Business is about process, typically starting with a customer calling, then proceeding through a sequence of tasks and activities ending with the delivery of some value.
No process exists unless there is a framework. And for that reason business have a framework, an old and proven one. Here's a condensed list of it's most important parts and how they work, in no particular order:
So we can get together, listen and pounce on presentations or remarks made by those we do not like. Actually meant to be a place where work is distributed and then later dissected.
This is important so you can keep your eyes focused at the end of a process and avoid having to focus on the beginning of a process as this might lead to immediate action that will ruin your already busy schedule (emailing, meetings, creating charts and bullets). Beside the excellent time-wasting method of meetings this is one of the best ways to limit profits, it's built in.
This allows the top managers to avoid unauthorised thinking among subordinates knowing that all purchase requests over ten grand will pass through their inbox, or that no credit check applies to returning customers. The credo being; less thinking is good for the company.
Maps out who can direct who, who's to talk to who and other dream-like concepts regarding human behaviour.
Here's a good example from Fortune magazine in June 2006, left side is the official dream-world chart, right side maps the actual interactions over time:
Now, add a sprinkling of important support tools and you'll have the business-in-a-nutshell:
If we're not in meetings we receive and distribute work per email. Sometimes we cc to bosses so they can see how busy we are, or to remind the recipient that the "boss is looking". The Inbox is where about 1730 unread emails are kept safe as we usually read mails under the table on a BlackBerry while in meetings or at dinners.
This is how we try to make sense of data. All programs and large systems that produces data have a spigot on the side into which you can connect your spreadsheet program and suck out meaningless data. Then you can apply some meaning to the data, your own meaning of course, before you go to a meeting to show the resulting fancy pie charts. Then somebody will hook up their spreadsheets to the projector and show more and very different charts, made from the same data but with their instead of your meaning applied. Jolly good fun.
This is when you'd like to convince a group of people. Very useful as most such programs comes with templates. Just fill in the blanks with sentences you'll find in other places and charts from your spreadsheets. Then at the meeting you can keep your back to the audience and recite from the bullets, no eye-contact nor rehearsing required.
A method where incoming papers regarding any kind of money - going out or coming in - is read and interpreted by highly trained people in the so-called accounting department. When they have made up their minds, they slot the amount into a specific "drawer" called an "account". Every now and then an outside interpreter arrives to see if the right drawers were chosen. More frequently the managers of other departments pays them a visit and try to convince them that certain sums should be in different drawers. This because the change will make them look better and give them extra bonus. Sometimes they're able to talk the accounting staff into it, sometimes not, it's after all a matter of guesstimating inside very elaborate and vague rules written in non-human-compatible languages.
In sum, despite the light hearted tone, this is in fact the very core of the business framework. If I suggest it's a buggy framework I would be off the mark. In truth it's truly, sincerely bad.
Worse, this is the framework accepted as the basis for most business software, believe it or not. Frame-working a bad framework is the result.
If you consider implementing some enterprise software, do the acid test: Does it reflect the organisational chart? Does it have business rules? Does it pivot around meetings? Does it interact with email? Does it rely on dumping data to spreadsheets to make sense? Any yes would indicate you have a system at hand that will try to manage a bad framework in order to manage a process, that's like driving a car by driving the driver. Not smart.
Are there better ways you might ask. To which I say, yes, there is.
Simple; business software shall model reality not the existing non-IT-based model.
Imagine this, you're out driving... [Reality references in brackets at the bottom of the post]
But the windshield is not there, instead you have a standardised set of reports  coming up on a "dashboard" in front of you .
The reports are supposed to give you an idea as to where you are heading and what dangers might lurk, or jump out from the kerb.
The reporters are not in the cabin, they're under the bonnet somewhere, peeking out through the grille  delivering information to your windscreen-replacing dashboard. And they're trained to interpret what they see, or think they see, armed with thick manuals of standardised interpretation methods. Every now and then an inspector  joins the ride to check if their reports last quarter more or less reflected the standardised interpretation manuals.
Obviously the lag is bad for your driving prowess, but luckily you're allowed to roll down the window so you can stick your head out every now and then and get a fleeting glimpse of what's happening . Coming back to the "dashboard" again you're often able to correlate that with what you saw. The best drivers are often the ones that stick their heads out frequently.
