The Power of Irrational Explanations
“Economics and politics prevented the professor from returning to more literary pursuits until 1990, when he published A Tenured Professor—this still stands on its own merits as a darkly funny campus novel, to my mind.  The novel’s protagonist, Professor Montgomery Marvin, is the inventor of the Index of Irrational Expectations, or IRAT.  IRAT , which allows him to profit from the wrongheaded optimism of the market through comfortable statistical means.  Marvin and his wife use their well-gotten gains for altruistic, liberal purposes, while Galbraith gets in his digs at everyone from the Wall Street raiders to Ronald Reagan to Cambridge’s intellectuals: ‘No one has ever been known to repeat what he or she has heard at a party, only what he or she has said.’” 

Sweet Goes Low
As in many family companies, some of which we have counseled, bad family management prevented Sweet and Low from growing into a giant, but it did not kill it.  Often a family astray will turn a tiger into a sloth, but not kill it.  Danile Akst does an apt review of Rich Cohen’s Sweet and Low in the Wall Street Journal, April 7, 2006, p. W7.  Cohen knows the whole warts-filled story, because he was the Cohen son.  The company got its start because the founders saw a clunky sugar dispenser in a restaurant.  They came up with a mixture of cyclamate, saccharine and lactose—sweet, easy to use, but not  fattening.  Because of poor management, competitors Splenda and Equal pass it by.  The next generation reportedly were involved with the mob and they looted the company.  In 1969, the FDA issued a ban on cyclamate, and later saccharine itself got into the doghouse.  Later, science reversed itself, and neither sweetener is now considered a carcinogen.  The company continues, but it has never been the same, since the government and family canker attacked it. 

Akst says Cohen has devised a few rules about family success: 

Do not observe primogeniture: birth order has no significance.
There is nothing immediate about immediate family.
Make the kid work for it. 

The Pin Factory and the Invisible Hand
In his review of David Warsh’s Knowledge and the Wealth of Nations, Paul Krugman tells of the struggle between “the Pin Factory and the Invisible Hand,” a paradox Warsh develops in his book.  Through increasing scale and specialization, enterprises increase productivity and drive out smaller competitors, finally achieving monopoly.  The problem, of course, is that it is an assemblage of competitors that makes the market system work, letting new ideas, best practices, and better values rise to the surface.  Both scale and the lack of it can present problems.  The trouble with big-scale companies is that they can influence the economy all out of their proportion to their ability to deliver real economic value to a country’s citizens.  They can grow so large that they are only capable of sending signals into the markets, no longer sensitive enough to receive them.  (5/10/06)

Branding and the Senses
Martin Lindstrom says branding is all about touch, taste, smell, sight, and sound.  In his Brand Sense: Build Powerful Brands through Touch, Taste, Smell, Sight, and Sound, this ad executive says we have to go beyond print and TV where we work through the eyes, capturing consumers by connecting with the 5 senses.  “Mr. Lindstrom suggests that brandbuilders can learn from organized religion, where sensory experiences (the small of incense, the cry of the muezzin or the taste of a sacramental wafer) have been blended for centuries to bind consumers closer to  the faith” (The Economist, April 23, 205, p. 80).  (1/4/06)

The Decade’s Best Seller
“Under Drucker’s tutelage, Warren’s own success as a spiritual entrepreneur has been considerable.  Saddleback has grown to 15,000 members and has helped start another 60 churches throughout the world.  Warren’s 2001 book, The Purpose-driven Life, is this decade’s best seller with 19.5 million copies sold so far and compiling at the rate of 500,000 per month.”  Rich Karlgard interviewed Peter Drucker “On Leadership” for Forbes on November 19, 2004.  He got two for one that day, also conversing with Rick Warren, pastor of the immensely successful Saddleback Church in Orange County, California as part of the same dialogue.  Warren has put together a huge ministry—without TV—and, as evidenced by his book, stays on message, dwelling on the essentials of a purpose-driven life.  Warren has been able to get churches throughout the country to spread his message and sell his book, collaborating, if you like, with other pastors and avoiding the cumbersome and expensive process of developing the bricks and mortar which would go into his own distribution network.  His has been a cooperative or networking enterprise.  (1/4/06)

Update: “Jesus, CEO.”  The Economist (December 20, 2005), in an irreverent mood, talks about how churches are having to model themselves on businesses and, in particular, to learn the rules of marketing:

This emphasis on customer-service is producing a predictable result: growth.  John Vaughan, a consultant who specialises in mega-churches, argues that 2005 has been a landmark year.  This was the first time an American church passed the 30,000-a-week attendance mark (it was Lakewood, which earlier this year moved into its new home in Houston's Compaq Center).  It was also the first time that 1,000 churches counted as mega-churches (broadly, you qualify if 2,000 or more people attend).  …

Most successful churches are humming with technology.  Willow Creek sports four video-editing suites.  World Changers Ministries has a music studio and a record label.  The Fellowship Church in Grapevine, Texas, employs a chief technology officer (and spends 15% of its $30m annual budget on technology).

Willow Creek has a consulting arm, the Willow Creek Association, that has more than 11,500 member churches.  It puts on leadership events for more than 100,000 people a year (guest speakers have included Jim Collins, a business guru, and Bill Clinton) and earns almost $20m a year.  Rick Warren likens his “purpose-driven formula” to an Intel operating chip that can be inserted into the motherboard of any church—and points out that there are more than 30,000 “purpose-driven” churches.  Mr. Warren has also set up a website, pastors.com, that gives 100,000 pastors access to e-mail forums, prayer sites and pre-cooked sermons, including over 20-years-worth of Mr. Warren’s own.

Obviously there are some downsides for religion and faith as earthly showboating comes to dominate, even obliterate spiritual focus.  But it is part of a wider shift that is occurring in non-profit institutions that cater to large audiences—from churches to universities to museums.  They are having to retool themselves to deal with consumers who are terribly busy and who often prefer to take entertainments and leisure at home, eschewing mass environments.  Undercapitalized institutions of any type who have not re-invented and invested in their product are losing audience share, particularly smaller institutions.

These mega-churches have put entertainment tactics to work, even as many of the principal organized religions continue to experience attrition.  “The number of Methodist lay member fell 0.7% from 2002 to 2003, to 8.2 million.”  This has led both Methodists, as well as Episcopalians, to reach out for members through advertising.  The Episcopal Church experienced a “1.6% membership decline between 2002 and 2003” (Business Week, September 26, 2005, p. 14).

Meanwhile economists are getting into thinking about religion as a business, theorizing about “how people ‘buy’ and ‘sell’ the goods and services—material and spiritual—that religious organizations provide.”  See Business Week, December 6, 2004, pp. 136-38.  Likewise, they are looking into religious terrorism.  Pre-eminent in this field is “Laurence R. Iannaccone … professor at George Mason University” who studied under Gary Becker at Chicago, who heads up the Association for the Study of Religion, Economics & Culture.  In effect, economists who study such things suggest that consumers exhibit the same rationality in buying religious goods as they do with other economic choices.  Timur Kuram at the University of Southern California is looking at how religions affect economic growth, noting the constraints Muslim belief have put on Islamic societies, which he details in Islam and Mammon: The Economic Predicaments of Islamism.

R. Buckminster Fuller
If we were to recommend a read for tired businesspersons or wet-behind-the-ears MBAs, it would be R. Buckminster Fuller’s Operating Manual for Spaceship Earth.  That wonderful futurist and spinner of geodesic domes wrote this short, accessible book that says you have to be an intellectual pirate to win globally.  That’s about right.  The shortest distance between two points is not on the highways, sea lanes, or air passages plotted by our bureaucrats, but on the pathways that never made it onto the maps.

