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March 30, 2006

Flunking Quality Education

The New York Times reports that, for the first time, the No Child Left Behind law has been used by a state board of education (in Maryland) to take over failing schools (in Baltimore). Journalism being what it is today, the story focuses first and foremost on Republican vs. Democratic political squabbles in the state and city -- and whether this action will be a harbinger for similar squabbles in other states.

Thus, a startling fact is presented in a context of politics: 27% of schools in the United States of America are failing the standards set by the law.

27%. More than 1 in 4. Failing.

Ever since the No Child Left Behind law was passed, many educators and others have worried that a maniacal focus on test results would cause schools to confuse test performance for real, quality education. No one argues against tests and standards. Rather, that once we make any metric the 'single answer' to all issues, much that is required to help kids learn how to think, read, evaluate and mature into folks who prosper and contribute to themselves, their families, their organizations and society gets lost.

Too much.

Consequently, my guess is that the 27% failure rate understates the crisis created by this single dimensioned law.

We need a Constitutional Amendment gauranteeing every American child the right to a quality education. We need to establish that right and then demand that all involved in delivering against that right work together -- including asking kids themselves to get more involved in local education policy and affairs. In this regard, the Times article is typical: Not a single student is quoted.

Posted by Doug Smith at 03:50 PM | Permalink

March 29, 2006

Incompetence Through The Lens Of Incompetence

Let's just spend a moment on reporting versus editorializing. The basic idea is that the first -- reporting -- provides a description of what has happened. This week, for example, the Bush White House swapped out Andy Card as Chief of Staff for Josh Bolten. That happened.

The second-- editorializing -- provides a perspective on why something happened or whether the thing that happened is positive or negative or any number of other expressions of opinion. Editorialization is a form of opinion. Reporting is meant to be fact telling.

So, what are we to make of this sentence in USA Today's article about the change in Chief of Staff at the White House: "The Bush White House already is known for its discipline and managerial skill."

Is that reporting? Is it editorialization?

Actually, it makes no difference. It is incompetence. It is an incompetent description of an Administration that, in turn, is incompetent.

The Bush White House is among the most incompetent collection of managers and leaders that can be found in one place in America today. Every policy and direction these managers attempt to implement goes sour. Their incompetence precludes any reasonable test of the merits of their ideas. Decent folks can debate issues such as deregulation, homeland security, tax and fiscal policy, environmental and energy challenges and approaches, educational reform, the conduct of war -- and on and on. But, the Bush White House puts such debates beyond the pale of actual proof about whether any particular set of ideas and approaches work because, as the track record now brutally shows, nothing the Bush White House touches -- regardless of who is Chief of Staff -- ever works. Except of course: getting elected.

Perhaps USA Today meant to say that. Perhaps the writers and editors of this article intended to communicate that "The Bush White House already is known for its discipline and managerial skill at getting elected."

But the last part -- the part that could have qualifed as accurate reporting and a reasonable, competent opinion -- was left on the cutting room floor.

Or, perhaps USA Today meant to qualify the sentence by reference to some limited group-- Washington 'insiders', a press corps hungry for an audience, the 30% of Americans who seem wedded to the Bush ideology of infallibility, or maybe others.

But, for anyone who has ever witnessed actual discipline and managerial skill, this comment by USA Today is itself an indication of incompetence.

The sad thing, of course, is that it perpetuates a lie by reinforcing a piece of advertising -- a shared idea circulating in our world of markets and influencing folks who are trying to go about their daily lives. The fact that this particular idea is filled with helium does not prevent if from staying afloat -- especially when it is 'reported' as fact.

Posted by Doug Smith at 03:54 PM | Permalink | TrackBacks (1)

March 27, 2006

Secretary Snow's Star System

As noted last week, Secretary of the Treasury John Snow is out on the circuit hawking his boss's wares. Just ask him and he'll pull open one side of his tailored overcoat and show just how great the economy is doing as a direct result of tax cuts, unprecedented spending and deficits, and federal subsidies-and-rule-making for oil and energy companies, pharmaceutical companies, defense contractors, financial service companies, communications and media companies -- pretty much any private sector company..... and, of course, nonprofit organizations that promote Christianity of the 'complete faith, no works' kind. You know, the kind with a litmus test of being reborn in biblical literalism while staying as far as possible from Christ's message of acts of forgiveness, tolerance and charity.

One of the latest steps taken by the Rebulican right wing employing Snow is to throw gasoline onto the already raging fire known as the pension fund crisis. Several decades ago, millions of workers in the U.S. depended on pensions that were funded by the companies for whom they worked. It was part of the 'deal'. In the bubble years, many companies' pensions soared because of the stock market -- and, a number of questionable practices sprung up like putting all of the pension assets in the company's own stock (violation of Rule #1 -- diversification -- that every single one of those pension managers would advise their parents and children to follow). With the growth-on-paper of pension assets, companies also got lazy about actually funding future pension liabilities with cash and other hard assets.

Then, the bubble burst. And, the Bush Administration came into office. By the middle of Bush's first term, nearly all private sector pensions were underfunded. That means, they did not have the assets to meet liabilities. The federal agency responsible for monitoring and serving as insurer -- the Pension Benefit Guaranty Corporation -- was also underfunded, especially after it got hit by the airline bankruptcies.

