October 30, 2005
According to recent census data, roughly 9.000 folks live in Spanish Springs, Nevada -- a bedroom community outside of Reno. Not surprisingly, the ever expanding gambling industry -- which, I would guess a majority of those 9,000 depend upon for their incomes -- has set its sights on building a high-end resort/casino in Spanish Springs. Given that so many Spanish Springs folks work directly or indirectly for the industry, one might have thought: no problem.
Wrong. According to this local news piece, "Spanish Springs Homeowners expressed their concerns against gaming in their neighborhoods....Reasons varying from crime to traffic to drunk driving are all a part of why many Spanish Springs residents do not want a casino near them. Many neighbors say they want gaming to stay in tourist areas and in downtown ... not near any neighborhoods."
This takes NIMBY-ism to a higher level. It's okay to make our living off a 'gaming' industry that generates crime, drunk driving and traffic -- not to mention gambling addictions, prostitution, spousal abuse, bankruptcies and more. Just keep our employers -- and those who pay our employers -- out of our 'family-oriented' neighborhoods.
We're for 'gaming' during 'our shift' -- but we oppose it the rest of our day.
Sounds confusing to me. Wonder how it sounds when the parents in Spanish Springs explain it to their 8 to 10 year olds.Posted by Doug Smith at 04:36 PM | Permalink | Comments (1) | TrackBacks (2)
October 29, 2005
Brand Update: Red Cross
The Washington Post has an update on how the post-Katrina, post-Rita brand experience of the Red Cross matched the brand promise. As noted in an earlier post, the Red Cross crossed up its donor after 9/11 in failing to warn folks in advance that some of the funds would be stashed away for other purposes. The charity was so determined to avoid a repetition that they announced to the world post-Katrina they would be spending every single dollar received on Katrina. One concern, raised in the post, had to do with the effect of this overly literal reaction to the earlier difficulty on the full nature of Katrina's aftermath: namely, that the people of the Gulf coast need both immediate response/relief as well medium to longer term rebuilding help. The Red Cross -- the best branded charity in the field -- would have access to the most money. And it would have been wonderful if the Red Cross had annouced publicly its intention to raise funds that would, in turn, be provided to strategic partners better positioned to provide rebuliding assistance.
Instead, we got the 'we'll spend every dime on immediate relief' because, in what sounds almost like a petulant child, 'you slapped our hands the last time for trying to save for another rainy day'. The problems for the Red Cross's brand and mission here were two fold: poor communications and poor self-understanding of limitations.
Now, we learn that the Red Cross claims it is $340 million short in funds needed for Katrina and Rita. In addition, Congress is readying itself for a 'look see' at how the Red Cross responded. Other relief and rebuilding organizations are angry about imperious Red Cross attitudes. And, it's alleged that if you lived in the Gulf Coast and were African-American, the Red Cross wasn't quite as likely to respond as if you were Caucasian American.
So, here we go again. America's best branded, iconic relief organization is about to take another hit to its brand. Will the charity have some reasonable explanations. Yes! Let us not forget the extraordinary scale and propotion of Katrina. And, at the same time, will the Red Cross pass 'the test' on having delivered on its brand promise through open communications, good partnering and effective operations?
Well, based on the gathering storm reported in the WP, the answer there looks like it will speak from two camps: Those in the Red Cross will say, "Yes". Those beyond the Red Cross in the media, African-American citizens of the Gulf Coast, other non-profit organizations needing to respond and rebuild -- and certainly some governmental organization including Congress -- will say "No".
At the end of the article, an expert in non-profits calls from more openness. "What happens if you don't is that you live off your myth and you conceal your problems. They are an organization obsessed by its own myth."
Myth. Brand. Promise. Delivery.
At the Red Cross, these are critical words. And when it comes to disasters, the folks at the Red Cross must know deeply and wisely what these words mean. And why.
Otherwise, we will continue to see 'disasters' following disasters at the Red Cross.Posted by Doug Smith at 03:04 PM | Permalink
October 26, 2005
Where To Pump Big Oil Profits?
The LA Times reports that Big Oil projects earnings of nearly $100 billion - both this year and next. Like any business, these companies must now choose what to do with the money. Here are the choices laid out in the article:
1. Invest in more production, refineries and distribution
2. Slap the industry with a windfall tax
3. Mandate the industry put money into alternative energy research
4. Reward shareholders with dividends and stock buy-backs
5. Diversify by going into non-energy related businesses
6. Consumer rebates
This is a reasonably full list. Note, however, the language, especially "slap" and "mandate". Each of these options get described in terms of Congress forcing the industry to take steps, as opposed to the industry taking such action itself. In addition, it's worth noting that the alternative energy suggestion is phrased in terms of research instead of results. It's a tentative exploration instead of a commitment to outcome-based goals.
It is doubtful Congress would take such action. Still, if they did -- or if the industry were to find some way to work together like the semiconductor industry did so successfully with Sematech -- each effort would have dramatically increased odds of success if they focused on results instead of activities. Performance is the primary objective of change, not change. Any effort to find a blended, more sustainable approach to energy would benefit tremendously by first setting a goal such as: "By 2010, at least 20% of energy uses come from alternative sources."
If Congress were to mandate (and follow through) on that, this industry -- filled with dedicated, talented and creative people -- would deliver. If Big Oil were to use a healthy chunk of their profits to create their own 'Sematech" with this kind of outcome-based goal, they'd succeed.
And, when they did, all of us -- and all of our children and grandchildren -- would be better off.Posted by Doug Smith at 12:23 PM | Permalink
October 25, 2005
Hierarchy and Efficiency
McKinsey & Company's patron saint Marvin Bower once commented, "The thing about hierarchy is that it works." Bower was not celebrating hierarchy; rather, he was initiating a dialogue about it. He began by echoing the deep-seated claim about hiearchy's relationship to efficiency -- particularly decision-making efficiency. In hierarchies, decisions can be made quicker and with less cost, time and trouble. Hence, the claim of efficiency.
Consider the following situation. You are the pitching coach for a major league baseball team. You've seen and worked with your star pitcher for years. You know that when the pitcher tires, he drops his arm during his delivery -- leading to a loss of control. It's the seventh inning of a tight game. The pitcher has put in a lot of effort -- he's tired and he has begun to drop his arm. You call time out and visit the mound. Do you:
A) Engage the pitcher in an open-ended problem solving session aimed at gathering information, brainstorming and debating a variety of solutions and then reaching consensus on what to do next; or,
B) Tell him he's tiring and must get his arm up?