Lewis and Sports Management
Michael Lewis has to be one of the more interesting chroniclers of our time, and he has caught hold of some trends that we all seem to miss.  We have not really followed the in’s and out’s of his career, but we think his life as author got started in Liars Poker, where he recounted his own life before writing at Salomon Brothers.  In this witty book, he showed investment banking to be a pissing game where the contestants go to all sorts of pains to show who has the longest stream.  The theme of gamesmanship and competitive antics shows up a lot in his writing, revealing, in The New New Thing, Jim Clark of Silicon Valley to be first and foremost a gambler in who very much understood the art of bluffing.

We’re taken as well by his writings about big-time athletics.  There, we think, he depicts avant garde management processes that leave the business world in the dust.  On the one hand, he has shown how general managers with limited resources can put together winning ball clubs by combining statistical analysis with recruiting.  We discussed just this in “Sportsmanship”:

Michael Lewis’s Moneyball: The Art of Winning an Unfair Game lays out how General Manager Billy Beane has used statistics and intellect to put together winning ball clubs at the Oakland Athletics.  Similar systems for measuring value have buttressed the Red Sox under the guidance of GM Theo Epstein.  They have proven that there’s a lot to be had in the dregs of the wine bottle and the leftover players whom nobody wants.  This is all part of a tendency of the new breed of managers to get very much more out of limited resources.  Increasingly, we will be using mathematics in several fields of activity to marshal what we need in an environment where the options are constantly changing.

Not Learning at Harvard
Years ago, Mark McCormack put out What They Don’t Teach You at Harvard Business School.  We suspect they don’t teach the essence of branding there either—or even at Northwestern’s Kellogg School of Management, which is felt by some to be the temple of marketing.  The schools teach the science of marketing, which is about how to slice and dice markets: branding is about the art of engagement where we try to conquer the inherent distance between a maker of a product and his ultimate customer.  (3/1/06)

Meeting of the East and West
It’s very, very hard for the Western mind to operate globally.  We have always had an eye for the particular, rather than the whole—both a strength and a weakness.  The East has tended to see the whole.  For more on this, see F.S.C. Northrop’s Meeting of East and West.  Right now our near-sighted compulsions are hamstringing us in business and in geopolitics.  (2/25/06)

DNA Companies
In “Fire and Darkness,” we suggested that a leader could not grasp his times unless he landed on the correct philosophical base.  Those adhering to constructs that posit a static world will not do well now: better to be a Hegelian, or a Heraclitean existentialist.  Those trying to work out a strategy for an organization have much the same dilemma: if they do not understand the dynamic nature of modern systems, they will try to separate structure from process, when both have become one and the same. The Economist got to this very idea in “The New Organisation,” January 21, 2006, p. 18: “In the 1990s engineering enjoyed a renaissance, in the guise of Business Process Re-engineering (BPR), the dominant management idea of that decade.”  This, by the way, largely turned out to be an idea that jibed with an era of restructuring and cost-cutting, but not with substantial business transformation and revenue enlargement.  “The ‘new organisation’ breaks free of this engineering heritage.  In Results, a recent book by two Booz Allen consultants … the authors talk about ‘the DNA of living organisatons.”  “McKinsey’s Lowell Bryan also talks about ‘the personality of the firm.’”  As The Economist puts it, this is a corporate switch from “Lego to DNA.”  We would suggest that this paradigm shift mandates an organic interpretation of the company and, more importantly, a complex look at its interaction with its environment, something we used to call ‘markets.’  (5/10/06)

The Pin Factory and the Invisible Hand
In his review of David Warsh’s Knowledge and the Wealth of Nations, Paul Krugman tells of the struggle between “the Pin Factory and the Invisible Hand,” a paradox Warsh develops in his book.  Through increasing scale and specialization, enterprises increase productivity and drive out smaller competitors, finally achieving monopoly.  The problem, of course, is that it is an assemblage of competitors that makes the market system work, letting new ideas, best practices, and better values rise to the surface.  Both scale and the lack of it can present problems.  The trouble with big-scale companies is that they can influence the economy all out of their proportion to their ability to deliver real economic value to a country’s citizens.  They can grow so large that they are only capable of sending signals into the markets, no longer sensitive enough to receive them.

Profits of Doom
As much as anybody, Ernest Sandberg at the University at Buffalo has cornered the academic disaster market.  In planning, he is doing considerable work on terrorism and natural disasters.  He has also ploughed a lot of  other ground as evidenced by his book The Economy of Icons: How Business Manufactures Meaning in which he claims that image not information is the driving force of our economy.  We find it interesting to discover how image conscious Sternberg and his colleagues are: they positioned themselves well to attract notice from Hurricane Katrina, and the press took the bait. Probably more profound is Theodore Steinberg’s book Acts of God: The Unnatural History of Natural Disaster in America.  It documents how many natural disasters have been magnified through grave human error.  Hurricane Katrina was magnified by the huge loss of wetlands in the Gulf area.  Interestingly, we find the theoretical work on disasters and disaster recovery is really a bit thin.  (11/2/05)

Slaves at Work.  In the November 28, 2005 issue of the New Yorker, its one-page business columnist James Surowicki frets about “No Work and No Play.”  By and large, or so he claims, the Europeans (particularly the Germans and French) work about 25 to 30% less than Americans.  Basically he attributes this to the strength of the labor unions on the Continent.  According to Surowicki, this has led to higher rates of unemployment in Europe since the service trades such as foodservice and domestic care have not flourished there as in America.  The Europeans don’t eat out as much or use as many household helpers.

As near as we can tell from all the surveys, job satisfaction has gone into the tank for both Americans and Europeans.  But at least the Europeans are working less—or not at all, so they have less to be dissatisfied about.  We should note that mental anguish and depression are rampant in all developed cultures, which we take to be a result, at least in part, of the mindnumbing nature of modern work, work that has no end.

Depression aside, economists rave about rising productivity in the U.S.—but one has to look carefully at all this.  Some would say that the productivity miracle in the U.S. is less than meets the eye.  One bright Wall Street analyst theorizes that Americans have not become more productive, but are simply working longer hours.  We find that this is particularly true of middle managers, whose ranks have been thinned out by corporate cost-cutting and who are taking up the slack by putting in 14 to 16 hour days.  Barry Lynn talks of multinational corporations that have become far too lean in End of the Line: The Rise and Coming Fall of the Global Corporation.  There is evidence, incidentally, that suggests that the much maligned French are more productive than U.S. workers, but that their economic output falls short of ours simply because they are cumulatively working less hours.

Freakonomics
This is the nicely deviant title of Professor Steven Levitt’s new book, which has earned him all sorts of attention from the pundits.  Readers of the Global Province have previously encountered him in “Chicago Has Got It,” in our Big Ideas section.  By double sifting economic data, he reaches a host of conclusions about why things in our society are the way they are, upsetting many of our complacent notions about what makes us tick. 

John Tierney in The New York Times (“The Miracle That Wasn’t,” April 16, 2005, p. A270) reported on a debate between Malcolm Gladwell and Levitt where the Chicago professor’s idea that abortion lies behind falling crime rates won the day.  Longer prison terms, increased policing, etc. do not seem half as important in crime’s decline when you follow the Prof’s train of logic.  

The thought, oversimplified, is that fewer children of unwed mothers get out on the street when free and easy abortion is at hand.  They, unfortunately, account for a lot of crime.  Our hunch is that his “abortion” theory holds water, but that it really is still only one of a potpourri of factors that make for falling crime rates.  Crime maps and statistical analysis also have simply led to much more effective policing.  Broadly, of course, changing demographics have a lot to do with crime attrition.  Since abortions have increased under the Bush administration, we can only assume that the Republicans have become unwitting crimefighters, much to their chagrin.  Some, of course, will find the discovery  of the abortion factor equivalent to the Reverend Jonathan Swift’s  “Modest Proposal,” a satirical essay where the author proposes to eliminate population and starvation problems in the Emerald Isle by getting the Irish to eat their children.  