A competent group of federal officials from the executive, legislative and agency parts of the government would have looked at the balance sheets and taken steps to restore -- well -- balance. But the Bush Administration -- and their handmaidens and sponsors that rule the Republican Party -- have instead chosen the novel approach of inviting companies to decrease -- not increase -- how and if they fund pensions.

This is very good news for shareholders. At least in the short term. Of course, like all policies of shareholder value fundamentalism -- the ideology that makes "what does this do for next quarter's earnings?" the single test for every question, large and small -- this latest piece of incompetence will, soon enough, destroy shareholder value along with, of course, the security of tens of millions of workers who thought they could depend on funded pensions to see them through the years ahead.

It is a travesty of incompetence. Put ideals to one side. My father was a Republican. I learned from him the ideals -- the values -- of fiscal responsibility and of the responsibilities in a free market economy that must be exercised by owners. Those are values. Those are ideals. And, those are evidently now viewed by these Republican rulers -- well, to paraphrase what the Attorney General once said about the Geneva Conventions -- they are evidently 'quaint'.

It's not that Snow will be without a pitch. The ideology, we know and hear daily, is all about individualism and individual risk taking in free and open markets. Bracing stuff. Every single one of us is out there on our own to make or break it -- that's freedom. Stop the "Nanny State". Stop the "Nanny corporation." It's all about an ideological view of "me" and "I". The value of living in completely free and competitive markets and having the opportunity to make it on your own. That's what America is. Of course, we should permit corporations to stop funding pensions. If millions of individualists out there cut a deal with their employers that, in part, were based on pension expectations, then, well, then let's correct for those individuals' misunderstanding of what individualism and true freedom are all about. Let's set them free from the freedom-killing possibility that they might have income disconnected from any current labor. True freedom is the right to go out there, compete, and make money based on the labor you put in each day. Pensions? Sure, make that an investment choice for yourself. But, grow up and get free. Don't expect any free lunch from others who are working hard just to make it on their own. Really, a company should not even be allowed to promise future income streams for past work. It ought to be against the law if we want to have a competely free marketplance!

Unless, of course, the company is dealing with senior executives. Then the idea of providing future money -- in rather large amounts -- for past as opposed to current effort is an effective form of executive compensation in John Snow's star system.

The blend of arrogance and incompetence in folks like the affable John Snow leads, of course, to stories like this -- only one of zillions of similar stories that are part of our economy's -- of our society's -- overall narrative by and in which folks who do not do their jobs get million dollar send offs while folks who have and/or continue to do their jobs get stripped of financial security -- all in the name of 'shareholder value fundamentalism'.

In the slick Snow sales pitch, the stars in the star system take no individual risk on actually being paid for real performance yet get plenty of individual reward while the 'non-stars' risking their financial security every single day on performance receive little actual reward for their effort. No wonder 80% of the workforce still makes basically the same pay they did when Bush took office. And, job insecurity being what it has been, it's also no surprise that the average family income is less now than in January 2001. Meanwhile, with dramatic increases in consumer debt (both credit card and home equity related), American families face precarious financial futures. To all of which, we can now add increasingly value-less pension promises under the individual-risk-loving-for-all-individuals-except-CEOs policies, practices and, again, sheer incompetence of the Bush Administration.

Posted by Doug Smith at 01:00 PM | Permalink

March 24, 2006

Brand Is As Brand Does

Throughout history, human beings have deployed pattern recognition skills to 'read' situations and make choices. Our most distant ancestors read the signs in things ranging from scat to stars. We use brands. Unlike them, we live in markets, not wildernesses. We do not hunt. We shop. Like them, though, we must rely on the evidence before our eyes to make choices -- and core to many of these choices are brands.

Brands go far beyond mere logos. Brand communicates what a company promises -- what it stands for across a spectrum of values only one of which has to do with 'value for money'. Quality, speed, reliability, integrity, feature, function, customer orientation, how employees are treated, whether shareholders come first -- these are the more straight forward promises made by brands. In addition, though, are many subtler values: concern for family, political and ideological orientation, environmental, technological, legal, medical and other beliefs and behaviors are there to be read in brands, if we only ask ourselves to take a moment to ask.

Brands increasingly explain much of competitive success. In the overheated equity markets -- markets that routinely have earnings per share far exceeding historical averages -- some argue that brand accounts for more than half the value. Brand, like 'human capital', intellectual property, core competences and other key factors for success in our new world of markets, networks, organizations, friends and family is an intangible asset. It does not trace it's value to land or machinery or other hard assets one can touch, see, smell or taste.

Instead, brand is the upshot of three related human actions: promising, delivering and experiencing. Employees (a category that includes executives) promise and deliver. Customers (and investors who are not actively involved in companies) experience. Most of us have yet to catch up with the latter two of these activities: delivery and experience. Because we are bombarded with logos and symbols and promises, we tend too rarely to look beyond the promising to the delivery and experience.

That is, until the experience is entirely out of line with the promise. Then we connect the dots. If it's a negative experience (e.g. a salesperson whose pitch is complete hooey), our reaction could be just a shake of the head -- but it's a shake of the head that spells 'never again' for the company and it's employees. Or, we could go into a kind of rage and take steps to make that "never again" apply to as many of our friends as we can reach.

