to apply these ideas, so.... bonus).

For example, the other day we were discussing economic concepts, and how they fit into MBM.  

I mean, I can see where 'measurement' might fit in (knowledge processes), or 'accountability' (decision rights), or 'experimental discovery' (vision).  But, what about the various economic concepts that we all probably use on a somewhat frequent basis:

• marginal analysis
• transaction costs
• opportunity costs
• sunk costs
• Etc.

Where do these fit in (do they?) to the five dimensions of MBM: Vision, Virtue & Talents, Knowledge Processes, Decision Rights and Incentives?

What do you think?  Please share your thoughts.  

Below [in white text--highlight it to see what we thought] is our best (read: terribly flawed) guess at where we thought these fit in.  To underscore, this is just Ann and I spitballing, and by no means the 'right' answer....

[We thought that all of them most directly apply to Knowledge Processes, as they help uncover knowledge to make better decisions.  For example, costs (in dollar terms, most frequently) convey knowledge about many things including scarcity.  But, then we got sucked into a circular-thinking black hole of "don't all mental models convey knowledge...aren't they all Knowledge Processes..." and then we passed out.  We weren't particularly happy with our answers, so we're looking forward to seeing your different interpretations and challenges.]

More Thoughts on Courage in the Workplace

A few weeks ago, I posted some initial thoughts on courage in the workplace. The comments from David and Andy on that post got me thinking some more. David's made a fine point that, "as a supervisor I think your role would be less of helping people be more courageous, and more of defining a culture that requires less courage." And Andy "...would caution that it may too idealistic to suppose we can achieve a culture where no courage is required."  

I've still not landed on a great definition of courage, but I think it has to do with acting in the face of fear. If supervisors are working toward a culture that requires less courage, then there's something about understanding fear. But it's so individual. For one employee, it might mean terror at the thought of speaking in front of the group. For another employee, fear may arise when a particular individual they've clashed with before is in the room. And yet another might face fear when making critical go/no-go decisions.

I've been having trouble putting all of these thoughts together, but I wonder how all of this relates to Maslow's Hierarchy of Needs. If someone has needs around self-esteem, do they face fear differently than someone who has safety needs? If so, this might imply that just as we fluidly move through the Hierarchy of Needs, our fears may fluctuate as well. This makes soothing fear a bit tougher.

So, what can we do as individuals to foster our personal courage? My personal experience is that I have some constant fears that I'll probably always face. Sometimes I have fears that come and go. Sometimes I succumb to the fear and sometimes I don't. However, the times I act in spite of my fear are the times I identify that discomfort I'm feeling is fear. This allows me to take the next step of understanding the "why" of the fear. Then, I can dissect the fear and make an explicit choice.

What have you found about fear and courage in the workplace? What advice would you give an inexperienced employee if they are having trouble conquering his/her fear? What have you done in the past to overcome fear?

You There: Beginning Innovating Immediately

Frequent reader and all-around great guy Ben Stafford sent in a link about innovation that got me thinking.

This article's author laments that business gurus galore tell us that we should all innovate.  Everyone--from the CEO down to the janitor--should step up to the innovation plate and swing for the rafters.  He claims that this is bunk.  Some people are just better at innovation, and some people aren't; you should play to strengths, and lose the "innovation" rhetoric.  

I invite you to put on your MBM hats (or monocles or berets or what have you) and think about innovation for a moment.

First, what dimension would you put it in?  I have my ideas, but would love to hear your interpretations.

Second, is the above author correct in saying that--just like everything else--innovation is a skill that some people excel at and others struggle with, and hence you should have some employees specializing in that skill while others leave it be?  Or, should all of us--every employee--innovate wherever possible?  [I know, I know....  A false dichotomy, you decry, but perhaps an interesting one.]

Just to add a wrinkle to things, I'll point out the the Guiding Principle "Principled Entrepreneurship" asks that we "demonstrate...initiative...and critical thinking skills," and "Customer Focus" says that we should "profitably anticipate" needs of customers--arguably a poor-man's version of "innovation"--in all that we do (but then again, arguably not).  