More on Microfinance
Everybody from Bono to Bill Gates is taking a whack at world poverty, a field open to all comers since nobody has a good model for getting at the problem.  Pierre Omidyar, founder of eDay and co-founder of Omidyar Network, has gotten into the act by taking up the cudgels for microfinance.  He is funneling $100 million to microfinance institutions via The Omidyar-Tufts Microfinance Fund.  In fact, microfinance is very much the enthusiasm of this decade, which one can read about in The Economics of Microfinance and in the publication Microfinance Matters.  All this was set in motion by the Peruvian Herman de Soto. 

Sweet Goes Low
As in many family companies, some of which we have counseled, bad family management prevented Sweet and Low from growing into a giant, but it did not kill it.  Often a family astray will turn a tiger into a sloth, but not kill it.  Danile Akst does an apt review of Rich Cohen’s Sweet and Low in the Wall Street Journal, April 7, 2006, p. W7.  Cohen knows the whole warts-filled story, because he was the Cohen son.  The company got its start because the founders saw a clunky sugar dispenser in a restaurant.  They came up with a mixture of cyclamate, saccharine and lactose—sweet, easy to use, but not  fattening.  Because of poor management, competitors Splenda and Equal pass it by.  The next generation reportedly were involved with the mob and they looted the company.  In 1969, the FDA issued a ban on cyclamate, and later saccharine itself got into the doghouse.  Later, science reversed itself, and neither sweetener is now considered a carcinogen.  The company continues, but it has never been the same, since the government and family canker attacked it.  

Akst says Cohen has devised a few rules about family success: 

Do not observe primogeniture: birth order has no significance.
There is nothing immediate about immediate family.
Make the kid work for it. 

DNA Companies
In “Fire and Darkness,” we suggested that a leader could not grasp his times unless he landed on the correct philosophical base.  Those adhering to constructs that posit a static world will not do well now: better to be a Hegelian, or a Heraclitean existentialist.  Those trying to work out a strategy for an organization have much the same dilemma: if they do not understand the dynamic nature of modern systems, they will try to separate structure from process, when both have become one and the same. The Economist got to this very idea in “The New Organisation,” January 21, 2006, p. 18: “In the 1990s engineering enjoyed a renaissance, in the guise of Business Process Re-engineering (BPR), the dominant management idea of that decade.”  This, by the way, largely turned out to be an idea that jibed with an era of restructuring and cost-cutting, but not with substantial business transformation and revenue enlargement.  “The ‘new organisation’ breaks free of this engineering heritage.  In Results, a recent book by two Booz Allen consultants … the authors talk about ‘the DNA of living organisatons.”  “McKinsey’s Lowell Bryan also talks about ‘the personality of the firm.’”  As The Economist puts it, this is a corporate switch from “Lego to DNA.”  We would suggest that this paradigm shift mandates an organic interpretation of the company and, more importantly, a complex look at its interaction with its environment, something we used to call ‘markets.’  (5/10/06)

Oil, Oil Everywhere?
We have been very busy telling you to buy yourself several pairs of winter underwear, because the world is running out of fossil fuels, and it seems destined to make a very uneasy transition to fusion energy and other alternatives.   See “Electric Power and Staying Power,” as well as items 58, 86, 141, 166, 177, 178, and 180 on Big Ideas. 

Nothing is as simple as it seems, so we will now confuse you and ourselves yet more.  Take a peek at The Bottomless Well: The Twilight of Fuel, The Virtue of Waste, And Why We Will Never Run Out of Energy by Peter Huber and Mark Mills.  Or get the short version in “Oil, Oil, Everywhere…,” Wall Street Journal, January 27, 2005, p. A13.  “The price of oil remains high only because the cost of oil remains so low.  We remain dependent on oil from the Mideast not because the planet is running out of burled hydrocarbons, but because extracting oil from the deserts of the Persian Gulf is so easy and cheap that it’s risky to invest capital to extract somewhat more stubborn oil from far larger deposits in Alberta.”  “In sum, it costs under $5 per barrel to pump oil out from under the sand in Iraq, and about $15 to melt it out of the sand in Alberta.”  “The $5 billion (U.S.) Athabasca Oil Sands Project that Shell and ChevronTexaco opened in Alberta last year is now pumping 155,000 barrels per day.”  “And capital costs are going to keep falling, because the cost of a tar-sand refinery depends on technology, and technology costs always fall.  Bacteria, for example, have already been successfully bioengineered to crack heavy oil molecules….”  “U.S. oil policy should be to promote new capital investment in the United States, Canada, and other oil-producing countries that are politically stable, and promote stable government in those that aren’t.”  Is it possible that we won’t have a fossil fuel crisis?   

Please notice that  we have rather neglected the issue of tar-sands and will take it up in future notes. Alberta, incidentally, because of its oil wealth, is able to sneer at the fellows in Ottawa.  Don’t be surprised if it separates from Canada well before Quebec. (2/9/05)

Against the Gods
Peter Bernstein, the author of Against the Gods, a book about the history of financial risk, and thinker about many facets of investment, explains well how the intelligent management of risk really underlies the growth of capitalism as we know it.  Of course, risk management, whether we are dealing with terrorists, disease, fractals, or financial bubbles, demands a rather dispassionate ability to weigh the odds and estimate the probabilities.  The gods will strike us down if we cannot reckon with the many   simultaneous plots in which they have decided we will be actors.  For more on Bernstein, see “Getting the Boardroom off Unemployment,” “Don't Worry About the Copperheads; The Big Bear Will Get You First,” and www.peterlbernsteininc.com.

Museums and Retail
Rob Walker, who now writes regular consumer marketing columns for the New York Times Magazine, most recently has discussed the link between museums and stores.  (See “Museum Quality,” New York Times Magazine, January 9, 2005, p. 25), telling how the Museum of Modern Art has now created a store within its store featuring goods from Muji, a company in Japan that is expanding in Europe and the U.S.  Apparently this is all remarked upon in James B. Twitchell’s book Branded Nation.  The retail activities of museums seem to be yet another extension of the idea of taking highly branded goods and offering them in a fine, highly controlled retail environment.  In much the same manner, in years past, a Japanese manufacturer of high-end toilets offered them in a well designed showroom that simultaneously served as a toney coffee house for high-end consumers. 

Too Poor for Wal-Mart
Try as it might, Wal-Mart cannot seem to get past the law suits and allegations that alleges that it treats its employees unfairly (terrible healthcare policies and failure to pay for overtime), pays them too little, and discriminates against women when it comes to promotions, etc.  Barbara Ehrenreich, who even worked for the company for a while to investigate its practices, just wrote a satirical column with a huge amount of sting entitled “Wal-Mars Invades Earth,” The New York Times, July 25, 2004, p. WK 11.   She is the author of Nickel and Dimed: On (Not) Getting By in America, which deals with the struggles of the lowest wage earners, a growing segment of our population, in trying to make ends meet.  Both the chairman and chief executive of Wal-Mart make reference to the social and environmental concerns the company has aroused in its current annual reports.

Business Sense: Mr. China
In the July/August 2004 issue of Global Finance (pp. 17-19), Winter Wright offers Westerners getting started in China sundry do’s and don’ts on dealing with a climate that still does not really have an enforceable business code.  Above all, he suggests, you should not suspend the commonsense you would display in any other country.  Don’t place blind trust in a local business partner.  Understand that a government bureaucrat, particularly one on the take, can put you in business or out of business in a moment.  Find a way to achieve scale (perhaps, with alliances) even if you are small, since that is paramount to getting traction with the locals who are the gatekeepers of your success.  Know that China does not really score that high on the criteria put out by the International Finance Corporation in its Doing Business in 2004, which you can now read about in Agile Companies.  