Most of us pick "B". We pick hierarchy because it is the faster, most cost-and-time effective decision-making process in this situation. It is efficient. And, it's effective --whether the pitcher can overcome his tiredness and get through the inning or not because, even in the latter case, it means a quick return trip to the mound and a call to the bullpen.
Note some nuance here. Both pitcher and pitching coach recognize the legitimacy of their hierarchical relationship within the context of the baseball team. The situation does not allow for long winded debate (baseball rules require that umpires resume play within well understood time limits). And, also note that the pitching coach provides information ("You're tiring") in addition to command ("Get your arm up!")
Marvin Bower was also commenting on habit. Folks who work in hierarchical organizations get used to hierarchy. Like the pitcher, there's a prevailing pattern of acceptance -- when a boss makes a choice, those who report to the boss listen. This was key to Bower's comment that 'Hierarchy works."
We also know from the evolutionary psychologists that human kind has thousands of years of behavioral experience with hierarchy imprinted into our DNA that reinforces leanings toward accepting the authority of hierarchical decision-making.
So, does all this mean 'hierarchy is efficient' is a truism?
Of course not.
Bower was actually getting at this -- only subtly and through dialogue: 'The thing about hiearchy is that people in organizations are habitually inclined to use it and that's fine if the situation fits the hiearchical approach. But not all situations do. So, we are left with the reality that hiearchy works -- sometimes.... but our instincts and experiences cause us to lean toward it most of the time."Posted by Doug Smith at 01:47 PM | Permalink
October 24, 2005
The Chronicle of Philanthropy is out with their 2004 rankings of the Philanthropy 400. No, this is not a version of the Forbes 400. It doesn't tell you how the 400 wealthiest people in the world use their money for something other than consumption and further enrichment. Rather, the Philanthropy 400 reports the annual donations received by the 400 largest charities. In 2004, those gifts totaled $53.9 billion -- roughly 25% of the $248.5 billion the American Association of Fundraising Counsel estimates was raised by America's more than one million non-profits.
The United States has a $12.4 trillion economy. $250 billion in charity represents 2% of that amount. Meanwhile, assuming that there are at least 1,000,400 non-profits, these numbers mean that roughly 1.5% (three quarters) go to a million organizations. In dollar terms, that means the typcial non-profit takes in about $187,000 a year.
At wage, benefit and support (i.e. rent plus some overhead) levels of, say, $40,000 per person -- a number I think is actually too low -- this means the typical non-profit is a tiny (and struggling) team of four or so folks trying to respond to needs ranging from social services to education to arts to health and so forth.
Put differently, the non-profit sector is characterized by complexity at small size.
According to wikipedia, stock market capitalization is roughly equal to GDP of $12.4 trillion (and that only reflects publicly traded equities -- wikipedia estimates the size of all equities is maybe double, or $25 trillion).
Equities, of course, represent only part of the capital markets. Still, these number provide some sense of the tremendous lift that could happen if we could find some way to link non-profits to the capital markets -- other than through 'annual giving'.
In On Value and Values, I propose 'dynamic deductibility' as an avenue to link the non-profit sector to the wonderful engine of efficient capital markets.
Here's a snapshot of how it works: Non-profits would have the option of issuing 'dynamically deductible units' ("DDUs"). Purchasers of DDUs would not deduct the money in the year they provided the money -- but, instead, hold the DDUs for a later trade in the market for DDUs. Holders of DDUs would take their deductions in the year they sold the DDUs.
For example, you purchased 100 DDUs from Charity X at $25 per DDU this year (2005). You would not deduct the $2500 this year. Instead you would hold the DDUs. Say you sold all 100 DDUs in 2007 for $32 per DDU. In that year, you could deduct $3200 (minus any charge for 'capital gains').
2% of GDP is a pitifully small amount of resources with which to tackle the tremendous challenges that the non-profit sector now confronts. This is made all the more difficult by a non-profit industry structure that is way too complex and filled with far too many 'tiny' players. (All industries benefit from 'tiny' players -- my point is not to denigrate small size. Rather, it is to point out that all industries also benefit from structures that also have large players in representive numbers and scope -- something mostly lacking in non-profit industries).
Yes, by all means, let's do whatever we can to encourage Americans to give more -- to raise the 2%, say, to 2.5% or 3%. But, even at those levels, we'd still face a non-profit sector overmatched by the challenges and expectations confronting it.
We need to fix this. And a powerful way to do so is to link our incredibly large and productive capital markets to organizations who only need capital to grow. 'Dynamically deductible units" -- or other proposals in this vein -- can do this. And, in the process, make us all better off.
Posted by Doug Smith at 04:49 PM | Permalink
October 23, 2005
Ben & Jerry's Redux
Many who admired Ben & Jerry's iconic status as a socially responsible company worried about the dilutive effect of Unilever's acquisition of the ice cream maker in 2000. And not without reason. According to current CEO Walt Freese, the company under Unilever softened its commitment to continuing the efforts of its founders. There's a lesson in this about corporate social responsibility (which we'll return to below). But, in addition, there's a profound lesson about brand.
If most people knew one thing about Ben & Jerry's brand it was this: the mission and the company were not just about crazily named ice cream. The brand stood for both making good ice cream and taking action to improve the lives of people.
When Unilever went 'soft' on Ben & Jerry's social mission, they also turned their backs on one of their own core competencies: branding. They jeopardized the soul of Ben & Jerry's brand. So, CEO Freese's decision to embark on a $5 million dollar campaign to save small family farms is both good corporate social policy and good corporate economic policy. It is Ben & Jerry's redux -- a return to what the company stands for.
From it's beginning, Ben & Jerry's brand -- like it's mission -- stood for both the pursuit of value and the pursuit of values. The two were intertwined; each contributing to the success or failure of the other. Like many other businesses facing growth and competition, Ben & Jerry's stumbled. Eventually, the company reached a point of mediocrity -- but it was mediocre performance with regard to both value and values. The failures on both fronts reinforced each other -- just as the earlier successes had done.
The orthodox business press (those who worship shareholder value as if it were an idol), jumped on the failure as evidence that Darwinian concern for profits is the one true path. Celebrations must have ensued when Unilever took over the troubled company.