What do you think?   Let us know in the comments below.

p.s.  If you'd like to be as awesome as Ben and send links, questions, blog-post ideas or guest posts our way, please email!  [andy dot gillette at cgkfoundation.org]

The End of Management?

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."

The end of management? That's the title of a major article in the Wall Street Journal on August 21. Paying tribute to famous economists and management experts Peter Drucker, Joseph Schumpeter, Ronald Coase, Adam Smith, Clayton Christensen, and Gary Hamel, the author argues that corporations must fundamentally change if they expect to succeed in the 21st century. How must they change? "The new model will have to be more like the marketplace." Sound familiar?

The main thrust of the article is that corporations have become too bureaucratic. It's not enough, however, to wage war on entrenched corporate bureaucracies. No, a more fundamental change needs to occur: "the new model will have to instill in workers the kind of drive and creativity and innovative spirit more commonly found among entrepreneurs."

So, does this fundamental change really imply the end of management? It does if you buy the author's contention that "corporations are bureaucracies and managers are bureaucrats." But if you redefine managers as venture capitalists, who place bets with corporate resources and focus on "creating structures that motivate and inspire workers" while also developing new mechanisms of information gathering and moving decision-making to the right level of the organization - what do you have then? That's not the end of management, that's the beginning of a new management philosophy. 

The article is excerpted from a new book, The Wall Street Journal Essential Guide to Management. It just might be worth reading.

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.

Friday Links

The Consumerist brings us "5 Horrors Parents Most Worry About vs. the 5 Most Likely to Occur." I think this is an example of The Recallability Trap from the Common Decision Traps Workshop.

Sports economics are taking on the question, "Why Are Salary Caps Bad?"

For those of you following international developments, I suggest reading "Why Greece won't turn itself around."

If you're considering academic research or graduate school, I suggest reading Pete Boettke's "Thinking without writing is day dreaming." It rings true from my experience in grad school. I like the thinking that he calls out by saying, "Mike has the great advice --- set goals based on output, not input..."  I was lucky enough to have many caring mentors that drove that point home for me while I was in school.

It's time for you to face reality, my friends: Your Pants Are Lying to you (via Economix).

Here's an old, but very interesting post from Rory Sutherland's Blog about self-interest and intentions. I don't know if I agree with all of it, but I suggest checking it out. Thanks to David McGinnis for suggesting Rory's blog!

If you have any interesting links, please leave them in the comments and send me an email: ann.zerkle (at) cgkfoundation.org. Thanks and have a great weekend!

The Further Use of Incentives for Those of Us Who Don't Run Organizations

In last Tuesday's post, I mentioned that the MBM Dimension of incentives is often overlooked and underused if you're not a manager setting wages, salaries and benefits.  At least, it's been hard for me to do that when I've been in that position before.

As a manger today, I do need to think about the salaries of others.  BUT, what I've found is that while important, the day-to-day incentives not involved in salary make a huge difference.  And for me, the large majority of the time I'm working with folks who I don't manage, but whose actions are mission critical to the projects I work on.

So, I posit to you, good reader, that incentives do matter, and that they're worth thinking about beyond paychecks.

Consider a project you're managing that involves multiple departments.  I've found it useful to ponder how this project creates value for each person involved (or why their bosses find it to be valuable (or more importantly, why the customer finds it to be valuable)).  Often, being aware of the motivators of the major players involved can help you preempt problems or take advantage of opportunities.

Or being aware of individual drives can be informative.  The following information might change how hard you push or how you organize the team: Sue from HR is be under intense pressures to get a 360-degree-review process finished; Bob is just flat-out really fascinated by this project; Joe doesn't like Bob right now because Bob fowled fouled him during the lunch-time basketball match last week without apologizing.

Frequent reader Tammy C had this insight, which I think applied well to both direct reports and to peers you work with on projects: I had the most fun with this dimension when I took the time to find out what motivtes each of my employees. It was an exercise that A) took longer than I thought, B) had surprising results(where I had wrongly assumed things) and C) gave me a lot of insight into other areas besides just "incentives".