Our man in Hong Kong, Andrew Tanzer, reviews below with high praise Mr. China, an almost tell all by a writer who actually knows a lot.  It gives you a sense of what you have to deal with in China.  But as Tanzer points out, with all the complications, there’s still plenty of success to be had in an economy growing 8% a year: 

Let’s say an aggressive journalist with a keen sense of smell sniffs an undisclosed scandal or investment debacle in a corporation.  He or she approaches the company fortress and is greeted by obfuscating or stonewalling executives, oily PR handlers, barking lawyers.  Hard-nosed and energetic, the reporter interrogates suppliers, customers, ex-employees, ex-spouses, garbage handlers—anyone, to get the scoop.  Weeks later, the editor rings to say time is up: the paper has deadlines; resources are finite.  The paper trumpets an investigative expose that is maybe half of the real story. 

The beauty of Mr. China, by Tim Clissold (Constable & Robinson, London, 2004), is that the stories are all there.  With rich, delectable anecdotes, Mr. China illuminates scams in China, piles high the dirt and etches heroes’ and villains’ portraits memorably.  The tales of foreign investment disaster, and conflict between the Chinese and the foreign barbarians, oscillate between comedy and tragedy. 

Clissold, of course, is no journalist.  A Chinese-speaking Briton, he had a front-row seat in the 1990s as second in command at a foreign private-equity investor he doesn’t identify.  Nor does he identify “Pat,” the boss, a master of the universe from Wall Street who somehow raised $418 million in the U.S. in the mid-1990s to invest in China.  We’ll make an educated guess: the firm is Asimco and the Wall Streeter with the China dream is Jack Perkowski.  Mr. China is the story of vanishing dollars and the unraveling of that China dream. 

Pat focused on two industries: motor-vehicle components and beer, businesses where he figured he could buy Chinese factories and be the great consolidator.  A consummate salesman, he had no trouble raising over $400 million in the U.S.; perhaps more surprisingly, he invested the entire amount in just two years.  Then the cultural learning experiences commenced. 

The first deal, an ignition-coil factory in Changchun (the Detroit of China), Northeast China, went like this: the foreign side invested cash for 60% of the business; the Chinese put up land and buildings for a 40% stake.  A few weeks after the deal closed, the Chinese factory director called to say there was a slight problem: “Our factory’s land … is not registered in our name so we can’t put it in.  Does that matter?” 

After the foreigners invested in a gear-wheel factory for motorcycles in Sichuan, the factory director flew to Beijing to seek approval for a gearbox factory.  The foreign investors rejected the proposal.  Next visit to Sichuan, Clissold was stunned to find a new plant under construction, “‘Er, Mr. Su, what’s that?’” he asked.  “Mr. Su, beaming from ear to ear, announced proudly, ‘It’s the new gearbox factory.’” 

But these lessons were mild compared to what was to come.  Up at an electrical components factory in Harbin, when the foreigners attempted to sack the manager, he coerced suppliers to stop shipping parts to the plant and told customers that the plant was going bust.  Down in Zhuhai, Guangdong, the factory director of a brake-pad factory stole millions of dollars through issuing phony letters of credit that a Chinese bank opened without proper authorization.  Clissold visited the Zhuhai Anti-Corruption Bureau to ask for an investigation.  The chap in charge of cases involving foreign investors said he’d investigate, but “in order to do so we would have to give him a ‘car and some working capital.’”  When the foreigners sought justice against the bank in a local court, the case was thrown out even though the bank “lost” documents demanded by the court. 

One of the best factory directors in their universe, in Anhui, built a second factory in direct competition.  When the foreigners sought legal action, the warlord-like factory director milked his relations with local government and apparently fomented a factory strike.  Demonstrations turned so violent that the local government called out the military. 

Over at an electrical-motor factory in Hubei, the joint venture factory director siphoned profits into the Chinese partner through sales offices that operated in the partner’s name.  When the foreigners attempted to sack the director, violence erupted.  Nor did the hapless foreigners fare any better in beer.  Shortly after investing $58 million in a beer joint venture in Beijing, Clissold discovered that the money had vanished: it went to repay an overdue bank loan by the Chinese partner, which was owned by the Beijing Government. 

“I was dealing with a society that had no rules—or, more accurately, plenty of rules that were seldom enforced,” writes Clissold.  “China seemed to be run by masterful showmen: appearances mattered more than substance, rules were there to be distorted and success came through outfacing an opponent … a core difference between Chinese and Western business: for a Westerner, a contract is a contract, but in China it’s a snapshot of a set of arrangements that happened to exist at one time.”  Clissold simultaneously felt squeezed by the uncomprehending, impatient investors in the U.S.  Somewhere along the line, the young man had a heart attack while on vacation in France. 

The funny thing is, today China’s car market is booming and rapidly integrating with the global car industry; Chinese breweries are rapidly merging and the beer industry is consolidating.  Reckless and naïve, Pat may just have been a bit ahead of his time.

Information Technology Doesn’t Matter
In May 2002, Nicholar Carr, an editor at the Harvard Business Review, came out with a shattering manifesto in HBR called “IT doesn’t matter.”  It so shook up CIOs that he has now come out with a book of the same name.  (See IT Doesn’t Matter—Business Processes Do.)  But he really doesn’t mean it.  “For commerce as a whole, Mr. Carr is insistent, IT matters very much indeed.”  His thought is that IT only becomes “revolutionary for society only when it” ceases “to be a proprietary technology, owned or used by one or two factories here and there, and instead” “an infrastructure –ubiquitous, and shared by all.”  See The Economist, April 3, 2004, p. 70.  “Since IT can no longer be a source of strategic advantage, Mr. Carr urges CIOs to spend less on their data-centres, to opt for cheaper commodity equipment wherever  possible,  to follow their rivals rather than trying to outdo them with fancy new systems, and to focus more on IT’s  vulnerabilities, from viruses to data theft, than on its opportunities.”  See his website, www.nicholasgcarr.com/
articles/matter.html, in order to gauge the tempest he has stirred up with IT Doesn’t Matter?

The Triumph of Narrative
Robert Fulford of Canada (see www.robertfulford.com) has written and lectured about The Triumph of Narrative: Storytelling in the Age of Mass Culture.  He reminds us that the story is central to every culture, lending meaning to our lives by artfully connecting up the events that surround us.  We have previously alluded to the role of the story in our lives in our 19 August 2002 Global Province letter, “Stories R Us.” 

What’s new in 2004 is that the story today not only is at the heart of culture but is also cropping up more and more in business practice as enterprises try to build more authentic connections with their employees, customers, and other constituencies.  In part, this seems to be a reaction to our digital world, where we are assaulted by proliferating bits of information that never seem to add up to anything.  Somebody has to put all this stuff together. 

End of the Line
Apparently the need for a far different global management style is more than a matter of theoretical or academic interest.  Barry Lynn’s End of the Line:  The Rise and Coming Fall of the Global Corporation puts forth a very provocative thesis.  With just-in-time inventory controls, outsourcing of production, deregulation in Washington, a supply chain that stretches around the world, and the elimination of redundant, back-up systems and supplies within the corporation, our global corporations are stretched to the limit and vulnerable to the slightest disturbances in their global networks.  In their quest to cut costs, companies have gone beyond lean and become anorexic.  With increasing frequency, deliveries of oil, computer chips, and vital components suffer costly interruptions.  A collaborative spirit probably will become the grease that keeps a creaky system from grinding to a halt.  And we will be measuring the value of companies by the resiliency they show in the midst of breakdowns.  See www.randomhouse.com/doubleday/catalog/display.pperl?isbn=9780385510240 and www.newamerica.net/index.cfm?pg=Bio&contactID=430.  Read an excerpt at www.usatoday.com/money/books/reviews/2005-08-26-end-of-line-excerpt_x.htm.

