It’s Not a Recession, But It Sure Feels Like It – Stats

Here are some numbers provided by CNNMoney.com in an article called Income, spending gains slow that support my post from yesterday: It’s Not a Recession, But It Sure Feels Like One

Income earned by individuals rose 0.2% in October (pay
increase)

Spending by consumers also gained 0.2% in October (spending)

Prices paid by consumers rose 0.3% (inflation)

Minus volatile food and energy prices there was a 0.2% rise
(inflation again)

That left prices outside of food and energy up 1.9% over the
last year (inflation again again)

Again, no buying power increase…

It’s Not a Recession, But It Sure Feels Like It

What is it when the economy is growing, but the workers – the middle class don’t reap any gains from it? There must be something witty to call this time period?

As I wrote in my Peanut Butter and Pasta post, I believe there is a recession coming. It might not technically be a recession because of the growth of the global economy, but it is a reduction of buying power. It is a continuation of the flattening out of the quality of life trend line.

So how did we get here? We are consumers. We buy things and pay for them later. As long as someone will lend us money to buy things we will buy. Hold right there. The housing market collapse put a strain on the borrowing power of the banks, who in turn can’t lend money everyone else. But I feel like most Americans knew this day was coming and is fine with paying their debt down.

But here is what also happened and it is mentioned in a great article by Katie Zezema in the NY Times today called Food Banks, in a Squeeze, Tighten Belts, pay increases stopped coming for the average American. The productivity gains aren’t trickling down. Also, global demand for products is forcing prices up. The same productivity gains that aren’t reaching normal Americans are reaching citizens in other growing countries. Granted, much of their income is oil based, but some of it isn’t either. The internet is getting so cheap now that new avenues are opening up.

If I am average American, I bought consumer goods on credit card with the idea that I would make more than I currently do and my house would appreciate at least 10% a year. Unfortunately for this line of thinking, the average American pay increases are pegged to inflation or 3% and selling your house for a profit isn’t viable either.

I see two outcomes as possibilities. The first is that the attention on green technologies will spark a breakthrough, the US will lead that transition, and American workers will get their productivity gains in their pay checks. The second is that some place like India will develop the next great innovation and the US won’t be a position to lead it.

Finally, my submission for my opening question is… submission.

Organizational Leadership – Empowering Your Experts

The third step in Organizational Leadership is empowering
your experts. You have a two tier system and to support it you established a
means for creating rules and governing those rules.

It is time to unleash the swarm.

If the rules are written with enough leeway, your obtained experts
will cease being individual contributors and swarm toward goals. For instance,
take highway traffic. There doesn’t appear to be that many rules and yet
everyone occasionally gets parked on an interstate. It is because there is one
rule that is variable – speed. And there is a component that can’t counter act
that variable – a boundary. New technological advances are enabling cars to virtually
lock onto the car in front of them and maintain speed based on their speed; just
like train cars, but in a virtual sense. As the car in front of you changes
lanes, you simply lock onto another car. The benefit to safety is immense. This
is what Army Ants in Panama do. They look for a chemical marker going in the
same direction they are. They then use their antennas to control their speed
moving forward. No ant really brakes, they simply divert.

But now suppose incoming traffic and outgoing traffic meet. What
then? If the rule is simple, it will say outgoing traffic turns at wide angles.
This then means that incoming traffic turns at narrow angles. Being nonspecific
about the angle allows for variation according to context. But it does state
that the outgoing traffic must turn wider than the incoming traffic. The
implication of this rule is that lanes are formed.

<img style="width: 289px; height: 236px;" src="/images/85389-74649/Traffic_Lanes_1.jpg” border=”0″ height=”236″ hspace=”2″ vspace=”2″ width=”289″>

The rules on their own seem to make no sense, but combined
with corresponding rules, a system is born. 
But you can’t write the rules to force people to swarm. People act on
their own experience. The rules only guide their experience in case of
interaction. What is interaction? One off bumping into each other isn’t
anything more than happenstance. There must be a tipping point. A point where
the experts bumping into each other changes the rules to another set.

