Inject the most secret, largely misunderstood but highly efficient ingredient into your company. Daring recipe to follow, only for the brave.
"My football team won!" "We did that!" "That's my house!"
Ownership (in human terms) does not require a deed or contract, it applies to your ideas or the task you helped finish. Even tangible stuff can be "owned" without a deed; the car you lease is still "your" car even if the registration papers says otherwise.
The opposite is true as well, you might well hold the deed to the thing or property but if you have no say then legal ownership has only a marginal effect. If I have to ask for permission to change a picture on the wall, if I was decreed by somebody to mow the lawn on Saturday at 10 am, if the arrival and departure of guests was set in a calendar by somebody else - would I feel that the house was "mine"? No amount of deeds and keys would help, it would not be "mine".
"That's my work!" "I did that!" "I Made it!"
Accomplishment, the pride in sealing the ownership to work well done.
So why bother with ownership and pride?
Because we're all involved in communal undertakings - groups of all kinds including commercial undertakings.
If the participants (see employees and partners) are strongly driven in a coherent way, preferably getting much joy from the drive, well then the chances of success would be much higher!
Ownership is the strongest driver of them all, love and hunger aside (albeit pretty futile to try using those).
Ah, but we have bonus and stock-options to drive our fine leaders you say?
Study this light hearted decision tree for bonus and pay challenged bank executives receiving state support, as suggested by Business Week in their Feb 23 issue.
Despite the humorous poke it's still logical or what?
Pure monetary incentives are almost useless, strong perhaps, but inevitably short term interests clashes with long term and morality and principles are easily compromised.
Look no further than the current crisis and how the "incentives and bonuses" have wreaked havoc.
Option schemes, share ownership for employees - all nice and dandy as a principle, but totally off the mark if the purpose is to create a feeling of ownership. Unless the shareholders get a direct say as well you could just as well disburse with cash, same diff.
Does a small shareholder in a large corporation feel the ownership? Would you feel the ownership if some little clique of managers has taken charge of the whole thing, informing you occasionally through Wall Street Journal or an annual report while jetting around on your penny?
True ownership on the other hand has meaning, balances short and long term purposes and yields true pleasure. It binds, it drives, it makes sense, in short it's basically human - but only ownership that transcends the legal meaning of the word.
I can only think of a few examples that have included some of the right meaning of ownership: One would be Berkshire Hathaway. The leader shows in all he does that he's merely the leader of the pack but that you're all in it together. His letter to shareholders, his hours of Q&A at the annual shareholder's meeting, his openness towards fellow shareholders - it's all there and I bet you if you ask a long term shareholder he might very well utter "our company" when he talks about it on his flight back from Omaha.
Still it's hard to include thousands and thousands in a two way discussion and for decisions. Especially when letters and physical meetings were the only means, still Mr Buffet managed to get it more right than others.
The Open Source movement is another story, differing from Berkshire Hathaway in only two aspects - one being they have no commercial interests directly in the product thus no need for equity shares, secondly they use the modern networking technologies in contrast to letters and annual get-togethers.
In other words the strongest possible incentive for working hard and smart while offering great pleasure and true meaning is open to be used by commercial enterprises. The technology that could make it possible is available, but it will only work if those with power dare. And therein lies the issue for the current owners and management; dare to open up, dare to be transparent, dare to include, dare to be one of us - dare to include the owner community in decisions!
And those that one day will dare will win big. Unleash and use one of the strongest motivators there is for commercial purposes and I think you will drive past your competition. No pun intended.
If you're in "industry" your Capital will mostly be solidly bolted down as assembly lines, production facilities, distribution channels and your "Brand". Altogether making the basis for the entirety of your value and wealth creation.
If you're in "services" the same basis for your value and wealth creation will be solidly lodged in the brains of your employees, who, by the way, could leave by lunch tomorrow. Bye, bye Capital.
Industrial Capital can be used to it's full extent and almost instantly by the newly hired.
Intellectual Capital on the other hands, requires years of training, workshops and mentoring before the newly hired can use it fully to create value and wealth.
In other words, we have a two-lane economy.
One fast lane, one extremely slow lane.
The crazy thing is that the wealth and value created in the slow lane (as expressed in world wide GDP) is twice the amount that is created in the fast lane.
Imagine what would happen if the slow lane became a fast lane!
Thus time to challenge the assumption that the two types of Capital has to be treated differently and try a new set of "ground rules":
1. "How you do things" is the core - call it what you will, "Industrial" or "Intellectual", it's all Capital.
2. Ownership and retainability must be the same for both types of Capital.
3. Time-to-full-productivity and speed of growth of both types of Capital should be the same.
To ensure better use of Intellectual Capital all knowledge work and practices must be sufficiently, albeit not suffocatingly, structured so the paths and choices - "how you do things" - becomes tangible:
1. The Intellectual Capital must be embedded in every task as it's delivered with all pertinent information and the required tools allowing the Capital to be instantly used to full effect with little or no training.
