Bottom Line Leader – Back & Forth

The pendulum swings back and forth.

The NY Times ran an article called Hot Ticket in B-School: Bringing Life Values to Corporate Ethics in today’s Business section. The piece discusses a professor at the University of Pennsylvania Wharton Business School. He is very popular. He is Stewart D. Friedman.

Stewart D. Friedman is an expert in leadership. He teaches a view called the four-way wins, which include work, personal life, community involvement, and family life. Friedman believes you can be successful in each of these areas at once. One task he asks his students to do is to complete a summary of themselves for 15 years from now. Once that is complete the students will have reflected on their core values. This often creates a different path for people to take as they prepare to leave business school.

But that is the thing – these people are business schoolers who mostly haven’t made the tough choices yet. And that is what business is all about – making difficult choices. The risk and reward of making them carries a few byproducts with it. Suppose you had to layoff 10 people from an office of 40, wouldn’t you want a laser focus and leave no stone unturned in an attempt to stop it? Wouldn’t you feel a certain remorse for not succeeding?

Now I’m not saying that it is all doom and gloom. What I am saying is the pendulum goes back and forth. People like Friedman are needed to push us for greater humanity. But at the end of the day it comes down to the bottom line.

Oil Attention Too

How much are you paying for gas? Today (5/27/08) where I live the average gas price is $3.91. This is a run up on prices of oil in the oil markets. But I don’t believe the cost is justified. There is an article on called Is $130 oil a bubble? that provides the point of view of each side of the oil cost situation. My viewpoint sides with the second half of the article and I captured my original thoughts on the subject in a post on March 3rd, 2008 called Bubbles are Bursting.

So let me explain a little further why I don’t think $130 oil is justified.
The price is in anticipation of a coming surge of oil usage from economies like China. The news tells us frequently about how China and India are growing and have a larger middle class. These statements are true, but somehow the story forgets to mention that this has been happening for two decades. The increase isn’t a spike, its a gradual incline. However, the price of oil is increasing at a rate faster than demand is growing.

There is no question that demand is increasing, so lets consider supply. This is trickier than demand because OPEC can affect this. Plus disruptions to pipes or off shore rigs can slow output. I do consider this an issue for price, but not to the extent that the price indicates. There are several projects underway that will tap new oil fields within the next three years. There are some in the Gulf of Mexico, Canada, and Siberia, just to name a few.
Finally, the last aspect is the cost of oil is priced in US dollars. The dollar is weak against many other currencies, so when a global market is in play you have to adjust to your purchasers. When the dollar rebounds the price of oil will go down just because the dollar is worth more. Sounds strange, but its true.
The question is when will that be? It is hard to say because moving people and goods around easily is good for commerce. Commerce is good for the economy. If people stop flying, driving, and buying then the recession will deepen. In addition to that, the cost of shipping will raise the cost of everything that needs to be shipped. This inevitably shrinks the consumers buying power.

As the article says, I too expect oil to go down and settle in around $80 by the fall (can you imagine the heating oil costs in the North East during the winter?). I also expect many new technologies to come into play for 2009 and 2010.

Oil Attention

Memorial Day Observation

Yesterday I was in the Hartford, CT airport named Bradley International. I was flying back to Charlotte from a beautiful wedding I attended. But perhaps the sentiment that struck me the most was when I was in line at security at the airport.

Bradley International has a separate room where they handle security. To get there you have to go through a set of doors. But there are two sets of doors, one for going through security and another to come from the secured area. The doors are located about 50 feet apart along the same wall where the security line forms. A group of American Legion members were huddled near the door where arriving passengers were coming through. They were mostly white males, age 55 or so. They had American Legion hats and vests on. I wasn’t sure if they were going somewhere or what they were doing. I found out as soon as the door opened. A man dressed in camouflage walked through and I heard “WELCOME HOME!” from one gentleman, “THANK YOU!” from another, and clapping from the others. The soldier was awestruck. He was surprised. He had a reluctant but happy smile on face as if to say he was just doing his job. But that is the point of Memorial Day, many people died just doing their job.

Several more soldiers walked through the door and several more examples of this took place. There were hand shakes and there were hugs.

Thinking About Design

I traveled this weekend and while I was in the airport I decided to buy a copy of the Harvard Business Review. I didn’t know that it was almost $17. However, I paid the sum and hopefully got $17 worth of wisdom out of it.

