Don’t Believe Everything You Read

Back in grammar school, most of us were taught that you can’t always believe everything you read. This didn’t keep people I knew from believing that the “x-ray specs” would actually allow you to see through walls, or that the “giant Polaris submarine” was more than just a cardboard box with delusions of grandeur, or (in extreme cases) even that the “sea monkeys” were more than just brine shrimp – and wasting their allowance finding this out. These days things seem to have gotten even worse, with a disturbingly large percentage of the public apparently believing that if you see it online it HAS to be true (which might account for the continued success of the Nigerian email scammers). People fail to realize that user comments are sometimes made by trolls, that bloggers do not always fact-check their sweeping generalizations (see what I did there?), or even that Wikipedia isn’t a real encyclopedia. However, it’s hard to imagine anyone falling for Bernie Madoff’s latest claim: that he’s working on course content with the people from Harvard Business School…

An article that ran last week on the Fox Business website tells the story of how every major news outlet is trying to get an exclusive interview with Madoff, and how the disgraced financier is using the opportunity to try to rehabilitate his image. It’s obvious why Madoff would want to do this: quite apart from the obvious need to convince everyone (including himself) that he really wasn’t such a bad guy and didn’t do all of the things people are saying about him, Madoff’s surviving son is apparently in negotiations with “60 Minutes” to talk about how some of the biggest losers in the Madoff case were those closest to Bernie himself. A much more immediate question, at least from where I’m sitting, is why anyone would want to listen to this sort of self-serving nonsense, knowing what we know now about Madoff and his methods…

To his credit, the Fox reporter does fact-check some of Madoff’s claims, and finds that most of them don’t hold up; Harvard Business School categorically denies having anything to do with Madoff, and many of his other claims are either unsupported or misrepresented. Even more bizarre, in some ways, are the accusations of insider trading as related shenanigans that Madoff has leveled against people whom he has never met and who have no connection to stock market trades in the first place. These are bizarre both because there is no reason to believe that Madoff would have any way of gaining such information, and also because Madoff himself had very little to do with trading himself (a ponzi scheme generally doesn’t actually buy or sell anything). Even if the Secretary of the Treasury (current or former) had anything to do with insider trading (neither the office itself nor the last two people to hold that office are in any way connected to any stock market), it’s really difficult to imagine how Madoff could have found that out in his prior role, let alone from inside a Federal prison…

One has to wonder if Madoff is attempting his own version of what historians and political scientists call “The Big Lie” – telling a tale so outrageous that people will accept it on the grounds that no one would attempt to tell such a whopper for fear of being laughed at (and similar consequences), and therefore it must be true. In Madoff’s case, it’s hard to imagine what he could possibly lose in this process – he’s already serving a life sentence, and it’s unlikely that he will ever get parole (or that he’d survive for ten minutes outside of protective custody if he did). Certainly, it's possible that the man has just come unhinged; it's also possible that his astonishing talent for misrepresenting the facts with a straight face has made him careless. Whether or not he can leverage enough of his remaining reputation for brilliance and capability (before starting his infamous ponzi scheme, he apparently WAS very good at what he did) to accomplish anything else remains to be seen – but it would probably be easier if he’d stop making statements can be easily disproved. For myself, I will just remind everyone reading this blog (assuming that anyone does) that you can’t believe everything you read – especially online…

Radical Change

I’ve been reading some of Steve Denning’s columns on the Forbes website recently, and it struck me that my reaction to his comments on the need for radical change may be worth looking at more closely. In many ways, I am that particular everyman that business writers talk about when they describe the behavior of “management types” – a generic MBA with 20+ years in corporate life who has never made it more than three layers up into any hierarchy. However, starting three years ago, I also became a generic business educator – almost exactly average for my department, and only slightly higher than that for the instructors who teach my subject, which is management strategy and strategic management. It’s true that my field experience as a manager crosses a number of different sectors (retail, wholesale, energy, communications, service, consulting and education); it’s also true that my institution (Michigan State) is considered one of the top business schools in the country (even if it collectively doesn’t appear to think much of me). Be that as it may, I’m still right in the center of the demographic which Mr. Denning is speaking of and to – and I have some issues with his conclusions…