If the deviation is positive, the reverse is also true. Marketing gurus love this phenomenon. It's why 'delight the customer' is a widespread shared idea within marketing circles. Under promise and over deliver. Do that and your customers will be delighted in their experience of your brand. In turn, they will become loyal customers (the most profitable of all) and are also likely to 'spread the word'.

The middle verb in all this is: brand delivery. Organizations should be careful about what they choose to promise. But, promises, especially promises in our cluttered world of logos, advertising, PR, sales pitches, word of mouth and more -- while actually a complicated choice -- are the lesser of the two verbs within the direct control of employees and executives. Delivery against those promises is far more complicated because it demands the effort of an entire organization be seen and acted upon in a way that causes many people -- including, increasingly, people in organizations like distributors or retailer or others who are not part of the same organization -- to actually act in ways that are consistent with the promises. This demands careful and self-conscious coordination. It is one big reason, for example, that I strongly believe the 'division of labor' mantra about organizations is a fundamental misconception in our new world. Yes, organizations divide labor. But, the primary function of organizations is to integrate labor, not divide it.

Brand delivery is brutally difficult to get right. Among the many routine failures most of us experience often is the 'apology' from one part of an organization for the screw ups of another part. We get the wrong items in the mail, call customer service and are told, "I'm sorry" in a way that connotes "But I am not taking any responsibilty for their mistake." The 'their' refers to another employee or division or part of the same company. This admission immediately tells us the person on the phone fails to grasp this about his or her organization: it's a community he or she is a member of. It's a "we' of whom he or she is a part. It is not an "I" and a "they".

Recently, many media organizations have struggled with what their brands stand for in terms of promise and delivery of news. One that hasn't struggled is Fox News. The irony of their promise -- 'fair and balanced' -- is, of course, that all of us know the real promise is "actively promote the right wing dominance of the United States". And, they deliver consistently against that promise. We know their brand. And our experience rarely disappoints. We are not surprised to learn, for example, that Dick Cheney instructs his employees to make sure all TVs are tuned to Fox News whereever he stays. We are not surprised that when he chose to go on TV to explain how he came to shoot a friend in the face, he chose to do so on Fox.

Some folks, like Cheney, are loyal customers of Fox because of this consistency across brand promise, delivery and experience. Others detest Fox for the same set of reasons. Regardless of camp, though, it's important to understand that Fox does have a mission and strategy and brand that is clear -- and that, as an organization, they deliver an experience consistent with all that. Shared beliefs and behaviors at Fox -- shared values -- are highly predictable (regardless of whether any of us might also deem them good, bad or in between.)

By comparison, to take just one example, The Washington Post struggles. It is difficult for us to quickly and accurately describe the brand promise of the Post. And that makes it difficult for folks who work at the Post to clearly understand how they need to work together to deliver. Naturally, this leaves readers and others guessing about how their 'experiences' of the Post's brand match up with the intended brand promises.

Unlike with Fox, customers are confused. Among many implications, is this: individual customers are likely to 'impute' promises to the Post brand. For example, people who believe in a 'liberal media' look for any delivery of news by the Post to reinforce this belief -- reinforce how these customers define their experience of the Post's offerings. For such folks, the brouhaha over Daniel Froomkin's blog was a tautology: The Post is part of the liberal media. Froomkin is a liberal. The Post is biased toward liberals.

Others who lament a bygone day when the Post seemed to be an organization grounded in journalistic values dedicated to facts, openness, challenging those in power and so on, now look with equally juandiced eyes at any peccadillo by the Post that reinforces the company's fall from grace. The writings of Post employees are scrutinized for lack of perspective, lack of facts, lack of challenging power -- any indicia that point to a right wing drift and a loss of the journalistic soul.

These are the ends of the spectrum. But what of more moderate customers? How might they respond when, for example, the Post -- in the name of 'balance' -- hires a Bush political operative without any common journalistic credentials and a history of plagiarism to join the blogging at the Post's website?

What is the moderate customer's experience about the Post's brand in this action by the Post? Frustration, of course. It feels like being pushed to an either/or choice to align with one of the extreme groups. Red state. Blue state. Liberal media. Corporate media. Choices that are less about journalism than about propaganda.

Such are implications about our experience of the Post brand at the level of abstract ideals and ideas. Let's look for a moment, though, at more routine matters in our experience. A friend, upset by the Post's hiring of this political operative, wrote an email to the Post's ombudsperson, Deborah Howell.

Here is the response:

"Deborah Howell, ombudsman for The Washington Post asked me to pass this on
to you. The website, washingtonpost.com, hired blogger Ben Domenech. The Washington
Post did not hire him. The newspaper and the website are under different
management. If you wish to complain to the website, write to its editor, Jim Brady."

My friend, using the email given for Brady, sent the same letter of concern to Brady.

Here's the response:

"Deborah Howell, ombudsman for The Washington Post asked me to pass this on
to you. The website, washingtonpost.com, hired blogger Ben Domenech. The Washington
Post did not hire him. The newspaper and the website are under different
management. If you wish to complain to the website, write to its editor, Jim Brady."

