Short Topics A Question of Balance (November 14, 2011) Can we manage satisfaction when it’s really a condition of the human aspirations often buried in submission? Should we drive total quality where the adequate would do, or enforce a perfect balance where true excellence is skewed? Could we really change or leverage thoughtful people who may choose to ignore the winning rhetoric that would cause them each to lose? A Gentle Soul Moves On (November 13, 2011) There was a girl who could float high above the earth to observe it from a peaceful distance. One day she came upon a scorched land that pulled her in and held her fast until she could not move. Then all of a sudden she was free. And so it goes with butterflies. The Pareto/Laffer Curve (October 24, 2011) Just as Pareto is known as the 80/20 guy, while his message was so much larger, Aurthur Laffer is diminished by the view of his work as only applicable to the inflection point associated with over-taxation.  I view Laffer as standing on the shoulders of Pareto, adding much to our understanding of the basic dynamic of wealth creation and redistribution. A brief explanation of Pareto: Vilfredo Pareto concluded that the more unstable a society, along with its economic prospects, the greater the skew of wealth distribution in favor of the wealthy.  So when Mao traveled to Hunan as a community organizer, encouraging the peasants (per his famous Letters from the Hunan Province) to confront the “bullies and gentry” in order to get their fair share, his real goal was actually to enlist their help for his own enrichment.  In gratitude for the efforts of the peasants he despised, he starved them to death by collecting every morsel of their winnings. An Explanation of Laffer’s model: The Laffer Curve is a two dimensional graph (an X and Y axis) with a symmetrical, upside-down smile in the middle.  It tells us that tax revenues will rise with tax rates, until a point where economic incentive is destroyed, and tax revenues begin to fall due to diminishing investment, activity and profits. The Common Message in the Models Both models suggest, like Brent Bozell, that “anything pushed far enough, tends to become its opposite.”  Per Pareto, social unrest actually increases the wealth of a very select few, not the intended masses.   And Laffer tells us the unquenchable bureaucratic thirst for power and control over our daily lives, through the redistributive promulgations of social idealism, actually works against itself at the point of political avarice (i.e. Passing budget busting legislation simply to “find out what’s in it”). The Combined Message of the Pareto/Laffer Curve In his sublime model, Laffer stands on the shoulders of Pareto to help us understand our economic situation in the U.S.  Pareto’s model depended on uncertainty.  Laffer’s model relies on tax rates, and as an extension, their qualitative correlative, increasingly excessive regulation. Combining the messages, we can conclude that the inflection point preceding a downturn actually occurs earlier in Laffer’s model, when we substitute Pareto’s variable, the destabilizing fear of uncertainty (the VIX may be an appropriate free-market indicator), for tax rates.  That is, fear and uncertainty are more destructive in the early stages of a downturn than rising tax rates and regulation; making recession a virtual self-fulfilling prophecy, and the most accurate reflection of the collective zeitgeist. Conclusion Has America grown sufficiently hungry for MORE, due to the watery diet of political sophistry known as Hope and Change?  If so, our government might save itself in the simplest fashion, by stepping out of the way to allow a much needed resurgence in the Pareto/Laffer Curve. The Euro Hoax (October 22, 2011) The concept of a united Europe under one currency once seemed an idea whose time had come.  However, complex affiliations have a pretty high bar to meet if they are to last. For the European Union to prosper, it would have to – 1)    Represent the best.  Otherwise, everything devolves to the level of the worst of the bunch.  Even the relatively small economies of Europe (need we hear of Greece again?) may pull down the whole.  In the absence of the best, the worst obtain a license to destroy – or steal from – the best in perpetuity. 2)    Consist of members with clear vision and focus.  Unnecessary risks and fiscal chaos have already undermined the financial system in Europe. 3)    Balance trust with the sovereign interests of its members.  With respect to Greece, can a mob split between communism and anarchy inspire trust, or foment a collective interest? 4)    Express itself with an ongoing, actionable strategy.  The EU membership is rife with intractable differences, even among its leaders.  How can the Teutonic Germans cede their prized economic hegemony to the likes of a more Liberal France? 5)    Support momentum with a shared level of commitment.  It is rather hard to imagine a lasting commonality, in either the quantitative or qualitative realm, when a disparate history and ideology stand in the way of meaningful negotiation. 6)    Base its alliance on more than legal agreements and financial metrics.  If there is anything that defies the sanctity of contract, it is the socialistic disregard for all things moral.  7)    Ensure that the whole remains greater than the sum of the parts.  Let’s review: If the worst can pull down the whole; a clear vision is non-existent; trust is absent; cultural differences are intractable; there is no shared basis for commitment; and finally, calls for contractual obligation and fiscal restraint go unheeded, how can the whole possibly be greater than the sum of the parts? Conclusion In such an unholy alliance, the sins of the past will prevent an orderly absolution.  Therefore, an unrepentant, bureaucratic solution will most certainly be more of the same. I only hope, as an investor, that the U.S. stock market has adequately discounted the specter of purgatory. The Redistribution Game (October 10, 2011) In the game of business, money is power; the reward for unequal value in a given market.  In the game of politics, power is money; the reward for unequal outcomes in a given society.  What businessperson in his right mind would destroy a superior value proposition?  And what politician in his right mind would cool the flames of social unrest? Paradoxically, history suggests that any idealistic crusade, pitting business against politics, tends to produce the opposite of its intended effect.  When elephants dance, the masses get trampled.  As Pareto observed, the more unstable a society, the more skewed the distribution of wealth.  Instability since Pareto’s time has turned 80/20 into 90/10. It is difficult to predict the outcome of liberal machinations under the current administration, other than the usual grey mediocrity, and perhaps a more equitable distribution of misery.  The only thing for certain is that O’bama is an empty jersey in this game; while George Soros is the winning coach. The Paradox of Leadership (March 15, 2011) The most basic choice any leader can make is whether to Dictate or Negotiate. The Dictator is both empowered and limited by Hayek’s Fatal Conceit – the fallacy that all that is known is somehow knowable by one. The Negotiator must realize 8 things:  1.    E=MC2:  The ability to Evolve ahead of competitors (E) is a function of (=) the knowledge aMassed (M) from the relative effectiveness of ongoing internal and external negotiations. 2.    A failure to negotiate is a failure to Communicate (C2). 3.    Price is the great communicator in any free exchange. 4.    Price is the dark backing on the mirror that allows us to see one another in the same quality of light. 5.    The perversion of Price, through dictatorial mandate, is a perversion of Language, leading to the misallocation of scarce resources with alternative uses (i.e. the inefficiencies of surplus or shortage). 6.    Wisdom cannot be embodied, but it can be recognized in the reflections that yield better choices. 7.    Those reflections illuminate the shadow between Individual motive and Collective action. 8.    The Negotiator is both empowered and limited by the fallacy that one person can somehow intuit motive from action or action from motive in another.   Conclusion:  In the end, the Paradox of Leadership is in its chimerical foundations.  Over time, the dictator knows nothing and the negotiator knows no one.  Or, as Henry Adams wrote:  Chaos is the law of nature; order is the dream of man. Ideology (February 28, 2010) Ideology is both concrete and abstract, like the Berlin Wall.  The power of a truly effective ideology is best summarized by the old saying, “Unless you stand for something, you’ll fall for anything”… like the Berlin Wall.   Here are two excerpts from Webster’s Dictionary: Ideology:  The integrated assertions, theories and aims that constitute a sociopolitical program. Ideologue:  An advocate of a particular ideology, especially an official exponent of that ideology. If we assume economic prosperity (versus equal distribution) is a rational measure of national success, then Ronald Reagan was the most effective presidential ideologue in recent history.  As such, his agenda was surprisingly limited: Supply Side Economics (low taxes and limited regulation). National security and the threat of communism (missile defense). The power of self-determinism was central to the Reagan ideology – a rising tide lifts all boats.  Reagan believed the tide rises highest in a free society unencumbered by government oversight; and a freer world is a better world. The extreme focus of the Reagan ideology afforded him and his staff a good bit of latitude, due to the following: Simplicity The message did not require 1,000 page documents, so it could be easily carried and communicated. Repetition It was consistent throughout his administration. Action A simple, consistent ideology allowed focused activity at all levels of the organization. Conclusion Ronald Reagan is occasionally cited as the President with the poorest work ethic.  He apparently did not put in a full day, took naps, and vacationed more than other Presidents.  Regardless, his efforts resulted in the fall of the Soviet Union and the largest economic expansion in human history. Whether the subject is Ronald Reagan or Jack Welch, the medium is still the message.  In government or business, effective leadership demands a focused ideology, and effective leaders are always ideologues.  In the absence of that kind of clarity, simplicity, consistency and action are inevitably overwhelmed by bureaucracy and political intrigue.   On Leadership (January 31, 2010) The job of leadership is twofold:  Simplify; repeat. There are two main responsibilities in this effort: 1) Establish and communicate a compelling vision of the future. 2) Connect that vision with the daily efforts of each individual. Peter Drucker once observed that leaders have followers.  However, the most effective leaders transcend the deferential nature of followership.  They garner the collective power of their compatriots, one unique individual at a time.  This power comes in three forms:  Diversity, Knowledge and Reason. The Power of Diversity (A Simple Goal) The political class would have us believe diversity is the foundation for the exercise of power over us, rather than a source of power itself.  They see it as a platform for the subjugation of the populous through fear and dependence; where a collective mediocrity is protected from the vagaries of unfettered supply and demand through the enforcement of equal outcomes.  Churchill characterized this authoritarian perversion with typical irony, calling it the equal sharing of miseries. In the real world, diversity has absolutely nothing to do with equality.  It is inequality expressed as value.  Leaders tap into the power of diversity by communicating a clear and compelling vision. The Power of Knowledge (A Shared Understanding) Connecting vision with action requires an ongoing internal and external negotiation with all of the constituents to the idea we call a business.  The goal of that negotiation is to elevate the conversation to a shared understanding.  I use the following model, adapted from Plato’s Divided Line, to illustrate the process (please refer to it while reading below):                    The Knowledge Hierarchy   Thinking Doing Reason Higher Outcome Understanding Outcome Perception Process Conjecture Images   Someone once suggested that to know and not to do is not to know.  The power of knowledge is one part thinking and one part doing. There are few situations as confounding as individuals saying the right things while delivering the wrong results.  It is the responsibility of the leader to displace cognitive dissonance between thinking and doing with clarity; eliminating the drama of random conjecture and emotionally charged imagery; as well as the irrational perceptions of value that result in an insular, disparate approach to changes in process.  A successful outcome, ultimately measured by profit, is proof of understanding.  As Ronald Reagan said, we must trust but verify. The Power of Reason (A Higher Outcome) Much of the world is trying to think outside of a box that has never been defined.  The value of leadership is in the quality of ideas that flow from a culture of continuous improvement, created within the context of a clear organizational focus.  Once individuals understand the goal, and how they contribute to it, they can begin to think about improving the goal itself, along with the path to get there.  The result is something greater than anticipated – a higher outcome. Conclusion In his book, The Fatal Conceit, Friedrich Hayek makes a case for the inherent corruptibility and inefficiency of authoritarian oversight.  His thesis is remarkably self-evident:  All that is known is not knowable by one.  Authoritarians discourage diversity, ignore knowledge and discard reason in the interest of their own assumptions.  In their efforts to manage those under them, they go to great lengths to eliminate transparency and understanding in favor of a need to know hegemony.  In the process of exercising power over the collective, authoritarians forgo the collective power of understanding and the sublime realization of a higher outcome. Context (December 31, 2009) Bill Gates and Warren Buffett appeared on CNBC recently, answering questions for business students at Columbia University.  Toward the end of the show, the dean of the business college mentioned his key goal of students graduating with an appreciation for context in the development of strategy.  It was a pleasant surprise. About Context Organizational strategy is both concrete (left-brain) and abstract (right-brain).  It is at the center of an ongoing negotiation between external and internal forces, individual and organizational needs, and strategic and operational handoffs.  The concrete side consists of the mechanics of planning; while the abstract side addresses the critical thinking necessary to challenge easy assumptions in the interest of a more relevant outcome. In hundreds of sessions over fourteen years, I have found context (the abstract side) to be the most difficult aspect of planning for the majority of participants, because critical thinking skills are typically not taught in school.  A balance between the concrete and abstract is essential to planning, like two legs of a ladder allowing us to move quickly from 30,000 feet to the ground, and back.  The rungs on the ladder encourage us to think relationally as well, from left to right, so we can resolve the natural paradoxes that exist between the concrete and abstract worlds.  To outperform the competition, we first have to outthink them. Following is a model to illustrate the concrete to abstract, whole to part reflections that fuel a productive strategic conversation: Left-Brain Planning Right-Brain Context Vision Economics Mission Industry Evolution Strategy The Idea we call a Business Measurement Market Share (relevance) Projects Innovation Roles & Responsibilities Culture Conclusion I received a call the other day from the director of a non-profit organization who asked if I would facilitate a session with his board.  They wanted to map out a vision and mission for 2010, and they were willing to give this effort a couple of hours, assuming my fee was reasonable.  I told him that two hours of wordsmithing would be empty calories; like so much of the rote, left-brain planning that organizations do purely out of a sense of duty. Looking at the model, above, it should be obvious how lifeless planning discussions are in the absence of context.  Most companies limit their efforts to the top (Vision) and bottom (Roles and Responsibilities) rungs of the left side of the ladder, while finding very little inspiration in-between due to the intractability of tired assumptions. When we employ the critical thinking and analysis on the contextual (right) side of the model, we test our assumptions versus trust them, and engage in the lively, complex negotiations necessary to the realization of MORE - as opposed to more of the same. The Power of Assumption (November 30, 2009) The most elemental choice any leader can make is whether to: -          Trust assumptions and test people against them, or -          Trust people to test assumptions   Ray Croc was adamant about his choice not to trust people; but to force people to trust his assumptions.  However, his ideological bent was proven incorrect when his franchisees invented products with names like Big Mac, Egg McMuffin and Filet of Fish.  Without these ideas, self-proclaimed super-salesman, Ray Crock, would have been an also-ran, or perhaps a failure.   There is no greater definition of progress than self-absorbed leaders enjoying the very evolutions that loosen their grasp on certainty – to succeed despite themselves.  As Hayek suggested, all that is known is not knowable by one.   Trusting Assumptions It is frustrating to watch a leader who trusts his or her assumptions test others against them.  When the idea that fuels the growth of a business begins to falter, raising sales quotas and production targets seems a bit quixotic.  In the process, valuable employees are transformed into canon fodder; forced into a Faustian obligation to fail in the absence of the right to succeed, while hoping against hope to perpetuate their agony.   Trusting People 3M Corporation trusts its people to come up with new ideas.  Here are two examples: -          The blue tape that allows us to paint trim without tearing off the expensive wallpaper that cheap masking tape would devour. -          Filtrete Filters, designed to enhance indoor air quality, while cheap competitive products merely collect a bit of dust. The real advantage of these products is that they constitute a new definition of quality at a compelling price point.  The blue tape sells for about six times what masking tape does, while the filter retails for about twenty times the price it its blue-floss competitor.  Seem outrageous?  Then why are they dominating their markets?   3M trusts its employees to invent innovative products that sell for a multiple of the price commanded by their commoditized competitors.  Then it promotes those same employees to run the companies defined by those ideas.  And it works!   Conclusion I do not believe in the Peter Principle.  I prefer Ayn Rand’s objectivistic assertion that every person is an end in him or herself.  That end is defined by the self-interested choices one makes in the pursuit of personal success.   When an economic downturn reduces the collective, relevant, productive capacity of the largest economy in the world to about 50% of its former glory, it is NOT time to sell harder.  It is time for new ideas – new definitions of quality at compelling price points – gleaned from the very individuals we are trying so hard to ignore. Us and Them (October 31, 2009) In human society, the only force more powerful than the idea whose time has come is the instinctual animus between Us and Them.  The definition of Us and Them varies by individual circumstance, culture, historical period, and the people present at the moment of reflection.   Us and Them is about the need for an enemy.  That is, someone or some group to absorb the projection of our insecurities so we may be absolved, if only in the moment.  The following quotes may help frame the argument: During a PBS debate, Pat Moynihan admitted to Bill Buckley that man cannot live without an enemy.  In his book, Snow Falling on Cedars, David Guterson wrote: An enemy on an island is an enemy forever.  (A business is a bit like an island) In Society and Its Discontents, Freud referred to the human propensity for visceral opposition as the narcissism of minor differences – or, man as wolf to man.   We have seen the Enemy, and He is Us A client recently interviewed a job applicant who had been employed by a failed company across the street.  He asked the interviewee why his ex-employer went under, and received this response, “Because we (the unionized employees) won.”   It seems ironic a union would rally its members to put themselves out of work.  But it serves the larger purpose – precluding any individualized understanding of the business, and the role of profit, in favor of a fearful, dependent collective (read: ignorance).  When employees are ignorant, they are necessarily indecisive, incompetent, defensive, ambivalent, oppressed, and uninspiring to the marketplace.  The institutionalization of a marginalized workforce is necessary to the perpetuation of union hegemony.   Although unions provide us with a great example of the destructive power of an internalized, bottom-up enmity, autocrats and bureaucrats can be equally damaging, inculcating the very same brand of ignorance from the top down.   The Enemy of my Enemy is my Friend Bringing an organization together to realize more than any individual can accomplish on his or her own requires an external enemy.  Competitors provide us with the context for meaningful improvement, but only if They are better than Us in a measurable, verifiable way.    Market theory often suggests engaging only weaker competitors in order to build market share; but weaker competitors cannot make us better.  An organization can only improve when it is under stress – the kind created by a legitimate competitive threat.  Loyalty, focus and esprit de corps draw their strength from the same motive force, a more powerful enemy.   Conclusion – Keep your Friends close, and your Enemies closer I wonder how closely Coke watches Pepsi, or Fed-X monitors the strategy at UPS?  I have rarely worked with a small business willing to gather the kind of competitive intelligence the big guys view as necessity.   The Right Enemy is never our friend, but we should keep him as close as any storehouse of fresh tools and tactics.  We should track his movements and report his progress, along with the very real threat he presents to the well-being of our company and its employees.   