Management – Page 23 – artdiamondblog.com

When You Need to Know the Difference Between Glacier Creek and Big Thompson River

Is it Glacier Creek, or Big Thompson River? Source of photo: me.

On May 17, 2007, in Estes Park, Colorado, I was the co-leader of a "two hour" hike with 15 Montessori middle-schoolers from Omaha, Nebraska. At some point what we were seeing didn’t seem to correspond with what our roughly drawn YMCA map told us we should be seeing–we worried that we had taken a wrong turn and were lost.

II we were on course, then the water beside us should be Glacier Creek. If we were lost, then it was probably Big Thompson River. (It’s appearance didn’t help–it looked a bit larger than a creek, but a lot smaller than a ‘big river.’)

The first person I found to ask was a tourist who admitted upfront that she was extremely uncertain about where we were. She pulled out a modest map, and pointed to where she thought we might be, which was along the Big Thompson River.

Seeking confirmation, I apologetically interrupted a fellow teaching his girl-friend how to fly fish. This fellow was dressed as an outdoors-man, and exuded confidence. He talked about hiking on a glacier the day before. He helpfully strode back to his SUV with me and pulled a detailed, authoritative-looking map. With no doubt, he pointed on the map to where we were, on Glacier Creek, as I had hoped. As we walked back to where he had been fishing, he pointed in the direction that we had been hiking, and said that without question, we should continue to hike in that direction.

The scenery was fantastic, but Cindy began to worry whether we were going in the right direction, pointing out that there didn’t seem to be any opening in the mountains in the direction in which we were supposing the YMCA camp should be. I agreed with her observation, but said that there must be some non-obvious route, because the fellow who pointed us in this direction had exuded credibility.

We finally got to a small museum. There, an old park service employee asked where we were from. When I said "Omaha" he jokingly asked if knew his old friend Warren Buffet? He told us that he had lived in this area all his life, and that we were definitely walking along Big Thompson River. Then he tried to draw a map to show us how to get back. He scratched his head, discarded his first attempt, and started trying again. Then he asked us (again) where we were from? At this point, I was really worried.

But his second attempt at a map was a good one–it got us back to the YMCA camp.

Maybe we should look for advice from those who are self-critical, as the old man was, rather than from those who exude undoubting self-confidence, as the fly fisherman did? (Or maybe the key was local credentials?)

Maybe, I made a mistake that Christensen and Raynor warn against in their The Innovator’s Solution: looking at charisma and confidence as signs of who to follow. (In fairness to myself, at the time, I didn’t have much else to go on.)

Firms Install Internal Betting Markets for Better Forecasting

Charles Plott, of Cal Tech, co-authored a nifty study several years ago in which he installed a betting market inside of Hewlett Packard to do internal forecasting. The nifty part was that the forecasts produced by the betting market were generally more accurate than the official forecasts that HP’s official forecasters were producing.

The likely reason is not that the official forecasters were stupid or incompetent, but that they were under considerable pressure by corporate higher-ups to spin the forecasts in a favorable way. In contrast, the participants in the internal betting market remained anonymous, and received higher payoffs, the more accurate their forecasts turned out to have been.

The result was not surprising, once you think it through. But what I did find surprising was that HP didn’t keep the betting market going, after the Plott study was finished. (From a long-run perspective, top management should benefit more from accurate forecasts, than from consistently optimistic forecasts.)

In any case, the excerpt from the commentary below indicates that some other companies have gotten the point:

(p. C1) Over the last few years, Intrade — with headquarters in Dublin, where the gambling laws are loose — has become the biggest success story among a new crop of prediction markets. The world’s largest steel maker, Arcelor Mittal, now runs an internal market allowing its executives to predict the price of steel. Best Buy (p. C6) has started a market for employees to guess which DVDs and video game consoles, among other products, will be popular. Google and Eli Lilly have similar markets. The idea is to let a company’s decision-makers benefit from the collective, if often hidden, knowledge of their employees.