What causes this tipping point? Leadership. Sadly, I don’t
mean leadership in an altruistic sense. Sometimes leaders are only acting in
self preservation, but sometimes leaders act to continue the “family.” So going
back to the point about individuals only acting on their own experience, this
is when leadership comes into play. They have some sort of influence beyond
the others. When others encounter a situation they are unfamiliar with they
will seek the individual who continues to charge and follow him. The leader isn’t
aware of the coming swarm he is creating. He is still working on the basis of
his own experience.  But everyone else is
following. They have kicked into the rules of interaction. The leader always
reaches a point where their experience runs out as well and when that happens,
his interaction rules kick in as well and the entire swarm continues en masse.

Just think about other examples of where this happens: ants,
cockroaches, locusts, cancer cells, and the human brain itself. Each of these
systems has individuals who act a certain way alone and a certain way together.

Back to the experts – think of them as ants racing into the
forest for food. Provide them with two types of rules – individual rules and
interaction rules. Individual rules are mainly based on their own experiences.
These are experts so they have a lot of good experiences to shape their goals.
But being an expert means they realize there is still much to learn. So now
interaction rules come into play. Interaction rules are still very open to
experience. But you don’t want anyone to slow down. Speed must be held
constant. So to create the swarm and keep it moving, leaders must be identified
on a resource utilization basis. It is all contextual. Unfortunately, in the
corporate world of today, leaders are deemed leaders forever, but that isn’t
what is needed. Leaders need to come and go. Lead and follow.

If you follow this simple rule outline, you will release the
power of your experts. They won’t be siloed and they won’t be inefficient.

Information for this piece was pulled from two articles
From Ants to People, and Instinct to Swarm in the NY Times on 11/13/07
Robotic Roaches Do the Trick in Time.com on 11/15/07

Please read Organizational Leadership – Opportunity Culture to further this theme.

Happiness is Relative?

There is a game that economist play where they provide $100 for splitting between two people. The game is they give the $100 to one person who is in control of how to split the money. If his offer is rejected by the second person then neither one of them get anything. If you were the one given the ability to determine the split then you would come up with some sort of 70-30. But that isn’t optimal. The optimal split is 99-1. This is optimal because player 2 would still receive something and something is better than nothing. But human behavior doesn’t work that way. If the second person believes that player 1 is being unfair then player 2 will sacrifice their gains to punish player 1 for offering such a poor deal. As the game plays out, player 1 knows this and tries to find the best balance. It usually turns out somewhere near 70-30.

But now science has shown that the brain responds specifically to how a person feels they are rewarded compared to their neighbor. Time.com is running an article titled Success Depends on Others Failing that explains how this is true. So if you fail at something, but your neighbors fail worse, then you are less unhappy about your situation. The flipside goes for achievement.

I see it all the time in golf. If all four players perform badly, then not one of them is overly upset with their score. But if three of them play well and one doesn’t, there is usually a frustrated player.

What is most interesting is that the negative feelings are much more disruptive to behavior and performance than positive, or outperforming feelings. For instance, if someone doesn’t have concrete pay performance parameters then it is in the best interest of the company to compensate this person only slightly behind their peers. If the company doesn’t then they run the risk of lost motivation and performance deterioration. It is probably worth keeping the person close in range for that reason alone.

Organizational Leadership – Establishing Rules

Please read the first part in this series titled
Organizational Leadership – Introduction to get the basis for comments in this
post.

If the notion is correct and the United States turns into a
two tier work system, then after a certain threshold of growth is reached every
company would start to see diminishing returns. Unless the company implements a
form of Governance to loosely tie together the different departments.

But let’s back it up first. What happens now is the growth
of middle management. Companies hire managers to sort out the different
relationships. But what really happens is other managers need to be hired to
now sort those relationships out and the cycle continues. It is not to say that
a form of middle management isn’t needed, but it does mean that much of it can
be contained in the company that the services are purchased from.

What are needed are simple governance rules. These rules are
established and maintained by representatives from the different siloed groups.
The more detailed they become the more useless they are. The rules must be
simple and as few as possible. If the rules were created with clever forethought
then they will be restrictive to a point, but enabling as well.

Next is a review process. The newly created rules need some
sort of reality check. What I propose is to make them market based. Allow each
group to have some sort of denomination specifically set aside for rules. If a
rule is created that will severely hurt a particular group then that group can
use all of their allowance to move the rule in the market out of acceptance.
Most of the time this won’t happen, but it is a means for the individual groups
to have a veto power. One side benefit of this system is that it incents
partnerships. Partnerships in large organizations are welcomed because of the
sharing of ideas, resources, solutions, and risk. The company becomes much more
efficient this way. If two or more groups decide they like a rule then together
they can influence the internal rule market to put it into legislation.

