Market-Based Management®

Economics and Entrepreneurship

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."

Approximately 17 jillion people have seen the Keynes vs. Hayek "Fear the Boom and Bust" rap video now (if you have not, prepare yourself for a video that even non-economists enjoy). The Wall Street Journal continues to spread the meme with a recent profile of Professor Peter Boetkke titled "Spreading Hayek, Spurning Keynes." The article credits Boetkke with reviving the Austrian economics tradition over the last decade. It goes on to discuss how Austrian ideas of government non-intervention in the economy are gaining even more traction now as the tidal wave of Keynesian spending not only failed to spur the economy but contributed to making it worse.

MBM is signifcantly influenced by general economic thinking and Austrian economics. Opportunity cost, marginal analysis, creative destruction and more are rooted in economic thought. But what about central planning? Austrians argue against it for the economy but don't we need it in the firm?

In the "Use of Knowledge in Society," Hayek was careful to differentiate between "central planning" by the government, which he thought was harmful, and decentralized planning by individuals and organizations which led to beneficial competition. “This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals.” Translating this into the firm, if all the planning is done by one authority at the top of an organization it will inherit some of the same problems of trying to centrally plan an economy.

Both society and organizations face a similar problem: how do you establish an environment that maximizes the entrepreneurial efforts of individuals? The entrepreneur and a dynamic economic environment are at the heart of Austrian economics. As supervisors and individuals, what do you do in your teams to foster Principled Entrepreneurship?

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.

Zeiglanerfleck Effect

Ok, there's no such word as "zeiglanerfleck" but I can't pronounce the actual name of the phenomena described below, so--much like a child struggling to say 'spaghetti'--I've made up my own name for it.

As this article describes it, "the Zeigarnik Effect is the tendency to experience intrusive thoughts about an objective that was once pursued and left incomplete (Baumeister & Bushman, 2008, pg. 122). The automatic system signals the conscious mind, which may be focused on new goals, that a previous activity was left incomplete. It seems to be human nature to finish what we start and, if it is not finished, we experience dissonance."

This is--I believe--what David Allen would call "open loops" in his "Getting Things Done" time-management system.  [ht Logan M.]

The Value Creation and Principled Entrepreneurship Guiding Principles urge us to make the best use of our time, so I've been focusing on ways to use my time--and brainpower--more effectively.

I've just started experimenting with Allen's system.  Has anyone else used the GTD system?  What's your preferred system for managing time and priorities?

Over Half Way

We're just over half way through the year (there's about 159 days left).  What will you do with that time to better yourself? 

Often when I think about trying to better learn MBM, I go into a mild seizure of sorts where my brain is overloaded with the myriad aspects of MBM.  The 5 Dimensions, the 10 Guiding Principles, the 100+ mental models.... 

If you're interested in trying to better understand, say, the Guiding Principles, you can steal a page from Dave Robertson's playbook and try the one-at-a-time strategy he outlines in this video (note: you need access to D-Net to view this).  Basically, he suggests focusing on one aspect of MBM at a time, struggling with it until it helps you get results, then moving on to the next one. 

With 159 days left and 10 Principles, you could devote half a month to each and end up better off than when you started (of course, applying formulaic strategies to learning nuanced concepts isn't usually the best strategy, but it might be a good starting point).

Where will you start and how?  I plan to focus on Principled Entrepreneurship first--maybe I'll brainstorm how the various aspects of the PE definition apply to getting results in my consulting role (since it's relatively new to me) and translate those into action steps.

Thinking about the Guiding Principles

Not too long ago, I was on the phone with a member of the MBM Team, and he said to me, "Think about what is special about the first word of each Guiding Principle." I'm a touch embarrassed to say that it took me awhile to think of them (and I quickly ran to my desk and got my Guiding Principles card to study them).

So, stealing a little trick from Andy G, I've put the Guiding Principles below and made the font of the first word in each white. Take a guess at what you think it is, then highlight to see what it is. After thinking through it a little bit, I'd love to see if you notice something special about the first words of each principle. I think I know what this colleague was getting at, but I've not looped back around with him to pick his brain. Leave a comment to let me know what you think!

Integrity
Conduct all affairs lawfully and with integrity.

Compliance
Strive for 10,000 percent compliance, with 100 percent of employees fully complying 100 percent of the time. Ensure excellence in environmental, safety, and all other areas of compliance. Stop, think and ask.

Value Creation
Createreal, long-term value by the economic means. Understand, develop, and apply MBM to achieve superior results. Eliminate waste.

Principled Entrepreneurship™
Demonstrate the sense of urgency, discipline, accountability, judgment, initiative, economic and critical thinking skills, and the risk-taking mentality necessary to generate the greatest contribution to the company and
society.