Based on Freese's announcements, these celebrations were premature. But, there's yet another and deeper lesson in all this: It is a heck of a lot easier to reestablish a brand that stood for integrating value and values than to change 'value-only' brands into more sustainable promises and experiences.
Unilever has hundreds of brands for products it makes and distributes around the world. As our interconnected globe of markets, networks and organizations spirals into ever increasing complexity and messiness where social, environmental, political, technological, religious, medical, and legal challenges cannot be disentangled from economic ones, Unilever -- like all enterprises -- must find its way to an integrated concern for value and values.
This goes beyond the profoundly unethical so-called balanced scorecard -- the wolf in sheep's clothing that justifies concern for values only if it promotes shareholder value. Instead, drawing from the heritage of Eastern philosophy, we must learn to see and act on our legitimate concern for profits with our equally legitimate concern for all human values. Each -- like the original vision of Ben & Jerry's -- must serve the other in reinforcing ways. This is not the one-way street of the balanced scorecard (concern for employees and customers okayed as long as shareholders benefit). The ethical scorecard demands that the pursuit of value serve the pursuit of values that serves the pursuit of value that serves the pursuit of values.... and on and on.
It's extraordinarily difficult and complicated to turn a behemoth of Unilever's size away from 'profits and value only' to a more sustainable approach. The sheer number of issues they are tackling is mind boggling. The challenge they've set to find some coherent and transparent way to set goals and evaluate progress is daunting. (And, as can been seen in their 'five year record', they have yet to wrap their minds around the true integration of the financial with the non-financial).
Still, kudos to the employees (including executives) of Unilever. They've given deep thought to the challenges ahead. They have publicly declared their intention and commitment. And, with enough focus on performance -- real outcome-based goals that integrate concern for value with concern for values -- they have a real chance to get where Ben & Jerry's was at the beginning: a brand that stands for the fully human enterprise.Posted by Doug Smith at 01:28 PM | Permalink | TrackBacks (1)
October 20, 2005
Dead End Giving
We've all heard about the 'gift that keeps on giving' -- an aspiration that connects sustainability with charity. This is particularly important in a world of markets, networks, organizations, friends and family because (1) organizations use charitable resources to achieve chosen ends; and, (2) all organizations are businesses -- that is, have some kind of focused set of services or products that depend on continually generating as well as using resources.
Put differently, gone are the days when most charity went from individuals to individuals. Instead, our charitable gifts go to organizations -- intervening businesses whose purpose is to provide assistance and help to individuals.
And that means we who give must pay attention to the sustainability and performance of the business of those charities we favor. We must think of ourselves, at least in part, as investors in those businesses.
All of which makes the following anecdote troublesome. An extremely wealthy person recently chose to gather other wealthy people to hear from a variety of experts about philanthropy. As initially designed, one panel was to cover 'social investing' -- an entire field of thought that specifically connects investment thinking with organizations who 'do good'.
Yesterday, I learned that the panel had been cancelled by the wealthy sponsor who declared, "There is nothing about so-called social investing that is remotely connected to philanthropy."
We need to celebrate all -- rich and poor -- who give charity. Let us then stand up and applaud this wealthy person for the initiative behind this gathering. It is a good thing.
And, let us hope that the conference sponsor will hear and learn more about 'gifts that keep on giving' because the same investment thinking that made this person's wealth can and do make charitable organizations more sustainable.Posted by Doug Smith at 02:13 PM | Permalink
October 19, 2005
Shareholder Values at Roche
As of today, scientists know two things about avian influenza ( the 'bird flu"). First, that the disease is deadly. Second, that transmission from birds to humans is rare. In the dice game of mutation, however, both characteristics could change. Humans might become vulnerable to birds. The disease might become less deadly.
Mutation at this biological level happens lightening fast. Both shifts could very well happen over the course of this autumn and winter. All of which means we need to pay attention to the pace and effectiveness of the other mutating phenonmenon -- human kind's medical response as determined by markets, governments, networks and organizations.
Looking over the past several decades, we can find much to give us confidence here. There is a nearly vertical growth curve in indicators of scientific advance (patents, scholarly articles, technological advances, etc). And, still, we must remind ourselves that we are human. There is that other part of the picture: greed, selfishness, fear, bigotry and so on. There is the track record of governments that have not distinguished themselves in terms of performance that matters such as planning, preparedness, fairness, coordination and so forth.
And, there is the profit motive -- the celebrated engine of bringing good things to life. Good things like Tamiflu, the patented pharmaceutical owned by Roche. Big Pharma has not distinguished itself over the past several years in adhering to the Hippocratic Oath, that, among other things, demands all health professionals to 'keep the sick from harm and injustice'.
Roche, like other big pharmaceutical companies, has recently written a caveat into this oath: so long as they can pay, we can make profits and we can preserve our patent rights.
All of which means Roche's reversal of its announcement last week that it would remain the sole manufacturer of Tamiflu is good news on two counts: (1) that Roche will now consider licensing others; and, (2) the speed of the change.
One week. That's much, much faster than any similar shift has happened with those pharmaceutical companies who have refused to sell anti-viral AIDS patented medicines to impoverished peoples. It is, as the management gurus like to say, a dramatic improvement in cycle time.
At least two potential causes are known. Kofi Annan has put pressure on Roche. And, Cipla, an Indian pharmaceutical company announced it is nearing readiness to distribute an un-patented version of Tamiflu. Put differently, we can see both governments (the UN) and markets (competition from Cipla) at work in the 'mutating phenomenon" that will determine human response.
Both are good news. Now, let's ask Roche and it's shareholders (as well as employees): At what profit margins will you license Tamiflu? Will you use 'quality requirements" according to the Hippocratic Oath, or as a smokescreen for restricting distribution?
Put differently, what do you stand for? What are your values?Posted by Doug Smith at 12:17 PM | Permalink
October 18, 2005
Ignorance at The Economist
Over the years since 9/11, The Economist has run a series of commentaries on globalization, corporate responsibility and the common good under such titles as "Profits over people", "Globalization and its critics", "The good company", and "Profits and the public good". The pieces are clearly written and worth reading -- if you're interested in a refresher course on the best available thinking about 19th century economics.