Anyway, there is an article in it called Design Thinking by Tim Brown. The article is pretty good, but I really like the sidebar. It is called The Design Thinker’s Personality Profile. As the sidebar says – here, as a starting point, are some of the characteristics to look for in design thinkers:

Empathy. They can imagine the world from
multiple perspectives—those of colleagues, clients, end users, and
customers (current and prospective).
Integrative thinking. They not only rely
on analytical processes (those that produce either/or choices) but also
exhibit the ability to see all of the salient—and sometimes
contradictory—aspects of a confounding problem and create novel
solutions that go beyond and dramatically improve on existing
alternatives. (See Roger Martin’s The Opposable Mind: How Successful Leaders Win Through Integrative Thinking.)
Optimism. They assume that no matter how
challenging the constraints of a given problem, at least one potential
solution is better than the existing alternatives.
Experimentalism. Significant innovations
don’t come from incremental tweaks. Design thinkers pose questions and
explore constraints in creative ways that proceed in entirely new
Collaboration. The increasing complexity
of products, services, and experiences has replaced the myth of the
lone creative genius with the reality of the enthusiastic
interdisciplinary collaborator.

Here is link to the sidebar “Design Thinker’s Personality Profile

Starting a Business Isn’t Risky? has had a few good articles lately that have really made me think. Keith McFarland has an piece titled Myth of the Fearless Entrepreneur that goes into the notion of risk and starting a business. McFarland has 22 years of analysis of 7,000 growth companies and he finds that entrepreneurs as risk takers is not completely true. What he finds is that start ups are founded by people who aren’t risking anything because they have nothing on the line. What I mean, well here is an excerpt:

Some might say Scott Cook, co-founder of Intuit, took a huge risk
when he left a successful career at Bain & Co. to help start the
company. But Cook figured otherwise. “The worst thing that could happen
to me is that I would spend a few years paying off credit-card debt. To
me, it looked like a risk-free decision,” he said. Like Cook,
most people who start businesses don’t take big risks because they
don’t have a lot to risk when they’re getting started. Consider the
history of the U.S.’s fastest-growing firms: 73% of them were started
with less than $100,000 in capital. That’s clearly in Cook’s “go back
to work, and pay off the credit card” range.

The article goes on to say that as start ups get beyond a certain level, their appetite for risk becomes smaller. The management now has something to lose so they become less aggressive. It is a similar idea as the Innovators Dilemma. The idea is one where a disruptive force creates advantages for a company based on its new offering. But as the market adjusts, the company becomes less likely to find the next disruptive idea.

What I find interesting is the emphasis on small per centage points. I remember when I was at Kodak interning (late ’90s). The market share for Kodak consumer film sales at the time was something around 70% with Fuji garnering much of the rest. The emphasis was on gaining a few per centage points on Fuji. At the time, it was going down. But while the focus was on Fuji, Kodak lost a major opportunity to take the lead in digital photography. And it wasn’t like Kodak didn’t know about it, they had the technology and even a few products. But taking on a few per centage points in market share on traditional film sales is more sensible than seeking the new market of digital print (an ultimately cannibalize the film offering). But we know how that turned out.

I’m not a big Google guy. I think they do many things well, but I don’t go “ga ga” over them like others do. Anyway, I do need to give them some props on the fact they are just as aggressive now as they were when they first started out. Ideas like getting into the wireless spectrum space or pursuing the green movement show that they are not changing their stance even though they now have more resources.

It comes down to your skills and the confidence you have in yourself to go on even if things don’t work out.

Empower Your Employees or They Become Powerless

During the ’90s there was a big push to flatten the organization. The theory goes that if you empower your employees then more gets done. You have to trust that their errors are few and far between. But that is a difference, you are accepting errors in the first place. Organizations that have many layers of leadership tend to move slower.

A study by Adam Galinsky called Power and Perspectives Not Taken and featured on talks about the acceptance of position. The article focuses on the implication for organizations. If you are perceived as powerful you are more likely to lead in your area of power, but if you are perceived as inconsequential then you are less likely to achieve beyond your place. And this perception actually manipulates your mental state to dig your hole even deeper.

Here’s an excerpt from the article by Kate Pickert called Does Power Corrupt? Absolutely Not:

“The biggest and most significant implication [of the power study] is
for organizations,” says Galinsky. “If you could increase an employee’s
sense of power, it should improve their executive function, which would
decrease incidence of catastrophic errors.” If that reasoning holds up
in the real-world workplace, simple acts of empowerment, such as
encouraging employees to make suggestions to company management, could
reduce unnecessary mistakes. And that could translate to fewer
medication errors in hospitals, fewer airline accidents or even a lower
risk of a disaster at a nuclear power plant. They seem like powerful
reasons to embrace a theory.