Customer Focus
Understand and develop relationships with customers to profitably anticipate and satisfy their needs.

Knowledge
Seekand use the best knowledge and proactively share your knowledge while embracing a challenge process. Measure profitability wherever practical.

Change
Embrace change. Envision what could be, challenge the status quo, and drive creative destruction.

Humility
Practice humility and intellectual honesty. Constantly seek to understand and constructively deal with reality to create real value and achieve personal improvement.

Respect
Treat others with dignity, respect, honesty, and sensitivity. Appreciate the value of diversity. Encourage and practice teamwork.

Fulfillment
Produce results that create value to realize your full potential and find fulfillment in your work.

Reader Question

KAP Alum, Ben Stafford, sent in this email:

I recently read an article by Collins called "Building your company's vision" and attached is a cheat sheet I wrote based on the essay.  My question after reading this is where do Koch's 10 guiding principles fit in? 

It would seem they are the "Core Values" he talks about it.  But Collins stresses that there should only be only 3-4 core values and companies that had more than five never made the good to great cut, not because that was a qualifier but just by correlation.  So according to him the meaning we can gather from that is we should just pick a few that are core and focus on those.

How does that work at KII / CGKCF?  Do  people really truly focus on all ten all the time or does there naturally end up being 3 or 4 that get more attention?  Does relentlessly trying to balance all 10 perhaps hamper value creation? 

I can only speak for my personal experience, which I've found to be true with both the Guiding Principles and learning the mental models. Some aspects of MBM come more naturally for me than others, and I personally can only give focused attention to only a couple of things at a time to get sustained change.  In theory, once these few things sink in, I can focus my attention on the next step. That's just from one individual's perspective.

Also, I have read articles that claim Koch "over-trains" its people and spends too much time focusing on these "soft" things. So, maybe since Collins is left with just public companies, he isn't picking up on something in which private companies have an advantage: long-term thinking. My view is that with the long-run view, 10 Principles can be balanced (even if it comes in fits and waves) because people have time to learn, grow and internalize over the long haul.

What do you readers think? How would you answer Ben's email?

Cultural Tales

One of my favorite economists of all time, Bruce Yandle, gives a great lecture about achievement, based off of the work of psychologist David McClelland's Achieving Society. For me, the punchline is that cultures that tell stories and have traditions celebrating achievement, tend to have those values transmitted to younger generations and perpetuated. Yandle uses The Little Engine that Could as the example for America culture.

One day, as I was thinking about this, Ben Pratt commented that most people agree with the Guiding Principles after reading through them the first time. This made me wonder if there are generally known tales that transmit these principles through American culture. So, here's my best shot at making the connection.

1. Integrity: The boy who cried wolf did not demonstrate integrity and ended up paying for it in the end. Pinocchio also came to mind.
2. Compliance: I had trouble thinking of one for compliance. I wanted a story about complying with the law, not with a parent figure or something like that.
3. Value Creation: King Midas did not focus on what was of real value to him and lost what was most valuable to him in the end.
4. Principled Entrepreneurship: George Washington and the cherry tree is all about accountability. The Goose that Laid the Golden Egg warns what can happen when we don't think through a situation.This Guiding Principle has so many aspects to it, I could probably spend hours finding ways to tie all the pieces to stories.
5. Customer Focus: In Beauty and Beast, Belle has to understand the beast in order to uncover the reality of the situation.
6. Change: The Ugly duckling is all about a radical shift in understanding where one fits in the world.
7. Knowledge: Rumpelstiltskin is all about finding the right knowledge.  
8. Humility: The emperor has no clothes shows us an emperor who has lost touch with reality.
9. Respect: Cinderella has many variations, but often the story is a warning to treat others well.
10. Fulfillment: The Little Engine that Could shows us a little engine that works hard and reaches his potential.

I know this might seem silly to some of you, but I do think the Guiding Principles are grounded in long-known wisdom. In general, I think parents want to transmit wisdom to their children, so we see that wisdom embedded in stories.

What do you think of my parallels? This was just a first take and are meant to be fun. I hope this lightened up your day.

Personality Conflicts

I once had an Associate ask me what MBM brought to the table when it comes to personality conflicts or dysfunctional relationships. He asked because he had a personality conflict at work that seemed insurmountable. I responded by pointing to the Guiding Principles and tried to make the point that if folks act in accordance with the Guiding Principles, personality conflicts could probably be worked through.

Of course, the Associate did not like this admittedly unsatisfying response. I didn't mean it this way, but he basically heard me say that personality conflicts don't exist where the Guiding Principles are upheld. What I meant was that people can work together without personally liking each other.

What do you think a more satisfying response to this question might be? How should I handle this question when it comes up in the future? Moreover, does MBM have a stance on personality conflicts?