Human nature dictates that employees can and will be one of Us, but only if they fully appreciate the threatening specter of Them. Healthcare Economics (September 30, 2009) Ronald Reagan once quipped that most of us wonder if our theories work in the real world, while economists look at the real world and wonder if it works in theory.  As an economist at heart, I prefer the latter when looking at big government programs, where hasty legislation so often precedes leisurely repentance.    Below, I reflect the idea of socialized medicine against a backdrop of economic theory:   Price and Communication Price is the great communicator in any free exchange.  When price is perverted by power, a communication vacuum is created.  In the absence of the informative value of the willingness and ability to pay, scarce resources with alternative uses show up at the wrong places at the wrong times.  Without the voice of the customer, the devil is truly in the details; necessarily micromanaged under the vague, self-serving machinations of bureaucrats and attorneys.   Ceilings and Shortages When a dictated price is lower than the minimum one would voluntarily charge in a free-market exchange, a shortage is created.  Why would any talented specialist participate in an industry where unfunded mandates and insufficient funding preempt profitability?  He or she would more likely limit service to private pay customers – whether legal or not.   Productivity and Efficiency in Money Milton Friedman said the most efficient use of money is inspired by an individual spending his own money on his own behalf. Conversely, the least efficient spending is government spending, where we spend someone else’s money on behalf of someone we do not know.   Pareto (80/20) and the Middle Class Every society has rich (10%) and poor (10%-90%), but only democracy has a middle class (80%).  According to Friedrich Hayek, authoritarian regimes have only been able to rise on the backs of a weak middle class.  In their efforts, these dictators accounted for 80% of the 250 million people murdered during the last century – most of them their own citizens.    Only the self-supporting, moral sentiment of a hopeful middle class (80%) can keep the fearful specter of government dependence (10%), and its associated abuses, to a minimum.  Civilized society needs a social safety net.  The last 10% of any problem is always the costliest – and that is where a redistributive effort may be truly effective.   Gresham’s Law and Rationing (where bad money chases out good money) My grandmother told me about lunchtime in depression era Berlin, where people would wheelbarrow devalued currency to the store to buy bread for supper before the price increased.  No one took gold to the market, because gold did not lose its value.   I think two levels of healthcare, like two currencies, could result in the same phenomenon.  Only the rich and the powerful would enjoy their ration of quality, while the rest of us would struggle with grey mediocrity, until dire circumstances would require an expensive, black-market alternative.   Conclusion  The value of economic theory is in the questions more than the answers; and in the decisions about what NOT to do rather than how to do things better.  Here are some questions suggested by existing economic theory when evaluating the ins and outs of socialized medicine:   1) Under a socialized system, will the allocation of limited healthcare resources be dictated by a government agency? 2) Will strict government price controls result in fewer options and reduced care for 90% of the population? 3) Will a government program be LESS productive and LESS efficient than current spending? 4) Would the universal availability of a “final 10%” solution reduce the quality of care for the middle 80%? 5) Will government officials and the rich enjoy better care than the other 90%?   If the answer to any of the five questions above is NO, either the real world no longer works in theory, or the middle class has been perilously weakened by the economic downturn. Rightness versus Fairness (August 31, 2009) Chaos is the law of nature; order is the dream of man.  Henry Adams.   Someone recently asked me who is at fault for the current economic predicament.  The answer he was seeking was either liberals or conservatives.  I blame Mother Nature.   Microeconomic Chaos I once spoke to a group of Eastern European entrepreneurs.  My talk began with a simple question:  What is freedom?  Unfortunately, I was not the smartest guy in the room that day, because someone in the front responded, “ownership,” before I could lead the crowd to the very same answer.   Owners are free to make choices, just as they are accountable for the outcomes associated with those choices.  The most inalienable right in free society is the right to fail, since failure necessarily illuminates the path to subsequent success.   Failure, at a microeconomic level, is not fair, but it is right.   Macroeconomic Dreams When failure occurs at the macroeconomic level, it wreaks havoc, with systemic cruelty, on the undercapitalized minions in the micro economy.  Although public servants rush to the scene, anxious to pronounce capitalism dead, the cause of the calamity is often the unintended consequences of unfettered oversight.    Since public servitude defies measure, and therefore knows no failure, bureaucratic solutions are always more of the same: Additional oversight is the well-intentioned expression of the failure of oversight.  The patina of order requires the rhetorical inclination to redress the past through revisionary policies that create the lie and damn the liar.  The common enemy – greed, as defined by profit, and enabled by capital – is once again marched into the light of day to shrink like a guilty spider in the face of an angry proletariat.   To punish failure, at a macroeconomic level, is not right, but it is fair.   Conclusion:  No Middle Ground Bureaucrats cannot produce value, and capitalists cannot tame the macroeconomic consequences of unfettered competition.  So enterprising talent should not be wasted on government, and populist ideals should not be imposed on free enterprise.  Government’s job is to be fair, and business’ job is to be right.   It is interesting to note that Fannie and Freddie, two examples of for-profit populism, top the list of contributing factors on both sides of the argument about the current economic downturn.  In theory, they should represent Madison’s Middle Ground, the perfect Order; while in practice, they appear to be the perfect formula for Chaos – a combination of the two most insoluble ideas in human nature, both necessary but neither sufficient to the ideal of a happy, productive society - fairness and rightness. Obediente Libertas! (July 4th, 2009) A client of mine recently stated that you do not manage people, you manage processes.  A thoughtful idea, to be sure; though it struck me as one of those easy aphorisms that represents only one end of a long spectrum.   What about the small enterprise that has no processes due to the uniqueness of its offering, or the disparate needs of its clientele?  I can think of as many businesses that would die under the weight of strict process adherence as I can businesses that live by it.   Even in organizations with proven processes, an individual with the wrong temperament can easily undermine them.  That is why Toyota is so adamant about in-depth personality testing before they hire anyone for one of their factories.  The ability to manage a process is contingent upon the ability to manage the individuals running it.   The point is:  True discipline is not something that is centrally defined and enforced.  Discipline is the currency of clear and meaningful direction.   Clarity A clear focus is negotiated, not dictated.  Edict gets lost in translation, subject to the phenomena of self-projection and political intrigue.  As William Blake wrote, “As a man is, so he sees.”  Only through an iterative process of give and take, expression and reflection, can unique individuals achieve a common understanding of focus.   An effective negotiation begins with conjecture; the whys and wherefores of a particular strategy.  It continues with a fluid exchange that reveals deeply-held assumptions that may either enable or constrain a successful implementation.  As disparate perceptions coalesce into collective understanding, the resulting plan of action often represents a much improved version of the original.   Aristotle suggested that meaning follows from clarity.   Meaning Whenever I begin a planning session, I always ask the participants why we are together.  Here is the answer:  We are there for ourselves, so that we may take full advantage of the hard-earned freedoms bestowed upon us by the greatest country on earth.  To do otherwise might seem fair, but it would not be right.   Attendees usually feel compelled to suggest we are together to make the company more prosperous or sustainable.  But that is the result of a successful planning effort, not the reason for it.  Unless we make the meeting about what we really WANT, individually and collectively, we will not get it – and neither will the boss.  In the end, people only do what they WANT to do, whether we like it or not; so we should spend our time figuring out what that is so we can pursue it, together.    An effective plan has to be a win/win.  A win/lose is always a lose/lose over time.   So, what do people WANT in a meaningful work effort?  They want MORE.  Specifically, MORE of what they lack, which varies by individual.  The only consistent value among the diverse individuals in any group is the limited amount of time each of them has to get what he or she wants, because we are all going to die.   The Meaning in one’s life is in the reflection of its possibilities against the impenetrable certainty of its end.     Conclusion The enforcement of individual discipline through strict adherence to process will not ensure success.  Surely we can improve on the feed ‘em on concrete, cubicle-bound factory environments that characterize the modern world of work - unless our goal is to beat China and India at their own games.    It seems bizarre that we have not altered our work patterns in the forty years since Bucky Fuller noted the wasteful inanity of a two times daily, close-order traffic jam in every city in the U.S.; so that “checkers, and checkers of checkers” can obsessively monitor the productivity of employees sitting in front of the very same computers they have at home.   A win/win approach to increased productivity through greater discipline would involve the following steps:  First, negotiate clarity.  Second, understand that productivity is the natural expression of instinctual behavioral competencies and capacities.  The right people will do the right things if they are meaningful.  Third, set people free to fail (within predetermined parameters) so they can grow and succeed.  And fourth, show appreciation and recognition for success, because hard-earned affirmation is more satisfying than money.   Effective leadership need not honor the outdated Jesuit principle of Libertas Obediente (freedom through discipline).  Tapping into the productive proclivity of the American spirit lies in the very opposite sentiment – Obediente Libertas!  Discipline through freedom! Intuitive Value (March 31, 2009) The true value of an organization is less about assets minus liabilities, and more about Intuitive Value.   The Intuitive Value of an organization is its ability to evolve ahead of competitors.    Following is the practical foundation for this abstract thesis:   Intuitive Business Valuation Formula (E = MC2) Our ability to evolve ahead of competitors (E) is a function of (=) the knowledge (M) we amass through the effectiveness of ongoing internal and external negotiations.  A failure to negotiate is a failure to communicate (C2), and price is the great communicator in any free exchange.  Price (financial, intellectual, emotional and logistical) acts as the dark backing on the mirror that allows us to see one another in the same quality of light.   We maximize Intuitive Value with near-term profitability (P&L) and long-term sustainability (Balance Sheet).   Intuitive Profit and Loss (P&L) Price has both quantitative and qualitative facets.  Any imbalance between the quantitative and qualitative worlds is a constraint to progress.  At the highest level, a balance between The Right Things (quantitative) and The Right People (qualitative) will result in the greatest productivity and profit.   Intuitive Balance Sheet In the near term, the market is a voting machine.  Customers vote for The Right Things and The Right People, contributing to profit (Intuitive P&L).    In the long term, the market is a weighing machine (Intuitive Balance Sheet).  The weight of an organization consists of Assets and Ideas.  Assets depreciate; Ideas spread.  Assets are Risk; Ideas are Value.  When Assets outweigh Ideas, we are overinvested in the past.  When Ideas outweigh Assets, we are contributing to a sustainable future.   Let’s review: Evolution Ahead of Competitors = The relative quality of our Reflection Maximum Profit = A balance between The Right Things and The Right People Sustainable Value = Ideas minus Assets   Conclusion Joseph Schumpeter coined the term creative destruction to characterize the natural evolution of the human condition, due to a collective desire for MORE.  Following this recession, there will be a real opportunity to employ some creative destruction in the interest of building Intuitive Value ahead of competitors.    Unfortunately, many of the business practices that worked in a commoditized, pre-recession economy will stand in the way of a company’s chance to build Intuitive Value.  These practices are as follows:     1)     Outlawing negotiation (lowers Intuitive Value) 2)     Rewarding compliance and punishing experimentation and failure (lowers Profitability) 3)     Treating ideas and individuals as assets (increases Risk, decreases Sustainability)   Someone once said that anything, pushed far enough, tends to become its opposite.  Playing not to lose during a recovery is no exception. Alliances (February 28, 2009) During the volatile period between recession and recovery, new opportunities will arise within narrow industry segments.  Some of these veins of gold may be large enough to carry a company through the demand trough, but not sustainable or predictable enough to justify the risk of additional overhead.   These isolated opportunities can provide some much needed upside for potential partners with spare capacity; provided they are willing to work with the lead company in a less than traditional fashion, such as a corporate alliance.  I have facilitated negotiations for many multi-party alliances over the years, taking note of the pitfalls that can occur both during and after formulation.  As a consequence of this experience, I developed seven (7) critical guidelines to foster more rational outcomes to these complex negotiations:   All of the parties to an alliance must represent the best.  Nothing devalues an alliance faster than a member who cannot deliver, delivers poor quality, or is too inefficient to add value at an affordable price. The parties to an alliance must be absolutely focused.  Members have to be clear about what they bring to the party, and where their contributions begin and end.  Partial competitors with overlapping products and services will undermine the fabric of the relationship every time.  As well, a member who regards the alliance as that other thing we do will retard the evolution of an otherwise promising venture. Alliance members must balance trust with self-interest.  Most of the independent business people I know are just that – independent.  Alliance members have to be willing and able to work cooperatively with others, sharing accountability and authority in ways that may feel threatening. There must be a strategic fit among the members.  Similar cultures, structures and business models (i.e. custom versus commodity) are critical to lasting partnerships.  Relative size can be an issue as well.  When one member is more than 3X the size of another, there are often financial (investment) and bureaucratic (speed and flexibility) disparities that prove untenable.  Irreconcilable differences among the parties to an alliance are a significant constraint to communication, understanding, and the fluid handoffs necessary to a higher outcome. Every member must be committed.  Employees are members too.  If the boss fails to seek employee involvement in the formulation of an alliance, or attempts to micromanage inter-corporate relationships once it is negotiated, he or she will not garner the level of commitment necessary for success. A legal document is not an alliance.  Never kick off an alliance discussion with the statement, “First, we’ll set up an LLC, and then we’ll have our attorneys draft an agreement.”  Legal entities, like legal documents, do nothing to contribute to the compelling nature of an effective partnership.  In fact, they often inject poisonous disincentives into the relationship, limiting flexibility and creativity.  The idea has to come first; strategy must determine structure. The whole must be greater than the sum of the parts.  If the parties to an alliance are the best, focused, trusting but motivated, strategically aligned, committed and flexible, then the opportunity for success is greatly increased.  The only element left to chance is the real reason everyone gets together in the first place; to create a value proposition that adequately expresses the collective power of the group in a way that outmaneuvers and outperforms the competition.   Conclusion My most successful alliance-related negotiation involved four companies and a complete vertical integration effort.  It was a great idea that, if workable, would have offered an unprecedented level of time to market value to a widespread R&D community.   During the discussions, we discovered there were problems with member focus, the ability to trust, strategic fit, levels of commitment, and certain legal inflexibilities.  In the end, the unanimous decision was NOT to move forward with the deal.  The benefit of this successful effort, aside from palpable relief, was the shared realization that the simple guidelines above helped us avoid an expensive, time-consuming mismatch. How to Shrink (January 31, 2009) Welcome to the winter of our discontent.  The natural question after a disastrous economic downturn is whether it is nobler in the mind to continue suffering the slings and arrows of an outrageous 2008; to be or not to be in 2009?    The decision to be may involve a cutback, recalibrating the balance between the weight of the organization and the pull of the market.  Weight is determined by the things we do (assets and ideas) and the people we employ.  Following are the questions that may guide a rational discussion of what, how, when, where and how much to shrink:   Are we doing the Right Things?  The focus of this question should be on core competencies and what makes the organization truly unique.  Things that add cost, but not value, should be discontinued in order to preserve cash. Who are the Right People with whom to move forward?  A four point hierarchy should guide our choices: Knowledge – Ultimately, knowledge is value.  It can be problematic to lose highly paid people who know where the bodies are buried, particularly when it comes time to dig them back up and return to basics.  The least knowledgeable individuals are actually the least affordable during a downturn. Attitude – There may be those who know where the bodies are buried, but they are not the only ones.  I am continually surprised by the collective sense of relief, along with an immediate uptick in morale, exhibited when a formerly indispensable employee with a terrible attitude is let go.  In this case, a high salary is only part of the actual employee cost/benefit ratio. Skills – Sometimes knowledgeable employees with positive attitudes are let go because of their current position versus their potential value.  If the most expensive person in the accounting department could replace a less competent person with a bad attitude in quality control, then replace the former with the latter.  Why does an accountant always have to be an accountant? Another aspect of skills has to do with leadership ability.  Over time, we tend to promote individuals based on knowledge and attitude, rather than leadership skill.  The result is additional middle management and lower productivity.  We could cut from the bottom up and simply re-flatten a department. Habits – There are those who empty the trash, show up on time, flush the toilet and clean up the mess in the kitchenette, and those who don’t.  Additionally, there are those who kiss up and kick down with impunity because their superiors fail to notice.  The issue here is the existence or absence of an ingrained sense of consideration for others.  We observe these attributes as habits, good or bad. If two people with the same knowledge, attitudes and skills are being considered in a cutback, consult their peers and direct reports about their habits.  Focus on the level of trust (willingness to pitch in) and respect (ability to deliver) they inspire.  These are the elements that constitute real authority, which will be of value when it is time to restart the engine ahead of the competition.   Conclusion A client of mine once asked Peter Drucker why most businesses fail.  After an uncomfortable pause, he was informed that they run out of money.    The questions above go slightly beyond Drucker’s response, by describing the longer-term value of Knowledge, Attitudes, Skills and Habits in guiding the tough choices necessary to preserve money and weather the continuing storm in 2009.  In that effort, doing the Right Things necessary to preserve cash is roughly equivalent to doing them with the Right People necessary to preserve K.A.S.H. Reflection (December 31, 2008) Wisdom is in the Reflection that yields better choices.   Word has it 2009 promises to be challenging.  In response, many businesses will be pulling in their horns, with banks and bean-counters cheering the way.  As I attempted to point out last month, there is opportunity-cost in such a retraction, even if it proves to be the right choice at the time.   Fearfulness is the inverse of thoughtfulness.    Challenging times are as full of opportunity as they are risk and downside.  The choice of whether to be pragmatic or restrictive in one’s approach to volatility should always be thoughtful; playing to win long-term, versus not-to-lose near-term.   If you have a business, you should call the troops together in the next month for some thoughtful reflection.  Following is a simple three-step agenda that will help guide the discussion:   1)     A Review of 2008 (1-2 Hours) a)     Did we really accomplish anything?  List your progress on Critical Initiatives. b)     Did we win?  Take a look at the score – actual numbers versus goals. c)      Where did we fail?  What assumptions did we miss?  