Obviously the speed of your vehicle is seriously hampered by this and an Elk jumping out of the woods would often hit your windscreen in full force, an occurrence often termed a "Black Swan" these days despite the fact that Elks do this all the time.
But you have masters, the owners of the truck , and they pay you well for speed and volume of goods delivered. This will inevitably lead to you convincing the masters that they should give you funds to buy a bigger van , preferably with a bigger engine and more refined dashboards to give at least an illusion of control. And the masters often comply while your driving expertise increases over time.
With speed and size Elks are flattened and other little wild animal corpses simply get stuck in the grille. But the size and speed increase makes sudden bends in the road harder to handle, although as long as the road is straight and the maps are good, it works.
Some drivers are in the business of fuel delivery , and their trucks used to be small and nimble driving at low speeds where the driver would have his head out the window all the time . In those days the dashboard was not electronic, it was paper-based  and delivered by hand, so keeping the head in the wind was a must.
But with new dashboard technology  the fuel trucks grew in size to huge juggernauts, the speed increased to warp speed  - and for awhile the masters were happy while the driver's  bonus made them very rich men (mostly men I'm afraid, manly business such truck-driving).
The inspectors being soon overwhelmed, cozied up to the masters and the drivers crossing their fingers and hoping the maps where good. The traffic cops  and some traffic analysts  on the other hands saw a different world out there, almost blown off the road when the juggernauts passed at warp speed. Some started complaining, but as things stood, few legislators  were keen to do much as the speed and volume of fuel distributed was overwhelming and all were happy and able to live in big mansions and drive big trucks themselves. And BTW, the police chiefs and legislators saw even less of the reality than the drivers or the traffic cops.
Until some mid autumn day when the first truck hit a tree  and went up in flames, then another were saved in the nick of time , and another  and soon all the fuel trucks went into a crawl. The other trucks, delivering normal goods soon realised that they too had to slam on the brakes to avoid the suddenly obvious dangers out there, then move slowly forward to save fuel that instantly increased in price .
The traffic cops blew their whistles, and some entered some of the biggest trucks and took over the steering wheels as the drivers had been reduced from cocky one-hand-on-the-wheel road cowboys to shaking bundles of nerves. Even a new and unblemished police chief  was called in, increasing hopes for a solution. We have yet to see if he'll be radical enough, perhaps we'll only see more traffic cops?
And that's where we are today. And now we're trying to find out what went wrong and what to do.
Would lower speed and smaller trucks been better? Of course. Would more traffic cops out there been helpful? To a certain degree, but only very limited unless they took over the wheels which might have reduced the interest of the masters to put up money for the bigger trucks.
Nope, the answer then as today can be found in the driver's (and everybody else's) ability to see reality as it is. The dashboard reporting system that was developed for paper based technology worked adequately at low speed, with small trucks with drivers hanging out the windows. But not anymore if we want to grow the economy.
What we need is a transparent windscreen where the driver can see reality without a filter. And we need it now.
So forget the discussion about "more traffic cops" or more "traffic rules" or even smaller trucks at lower speeds. The discussion must focus on the way the drivers are given access to reality.
The indirect representation of reality by proxy, the transactions, in today's reporting and management systems has to go, it must be replaced with a representation of reality directly.
The other day I got a newsletter from my old business school, INSEAD. The first paragraph was all about how serious they were about the current crisis, their dramatic and immediate cuts in travel costs given as a prime example. Then the newsletter proceeded to pitch an assorted number of conferences, all requiring travel over vast distances for the rest of us.
Unintended I'm sure, but nevertheless a perfect example of "grab the helmet and dive into the ditch" that is apparent everywhere. Jump first, think later and hope that it pleases the investors and saves the day. Action more important than thinking.
This not without reason as investors everywhere are asking themselves (and others) "what companies show resolute behaviour in the face of the difficulties?" as well as "what industries or companies could be recession proof?".
And it's not only investors that are asking, employees and vendors are in the same boat.
I think the questions are the wrong ones. This is not a "normal" downturn, most agree that this is a systemic failure.
Thus the first question must be if the "system" has infiltrated a specific company.
As discussed earlier, with "system" I allude to gaming the quarterly results, having off-balance items or any other structure created to make things look better, leveraging anything but core activities - in short the creative use of double-entry book keeping.