Let me be clear, up front, that I would not care to directly contradict so learned a scholar, or one of such experience. Mr. Denning has published six books on the subject of management reform, served as a Director of the World Bank and as a Visiting Fellow at Oxford, and worked with both the Smithsonian and the University of Maryland, whereas all I’ve managed to do in academia so far is irritate the faculty at MSU to an entirely unprecedented extent. That said, on reading through some of Mr. Denning’s comments, I can’t help thinking of belled cats, ivory towers, and the difference between my academic experience (remarkable only for the complete lack of respect I have received from my instructors) and my professional experience (in which I was actually quite well regarded). Or to be specific:

First, the exhortation to change focus from making money for the stockholders to delighting the customer is completely correct, as far as it goes, but can’t be accomplished in a traditional company for the very simple reason that the stockholders are the actual owners of the company, and they have contributed (or pooled, depending on your point of view) their capital for the purpose of making money. If the firm is owned by the employees, or operated entirely as a co-op, this might still be possible, but even then it will be tricky for as long as people remain people. This is especially true in the case of those products and services which are considered to be commodities (e.g., for which no product/service differentiation is possible). In a pure low-cost strategy the only way to “delight” a customer is going to be with a lower cost/price structure, which will require lower margins and less benefit to the firm’s owners.

Second, the idea of self-enabling teams can work in professional settings, but becomes less and less practical as we continue down the scale into semi-skilled or unskilled labor; it is also less practical in the case of inexperienced workers or complex task scenarios. I will not weary the reader with the citations that support this contention (it comes up in both Organizational Behavior and Strategy seminars), but the straight answer is that part of the manager’s role has always been direction of the employees, and even workers who can function without direct supervision still need some amount of direction.

Third, the idea that work can be coordinated in ways other than bureaucracy is not new – it’s one of the seminal arguments of Organization Theory, and has been discussed in detail for at least the past sixty or seventy years. No one is going to claim that work can only be controlled through a massive and unresponsive structure, but not all enterprises lend themselves to either short cycles or direct customer feedback.

Which brings me to the real point of this objection: for several years now, I’ve made a point of teaching my students that management is a process, and the key factor is the manager him or her self – in other words, them. The manager’s duty includes making sure that the customer’s needs are met and, wherever possible, exceeded; it includes making sure that his or her people have the resources they need, including room to work without being hounded or micro-managed; and it includes working with the employees in real time, providing continuous direction as well as feedback and control. None of these things demand a traditional – which is to say, hierarchical – structure of management, but saying that these things can not be accomplished through traditional management (or worse yet, that traditional management theory is finished and must be completely ripped out and replaced) is nonsense. In the end, science can make the manager’s job easier; make the objectives easier to understand and the goals easier to achieve; but it can’t replace the practicing manager, and all of the things he or she has learned about the profession of management.

For those of you who didn’t want to wade through that, the TL;DR version is: the key to management is to manage, and for that you need actual managers. Everything else is just a fancy way of drawing up the org charts. I promise that my next post will have less preaching and more snarky humor – but this needed to be said...

The Ethics of Amazon Revisited

Over the four years or so that I’ve been keeping this blog, my most-viewed post remains the one on the Ethics of Amazon, which still accounts for a almost 10% of all of the traffic I get. It probably helps that it’s one of the early hits if you try a Google search that includes “Amazon” and “ethics” in the keywords, but it does seem to keep catching imaginations, considering that there was a comment on this post just last week. Mostly what people ask me about this post is why Amazon (or any other successful company, for that matter) should care about what becomes of its competition. After all, in a capitalist system, aren’t we trying to destroy the competition and take their market share? It made me think we should take a closer look…

First off, no one is saying that Amazon shouldn’t make a lot of money. But expanding your sales and revenue is more than just a zero-sum game (e.g. one where every dollar of sales you make is one more that someone else doesn’t make). In particular, every Internet retailer whom Amazon puts out of business represents a certain number of people who will lose their jobs and therefore not be able to buy anything from Amazon, or anyone else. It’s also possible that the investors who put up capital to start those e-commerce sites will be wiped out, too, which would not only eliminate more customers, but lower the overall supply of capital available in America, raising interest rates and creating new barriers to entry for anyone trying to start a new company. But that’s just the beginning…