(Yes. The exact same, automatic reply.)

What do you draw from this about the customer experience of the Post brand? About the clarity of the Post's brand promises? About the sense of "we" at the Post regarding what the company stands for? About the effectiveness with which employees in different parts of the company coordinate in ways that are consistent with their brand promises? About the values - the beliefs and behaviors -- regarding respect and concern for customers that guide the Post's brand promises and brand delivery?

Does this anecdote give you confidence that the Washington Post is on an effective path toward figuring out what the promises it wishes to make, how best to deliver them and what it wishes customers to experience when they choose the Post brand?

Posted by Doug Smith at 12:37 PM | Permalink | TrackBacks (1)

March 22, 2006

Snow Job

Earlier this week, the Wall Street Journal reported that Treasury Secretary John Snow maintains the widening gap between high-paid and low-paid Americans reflects a labor market efficiently rewarding more-productive people. For example, Snow said, "In an aggregate sense, it reflects the marginal productivity of CEOs. Do I trust the market for CEOs to work efficiently? Yes. Until we can find a better way to compensate CEOs, I'm going to trust the marketplace."

Recall for a moment that after Paul O'Neill resigned at the end of 2002, we learned that O'Neill had a habit irritating to the Bush Cabinet: he didn't always agree with the Party. Among other things, he was not a favorite on Wall Street because O'Neill worried that the reckless fiscal policies of the Bush Administration were, well, reckless. Tax cuts were favored on Wall Street. O'Neill wasn't.

Much was said at the time that the primary reason for selecting Snow as O'Neill's replacement reflected a strong belief that Snow could and would do a better job selling the Bush tax cuts.

O'Neill must have seen his job as that of a Secretary of the Treasury of The United States of America -- a job traditionally associated with leading the effort to tackle problems of significant economic consequence. Snow, we must surmise, sees his job as a salesperson.

Skilled sales folks understand that their job is to sell. The best among them focus on communicating effectively with those whom they are trying to sell and, in doing so, sticking to pitches that are grounded in something resembling the reality -- the actual feature, function and performance-- of what they are selling. Slick sales people succeed in selling us what we come to regret because the pitch is not grounded in any kind of reality. It turns out to be hooey.

(For the moment, please note that effective sales people whose pitches are linked to reality still might exaggerate and flatter and do all kind of things that help with their effectiveness. But what they sell us is not hooey.)

So, re-read Snow's sales pitch about CEO's and efficient markets and productivity in light of these additional perspectives:

Exhibit 1: The Growth of Executive Pay by Bebchuk and Grinstein: " This paper examines both empirically and theoretically the growth of U.S. executive pay during the period 1993-2003. During this period, pay has grown much beyond the increase that could be explained by changes in firm size, performance and industry classification. Had the relationship of compensation to size, performance and industry classification remained the same in 2003 as it was in 1993, mean compensation in 2003 would have been only about half of its actual size."

Exhibit 2: Stock Options: The Backdating Games: "Following a yearlong investigation, it appears the Securities and Exchange Commission is finally beginning to crack down on companies with questionable policies governing stock-option grants.... The commission apparently became interested in the topic when academic research showed that the share price of scores of companies dropped just prior to the granting of options. The research also indicated that — surprise, surprise — share prices often rose immediately after the pricing of options."

Exhibit 3: Privileged Class: " Part of the problem, experts say, is the way executive compensation packages are determined. At public companies, the board has a compensation committee, which often is composed of peer executives from other corporations. Those committees hire compensation consultants who study what similar companies pay their executives. The committee members and the consultant have an incentive to see compensation increase, experts say. "What goes around comes around and somebody in turn is going to take care of them," said David Theobald, chief executive of Netshare, a Novato, Calif.-based Web site for people who earn more than $100,000 a year. "It's a vicious circle. ... The consultant is always going to put his best foot forward and more often than not, he's going to make it seem like it's justified. It's absolutely absurd."

Exhibit 4: Berkshire Hathaway Chairman Warren Buffett Letter to Shareholders in current Annual Report: "Too often, executive compensation in the U.S. is ridiculously out of line with performance."

Does the market for CEO pay work efficiently? As Snow says, 'yes' -- if by efficiency we mean, from the perspective of CEOs, a very predictable annual pay raise that is quite handsome.

Does the CEO pay market work effectively? That is, does it reflect 'fair pay for fair performance'?

No. And anyone trying to sell you that is selling you hooey.

Posted by Doug Smith at 08:21 PM | Permalink | TrackBacks (6)

March 20, 2006

No Good Deed Goes Unpunished

Today's Slate asks, "Is Whole Foods Wholesome?" and follows up with this subtitle: "The Dark Secrets Of The Organic-Food Movement."