Moneyball
Michael Lewis’s Moneyball: The Art of Winning an Unfair Game lays out how General Manager Billy Beane has used statistics and intellect to put together winning ball clubs at the Oakland Athletics.  Similar systems for measuring value have buttressed the Red Sox under the guidance of GM Theo Epstein.  They have proven that there’s a lot to be had in the dregs of the wine bottle.  This is all part of a tendency of the new breed of managers to get very much more out of limited resources.  Increasingly, we will be using mathematics in several fields of activity to marshal what we need in an environment where the options are constantly changing.

Story, Inc. 
Numerous large companies are now using storytellers in a host of ways.  Hewlett-Packard, the W.K. Kellogg Foundation, and Pixar use story consultants to reinforce corporate beliefs and to teach managers the art of the story and its use in their work.  See “Fabulists at the Firm,” The Wall Street Journal, January 9, 2004, p. W11.  Stephen Denning writes about the use of storytelling in knowledge transmission in The Springboard: How Storytelling Ignites Action in Knowledge-Era Organizations. 

“In Britain,” says the Journal, “corporate storytelling is part of a larger fashion for trying somehow to mesh the arts with business.  One prominent advocate is theater director Richard Olivier, who has a second career going as the director of the Olivier Mythodrama Associates Limited.”  The Brits, we think, theorize that storytelling and literary excursions do more than spread knowledge: They see fiction, plays, even poetry as  devices for inspiring creativity.  In this vein one should take a peek at David H. Adams Ltd., whose founder has held poetry seminars with businessmen on both sides of the Atlantic.  See more about Adams at Poetry and Business #45 on Global Province. 

Stories are creeping into advertisements as well.  Years ago an advertising guru was heard to say, “Truth is what really sells.  Now if we could only package truth.”  Short of that, company brand managers now employ fiction to make a point. 

For instance, Ford of Great Britain has hired British “chick-lit” novelist Carole Matthews to bring spice to its Ford Fiesta by weaving it into her books, by doing monthly stories for its website, and by heading up a Ford short story competition.  It’s thought that this tactic will hook 25-to-35 year-old women.  (See The New York Times, March 23, 2004, p.C2).  We would submit that products such as cars are becoming more and more prosaic; that said, multinationals need to ignite the imaginations of their consumers.  For a moment, Ford is making every young Brit feel she is in the fast lane.  See  www.ford.co.uk/ie/fiesta/fie_experience/fie_carol_land/.

Storyville
We have probably had too much to say about stories and their use in business.  To get some of our thinking on this, please look at our letter, “Stories R Us” (August 19, 2002).  Their application in business, speechmaking, religion, and a skillion other areas of life is a little overdone.  The stories tend to run on.  And sometimes the bizstorytellers are mere propagandists.  That is, they are only telling stories to make a big point, not to simply tell a good story.  Art, first and foremost, whether a story or a painting, is to celebrate beauty and life, not to tilt minds or lay out propaganda.  So corporate storytellers often simply bore us to death. 

That said, there is some merit in understanding the story-in-business movement.  For sure it can make data addicts put their data together in a more communicative form.  To this end, you can read Stephen Denning, “Telling Tales,” The Harvard Business Review, May 2004.  In simple terms, he more or less says different kinds of stories will get different results with your audiences.  Perhaps you will tell an uplifting story if you want to get a crowd behind you, and then a somewhat negative tale if you actually want to train or instruct someone.  There’s a whole layer of complication he adds to the article in order to turn it into business-school fare.  As we remember, he was a corporate development officer at some company until he got into stories.  Nobody pays attention to planning and development guys, so they are frustrated and drift into other fields.  Denning got the point:  planning exercises are analytical and connect with nobody.  To build a bridge with people, you must be emotional and intuitive.  Ah ha, he says—tell a story. 

Mr. Denning is prolific and wordy, so you can read more in his The Springboard: How Storytelling Ignites Action in Knowledge Era Organizations and Squirrel Inc.: A Fable of Leadership through Storytelling.  And, if that is not enough, write him at steve@stevedenning.com.

Bolts out of the Blue
Creativity, claims Ronard S. Burt, a sociologist at the University of Chicago, is all about casting a line for ideas outside your immediate network, finding the askew insight or remapping of your world in somebody else’s backyard.  As quoted in the Times, Burt claims, “The usual image of creativity is that it’s some sort of genetic gift, some heroic act….  But creativity is an import-export game.  It’s not a creation game.”   “As Mr. Burt’s research has repeatedly shown, people who reach outside their social network not only are often the first to learn about new and useful information, but they are also able to see how different kinds of groups solve similar problems.”   (See The New York Times, May 22, 2004, p. A17.)  His book on the subject is called Structural Holes, and it prods us to look into all the corners where we are not networked.  He has used a Web-based tool (www.humaxnetworks.com) to evaluate thousands of personal networks, probing their insularity and openness amongst other things.  For a bibliography on Burt, see www.lib.uchicago.edu/e/busecon/busfac/Burt.html.  

His own ideas about creativity square with our own.  In the world city in which we abide, it is hard to truly get outside the network in which we live.  For that reason, we have repeatedly urged our readers to reach into the small countries that have fallen off the map (Iceland, Finland, maybe the Eastern European countries) to find commonplaces that would be unusual here in America.

The Genetic Century
Our correspondent Andrew Tanzer reviews As The Future Catches You, an accessible, convincing book that essentially says we have entered The Genetic Century.  While Enriquez has a clear political tilt, he is very thought provoking.  Apparently he has two more books in the works, and heads up his own genetics firm besides.  The technology gap between countries is, for him, the dividing line today between the rich and poor nations: 

“We are beginning to acquire direct and deliberate control over the evolution of all life forms on the planet … including ourselves,” writes Juan Enriquez in As The Future Catches You (Crown Business, 2001).  In an almost lyrical writing style, Enriquez, formerly a life sciences professor at Harvard Business School, makes a spirited case for genetics becoming the dominant language of this century.  The unraveling of DNA sequences and genetic coding will shake up industries from pharmaceuticals and medical care to food, animal husbandry and cosmetics, argues Enriquez in this important, admirably concise and accessible book. 

The Mexican-bred author demonstrates through startling statistics and examples how digital-genomics convergence, science and technology literacy and the knowledge economy are creating enormous gaps between nations (and within America).  “Science and technology allow people to multiply their productivity much faster than those who do not have the same knowledge or instruments.”  In 1750, before the Industrial Revolution, the income gap between the richest and poorest nations was 5:1; today it is 390:1, and will soon expand to 1,000:1, due to the IT and genetics revolutions.   

Enriquez is particularly devastating when comparing economic development in Latin America with that in East Asia.  Real factory wages in Mexico, which lags in education, skills and knowledge-acquisition, have been stagnant for 25 years; whereas incomes have multiplied 10-20 fold in tech-savvy Taiwan, South Korea and Singapore.  Taiwanese and South Koreans register 100 times more patents per capita than Brazilians or Mexicans.  “Many governments have yet to understand the logic of a knowledge-driven economy.  They still do not realize that in the age of information, hard work, by itself, is not enough.”  Even Chile faces a bleak future because it generates and sells little new knowledge, leaving its economy naked to volatile commodity- price movements.  

Enriquez warns that the yawning gap in the Americas is a recipe for instability:  “As the hemisphere falls further and further behind the U.S. in the knowledge economy, it gets harder to reduce income disparity, defend open markets, promote democracy, control immigration, fight guerillas, limit drugs.”