If this effect cascades into the companies that used to supply those sites, they may be unable to continue in business as well, knocking more customers out of the workforce and potentially limiting the products that Amazon can obtain for sale. Even worse, the communities in which those suppliers are based will be negatively impacted, resulting in all of the services, utilities, transportation companies, energy companies and government agencies in those communities being driven out of work, as well. Commerce has always been an interconnected whole, and this is more true now in the Internet Age than it has ever been before. If Amazon’s dominance is sufficiently complete, they could end up being the only surviving retailer, Internet or real-world, left in America – and then go bankrupt since there will be no one left to do business with them…

In business school we call this the “Stakeholder” concept, and it’s a key idea in strategic management. The success or failure of your company doesn’t just impact your investors and stockholders; it also affects your employees, your competitors, the people who will be impacted by the environmental and economic results of your operation, your competition, and even the government. The fact is that while most people think the ideal condition for any company is to corner the market and have a complete monopoly over the goods and/or services they sell, the historical record indicates that such companies are bad for business – and not only other people’s business, but ultimately their own. And the wider the reach of their operations becomes, the more problematic their domination of the marketplace is going to become…

I’m still not saying that Amazon shouldn’t make absurd amounts of money, or even that there is anything wrong with their domination of some aspects of Internet commerce. I am however suggesting that their long-term strategy may not be quite as solid as it looks – and that, once again, this is harder than it looks…

Bulldozers for the Win!

A few days back there was a story online about Bank of America bulldozing a bunch of houses in Cleveland. With thousands (and possibly millions; nobody really knows for sure) of homeless people in the United States, and millions (possibly tens of millions; nobody really knows for sure) of people one paycheck or less from being foreclosed out of their homes, this seemed almost perverse. People were making appropriate (and mostly appropriate) comments at the bottom, ranting and raving about how cruel and heartless this action was, and how its another thing we should all hate B of A for doing – thus completely missing both the facts of the case and the point of the exercise…

First off, the story also indicated that the bank had donated over a hundred houses to the City of Cleveland for low-income housing; they’ve also donated over 150 buildings in Detroit and are now planning to repeat this program in nine other cities. That won’t end the housing crisis in America, but it’s a good start – and they certainly don’t have to do any such thing. If you read the story carefully, you’d also notice that once B of A gets done bulldozing the selected properties, they’re also going to donate the land underneath them to the City for use as green space (parks and whatnot), although Cleveland could easily sell the land to developers (to raise money) or use it to build public buildings of various kinds (including more low-income housing). But that’s not really the point either…

The actual point of these operations is that the houses being destroyed are ones that the bank owns but can’t give away, let alone sell, usually because they would cost more to repair to a point where you could actually live in one than they would be worth if you did. However, these properties cost B of A money every day they’re carried on the books, and they have the potential to cost the bank a lot if someone were to break into one and injure themselves (to take only the most obvious annoying possibility). Bulldozing the structures eliminates the liability issues, and donating the property should remove the carrying costs; if they do it right the resulting tax credits might even cover the company’s expenses in foreclosing on the mortgages in the first place. But this still isn’t the point…

The laws of supply and demand state that it isn’t possible to charge as much for something that is in vast supply as you can for something rare. If people can obtain a house just by asking for it, they are unlikely to pay money for one, which means the housing market will just get worse. Lowering the supply of anything has the effect of raising the price by an amount proportional to both the reduction and how much people want the item in question, which in this case means raising the price people will pay for a house. Granted that this will also result in people wanting to take our home loans, which will benefit Bank of America, it will also benefit anyone in the country who owns real estate or builds, repairs, buys or sells houses – and anyone who does business with those companies and people…

I’m not saying that Bank of America is comprised entirely of angels looking out for the good of the country; I’m not even saying that you shouldn’t hate Bank of America if you want to. I’m just saying that if you’re going to do so, you might want to select something they’ve done that is actually bad…