Finally and most importantly, thinking about the customer is crucial.  Now, a 'customer' could be the person who hands you cash in return for product, but often it's not that simple.  If a mother buys the candy bar for her son who is clamoring for the tasty treat, which is the 'customer'?  It's probably more fruitful to think about "who am I creating value for?"  Often, the other individuals and teams you work with inside the organization are your customers, too.

A short list of individuals whose incentives may be important could include: 

• Direct reports
• Bosses
• Customer(s) (emphasis on the plurality)
• Peers
• Suppliers
• Internal steak holders
• Board Members
• Beneficiaries (if you're in the non-profit world)
• Any individual who may affect your projects in a meaningful way.   

So, the next time you're starting a project or stuck on a problem, I suggest taking a few minutes to think about who is involved, and what their incentives are.

Good luck, and--as always--please join in on the conversation and discovery process by letting us know if you have any ideas, experiences or stories to share.

Running Behind

I am running behind on my blog posts and blog-related email. I've several requests via about specific topics, and I want to assure you that I'm going to take some time to think through, research and compose posts about each one. Right now, I know I have the following on the list: altruism in free markets, creative destruction, and more on freedom of speech. If you have anything you'd like me to put in the queue, just leave it in the comments or shoot me an email [ann.zerkle (at) cgkfoundation.org].

And here's a video that Art Hall passed along to us. He framed it up as a free market story, which I think is a cool way to look at it. Thanks, Art for sending this video!

The Use of Incentives for Those of Us Who Don't Run Organizations

When it comes to following incentives, I have no problem.  A recent conversation proves this.

Ann: Hey Andy, will you help me brainstorm for this project?

Me: Hmm, I'm kinda busy....

Ann: I will buy you a chocolate Frosty from Wendy's.

Me: BAM!  I'm in!

However, when it comes to applying incentives, I struggle.  For years, I just kind of approached this Dimension as "Yep, incentives matter.  Point taken.  But I'm not a manager who is setting wages or salaries or benefits.  Let's talk about decision rights now...."

So, let's think about what "incentives" mean in an MBM sense.  

First, it's a whole Dimension, so that's a pretty big deal.  I mean, there's only five of them....  Second, from a Science of Liberty perspective--where we're looking at what key things allow societies to prosper, and where we get ideas for how to manage the mini societies called organizations--the concept that it's important for individuals to be motivated to do things that create value is fundamental.  In all, two big reasons why we'd agree with economists who say "Incentives matter."

In those mini societies we work in, it's important that individuals are motivated to do things that create value, too.  At first blush, this is easy: SALARY!  BENEFITS!  And if you get creative, NON-FINANCIAL REWARDS!  

But if you're not the CEO or setting salary levels for others, it can be hard to see how focusing on this aspect of MBM is useful.

On Thursday (~suspense!~) I'll write about some strategies I've used as a non-CEO to get results with the application of incentives.

BUT, I want to hear about your strategies!  How has thinking about incentives or motivators or fulfillment changed how you act or how you motivate others--peers, children, bosses--to act?  

As an extra incentive, if you have some unique applications of this concept I'll throw them into the next post this Thursday!

Compensation

That got your attention.  Many have read Daniel Pink's interesting popularization of some research studies that claim money can sometimes be a de-motivator. (Drive: The Surprising Truth About What Motivates Us.)  Here is Pink in a TEDTalk presenting his experience writing the book:

Recently, Russ Roberts had an extended discussion with Daniel Pink over at EconTalk.org.  I found it to be engaging.   The conversation provides a richer exploration of the ideas in Drive than just reading the book itself.  I admire Roberts' ability to question and challenge in a way that promotes learning and discovery in conversations - something we should all strive to emulate. 

If you manage an organization, large or small, for profit or non-profit, I encourage you to consider the following questions as you read, watch, or listen to all (or any) of the above:

• What is the purpose of compensation?
• What is the role of vision, decision rights, knowledge processes, and virtue and talents in the determination of compensation?
• Remember that whatever the "game" being played, there is always a bigger game being played around it.  Consider the larger questions: what is the role of business in society?  What does it mean to have a job?

I hope some of these questions help you dive even deeper into the material to make it more useful.  Feel welcome to comment and start a discussion around any of the above.