Market-Based Management®

Friday Links

Seth Godin asks "Should you invest in TV, radio, billboards and other media where you can't measure whether your ad works?"

The Consumerist brings us a "Study: Credit Cards Are Making Us Fat."

Here's a neat info-graphic about the History of Halloween.

Here's a nerdy-econ post about "Milton Friedman, Nominal Income, and Paul Krugman."

 For those of you who follow the NFL, there has been some controversy about head shots lately. The Sports Economist breaks down some of this with "Head Shots: Part of the Game?"

 

Share some links with us the comments!

The Sixth Dimension

As many of you may be aware, there is a secret, sixth Dimension not usually discussed in MBM Academy or The Science of Success.

That Dimension, of course, is Brute Physical Force.

Yes, in addition to the importance of a clear goal, hiring good and talented folks, defining who does what, measuring, and motivating employees, having the physical prowess to move large objects is a fundamental concept we should all master.

The benefits of this Dimension on the day-to-day level are obvious.  For example, if a heavy filing cabinet is blocking value creation, are you going to use “decision rights” to move it?  Will “vision” open that obstinate pickle jar for your lunch power meeting?  And don’t try and convince me that KP will help you PL (power lift) 350 lbs of iron during your morning and evening pre-and-post exercise routines….

Yes, these daily benefits are obvious, but what about the underlying principles?  For example, the Virtue & Talents Dimension—looked at holistically—would suggest that:

• at the individual level, it’s beneficial to strive to act in accordance with the Guiding Principles;
• at the organizational level, it’s helpful to hire virtuous people with the needed talents; and
• at the societal level, prosperity is generally increased with stable laws that guide productive behavior. 

The Brute Physical Force Dimension, as I understand it, follows this basic pattern:

• At the individual level, it’s beneficial to pump iron daily;
• At the organizational level, it’s helpful to strive to have a workforce whose average shirt-collar size is in the low 20s, at least; and
• At the societal level, prosperity is generally increased with…. Well, we’re still working on that part.

Now, many of you will argue, “Aren’t ‘strength’ and ‘musculature’ and ‘physical perfection’ just different skills and virtues, and hence isn’t this just a subset of the Virtue & Talents Dimension?”  Or, “This sounds like you just made up a Dimension and are lying to me.”

My answer to you is THIS: [Flexing my biceps at the screen right now!] 

Enough said.

[ht Brian B, of course.]

Fatal Flaws Follow Up

A few weeks ago, I wrote up my thoughts about fatal flaws. I sought some thoughts from people who are wiser than me and I want to pass on their thoughts.

What I would add is that in my experience the ability of an individual to figure this out about themselves at an early age is one of the key determinants of success and happiness.  Not just at work but in life....Here is how I sum it up for folks in college:

 1.  Work hard to find what you are good at and what you like as you move from high school to roughly your early 30's.   

2.  At the same time you are doing this try to also isolate those things you are not good at and/or truly don't enjoy. This may take a little longer as you often don't know until you see it. I think this is actually harder than the first because people naturally don't like to admit they aren't good at things and they also try to talk themselves into "liking" things they think they are supposed to like.

 

3.  Spend your mid-career understanding and refining your strengths. And to add to previous comments, if you have fatal flaws (which I believe are usually not fixable) work hard to avoid or at least minimize.

 

One caveat to all of this.  I have come to believe that there are some people (maybe many) whose biggest flaw is that of complete lack of intrapersonal aptitude.  When one doesn't critically think their own capability none of the above is useful and those people I think are the most unhappy and typically your worst case scenarios.

  

Here are some more thoughts from another person who's wiser than I am:

I struggle with framing the answer in terms of strengths, weaknesses, and fatal flaws.  If someone were to ask me, I would respond:

1.  It is always about value creation - i.e. how to maximize it - or more personally, how you can maximize your long-term contribution to the organization.

2. So the question of "do I work on a strength or a weakness" might more productively be framed as "of all the strengths you might build on or weaknesses you might attempt to improve, which one or two have the highest probability of significantly advancing your ability to contribute to the organization?"  It's a risk-adjusted return concept - some things might have high value, but may be highly unlikely I can achieve the improvement...  So I have to pick those things that, after considering probability of success, effort / cost to improve vs. value to the org, have the greatest return.