Here's what the article tells us about Whole Foods:

Pluses:

"There's plenty that's praiseworthy."
The chairman of the company is dedicated to proving business can be ethical, socially responsible and profitable. One way the company achieves this objective is through marketing organic food to better off folks and charging premium prices.
Whole Foods is dedicated to environmental sustainability.
Whole Foods pays employees living wages, provides good benefits and has a rule that the top executive cannot make more than 14 times the wages of front line workers (Note: The vast majority of companies pay top executives more than 300-to-1 -- and, thereby, reinforce and widen the already Grand Canyon gap separating the bottom 60 percent of households from the top 1%).
Whole Foods is purchasing wind energy.
Whole Foods provides information to customers inside the store with regard to energy cost savings of farming organically.
Whole Foods provides information to customers inside the store that says purchasing organic foods is supportive of small, family farms.
Through the growth of it's business (and related steps), Whole Foods and others have caused a growth in the number of large agribusinesses who now grow organic food. (Note: And, thereby, the share of organic versus non-organic food in the total market.)


Negatives:

During the summer season when locally grown tomatoes are availabe in New York, the Manhattan based Whole Food Stores sells organically grown tomatoes from Chile. The total energy costs of the Chile tomatoes during that season would be greater than the total energy costs from the New York area.
Whole Foods deals mostly with large agribusinesses that grow organic food. Whole Foods does not give the majority -- or even a large minority -- of it's business to small, family farms. Nonetheless, Whole Foods misleadingly places pictures of small, family farmers next to produce grown by larger, organic agribusinesses.
Whole Foods premium pricing puts organic food out of reach for many customers from lower economic brackets.

Following this last point, Slate points out that now Wal-Mart is considering getting into organic food -- a step that would increase the benefits of organic farming to many more people and the planet as a whole. That would be terrific. An innovation started at the 'high end' of the market makes it's way down and, thereby, increases the total 'share of market' for organic farming.

Now, if Wal-Mart would also mimic Whole Foods' policies on living wages, benefits and the ratio of top exectuive pay to front line worker pay, the vision of Whole Foods' chairman would have made an even bigger and positive difference to the world. What a great thing that would be!

And, not coincidentlly, Whole Foods should also revisit it's commitment to small, family farms and stop misleading consumers about the source of its produce. That, too, would be great!

Of course, the odds that the Slate article will induce either Wal-Mart or Whole Foods to take such steps is made smaller by the article itself. "Dark Secrets"? Not Wholesome? It's the kind of overheated, immature journalism that fails to enlighten while only retarding lofty aspirations more than advancing them. (Indeed, a friend who read the Slate piece emailed me that he was now quite worried about the integrity of Whole Foods -- probably just the kind of reaction that Slate hoped for. Namely, one that bred anxiety toward Whole Foods rather than anything remotely constructive in continuing the 'organic food movement.")

It also betrays some ignorance. Should Whole Foods take steps to work with local organic farmers in New York? Yes!! But, the author of the article seems wholly ignorant of the minimum demands of commercial relationships as well as 'apples to apples' accounting. To induce large (or small) farmers to switch to organic, Whole Foods must promise to purchase in volume. It cannot 'just show up' on various days in various parts of the year and say, "Hey if you have organic, I'd like to buy it from you!" Both buyer and seller must focus on the entire economic package -- and the larger the package -- the more comprehensive and continuous it is - the more likely each will commit to the necessary shifts required to move toward organic.

Cherry-picking a part of the year, as the author does in making the energy cost comparison of summer tomatoes from New Jersey versus summer tomatoes from Chile is, as the author likes to write, 'technically correct". Fine. But, perhaps it would have been more enlightening for the author to also share the 'full year' energy audit. That is, the energy costs for Chile tomatoes versus local only. A problem of course is that local New Jersey tomatoes are only availabe in summer -- unless grown in greenhouses -- and then, if greenhouse grown, the full energy audit would be higher.

Should Whole Foods find ways to support New Jersey small farmers and also tap into local, in season tomatoes? Yes! By all means. But the current facts as presented in this overheated piece from Slate are, well, overheated.

Dark secrets?

Hardly.

A more accurate title for the article might have been this: "Whole Foods Is Not Perfect."

And, the subtitle might have been: "One Store In Manhattan Has Misleading Posters."

Of course, the 'dark secret' of this kind of journalism is that such headlines don't attract many readers. Much better to have misleading headlines.

Posted by Doug Smith at 01:23 PM | Permalink

March 19, 2006

The Politics of Incompetence

We are well versed now in a Republican Party ruled by folks whose sole objective is power and winning and who have the support of marketing experts armed with block by block, 9 digit zip code level information on which to base branding campaigns that appeal to fear, greed, bigotry and the twin fundamentalism of our age (religious and financial) -- all delivered through a corporate controlled media whose ownership benefits from the financial fundamentalism. It's all a pretty sweet deal -- if you are maniacally concerned with me instead of we.

In addition to trotting out wars as 'products', this Republican Party also, of course, gins up spin campaigns aimed directly at elected Democrats whose timidity is critical to the Bush plutocratic putsch to replace the Constitution with a more pliant set of rules. Over the winter, for example, the meme trotted out was that Democrats are only angry -- that they have no ideas and can only rally themselves by being "anti anything Bush".

You've heard of this right? This is anti-branding campaign - branding the Democrats in ways so that, notwithstanding the abysmal poll numbers for Bush, folks' minds are poisoned with 'but imagine how much worse it would be if we elected people who are just angry?'