Grounded in Reality

Today I re-watched the movie "Enron: The Smartest Guys in the Room." The Associates watch this movie during the first couple of weeks of KAP, and this year I'll be leading the session. We use the movie as an example of a decline in a company and pair it with Hayek's Road to Serfdom, which shows the decline of a society.

This is probably the fifth time I've seen this movie, and I found myself thinking a few things throughout the movie:

• "Egos" and "greed" aside, the lack of grounding in reality was rampant.
• Don't confuse value creation with profit.
• The movie claims that Jeff Skilling was an advocate of free markets and tried to foster free-market thinking in his firm. However, the Enron culture blatantly ignored how freedom of speech and standards (among other things) translate into the firm. I hope my family doesn't watch this film and think that I believe he was a free-market kindred spirit.
• With the rise of wide-spread internet use and decreasing costs in communication, could such a spectacular fall happen again? Would employees out their employers?
• Moreover, where were the whistle blowers? Was everyone top to bottom okay with the behavior or were people just leaving?
• I don't think we'll ever really know everything that went on there.

I'm looking forward to hearing what the Associates have to think about the movie. They always seem to surprise me with interesting questions that I can't answer (those are the best kind of questions). 

If you've seen the film, what did you think about it? What questions would you ask to people who are new to Market-Based Management?  

Customer Focus

While a graduate student, I didn't think too hard about customers. As an economist, I believed the market worked and the customers were just one side of that. They were the people who bought stuff from producers. It was a naive (and not very useful) view of the world. 

Since I've been working at the Foundation, I've been fascinated how nuanced and profound the idea of a customer can be. I would find myself in reading discussions with Associates where they were wrestling with the question of who their customers are. There's always a sense that donors are customers, but there's also discomfort with that as well. I did not have a good answer for them. 

Then, one day a wise man named Paul heard a few of us talking about customers in a non-profit world. He looked a little stunned, and then said, "Read the Principle. Really read it." 

Here's the Foundation's Guiding Principle of Customer Focus: Understand and develop relationships with those who can most effectively advance the Science of Liberty^TM.

It was at that point that my mental model of a customer changed. I'd spent months as a new employee in a non-profit searching for an end user. Meanwhile, my customers were all around me, and I didn't realize it. 

I'm always looking for ways that I can help others learn and internalize the Guiding Principles. Has "really reading" a Guiding Principle helped you? What have you done to help internalize the Guiding Principles?  

Entrepreneurship

Earlier I put out a poll about nature versus nurture when it comes to entrepreneurship, and I didn't put out my own answer. In general, I think we all have our natural inclinations that we can work to improve upon.  I will use the Guiding Principle of Principled Entrepreneurship™ to motivate my more detailed answer: 

Principled Entrepreneurship™ 
Demonstrate the sense of urgency, discipline, accountability, judgment, initiative, economic and critical thinking skills, and the risk-taking mentality necessary to generate the greatest contribution to the company and
society. 

***Warning: This is Ann's take and not representative of research or any official view. I'm putting out specifics in hopes of starting a conversation.***

So, off the cuff, here's my two second take on each attribute. 

Sense of Urgency: This can be cultivated. However, my personal experience has been that there has to be some baseline of nature that is close to the appropriate amount you need for your job. A sense of urgency is not panic, but it's also not a lack of urgency. 

Discipline: I think that discipline is mostly a learned skill, but some of us are more naturally inclined to it than others.  

Accountability: This is a tough one to think about. I keep getting wrapped up on if this is a internal accountability or an external accountability. Does anyone have any thoughts about accountability? 

Judgment: This might be a cop-out, but I put this 50% nurture and 50% nature. I've encountered people who just seem to have good judgement despite little experience. I've know people who've gained judgement over time, and others that despite great learning opportunities, never seem to develop judgement. 

Initiative: I think this follows a basic model of some baseline that we can improve upon.

Economic and critical thinking skills: I firmly believe that if someone is sufficiently intelligent, they can be taught these skills. I don't know exactly what "sufficiently" is, but people are economists every day and can work hard to consciously apply their thinking deliberately. 

Risk-taking mentality: We all have some natural level of risk we are willing to take. When it comes to risk-taking mentality at work, I think it's about attuning our risk-taking to what is appropriate for our team, workplace and job. In this sense, I do think this is a learned skill. Those of us who are naturally inclined to take more risks have to learn how to tone it down. Those of us that tend to be very risk adverse may have to learn to take more risks. 

As I wrote this, it was amazing how interrelated they are. Without discipline, how can one systematically apply their economic thinking? Without initiative, how can people take time to learn economic thinking skills? Can one have a sense of urgency without initiative? Moreover, I'm glad that I have co-workers to help me to be a principled entrepreneur! Let me know what you think in comments.