What can we learn?   2)     2009 Look-Ahead (2 Hours) a)     What assumptions can we make for 2009 (Internal/External)? b)     What will a winning year look like financially (top line, margin, profit)? c)      What Critical Initiatives should we scrap, and what should we add on in order to meet our goals?  How will each Initiative affect the budget? d)     Who will lead each Initiative, and how will we measure success?   3)     Eat, Drink, Celebrate a)     Recognize and appreciate those who contributed in 2008. b)     Recognize and appreciate the effort necessary for a successful 2009.   Conclusion With so much fearful sentiment in the business community, three or four hours with your team, plus a little time unwinding, is a small price to pay for the sobering elixir of a shared focus.  With some thoughtful Reflection, you can rise above negative perception to a clearer understanding of your place in an irrational environment.  In the process, your team can accomplish MORE together than any fearful competitor could possibly realize in muddled isolation.  No Accounting for a Downturn (December 1st, 2008) During a downturn, many businesses cut back their capacity.  Bankers and accountants can easily make the case for such a reduction, as the structural costs of capacity will increase as a percentage of falling revenue, and margins will appear inadequate as a risk premium.   The arbitrary assignment of fixed costs to the cost of sales, work in progress or inventory, suggests that capacity is easily scalable to any level of demand.  But there are problems with these activity-based assumptions, required under Generally Accepted Accounting Principles (GAAP).  Following is a comparison of the ideas that characterize GAAP accounting versus the real world, particularly when things slow down:   GAAP Accounting: –        Values hard assets over intellectual capability (a liquidation mindset) –        Considers knowledgeable employees expendable –        Treats fixed expenses as variable –        Underestimates true breakeven –        Enables comparison, but limits understanding –        Encourages cutbacks over full-utilization in slow times   In the Real World: –        Assets are risk –        Knowledge is value (innovation and momentum ahead of competitors) –        Fixed expenses do not change with the next dollar of revenue –        Breakeven = actual fixed expenses over incremental contribution per dollar –        Capacity, throughput and utilization guide rational pricing decisions –        Knowledge, Creativity and Momentum are protected from unnecessary cutbacks   Real World Accounting Let’s assume a company has $1 million in revenue, a 50% contribution margin (Revenue less totally variable costs – no assignment of fixed capacity costs), $450k of true fixed costs, and a $50k pre-tax profit ($1mm - $500k - $450k = $50k).  There are five ways to improve the $50k bottom line, as follows: Reduce Fixed Costs – For every 1% improvement, profit increases $4.5k, +9%. Increase Sales and Throughput – +1% sales equals $5k, or +10%. Increase Price – +1% = $10k, or +20%. Negotiate Variable Cost Reductions – less 1% = $5k, or +10%. Drop Price 1% for a 5% revenue increase, assuming it can be done without increasing the fixed costs of capacity (people, PP&E, and operating expenses).  The result of doing more with the same is $1.0395 million in sales, less $525k in variable costs, less $450k fixed = $64.5k, +$14.5k, or +29%.   Conclusion The least effective action, in my downturn example, is what GAAP encourages us to do - cut capacity (+9%).  The most effective action is to drop price and steal market share, while figuring out how to do more with the same (+29%).  The latter option emphasizes better utilization versus reduced headcount, innovative leadership versus more of the same, and better negotiation versus stricter management.    A downturn offers the potential for improvement versus the unintended consequences of value destruction, like a protracted cold start when business heats up again.  Tapping the creative momentum in a knowledgeable workforce is the key to increasing market share while competitors cut back in capitulation.  Tactically, that could mean a pricing approach that maximizes utilization for a 29% improvement in pre-tax earnings, per the example above, versus the right-sizing suggested by GAAP that offers 9%, less any decrease in margin due to reduced capacity.    We are all employers of choice facing the same set of circumstances for 2009.  What will you choose? Growth and Taxes (November 30, 2008)   Capitalism = Growth A young banker once declined my invitation to sponsor a strategic planning program I ran for a partner organization, the Louisville Chamber of Commerce.  His reasoning was as follows:  “Rick,” he said, “for the vast majority of my small business clients, $200,000 per year and golf twice a week are simply enough.”   Although I was unable to respond effectively to his position at the time, I am thankful to him for the insight it eventually provided.  Here is what I have come to realize as a result: Enough is the enemy of MORE. The problem with enough is that it is only enough for one. MORE is more than any one individual can accomplish on his or her own. MORE is a function of doing the Right Things with the Right People. The Right Things foster Growth and Value ahead of the competition. The Right People are Willing and Able to deliver the Right Things.   Socialism = Taxes Every government is socialistic, because social policy is the job of government.  Taking money from the pocket of one and putting it in the pocket of another is all any government can do effectively (guns help).  It is indeed socialism, but it need not be totalitarianism.   Socialism is always corrupt, but it is not always evil.  In fact, I believe that government corruption is often the well-meaning expression of the wrong assumptions, resulting in unintended consequences that threaten life, liberty and property.   Socialism is about enough, not MORE – taking from the most productive to support the least productive within the context of fairness and equality – a safety net.  I would argue that a social safety net is a necessary attribute of civilized society.   Balance = Freedom (Ownership) The job of capitalism is to produce growth and value through the innovative efforts of the right people.  The job of socialism is to protect society from threats to the freedom of its individual members.  As we have seen from recent events, it is a delicate balance.   The test of balance is the test of freedom.  Freedom is ownership.  That which threatens ownership threatens freedom.  When government threatens ownership, even in a well-meaning effort, it results in an imbalance that will constrain economic growth and value in America.   Conclusion When Warren Buffett values a business, he employs a concept he calls “owner’s money.”  Mathematically, it is after-tax earnings + non-cash expenses - cap-ex (the near-term capital expenditures necessary to support continued growth).  Ideally, incremental operating expenses would be included as a part of cap-ex, since new hires, additional inventory and receivables typically consume this capital, plus some, as a natural function of growth.   Increasing small business taxes for pre-tax income in excess of $250,000 threatens ownership (owner’s money), and penalizes the most productive force in capitalism – those willing and able to grow.  It effectively rewards the business owner who decides not to reinvest, and helps bolster the argument that $200,000 and golf twice a week are enough.   Perhaps $250,000 sounds like a lot to the great bulk of society, totally susceptible to the disinformation that suggests that profit is something the owner “takes home in his pocket.”   In fact, $250,000 will not make it past Wednesday when one is hiring new employees, buying equipment and financing the increased inventory, work-in-progress and receivables associated with a growth-oriented business.    Like so many corrupt initiatives elevated by the unassailable rhetoric of public servitude, this new tax is simply the well-meaning expression of the wrong assumptions – that profit = cash in one’s pocket, and that $250,000 should be enough of it.  The intended consequence of the tax is greater equity and fairness in society.  The unintended consequence is a disincentive to own, employ, upgrade, invest – and strive for MORE. The Time Value of Money (October 31, 2008) Vilfredo Pareto is most often associated with the Pareto Principle, which suggests that 20% of the events in life contribute to 80% of the results, good or bad.  Focusing on the critical 20% can therefore produce a lot of leverage in terms of improvement or advancement toward a goal.   Pareto is not so famous for another aspect of his Principle.  He realized that the more volatile the state of an economy, the more extreme the redistribution of wealth from the many to the few.  While 80/20 may describe the distribution of wealth in a stable environment, it may become 90/10, or even more extreme, when things head south.  Apparently, it is human nature to sacrifice the past and the future in return for a quick resolution to fearful instability.   Pareto’s qualitative version of the time value of money provides a much greater, though negative, impact on the middle class than the positive outcomes associated with traditional, quantitative concepts like simple compounding.  Steady accretion pales in comparison to the all-or-none expression of helpless frustration, shifting wealth from the pockets of speculators, market timers and gamblers to the much devalued accounts of stable, value-oriented investors.   Here is some advice for surviving the panic that characterizes Pareto’s version of the time value of money: 1.      If your $30,000 IRA is now worth $19,000, and you are invested in great companies, leave it there.  Even if the market declines another 20% (which it may – making it $15,000), those companies will eventually be recognized as undervalued, oversold, and ready for a comeback. 2.      Should your situation allow, keep putting money away as things deteriorate.  You will be one of the very few who will benefit from Pareto’s fearful stampede. 3.      Turn off the news.   Conclusion The current economic crisis is being lauded as unprecedented.  When I hear such terms, I remember the words of the late William Frank Buckley, “If it’s new it’s not true, and if it’s true it’s not new.”    Pareto enlightened us long ago about the depreciative aspects of his time value of money.  Although his discovery lacks the neat, quantitative elegance of long-term compounding, it provides valuable insight into the self-destructive phenomenon of real-world redistribution; where vast numbers of fearful citizens hand over a big piece of their nest-eggs to those with more patience, along with some share of their constitutional freedoms to the Keynesians and Monetarists who claim to have the answers in the here and now. Weighing Retirement (July 31, 2008) Warren Buffet, the world’s greatest investor, suggests that the stock market is a voting machine in the short run and a weighing machine in the long run.  His belief highlights the difference between a qualitative and a quantitative approach to investing and retirement.  That is, the chasm between the dream of fast riches and island hopping (our assumptions) versus the harsh realities of old-age economics (our outcomes).    The average retirees live on something less than half their pre-retirement income.  Although 70% of today’s workers plan on earning extra money to fill this economic shortfall, about 70% of them will prove physically unable to do so.  Unless Americans start weighing their retirement strategies well in advance of the big day, they will be forced to vote for socialistic alternatives that may resemble Haiti more than Hawaii.    Unless one is a mathematical savant, a dispassionate approach to retirement strategy requires a simple, workable tool to weigh the future ramifications of today’s actions and assumptions.  I provide such a tool below, designed to answer six critical questions that even a twenty-something should ask relative to retirement:   How much money will I need to retire, and how much does that represent in today’s dollars (inflation adjusted)? How much do I need to invest on a monthly basis to reach my goal, assuming various rates of return? How much will I need to withdraw to support myself in retirement, after considering social security, pension or other income, and a targeted rate of inflation? At what age should I begin withdrawing money to best utilize my savings? At what age, if ever, will I run out of money? Do I have a set of disciplined investing rules that define my tolerance for risk?   Conclusion At fifty years old, I am forced to consider the six questions above in earnest.  I could not do so in a rational, objective fashion without a simple fifty-year model that allows me to play with various assumptions, weigh the outcomes in inflation adjusted dollars, and cast the only vote I need for a reasonable quality of life in retirement. Retirement Worksheet Price is the Word (June 11, 2008) In the early 80’s, I was a new, twenty-something investor.  About twice a week, when the market would go up or down enough to ruffle feathers in general, I would call Oscar Bryant to ask why.   Oscar was a seventy-something investment advisor at Morton H. Sachs and Company in Louisville, Kentucky.  He would answer the phone with a sonorous bass music that could drift for a mile, smooth and warm, like good bourbon.  “Heeeeellllooooo,” he would sing.  “Oscar,” I would begin, a little cocky, without introduction, “why did the market go down?”    Although I did not see him look at his watch at these moments, neither did I hear any impatience.  He was always consistent, like a favorite timepiece, which may be why I always forgot the answer.   If the market went down, Oscar would say, “More sellers than buyers, Rick.”  Then, silence.  If it went up, he would croon, “More buyers than sellers, Rick.”  Same thing.  It would then occur to me that I could have figured out the answer without Oscar, though something about his gracious southern drawl always invited me to pick up the phone to steal the calm.   After a while, I came to the conclusion that price is the great communicator in any free exchange.  In our obsession to figure out why it fluctuates, we may fail to hear the message.  Oscar taught me that my hearing was as good as anyone’s, if I would only listen.   In the case of Price, the medium is indeed the message; though it may be experienced differently by each of us, as follows:   Price is cost Accountants view price as empirical certainty; documented proof that the world makes sense.   Price is Opportunity Cost Traders think along these lines.  Modern tools allow back-testing and portfolio comparisons that enable real-time learning. Price is a measure of Self When we relinquish, postpone or pass on value, whether it is financial, physical, intellectual, emotional, moral or mental, we spend a bit of ourselves.   Price is Language The perversion of price, through subsidy and control, is a perversion of language that favors waste and need over productivity and efficiency. Price is The Top Line It is what the world is willing to pay for its Perception of our Value.   Price is Capacity What we are Willing and Able to pay to deliver on the Promise of Value.   Price is The Bottom Line The difference between The Top Line and the cost of Capacity is Profit or Loss.  Profit Growth is Proof of Value.   Conclusion – Price is Right We tend to think of falling prices as unfairness, and increasing prices as the harbinger of inequality.  Price is neither fair nor equal.  Price is right.     In the last century, 80% of the 250 million people murdered on earth were done in by their own governments.  Inevitably, these governments outlawed price, and therefore speech, in order to enforce their perverted views of fairness and equality.  That was wrong.   The ups and downs of price are simply the deep, musical voice of nature sharing the word about how many are buying and how many are selling.  To listen is to make better choices. Oversight (April 30, 2008) From Pareto to Weber, socioeconomic observers have noted a correlation between periods of volatility and a skewed redistribution of wealth.  The greater the volatility, the greater the redistribution of wealth, benefiting a shrinking percentage of the population.   Paradoxically, this phenomenon appears to arise less from the volatility itself, and more from the bureaucratic response intended to dampen it.  I once heard an analyst lament that government economists have done about as much to tame volatility as Evil Knievel has done for the space program.   But alas, they are at it again, with JP Morgan (Bear Stearns) and Corsair Capital (National City Bank) scoring an early win in this latest round of welfare capitalism.  Having once spent 17 years in the commercial finance industry, I feel compelled to provide my take on the current state of oversight in the banking industry:   Level One Oversight – A loan officer reviews a deal after collecting financial information from a prospective customer.  As a young, Level One lending officer, my credit authority was unlimited, but only in one respect:  I could turn down as much as I wanted. Level Two – The Credit Department spreads the financial statements and provides key ratio analysis, along with guidance from the ranking credit officer.  If the credit folks do not like the deal, there is little chance that a loan committee will. Level Three – The package is presented to a loan committee for approval. Level Four – If large enough, it goes to a senior loan committee for another approval. Level Five – If large enough, it goes to an executive loan committee for another approval. Level Six – If large enough, it goes to the Board of Directors for another approval. Level Seven – When closed, it is once again scrutinized by Loan Review for quality and compliance. Level Eight – Internal Audit will probably review it again for quality and compliance. Level Nine – External Auditors may include it in their statistical sample to review again for quality and compliance. Level Ten – A Federal Reserve auditor may review the file again for quality and compliance. Level Eleven – I cannot ignore the bureaucratic cinder block known as Sarbanes-Oxley, which has increased the due diligence (read: time, talent and resources) inherent in the first ten levels.   Conclusion Much of the banking industry is choking on a glut of sub-prime assets.  In response, attorney-bureaucrats, awash in the prophetic glow of perfect hindsight, and cloaked in the unassailable rhetoric of public servitude, are poised to temper “greedy” capitalists with yet another level of nationalistic oversight.     Unfortunately, the bureaucratic solution is, more often than not, simply more of the same.  That is, more rules to suit the fact that individuals do what they want to do, even if it means exercising the most inalienable right they have in a free America - the Right to Fail.   Someone once suggested that anything pushed far enough tends to become its opposite.  Surely a twelfth level of oversight will do little to prevent downside risk in the banking industry; but it will place unnecessary limits on capital availability, opportunity, and upside potential for much of the economy.   Proof of Focus (March 31, 2008) Pretend for a moment that there are just ten little ideas that add up to the big idea we call Focus.  In the chart-world below, the most appropriate version of each little idea (a, b, c or d) could be rolled up with the other nine choices to provide a clear path to the future.   One Choice for each Little Idea = One Big Idea (Focus)     Leadership    Offering    Structure    Innovation    Culture   Value   Business Model   Knowledge    Results    Rewards     a) Entrepreneurial b) Participative   a) Uniqueness b) Solution   a) Top-Down b) Divisional   a) Product b) Value   a) Fragmented b) Networked   a) Quality/Price b) Service/Quality   a) Inventing b) Bundling   a) Conjecture b) Belief   a) Images b) Actions   a) Paycheck b) Bonus           c) Paternalistic       d) Authoritative          c) Superior Methodology       d) Variety         c) Process       d) Supply Chain   c) Process/Material d) Logistical   c) Integrated d) Mercenary   c) Availability/Service d) Price/Availability   c) Outsourcing d) Distributing   c) Understanding d) Reason   c) Outcomes d) Higher Outcomes   c) Profit d) ROE     A lack of clear choice for one or more of the ten little ideas would allow enough confusion and complexity to consume any organization.  Below is the mathematical Proof of Focus:     #Unresolved Little Ideas (out of 10)   0   1   2   4   6   8   10   #Possible Versions of The Big Idea (Combinations of 10)   1 = (Clear Focus)   4   16     256   4096   65,536   1,048,576   A Choice of Conclusion(s)   a) Left Brain Version:  A universe of ten little ideas, each with just four variations, does not begin to rival the complexity of the real world.  In this simple construct, a failure to make a clear choice for just one little idea allows 4 possible interpretations of Focus.  Working on 4 Big Ideas, versus 1, would be very wasteful; mathematical Proof of Focus.   b) Right Brain Version:  Change overtakes us like a distant nephew, shock-formed by time and chance.  Its arrival is often ominous, wrapped in somber news.  On that unsuspecting day, the subconscious presage that tugged at our sleeve finally rises to voice its demands at eye level.   Focus is forever a tired subject; a belated eloquence gone mute in the hard face of change.  Although we may afford ourselves a fatalistic moment on less holy occasions, there is rarely enough fervor in a formal planning ritual to entertain harsh inevitabilities.  We are either sustained or destroyed by the little choices we make along the way.  Like the bricks in the foundation that fix our castle in the air…together, they are Proof of Focus. Above The Trees Principles (February 28, 2008) Upon returning from a trip last August, I visited a client who told me that his wife had inquired as to where I had been hiding.  She asked, “What happened to the guy who speaks in riddles?”   News of her remark immediately brought to mind the line from Robert Burns: Oh wad some power the giftie gie us to see ourselves as others see us.   Like Burns, I considered her observation a gift, both amusing and insightful, as it caused me to sit down and sort out my riddles.  For the purpose of this Short Topic, I will call them Above The Trees Principles; and they are as follows: A business is an idea, and its realization the will of those who support it. Any imbalance between the quantitative and qualitative aspects of the idea is a constraint to progress. The balance between the quantitative and qualitative worlds should be negotiated, not dictated.  The Right Things happen when the Right People do what they love to do best at the most critical moments.  