Of course, it's the Republican Party that has no ideas -- if by ideas we mean rational conceptions aimed at solving the most critical probems now facing our nation and the world. There are, undoubtedly, Republicans with such problem solving ideas - expressions of rational concern. But not the official Republican Party -- that Party, that organization is ruled by the irrationalists -- the folks whose anger, greed, fear and bigotry have accumulated to the point where there is really only one test for policy: does it support what is cast as the Bush position of the moment?

This test of loyalty to an ideology of power is the last possible position for a Party and an Administration riddled by incompetence. Utter and complete incompetence. Imagine, just for a moment, that the 'won/loss' record of the Bush years were even a mixed picture? Iraq, fiscal responsibility, education, medicare, environmental responsibility, Constitutional government and the rule of law, political appointments, disaster relief, the war of terror -- please make the list as long as you like and, just for a moment, imagine that the Bush administration even had a decent major league batting average of, say, .250 (or one in four)? (One request: do not include winning elections in the list. Winning elections are, of course, a condition precedent to governing -- or in this case ruling -- a nation. But, for our purposes, winning elections has nothing conceptually to do with actually solving problems that 'we' face together. It might be on a list of solving problems that "Republicans" face -- but not that "Americans" face.)

Were that the case, the quick sands of reality would not now be swirling -- the government would not be in a free fall of incompetence. But it is not the case. On too many critical matters of our day, the Bush Administration has failed the test of competence. It doesn't even have a decent minor league batting average -- let alone one we would hope for the major leagues of being a world power.

Consequently, taking the 'anti anything Bush' position is the epitome of cool rationality and the opposite of anger. The surest way our nation can make choices over the remaining three years of this administration is to "Just Say No" to anything the Bush administration proposes because, based on their atrocious batting average, we know this: Whatever they choose to do, they will do incompetently.

In matters of great and small import, when you are choosing policy, strategy, and direction, you will be well advised to include competency as a minimum threshold of debate and discussion. For example, consider the debates over how best to invest/save for college and/or retirement. There are many choices out there -- and if you and your family discuss them, it's a good idea to have a conversation open to many ideas and thoughts. But, one thing is certain. Whether the idea is putting some investment in non-US equities versus bonds versus small cap mutual funds versus a house versus any-number-of-a-zillion alternatives, you had better be sure that you (and those advising and working with you) are competent.

If, by any chance, you were 'taken' by any number of incompetent financial advisors who misread or misled you during any number of recent bubbles, etc -- the one thing you for sure should avoid is continuing to work with them. Whatever ideas they propose, you should reject. NOT because the ideas in the abstract lack any potential appeal. (Remember, for example, that the Republican Party once believed in ideas like small government, fiscal responsibility, 'realistic' foreign policy, and the Constitution). No, you should unhesitatingly reject any idea from such failed advisors because the ideas come from folks whose track record has proven one practical and overwhelmingly obvious fact: they are utterly and completely incompetent.

Posted by Doug Smith at 01:23 PM | Permalink

March 09, 2006

Knight-Ridder And Sustainable Strategy

Knight-Ridder and it's chain of newspaper and media businesses is up for sale. Here are three stories about the finalists in the bidding -- one story from Editor & Publisher, one from the NY Times, and one from the Minneapolis Star Tribune.

I recommend reading all three. Before you do, however, let's review some basics of business strategy and performance.

First, among the various strategic choices that businesses must make are those that determine what blend of cost versus customer value will sit beneath the strategy. Put in it's extreme, will the strategy be cost based? Or, grounded in the value delivered to customers? All businesses must deliver both of course: cost and value. But, often the blend tips in favor of one or the other. So, read about the three bidders for KR and reach your own conclusion about the degree to which the strategy of each will ground itself in cost versus value.

Second, it is commonly accepted that busineses have multiple stakeholders -- most particularly, customers, shareholders and employees. The best, most sustainable businesses balance and blend concern for each in the strategies pursued. Still, many businesses run on the extremist creed of shareholder value fundamentalism -- a creed that goes beyond a healthy concern for delivering shareholder value to an obsession about shareholders that crowds out concern for customers and employees.

Read the three articles. And reflect for yourself on the relative concern each bidder has for shareholders , employees and customers.

Posted by Doug Smith at 03:13 PM | Permalink

March 06, 2006

Ameriquest's Return On Illegality

In January, Ameriquest agreed to a settlement with attorneys general across the country regarding a range of intimidating practices that the states considered illegal and that left thousands of customers with exploding mortgages threatening their security and well being. In the settlement, Ameriquest agreed to pay $325 million to consumers - an amount that often translates into a few hundred bucks as settlement for the ruination of lives.

Ameriquest is typical of what happens at companies that become obsessed with building shareholder value -- that use concerns for value as the trump card for all decisions. Apologists would like to believe that ethics and other values blend in some how in such companies. But, those apologists tend to live in ivy towers and have as much practical experience of top management decision making as, say, the Neo Cons had of the Middle East they so passionately sought to democratize.

In the world of Ameriquest, the $325 million settlement was 'just a cost of running a business for profits and shareholder value". It had little to do with values: family, social, political, enviornmental, spiritual and so forth.

And, based on this information, Ameriquest's shareholders and senior executives must be partying. By offering - and intimidating customers to accept -- exploding mortgages, Ameriquest doubled its loan asset volume in 2004 to a total of just under $83 billion. This means that each 1% return on assets puts $830 million on the bottom line -- and does so every year the loans are on the books.