Some of the Greats
The advertising that catches our fancy on  TV, perhaps in a newspaper, maybe even on the Internet, usually turns out to be less than meets the eye.  It turns our head, but more often than not, does not generate a lot of sales or provide enduring vitality for a brand to create some real staying power.  Even when we turn to the list of campaigns that have excited insiders in the advert community over the decades, only a very few seem resilient. The Advertising Age 100 quickly becomes 5 or 6 lone morsels when we pour through the list.  The following ads tickle us, not because they are funny, but because they are so simple and direct that they lodge permanently in our memory: 

1. Avis, “We try harder,” Doyle Dane Bernbach Doyle Dane Bernbach, 1963
2. Ivory Soap, “99 and 44/100% Pure,” Proctor & Gamble Co 1882
3. Hathaway Shirts, “The man in the Hathaway shirt,” Hewitt, Ogilvy, Benson & Mather, 1951
4. Reagan for President, “It’s morning again in America,” Tuesday Team, 1984
5. Wendy’s, “Where's the beef?,” Dancer-Fitzgerald-Sample, 1984
6. AT&T, “Reach out and touch someone,” N.W. Ayer, 1979

All of them drive home a simple point that the companies—and, of course, the Reagan Campaign—needed to make so that the world could say, “Why, they’re something special!” 

Of the lot, we think the Avis proposition is the best.  In fact, the company should go back to this “Try Harder” motto.  Avis, at its smartest, played the giant killer, a small but agile opponent to the giant Hertz, somebody who had to strive harder because he’s number two.  It’s nice to buy a service—in this case a car rental—from somebody who says he is working overtime for you.  Of course, we should mention that we rented from Avis just the other day, and the cocky counter man gave us driving instructions that cost us time and money.  Yet, at its best, Avis still has a little of the feisty spirit of Robert Townsend.  He once headed it and went on to write Up the Organization, a simple truth little business book.

Executive Development
For half a century, American business has been spending a carload of money on executive education, but nobody quite knows what the outcome should be.  In our own eyes, FDR got it right.  At least in our management practice, executive development is designed to build each executive’s self confidence as well as his belief in his appointed mission on earth. 

That, as Mark McCormack would have said, is not “what they teach you at the Harvard Business School.”  (See What They Don’t Teach You at Harvard Business School).  Business schools, after all, are simply overpriced vocational schools for future business bureaucrats that acquaint teacher and student alike with arcane technique but not with the metaphors to handle uncertain tomorrows. 

Real Role
The wacky, outré, gay wit Quentin Crisp said that we call young actors adventurous and experimental because they try on all sorts of roles that are largely ill suited to their own personas.  Finally, later in life, they discover their one true role which they play brilliantly, no matter the part in which they are cast.  Then we call them accomplished.  It is the same in life he thought:  each of us spends decades discovering our one true role.   

That’s the other main educational task for senior executives.  They must comprehend the role they really should be playing. 

One of our clients spent his whole life as an accomplished engineer at one of America’s largest corporations.  We worked with him and watched his slow transformation as he worked his way towards retirement.  What happened is that he became an outplacement counselor for senior Fortune 500 executives, a 180-degree career switch where he performed gloriously.   

It had always been evident to us that Ed was intended for other things.  A French TV producer, now a New York restaurateur, had done a feature on him for French TV.  It was evident to the talented Parisian and his audience that this absolutely charming, mannerly, totally kind man should be dealing with people and not equations.  If we are truly to pursue our destiny, such dramatic changes are in store for us.  The writer Arthur Koestler dramatically threw over successful careers two or three times, which not only brought out his talent but saved him from being a victim of the Holocaust.  One can read about this in his marvelous two-volume autobiography Arrow in the Blue and Invisible Writing.  All our lives, said Crisp, we are discovering what our true role is.

Ray DeVoe
Easily the best writer out of Wall Street is Jesup and Lamont’s Ray DeVoe.  His DeVoe Report not only colorfully talks about all the national and global events that drive our financial markets but it nicely strays into all-time great movies, the need for very gloomy New England tropistic men to find sunlight in the Caribbean during the winter months, the progressive tendency of our government, our economists, and our think tanks to fudge the numbers on everything from inflation to productivity, and a host of other illuminating subjects.   

There are two types of seer in Wall Street.  The feelgoods tell you about the latest BMW that will put fizz in your life or the concept stock you have to own because it is going through the roof.  Then there are the band of careful thinkers who warn us about potholes in the road.  They flash caution lights.  Our friend Mr. DeVoe is part of the stop, look, and listen brigade.  He helps you see what’s awry. 

For August he has taken time out for his summer reading program, about which he reports on August 17, 2005.  This year his twoweek reading course included Michael Crichton’s State of Fear, Twilight in the Desert by Mathew R. Simmons, Freakanomics by the two Stephens (Steven D. Levitt and Stephen J. Dubner), Robert Schiller’s Irrational Exuberance, Thomas Friedman’s The World Is Flat, and finally J. Maarten Troost’s Sex Lives of Cannibals.  They are not what the psychiatrists, who go out to the end of Long Island just before Labor Day, would be perusing, but then he hangs out at the Jersey shore. 

His is hardly the light fare we understand Americans want (read about the essence of light and fluffy with Leslie Mooves of CBS in Lynn Hirschberg’s “Giving Them What They Want,” The New York Times Magazine, September 4, 2005, pp30ff).  DeVoe gives us a repast that will leave you morose, rather inert.  Nor, you will notice, is it challenging literature that both ennobles and captures the tragedy of mankind.  It is the flat stuff dreamed up by journalists that largely says we are dying of a 1,000 banalities.  It is the curse of our fourth estate to inflate our sense of futility and to close the book on tomorrow.  This despite the fact that DeVoe is a hail fellow well met, wryly comic, and of diverse interests that escape the workaday world.  In fact, we owe him a bottle of wine. 

The Furtive Economy
One of our readers, inspired by our recent Global Province letter that mused about how the Mafia is able to survive and thrive in an unstable, chaotic world, wrote to remind us of the Peruvian economist Hernando DeSoto who has shown that the lack of sensible property laws in Latin America has terribly held back the members of the  peasantry, making it hard for them to even get micro loans because they do not hold clear title to their land.  They have to scheme in an underground economy because the legal framework does not permit them to advance in a straightforward and efficient way in the visible economic system.  A website deals with his ideas and the whole movement dedicated to creating  the political and legal structure under which real development can occur:  www.ild.org.pe.  You can read selections there, incidentally, from DeSoto’s book  The Mystery of Capital:  Why Capitalism Triumphs in the West and Fails Everywhere Else.  If the  poor in developing countries cannot raise capital in a reasonably efficient manner, then both they and the nations they live in are bound to slog along.  So it’s not just the mob that has had to devise tactics for dealing with a chaotic, senseless world.

Knowledge Management. 
In Adventure Capitalist, Jim Rogers recounts his visit to Siberia.  In Chita, for a short while, he fell in with a local mafia boss who wondered how Rogers and Paige had avoided laying out bribes to assorted Russian officials.  “I know you haven’t paid anybody off, because I checked.” 

It’s safe to say that Alexi, the Boss, got the complete scoop on any foreigner who ambled into his domain.  He made it his business to get every last detail about anything he cared about.  His tentacles reached deep enough to give him the skinny.  His efficacy as a local ruler depended on his ability to trace how the levers were pulled throughout Russian officialdom.

Junkyard Dogs.  The New York Times kicked off the baseball season last Sunday, running an article on the money mechanics, which are now at the heart of pro ball.    Michael Lewis, who knows too much about Wall Street, titles his vivid account of Billy Beane, the General Manager of the Oakland Athletics, scrounging for players, The Trading Desk, an apt pun since trading activities now dominate investment bankers such as Goldman Sachs as well as every other aspect of our economy, including professional sports.  (See New York Times Magazine, March 30, 2003, pp. 34ff.)  Beane and his sidekicks have put a value on every player who counts in the major and even minor leagues and have calculated the value of various trading strategies.  That has allowed them to put together a serious pennant contender with a very low payroll (less than 1/3 of the Yankees $133.4 million tab), although it can’t quite grab them a pennant or World Series.  They have achieved success of a sort by understanding the value of the walking wounded, picking up players in their 30s on a downhill slope, who still have a few serious innings left in them.  They recycle the scraps in the junkyard, always buying cheap.  The article is adapted from Lewis’s forthcoming book Moneyball:  The Art of Winning an Unfair Game.  Needless to say, Billy Beane is a far cry from Connie Mack and the glorious days of the Philadelphia Athletics. 