3. A moments reflection will validate the GENERAL rule that it's a lot more valuable to build on your strengths than to shore up your weaknesses (e.g. it's why we spend so much time proving out capabilities analysis as part of our vision development processes!!).

4. From time to time we all discover character or performance traits that are so sub-par relative to our environments as to present a great risk to our ability to adapt enough to survive.  Arrogance, fear of change, taking on a role we are not ready for, being in a role where the needs or comparative advantages have significantly shifted....  in such things, if we can't get to "par" -- good enough, or adequate -- in that dimension, then we will not have the opportunity to "flex" our strengths and really contribute.  Sometimes it is as easy as changing your RREs - or moving to a different role.  Sometimes it's more difficult - addressing a character flaw that up until now has been bearable, but not longer, by your team, customers, whatever.  

 

Thanks to my contributors! I appreciate your thoughts and have personally benefited from them.

To the readers, what would you say to an inexperienced employee who asked you for your thoughts on fatal flaws, comparative advantage or general early career advice? How can we help people around us find their comparative advantages?

How Shared...?

We live in a world where we can't get everything we want--there are tradeoffs at every turn.

One such tradeoff to be made regards Vision.  How much effort, time and resources should a manager commit to getting everyone on the team--literally--to completely buy in to a vision vs. just decreeing his or her vision? 

In his excellent book The Fifth Discipline, Peter Senge walks the manager through some important issues to balance when building a vision to motivate others (and I'm using the term "manager" loosely here to define anyone that is managing a project with others, even if s/he doesn't set their salary).  Some of the great points he makes are:

• A vision should define an ultimate goal to achieve.
• "Shared vision[s]"--that is, those that every individual are earnestly committed to--are generally more effective than those that one person comes up with and imposes on the rest.
• Shared visions allow individuals to experiment, creatively deal with novel problems, and adapt without the manager having to make those detailed decisions all of the time.
• The process of building the vision and of individuals wrestling with how they view the vision is as important as the end vision itself.
• At the end of the day, you can't coerce and force someone to follow you--they have to choose.

But, Senge makes a strong case for involving as many people as possible in the vision-development process.  "Shared visions," he rightly points out, "emerge form personal visions" [197].  Senge puts a lot of the emphasis on the manager involving everyone (or as many people as makes sense) in the process. 

This leads to the inevitable question of: "Everyone?  Really?  What if there are 50 people on my team--or 10,000 in the organization?  There are high opportunity costs involved, right?"

This brings us to tradeoffs.  For visions, who needs to be involved and to what extent.

My personal opinion is that in MBM, we tackle that problem from two ends.  We want the manager to feel compelled to build a shared vision where possible, but we also want the employee to feel compelled to understand and buy into the vision, if it matches their personal visions.  The "Science of Human Action Chart" in The Science of Success breaks down each Dimension to the individual level; for Vision, it suggest that we understand our goals and comparative advantages, and how each of us can create the greatest value for ourselves, our organizations and society.  To do so, understanding the vision of the place we spend 8-10 hours a day in is likely important.

 

The Art of MBM: 1984

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."

Super Bowl XVIII initially went into the record books as the greatest blowout in Super Bowl history, with the Los Angeles Raiders defeating the Washington Redskins 38-9. While this record only stood for a couple of years, 22 years later an ad that ran in the third quarter of that game was voted the "Best Super Bowl Spot" in the 40 year history of the game. 

1984 was the year Super Bowl XVIII took place. 1984 is also the title of the ad, evoking the classic novel by George Orwell of a dystopian future, where Big Brother controls all aspects of the lives of individuals. The ad features drone-like citizens, all dressed alike, listening hypnotically to a giant screen version of Big Brother telling them what to think. Our protagonist in the ad is a young woman being pursued by prototypical jack-booted government thugs. Famed director Ridley Scott directed the ad; those familiar with the dark overtones of his work on Alien and Blade Runner won't be surprised at how quickly he portrays a dystopian mood in this sixty-second ad.