Those of us who struggle with 21st century realities, however, need access to better and different thinking. It's been more than 230 years since Adam Smith wrote about the power of self interest to motivate his local butcher, brewer and baker. Today, the vast majority of those who read The Economist, like the rest of us, get our dinner from 'farm through food' chains that stretch across the globe and run through thousands of corporations. "Self interest" continues to matter tremendously. But, the 'self' in the phrase is no longer traceable to a local baker or butcher. It's just more complicated than that.
Continuing to preach -- and the tone in these pieces could easily come from a pulpit - about the wondrous power of the profit orientation to bring good things to life has all the superficial appeal of an idiot savant. Yes, there is wisdom. Profits and the profit orientation in markets matters to the health and well being of the globe.
But, note to The Economist: we already know that.
How about taking the risk to learn something new -- something that can actually help the rest of us make choices in dealing with complex current reality?Posted by Doug Smith at 12:01 PM | Permalink
October 16, 2005
We know we live in fractious, partisan times. Our public discourse weighs in with more heat than light. Truth is up for grabs. Not that truth is an easy matter. Still, our contemporary beliefs, behaviors, attitudes and speech have made the always challenging prospect of determining truth – especially shared truths – more complicated.
For the moment, though, let’s distinguish between truth as evidenced by reasonably observable facts from truth that is more purely linguistic and definitional. “The sun rises in the morning and sets in the evening”. Few among us, whether “Red” or “Blue” or “Liberal” or "Moderate" or “Movement Conservative” would debate this empirically observable statement.
Facts, though, often require more work to observe. Do 21st century market economies contribute to the risks of global warming? As we’ve seen in the debate over this question, even facts (e.g. about ‘causes’ and ‘risks’) can find themselves heavily subject, even perhaps hostage, to the other flavor of truth sharing: truth as language.
The most famous recent example of this flavor may be former President Clinton's declaration: “It depends on what the meaning of ‘is’ is”. His was, at a minimum, the classic lawyer’s response to a question; namely, ‘let’s define our terms’.
There is a critical difference, though, between lawyers who define terms for purposes of a particular transaction and the body politic having some minimal agreement on the language needed to govern together – to make sense of shared lives.
And, so, consider this incident from a recent election. A candidate for a city office receives a questionnaire from a politically active interest group. One of the questions asks ‘whether the candidate would favor city ordinances” supportive of the interest groups proposed policies?
The candidate responds, “I prefer a legislative solution to the issues raised by these questions.”
As a matter of language, ‘city ordinances’ are legislation. The candidate has been asked, “Would you favor legislative solutions of the type we’re proposing?” The candidate answers, “I prefer legislative solutions to the questions you raise.”
The candidate has given a 'non answer' answer. But, the problem here goes beyond a candidate being slick. The audiences for this comment -- voters and others including young adults and children -- become accomodated to langauge without meaning. They are told by candidates who, if elected, will be their political leaders, that there is a difference between 'city ordinances' and 'legislation'.
We cannot have shared values without shared language. It is not humanly possible. If we politicize language beyond the reach of shared meaning, we cannot govern together. Indeed, we cannot hope to live together in anything other than cheap ignorance and moral despair.
October 13, 2005
Box Cutters, Mad Cows and Wetlands
Roughly three million people lived in the United States when the Constitution was ratified. Today, more than 300 million do. Yes, there are also many more states – a much larger geographic area over which the 300 million of us spread out. Still, the prospect has sharply risen that individual and group actions and behavior can affect many more people in many more ways than a few centuries back.
We spread ourselves over more than geography in our world of markets, networks and organizations. For example, as described in yesterday’s post about Citigroup, choices made by people in Citi’s New York offices can profoundly affect the happiness (or lack thereof) of people throughout the 50 states. Thus, it’s no surprise that the choices made by the nine people who sit on the Supreme Court reach far more broadly and deeply in the early 21st century than the late 18th century.
Yesterday, the Court (led by new Chief Justice Roberts) chose to hear three cases concerning the Clean Water Act of 1972. The cause celebre of the three involves John Rapanos, a Michigan farmer found civilly and criminally liable for filling in wetlands on his farm.
Serious issues of fact exist about whether the Rapanos site was a wetland and adjacent to, or by hydrology, connected to navigable waterways. The Supreme Court and other appellate courts, though, have a long tradition of focusing more on the law than facts. So, with Rapanos and the other two cases, the arguments and choices will more likely be about the scope, reach and legitimacy of the Clean Water Act of 1972 than about how wet was John Rapanos’ land seventeen years ago.
These cases pit the legitimate use of government regulatory authority against the legitimate uses of property. Folks who are more ideological than reasonable are lining up on predictable sides. But most of the 300 million of us don’t live our lives in idealized abstractions. We live in a real world that is profoundly interconnected and complex. A world where quite recently for example, the private property interests in a cow and box cutters were entirely eliminated if the cow happened to be mad or the box cutter owner brought his or her property to an airport.
Indeed, just a month ago, we experienced the adverse effects of improperly – even dangerously -- mishandled wetlands, navigable waterways, and hydrological connections when Katrina hit a Gulf Coast imperiled by erosion notwithstanding the Clean Water Act of 1972.
Our complicated world of markets, networks and organizations uses private property to build immense economic value of great benefit to all of us. In doing so, though, these markets, networks and organization also handle chemicals, poison, disease, earthmovers, concrete, steel, fish, microorganisms, bio-engineered plants and on and on. As much as they help to regulate our affairs, neither the laws of contract nor tort (personal injury)— nor property -- are sufficient to govern ourselves in such a world.
With these three cases, we are going to get our first glimpse of how the nine human beings on the Roberts Court choose to shape how and when government helps us govern ourselves. And the choice of these nine will affect the other 300 million of us. Indeed, it will reach into and affect the lives of hundreds of millions outside the United States who are, nonetheless, connected to us, hydorlogically and otherwise.
October 12, 2005
What Does Good Credit Mean To Citigroup?
In the wake of September 11th (and the burst of the dotcom bubble), Citigroup started an ad campaign they hoped would capture the spirit of the times. Out went 90s exhortations about value and money; in came reminders about values and what’s most worthwhile in life:
“Don't wait” Citi told audiences, “until someone says ‘Your money or your life’ to remember that they are two different things.”