We tend to do well what we practice, and tend to practice what we do well. The meaning in one’s life is in the reflection of its possibilities against the impenetrable certainty of its end.  Meaning follows from clarity, negotiated at three levels:  External to Internal; Organizational to Individual; and Strategic to Operational. A failure to negotiate is a failure to communicate.  Price (financial, intellectual, emotional and/or physiological) is the great communicator in any free exchange; the dark backing on the mirror that allows us to see one another in the same quality of light.  Although wisdom cannot be embodied, it can be recognized in the reflection that yields better choices.    Those choices can be inculcated into the daily activities of those accountable for the satisfaction of all of the constituents to the idea we call a business – as corroborated by a higher outcome.   Conclusion Companies succeed in much the same way as they fail – gradually, and then suddenly.  Little things are just inarticulate big things; black holes of omission that absorb energy.  The ability to Evolve ahead of our competitors is the product of (=) the knowledge we aMass, one lesson at a time, from the effectiveness of ongoing internal and external negotiations (Communication2).    Individual knowledge is the hard-won value worthy of a higher outcome.  In the quest for knowledge, we must test our assumptions rather than trust them.  Better reflection, Above The Trees, yields better choices over time; whether or not they can be identified with the Truth that might set us free.      The Question of Why (January 31, 2008)   “Between the idea and the reality Between the motion and the act There lies the shadow”  From T.S. Eliot’s The Hollow Men   In October of 2007, I began my twelfth year in the consulting business.  What I do now, upon reflection, is very different from where I started, back in the days of Strategic Eight and the Cincinnati Chamber of Commerce.  In S8, our goal was to guide attendees through a process that answered the questions what, how, when, where and how much, with respect to change.      The most intractable issue we encountered was the propensity for attendees to leave their plans behind, and go back to work - doing exactly the same things they did before.  At some point, it occurred to me that much of what we suggested was too easily crafted, and too readily discarded.  How could I, or any facilitator, possibly know what someone should do when every business environment is filled with intractable, anecdotal challenges?    A better answer requires a better question.   A criminal psychologist once informed me that we cannot intuit motive from action or action from motive in another human.  T.S. Eliot describes our lack of behavioral prescience in the lines above.  He suggests that the experiential void between an idea and its realization, brute motion and purposeful action, exists in the spaces between the values of what, how, when, where and how much.   The chasm between current reality and a higher reality can only be illuminated by the answer to the question of why.  That answer is not readily found in B-school books or Chamber programs.  It is formed in the communion between one’s desire for MORE and the profound suffering (past or present) that ultimately stirs the need.    Conclusion Twelve years ago, the right clients simply wanted to do some planning.  Today, the right clients want MORE (not more of the same), as defined by them, not me; and for good reason, not my reasons.    I have found that without a shared understanding of the shadow between motive and action, illuminated one unique individual at a time, we forego the power of reason.  That is, the faith necessary to pursue a dream (the idea and the motion), and the passion that supersedes adversity to deliver on the promise (the action and the reality).   That is the real answer to the question of why.  A higher reality.  The truth. The Philosophy of Choice (November 30, 2007) I insist that my clients provide their employees with enough information, about future goals, financial condition, etc., to allow them to make choices.  Although my motives are pure, I am occasionally confronted by an employee who finds this kind of information suspiciously onerous.  One individual recently told me that he may actually prefer a lack of information over the need to choose.  I found his desire for abdication, his choice, dispiriting.   Why do we define paradise as a place without choices?  Every worker’s paradise is lorded over by some despot who nationalizes industry and outlaws choice.  Heavenly paradise is a place where every need is satisfied, from ice cream to virgins, depending on one’s perception of religiosity; effectively eliminating the necessity for choice.  The idea of original sin seems to suggest that simple choice may even expose untold generations to an inherited damnation.   Perhaps the idea of choice seems burdensome because it establishes responsibility.  Is it human nature to assume responsibility only as a last resort, in hopes of arriving at a paradise where choices are no longer necessary?  Is that what retirement is supposed to be – a release from the burden of choice?   The questions surrounding choice are philosophical in nature.  In order to explore the idea more fully, I should first communicate the polemical foundations that underlie my case for individual freedom.  I will do so at three levels (Metaphysical Reality, Epistemological Truth, and Ethical Values), presenting my philosophy of choice at each level, and giving credit to the philosophers who inform the dialectic:    Metaphysics (reality) – Transcendentalism (Emerson/Schopenhauer) – The belief that all we need to know can be observed in Mother Nature.  She is the Philosopher Queen.  Her reality is the will, and the will we know is the will to survive; a natural, inborn proclivity.  Survival is desire, and desire is suffering.  Human survival is further perpetuated by the natural gifts of observation, imitation, and the propensity to learn from suffering; improving the choices one makes through experience.    Epistemology (truth – a higher reality) – Libertarianism (Hayek) – All that is known is not knowable by one.  Therefore, centrist government should play as limited a role in our lives as possible.  In free society, knowledge is power – infinitely expandable.  In autocratic society, power is knowledge – dictatorially limited.  Freedom of choice is necessary to the evolution of knowledge – and hence, advances to the human condition.   Ethics (values) – Objectivism (Rand) – Every man is an end in himself.  There is not a chance that individuals with unique physical and intellectual attributes make equivalent contributions to society.  Diversity is a perverse foundation for equality, since diversity is inequality expressed as value.  Choice is necessary to value, and the only antidote to the grey mediocrity of centralized redistribution, edict and enforcement.   Conclusion My philosophical foundations suggest that choice is at the very center of a meaningful human experience; and therefore, a lack of choice is anything but paradise.  The path to paradise is in the choices one makes for oneself, along with the suffering that so often ensues, fostering new knowledge and abilities.  To know (freedom) and not to do (live freely through the successes and failures of one’s own decisions) is not to know (freedom).   The meaning in one’s life is in the reflection of its possibilities against the impenetrable certainty of its end.  A failure to choose is either paradise postponed or paradise lost. Healthcare – It’s what’s for Supper! (October 31, 2007) The largest medical study ever conducted is known as The China Study.  Your doctor has likely never heard of it, yet it established a direct correlation between the consumption of animal fats and proteins and the onslaught of a host of diseases that would otherwise lie dormant in each of us.    The irony in American society is this:  The average American reportedly lives three years less than the average Canadian, largely due to obesity.  The same socialistic bureaucracy that subsidizes the ingestion of a high-fat, high-protein diet blames a capitalistic healthcare system for an unhealthy, obese populous, currently estimated at 30% of adults.  In an amazing feat of rhetorical gymnastics, the cause is blaming the cure.   This is the same brand of political logic that subsidizes tobacco while creating anti-smoking legislation; and sells armaments to our enemies (past and future), allowing them to engage us in war.  The governmental propensity to encourage strange bedfellows also supports a ponderous gambling monopoly, purportedly aimed at educating children.  At a minimum, the bureaucrats on both sides of any issue should be required to share office space!   The environment – the other side of the beef The environment provides us with a veritable fountainhead of political self-righteousness.  The fact is that socialized agriculture is the principle source of water pollution, with livestock producing 130 times as much waste, in the form of manure, as the human population.  It is estimated that a single 50,000 acre hog farm under construction in Utah will produce more waste than the city of Los Angeles.   It takes between 2,600 and 5,200 gallons of water, 16 pounds of grain, and a hefty amount of top soil to add up to one edible pound of beef.  Americans consume more dairy, meat and poultry, per capita, than anyone else in the world; cheered on by a self-serving, misinformed, government-funded nutritional establishment.   Over 50% of farmland is devoted to livestock.  These animals consume 80% of the corn that is grown, 95% of the oats, and one-third of the world’s fish catch.  The world’s rain forests are being decimated to make room for more of them.   Conclusion My wife and I gave up meat, dairy, poultry, fish and processed foods in general about six months ago.  I lost 12 pounds in the first 3 months, and my cholesterol dropped 25% (54 points).  My wife lost 17 pounds, and her cholesterol dropped 33% (78 points!  At 50 years of age).  As well, to her doctor’s amazement, she is completely off of four of her five medications.  Already, in our tiny, unsubsidized experiment, we have found a direct link between the ingestion of fruits, nuts, vegetables and whole grains and a substantive reduction in our healthcare needs.   America is not dying early because of evil capitalists who run the healthcare industry.  The greatest contributor to our statistical shortfall is a diet high in animal fats and proteins made affordable by socialistic subsidies.  We are eating ourselves to death, while polluting our environment, on a diet of affluence disguised as a handout. Honoring the Past (September 30, 2007) It is a paradoxical condition of human existence that we honor the past, whether that past conjures up the best or the worst in us.  Here are some examples:   Traffic Forty years ago, Bucky Fuller wrote thoughtfully about the inanity of rush-hour traffic.  He specifically emphasized global warming and an overdependence on fossil fuels, and long before Al Gore began writing checks to Mother Nature.  Fuller believed it outrageous that 40% (or more) of the people trapped in traffic jams were heading to work simply to be, in his words, “checkers, or checkers of checkers.”    We honor the past by repeating behavioral patterns that prove more painful than useful, like the hot crush of rush-hour traffic.  How frustrating it must be to begin and end every workday in close-order commute, only to sit and stare at the very same computer we have at home.   Titles I think lofty titles, like Vice President, are often a structural constraint to progress – at least in small companies.  As a badge of honor presented to trusted employees, they may foster a perverse incentive to avoid risk or further scrutiny.  I have observed situations in which a titled individual imposes an exclusive, fraternal gauntlet upon others, only to ensure that he or she is protected from the dubious consequences of new ideas.   Titles can create operational dead spots, where established structure stands in the way of fresh strategy in honor of the past.   Annual Bonuses A client once suggested that, “Christmas comes every year, but bonuses do not.”  In reality, egalitarian expressions of success almost always become entitlements; particularly when the measurable results that prompt such sudden generosity are kept secret.   Automatic annual bonuses are the Ghosts of Christmas Past that choke the golden goose.   Raises Unlike bonuses, pay raises are more societal norm than discretionary reward.  I see a lot of thin bottom lines at small businesses, which leads me to wonder just how far the obligatory progression of annual raises can possibly extend.     Raises, just like 401k matches and company-paid health insurance, are inexorably inflationary; with automatic, cost of living expectations inevitably outpacing the evolution of value and superseding the bounds of fiscal sanity.    Product Mix   In simplest terms, the spectrum of product value ranges from stand-alone applications to complete solutions.  Once a stand-alone product becomes a commodity, its value can be reenergized by either a new and improved model, or a bundled offering that makes it an attractive solution for new markets.  On the other side of the spectrum, a solution that approaches commodity status requires the next stand-alone product that can be folded into the mix to re-bolster its value.   In either scenario, an issue arises when our allegiance to an old value proposition limits our ability to see the real value in the next level of innovation, as follows:  The value of a new stand-alone product may be severely diluted when folded into a commodity solution – ending up under-priced and under-powered (i.e. the half-baked inventory control module in most accounting solutions).  New solutions may emerge as unexciting adjuncts to once popular stand-alones (i.e. Lotus 123’s anemic expansion into an integrated suite of products). When we bury new value beneath the tired patina of a commoditized offering, we honor the past.    Conclusion Small businesses tend to let go of outmoded ideas, people, structure and products much too slowly.  It is human nature to honor the past.   In my January short topic (see The Coming Recession, January 31, 2007, below), I laid out the case for a hard economic landing that should begin in earnest in a few months, and end in 2010.  In the meantime, we will experience vast increases in social spending, higher taxes and a very weak economy.   Honoring the past during this difficult period will be, as in every case above, a win/lose proposition.  We engage in these behaviors because of fear.  Not a fear of winning, as some would suggest, but a fear of losing what we already have.  FDR was right, “The only thing we have to fear (in trying times) is fear itself.”  The Problem Employee (August 31, 2007) The very idea of The Problem Employee likely conjures up an image of someone we all either know or have known.    The individual in question may be: Difficult and unapproachable (even intimidating). Condescending to those who lack similar expertise. A constraint to progress and/or a constructive culture. Indifferent to the feelings, needs and opinions of others (perhaps openly hypercritical). The organization may be: Unaware of the problem at the top because the individual kisses up and kicks down. Unwilling or unable to do anything about it due to the expertise of the person in question. Engaging in passive resistance or rationalization – relieving the pressure through gossip and avoidance. Asking the problem employee for behavioral change on an anecdotal level (please don’t say that again), resulting in tolerable improvements for only short periods of time.    A Three Step process for dealing effectively with The Problem Employee:   Step One – Understanding the Situation This step should not be facilitated by someone close to the situation, because they are either already part of the problem, or may be seen as part of the problem by the problem employee.  The goal is to change the tone of the inquiry, from fairness to rightness, from raw emotion to hard fact.   The problem employee is often valuable in terms of his knowledge and experience.  In the absence of something constructive and positive to do with this knowledge, he may use it against others in a reproachful or berating fashion.  It is important to acknowledge that the game is over, we are moving ahead, and we will do it with or without this person.   The problem employee must have his or her day in court with an objective inquisitor.  Those most affected by this person should have the opportunity to vent their frustrations, but not face to face at this point.  Any input should be recorded and outlined in such a way that everything is on the table, ready to be reviewed with all involved.   Step Two – Creating a Positive Agenda   When change efforts fail, we often hear that it is because someone did not change.  Creating a positive agenda is not about changing the problem employee.  It is about changing the context of our interactions with this person in such a way that it suits both him and us.    A positive agenda is not all smiles and giggles.  It is not about liking the other person.  It is about moving forward, personally and organizationally, through a constructive negotiation that may be heated and disagreeable at times.    The questions that must be asked in establishing a positive agenda are: Do we understand where we are today (on both sides of the table) based on the outline from Step One, above? What are the root-cause business issues that enable our dysfunctional interactions? What do we want to do to fix things, since people only do what they want to do?   When based on a shared desire to move forward, as well as the need for a win/win outcome, even a heated negotiation is inherently positive.  One thing I find with problem employees is that they are typically unhappy, and often in a no-win situation due to some intractable business issue (not enough capacity, undercapitalization, a shallow talent pool, etc.).    Win/lose relationships are always lose/lose in the end.  The behaviors of problem employees are more than merely destructive; they are self-destructive.  It may seem a fair outcome to exact some punishment on this individual, or at least allow him to suffer without recourse at the will of his victims – but what is fair is not necessarily right.     This is where we begin to work through the root causes of the problem, rather than punishing the messenger who has been punishing us with his or her unacceptable behavior.    Step Three – Moving Forward Once we decide how to move forward, we will need to create a regular venue in which to establish and communicate our evolving expectations of one another.  This will allow us to review our progress in some measurable way, and work through our failures.  Without this effort, there will be a strong tendency to fall back on old habits, and perhaps rekindle our animosity toward the problem employee.   Step Three may consist of a regular meeting that includes all of the parties to the real problem – typically those who wanted to form a lynch mob and hang the problem employee.   It might start out as a weekly meeting and then adjust to monthly, but it has to be regular and have a minimal agenda (our expectations versus your expectations versus unforeseen issues).  In the interest of establishing a newfound sense of trust and respect, the problem employee should play a key role, either facilitating or documenting the meetings (depending on his or her temperament).   Conclusion Carl Jung once suggested that, “Neurosis is always a substitute for legitimate suffering.”  I assume that legitimate suffering is what we endure in the interest of MORE, as opposed to the illegitimate suffering that ensures less – namely, the destruction of others through the destruction of self.    The tendency of humans to engage in self-destructive behavior when in a no-win situation may appear odd from a more secure perch.  Though irrational, these behaviors are often the only sure-thing in a chaotic existence; a bent path to a more tolerable place in which some semblance of ego is preserved.   My three-step process is not a cure for anything.  It is methodology that fosters individual choice, and allows a clearer appreciation for the choices of others.  Ultimately, the choice offered to the problem employee is the same for all of the individuals involved in the process; to move ahead or to move on to somewhere else.  We are, each of us, part of the problem, or part of the solution.   That may not sound fair; but it is right.   Two Buck Chuck (July 31, 2007) Trader Joe’s is a popular whole foods outlet that carries some unusual items.  Every customer seems to be drawn to the store by a particular substance of choice.  For my wife, it is their whole wheat sourdough bread.   There is a popular wine that I like, reportedly sold only at Trader Joe’s, known simply as Two Buck Chuck.  It comes in standard size bottles, in all the requisite flavors, and sells for two dollars; unless you happen to buy it in the State of Ohio.   Apparently, well-meaning functionaries in Columbus think that a willing wine buyer and a willing wine seller somehow lack the inherent wisdom necessary to arrive at an agreeable price for fermented grapes.  Although Trader Joe’s advertises Two Buck Chuck for $2 in its Cincinnati store, the State dictates a price of $3.39.    Result:  Trader Joe’s has been forced into a lie.  But is it a lie?  Like the sound of a tree falling in the forest, does anything occur in the absence of a sensory exchange?  Without a willing seller or buyer, aren’t we just stand-ins; legal artifacts performing a tightly scripted transaction as promulgated by the tedious power of a soulless State?   Corruption The reason for beginning this Short Topic with the rather innocuous Trader Joe’s example is that corruption pervades our society; and it is often the result of the well-intentioned expression of the wrong assumptions.  The assumption here is that it would not be fair to other wine sellers for Trader Joe’s and its customers to engage in a win/win exchange.  Therefore, Trader Joe’s must be spared the embarrassing moniker of capitalist parasite by ceding targeted aspects of its customer relationships to the superior wisdom of officialdom.   In any free exchange, price is the great communicator.  Therefore, any perversion of price is a perversion of language.  Who better to pervert language than a political class cloaked in the unassailable rhetoric of public servitude?  Bureaucracy creates the lie and damns the liar, while parading itself beneath a patina of inexhaustible necessity.  Oh…and should freedom somehow prevail, they show up with guns.   Anti-Freedom Power is corrupt, and corruption is anti-responsibility, anti-ownership, and anti-freedom.  