However, unlike the novel, the ad has a much more hopeful ending:  

 

Yes, in this version of 1984, the individual is triumphant over the all-powerful state, freeing the citizens in thrall to it. Apple directly connects this society level theme to the creative destruction of the marketplace, with the introduction of the Macintosh computer. In a mere 60 seconds, Ridley Scott tells a story that brilliantly captures the intersection between society and individual achievement, freedom and innovation, dystopia and prosperity. 

Subsequent events underscored this creative destruction theme. Big Brother, in the ad, originally symbolized IBM; today, after IBM's near-death experience in the 1990s, few people recall what a dominant presence IBM was in the personal computer market at the time. Viewers watching the ad for the first time in later years assumed Big Brother was Microsoft; now we find Microsoft struggling to find its footing in the marketplace. And iconically, in 2004, twenty years after the original, Apple released a new version of the ad. It was almost exactly the same, but if you look closely you can see our heroine now sports an iPod.

Events also proved more hopeful than Orwell's novel. Rather than lapsing into a totalitarian state, the 1980s began with the Thatcher and Reagan "revolutions" in the U.K. and U.S. The 1980s culminated in real revolutions in many communist countries, best symbolized by the fall of the Berlin Wall in 1989. Reality has proven more hopeful than Orwell's fiction. His influential cautionary tale undoubtedly played some role in these encouraging changes.

We need to continually ask ourselves: what conditions, public policies, and "rules of the game" best encourage principled entrepreneurial activities that lead to these kinds of innovations? The five dimensions provide a pretty good roadmap to answering this question for both society and organizations.

 

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

Bob Sutton has an interesting post called "Ig Nobel Prize Winner: If the Peter Principle Works, Then Organizations Should Randomly Promote People."

The Consumerist writes that TARP Earned Taxpayers an 8.2% Return, but reading the article closely reveals they aren't quite so straightforward in their thinking. They quoted one person who talks about other costs, but I think they missed some second order effects that makes such legislation complicated and dangerous.

Thanks to Chris for send me a link to a website that teaches The Economics of Sienfeld.

Thanks to Charlie for this hilarious little clip that has an interesting take on recent complaints about anonymous speech in the political world.

Thanks to Logan for pointing me to this neat chart about how "60% of Apple's Sales are from Products that Didn't Exist 3 Years Ago." Ahh, the wonders of innovation!

 The entertaining Seth Godin has a great idea: A meeting management app that will help eliminate so much waste that it would make sense to buy iPads for the office. (Please note that I really like my iPad and have a bias toward anything that can build a case for using iPads more...)

 

If you've got a link to share, leave it in the comments or send me an email to ann.zerkle (at) cgkfoundation.org.

Creative Shirkers, Creative Employees

Two days ago, I wrote about how bureaucratic laws in society can encourage entrepreneurial folks to spend time creatively getting around laws as opposed to finding ways to create value for society.

In a similar way, organizations can create policies and norms that encourage entrepreneurial employees to use their creativity, ingenuity and opportunity-focused minds to find ways to avoid annoying, bureaucratic work as opposed to finding ways to satisfy customer desires.  

I have a self-indicting story to illustrate the point.  In our offices, we have no light switches.  Instead, we have motion-sensors connected to the overhead lights.  You leave your office, and five minutes later the lights automatically click off.

I used to manage a great guy named Brent.  Brent, you see, was a very even-keeled fellow who would spend hours reading a book (for work) at his desk, nearly motionless.  This is fine, except that every five minutes and ~click~ the lights would go out.  B-unit (as I would call him) would stop reading, flail his arms until the lights went on, and then would go back to Hayek or Mises or whomever.  

One day I asked him, "Brent, is that annoying?"  He responded in the affirmative, and I spent over 30 minutes one Wednesday trying to jerry-rig a system of tape, wire, dangling filament and paper that would 'trip' the lights as air from the vents twirled a piece of tissue hanging in front of the sensor.  [I reasoned that if the constant interruptions slowed his work flow over the course of a year, 30 minutes of my time would be worth it.]

So here, we have a well-meaning policy about lights and energy usage.  What do I do?  Instead of spending 30 minutes writing lesson plans or working on other projects, I spend 30 minutes cutting out tissue paper.  