2. The process must have real time visibility and real choices, again reflecting the Intellectual Capital, in order to amplify the value of the human creativity and it's use of the Capital.
3. Every step, every word, every choice must be captured real time (and historically) thus building the Intellectual Capital continuously and keeping it for the future.
Some "systems" do actually try to deliver these kind of effects - BPM comes to mind, CRM, KM systems and Enterprise 2.0 tries it's best as well. Common though is that these are restricted to certain limited practices / processes, and whatever the sales pitch says, precious little holistic process structure is offered. While "Capital" is all-encompassing and can only be fully utilised by holistic solutions.
[Disclosure: This issue is one of many that we (try to) address with Thingamy.]
If it goes down a recession is declared and all hunker down, stock markets tumble and worse happens.
GDP is defined as the total market value of all final goods and services produced within the country in a given period of time. It includes government as well of course. By the way, GDP is in principle same as GNP, differs only in how the import - export equation is worked out.
So how to stop a recession from happening? Simple, very simple, here's the answer:
You write a paper (you choose the theme, it does not matter what) and call it a Report. Slap an invoice (any sum, big is fine) onto it and send it to me.
Upon receipt of your "Report" I'll add some notes and scribbles on the bottom. Then I'll send it back to you with another invoice for "services rendered". Your invoice is balanced by my invoice by the way.
Now you slap more notes to the thing, add another invoice and send it to me again.
Rinse and repeat as fast as we can.
At the end of the quarter we'll add up all the invoices and send them to whoever do the GDP calculations.
Voilà, GDP miraculously increased and we've done our duty.
Obviously this is not what an economist would suggest, too easy to criticise. No, some have a much better idea: Consume more!
You hire me to produce some consumer goods and pay me for that.
I use the pay to buy the product I just produced so you have funds to pay me next month.
Rinse and repeat.
Voilà, we all do our duty.
To help kick start such cycles Mr Darling of the UK has lowered the VAT and his colleagues in the US are using all the tools in their tool box to get the US consumers going. And all rejoice when the not-too-bad numbers from Black Friday came in.
Not the smartest of moves this, pure self delusion to be honest, but what to do?
Wealth creation is the crux, real increase in wealth creation is even better.
Go back in time and see what really made a difference in wealth creation: Every time we did a leap in productivity. Every time the equation of value created per resource unit spent increased.
It happened when agriculture and domestication of animals started, it happened when industrialisation happened, it happened when IT made it's impact on production and logistics.
And now, in one dramatic moment everybody stopped up, is looking around declaring loudly "we have to rethink our strategy", "we have to revisit our plans", "we have to do things differently". And the best part, corporate purchase-on-autopilot just because we always did is history.
Excellent. Bravo. That's what it's all about, do things differently.
Better agriculture, slicker production or tweaking IT to refine logistics or sales processes will not deliver the needed leap any more. They've done what they can. Thank you, but now is the time to look elsewhere.
We've done what we can with how we plough and harvest, with how we move stuff around efficiently, in how we produce with less resources, in how we move people into shops to keep the money flowing ever faster. All good, but we left one small item behind: How people work, how they spend their time, how to increase knowledge and it's use (aka innovation), how to create much more in less time while making the resources (people) even more enthusiastic and happy so they'll become even better.
Funny really, as that is where most of the resources go - not only when you're at the office, after all you have to live and consume when not working as well. We cannot shut you off after work hours and save resources. So getting more out of people while they work is a double whammy - and I'm not talking longer office hours, I'm thinking of innovation, less waste of time, smarter decisions, smarter processes, less fluff and much more.
There are billions of people delivering services - directly as a value to the consumer, to other firms or to their own firm. And they all work using paper based methodologies in millenniums old frameworks. And with "paper based methodologies" I include current crop of IT as they're still documents and forms based, include business rules and hierarchies, and reports by transactions as has been the method for hundred of years.
Business Models (as in how to use resources to deliver a value), workflows and methods are in for a change.
The best part is that not only is it the objective right way to move, it's now subjectively seen as the right way as other alternatives do not have the promise required in such scary times, and most important, the lull allows for the time and space to give it a go. When all was at 100% of capacity and nary a cloud was in sight nobody wanted to do anything different, neither did they have time for it.
With the cold shower and dark clouds all over all of that evaporated and a new tune can be heard.
I'm elated as suddenly the obvious becomes visible. And now, roll up your sleeves and get going.
Luckily my little project is built for precisely that, so I'm reasonably happy.
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.
Suddenly things changed, buyers are holding back, budgets are frozen, projects are moved into "next year" - and to add insult to injury this happens when most start their budget cycle. Not the expansive mood to create a supplier-friendly next year's budget I would say.
Bad? Sure, but hang on:
That buyers says "stop" does not mean that they have no needs anymore, it simply means that overnight their needs have changed.