But there’s a broader point here, too. For a couple of centuries now, long before Intrade or even the Internet existed, financial markets have been making it easier to bet on what the future will bring.

In the mid-1800s, contracts tied to the future price of wheat, pigs and other commodities began to change hands. In 1972, the Chicago Mercantile Exchange introduced futures for foreign exchange rates. Treasury bonds tied to the future rate of inflation came along in the 1990s, and last year, the Merc began selling contracts based on the direction of house prices in 10 big metropolitan areas.

In every case, the market price reflects the sum of the traders’ knowledge — about the extent of the housing bubble in Los Angeles, for instance, or the likely size of next year’s wheat crop. . . .

N. Gregory Mankiw, a former adviser to President Bush, who has written about Intrade on his blog, explains it this way: ”Everybody has information from their own little corner of the universe, and they’d like to know the information from every other corner of the universe. What these markets do is provide a vehicle that reflects all that information.”

For the full commentary, see:

DAVID LEONHARDT. "ECONOMIX; Odds Are, They’ll Know ’08 Winner." The New York Times (Weds., February 14, 2007): C1 & C8.

(Note: ellipsis added.)

Why CEOs Are Paid So Much More than Other Near-Top Execs

Source of graph: online version of the NYT article quoted and cited below.

(p. A1) Like most companies, Office Depot has long made sure that its chief executive was the highest-paid employee. Ten years ago, the $2.2 million pay package of its chief was more than double that of his No. 2. The fifth-ranked executive received less than one-third.

But the incentive for reaching the very top of the company is now far greater. Steve Odland, who runs Office Depot today, made almost $12 million last year, more than four times the compensation of the second-highest-paid executive and over six times that of the fifth-ranking executive in the current hierarchy.

As executive pay has surged in most American companies, attention has focused on the growing gap between the earnings of top executives and the average wage of workers in cubicles or on the shop floor. Little noticed, though, is how much the gap has also widened between the summit and the next few echelons down.

. . .

The pay of chief executives, analysts say, is being driven by superstar dynamics similar to those that determine the inordinate rewards for pop stars and athletes — a phenomenon first explained by Sherwin Rosen of the University of Chicago in (p. C7) 1981 and underlined more than a decade ago by the economists Robert H. Frank and Philip J. Cook in their book “The Winner-Take-All Society” (Free Press, 1995).

As American companies, American hedge funds — and even American lawsuits — have grown in size, it has become ever more valuable to get the “best” chief executive or fund manager or litigator. This has fueled a fierce competition for talent at the top, which has pushed economic rewards farther up the ladder of success, concentrating the richest pay levels even more.

“There is an interaction between technology and scale which is true in all these businesses,” said Steven N. Kaplan, a finance professor at the Graduate School of Business of the University of Chicago. “One person can oversee more assets, and this translates into more money.”

. . .

As companies grow and expand globally, the value of the top executive can grow exponentially. In a study last year, two economists, Xavier Gabaix of the Massachusetts Institute of Technology and Augustin Landier of New York University, argued that the fast rise in pay of corporate C.E.O.’s mostly reflected the growing size of American corporations.

Processing reams of data, the economists estimated that hiring the most effective chief executive in the country would, statistically, increase the stock value of a company by only 0.016 percent, compared with hiring the 250th chief executive. But at a company like General Electric, which is worth about $380 billion, that tiny difference would amount to $60 million.

This, the economists argued, helps explain why that top chief executive earned five times as much as the 250th. “Substantial firm size leads to the economics of superstars, translating small differences in ability to very large deviations in pay,” the economists wrote.

For the full story, see:

EDUARDO PORTER. "More Than Ever, It Pays to Be the Top Executive." The New York Times (Fri., May 25, 2007): A1 & C7.

(Note: ellipses added.)

“I Fly with Leslie”

A poster that is displayed in some Wall Street Journal offices in solidarity with a Bancroft family member who has openly expressed doubts about Rupert Murdoch’s proposed purchase of the Journal. Source of the image: online version of the NYT article cited below.