Now, frankly, the likelihood of me doing anything remotely productive in any 30-minute period is slight, BUT you could imagine that most employees are smart and entrepreneurial, and could otherwise be productive during that time.  You would want them focused on their value-creating projects as much as possible, and not dealing with bureaucratic minutiae of modern office life.

Am I unfairly picking on an office policy that--when you look at the big picture--probably makes sense?  Potentially.  But, it offers us a good reminder: to paraphrase Mr. Koch, we should evaluate our policies frequently.  Do they urge us to be productive and entrepreneurial, or do they urge us to follow commands and 'wait for someone to tell me what to do'?

Do any examples of unintended consequences come to mind from your work experience or stories you've heard?

Creative Destruction in the Non Profit world



This is a guest post from Lisa Lewis. Lisa is a participant in this year's Koch Associate Program and is working hard to learn and apply MBM. She is currently working at the Bill of Rights Insitute on their New Media resources.

 

Fifteen years ago, if you said that Blockbuster would be bankrupt today, nobody would have believed you. A booming, scalable business model seemed to show that libraries could be profitable and that video was the medium of the future. Yet, the news shows that if you don’t make yourself obsolete, someone else will: after losing too much business to companies like Netflix and Redbox, Blockbuster has filed for bankruptcy.

 

If you’ve been watching the innovation around the mail and online movie rental industry, you aren’t surprised. Joseph Schumpeter’s principle of creative destruction practically guarantees that one day, every invention will be obsolete. In this case, a process became obsolete. Newer, more cost-effective distribution channels arose from changing technologies, and market forces got the best of our friendly neighborhood video store.

 

Some companies manage to grow and thrive in a competitive, changing environment while others perish. In The Science of Success, Mr. Koch says that one of the keys to surviving constant creative destruction is to maintain a culture that promotes challenge and questions. You’d want to challenge and re-evaluate your mission and vision every now and again to make sure you’re creating value in society.

 

There’s a natural prompt for re-evaluation in the for-profit world: falling profits. As an Associate Program participant, I’m interested to see how challenge, re-evaluation, and creative destruction tie into the work of nonprofit organizations as well. Absent the price and profit signals that typically indicate that your market is disappearing, what kind of signs should nonprofits watch to make sure they’re not becoming obsolete or insignificant?

 

Or, perhaps, what signs should investors watch to see if their funds would be put to better use elsewhere? An added problem is that many charitable organizations would no longer be necessary if they achieve their mission. For example, the March of Dimes, after curing polio, stayed in business by rebranding itself against a much less “curable” problem: birth defects. Does becoming obsolete give nonprofits an incentive to work quickly enough to avoid creative destruction but not purposefully enough to truly solve problems in society?

 

 

Thanks for the post, Lisa! If you'd like to submit a potential post, please email Ann.zerkle (at) cgkfoundation.org.

 

Heatball: Was Ist Das?

Quoting from the German-only website, "was ist das" Heatball^®?

Heatball^®, my friends, is a tribute to the entrepreneurial spirit.  Well, at least a testament to the creative smart-a#$ in all of us that bucks at one too many rules imposed upon our lives.

Heatball^®, is, well....  Reuturs puts it best.  "A German entrepreneur is bypassing a European Union ban on light bulbs of more than 60 watts by marketing his own brand [of light bulbs] as mini heaters."

That's right: the plane-jane light bulbs that we all grew up with (as opposed to the fancy, squiggly ones that throw off a sickly spectrum of light) are now being sold as "heaters" as a way to get around a bureaucratic imposition.  "Siegfried Rotthaeuser and his brother-in-law have come up with a legal way of importing and distributing 75 and 100 watt light bulbs -- by producing them in China, importing them as 'small heating devices' and selling them as 'heatballs.'"

Let's think about this.  Here you have two, entrepreneurial engineers: this is the type of folk that most societies want as citizens.  And what do the incentives of that society urge them to do?  It's urged them to use their problem-solving skills on finding loopholes in red tape; it's impelled them to use their creative drive to market a useful product that already exists but is unavailable; it's made profitable and special what would normally be a cheap commodity. 

Is that how entrepreneurs create real value is society?

One of the underlying assumptions of MBM is that we want to harness the natural tendencies of individuals.  For example, people tend to be creative, entrepreneurial and self interested.  If the way to get ahead in a society is to creatively take advantage of loopholes, entrepreneurially get around laws, and self interestedly attempt to earn a profit for your family, most people will follow those incentives.  