Take your local bank that has lent money to home owners and local businesses for decades using local knowledge keeping the loans on their books and a keen eye on what their creditors are up to. Now they're doing it the "new" way where loans are bundled and sent off leaving the local bank to earn money from placing loans without any risk. So now the local bank are good at pushing loans but have forgotten it's former core knowledge. In other words the "system" has taken over.
Do big conglomerates need to have "three legs" of which one is "investment" - hard to understand for an investor, employee or client and a funding volume far outstripping what the original value-creation required?
Spreading the "credit risks" or "enhancing the return on free cash" becomes quickly entangled in the "system" that has failed, so a "yes" to the question should be a warning signal.
The second question would be if the company is willing to face changes to customer behaviour, now.
As mentioned earlier, I do not think a "need" disappear when a customer becomes shell-shocked, but I'm sure his behaviour might change.
Plans for expensive family vacations being replaced with budget camping trips could be the first step. Second step could be that the kids loved it and it becomes the favourite summer activity.
The luxury hotels that have cut their costs waiting for all to go back to "normal" might never see "normal" again while camping outfitters will be hugely surprised and perhaps not geared to grab the sudden opportunity.
That would be the second clue I would be looking for - is the particular company I'm looking at revisiting it's strategies, are they in fact spending time with their customers and even new potential customers to try and understand what opportunities lies ahead? Or have they merely grabbed their helmet and is now carefully peeking out of the ditch?
In sum I would look for companies with these traits:
No-nonsense reporting, zero gaming of financial parameters, simple and visible value delivery.
Clear signals that the strategy is being re-visited.
I will be sceptical if I see:
Non-core financial engineering and/or too smooth results reporting.
Ditch-diving and blind cost-cutting unless the strategy has been re-visited and re-engineered already.
Obviously there are many more questions to be asked, but this would be my first filter.
As the world has it's pangs of panic and licks it's wounds, many have their helmet on or at least wonders what went wrong; one message comes up more and more frequent: Consensus is dangerous, be a contrarian.
Fred Wilson's recent post "Conventional Wisdom Will Be Wrong" is not alone.
Mind you, I do agree, I'm merely a sceptic smelling yet another consensus; this time that contrarian is good, a consensus that consensus is wrong. Spot the Paradox I say.
Taleb (of Black Swan fame) is often called upon as witness, but to me it seems one fact is all too often forgotten: Taleb is not simply contrarian in principle, he's a sceptic in principle. And he had some very practical ideas as how to translate his scepticism into action. Even in his book, long time before the latest downturn his hedging was described as based on two issues: Unexpected big dips in the market will occur and a sudden market fall is faster and steeper than a market rise. And lo and behold, that worked.
My point being:
Being contrarian as a principle does nothing, that would be rather confusing.
Being contrarian based on specific understanding, now that makes sense.
Being a sceptic leads to becoming a contrarian in specific cases, no shortcut available there.
In fact Fred partly acknowledges the point by saying "Read everything you can. And then come to your own conclusions. It is better to be contrarian in times like these. But do it wisely and don't bet the farm." But he should have added - start out as a sceptic!
Understanding "everything" is a bit too much to request, where shall I start looking, what signals shall I attune my radar to? That would be the crux of the whole exercise.
Here's a suggested sceptical method, mentioned a few years ago on this blog:
"The more I hear a 'Truth' the more I'm sure it's wrong"
It's based on some very basic human traits:
Intuition, gut feeling, often "knows" a long time before our conscious brain, and sometimes we get faint warning signals from somewhere deep down. But signals are not signals unless they differ from our conscious attitudes and actions, thus you've been handed an internal and personal conflict.
Thing is, we do not like conflicts, but we know the simplest way to handle it; smother it, overwhelm it with peer consensus. Repeat your conscious convictions and solicit agreement, the more the merrier and with that the internal voice of conflict is muffled. Much backslapping and nodding happens and the annoying gut feeling slowly loosens it's grip.
As an outsider my radar goes bip, bip, bip when I hear statements of some "Truth" being repeated. I smell conflict between intuitions and current beliefs, a clear call to challenge that "Truth". And believe me, that has led to many eye-opening discoveries over time (not always right I might add, but still). Discoveries, ideas or theories that are frowned upon of course, that comes with the territory.
I'd suggest you try it, not a bad path to some contrarianism with meaning.