A fair price is always a win/lose; an assault on free speech; a tenuous redistribution; a misallocation of resources; a shortage or a surplus; a lie that must be righted by the same, self-righteous bureaucrats that create it, one onerous transaction at a time.  A win/lose is always a lose/lose in the end.   Conclusion Should my indulgent rant leave you lightheaded, in need of a more sobering example, forget about the Two Buck Chuck.  Think healthcare…   In vino veritas! Authority (June 30, 2007) Any imbalance between the quantitative and qualitative worlds is a constraint to progress.  In the realm of individual authority, the quantitative element is trust, and the qualitative element is respect.  Both trust and respect are necessary, but neither is sufficient, in and of itself, to constitute authority.   Trust without Respect I can trust someone without respecting them when they lack the necessary knowledge to move things forward.  Trust is a function of accountability.  To be accountable, but lacking in knowledge, is to be willing but unable to receive authority.   Respect without Trust I can respect someone without trusting them when they choose to be unaccountable for the contribution of relevant knowledge to a collective effort.  To be knowledgeable, but withholding, is to be able but unwilling to receive authority.   Conclusion Real authority is received from others, not exercised upon them - and only in response to accountability and knowledge.  Accountability wins trust, and knowledge wins respect.  In order to receive authority, we must first give both trust and respect to others – assuming we have those qualities to offer.   There is an inscription on a gravestone in England that reads, That which we gave, we have That which we spent, we had And that which we kept, we lost.   Such is authority.   Planning for Self (May 31, 2007) At the beginning of every planning session, I always ask, “Why are we here today?”  I never get the answer I’m looking for, even though it represents the actual reason that every individual in the room showed up.    The answer is as follows:  We are here for ourselves.  We are NOT here to enhance shareholder value, make the boss more money (unless we happen to be the boss), or achieve some college professor’s definition of excellence in execution.  Those are collective outcomes, not individual motives.   The purpose of planning is to make the critical decisions that will result in something MORE, quantitatively and qualitatively, than any of us can achieve on his or her own.  That way, we can make better choices, more money, and feel more satisfied with our lot in life when we head home at the end of a day.    Planning is necessarily a selfish process.  If not, the decisions that come out of a session will never be implemented.  People only do what they want to do, whether we like it or not.    The value of planning is in the connections it fosters between The Right Things and The Right People.  Those connections are made at three levels, through Self-Talk, Self-Reflection and Self-Knowledge.     Self-Talk The first elemental value of planning comes from overhearing ourselves talk.  This is not an original idea.  I got it from Harold Bloom, who got it from Shakespeare, who got it from the ancient Greeks.  As Bill Buckley says, “If it’s new it’s not true, and if it’s true it’s not new.”    As a facilitator, I know I have asked the right questions when I hear things like, “Bear with me, because I’m figuring this out as I’m saying it,” or “I can’t believe that I’m deciding this as I speak.”  Clarifying one’s choices, out loud, may be unwise or even risky in a day to day environment, but it is an invaluable phenomenon in a progressive planning effort.   Samuel Johnson suggested that, “People need to be reminded more often than they need to be instructed.”  Who better to remind us of what we really want for ourselves than ourselves?     Self-Reflection The second elemental value of planning is from Self-Reflection.  As a strategic conversation shifts from individual perceptions to a collective understanding of future possibilities (context), individuals can reflect on how they might participate in some meaningful way.   Much of the world is trying to think outside of a box that has never been defined; a tiring prospect, and a waste of intellectual energy.  Saul Bellow once described a clear context as “the dark backing on the mirror that allows us to see one another in the same light.”   If meaning follows from clarity, as Aristotle believed, then it is not possible to genuinely want what one cannot envision and negotiate for oneself.  It requires an informed level of Self-Reflection.   Self-Knowledge The third elemental value of planning is in the positive brand of Self-Knowledge one gains from hands-on experience during implementation.  Robert Burns captured the affirmative nature of Self-Knowledge when he wrote, “Oh wad some power the giftie gie us to see ourselves as others see us.”    There is no greater reward in a business setting than being appreciated and recognized for one’s contributions to a successful effort.  It is as close to being loved for who we are, warts and all, as we can get at work.   The acknowledgement that allows us to see ourselves in the same positive light as others see us is a powerful motivator.  It is, effectively, the trust and respect we receive for newfound knowledge; that which propels us forward to take on ever-greater challenges.    Relevant knowledge is the defining characteristic of The Right People.  It is the only value worthy of any reward beyond one’s base pay, since it is critical to the realization of The Right Things.   Conclusion  Self-Talk allows one to realize, once again, the possibility of something MORE.  Self-Reflection allows one to decide how he or she might participate in the collective pursuit of something MORE.  Self-Knowledge is gained from the confirmation we receive from others that we are, in fact, achieving something MORE than we, and perhaps they, thought we could.   When Khalil Gibran’s wife asked him what he was trying to say during his productive life as a poet and writer, The Prophet of Lebanon replied, “That you are greater than you think you are, and all is well.”  Therein lies the holistic value of planning; the opportunity to participate in a process that is about us, individually and collectively, because we are worth it.   To know and not to do is not to know.    Is MORE Moral? (April 30, 2007) Every prosperous society feels the need, at some point, to ask itself, “How much is enough?”  Today, this question seems to be formed in light of the impact that materialism is having on the quality of our lives, the values we communicate to our children, and the deterioration of the natural environment.  The anecdotal corollary to the summary question of enough might be, “What is MORE?”, while an adjacent concern could be, simply, “Is MORE Moral?”   In the movie, Wall Street, Michael Douglas’ tough-minded character, Gordon Gecco, makes a rather poignant suggestion about the desire for MORE in a well-known speech.  He says, “Greed, for lack of a better word, is good.  Greed is right.  Greed works.  Greed clarifies, cuts through and captures the essence of the evolutionary spirit.  Greed, in all of its forms:  Greed for life, for money, for love, knowledge, has marked the upward surge of mankind.”   Gecco’s entertaining dialectic opens an intriguing bridge between what we think of as selfish, immoral, sinful behavior – couched in greed – and the selfless, moral rightness that innovative humans have contributed, through individual aspirations and discipline, to the storied success of American life.   His morally positive conception of greed provides an interesting segue into the paradoxical nature of capitalism, best captured by Winston Churchill when he suggested, “The inherent vice of capitalism is in the unequal sharing of blessings.  The inherent virtue of socialism is in the equal sharing of miseries.”   The question of MORE has always cast a curious shadow, utilized by socialists and capitalists alike to justify their respective calls for centralized planning versus economic individualism.  The problem with the collectivist approach is, as Hayek noted, that all that is known is not knowable by one (person, party, class, etc.).  Consequently, centrists are forced to trust their assumptions, adopting the position that everyone aspires to the same definition of MORE.    The result is a bleak linear projection of a future that threatens us with the insufferable heat and unilateral avarice of single-minded society.  For our own sakes, then, they suggest that we surrender the political and legal artifacts of individual aspiration and discipline to those best able to define, and enforce, the definition of enough.  In return, we need only embrace the amoral, grey mediocrity of sameness.   But MORE, as Gecco suggests, is not collectively definable.  MORE is desired, just as it is realized, one human at a time.  Moral action is that which pursues MORE in a win/win fashion.  It is the expression of individual uniqueness cast by the impossible calculus of nature and nurture.  Diversity is not equality and sameness, as the collectivists would have us believe; it is inequality expressed as value.    MORE could easily be substituted for the word “greed” in Gecco’s speech.  He could open with, “The point is, ladies and gentlemen, MORE, for lack of a better word, is Moral.”  The whole point of morality is in the realization of MORE than any one individual can achieve on his or her own.  Moral action necessarily rises on a current of Faith, Hope and Love, as follows:   Faith Religious doctrine suggests that the root of morality is in doing unto others as we would have them do unto us.  In that effort, we love our neighbor as ourselves.  What firmer foundation could there be in fostering a faith in some higher purpose, and in one another?   Hope Napoleon wrote, “The moral effort is to the material resource as three is to one.”   The moral effort, the act of faith, is propelled by the power of hope.  Hope provides one the license to do what he or she feels is right, as opposed to what others may dictate in the interest of fairness.    The expression of hope, through moral effort, is a satisfying expression of self – a heroic sense of leaving one’s mark on the world.  As Emerson contended, “Society can never prosper but must always be bankrupt, until every man does that which he was created to do.”   Love A business is only an idea.  Based on the compelling nature of that idea, we take risk, borrow money, hire people, build buildings, and work harder than we would ever consider working for anyone else.  Through the love of an idea we develop a passion for MORE – and overhear ourselves in the process, individually and collectively, becoming something greater than we thought we could be.   The object of our passion, then, is not more stuff, but a higher reality – Truth.   Conclusion Through the collective act of faith, Truth happens.   Employers of Choice (March 31, 2007) In the Philosophy section of this site, I include a short poem I wrote, entitled Employers of Choice.  The final stanza reads as follows:   Could we really change or leverage Thoughtful people who may choose To ignore the winning rhetoric That would cause them each to lose?   Humans tend to do what they want to do, in their own best interests, whether we like it or not.  The impossible calculus of nature and nurture prepares each of us to make choices in our lives about what to do, what not to do, and how to proceed from every inflection point.  Consequently, each of the 6.6 billion+, utterly unique passengers on Spaceship Earth is an employer of choice.   Individuals communicate their choices continuously and in discreet ways.  In order for leaders to facilitate win/win scenarios in a work environment, it is necessary to be both willing and able to interpret those messages.   Four Observable Types of Human Communication The two questions I hear most often from business leaders are:  1) How do I motivate people? 2) How can I improve communication to better facilitate change?   The answer to 1 is that there is no need to motivate others, since they are already self-motivated.  As self-interested beings, we tend to do well the things we like, and we tend to like the things we do well.   The answer to 2 is that the communication necessary to determine one’s strengths, foster win/win employee relationships, and facilitate change, requires that we take the time to listen, observe, and interpret what people type, write, say and do.  By doing so, we may glean the following…    From Typing – Whether in an email or a formal report, we can read for clarity of thought, the structure of thinking (big picture or detailed, whole to part or part to whole), education level, consideration for the recipient (due to the ability to edit one’s work), and thoroughness.   From Handwriting – Even a novice observer can make some general observations about one’s handwriting that can be further tested through questioning and observation.  For instance:  Responsiveness (slant), risk profile (use of the page – wide left/narrow right margins), energy and goal orientation (pressure), openness (clear and readable forms), more outgoing versus introspective (size), creative and indulgent versus conservative and practical (size of loops), philosophical, social or physical predisposition (upper, middle or lower zone emphasis), organization and prioritization (clear spacing versus crowded and tangled extensions), and the need for approval (capitals and relative upper zone height).    From Speech – One may choose to say the same things in very different ways, revealing a lot about his or her character:  “I think” versus “I feel,” “To be honest” versus “To be frank,” the need for dominance in one’s delivery, pedantry, exactitude versus approximation, the voice of experience versus shallow promotion, passion versus desperation, left-brain facts versus right-brain pictures, extemporaneity, defensiveness, commitment, and the need for certainty versus a preference for flexibility.        From Physical Comportment and Appearance – I was in a meeting recently with someone who, in a rather naked attempt to establish credibility, kept emphasizing his shy sense of humility and preference for an invisible, behind-the-scenes approach to serving the needs of others.  When I was ready to leave, he mentioned that he was parked behind me and offered to move his car – which turned out to be the most imposing, super-sized Hummer since MTV’s Cribs.  What I saw was louder and clearer than what I heard.   We can observe the choices people make, in terms of physical comportment and appearance, and get a sense for their sensitivity, nervousness, poise, emotion, passivity, individuality, obstinacy, supplication, synergism, awareness of others, empathy, aloofness, ego, sophistication, anxiety, and respect.   Conclusion By applying our powers of intuition and observation to the objective evidence that others provide, continuously and in abundance, we can better utilize the critical choices they make for themselves.  In doing so, we tap into their natural motivation, while communicating within the context of our needs for mutual understanding and progress.   In the end, it is important to remember that, however observant, we are not omniscient.  In other words, we cannot intuit motive from action or action from motive when observing others.  The assumptions we make in this regard are for us to test, not trust.   The point of listening, observing and interpreting individual choices is not to control or manipulate others.  It is to build a holistic (Gestalt) perspective as to the strengths and weaknesses that characterize a work force, and allow us to more fully employ its members. Power vs. Authority (February 28, 2007) The most basic choice for any leader is one of style.  Leadership style creates clear expectations about the behavioral latitude afforded subordinates.   Here are ten attributes for each of two leadership styles – Power and Authority.  Doubtless, there are many shades of gray in between; but an analysis of the elemental overtones that frame an idea like the choice of leadership style is often helpful.   Leadership through Power Leadership through Authority   Power is taken and used (dictated vs. negotiated) Applied to people Bolstered by ignorance (we knowing more than they) Built on fear and dependence (supplication) Must be applied with increasing force Necessary to the golden rule (those with the gold rule) Amoral Selfish (scarcity) Justified by fairness and equality (the equal sharing of miseries by the un-anointed) Power is necessary when survival is threatened.   Authority is given by others (negotiated vs. dictated) Applied to opportunities Bolstered by knowledge (a shared understanding of value) Built on trust and respect (a faith in the future) Only utilized when relevant Necessary to clarity and meaning (disciplined performance) Morally positive Accountable (abundance) Justified by rightness and prosperity (the unequal sharing of rewards based on individual performance) Authority is necessary to accomplish more together than alone.     The question that may arise from a quick review of the above chart is whether or not there are occasions for the powerful to exercise authority and vice versa.  The answer is yes, although the situations that give rise to such a shift in style should be clearly communicated as both exceptional and temporary.    For instance, a sea-change in an industry could force an authoritative leader to make cuts that require the exercise of power.  A sudden opportunity may force a powerful leader to temporarily let go of the reins so that a particular employee can build a new business unit.  Communicating the necessary, temporary and extraordinary nature of these situations minimizes the sense of insecurity that may foster dysfunction and undermine morale.   Conclusion Although popular business literature claims to embrace authoritative leadership, the tools it has given us tend to paint a smile on the exercise of power (balanced score-card, activity-based costing, six-sigma, etc.).  But to suggest that there is anything wrong with leadership through power would be rather naïve.   According to Inc. Magazine and The Wall Street Journal, only one in ten for-profit entities develops and communicates a clear direction through budgets and plans; the foundation for the constructive negotiations that establish authority.  As Mel Brooks suggested in his comedy about the history of the world, “It’s good to be da king!” The Coming Recession (January 31, 2007) When Plato established The Academy, he believed that a philosopher-king could not assume the mantle until about the age of fifty.  I assume the reason was, as C.S. Lewis suggested, that one does not return to the usual places to experience them again, as if for the first time, until about the age of fifty. Recessions occur more frequently than fifty-year intervals (usually every 8-12 years); but the bad ones, the ones that result from a kind of perfect economic storm, hold a special place in the minds of those who have lived long enough to see them.  How many times have we heard a tight-fisted grandfather referred to as a child of the depression?  When pondering the subject of economic cycles, my thoughts, as a post-depression baby-boomer, automatically return to the Carter years. The point of mentioning this at all is that one should be making choices now based on the very real possibility of an imminent hard-landing, much like the Carter-era recession.  In preparation, we might start by asking ourselves, “Are we in a recession-proof business, a recession prone business, or a countercyclical industry that would benefit from such a downturn?” We tend to ask these questions, in earnest, only when we are convinced that trouble is on the horizon. Ten Signs of the Coming Recession An Inverted Yield Curve – This is the term used when long-term bond rates fall below short-term bond rates.  When the risk premium between long-term and short-term obligations reverses itself, it is considered a classic warning sign of an impending recession. A Downturn in Housing – I recently interviewed three people from the housing industry for a job with one of my clients.  One was a project manager for a publicly-held builder, one a land speculator, and one a private contractor.  Each of them said they have never seen the market so dead, and one even mentioned the Carter years. High Debt Levels – When rates rise and real-estate values fall, liquidity dries up.  Also, investment transactions built on interest sensitive cash flow assumptions may become unattractive. The Promise of Rising Tax Rates – Once things slow down in earnest, with housing declines affecting durable goods, which affects industrial production, tax revenues will follow suit.  Pay-as-you-go legislation will quickly become tax-as-you-go, adding fuel to the downward spiral. Pre-election Economic Gerrymandering – There will be a brief upturn in the ’07 economy due to political maneuvering in a pre-election year.  Masking the symptoms through interest rate and monetary policy will only make the disease seem worse once the short-term benefits dissipate.  As someone once suggested, the federal government has had about as much of an impact on the natural business cycle as Evel Knievel had on the space program.  A true economy always wins. The Zeitgeist – Awash in the sentiments of fear and dependency, middle-class society will support bigger government.  Socialized medicine is quickly becoming a reality.  I hate going to the DMV, and cannot imagine showing up there for a prostate exam. Private Equity – The LBO market has always gained strength before a fall.  It is either an indication of unrealistic expectations and easy money, or a sign of overcapacity and a need for downsizing and divestitures.  Either way, a harbinger of recession. Legislative Exuberance – Government has built much of its current heft on the backs of business.  Unfunded mandates will continue to pile on until the straw finally breaks the camel’s back.  SOX was an excellent bureaucratic start, with cost estimates for this miracle of oversight ranging up to $1 trillion (about 8% of our economy).  That is truly remarkable, when you consider that the average business, public or private, makes less than that as a percentage of revenue.  Happy News for Widows and Orphans – Well-known analysts with large investment firms are saying the market is cheap.  They have to sell to someone.  History – “If history teaches us anything, it is that we learn nothing from history.”  Every 8-12 years, there tends to be a recession.  It is time.  Conclusion I remember buying my first house during the Carter-era recession, paying 14% interest (a highly discounted FHA rate at the time).  People were lined up outside of coin shops, either selling the family silver or buying Krugerrands as a hedge against inflation.  Bank lending dried up, and money poured out of the markets and into high-paying CD’s and bonds as long-term rates soared. I’m turning fifty this year.  