The ads must have struck a nerve because the campaign still runs years later. Citigroup, like other organizations, pays attention to the benefits and costs of advertising and brand building. Whatever metrics they use to gauge consumer response must be positive.
Another interesting question, though, is this: What’s been the impact of the campaign on employees at Citigroup? (When I write ‘employees”, I include executives.)
Thousands of people work for Citigroup. And, like all of us, they bring some blend of values to the office each day. On most days, most of the time, they must be good folks who seek to do reasonably good things – like, for example, providing good credit to others.
The Citi ad campaign, though, raises the bar on what ‘good’ credit means.
Citi employees are making a promise about ‘good credit’ when their ads tell customers:
"Be independently happy".
If the brand promise in this ad is to be matched by the brand experience, Citi employees must hold themselves accountable for building consumer independence – a corollary of which means assisting their customers in avoiding dependencies that drive out happiness.
Credit is a source of potential dependency. Potential. Credit need not lead to dependency. Half of cardholders, for example, pay their bills on time and in full each month.
There are millions of Americans, however, for whom credit is a dependency. For some, the dependency derives from financial necessity; for others, from inadequate skills and knowledge; and, for others still, it is an addiction.
Hence, this question for Citigroup employees: Why and under what circumstances do you provide credit to these Americans?
One answer could be: Because it is profitable.
That is consistent with the governing orthodoxy of capitalism. It also matches the first first part of the following Citi ad:
"People make money. Not the other way around".
But it’s the second half that reflects Citi’s current brand promise:
Another response could be about opportunity and freedom. While money does not ‘make people’, it surely helps provide the material basis for happiness in a market economy. Citi and other credit card providers assist customers in climbing the economic ladder.
To match brand experience with Citi’s current brand promise, though, Citi employees need to take steps to make certain they provide ladder climbing credit assistance only to folks who use it to achieve independence. Citi has a variety of business practices that help their employees succeed at this.
In addition, like other credit card companies, Citi has sophisticated statistical modeling and data techniques that predict with stunning accuracy consumer credit card usage and behavior. Citi uses these tools to price different cards to different groups. Some get credit at 10%, some at 16% -- and some at just under 30%.
That’s right. 30%.
It’s that number that raises the curtain on whether Citi employees' shared values match the brand promise in their ads. Because the same models instructing Citi to charge 30% to higher risk consumers predict that consumers who pay such high rates are headed into dependency instead of financial independence or happiness.
Which takes us back to the initial question about what 'good' credit actually means to the employees of Citigroup. For those who are sincere, ‘good credit’ must mean credit that is both profitable for Citi and ‘good’ for their customers.
30% rates don’t meet that test.
Citi employees have a choice every single day they show up to work: match brand experience with brand promise by ceasing to offer consumer credit at 30%.
When they make that choice, they will surely take a huge step toward fulfilling yet one more promise in their ads:
“Human decency is up a point and kindness is making a rally”.
October 11, 2005
Delphi's Viral Bankruptcy
Two centuries from now Robert Miller, the CEO who took Delphi Corp into Chapter 11 last Saturday, will be as little remembered as Ebenezer Monroe -- the farmer who may have fired ‘the shot heard round the world’ on Lexington green in 1775.
Miller’s filing, though, has already ricocheted across the planet. In just a few days, the Delphi bankruptcy reached into and shook up the lives of hundreds of thousands of people. Tens of thousands of United Auto Workers (current and retired) –- and their families -- awoke Sunday to the possibility of strikes, radically reduced wages and benefits, lost jobs and diminshed or eliminated pensions. Eventually, some will follow Delphi to bankruptcy court.
Thousands of auto parts suppliers (hundreds who sell to Delphi) are already revisiting options that include fire sales, mergers, closing down and, yes, bankruptcy. Tens of thousands of people work for these copmanies. They, too, heard Miller’s filing. Tonyia Young worries her employer Guide Corp. will match the steep wage and benefit cuts planned at Delphi. Tonyia will undoubtedly witness some in her position follow Delphi into bankruptcy.
Men and women who run small businesses near Delphi and other affected companies could hear the “bang!” of Miller’s court action, too. Said Mary Mosley, owner of the Lighthouse Bakery and Deli about a mile from a Delphi plant: "It's scary because a lot of businesses are connected to Delphi. It makes a big difference."
Some of these merchants will follow Delphi into bankruptcy.
What to Mary and Toniya were anxious murmurs must have been a sonic boom to people at GM. It’s not just the $1.2 billion Delphi owes GM. Far worse are these twin threats: (1) Any disruption in Delphi operations could shutter GM plants heavily dependent on Delphi parts; and, (2) GM might have to reassume $11 billion of liabilities it had hoped to shed when it spun Delphi off six years ago.
By Monday, GM stock had plummeted and some openly speculated on what was once unimaginable: That GM might follow Delphi into bankruptcy.
Not everyone rose to cold gruel for Sunday breakfast. Chinese auto parts manufacturers whose business has tripled since 2001 are looking at the kind of sustained growth that, fifty years ago, prompted the head of GM to brag, “What’s good for General Motors is good for the country.” European auto parts suppliers who've done a better job of implementing strategy than Delphi see opportunities to pick up assets and become stronger. And, many investors think the tea leaves finally point to the kind of industrial restructuring that can make them rich (or richer).
Unlike these potential winners from Delphi's bankruptcy, the thousands of workers, families, businesses, merchants and others who stand to lose will see the viral contagion pile trouble upon trouble onto the quality of their lives in the places they reside: personal and business bankruptcies, divorces, worsening drug and alcohol abuse, broken local government budgets, deteriorating services, a sense of isolation and despair.
In 1775, people like Ebenezer Monroe shared fates with others because of the places they lived together. People from other places were unwelcome if they brought trouble with them. We don't live in a world of places anymore. Instead, ours is a world of markets, networks, and organizations. In our new world, place is contained by - and is subject to -- business, not the reverse.
And, so it is that CEO Miller's message heard round the world is quite the opposite of what echoed from Ebenezer Monroe's musket. Monroe exclaimed to the British, "Take your business out of my place!" Miller of Delphi proclaims to all adversely affected by his Chapter 11 filing, "Take the problems of your places out of my business.”
October 09, 2005
A few weeks back in a post entitled Downsizing Journalism, I commented on the suicidal effects that cost-focused strategies have on newspapers: cost reductions in the face of declining circulation reach into the newsroom which, eventually, reduces the quality of the news which leads to declining circulation and more cost reductions.