Again, this is just one year's worth of volume. And 1% return on assets is mediocre financial performance.

Shareholder value extremists would take this deal every time. Folks who concern themselves with sustainable performance -- performance that blends concern for value with concern for values -- would avoid offering and intimidating customers to accept exploding mortgages. But those folks either don't work in decision-making positions at Ameriquest; or, if they do, they remain blinded by the orthodoxy of shareholder value fundamentalism.

Posted by Doug Smith at 01:21 PM | Permalink

March 05, 2006

Did You Say Non-Profit Capitalists?

Yes.

And you can meet Pacific Community Ventures by visiting not only their website, but also the websites of dozens of businesses benefiting from PCV's investment, advice and other resources. PCV focuses on businesses that offer good wages and benefits plus skill and asset building to folks who live in low and moderate income parts of California. They sometimes invest -- and they always provide resources, including advisory help from seasoned business professionals seeking to make a difference. Perhaps most critically, PCV sets, evaluates and achieves impressive goals regarding both the financial and non-financial aspects of how their portfolio businesses -- including the employees of those businesses -- are doing.

PCV offers a wonderful example of using performance to drive change. And, as indicated by the title to this post, PCV demonstrates that, while profits -- or put more specifically, positive cash flow -- is essential to the life blood of any business, there is no requirement that all businesses be 'for profit'.

None. Hundreds of years of culture -- reinforced by our transition into a world of markets, networks, organizations, friends and families -- have embedded this orthodoxy: 'business = for profit'.

It is inaccurate. Business = sustainable cash flow? Yes.

But the choice about the form of any business -- for profit or not for profit -- is a separate matter. The businesses PCV invests in are for profit. For them, cash flow must cover the costs associated with each respective business's goals of delivering great products and services to customers and providing attractive wages, benefits, skills and opportunities to employees as well as generating profits for owners. For the entity PCV, on the other hand, there is no profit component to be covered by cash. This is the key distinction. PCV is non-profit. The businesses it supports are for profit. Both need sustainable cash flow. But, unlike the businesses it promotes for the good of low and moderate income areas, PCV does not require cash to fund profits for itself.

Most of us are familiar with non profit businesses that provide goods and services. Pacific Community Ventures is a business that connects the capital markets to the goods and services markets. PCV invests in for profit businesses that benefit folks in low and moderate income areas. It does so by providing for profit enterprises both money capital and human capital. PCV is impressively successful. And, by all indications, sustainable.

And it is a not for profit. It chooses to invest in for profit businesses. But PCV itself is a not for profit captialist.

Posted by Doug Smith at 12:58 PM | Permalink

March 03, 2006

Viral Bankruptcy Update

Dana Corp, the huge auto and truck part maker, has filed for Chapter 11 in the latest spread of the viral bankruptcy begun by Delphi last autumn.

Posted by Doug Smith at 04:57 PM | Permalink

What Gets Measured

What gets measured, gets done.

It's one of the core precepts of good management and good leadership. It is not always the easiest thing to do -- especially if the challenge at hand is best measured -- or evaluated - in qualitative ways. Reducing stress in your life, for example, is a more difficult measurement challenge than, say, quitting smoking.

Still, without attending to measurement and evaluation, it is not possible to use performance to drive change.

As with all precepts, though, there is the subtle opposite equally worth attention. That is, if you wish something your organization is doing to cease, then it makes sense to stop measuring and evaluating it.

What does not get measured, does not get done.

These choices, too, tell us much about the quality and character and vision of leaders.

Posted by Doug Smith at 12:14 PM | Permalink | Comments (1)

March 02, 2006

Carnival Puts Profits First In Katrina Response

News comes today that Jeb Bush helped Carnival Cruise Lines grab a lucrative contract to send three of its ships to New Orleans in the wake of Katrina. Carnival executive Ric Cooper has given tens of thousands of dollars to Jeb Bush's Florida Republicans and George W. Bush's GOP too. Jeb, of course, has high level access. He can, and did, email directly to Mike Brown of FEMA to seal the deal.

Corruption? Or, a corporation reaching out to help those in need in a crisis and a 'can do' Governor and FEMA director cutting through read tape?

Those are the red vs. blue political questions. Let's focus, though, on the first part of the second question: a corporation reaching out to help those in need.

Here's what a Carnival spokeswoman says about Carnival's civic spirit in a time of crisis: "The ships have played an effective and critical role in housing and feeding thousands of people who desparately needed help and we are extremely gratified to have been there for them."

My hunch is that this description is not far from accurate. People did need help. Those who work for Carnival must feel good about having provided it.

So, is this a case of a corporation putting the needs of the nation above profits -- of reaching out in a time of crisis to do the 'right thing'?

Well, the article goes on to mention "Carnival officials have defended the deal, saying the company will not make extra profit because the $236 million price covers the revenue it would normally receive for up to 120,000 passengers it could book."

Let's look at the fine print and the facts. A catastrophe of Category 5 proportions hits the Gulf Coast and cripples it. How many passengers who had already booked cruises canceled? How many of the 'up to 120,000' who would normally book postponed such plans? Put differently, what would Carnival's actual cruise revenues have been had they not sent the ships to New Orleans?