Similarly, we assume that employees in an organization rationally follow incentives.  If the incentives are set up for them to act entrepreneurially, they tend to do so.  If they're set up--usually inadvertently--to encourage being quiet even when you see a problem (if your boss yells at you for pointing out mistakes), to encourage staying alive vs. being productive (if automatic pay raises are guaranteed each year), or to encourage going along with the status quo (if bureaucratic policies gum up the works) then employees tend to follow those incentives. 

The light-bulb-turned-heater entrepreneurs, according to Reuters, describe the mini heaters as "resistance against legislation which is implemented without recourse to democratic and parliamentary processes."

How do the incentives of your government, of your work group, of your projects compel individuals to act?  This funny article has made me re-think what incentives I set up day to day--are they beneficial or perverse?

ht: Willie Will

p.s.  If you're concerned about the environmental issues at play, again from Reuters: "Rotthaeuser has pledged to donate 30 cents of every heatball sold to saving the rainforest, which the 49-year-old sees as a better way of protecting the environment than investing in energy-saving lamps, which contain toxic mercury."

This is a guest post by Paul Mueller, a Program Assistant with the MBM Team. Check out his bio here.

Because movies so often portray businessmen as willing to lie, cheat, steal, and often murder, to make a profit, I was stunned by two 5-10 second scenes from Charlie and the Chocolate Factory supporting free markets. 

First, here’s a little background on the story. Charlie is a young boy in a poor family. Nearby is an enormous chocolate factory owned by Willy Wonka.  Years earlier, Wonka had shut his factory down because his competitors were constantly spying on him and stealing his candy secrets.  But recently the factory has mysteriously reopened and no one is ever seen entering or exiting the factory except trucks shipping the candy.

Then Wonka announces that he is putting five golden tickets in his candy bars and whoever gets a ticket will receive a tour of his factory and a lifetime supply of chocolate.  Needless to say, people all over the world begin buying his candy bars like hotcakes. Charlie hopes to find one of the tickets too and, against all odds (a strangely common phenomena in movies), he does.

The first surprising scene (no embedding allowed on this clip, so just a link) comes during the tour of the chocolate factory. Wonka escorts his guests through an edible candy forest where he tells them to enjoy eating whatever they choose. They shouldn’t touch the chocolate river that runs through the forest, however, because they would contaminate it.

Unfortunately, one of the ticket holders, a gluttonous boy named Augustus Gloop, can’t contain himself and starts drinking from the river.  In his rush, he falls into the river and is sucked into some pipes directing the liquid chocolate to another part of the factory.  When the boy’s worried mother asks Wonka where the pipes lead, he tells her they go to the “strawberry-flavored chocolate-coated fudge” room. In response to her question of whether her son is going to be made into fudge and sold by the pound, Wonka replies: 

“No, I wouldn’t allow it. The taste would be terrible. Can you imagine Augustus-flavored chocolate-coated Gloop? Ew. No one would buy it!”

Though one might think there are other, more important reasons why one shouldn’t let a boy be chopped into pieces and made into chocolate bars, this is a good example of how market processes and pure self-interest can lead to the same conclusion.

A second surprisingly market friendly message comes from the portrayal of Charlie’s father and his occupation. When the movie begins, Charlie’s father works at the local toothpaste factory twisting the caps onto tooth paste containers all day long.  It is mind-numbing, dull, and low-paying work. As the movie progresses, the factory replaces him with a machine.  So now instead of a small income, Charlie’s family has none. Modernization and automation have struck again. This is usually where socialists, statists, and Hollywood actors leave the story.  But in this movie, there is a later scene where Charlie’s father is back where he used to work; only this time he is a technician fixing the machine.  While having a more interesting job, it also shows him working less time than he used to fixing and getting paid a lot more for it. Even though technological innovation and creative destruction lead to dislocation for some workers for a time, they ultimately bring great rewards of productivity and higher standards of living.

Have you come across any movies that can help illistrate creative destruction?

 

Thanks to Paul for submitting this post. If you'd like to submit a potential post, email Ann.zerkle (at) cgkfoundation. org.