Example of Good Exchange

Here’s an excellent example of a good exchange of ideas.  It’s focused, written in plain language and stays at the nub of the issue.

The writing is on the benefits of free markets and it includes a question and answer section.  The writer is Don Boudreaux of George Mason University.

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Resolving Service Problems

As a friend described a customer service issue he had with a business that was successfully resolved by the person he was dealing with, it occurred to me that the person did three things well.

1. Identified problem.  The customer service person kept his composure and asked questions to identify exactly what the problem was.
2. Understand problem.  After he identified the problem, he asked a few more questions to zero in on how the problem impacted the customer’s value proposition .
3. Offer common sense solution.  After identifying the problem and understanding why it was a problem, the customer service agent offered a solution that addressed the shortfall in value proposition and was acceptable to the customer.

This may sound obvious and simple, but consider how many service problems you’ve experienced where the business agents never made it to step one.

Government Health Care

Four reasons I don’t like it.

1. Bad incentives.  See K-12 education system. 
2. It gives do-gooders ever more right to coerce your lifestyle choices.  They get to use the, “if my dollars pay your health care, then you must do what I say.”
3. The government has done enough damage to health care already with it’s tax treatment of health insurance premiums and the part of health care that is already socialized.  Costs have risen in lockstep with government’s involvement and the movement of payments to third party. We should reverse the trend, rather than accelerate it.
4. Other countries that have gone to socialized medicine allow a small group of decision makers to trade off valuable attributes such as short wait times, innovation and high quality staff and equipment for expense savings.

Moving more of health care from the realm of individual, value-motivated, outcome based decisions into the realm of centralized, politically-motivatived, intention based decisions will erode the quality of health care over the coming decades by stifling innovation and rewarding mediocrity.

NFL Management Talent is not Deep

The NFL has 32 teams.  Each team has a head coach.  At any time four or five head coaches are in a league of their own.  Another ten to twelve are decent with some potential.  The rest, to borrow a phrase from Dave Ramsey, “fake it to make it.”

That’s hard to believe.  With only 32 teams and roughly a hundred million people in the age range to be a head coach in the country, you’d think there might be enough talent for each team to have an outstanding head coach.  But there’s not.  Or, if there is, they’re just not finding their way to those head coaching positions. 

Either way, the point is that top shelf coaching talent is thin.  Only 15% of head coaches are outstanding and that’s in a league that artificially limits the number of teams. 

In the more competitive world of business it’s safe to assume that outstanding management talent is thinner.  I guess that 5% to 10%, or less, of management in any given industry is outstanding.   Another 20% – 30% are decent.  The other 60% – 75% are there for whatever reason – politics, entrenched, better than the rest, luck – but most of those fake it to make it.  

What I described is nothing more than what statisticians call the normal distribution.   In any system there are those close to average and there are outliers on one end or another. 

Outstanding managers know this and manage with it in mind.  They purposefully churn talent in their teams to let the outstanding people rise to the top.  But, that only happens in 10-15% or less of organizations. 

The rest churn the not-so-outstanding people and often chase away the outstanding people, because they fake it to make it.

Follow the Rules

Yesterday I rode bicycles with woman who grew up in West Germany.  She just returned to the states from a bike ride across Germany with her sons.  She said interesting things.

I asked her what it was like growing up so close to the Eastern bloc and what it’s like now under one Germany.

She said it was weird and that the attitude of those in East Germany hasn’t changed much.  She said it was ingrained.  They aren’t very nice people. 

She gave an example of an innkeeper they came across on their bike ride.  He didn’t appreciate their business.  He didn’t seem to care or understand that he could do better business by being nice to his customers.

I said a lot of people in this country don’t understand the magic of capitalism, that by doing right by myself I have to do right by you so you’ll buy my stuff. 

She agreed and then said something that offered a rare glimpse into a strange culture that you only get from those who’ve experienced it firsthand. 

She said, “Yes! They don’t care how they treat others as long as they follow the rules.”  As she said it, she held one hand as if holding a rule book and the other hand was checking off the explicit rules that were being followed that allowed them to ignore the tacit rules of humanity.

These rules were identified by Adam Smith in his Theory of Moral Sentiments (big thanks to EconTalk for the fantastic and FREE podcast series on Smith’s on this book) over 200 years ago.  The rules, or virtues, are prudence, propriety, justice and beneficence.  In my opinion, these are the four fingers of the invisible hand.  I will write more about that later.

The Backseat CEO

I realized I didn’t want to be engineer while earning my engineering degree.  My classmates told stories of how they took apart toasters, clock radios and car engines as kids because they wanted to figure out how those worked. 

I didn’t. 

I liked to take apart something else: businesses and organizations.  I was fascinated by what lied under the hood of businesses.  What makes them tick?  How do they make money?  How do they spend money?  Who makes the decisions?  What separates big businesses and organizations from the small ones?  Why are some businesses successful and some aren’t?

I went on to earn an MBA and changed my career to business.  It struck me when I earned my MBA that I didn’t really know much.  I knew about things like financial statements, different types of capital and leadership types, but they were all floating around in a sea of randomness.  I didn’t know the important, if any of it, from the noise.  But, I continued breaking businesses apart to find out what made them work.

As I learned about all types of businesses and organizations I realized not many people know the true answers to business success.  If they did, the success rate of business would be much higher, no?  Maybe not.  Maybe so.

I don’t know either.  But, I have some thoughts based on my education, experience and observations. 