So far, I’m finding that fifty is the new forty, chiropractors are the new doctors, and accountants are the new attorneys.  Oh, and I hear that the old economic rules don’t apply anymore. It sounds a lot like 1980…again.    The Wehder Principle (December 31, 2006) In college, they teach us about The Peter Principle, which suggests that, "In a hierarchy, every employee tends to rise to his level of incompetence."  I believe The Peter Principle is a relic of Theory X management, us and them; as Freud wrote, “honoring the narcisism of minor differences.” My particular disdain for The Peter Principle is hardly original.  Over a half-century ago, Alfred Sloan, the head of GM who lead the company to great success, instructed a young Peter Drucker on the inherent fallacy in the concept.  Drucker quoted Sloan as saying, “You think and everbody thinks that a company can have better people.  That’s horse apples.  All it can do is place people right, and then it’ll have performance.”  I offer an alternative to The Peter Principle, which I will call The Wehder Principle.  It states:  Every employee tends to rise to his or her level of ambivalence.  Whereas The Peter Principle equates competence with determinism, my principle suggests that one’s level of competence is either a rational choice, or the result of the emotional incapacity to choose.  Therefore, we should listen when people tell us about their challenges, rather than proclaim them incompetent because they are challenged; particularly when they express themselves with ambivalence. For example:  A senior manager with a fast-growing company recently told me (for the 10th time) that his preference is to "just walk away" when things get tense in the office.  He is an agreeable guy, so I and others have always reacted to this assertion as the harmless expression of an amiable, non-confrontational style.  The Wehder Principle suggests that it is a mistake to let such a comment wither on the vine, because of the tremendous downside associated with ambivalence.  When one walks away from problems, things tend to get swept under the rug, and people begin to take advantage of the individual in question. Ambivalent statements beg at least a question or two, because such behavior is a powerful defense mechanism, essentially borne of fear.  It is experienced by others as outright avoidance, undermining the trust and respect (read: authority) that others will place in one who walks away from a challenge.  To understand ambivalence is to ask better questions, and help key employees make better choices in the interest of progress. UNDERSTANDING AMBIVALENCE Ambivalence is the politically correct expression of an unhealthy relationship between the quantitative (rewards) and qualitative (satisfaction) aspects of one’s work effort.  It comes in two flavors – Freudian and Shakespearean. Freudian Ambivalence Freud described ambivalence as equal parts love and hate.  Freudian ambivalence is not so much an imbalance as it is an internal struggle between two balanced states, one positive and one negative.  The positive is due to a love for some aspect of one’s work, where both rewards and satisfaction are present; whereas, the negative is due to a hatred for some aspect of one’s work, for which neither reward nor satisfaction exists.      In the case of the senior manager, above, I would ask that he separate the activities in his job, into those he loves and those he hates.  Perhaps he could reassign the latter responsibilities to one more suited to them.  It amazes me how rational people tend to hold on to responsibilities that they despise, often because of an unnecessary sense of duty toward them; as though they need to offset the good stuff in the interest of some cosmic justice.  Is their underlying fear due to a sense of unworthiness, or a need to be indispensable?  It is impossible to know, since we are incapable of intuiting motive from action or action from motive when observing another. Shakespearean Ambivalence The emotional nature of Freudian ambivalence represents an inner struggle that prevents one from making rational choices.  Conversely, Shakespearean ambivalence is the unhealthy result of a rational, individual choice borne of a fearful imbalance between rewards and satisfaction.  Consider this:  If one is satisfied with his work, but unrewarded, he may engage in a kind of victim-hood, supporting at least an implicit resistance to change.  Conversely, should one be rewarded for his work, yet unsatisfied by it, he may become stoic (a mercenary) in his work effort, passively going through the motions, enduring the unsatisfying while coveting the money. If the senior manager had indicated an imbalance between rewards and satisfaction, the right questions might have been:  1) Do you walk away from confrontation because people complain about things that you cannot change (a satisfaction problem due to a lack of authority)?; or 2) Is it because others are attempting to voice their problems in an effort to take advantage of you in some way (perhaps a reward problem, undermining his willingness to assert his authority)?    Conclusion The Wehder Principle paints The Peter Principle as an exercise in ambivalent leadership; blaming the victim, putting a smile on the situation, and avoiding the real issues at hand (passive/aggressive).  The problem with ambivalence is in the fact that an attitude ensconced in easy answers only reveals the tip of a dangerous iceberg.  It is the deadly sin of omission X 1,000. Someone once told me that a company doesn’t typically fail because of a single unfortunate event, but that it suffers a death of a thousand wounds.  I believe those wounds are inflicted as a function of collusion versus conspiracy; fear versus purpose; a tacit agreement to destroy that which we perceive as destroying us.  From Hamlet to Julius Caesar, Shakespeare appreciated the powerful complexity of rational ambivalence, using it to fuel the on-stage evolutions that transformed mere roles into fully-developed characters.  Freud leveraged an emotionally-charged ambivalence to add credence to his view of man as wolf to man.  Hemingway wrote an exchange between two characters that captures the harmful essence of ambivalence:  The first asks, “So how did you go bankrupt?”  The second replies, “Two ways, gradually and then suddenly.”  The Wehder Principle suggests that the next time we hear the voice of ambivalence, we might ask some questions while we can still afford it.   Price (November 30, 2006) In his book, Basic Economics, A Citizens Guide to the Economy, Thomas Sowell defines his favorite subject as “the study of the allocation of scarce resources that have alternative uses.”  In economics, price is the guiding light that, unfiltered, illuminates the highest, best use for any particular resource.  There are two ways to undermine the efficacy of a free-market price.  The first is to engage political mercenaries in the socialization of a particular market.  The second is to willingly assign the wrong price to an offering due to fear or ignorance.   The Political Market – Where price is dictated by power.  When economic progressives usurp the efficiency of a market with subsidies, mandates, oversight or barriers (read: coercive adjustments to a free-market price), there are inevitably negative, and often unintended repercussions for at-risk capitalists.  The perversion of price through governmental policy is effectively the perversion of language, disconnecting willing buyers and sellers; suspending them in a wave of bureaucracy that precludes or even criminalizes good-faith bargaining.    Currently, there are 66 lobbyists in Washington for each member of congress.  Some of them represent capitalistic constituents trying to minimize the anti-democratic nature of unassailable power.  Others seek the socialization of either risk or return, transforming the quality-minded nature of economic choice into the grey mediocrity of brute redistribution.  The misallocation of gasoline during the Nixon-era oil embargo should have provided an instructive lesson, as half of America waited in line to fill up while the other half was oversupplied.  However, that hasn’t stopped the populists in Washington from pursuing price gougers when gasoline supplies run short during an emergency.  Nor has it stopped them from threatening new taxes on evil profiteers (remember Janet Reno?) as big oil recovers from a natural catastrophe.  It is this same redistributive logic, built on the myopic assumption of perfect information, which inches us ever-closer to the idealized equanimity of socialized medicine - even in the face of damning evidence.  Just to the North, the Canadian political class enjoys the best medical care that over-taxation can offer, while their constituents either wait dutifully in line for their x-rays, or run to America for relief. The Free Market – Where power is determined by price.  I find the functional (or dysfunctional) utility of the one simple number we call price to be endlessly fascinating.  For instance: 1)  If a price is perceived as too low, it may be disregarded; and those who proffered it may lose all credibility. 2)  If a price is perceived as too high, the same thing may happen as in #1. 3)  A mindset of fairness may cause a seller to offer a price that is either too high or too low. 4)  Ignorance of the market may cause a buyer to consider a price that is either too high or too low. 5)  Price, tracked over time, will communicate even the slightest changes in either supply or demand. 6)  A falling market price may cause one to change from a profit-centric mindset to a fearful willingness to produce at a loss in the desperate space of a minute. 7)  Price can communicate fashion, quality, wealth, wastefulness, exclusivity, impulsiveness, neurosis, inclusiveness and status. 8)  Price can be a monetary number or a value in a range (1-10), indicating intellectual challenge, physical energy, opportunity cost, or emotional commitment.  This realization caused Emerson to suggest that a man cannot be enslaved except at the threat of pain or death (read: without a heavy price, probably closer to a 10 than a 1), eventually enslaving the master in an ever-spiraling cycle of enforcement. 9)  Price can cause one to search obsessively for knowledge, or ignore even the most relevant information. 10)  Price communicates everything from total objectivity to abject irrationality. Such a powerful elixir as price must have a clarifying antidote other than the heavy-handed incantations of bureaucratic witchcraft, and it is simply this: Superior Knowledge – a rare commodity that can expose price as blasphemy or opportunity.  Superior knowledge is a double agent, harboring the real story on both sides of the table, and creating both a respite from chaos and rich rewards for the knowing arbiter.   Conclusion A failure to negotiate is a failure to communicate.  Price is the great communicator in any free exchange.  The right price is an enduring ally, delivering an ever-changing stream of opportunity for those with superior knowledge.  The wrong price is a disfiguring impediment to progress, whether imposed by fear, ignorance, or well-meaning public servants. Rick Wehder ABOVE THE TREES 6244 Stirrup Road Cincinnati, OH 45244 513-703-7779 Phone Contact Rick Wehder Wisdom (October 31, 2006) 1. Wisdom is sold in the desolate market where none come to buy; and in the withered field where the farmer plows for bread in vain. (William Blake) 2. The ascent to wisdom is in learning what to overlook. (William James) 3. Wisdom is a sacred communion. (Victor Hugo) 4. Wisdom is rarer and deeper than rational thought. (Roger Scruton) 5. The old die and we forget their wisdom, so we are forever doomed to repeat history. (Emerson) 6. From exertion comes wisdom and purity; from sloth ignorance and sensuality. (Thoreau) 7. We can not embody it, yet we can be taught how to know wisdom, whether or not it can be identified with the truth that might make us free. (Harold Bloom) 8. And what is this valley called?  We call it now simply Wisdom’s Valley; but the oldest maps mark it the Valley of Humiliation. (C.S. Lewis) 9. Wisdom is the breach-born progeny of intuition and experience; a higher innocence. (Wehder) 10. The value of Wisdom is the relative evolution of context and symmetry. (Wehder) Conventional Wisdom is Not What often passes for conventional wisdom is aphoristic schadenfreude.  That is, the little, reproachful I could have told you so’s that slip too easily into place, preempt listening, lack empathy, and doom any heartfelt exchange to an untimely end.  Conventional wisdom is a kind of 20/20 mass-man sophistry – appealing rhetoric that defies action and contributes depth only to one’s frustration. The true value of wisdom is assessed relative to the needs of the individual, organization or situation in question.  In the search for wisdom, a facilitator may serve as an objective sounding board, utilizing rational principles (Platonic forms) in a process of reflection that allows each individual to overhear him or herself talking.  The resulting self-discovery often yields a clear and relevant contextual basis for moving forward; allowing a flexible symmetry between the quantitative and qualitative aspects of a progressive effort.  Context The Pope recently suggested that religion is built upon faith, and that true faith must include the value of reason, a context that transcends current reality.  Without it, there is only incoherent ideology, as in the terrorist machinations of radical Islam, or the disparate abstractions of modern anarchy.  In business, context is necessarily something morally positive and constructive versus amoral and destructive.  It sets the stage for the pragmatic activity necessary to the pursuit of truth - a higher reality. Symmetry    At the highest level, symmetry in business is represented by the relative interplay between The Right Things (quantitative) and The Right People (qualitative).  It is also the relationship of these two values to the external forces that may change the nature of one’s environment at any moment, and at many different levels (competitive, economic, regulatory, technological, demographic, etc.).  I use the term symmetry, rather than balance, because true excellence is skewed.  Symmetry suggests a malleable relativity among variables, while we tend to think of balance as a fixed value, a conventional propriety that honors old assumptions and enforces outcomes in the interest of fairness and equality.  Natural evolution, however, knows neither fairness nor equality, only the diversity that is inequality expressed as value.   Conclusion In his book, Where Shall Wisdom be Found?, Harold Bloom conducts a deep critical analysis of his elusive subject, utilizing a wide range of wisdom-writing, from philosophy to poetry.  In his efforts to illuminate wisdom, he suggests that it can not be embodied, but it can be recognized, and therefore utilized to gauge the rightness of one’s direction in the unending pursuit of truth.  Here’s what I’ve found so far in my own search:  Wisdom is the reflection that yields better choices.  Those choices employ reason to provide a firm foundation for a faith in the future (The Right Things) and in one another (The Right People).  Through the collective act of faith, truth happens. Rick Wehder ABOVE THE TREES 6244 Stirrup Road Cincinnati, OH 45244 513-703-7779 Phone Contact Rick Wehder Discipline (September 30th, 2006) I once worked with a consultant who utilized the catch-phrase, “libertas obediente,” or freedom through discipline.  I differed with his view, preferring obediente libertas, an attempt to denote the exact opposite, or discipline though freedom.  I have always found that people do what they want to do, as free individuals, whether we like it or not.  Consequently, there is more to be gained by employing the natural motive force of free will than by leveraging the artifice of power.  The operative word in either point of view, above, is discipline, which I define as follows:  Discipline is the currency of clear and meaningful direction. Clarity Aristotle purportedly believed that meaning follows from clarity.  The consultant I mentioned in the first sentence saw clarity as something defined from the top.  I see it as something negotiated at each level, since a failure to negotiate is a failure to test our assumptions against the informed diversity of a group.  As Hayek instructed in The Fatal Conceit, “All that is known is not knowable by one.”   If Aristotle was right (that meaning follows from clarity), then the absence of a negotiation, in which the members of a group contribute to the formulation of an idea, greatly reduces the odds of a meaningful outcome.  Without clarity, and therefore meaning, a diverse group will require onerous oversight in its efforts to move forward. Meaning In his book, Man’s Search for Meaning, Victor Frankl suggested that, “It is a peculiarity of man that he can only live by looking to the future.  And that is his salvation, in even the most difficult moments of his existence.”  When individuals feel that they have something meaningful yet to do in their lives, they will persevere.  Failure is a central theme on the path to success.  The knowledge that is accumulated through continuous experimentation, and its inevitable failures, allows the members of an organization to evolve ahead of competitors.  Relevant knowledge is the only value worthy of reward, because it allows us to transcend mediocrity and sameness through experiential diversity. Conclusion To trust one’s assumptions, versus testing them in the heat and light of a constructive negotiation, is to corrupt the nature of progress.  Without clarity, and the meaningful effort it fosters, there is no discipline.  In the absence of individual discipline, we must create organizational rules to outlaw the very same brand of self-interested, individual perseverance that could otherwise deliver success. The iron will of discipline is forged in the faithful thoughts and hopeful acts that pursue a compelling vision. Rick Wehder ABOVE THE TREES 6244 Stirrup Road Cincinnati, OH 45244 513-703-7779 Phone Contact Rick Wehder Fear (August 25, 2006) In participative organizations, individuals develop as follows: 1) Employees exercise their freedom to step up to a higher level of accountability (i.e. take risk), created within the context of a shared, clearly understood vision of the future. 2) They then begin the process of gaining the knowledge and skills necessary to deliver the desired results.  Along the way, they rewrite their roles and responsibilities within the confines of their instinctual behavioral competencies and capacities.  They own their jobs, because they are their jobs. 3) Rewards are earned from the successful implementation undertaken in #’s 1 and 2, above. 4) Authority (read: trust and respect) is increased, as a function of success, for the next round of individual development (back to #1). In autocratic organizations, the process is much simpler: 1) Risk, or accountability, is assigned without reward. 2) Responsibility is assigned without authority, or rights. The result is a group of people waiting for direction, which is inherently inefficient. In paternalistic organizations, the same sort of simplicity is employed: 1) Rewards are proffered without risk, or accountability – a kind of welfare. 2) Rights, or authority, are granted without responsibility – an aimless brand of empowerment, where nothing gets done. The result is a group of individuals shifting with the wind, which is inherently ineffective. As Napoleon noted, “There are two great levers for moving men, fear and interest.”  Fear is the central motivator in either autocratic or paternalistic environments.  Autocrats inspire fear through the threat of anger or punishment.  Paternalists foster fear through dependency; insulating those under their care from risk, responsibility and reality. The real difference between a participative organization and its autocratic or paternalistic counterparts is that, as Carl Jung suggested, “Fear is the opposite of integrity.”  Fearful individuals are simply not themselves.  When people are fearful, we lose the benefit of their greatest talents; those that can only be expressed as a function of a well-integrated personality (read: integrity and character).  People will only take risk – step out on a limb and be truly accountable – if they feel relatively secure in the effort.  Not only do they need the authority commensurate with their newfound accountability, but the task at hand must also reside within the confines of their instinctual behavioral competencies and capacities.  Conclusion We enjoy what we do well, and we do well what we enjoy; unless we are fearful. Rick Wehder ABOVE THE TREES 6244 Stirrup Road Cincinnati, OH 45244 513-703-7779 Phone Contact Rick Wehder Assigned Seating (July 30, 2006) Brent Bozell once observed that anything, pushed far enough, tends to become its opposite.  In terms of human behavior and its seminal variants, our greatest strength, pushed far enough, reveals our greatest weakness.  There are four Jungian leadership styles; each with a major strength and a major weakness.  What follows is a short description of each variant, capturing the human struggle within: 1) The Pragmatist – The bull who owns the china shop. Greatest strength:  The ability to leverage opportunity in the face of great adversity.  Greatest weakness:  The destruction of focus and progress with each new initiative. Example:  John DeLorean – The inventor of the DeLorean automobile; brought down in a sting operation, due to a novel approach to raising funds for his company.  These creative, adventuresome risk-takers can also create some lively challenges. 2) The Philosopher – Delivers the building before the nails arrive. Greatest strength:  The ability to utilize logical principles in the formulation of strategy.  Greatest weakness:  Follow-through, since execution often ends in the mind. Example:  Larry Summers – As president of Harvard University, he suggested that women are innately unsuited for careers in math and science.  Of course, he was speaking to an audience that did not appreciate the lack of decorum that characterizes the aloof, abstract intonations of the philosopher.  If only these whole-to-part thinkers could figure out how to say what they really mean, or how to do what they suggest. 3) The Idealist – Experiences with deep empathy; expresses with shallow antipathy. Greatest strength:  The ability to apply gut feel to a collaborative effort, where 1+1=3.  Greatest weakness:  The emotional ups and downs associated with a cause. Example:  Maya Angelou – The world’s top literary critic, Harold Bloom, once said that, “Maya Angelou is no poet.”  He supported his argument with a quote from Oscar Wilde, suggesting that, “All bad poetry is sincere.”  Idealists can divide as well as they integrate.  As Saul Bellow wrote, “The poet is the arbiter of the diverse,” not its enabler. 4) The Protector – Equates appropriateness with rightness. Greatest strength:  The dependable execution of tasks with accuracy and timeliness.  