That you suddenly ditched the idea of a new car, that the expensive family summer cruise is now on hold does not mean that you do not need transport or a family vacation anymore. Sitting down you now think taking the train instead of driving would be good, that a camping trip would do the family even more good than stuffing your face on a floating restaurant.
And that's where the "great" part for the entrepreneur lies - the needs did not disappear overnight, they simply shifted while your competition is geared towards the products in vogue two weeks ago. Suddenly they are bewildered and succumb to the tendency to say "the market will return when all this is over", cutting costs, holding their breath and in general thread water.
There is suddenly a shift to needs that few, probably unprepared, caters for.
That things might not turn back to "normal", shifted needs means new solutions that may end up as the new "normal".
You could end up doing camping trips for many years when you found how much you all loved it. The cruise folks will sit there while the camping outfitters will thrive.
This is what you must do now:
Find out, as fast as you can, to what have your customer's needs shifted to, and if there are other potential customers looking for what you can deliver.
Change your own offerings to that and deliver now.
It's in "bad" times that the basis for big fortunes are laid. Good luck!
In order to understand, simulate and reproduce any natural phenomena we need a model, a theory. With that established, simulation can happen, understanding of cause and effect may occur.
But sometimes something unwanted happens: If the model is only approximative and there is money involved a tendency to game the model itself becomes very strong. We are after all humans. Homo Ludens that is.
To understand commerce, and even run commerce and industry we have developed a model, or rather a set of models where the most important one is called double-entry book-keeping, a 514 old model that tries to represent the transactions. Being rather coarse it soon required rules, regulations and referees - after all money is involved so the participants soon found ways to adjust, tweak and even cheat for their own gain.
And with rules duct-taping a two-pages-at-a-time paper based model representing reality what do we get? An increasing tendency to game the system of course. How much of the activity on Wall Street and in the City of London would you think is focused on gaming the system and how much is focused on fulfilling real life tasks like creating new products or repairing bridges? Anybody's guess I would say, but if you ask me, quite a substantial part being gaming the system. Certainly more money in gaming a system than in actually delivering a tangible value. Tangible values have the bad tendency of keeping the margins down, gaming the intangible and invisible has no limits.
Adding more rules will never change that reality. Deregulation or not, no real difference but the time-span before the model functionality is messed up again. Fair-value measurement standards, leverage ratio limits, no skin off my nose - it's all about the referee adding rules. Bailout, new rules, new referees and scared participants will forever be a part of it all. We'll sort this one out now, then we'll sit back and wait for the next one. And mind you, this is no Black Swan, this one is a Plain Goose returning from it's winter habitat. They fly off every now and then, then they return, that should not surprise anybody.
The current crisis is a game crisis, the best way to solve it is to stop the game, simply by moving the activity off the game pitch.
For this you have to look for a new model to represent reality more directly leaving less opportunity to game it. As you cannot create new models based on the old ones one has to start by dumping old models. I would suggest killing off the old Italian model as a good start and replace it with something slightly more modern.
Then of course, accepting the reality that we have the tendency to game any model, keep on refining the models instead of adding new rules.
Apologies extended to my old chums in the investment banking industry, it's not your fault, you've been in it just for the game.
I'm puzzled, have "everybody" forgotten how to calculate?
The long sigh of the week:
Yesterday in a shop something cost 26.40 so I gave her a 50 note. She asked if I had -.40 so I gave her a 50 cent piece. She tapped the incoming into the cash register, but then I gave her another 1 Euro piece so she could give me 25.10 back, less coins I thought.
That rattled her no end, after much use of a calculator she came to my conclusion though.
This morning I read about Sarkozy starting his battle with the unions and how he'll want to push the current pension age of 50 (at certain state enterprises) back up to 65.
My brain goes "hmm, now it's 25 years working, 25 years pensioned thus half their annual work income should go to pension funds - wonder if the union ever accepted that simple fact?". But not so, unions up in arms of course saying "any change is not fair, the money is there". Sure the money is there as long as everybody else is willing to pay for that, but fair, no.
Last week a story about the loss of hours by FaceBook users in the UK spread like wildfire, some consultant had made some calculations and most UK papers picked it up and printed (Daily Mail censored my calculation comment there, cowards) it as a wow story without a question (blogs questioned though).
Good story yes, but if any of those editors knew how to add two and two they could have found that the number meant that most FaceBook members who works in the UK spends all hours at work and more on FaceBook. Not likely.
We're good at detecting political lies, but pure bullshit presented as figures - nah, no detection at all.
How can our societies survive if this is the norm?
I've wanted to try out the Nike training programs for my iPod for a long time, and today I plonked down the moolahs at iTunes.
French not being my first language I really wanted the nice "personal trainer" to speak... say English. But no such luck, my IP address is in France so now I must listen to the enthusiastic voice in French. No choice, take it or leave it, the music industry's nifty trade barriers is at work.