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We hear you have no time to read. With all this bookishness, we
are perhaps swimming upstream while others are going down river with
the currents. But salmon go upstream, too, to regenerate the
species. It is a pretty sight, even if horrible man-made
obstacles get in their way, threatening the very survival of these
lovely fish. We wonder if the human species will fall by the
wayside if book reading disappears.
We have collected here all the books that
are shown on the Global Province and even a few that are not.
Some of our contributors will be adding books to this section as well.
In most cases, if you find one you like pluck it down from the
shelf with a computer click which will lead you to Amazon.com.
Contents:
Business
- Literature - Art - Home & Garden - Reference
- Nature & Travel - Food, Wine, & Tea - Science & Technology - Education - History - Politics, Society, & Culture - Health - Miscellaneous
BUSINESS
Come
Home, America - William Greider (04-01-09)
Getting
China and India Right - Anil K. Gupta and Haiyan Wang
(03-18-09)
Karma
Cola: Marketing the Mystic East - Gita Mehta (03-18-09)
The
King of Madison Avenue: David Ogilvy and the Making of Modern
Advertising - Ken Roman (03-04-09)
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.’”
Needless to
say, it only a few years after Galbraith laid out this fantasy that
Federal Reserve Chairman Greenspan came to look at the stock market as
filled with irrational exuberance. Fiction is eminently true,
just a bit early. (6/28/06)
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.
In other words,
if you start a pretty good family company, look around before you
decide who should inherit your roost. Probably Junior should
not. (5/31/06)
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. (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.
Of course, in
Europe and the West, religion has been a prod to the economy, an idea
documented by a host of economists. In this regard, see our
“Celebrating Tomorrow.” (1/11/06)
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.
Now Lewis has
moved from hardball recruitment practices to dynamic operations
principles. In a look at college football, he has shown how Coach
Mike Leach of Texas Tech has run rings around his peers with a whole
different view of how the game should be played. In a passing
game, he puts out more receivers and does more plays than ordinary
heavyweight teams. Huge emphasis is placed on running and
conditioning: the coach puts his players in better fettle than those of
the opposition. For the first two or even three quarters, Leach
uses diverse plays to probe how the opposing team defends against his
gamut of plays. His quarterbacks have great latitude to depart
from the playbook set before the game, so that they do not respond to
an evolving situation with setpiece tactics. In game after game,
this has led to rapidfire touchdowns towards the end of the game,
leading to scores that literally embarrass opposing coaches, who begin
the day with high confidence. Some of this is detailed in “Coach
Leach Goes Deep, Very Deep,” Sunday Times Magazine, December 4,
2005, pp. 58-65 and 109-114. “Synergy, in Leach’s view, doesn’t
come from mixing runs with passes but from throwing the ball everywhere
on the field, to every possible person allowed to catch a ball.”
Operations research—in football—has led to a different kind of air-war
dominated game. (1/25/06)
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.
A good review
of progress in this sector is found in “The Hidden Wealth of the Poor,”
The Economist, November 5, 2005. “Local banking
giants that used to ignore the poor, such as Ecuador’s Bank Pichincha
and India’s ICICI, are now entering the market…. Some of the
world’s biggest and wealthiest banks, including Citigroup, Deutsche
Bank, Commerzbank, HSBC, ING and ABN Amro, are dipping their toes into
the water.” Everybody from Islamic fundamentalists to Maoists to
Afghan drug traders have plundered and murdered to prevent the spread
of microfinance which loosens the hold they have over the poor.
“The core of the industry today consists of some three dozen
multinational networks of microfinance providers....” “The
biggest networks include Opportunity International, FINCA, ACCION,
Pro-Credit, Women’s World Banking and arguably Grameen….”
With the entry of the big banks, microfinance is becoming
increasingly mainstream; now it will have to include its range of
financial service products for the poor, venturing, for instance, into
insurance. (6/14/06)
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.
In other words,
if you start a pretty good family company, look around before you
decide who should inherit your roost. Probably Junior should
not. (5/31/06)
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)
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:
- Avis, “We try harder,” Doyle Dane
Bernbach Doyle Dane Bernbach, 1963
- Ivory Soap, “99 and 44/100% Pure,”
Proctor & Gamble Co 1882
- Hathaway Shirts, “The man in the Hathaway
shirt,” Hewitt, Ogilvy, Benson & Mather, 1951
- Reagan for President, “It’s morning again
in America,” Tuesday Team, 1984
- Wendy’s, “Where's the beef?,”
Dancer-Fitzgerald-Sample, 1984
- 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."
Hinterlands
The very
able Nicholas Lardy, frequent spokesman on China and Asia at the
Brookings Institution, has a raft of books out telling us what makes
Asia tick and what makes it explode. One study,
China's Unfinished Economic Revolution, says the tough stuff is
yet to begin. The combination of bankrupt state banks and
effectively bankrupt state companies (SOEs) to which banks lent their
dough amounts to an economic time bomb. Interesting. But we
don't think that's where the trouble really lies. We think the
government will set the banks and companies to rights. Watch the
country, not the cities. The people in the outback are
bust. Even rural governments are broke. (See Economist,
December 15, 2001, p. 36.) The real dilemma is not the industrial
economy, but agrarian devastation. For more Lardy books and
wisdom, see:
China
in the World Economy
Foreign
Trade and Economic Reform in China, 1978-1990
Economic
Growth and Distribution in China
Agriculture
in China's Modern Economic Development
Integrating
China into the Global Economy
From
Global to Metanational
This book sets forth anew what is really a rather old, shopworn
idea. To be simplistic, what the book tells you to do, whatever
your business, is to make sure that you put some listening posts in
those parts of the world where all the real talent is. Go where
the action is -- to tap into the people who make great music or listen
to what's hot, for instance. As we've said before, it's as
important to recognize that certain locales have generated bests in
certain disciplines for decades, and that's where you really have to
be: on the Russian-Polish border for pianists, in Milan for
advanced styling, in London for trendiness. See the New York
Times, December 23, 2001, Business, p. 6.
Understanding the Job
It is not clear that most members of
boards of directors generally understand what risk is or how to come to
terms with it. As good a starting point as any is Peter L.
Bernstein's Against
the Gods: The Remarkable Story of Risk, which threads the
upside and downside of risk. Bernstein claims that the basis of modern
business and our fecund economic system is the understanding of risk
and risk-taking. By this standard, directors should even be
urging more rational risk-taking, while containing un |