There are three parts to the phrase "newspaper business": (1) news; (2) paper; and, (3) business. With the rise of the Internet -- and shifting habits of younger people -- paper has emerged as a very expensive form of distributing news. Put differently, paper drives a wedge between part one (news) and part three (business).
This is not trivial. And, that's why every executive and employee in newspaper organizations (and anyone else who cares about this topic) should read Ken Auletta's article in the October 10, 2005 issue of The New Yorker. (Sorry: The magazine, at least as of today, chose not to post the article on its website).
Auletta uses the recent resignation of the Los Angeles Times' editor as a focal point to explore the fundamental problems facing newspapers. He has done a masterful job of presenting in clear and compelling ways the tensions between the Los Angeles Times' editors' desires to be a world class newspaper versus the coporate headquarters' desire to deliver steady growth and earnings from the newspaper business.
The title of Auletta's article is "Fault Line". It's brilliant. Not only because he so clearly lays out the inherent tension between striving for quality news versus meeting bottom line expectations - but also because, as happens too often in organizations facing profound change, the leaders from both sides fell too easily into a game of finding fault - the 'we/they' battles that never produce win/win strategies for change. Never.
Auletta has done something else in this article. He has provided journalists an example of excellent journalism. He has done a careful job of reporting both sides of this story. He has not pulled punches; but, neither has he taken cheap shots. He has succeeded in portraying all the players as human beings trying to do their jobs in a tough situation. In other words, he has shown respect to the people in his story and, thereby, shown respect to the readers of his story.
The Los Angeles Times can achieve both aspirations: (1) world class news; and, (2) profits and growth. But it cannot succeed if either goal trumps the other. Auletta's piece -- if carefully read and used -- can help the people of the Los Angeles Times find their best future together. Indeed, it can help all people in newspaper businesses convert the 'paper' wedge pitting 'news' against 'business' into a clarion call for shared collaboration and creativity required to deliver both high quality 'news' and high quality 'business'. Both/and. Not either/or.Posted by Doug Smith at 01:46 PM | Permalink
October 08, 2005
“Comfort zone” is a wonderful – and wonderfully effective - piece of language. It communicates in plain English a wise insight about leadership and management in the face of change.
The basic message is this: We are all more comfortable in our comfort zones than out of those comfort zones. Often, however, the challenges at hand demand that we risk stepping beyond our comfort zone if we hope to lead and manage effectively.
Simple, elegant and wise.
And, like other pieces of wisdom, subject to a significant, if subtle, misreading; namely: that it is somehow ‘bad’ to be in our comfort zone.
I was reminded of this yesterday when Marv, a friend (and talented, experienced leader) mentioned, “Hey, I’d rather be in my comfort zone if and when it can get things done easier.”
Here’s what Marv meant. If he and others in his organization faced a performance challenge that could be achieved in their comfort zones, that would be okay. That would not be ‘bad’.
I agree. We live in a dynamic, chaotic world that confronts us with profound challenges. We are more likely to succeed if we tap into the wisdom about comfort zones. Doing so, though, also demands that we distinguish the aspects of challenges that can be achieved in our comfort zones from those that will require us to step beyond our comfort zones.
Most challenges of any richness and subtleness have both parts. Yet, many of us have inherited an instinctive ‘either/or’ response to clear distinctions . We too often associate ‘good’ versus ‘bad’ to opposing ideas.
We hear about the value of understanding the limits to our ‘comfort zones’ and, as leaders, we overreact. We associate being in our comfort zone as always bad – and outside our comfort zones as always good.
This reaction happens with other distinctions as well. People hear or read, for example, about the ‘team discipline’ versus the ‘single leader discipline’ and quickly link ‘team’ to all that is ‘good’, ‘single leader’ to all that is bad.
For some challenges, though, the single leader discipline (an effective boss who knows how to divide up tasks and hold folks accountable for individual contributions) is the best way to move forward. While, in other performance challenges, the team discipline is best (for example, when the sum of individual best performance simply won’t add up).
Distinctions like “in comfort zone/outside comfort zone” and “single leader discipline/team discipline” are not about either/or or good versus bad. They are about leading effectively in the face of challenge and change.
It seems that many of us are comfortable with instinctively pinning either/or, good/bad onto clear distinctions. That’s a deep aspect of our comfort zone.
My friend Marv is suggesting we might want to move beyond this instinctive good/bad and either/or part of our comfort zone in order, ironically enough, to know when other parts of our comfort zones can help, not hurt, in meeting the challenges ahead.
Yes, this means a risk. We might think the skills and approaches inside our comfort zones will work and be wrong. Indeed, the elegant wisdom of comfort zones is a warning against too easily sticking with our comfort zones.
But the 'good/bad' overreaction to comfort zones means that we are at great risk of not picking the comfort zone alternative when it would be best. By making both choices real -- by challenging ourselves to use comfort zones as guides to what works and what doesn't -- we all increase the odds of success and, I think, enrich the meaning of distinctions and choices instead of diluting them.
October 07, 2005
Think about a hot topic at work – hot because the moment it comes up, heat rises from the under the collars of folks in the room. Perhaps you’re a product or market manager at GM and face tough choices about the mix of hybrids and SUVs in your product line up. Or, you work for the baseball players union and need to figure out what to do about steroids. Or, you’ve been with a big pharmaceutical company long enough to know that the future looks dim for industry pricing and marketing practices.
Now take this test:
When we disagree about hot topics,
A: Each party to the disagreement can articulate to the other party’s satisfaction, the other party’s point of view.
B: Neither party to the disagreement can articulate to the other party’s satisfaction, the other party’s point of view.
“A” is ‘enlightened disagreement. The manager at GM supporting a higher percentage of hybrids can articulate to the SUV stalwart the SUV point of view. And vice versa. Neither side necessarily changes positions. But they do understand one another – and can demonstrate it by ‘making the other’s case’ to other’s complete satisfaction.
Odds are, however, this debate at GM, like ‘hot topics’ elsewhere, suffer from “B”: unenlightened disagreement.
And that’s a shame. We all know that confronting tough choices benefits from the ‘two heads” rule – as in “two heads are better than one”. Different perspectives produce richer and better understanding.