Swensen’s Doubts
If rising interest rates and declining housing fortunes are not enough to make you nervous about your investments, then take a read of David F. Swensen’s new book Unconventional Success: A Fundamental Approach to Personal Investment.  He’s the wizard at Yale who has generated 16.1 percent long term returns, a record other institutional money managers can only dream about.  This has been instrumental in giving the university an endowment in excess of $15 billion as well as a $500 million-plus annual contribution to its operating budget.  He’s an interesting fellow who beefed up the portion of Yale’s portfolio in equity and alternative investments.  We have had calls from more than one chief executive asking how to copy the Swensen approach. 

He had set out in his book to show the individual investor how to copy his approach.  But he has since realized that Joe Doaks simply can’t do it.  Poor Joe does not have Yale’s research.  He can’t access great hedge managers.  All the mutual funds skewer him, overcharging for mediocre or worse performance.  So dour Swensen would basically have us invest in a mix of index funds where one can at least avoid excess transaction charges.   

Don’t take Swensen too seriously.  But take him seriously.  Like all experts, he has fallen into the trap of believing in experts and expert methodology.  Be assured, for instance, that we and our associates, without benefit of inside information, superior research expertise, or Street wizardry, have long exceeded the averages.  So you can, maybe, do better than Swensen thinks you can. 

But his book, coming out now, has great symbolic value at this very time.  It’s a warning to us.  We are now in financial quicksand where it will be easy to lose your shirt, for the world financial markets are truly a mess: they’re in  much worse shape than when we published our last report in early 2004.  Things are so bad that you truly can expect horrendous returns, if you are looking for short term results (i.e., less than 7 years).  Don’t buy for tomorrow or the day after tomorrow; even the hedge funds are now having trouble investing for 2-, 3-, or 5-year cycles.  Look out a decade.  Read about his book at www.nytimes.com/2005/08/13/business/13nocera.html and see Swensen at http://mba.yale.edu/faculty/others/swensen.shtml.

Attention Deficit
Our friend Tom Davenport just piped us a copy of The Attention Economy, his must read for anybody who wonders how you communicate in a 21st- century electronic democracy. The title is a misnomer:  he really is dealing with the inattention that is one of the side effects of the Digital Age.  He tells us what we already know but choose to ignore.  Modern technology is pouring a garbled, gigantic stream of undigested information into our lives, making it increasingly difficult to select and focus on the important, making it very tricky to communicate deeply with one’s fellow man.  If obesity threatens the health and physique of 70% of Americans, attention deficit is the disease of the intellect that has 100% of the populace in its thrall.  Our information machines are no different from the dragons in Spenser’s Faerie Queen, disgorging a stew of meaningless printouts and treatises that have made babble the new currency of discourse.  The breakdown of communication brought on by the panoply of new communication technologies is at the essence of our own consulting practice where we strive to create meaning and continuity.  We tilt with a world where the irrelevant has crowded out the important, and flashing signs have dimmed the luster of eternal truths.

My Losing Season
Who should you pick to put on your team if it will take a few years for the good times to roll again? We heard the answer on National Public Radio last week when a somewhat fatuous interviewer queried Pat Conroy about his new book My Losing Season. Conroy’s book has already been panned by a few reviewers (we bought it on discount), and we must own up that it’s a little long. In fact, he got to the heart of the matter more decisively and wittily over the radio. What he needed was a good editor for his book.

Two men, it seems, had a chance of ruining Conroy’s life. His tyrannical father was memorialized in The Great Santini, a novel later made into a very entertaining movie. And then there was Coach Mel Thompson of the Citadel. This coach broke the spirit of the 1966-1967 basketball team, relentlessly using negatives and scorn to enable good players to play very badly. Oddly enough, Conroy--judged to be almost the least talented of the team’s twelve players--was voted the most sportsmanlike and most valuable player. Because he stopped listening to Coach Mel.

This all came to a head in New Orleans, inherently America’s most hopeless city and yet its second most fascinating metropolis. After all, its other name is Bon Temps Rouler. At halftime against Loyola, Thompson lambasted the team again. Then and there, Conroy escaped into manhood:

 “As we took to the court for the second half, I made a secret vow to myself that I would never listen to a single thing Mel Thompson said to me again.”

 

“With this strange and disloyal insight in a gym in New Orleans, I think I was born to myself in the world. That night in New Orleans a voice was born inside me, and had never heard it before in my entire life.”

That’s what we’re looking for in our next employees. Those who have discovered their own voice in the face of adversity. In business today and for the foreseeable future, employees will get knocked off their feet by imploding markets, unstable bosses, and incredible inertia throughout the political realm. If you’re hiring, you’re looking for men and women who can roll with the punches and who are sustained by an inner voice that keeps them going, keeps them aimed at some distant goal selected by their own powerful intuition.

The Bernstein Index
Peter L. Bernstein is a marvelously literate investment advisor and one-time OSS operative, Air Force captain, college teacher, and researcher at the New York Fed (www.peterlbernsteininc.com).  For the individual investor, he’s a more important read than Swensen because he has a wider compass.  In 1996, he came out with Against the Gods: The Remarkable Story of Risk just as we were entering a world where risk management skills became more critical in running the nation, the economy, and one’s portfolio.  Risk assessment surely would have kept more of us out of some of those Internet stocks that crashed and burned, and would  contain some of the awesome hubris that still afflicts us in this new century.  In 2000 came his Power of Gold, just as it became more and more profitable to plough a bit of your lucre into all sorts of commodities. 

Now, equally timely, is his Wedding of the Waters: The Erie Canal and the Making of a Great Nation.  By implication, it tells us and the nation where to invest now.  (See www.foreignaffairs.org/20050301fabook84235/peter-l-bernstein/wedding-of-the-waters-the-erie-canal-and-the-making-of-a-great-nation.html, www.washingtonpost.com/wp-dyn/articles/A54777-2005Jan6.htmlm.)  This is the story of the building of the Erie Canal—linking the Midwest and the East to Europe and the world through New York State.  Its 300-plus miles made New York the Empire State, and New York City the capital of the world.  Interestingly, it was New York politics and finance that put the canal together, just as it will be developments initiated at the state, instead of federal level, which will account for America’s future greatness in the world.  New York State is sorely in need of another De Witt Clinton—a man who had enough push and vision to realize New York’s Manifest Destiny at the Canal’s opening in October 1825.

Obsolescence Revisited
In past weeks, we have theorized that obsolescence is no longer a valid economic strategy. As Yogi Berra might say, “Breakdowns don’t work.” Then we were talking about products, systems, and the things we build. But it applies as well to human beings. Societies that marginalize large segments of their populations, even for the most charitable of reasons, must become extraneous themselves. An ethic that salutes lethargy will surely lead to a nation that becomes comatose. If John Kennedy were re-writing Why England Slept these days, he would call it Why the West Slept.

Clear Away the Cobwebs
Lord Peter Bauer passed away last week on 2 May, just before he was leaving London for Washington to pick up $500,000 in prize money (Milton Friedman prize from the Cato Institute) for his pathfinding free-market development economics.  Obviously a conservative, he apparently was the sanest voice in the development field, with a healthy skepticism about most of the government-backed schemes for priming the economies of poor nations.  Since they have largely been failures, we do have to listen to him.  A Hungarian, he was another of those bright fellows who escaped Central Europe before World War II got steamy and who brought fresh thinking into British intellectual circles.  His close studies of the rubber industry in Malaya and of the West African trade gave him some detailed views of how things really worked and improved in the Third World.  In his view, development comes from trade and the free exchange of ideas with richer nations.  The best things governments can do are to enforce property rights and keep out of the way.  And he did not favor many of the idee fixes of development, such as population control and income-equalization plans.  See the Economist, May 4, 2002, p. 76.  Also Ft.com, 6 May 2002, obituary by Lord Ralph Harris.  And finally look for a book review on the Web by Amartya Sen, a Nobel prize winner and student of Bauer, whose economic views are more in line with the conventional economic development establishment.