Next, note the phrase "will not make extra profit". As just suggested, actually Carnival probably did make extra profit when the comparison is between the actual revenues if they had kept the ships for cruise use versus the actual revenues gained by sending them to the Gulf.

Morever, there is a qualitative issue raised by 'will not make extra profit'. A devastating hurricane strikes and hundreds of thousands of people's lives are put at risk. Tens of thousands of other Americans reach into their pockets to provide money and other assistance. That is charity. Stories also circulated about businesses providing support without compensation. That is charity.

A business that provides support at it's normal profit margin is not charity. It's an exercise in putting profits first.

Let's replay the tape. Katrina hits. Jeb Bush contacts Carnival or the reverse. Carnival immediately volunteers three cruise ships -- at cost. Red tape is cut. The ships get there and people are helped.

Okay, let's replay it this way. Ditto on the contact. But this time Carnival says, "We'll send the ships and cut our normal profit margin by X%."

Either way, Carnival does 'the right thing'.

What Carnival did, though, was to extract maximum value from a revenue generating opportunity. Values in the sense of reaching out and doing the right thing were merely a by-product. They played no determinative role in this decision. Carnival probably reaped extra profit because they would not have had 120,000 normal passengers. They charged the Government full price. And, the bonus was, they were able to make 'we were there to help" claims for their brand.

Any way you look at it, Carnival did not do the fully right thing.

And, among other things, here's why it matters -- profoundly. An effective and efficient government should have competitive bidding. Indeed, effective and efficient private sector companies have competitive bidding. It just makes sense. However, in a time of crisis, bidding processes that make routine sense might impede responsiveness. Moving quick counts. Any effort consistent with speed that captures the spirit of competitive bidding is great. But, with Katrina-like disasters, all of us would hope that speed of response rises in importance -- and we would expect people who care enough to send help would move quickly and do the right thing in abiding by the spirit of effective and efficient decision making.

Put differently, we must rely on the good judgement and the values of those in a position to act.

When such players abuse that trust -- when they line their pockets and take full financial advantage -- the reaction will likely include this: further government restrictions on such decisions, even in a time of crisis.

And that means when the next crisis hits, our collective response will be worse, not better because players like Carnival and their executive Ric Cooper who undoubtedly have spent decades decrying government red tape and bureaucracy got a golden opportunity to demonstrate the power of the spirit of the rules instead of the letter of the rules and saw and seized the 'gold' by putting their self interest above interest in others.

Posted by Doug Smith at 12:39 PM | Permalink

March 01, 2006

Leadership 101

Among the principles of Leadership 101 are two critical aspects of effective communication. First, effective communicators tell the truth and listen. Second, in their communications, effective leaders are grounded (listeners have a sense the leader is on solid footing; that his or her messages are deeply rooted in strong beliefs) and clear (listeners can easily make sense of what the leader says -- the messages hang together).

These two pairs of Leadership 101 intertwine. Effective leadership means that, in his or her communications, the leader is grounded and clear about the truth -- and that the same is on display in how well the leader listens. It is not enough to get these two pairs half right. A leader who is grounded and clear about untruths and doesn't listen, for example, is a leader likely to take an organization over a cliff.

As described in Taking Charge of Change, leaders who face the daunting challenge of leading organizations through a period of profound change must lay out a clear vision for what the change is, why it is important and necessary and how it will be brought about (including the goals by which success is indicated).

Through telling the truth and listenting - and through being grounded and clear in doing both -- leaders achieve the understanding and support needed. Those following the leader can articulate the what's, why's and how's of change. They understand and can easily articulate the vision, the strategy and the earmarks or goals that indicate success and drive the enterprise forward.

None of which means there is an absence of disagreement. Quite the contrary. Through being grounded and clear in how well they listen, leaders invite disagreement so they and others can learn from it and adjust. Effective leaders seek commitment to the vision, strategy and goals by all who will hold themselves mutually accountable for delivering the vision, strategy and goals. But, because the world is dynamic and changing, effective leaders do not confuse such commitment with agreement in every particular. Again, quite the reverse.

One way of evaluating the effectiveness of leadership in an organization involves assessing the quality of understanding and commitment of those who are following. Because people are wonderfully differentiated, it's a mistake to expect 100% uniformity when asking those who work in an organization about their understanding and commitment to the vision, strategy and goals of the organization. Still, effective leadership inevitably generates such shared understanding and commitment in at least 70% to 80% of any organization.

So, what should we interpret about the quality of leadership in the following organization facing profound change:

- 42% of the employees are foggy about the mission and strategy
- 58% are clear about the mission -- but 85% of them attribute the mission to an untruth
- 72% of employees support terminating the change effort even if the goals have not been achieved
- 51% (out of these 72%) believe in the rapid termination regardless of goal achievement
- 37% of employees believe that customers who seek such rapid termination without goal achievement consider those customers as bad people

These 37% were not asked about their moral assessment of the more than half of their fellow employees who agree with those customers.

What can we learn from this survey of employees about the effectiveness of their leaders?

Have their leaders told the truth and listened? Have their leaders been grounded and clear?

Would you invest in this company?

Posted by Doug Smith at 02:10 PM | Permalink