And, we also know that disagreement is a natural by-product of contrary perspectives. But, too often we don’t reap the full benefits in our disagreements because, instead of taking the risk to actually articulate the other side’s position, we merely go round in circles – repeating our own positions over and over, each time more loudly than the time before.
Converting unenlightened disagreement into enlightened disagreement takes some effort. But it is not earth-shatteringly difficult or complex. Mostly, we only need is to listen well, ask questions and, when we think we’ve got the opposite point of view down, articulate it with sincerity.
Nothing is lost in this effort. Neither honor nor character nor authority nor leadership suffers when we risk satisfying the other side that we understand them. Indeed, quite the reverse.
Much is gained in converting unenlightened disagreement to enlightened disagreement. Surprisingly often, heated disagreements spring from facts that are missing or questions that have not been asked. Frequently, one or other of the parties has misinterpreted what’s being proposed and only sees this when he or she takes the trouble to repeat the other side’s point of view.
Enlightened disagreement does not mean agreement. However, it does mean that, after choices are made, no one can later claim, “When we decided to go down your path, I didn’t understand what you meant.”
October 06, 2005
Customer and employee experiences of Frontier Land at Disney World might match the real thing if two Florida legislators succeed with a National Rifle Association bill they’ve proposed.
The bill makes it a third degree felony punishable by up to five years in prison and $5,000 in fines if any business enforces company policies that prohibit employees from stowing guns in the trunks of cars and trucks at work.
Roughly five percent of adult Floridians carry concealed weapons – which suggests that up to 2,850 of Disney’s 57,000 cast members (employees) could be packing iron in the Disney parking lot – something company policy now prohibits.
Like other businesses, Disney’s concern is safety. Three of four workplace homicides involve guns. Business folks figure the farther away the weapon, the less likely the violence.
"If they have to get in the car and drive home to get a gun, chances are they are going to cool down a little bit," said a spokesman for Weyerhaeuser who opposed a similar bill passed in Oklahoma.
Supporters of the bill counter: "For a business to tell you that in order to come onto their property, you have to give up your constitutional right is wrong." Adds, Joe Negron, co-sponsor and candidate for state attorney general, "An employer needs to recognize the right of its employees to lawfully defend themselves."
Negron and the NRA have a better grip on how to win votes and contributions from some of the people who like to carry concealed weapons than they do about the requirements of the Second Amendment to the Constitution:
“A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.”
Though awkwardly written, the amendment’s dependent clause (‘necessary to the security of a free State”) describes the purpose and the limits of the right to bear arms.
In plainer English, and as interpreted by The Supreme Court: The right to bear arms exists so that State’s can have well regulated militia’s to protect the State.
The individual right has a group purpose – the maintenance of militias and the protection of States. Like much of the Constitution, it balances the rights and responsibilities of “I’s” – individuals – with the interests and purposes of “we’s” – the ‘people’.
The proposed Florida law seeks to overthrow the Constitution’s plain meaning in favor of extreme individualism. There is, for example, no provision in the bill requiring those carrying concealed weapons to be active members in the Florida National Guard – something that might be more in line with the Second Amendment, but hardly the kind of thing to win votes for Negron because, I suspect, the 353,000 armed Floridians would rather continue being inconvenienced by company policies than, say, find themselves doing a tour of duty in Iraq.
This weekend brought news of more bombings that killed tourists in Bali. Along with the terrible loss of life, this will hit Bali’s economy hard – which, undoubtedly, was a primary objective of the terrorists. It’s the kind of incident that should reinforce Disney’s determination to figure out how best to do security screening at it’s theme parks – which, if you think about it, is the kind of task envisioned by the spirit of the Second Amendment; namely, an action taken to make us – to make ‘we’ -- safer.
Only, now there might be a catch. If the NRA and Negron have their way in Florida, Disney’s legal authority to check for weapons will apply to customers only. The 95% of Disney employees, who don’t pack iron, and presumably would ballot in favor of current Disney policy, will run the risk of learning the tragic way about those who prefer unbridled individualism to the common good.
October 05, 2005
Budgetary Sleight of Hand
Yesterday's post about the $300 million of Katrina donations by businesses triggered this anecdote from a friend who leads a non-profit housing group in Minnesota. He was on the phone last week with a few companies that have consistently supported his organization. And, he was told, "Don't expect the same -- if any -- financial support this year. We've given to Katrina."
These corporations, like many, may have budgetary limits for giving. That makes sense. Gifts are like any other item (e.g. inventory, salaries, new product development and so on). Good business practice demands careful attention to how resources are allocated. Among other things, that means budgeting and planning.
Yet, the question still arises whether -- in a crisis like Katrina -- sticking to the budget is the wisest choice. The most chilling words my friend heard were 'if any". Non-profit organizations are especially dependent on consistency in gifts -- it's one of the rare sources enabling them to do planning and budgeting. Pulling the plug is, therefore, particularly damaging.
Katrina was a huge catastrophe. For businesses truly affected -- like those in the Gulf Coast -- it means severe adjustments to every single item in budgets. But for those not affected, the shifting of gifts from one beneficiary (my friend) to another (Katrina) without increasing the budget for gifts is a cruel sleight of hand. It will look good on the corporate website and PR ("We gave $$$$ to Katrina.") But the public and investors are not likely to understand the corollary ("We didn't give $$$ as we always have to the following organizations...).
It also raises this question about value and values: If a corporation not directly affected by Katrina doesn't raise the budget for giving, have they actually given?Posted by Doug Smith at 11:36 AM | Permalink
October 04, 2005
By mid-September, corporations had donated more than $300 million to Katrina relief efforts. It’s intriguing to compare that number with the $250 million that remained to be spent on critical unfinished aspects of the 1995 Southeast Louisana Urban Flood Control Project, known as SELA. Between 1995 and 2005, the Army Corps of Engineers spent $420 million on SELA, $50 million of which came from local and state coffers. With 20/20 hindsight, one imagines scores of corporations would gladly have ponied up the difference .
Preparedness, though, comes with hard choices made ahead of time – not afterwards. And, while executives and employees across America reached into their personal and corporate pocketbooks to lend a hand to the victims, few would have supported calls for higher taxes (whether corporate or personal). We know that the prevailing political winds over the ten years of SELA had businesses supporting tax cuts instead of tax increases.