Finally, there must be an exception practice to the accepted
rules.  Again, use the market system.
Provide each determined group a set of exception tokens. Every time they apply a
token they have one less to use. The groups will become very good at budgeting
their exceptions. But here is potentially another side effect – groups are motivated to negotiate exceptions. If one group doesn’t’t need them because of
good planning, then they can trade them with another group for more funds or
resources or whatever. The group that needs exceptions can continue to not be
in compliance and another group can benefit from it and continue to plan with
their newly garnered cache. The next year, the number of exception tokens is
reduced by a fair amount. This keeps every group striving towards compliance.

Please read Organizational Leadership – Empowering Your Experts to continue the theme.

Business Ethics Extremes

Business Leaders are often put in this place of being either completely fallible or completely infallible and anything in between is absurd. It is easy for the every day Joe to crucify the man who has lots of money, but he also respects him for taking advantage of every position he has. It’s almost a jealousy and a want to be part of the club.

Here is a great example of Sam Zell, the real estate mogul, being taken to task for the unethical behavior of the leaders of other corporations in an article called Rough Riders in the New Yorker:

A couple of years ago, Zell’s close friend Will Weinstein, a money
manager who was teaching at the University of Hawaii, asked Zell to
address a class on business ethics. Several of Enron’s leading
executives were on trial at the time, for fraud and other crimes.
Weinstein had opened the session to the public, and someone in the
audience asked Zell whether, in the current environment, “where some
seem to be doing almost anything to be profitable, does not the concept
of ‘business ethics’ seem to be an oxymoron? And do you accept that
there is a concept of greed? And how would you define it?”

Mr. Zell didn’t like the fact he was being painted at one end of the spectrum without at the least the acknowledgment of the other end:

“Jesus Christ!” Zell replied. “I mean, would you like a pulpit as
well? I mean, when does the indictment come out? I mean, are people in
the business community different from you, or you, or you?” He pointed
angrily at the questioner and others nearby. “C’mon! We’re talking
about weaknesses and we’re talking about strengths! Are human ethics an
oxymoron? I don’t think so. Neither do I think business ethics are an
oxymoron. It’s real fun to take a shot at the business community. After
all, those motherfuckers are getting all the money, right? But let me
tell you something: I’ll put my work schedule against anybody you know,
including you, and I work my ass off every day! The idea that somehow
or other the business community is full of all these greedy
characters—you should see the greed in teachers’ unions! You should see
the greed in any political organization! Business is made up of a whole
group of individuals, and within that group there are straight people,
there are not-straight people, and then there’s a whole bunch of us in
the middle, who some days are straight and some days we’re not.”

Weinstein looked alarmed. “You’re not honestly putting yourself in that middle category?”

“Oh sure, why not?” Zell replied. “St. Sam—that’s an oxymoron.”

But Mr. Zell hits it exactly. He works hard and deserves what he gets. His risk is greater than others. He understands that business ethics might be black and white, but context is not.

Organizational Leadership – Introduction

There is a notion that the United States work environment
will morph into a two tier system. The first tier is the Executive Leadership.
This group determines the direction of the corporation or business unit and the
strategy to get there. The second tier is the people who provide the services
to implement the strategy. That doesn’t sound too far away from what happens
now, except the second tier will mainly be engaged and compensated by a type of
contract work. The strategy will call for certain work components that are
arranged by a timeline.  Contractors will
come and go based on the components. 
Basically, it is outsourcing everything except Executive Leadership.

But the downside is growth. As the Executive Leadership grow
the company more and more components are working. Some are cohesive and others have
no relationship whatsoever. It is the latter that creates a new form of inefficiency.
As the corporation gets bigger the relationship of the business units gets
further away from each other. The contract workers might be providing the same
service, but working on different tracks of the strategy and for different
Executive Leadership. So now you look over the landscape of the company and
nothing fits together. Everything is its own silo.

So what currently happens is a form of middle managements.
But unfortunately that doesn’t really correct the problem. It just adds two
layers of convolution for every layer of complexity it takes out. Finding a
solution that doesn’t involve inserting a middle management is ideal.

Please read Organizational Leadership – Establishing Rules and Organizational Leadership – Empowering Your Experts to continue the theme.