Free Trade is Scary!

Every four years the American public learns about how free trade is not good for the American worker. It usually comes from the Democrat candidate pitching change. But nothing changes. If anything, free trade is expanded. So why is such a problem every four years never addressed at any other time? Because the positives far outweigh the negatives.

One of my favorite writers is James Surowiecki who writes for The New Yorker. He hit on this subject recently with an article called The Free-Trade Paradox. The premise is that the poor benefit more directly from the output of free trade than the wealthy. He highlights a paper by Christian Broda and John Romalis called Inequality and Prices: Does China Benefit the Poor In America? As a per centage of spending, the poor buy more durable goods than the wealthy. Durable goods can be produced anywhere. The wealthy tend to spend more on services which are more likely to be locally delivered. Here is an excerpt:

Then, too, the specific products that middle- and lower-income
Americans buy are much more likely to originate in places like China
than the products that wealthier Americans buy. Despite a huge increase
in imports from China—they sextupled as a percentage of U.S. imports
between 1990 and 2006—Chinese products are still concentrated mostly in
lower-price markets. (By some estimates, Wal-Mart alone has accounted
for nearly a tenth of all imports from China in recent years.) By
contrast, much of what wealthier Americans buy is made in the U.S. or
in high-wage countries like Germany and Switzerland. This is obvious
when it comes to luxury goods—Louis Vuitton bags, Patek Philippe
watches, and so on—but it’s also true of many other goods, like
electronics, kitchen appliances, and furniture, categories in which
American and European manufacturers have continued to thrive by selling
to the high-end market. According to the Yale economist Peter K.
Schott, machinery and electronics products made in developed countries
sell in the U.S. for four times the average price of Chinese products.
And, since the late nineteen-eighties, that price gap has widened by
almost forty per cent.

So this doesn’t encompass everything associated with free trade, but it does illustrate how the benefits of free trade are felt by a wide range of people. As Surowiecki points out, corporate profits and resource accessibility benefit the rich by wide margin over the poor.
But the argument is one sided. It is assuming that the US is always a purchaser of goods and services produced elsewhere. But many companies are positioning themselves for a coming free trade flip flop. Currently the dollar is cheap when compared to many other currencies, but even without that advantage countries that are emerging as economic legit will buy American. Why? Because the education level, innovation level, creativity level, and Intellectual Property enforcement level are all too beneficial to pass up. Unfortunately, this is a delayed effect, but it is coming… and soon.

Wages and Inflation for April 07 to April 08

I pulled this chart from the Economic Policy Institute (EPI) – Check out Wages fall behind inflation for seventh month by Jared Bernstein.

Oil Attention

I’ve noted in the past that I think the price of oil is a bubble. Yes, consumption has increased in both China and India (two of the world’s most populated countries), but the increase in consumption doesn’t match the increase in price. There are several factors pushing the price up and those are noted in a great article in Wired Online called Get Used to It — Sky-High Oil Prices Are Here to Stay by Marty Jerome. The author must be pleased with the number of comments posted. Please read those for many additional great ideas and viewpoints.

What is great about this is that it will spur some quality energy changes in both utilization and technology. These changes will make the US stronger, especially when the next wave of innovation occurs starting in two years. What is the next innovation wave? Health Care!

Early 2008 Productivity and GDP

Here are a few stats concerning US Productivity and US GDP in early 2008

US productivity rose at an annualized rate of 2.2 per cent in the first quarter

  • Much more than economists thought
  • Strong productivity is seen as an important factor to inflation. If Productivity is high then that means that those costs are not being passed on to the consumer
  • The Federal Reserve watches Productivity to maintain make sure a price spiral doesn’t occur
  • The amount of labor needed to produce the Productivity number has declined by 1.8% (number of labor hours worked)
  • Productivity for all of 2007 – 1.8%
  • Productivity for all of 2006 – 1.0%
  • American borrowing increased from 3.1% in February to 7.2% in March

GDP for the first quarter of 2008 is 0.6% (revised to 0.9%)

  • Economists thought it would be 0.5%
  • Anything below 2.5% GDP for a sustained period of time will result in labor contraction (0.6% for two quarters in a row now)