Greatest weakness:  Inflexibility with respect to substantive change. Example:  Eliot Spitzer – The Attorney General of New York views imperfect information as a problem of disclosure, and profitability as injustice.  Hence, he often prosecutes opportunity and success in the absence of criminal intent.  These populist guardians have a strong tendency to stand athwart history and yell “stop.” Conclusion To prosper, an organization probably needs all of the above, fallible as each may be – but only in the right seats, where strength is utilized and weakness minimized.    Rick Wehder ABOVE THE TREES 6244 Stirrup Road Cincinnati, OH 45244 513-703-7779 Phone Contact Rick Wehder The Nature of Freedom (July 4th, 2006) My parents moved to a remote lake house about fifteen years ago.  They were seeking a metaphysical representation of freedom in retirement.  Thus began an epic and continuing struggle against the very natural forces they sought to embrace when moving to the wilderness.  Today, every beaver, goose, raccoon, chipmunk and snake is suspect, and must somehow be defeated, along with moss, weeds and carp.  In this effort, they have become, paradoxically, something less free than desired. Henry Adams said that chaos is the law of nature; order is the dream of man.  Apparently, fighting nature is the most natural thing for humans to do in their quest for freedom.  This must be what Kierkegaard meant when he suggested that paradox is at the center of all human existence.  In a stoic sense, the paradox is that true freedom is in the embrace of natural chaos, not the imposition of human order. Here are ten common examples of how we fight the nature of freedom on a daily basis: 1. Hiring people for the same jobs they just left because they hated them. 2. Working all of our lives so that we can do what we want, instead of working at something we want to do. 3. Living for our kids’ futures, and in doing so, destroying their reasons to live. 4. Assuming that a good salesman sells ice boxes to Eskimos. 5. Defining good business as managing satisfaction, driving quality, enforcing balance and changing people. 6. Encouraging women to augment their natural beauty with starvation and self-mortification. 7. Turning creativity and innovation into political and legal artifacts through perversions of language and law. 8. Defining diversity as equality, when true diversity is inequality expressed as value. 9. Deferring to a nihilistic attorney-class on questions of morality and ethics. 10. Fostering fear and dependence in the middle class, versus the objectivistic self-determinism that inspired the American Revolution, resulting in the most prosperous country on the planet. The greatest expression of natural freedom is life itself.  To live and to let live is to be free.  The rule of law is supposed to protect this natural freedom, defined in the Declaration of Independence as Life, Liberty and the pursuit of Happiness.  Paradoxically, the laws and acts that supersede these values are most often pursued under the guise of fairness.  Fairness is Order’s idiot twin.  Fairness is the collective expression of the wrong assumption; that equality is sameness, and therefore sameness, like order, must be enforced.  It is the same brand of justice embraced by totalitarian despots, like Stalin, Hitler, Mao and others, who, in the spirit of sameness, murdered 200 million of their own citizens during the last century. Conclusion Alphonse Karr wrote that the more things change, the more things remain the same.  The more free society proves chaotic, the more natural it is to strive to control it.  Therefore, the intuitive solution is, more often than not, more of the same.  That is, more rules to suit the fact that individuals act in their own best interests, whether we like it or not. Despite the best efforts of the attorney-class, this July 4th finds Shumpeter’s creative destruction still alive and well in America.  Some of us will celebrate by experimenting with gunpowder, while others will have one more for the long road between Grandma’s and home.  But such is life – risky and unpredictable – paradoxical and chaotic.  God bless this mess!  God bless FREEDOM!    Rick Wehder ABOVE THE TREES 6244 Stirrup Road Cincinnati, OH 45244 513-703-7779 Phone Contact Rick Wehder The Puzzle (June 6, 2006) I went down to my basement the other day to begin the arduous process of clearing away twelve years of accumulated junk.  Tucked into a vast collection of forgettable board games was a puzzle, in a flat, sturdy box containing perhaps a thousand pieces.  As far as I could tell, there was only one problem with this puzzle.  The top of the box was missing.  Without it, I had no choice but to throw all of those artfully shaped little pieces into the garbage.  To choose otherwise would have required that I determine: 1) whether or not the picture on the puzzle was compelling 2) how complex and challenging the project of assembling it might be 3) whether or not all of the pieces were there 4) the shape, size and space requirement needed to begin 5) where to start 6) where to end 7) what to do to make the best use of my time 8) what NOT to do 9) how willing and able another might be to participate in the project 10) a clear basis for the coordination of effort Two simple facts gleaned from the missing box top would have answered all ten points, above, and allowed me to replace a wasteful impulse with a rational choice.  The first fact is quantitative - the number of pieces necessary to complete the puzzle.  The second is qualitative - a clear picture of the puzzle itself.  Had the picture on the box top been uninteresting, the challenge of assembling a vast quantity of pieces might not have been worth pursuing.  Conversely, a great panorama accomplished with relatively few pieces might not have allowed the lively, creative collaboration that would yield the greatest possible outcome in the least amount of time.  Such thorny imbalances between the quantitative and qualitative worlds provide either the opportunity for meaningful negotiation, or the guilt-free impetus to take out the trash.  Should we decide to proceed, there are four collaborative approaches to solving a puzzle:  1) Grand Master – A charismatic leader instructs others on the specific pieces of the puzzle to be hunted down in order to support his or her momentum. 2) Sectarian – Two or more Grand Masters divide the puzzle and form specialized teams; each team competing for pieces, pushing its boundaries for supremacy. 3) Facilitator – A Grand Master facilitates an open, evolving group effort, focusing on opportunities for collaboration, orderly progress, and the elimination of constraints. 4) Mercenary – Two or more Grand Masters work without boundaries, enlisting the help of others as their successes warrant the group’s involvement. Conclusion Without absolute clarity, negotiated balance, and a collaborative methodology for resolving opportunity, puzzles will prove too challenging, and our impulsive choices too wasteful. Rick Wehder ABOVE THE TREES 6244 Stirrup Road Cincinnati, OH 45244 513-703-7779 Phone Contact Rick Wehder The New Ford (January 24, 2006) In a crowded, roped-off area of cracked asphalt, a blue haze of cigarette smoke defies the morning chill; hanging pensively over the tense congregation, as though it may suddenly rain tar should the mood ease.  A jumbotron crackles to life, framing an empty podium fixed with an expectant microphone that registers annoyance with its invisible servant.  The artful human hum from the speakers imitates the life outside, overshadowing the gray, suburban skyline with the anticipation of history. Welcome to Detroit. William Clay Ford, Jr. mounts the podium.  He appears slightly uncomfortable, projecting and reflecting the mood of the crowd.  He seems to survey the unseen coveralls and ball caps outside with a purposeful, paternalistic air that evokes the spirit of the Great Grandfather he never knew.  This is the moment he has practiced for all of his life. With a pause for effect, he seems to ask, “Are you watching this?  Are you listening?  Are you prepared for history?” He begins his remarks.  With the first sound, there is, at once, a slight start in the anxious assembly; and then a vague visceral release, allowing the smoke in the parking lot to settle to second-hand significance.  “Welcome everyone.  I’m here to introduce a historic program that will ensure a bright future for our company, our customers, and for all of you under my care.  It is called The Way Forward.  Basically, we are going to do fewer of the wrong things with fewer of the wrong people.  Thank you.” It is colder now, and looks like snow.  The parking lot clears, but the smoke lingers. Post-Speech Analysis From the fifth bedroom of his house, an unknown consultant named Rick Wehder reports on the speech for his monthly Short Topic, as follows: In the absence of a clearly negotiated growth strategy, the intuitive solution is, more often than not, just more of the same. In the background, an unattended television stirs from white-noise obscurity to deliver an important commercial message on behalf of The New Ford. Rick Wehder ABOVE THE TREES 6244 Stirrup Road Cincinnati, OH 45244 513-703-7779 Phone Contact Rick Wehder   F.E.C.K.less (December 12, 2005) Only $1 out of every $16 spent on the new Medicare Drug Benefit will actually go toward covering anything new.  It is a classic case of diminishing returns in the ongoing effort of our government to foster fear and dependency in the middle class.  Only in the specter of a weak middle class can attorney-sophists create the need for increasing oversight, while at the same time eliminate the threat of freedom. One would think that Mao, Stalin, Hitler, Castro, and so on, rose on the backs of a strong working class, but it was just the opposite.  They rose on a current of fear, severely punishing many of their supporters once they were on top.  Castro threw them into gulags, while Mao, who detested the peasants he claimed to embrace, starved 71 million of his comrades to death.  Gratitude is the least deeply felt of all emotions. Last month, I wrote about the expressions of freedom encased in the great structure of Biltmore.  This month, I offer a thinking tool that I use to gauge the ever-impending threat imposed by the enemies of freedom.  I call it F.E.C.K.less.  F.E.C.K. stands for Fairness, Equal or Enforced Outcomes, Centralized Power and Knowledge Control.  It is a tool that describes the process for supplanting freedom with absolute power.  Wherever you find the F.E.C.K., expect less.  Note:  In this process, it is critical that there is a common enemy – a group getting MORE than its fair share.  Historically, the common enemy has been the Jew, aristocrat, gentry, bourgeoisie, and many others.  The great irony is that the mob, in delivering the common enemy to its new master, also delivers itself. F.E.C.K. in Depth: Fairness – The process starts with a call for fairness and deliverance from misery.  Rick Wagoner, the CEO of GM, recently gave voice to a fresh round of F.E.C.K. in the Wall Street Journal, with a plea for a level playing field in the auto industry.  He asks that the common enemy, the producer, be punished (in this case, Toyota), and that some of his gains be redistributed in the interest of mediocrity (GM).   Equal Outcomes – Once fairness is defined, it is necessary to design and enforce a process to equitably redistribute the spoils of unfairness.  Thanks to the collectivist rhetoric that characterizes this stage of the process, society is promised a share of the benefit.  Unfortunately, society typically ends up paying more for lower value, while those leading the charge take a generous cut of the cream.  Consider the healthcare system in Canada, where those who oversee the process are exempt from using it, as they are covered by a special program designed for the political class.  Or the social security system in America, where the federal employees who have so mismanaged our funds are not only exempt from contributing to it, but also enjoy a generous retirement and benefit package under an alternate system.  As Churchill so ironically suggested, “The inherent virtue of socialism is in the equal sharing of miseries.”     Centralized Power – Since we live in a chaotic, anecdotal world, equality must be constantly recalibrated and enforced by those in power (read: people with guns).  However, centralized power breeds the very inconsistency it claims to eliminate.  How else could bureaucrats threaten big oil for over-charging, while at the same time threaten Wal-Mart for under-charging? Knowledge Control – Once a move to absolute power has been formalized, it may then be institutionalized through the perversion of language.  The results are inculcated into rules, norms and laws that justify the escalations in oversight necessary to preserve hegemony.  Some suggest that campaign finance reform is political-speak for lifetime appointment. Language may be perverted, and knowledge controlled, in either quantitative terms (price controls or subsidies) or qualitative terms (Hitler’s final solution).  Free speech is too volatile a weapon to be allowed at this stage; because it can undermine power, reveal inequity, and, once again, inspire the masses to question fairness.  Anyone who doesn’t agree with the prescribed message is therefore demonized, reeducated or eliminated.  Beware the Reverse Knowledge Control, the final step in the process, is a simple enough concept; particularly if one prefers a linear approach to the application of the tool (F-E-C-K).  But I have a theory that those already in power may work in reverse (K-C-E-F) in order to save time, confuse their enemies, and steadily chip away at freedom to further cement their position.  For example, the folks who lined up for asbestos damages (Knowledge = asbestos is bad = guilt) were easily encouraged to participate in the next class-action windfall provided by silicosis (Centralized Control = class action status = check in the mail).  Since corporations were automatically guilty (Equal Outcomes = letter in the mail = settlement offer), everyone who got a check the first time around should get one again (Fairness = another check). Unfortunately for the attorneys who overwhelmed this new opportunity, junk science did not prevail (K).  In their haste to get a letter in the mail and a check in the bank, they failed to realize that many of their professional plaintiffs received new diagnoses with no indications of asbestosis (the basis for the prior suit), and that their prior diagnoses had found no silicosis (the basis for the current suit).  Fraud charges are pending. The greatest threat to absolute power, like that enjoyed by the plaintiff’s bar, is truth.  Often, despots trust their assumptions too dearly, and come to believe their own rhetoric; only to be crushed by greater knowledge – like that possessed by the judge presiding over the silicosis class-action.  Unfortunately, the legitimately injured lose either way, since mob justice presents them with a Faustian bargain:  Less than they deserve, or nothing at all.  Conclusion If history teaches us anything, it is that we learn nothing from history.  That is why it is important to recognize the elemental process that leverages the passions of the mob to deliver our freedoms at the feet of the despot in exchange for an empty promise.  Wherever you find the F.E.C.K., expect less.   Rick Wehder ABOVE THE TREES 6244 Stirrup Road Cincinnati, OH 45244 513-703-7779 Phone Contact Rick Wehder Biltmore (November 18, 2005) A few weeks ago, I facilitated two planning sessions in North Carolina.  During our stay, we paid a visit to the Biltmore Estate in Asheville.  The place is beyond description, bringing to mind the term that Ayn Rand used so lavishly in The Fountainhead – Astonishing!  That’s just what it is, from the first glimpse of its sculpted facade, until you exit beneath a panoramic view of its magnificent backside. While walking the grounds of Biltmore, I stumbled upon three small observations: First, we see the world as we are.  The fact that this overpowering structure is so astonishing suggests that its builder, George Vanderbilt, was himself astonished at the cash generated by the mass of products and people pouring through the family’s logistical toll-booths.  Second, control is an illusion.  Though the Vanderbilt clan set out to control things, like shipping routes and railroad lines, they ultimately hooked into something that was beyond anyone’s ability to truly manage.  That is, the overwhelming propensity of free people to strive for MORE.  Freedom is truth. The house, with its modern conveniences (refrigeration, hot and cold running water, plumbing, an indoor swimming pool, bowling alley, central heat, AC and DC electricity - in 1895!), communicates something beyond control – a higher reality.  It boasts a vastness (175,000 square feet) that defies the natural landscape, and serves as testament to the achievements of freedom that transcend the capacity of any one human.   Finally, through the collective act of faith, truth happens.  The Estate, initially wilderness, was totally self-supporting, with herds of cattle and other livestock, a dairy, winemaking, orchards and crops.  Three schools were founded on the property, along with myriad businesses, conservation projects, and on and on.  In summary, Biltmore is an enduring symbol of leadership and vision; proof of concept of what is possible when people pursue a common goal in their own best interests.  It was, and is, a working laboratory where the great American experiment lives on in the most astonishing fashion.      Rick Wehder ABOVE THE TREES 6244 Stirrup Road Cincinnati, OH 45244 513-703-7779 Phone Contact Rick Wehder Reflection (October 28, 2005) A client of mine once went to see Peter Drucker.  They met on a mountain, somewhere in California, where he spent two half-days with the man, along with the rest of his YPO group. My client was the first to ask Drucker a question, and it was this:  “Why do most businesses go out of business?”  Reportedly, Drucker paused a long, uncomfortable minute, staring reflectively at his questioner; and finally responded, “I believe, young man, that they run out of money.” I think that Peter Drucker’s response represents harsh reality, but it falls short of the whole truth.  Sometime before businesses run out of money, they cease to represent a more compelling idea. Over 90% of Inc. 500 businesses get their employees together to reflect on the ideas that represent their businesses.  Only 10% of all U.S. businesses do the same.  Consequently, while over one-half million new businesses are started each month in the U.S., about the same number fall off the map. Reflection is the contextual negotiation that pits the quantitative aspects of an idea against the qualitative.  Any imbalance between the quantitative and qualitative worlds acts as a constraint to progress, and therefore threatens the sustainability of an idea over time.  Once the idea we call a business ceases to be more compelling than competing alternatives in the market, it begins to run out of money. Reflection allows the Right People to contribute to the Right Things in their own ways.  Due to the impossible calculus of nature and nurture, people do what they want in the end, whether we like it or not.  We are all employers of choice.  Better reflection yields better choices. In summary, I am reading daily about the clumsy, monolithic maneuvers of the U.S. auto and airline industries, trying desperately to right a ponderous imbalance.  It appears that many of the competitors in these industries are running out of money, due to the overwhelming financial pressure from legacy costs.  Upon reflection, I think the situation represents Drucker’s harsh reality, but falls well short of the whole truth. Rick Wehder ABOVE THE TREES 6244 Stirrup Road Cincinnati, OH 45244 513-703-7779 Phone Contact Rick Wehder When Structure Drives Strategy (September 29, 2005) Libertine poster child, New Orleans, was recently hit by a most oppressive disaster.  The situation has proven an opportunistic windfall for those who seek a sense of order in the projection of blame, whether the target is bad poor people, bad white people, or just bad leadership. Even in such murky waters, one thing emerges with remarkable clarity.  Without the God Squad and the for-profit phenomenon of modern logistics (via Wal-Mart, Home Depot, etc.), the rescue efforts in the sultry South would scarcely be under way.  Lives were saved in short order by people in the private and religious sectors, while the public sector took notes with an eye on the prize of additional funding. Perversely, an incompetent response will ultimately yield a budget increase for FEMA, the feckless governmental version of relief.  Unfortunately for the victims, the hurricane hit just as the American Federation of State, County and Municipal Employees was heading home for a three day weekend.  Luckily, the phone mail system was on full alert so that those stranded in the aftermath could be cheerfully served by an automated attendant; each call representing, in bureaucratic parlance, another success.   In the absence of a clear and meaningful focus, like the focus enjoyed by religious relief organizations and private corporations, the intuitive solution is, more often than not, more of the same.  In this case, more funding for FEMA so it can hire more AFSCME workers, build more buildings, lease more office equipment and fly more helicopters. When focus is defined by structure, then structure will act as a constraint to effective strategy.  Only a positive focus, free of the inflexibility of unnecessary structure, can resist the stagnant specter of misallocated resources, and the topical perversions of self-serving political rhetoric.  Conclusion The bureaucratic failure in New Orleans should serve as a warning to those who will clamor, amidst the waste, for bigger and more effective government.  A strong and prosperous nation does not rise on the slippery hump of an over-stuffed leviathan.  Even in the face of a terrible storm, progress can be made; but only so long as well-meaning political progressives, of any ilk, remain affordably irrelevant. Rick Wehder ABOVE THE TREES 6244 Stirrup Road Cincinnati, OH 45244 513-703-7779 Phone Contact Rick Wehder A New Union (August 13, 2005)  Freud suggested that action follows from thought.  Aristotle reportedly said that meaning follows from clarity.  By combining the two ideas, we could surmise that clear thinking is necessary for meaningful action.  Here’s some clear thinking.  I believe that a high percentage of individuals in our aging population will find it necessary to work until it is no longer possible to do so.  In the face of that impenetrable certainty, they will want to know that their work is meaningful. Meaningless Work I have never heard anyone describe the mundane processes prescribed by ISO, TS, QS, SOX, Balanced Scorecard, GAAP or Baldrige as particularly meaningful.  