Bauer's books include Reality and Rhetoric; The Development Frontier; and Equality, the Third World and Economic Delusion.

Agile Managers
Richard Reis, a science and engineering administrator out at Stanford, gives sensible advice (http://nextwave.sciencemag.org/cgi/content/full/2002/01/30/9) to any careerist who wants to get his head out of the weeds and be truly useful.  “If I could pass on one piece of advice to beginning scientists it would be this:  Don't be afraid to take on tasks that are not part of your official job description even if, at least initially, it appears you won’t get credit for the effort … if you don’t develop peripheral vision you may miss important opportunities....”  Despite what all the textbooks say to us about focus, you need to get distracted now and then.  Reis has written a book on how academia works and how to function in it called Tomorrow's Professor:  Preparing for Academic Careers in Science And Engineering.

Don't Worry about the Copperheads: The Big Bear Will Get You First
Friend Bill of Madison County taught us about the copperheads.  As poisonous snakes go, they're not that venomous.  But the black or brown bear.  Now that's serious business.  It will leave you feeling the worse for wear.

In everyday commerce, it seems to be our destiny to pay attention to a few snakes slithering through the weeds.  Meanwhile, we miss the big hazard or the big opportunity, more often than not, because we fall in love with the sideshow.  For leaders, the main issue, perhaps the only issue, is to discover the big one and to get the troops totally focused it. 

For some 10 years the overwhelming problem for major businesses in this country has been flat or declining markets.  Supply-side economics have produced too much product and too few customers.  Every time you turn around another market hits the skids, even if just yesterday it was growing like topsy turvy.  Most dramatic over the last year has been the dead-end hit by telecommunication carriers and equipment companies.  Suppliers who had been in the fast lane for years suddenly started showing red ink.  This devastation and lack of demand has hit all markets as we sail into the new millennium.

Peter Drucker has noted that in the face of business calamity we have been replacing chief executives at a mad rate, and most of the replacements do as badly as their predecessors.  We have not seen such a high management failure rate since the Civil War, when Lincoln had to fire a host of field commanders until he could find one who would fight.  Drucker thinks our business structures are outdated, and chief executives are still caught up in an old model that isn't working.

That may be true.  But we attribute the failure rate to a tried agenda.  For 20 years, CEOs and their consultants have been hacking away at costs.  That played pretty well until the mid 1990s.  But then it was time for CEOs to get back to revenues, selling things, new markets.  Even so, today you find CEOs cutting and chopping, paring their now-virtual companies down to nothing.  It's time to do business again.  Having missed the big one (finding new markets) in 1990, a host of major companies risk extinction today.  They are at risk because they did not turn to the main opportunity circa 1990.

We can ask why principal leaders didn't see and pursue the big one.  Often it's a lack of imagination.  One of our partners talks about former Governor Edwards of Louisiana, who was once matched against a car dealer.  He damned the man with faint praise.  He said, "Well, if I were going to buy a Ford, I'll surely buy it from him, because he's a good man.  But if I were going to buy 2 Fords, now that's another matter."  The dealer could measure up to little league baseball, but not to the major leagues.

Much the same can be said for one of our United States that was once the bright star of its region.  It has now slid a long ways, currently experiencing negative growth.  The politicians and business potentates have all sorts of excuses and all sorts of forces to blame.  But the truth is that a business oligarchy of very small men coupled with diminished political leadership has left the state in the hole.  Artificial monopolies and restrictive legislation have driven costs too high.  Anemic leadership has not filled empty plants and barren fields with new enterprise.  A venture capitalist in this state has said to use, "We always do two baggers, never a home run."  Nobody has had their eye on the big one, and now the whole state is at risk.

Complexity, incidentally, is the enemy of focus, of effectiveness, of strategic grandeur.  The planning documents of more than one corporation are so infernally complicated that they never get enacted and fail to unify the employees behind a compelling idea.  Years ago Norman Augustine, once of the Defense Department and later head of Martin Merietta, authored Augustine's Laws, the key one being that as more and more electronics were added to a plane, costs grew exponentially and breakdowns mounted at a worse rate.  Six ideas are equivalent to having no idea: complexity brings us to a standstill, not only with airplanes but with whole enterprises.

A few years ago Tony L. White took over PerkinElmer Inc., a flagging instruments company.  Somewhere along the line he said, in effect, "Let's get rid of the old instruments and get in the genome business which our instruments help explore."  This was big and daring and clear.  Now he heads Applera Corporation, the PerkinElmer name and all its instruments long-since gone.  What he did was seize the obvious, using the technology from its Applied BioSystems subsidiary to spring into the world of the genome, and now into drugs.  He has moved from copperheads and to bears. 

Which is to say: Become a big bear, so no bear will get you.  You will get there, if you are looking for something big, and you can say where you are headed on the back of a napkin at lunch with a felt marker.

China Reconstructing
Slowly commentators far and wide are catching up with China's last economic decade, when the leaders out of Shanghai (who are today's national leaders) remade China's industrial economy, with the banks and agriculture yet to come.  Clifford's and Panitchpakdi's China and the WTO highlights some of the meaning of China's accession to the WTO.  Obviously they dwell heavily on the integration of China into the world economy; perhaps as important is the fact that now China's own economy, propelled by WTO, will achieve integration and raise productivity.  On February 5, 2002, the Conference Board came out with its first real study of China, "Reconstructing Chinese Enterprises," which shows how private capital and/or local control generates vastly more productive enterprises, the SOEs (state-owned enterprises) still being the millstones around the Chinese economy.  Shortly we will have a volume on Zhu Rongji, the author of many of these changes.  Humorously enough, major private equity investors, who have been burnt earlier in China, are now sitting on the sidelines, with a solid chance of missing the good times ahead.

Stanley Marcus
We had the pleasure of a very long dinner with Mr. Marcus at the old, reliable Adolphus Hotel in Dallas a month or so ago, just a short walk away from the old flagship Neiman Marcus downtown, which we much preferred to the mall affairs. Accused by us of putting Dallas on the map, he simply said it wasn't true. At 96, as he sighed, his body had deserted him, but the mind was as resilient as ever. We both contemplated some new projects together, all infirmities cast to the side. We learned in the recent New York Times obituary that he was voted the ugliest boy in his high school class, which seems odd to us. Cerebral, fast, capable of telling observations, he was so kinetic that one just did not pay attention to his looks. As a kindness to us he wrote an essay for the Zindart 1999 Annual Report (see www.zindart.com) called "About the Man Who Collected Everything," which was very appropriate for a Chinese collectibles producer. I gave that title to the words he penned he simply did collect everything and everybody.

Amongst Stanley Marcus's works are Minding the Store; Quest for the Best; The Viewpoints of Stanley Marcus; Stanley Marcus from A to Z; Henry Dreyfus; American Greats; and His and Hers.

Elegance Is Dead
Stanley Marcus, a giant of retailing who gave provincial Dallas a touch of panache, reminds us all that quality is an uphill, Don-Quixote battle against the economics of the 21st century, where fineness is not on the minds of purveyors or customers. In Quest for the Best, he elegizes "The best, in many instances, may not be as good as it used to be, but once manufacturers and retailers realize the size of the market for the best, they will get smart enough to make best better -- not elegant, for elegance is dead."