In our nearly $12 trillion economy, the $250 million to complete SELA looks like chump change – or, a needle in the haystack we call ‘government’.
And, that is significant. Elections are won and lost more on big messages (“Cut Taxes”, “It’s Your Money”, “Keep America Safe”) than details. It’s difficult to believe any candidate running for, say, president, over the past ten years would have spent money, gotten much air time or gained a lot of support for a message such as “We need to fully fund SELA”.
What about candidates for mayor or governor? Yes, it seems more likely that specific references to SELA would have been more believable. Yet, and this seems obvious, when voter turnout for state and local offices hovers between 10 to 20%, victorious electoral strategies tap into the emotional appeals that energize the base. Again, “Cut Taxes”, “It’s Your Money”, “Keep America Safe” – or, looking ahead a bit “Competence in Government” and the like).
Voters may go to the polls with single issues on their minds (e.g. taxes, abortion, Iraq and so forth). But few if any get riled up because of a single issue like ‘finish the job with SELA”. That is just not going to happen in our busy world of markets, networks, organizations, friends and family.
Which means that we, the voters, end up having to rely on government officials and others whose job, duty or interest lies with worrying over things like the infrastructure on the Gulf Coast.
We’ve heard much in recent weeks about the large percentage of our nation’s economy that has depended on the Gulf Coast. A corollary points to the interest -- and the job -- of businesses from oil and energy to food and retail to ensure we all gain from a ‘Gulf Coast that works’.
And, so we come full circle. Elections are won on generalities, not specifics. Generalities favor messages about cutting taxes, not raising them. And about ‘letting the market fix things” not ‘government’. The job of building and maintaining infrastructure like levees and highways and so forth does not belong to any market. It belongs to government. Government fails to do that job without sufficient resources. Government failures reinforce the messages that government doesn’t work, only the market does. And, government failures reinforce the messages about cutting taxes and ‘it’s your money’.
It’s a spiral – but one that heads down, not up. There are many ways to reverse the spin. One surely would be for business leaders to revisit what ‘corporate citizenship’ means in this totally interconnected world of markets, networks, organizations, friends and family. Quarter-by-quarter profits might rise in a fiscal environment of low taxes. But, ultimately, government cannot function without resources -- and businesses, like the rest of us, are dependent on the infrastructure that government must build and maintain.
The $300 million businesses have contributed is an interesting number when compared with the $250 million that remained to be spent on SELA. But an even more interesting and compelling number is this: how much business -- how much profits -- will be lost between the time Katrina hit and the time the Gulf Coast’s contribution to America’s economy is back to pre-Katrina levels?
That answer will dwarf both the $250 million and the $300 million numbers.
October 01, 2005
Plato to Red Cross: Know Thy Brand
In Katrina’s wake, folks at the American Red Cross might want to sneak a peek at this snippet from Plato’s Alcibiades:
SOCRATES: But should we ever have known what art makes a shoe better, if we did not know a shoe?
SOCRATES: Nor should we know what art makes a ring better, if we did not know a ring?
ALCIBIADES: That is true.
SOCRATES: And can we ever know what art makes a man better, if we do not know what we are ourselves?
SOCRATES: And can we ever know what art makes our organization’s brand better, if we do not know our brand?
ALCIBIADES: Now, you’ve lost me Socrates. What the heck is a brand?
Unlike 26 centuries ago when Socrates and Alcibiades chatted, brands are an essential element in our 21st century world of markets, networks, organizations, friends and families. Among the many reasons: human beings depend on pattern recognition to make quick judgments. Bu in our new world, we don’t look for footprints, broken twigs and scat in the woods. We look for brands.
Katrina devastates the Gulf Coast. We want to help. “Red Cross” comes to mind.
It is no surprise that as of this week, Katrina donations to the Red Cross neared the $1 billion mark – more than double the total amount donated to all other charities combined.
Put differently, Red Cross’s powerful brand helps explain its overwhelming market share in disaster relief.
Disaster relief. That sits at the heart of the Red Cross brand. And, it’s why a review of Plato’s Alcibiades dialogue should be high on the ‘to do’ list for leaders of the Red Cross – because it could help them find the limits of what their brand stands for and avoid, once again, incurring the displeasure of their donors.
First, a quick look back to 9/11. $1.1 billion flowed into the Red Cross – but, the organization chose to shift $200 billion to ‘future crises’. People had given for the 9/11 crisis – not ‘future crises’. People were upset. The Red Cross – and it’s vaunted brand – took a hit.
Only, in that case, the hit came from a communications failure – not a failure to know thy brand. In shifting $200 billion to future crises, the Red Cross stuck to it’s mission and brand and what it is excellent at doing. It should have been more forthcoming with the donating public about this. But it did not move ‘off brand’.
Burned by 9/11 criticism, now the Red Cross may be headed toward a different and more subtle mistake – spending all the money on disaster relief even in the face of profound needs for rebuilding and other ‘second phase’ efforts.
Part of ‘knowing thy brand’ is also knowing what your brand does not stand for – what your organization is not particularly good at. The Red Cross is as good as they come at disaster relief. But, the Red Cross lacks the institutional skills, experiences and traditions at ‘second phase’ recovery – the longer term, tougher job of helping people put their lives and communities back together.
Who is good at that? Ask yourself what brand pops to mind? Probably, you’ll have a tough time. But, leaders at the Red Cross have answers to this question because they'be been through this many times and have long standing business realtionships with organizations who do provide 'second phase' support.
In Katrina’s aftermath, 'second phase' support creates a huge dilemma for the Gulf Coast and for the Red Cross. There are no ‘brands’ – organizations well known to the donating public for medium-to-longer term community and economic development. But, that task is sorely needed and one fact stands out: The Red Cross now has huge monetary resources with which to find and partner with organizations that can take on ‘second phase’ rebuilding.
Will they do it? We hope so. Let’s note, though, Red Cross' leadership face some tough choices:
First, to avoid the miscues of 9/11, they would need to mount a communications effort explaining why they believe these uses of donations are consistent with meeting the Katrina disaster.
Second, they’d need to move quickly in identifying and partnering with reputable ‘second phase’ organizations.
Third, they’d need to look deep into their ‘brand souls’ – to practice Plato’s dictum – and acknowledge to themselves and the world what they are good at and what they are not good at.Posted by Doug Smith at 01:34 PM | Permalink