In my experience I’ve been lucky enough to get to know and work with small business owners, entreprenuers, business executives, management at all levels of the organization, business consultant graduates from the finest business schools in the country, former military leaders and people who have just knocked around in life.  They don’t know either.  I’ve learned from them and, over the years, have come to advise some of them with good results.

I started this blog to capture the thoughts and observations I’ve made over the years and capture more as I make them. 

My hope is this might reach others to help them.  Some people get their kicks from the hum of a well maintained and adjusted car engine. 

I get my kicks from the hum of a well run business or organization.

Jonah Goldberg is On His Game

Some great sentences from Jonah Goldberg’s Et Tu, Big Business? Some good stuff:

Once-proud companies like GE have become seduced by global warming schemes, because they recognize that there’s more money to be made selling white elephants to Uncle Sam than there is selling competitive products consumers want.

And:

Also this week, the White House announced its plan to deal with “systemic risk” in the financial markets. The basic idea is that big firms — giant banks, insurance companies, etc. — cannot be allowed to fail if their failure threatens something called “stability.” The Obama administration is confident that with its new organizational flow charts and enhanced job description for the Federal Reserve, bureaucrats will suddenly see clearly what they couldn’t see before. These regulators will know exactly when bubbles get too big, when booms last too long, and when tens of thousands of managers, investors, actuaries and bankers make bad or sub-optimal decisions.

And:

While doctrinaire socialists might feel betrayed by liberalism’s cozy embrace of big business, their betrayal pales in comparison to the bitterness of free-marketers who defend big business’s freedom to operate, only to see these businesses use that freedom to hide behind the skirts of the nanny state. Real freedom means the freedom to fail as well as succeed. Big business wants to be protected from the former and deny competitors the latter. And their betrayal, more than anything, disheartens those who would defend both freedoms.

A common misunderstanding is that businesspeople are free market supporters.  Many aren’t.  Most don’t understand the concept.  Others believe that limiting their competition and forcing people to buy their products is a good scenario, mainly because they won’t be held accountable for their incompetence and will get to hang on to their esteemed jobs.

Yet, none of this is surprising in the society of scoreless t-ball leagues.  Results don’t matter anymore.  Politics do.

Any Boards out there looking for ideas on how to get by in a competitive market without being absorbed by the government, give me a call.

Everything is Capitalism

Ronald Reagan once said:

All systems are capitalist.  It’s just a matter of who owns and controls the capital – ancient king, dictator or private individual.

Reagan equivocates on the definition of capitalist here, but for good reason, I think.

The definition of capitalism is a system where capital is privately owned, so technically if one person, a dictator or “state” (which some say is the people, and others correctly recognize as the decision-makers), owns the capital the system isn’t capitalism.

But, the reason Reagan stretches the definition of capitalism is to get to the real difference between capitalism and other systems on the political spectrum.

One attribute is responsible for the political spectrum: who makes decisions and how.  Take away that one attribute and all systems are about the same.

The argument isn’t which system is right.  The argument is who gets to make decisions and why.

I like a system that allows individuals to make decisions and deal with the consequences of those decisions for two simple reasons.

1. It’s freedom. It seems morally correct because its based on the idea that we’re equal and free.  To me there’s no higher evolution of a species than making this self-aware recognition.  The idea that some are less equal or some or good enough to coerce others seems animalistic.
2. It more consistently produces better results by any measure for nearly everyone (except, maybe dictator-wannabes).  That is, when you take an honest look at outcomes.

A common misunderstanding of freedom opponents (though many may be unaware that’s what they oppose or believe they oppose it for some good and noble reason), is that us supporters believe free markets are perfect.  We don’t.  Or shouldn’t.  They’re not.  Bad stuff happens.

But, less bad stuff happens more consistently to individuals in free markets than other systems.

McCaskill Changes Her Tune Quickly

On Tuesday Senator Claire McCaskill said:

The White House has failed to follow the proper procedure in notifying Congress as to the removal of the Inspector General for the Corporation for National and Community Service.  The legislation which was passed last year requires that the president give a reason for the removal. ‘Loss of confidence’ is not a sufficient reason.  I’m hopeful the White House will provide a more substantive rationale, in writing, as quickly as possible.

Yesterday she said:

Last night, in response to my request for adequate information on the firing of Inspector General for the Corporation for National and Community Service Gerald Walpin, the White House submitted a letter to Senators Lieberman and Collins that now puts the White House in full compliance with the notice requirement in the law.  The next step for Congress is to use the 30 days provided by the notice to seek further information and undertake any further review that might be necessary. The reasons given in the most recent White House letter are substantial and the decision to remove Walpin appears well founded.

I’d be interested to know the reasons.

"We are a nation that has a government, not the other way around."

Thanks to Walter Williams for pointing me to this from Mark Steyn.  It’s a speech he gave at Hillsdale College, aka the Ford of higher education.

Lots of good stuff in both of the these links.  Highly recommended.

Steyn references a great Reagan quote: “We are a nation that has a government, not the other way around.”

Another great quote from a European writer:  “I have never learned to fight for my freedom. I was only good at enjoying it.”

Which brings this insight from Steyn into focus:

“Live free or die!” sounds like a battle cry: We’ll win this thing or die trying, die an honorable death. But in fact it’s something far less dramatic: It’s a bald statement of the reality of our lives in the prosperous West. You can live as free men, but, if you choose not to, your society will die.