In fact, I believe these unfunded promulgations are designed to eliminate the necessity for self-interested reflection altogether, and with it, any propensity for meaningful effort.  Somewhere along the line, someone figured out that by dictating how things are done, individuals need not ponder why.  As testament to the effectiveness of the dull tools of modern management, a recent study found that 71% of the American workers surveyed admitted that they are intellectually disengaged at work.   Old Unions Weren’t unions supposed to be the answer to the top-down, soulless nature of work?  Apparently, they got lost somewhere along the way.  At Ford and GM, the unions are out of business, because their employers are out of business.  They are just not out of money yet. As I write this, Ford and GM are giving the public an employee discount.  Is it because they recognize that we are already effectively working for them to pay off their unfunded future retiree benefits?  It makes one wonder what is next for these floundering leviathans.  Perhaps Ford will outflank Harley Davidson’s distinctive rumble by patenting its unique, in-dash rattle.  Over the years, Ford and GM have: - Failed to plan effectively, most recently playing defense with SUV’s while $65 oil clouded the horizon. - Managed the numbers to mislead their unions. - Negotiated work rules and quality programs at a collective level, estranging individual workers from the process. Their Unions have: - Fought restructuring and process changes through onerous work rules. - Ignored information and ideas, including public outcries for Toyota-like quality. - Enforced their collective contracts to the letter until the next negotiation. A New Union When my new union is voted in at your company, we will ask for the following: - A Plan (since 88% of our American competitors choose not to plan, according to The Wall Street Journal). - To Share the Numbers (since 86% of those competitors choose not to budget). - To Negotiate Accountability and Authority, one unique individual at a time (since the collective fairness and equality that our competitors embrace, in the absence of clear focus and meaningful accountability, punish the talented and reward the incompetent). We, in the union, will do the following in return for our requests being met: - Deliver the process and structural changes necessary to meet the plan. - Share information and ideas about how to exceed the plan to improve the    numbers. - Renegotiate, individually and collectively, whenever necessary, but only in    the interest of win/win outcomes. Conclusion A company is only an idea.  Based on that idea, one takes risk, buys equipment, hires people and builds buildings.  A union is only an idea.  That idea can be designed to either: 1. Protect employees from the autocratic actions of those who own the company, even though the right to fail is the most inalienable right enjoyed by any risk-taker, or  2. Turn the creative, free-will of unique individuals into a successful partnership with the company and its owners. It seems unbelievable that 88% of the companies in America, in the absence of negotiated clarity and accountability, have effectively chosen the first union design over the second.  In response to that decision, 71% of employees are effectively honoring the old model, officially or unofficially, and lives are being wasted doing something less than meaningful. We need a new union, since China and the third-world are proving themselves much better at the old model that we will ever be again. Rick Wehder ABOVE THE TREES 6244 Stirrup Road Cincinnati, OH 45244 513-703-7779 Phone Contact Rick Wehder Should Employees be Stockholders?  (July 17, 2005) In his book, Open Book Management, John Case suggests that ownership behavior is somehow a function of stock ownership.  Therefore, ESOPs = Productivity.  I disagree.  In fact, I believe it is a mistake, in closely-held private companies, to use stock ownership as a remedy for employee inaction.  Here’s why: Ownership behavior is the willing expression of one’s freedom to embrace a higher level of accountability, and to exercise the authority commensurate with that accountability in order to produce a higher outcome.  Accountability is tantamount to the most inalienable right we have in free society – the right to fail.  Authority is the right to succeed.  Although authority can be officially delegated, such as guidelines about spending limits, the authority I am referring to is the trust and respect one receives from others.  Here’s a simple example:  To own a house is to accept accountability for the value of the house; recognizing risk and the consequences of failure as my own.  When I embrace the authority I have to fix up the house, due to the trust and respect others have for my willingness and ability to do so, I am exercising my right to succeed.  In the workplace, to be accountable in the absence of a commensurate level of authority (trust and respect) is to embrace the right to fail in the absence of the right to succeed.  Why would any sane person choose to suffer so illegitimately? Conclusion (Accountability and Authority versus Stock-Ownership) What I have just described (accountability without authority) is an imbalance that exists in the vast majority of American businesses.  What does taking ownership for one’s success in the workplace, through accountability and authority, have to do with owning stock in a closely-held private organization?  The answer is absolutely nothing! To confuse the two concepts fosters an empty, circular conversation that adds another layer of complexity to the mix.  Before calling in consultants and lawyers to confuse our lives even more, we could try the following: 1) Stop dictating and start negotiating focus and accountability at the next level. 2) Stop trusting our assumptions and testing people against them.  It is a cruel exercise to put someone in a no-win situation and then bet that they will fail.  Authority begins when we trust people to test our assumptions (through the experimentation of execution) and then treat the knowledge they accumulate (through failure and success) with respect. 3) Get to know people below the skin, in terms of their instinctual behavioral competencies and capacities and accumulated knowledge (read: value) so we can employ their strengths. 4) Free individuals to forge the path to success in their own way, and in return for negotiated rewards. So who needs to own stock in a closely-held private company?  Those who would pledge their houses to make payroll, and stick around to clean up if all else failed. Rick Wehder ABOVE THE TREES 6244 Stirrup Road Cincinnati, OH 45244 513-703-7779 Phone 513-624-8963 Fax Contact Rick Wehder  Who Cares About Healthcare? (July 1, 2005) My family had six kids.  If one of us was ill, there was a 50% chance that Dr. Shapir would simply drop by our house on his way home to take a temperature and prescribe something.  It was easier for him to do that than it was for my mother to corral six kids into our station wagon and wait in his office.  I assume some price was charged that made the patient/doctor relationship a win/win. Sometime later, employers began to care about healthcare, because they realized that healthy employees worked harder.  It became a work benefit that benefited everyone in the employer/patient/doctor relationship.  A win/win/win. At some point, insurance companies entered the game, expanding their reach beyond buildings and automobiles in the risk-sharing aspects of commercial customers.  After all, if an employer is going to assume a new risk, it should insure against calamity.  It was a win/win/win/win. At that point, the insurance company effectively took over the negotiation that was originally conducted by my mom and Dr. Shapir.  They did it to mitigate the cost of healthcare for six kids, on behalf of a risk pool made up of all of the employers they represented.  It was a win/win/win/lose. Because it didn’t strike Dr. Shapir as fair that he was paid less, just because my mom no longer wrote him a check, he complained to the State.  They decided to square things by exerting some control over insurance companies to pay more.  It was a win/lose/win/win/win. That meant that insurers had to raise rates to cover the unfunded mandates promulgated by the State that ensured that doctors were now paid enough.  This created a win/lose/lose/win/win. So the insurers and employers went to the State and asked them to tell doctors to systematize their procedures and charges in order to make them more accountable.  Although this did not lower rates for the employer, it did eliminate housecalls, resulting in a win/lose/lose/lose/win. Finally, patients sued doctors who no longer seemed friendly, while insurance companies began to question every detail on their bills.  Final score:  win/lose/lose/lose/lose. Somehow, in a very short span of time, we’ve gone from my mom to a collective of insured lives; a friendly face to face negotiation to the legal and political artifacts of class-action redistribution and unfunded mandates; and the efficient outcome from an individual spending her own money on her own behalf, to the total inefficiency of someone spending someone else’s money on behalf of someone they do not know.  I attended a health care forum this morning.  There was a bureaucrat, an attorney, two health agents and an economic development representative from the State on the panel.  They told us what they were doing to fix our problem.  Apparently, a big part of the answer is to allow my mom to spend her own money.  Only this time around, she would have to corral six kids into our station wagon; endure an inexorable wait in his office while my siblings and I create chaos; and pay a whole lot extra for all the great stuff the people on the panel have already done for us. Who cares about healthcare?  Not the winners on the panel.  It’s the losers, the audience, and their doctors. Rick Wehder ABOVE THE TREES 6244 Stirrup Road Cincinnati, OH 45244 513-703-7779 Phone Contact Rick Wehder       The Mythology of Roll-Ups (June 23, 2005) If there is one defining strategic maneuver that has captivated the capital markets over the past ten years, it has to be the roll-up.  Industry consolidations are a natural expression of the need for a more centralized approach to productivity and efficiency in a value chain.  So why do most of these combinations fail when, at first blush, they appear to make perfect sense?   Here are six common myths that serve to undermine the majority of consolidation strategies:   Assets = Value In the accounting world, they have something called the cost principle.  That is, assets are recorded at cost and then depreciated over some prescribed period of time.  The idea in a roll-up is to accumulate a bulk of assets on the cheap, within some carefully defined market.  After that, some of these assets may be retired (rationalized), so that the organization can enjoy the advantages of full capacity and a dominant position.   The problem is that assets, as valued by accounting data, are not value at all.  They are risk.  Even accelerated depreciation may not adequately express the ephemeral nature of asset-based capacity in a knowledge economy.   Cash Flow = Value It is true that cash is king, but the speed of change can tip the profit pool from one level of the value chain to another in short order.  Linear progression lacks the dynamic reality of industry evolution.  Roll-ups are often late stage phenomena; attempts to rationalize lots of little cash cows (remember the old Boston Consulting Group model) into one big collective windfall.    The challenge is that markets are a bit like politics, essentially local.  So a distributive approach to national accounts may foster bad decisions in the form of expedited acquisitions by those anxious to invest other people’s money.  The end result is a mixed bag that never quite adds up to the hefty summation so artfully intimated by the prospectus.   Stock Multiples Versus Cash Milton Friedman once wrote that the least efficient form of consumption is when a person spends someone else’s money on behalf of someone they do not know.  Such is the mindset in stock purchases, based on sky-high multiples versus cold, hard cash.   Alan Greenspan referred to public company earnings multiples as “irrational exuberance,” the same chimerical optimism that caused many business owners to accept stock-based valuations as opposed to cash for their companies.  The public offering has proven an effective tool for buying solid little businesses with what amounts to Monopoly money, turning high hopes and goodwill into sour grapes.    Humans Are A Variable Cost There is an English comedy called The Office in which they are always talking about eliminating redundancies.  Consolidators often treat the human being as a simple variable, easily subtracted in the easy mathematics of roll-ups.  They consider the loss of entrepreneurial oversight, paternalistic wisdom, empathy, or a simple passion for the art as something to be effectively managed through process and policy.    Humans are not resources; they are knowledge - which is value.  They are also remarkably effective when it comes to destroying a transaction one tiny bit at a time.   Saving Our Way To Success (Economies of scale) Roll-ups are supposed to result in substantial savings from the elimination of all kinds of redundancies.  However, in our over-regulated, litigious society, there is a tremendous cost to being big.  If you are a manufacturer, according to the National Association of Manufacturers, the disadvantage of being big, relative to your peers in Europe and Japan, is in excess of 20%.    The additional costs of unfunded mandates, healthcare, legacy considerations, taxation, etc., are often not adequately considered in roll-ups.  I have one client, a small public company with less than $1 billion in revenue that has added well over $1 million to its annual audit costs from Sarbanes-Oxley.   In a roll-up, the redundancies in the accounting department give way to new redundancies in the finance department.  The costs associated with indulgent entrepreneurs give way to indulgent lawyers and consultants.  Where a small business could tighten its belt overnight, a large one may not be able to respond as quickly, lest it eviscerate the available capacity it promised its large, national customers.   Barriers To Entry (Foreign and Otherwise) Finally, foreign competition is often the unseen enemy of late stage consolidations.  By foreign, I mean competitors from afar that benefit from Keynesian economies, preferable tax treatment, and a dearth of employment-related oversight.  Nature abhors a vacuum, and a lack of tough competition invites the away team to challenge us here at home.   There is another definition of foreign, and that is the emergence of new forms of competition that did not exist before.  Consolidation breeds fragmentation, with new approaches to an old problem that are free to arise out of the ashes of the old model.  If you can’t compete with Blockbuster’s rental network, send it through the mail.   Conclusion Productivity and operational efficiency are easy concepts to understand, and that is why roll-ups have been popular in the capital markets.  They offer the promise of control in a world better characterized by chaos.   If we roll-up my six observations in order to identify a root cause for failure in consolidations, I think it would be in the assumption that business is complex and people are simple.  Therefore, the financial brain trust that controls the capital markets can simply reduce the complexities of business to a repeatable algorithm and eliminate the cost of people, along with their litigious natures and onerous welfare costs.   I used to worry for clients who were faced with the ominous specter of an industry consolidation.  Today, I see it as the unwitting arbiter of fresh opportunity.       About Enough (June 11, 2005) A young banker once attended a planning preview that I conducted for the Louisville Chamber of Commerce.  His bank was considering a sponsorship for my strategy program.   He declined the opportunity, and his reasoning was as follows: For the vast majority of entrepreneurial banking clients, $250,000 and golf two days a week are enough.    Understanding that we see the world as we are, I agreed with him, and we moved on.  At least he knew what he wanted.    Just as the book, Good To Great, begins with the statement, “Good is the enemy of great,” I have found that enough is the enemy of MORE.  Even though bankers like the idea of enough, with its patina of stability and modicum of risk, it is often the stuff of myopic acceptance for doers, and ironic resignation for thinkers.    Borrowing from Whittaker Chambers, one could say that enough is akin to the “complacency that is futility’s idiot twin.”  Enough, like a Swanson TV Dinner, is only enough for one.   About MORE Emerson felt that society was like a wave, with its ups and downs, but with no particle changing its position relative to any other.  There is only the perception of movement, which mollifies the mob with a sublime sense of evolution.  Its shallow noise drowns out the wisdom of those who have suffered long enough to recognize the motion for what it is – just enough, but not MORE – survival not prosperity.   I have decided that in the wave of economic life, bankers eliminate the questions through seven levels of review – credit analysis, loan review, loan committee, board approval, internal audit, external audit and the Federal Reserve.  Accountants eliminate the answers through GAAP and Sarbanes Oxley.  And lawyers eliminate the consequences in the absence of elimination.    MORE, versus enough, begins with a decision to seek wisdom as opposed to the sterile ideology of mandate.   Here is some wisdom about MORE, in case you were looking: -         Neurosis is always a substitute for legitimate suffering.  Carl Jung -         Legitimate suffering is the suffering we do in the interest of MORE.  Rick Wehder -         If you desire peace prepare for war; if you would endure life, prepare for death.  Sigmund Freud -         It is a peculiarity of man that he can only live by looking to the future.  And that is his salvation; even in the most difficult moments of his existence.  Victor Frankl  -         Only life abides, not the having lived.  Ralph Waldo Emerson -         Chaos is the law of nature; order is the dream of man.  Henry Adams -         MORE is: o       More schoolhouses and less jails. o       More books and less arsenals. o       More learning and less vice. o       More leisure and less greed. o       More justice and less revenge. o       More of the opportunities to cultivate our better natures. o       To make manhood more noble. o       To make womanhood more beautiful. o       And childhood more happy and bright.  Samuel Gompers, First President of the American Federation of Labor   And furthermore, MORE is: -         More freedom and fewer rules. -         More than one can achieve alone. -         Negotiated not dictated. -         The basis for accountability. -         The basis for the delegation of authority. -         The foundation for responsibility. -         The justification for rewards and increasing authority. -         The context for purposeful, self-interested action. -         The context for learning and development through experimentation. -         The foundation for the accumulation of relative knowledge. -         The foundation for individual understanding and reason. -         The context for evolution ahead of competitors. -         Meaningful work. -         MORE than $250,000 and golf two days a week.   MORE may be enough, but enough is never MORE.       The Corruption of Power (March 23, 2005) As Lord Acton observed, “Power tends to corrupt, and absolute power corrupts absolutely.”  Both the right and the left consider their opponents corrupt, while the middle tends to shift from one to the other as the mob seeks access to the spigot.   Someone once said that, “Whenever everyone else is wrong, everyone else is right.”  No matter who you may regard as “everyone else,” chances are that there is at least some truth to an offending assertion.  In other words, one-sided liberalism is as corrupt, when empowered, as one-sided conservatism.  But why?   I believe the answer lies in the wisdom offered by Freiderick Hayek in his classic book, The Fatal Conceit, in which he states, “All that is known is not knowable by one.”  In other words, the economic principle of perfect information is a myth.  Information is more than price, and therefore it is impossible for one individual to consider all of the facts, not to mention innuendo, surrounding any particular situation facing the entire collective of society.   So what is corruption?  It is most often the well-intended expression of an incorrect set of assumptions, ultimately favoring those closest to power.  After all, we are self-interested beings who can only see the world as we are.    Consequently, in the perception of “everyone else,” those in power are inevitably painted as corrupt.    This principle applies no matter who is on top.  Corruption is therefore minimized in any system that provides for a shift in leadership once the offense becomes obvious enough to the masses.  Or, once the masses come to realize they are not getting theirs.    What’s the business message here?  Simply this:  The greatest outcome, over time, is the one that best addresses the disparate self-interests of all of the constituents to the idea we call a business.  Negotiators beat dictators through the will of the masses.  Or, as Napoleon said, “The moral is to the material, as three is to one.”  Success is about freedom, not control.       Fairness = Less (October 22, 2004) There is a philosophical construct called The Prisoners’ Dilemma.  It assumes that you and I have been arrested, although the arresting authorities have a pretty thin case to support a very serious charge.  Even though we are innocent, there is enough circumstantial evidence to support a lesser charge that carries a six-month jail sentence.   Since you and I are separated at the time of arrest, we must individually choose from the following options during our questioning by the authorities:   Option #1 (Score: freedom = +3 for one of us, a life sentence = 0 for the other) One of us may choose to remain loyal to the other and offer no information, while the other defects and incriminates the loyalist on the more serious charge.  As a consequence, the defector (+3) will be immediately set free under a plea agreement, while the loyalist (0) will receive a life sentence.   Option #2 (Score: Dual 10 year sentences = +1 for each of us) We can both defect, each incriminating the other.  In return, we will get ten-year sentences (+1 for each).   Option #3 (Score: Dual 6 month sentences = +2 for each of us) We can remain loyal to one another by giving no information to the authorities, and serve our six-month sentences (+2 for each) for the arrest charge.