A lot of the news media imitate each other in viewpoint and content. The Wall Street Journal is fresh and innovative, and frequently gives us important news that is new.

And there have been times throughout recent decades when the editorial page of the Journal was one of the few voices for truth, justice and freedom. It would be a great loss for that voice to be silenced.

On the other hand, I have noted in an earlier entry, that the business side of the Journal is in need of improvement.

I do not know if in the end, the Murdoch bid is the best chance for the long-run survival of what is good about the Journal. But I do wish the Journal, and the Journal‘s journalists, well.

(p. C1) On May 14, more than 100 reporters, editors and executives clustered in The Wall Street Journal’s main newsroom to mark the retirement of Peter R. Kann, the longtime leader of their corporate parent, Dow Jones & Company.

Mr. Kann, in rolled-up shirtsleeves, was typically self-effacing about his own contributions to the company. But the celebration of the past was muted by worry about The Journal’s future. A few weeks earlier, Rupert Murdoch’s News Corporation had offered $5 billion to buy Dow Jones. The Bancroft family, owners of a controlling stake in the company, rebuffed the offer at first, but there were signs that some of them were wavering.

Mr. Kann, who had been advising the family against selling, expressed hope that Mr. Murdoch would not prevail, using an image of The Journal as a citadel trying to repel an invasion by tabloid barbarians.

“The drawbridge is up,” Mr. Kann told the group. “So far, so good.”

For employees at Dow Jones, the 11 weeks since they learned of the Murdoch offer have been a wrenching time, raising the prospect of fundamental changes at an organization that had already had its fill of big changes in the last couple of years — with Mr. Kann being replaced by Richard F. Zannino as chief executive, with Marcus W. Brauchli taking over from Paul E. Steiger as top editor; and with a shift of its mission, by adding a Saturday paper and more lifestyle articles to appeal to new advertisers, and investing heavily in its digital properties.

. . .

(p. C12) The anti-Murdoch forces enjoyed one of their brief lifts on June 29 when The Journal reported that Leslie Hill, a Bancroft family member, had grave reservations about selling to Mr. Murdoch. Someone enlarged The Journal’s dot drawing of Ms. Hill, a retired airline pilot, adding the words “I Fly with Leslie” above her face. Copies of the makeshift poster appeared in Journal offices around the country.

. . .

As the chances of an alternative have appeared to wane, more reporters and editors have polished their résumés and approached rival publications about jobs. Some have even talked of starting their own business news Web site.

Many voiced disappointment in the Bancrofts, the family that has owned the company for more than a century and taken great pride in it, for not playing a leading role in running it for more than 70 years.

“We understand that for the Bancrofts this is a choice between getting much richer, and holding onto something because they believe in it,” a reporter said. “What they may not realize is that many of us in the newsroom have made the same choice. There are a lot of people here who could be traders or lawyers, people with M.B.A.’s, who could be making a lot more money. To us, this is not an abstract choice.”

For the full story, see:

RICHARD PÉREZ-PEÑA. "At The Gates; Murdoch’s Arrival Worries Journal Employees." The New York Times (Thurs., July 19, 2007): C1 & C12.

Rupert Murdoch. Note that the image is a tribute, or humorous small jab at, the hallmark image style of the Wall Street Journal, in which photographs are re-done by artists into an example of something like pointillism. (True also of the poster image above.) Source of the image: online version of the NYT article cited above.

“The Least Hospitable Environment on Earth”

Source of the book image: http://images.usatoday.com/money/_photos/2007/03/26/cubicle-bookx-large.jpg

Office humor is an oxymoron. At least that was the prevailing view until Scott Adams’s "Dilbert" comic strip and, more recently, British television import "The Office" opened up this fertile ground for mainstream ridicule. The latest entry in the growing corpus of workplace-whacking is "The Cubicle Survival Guide: Keeping Your Cool in the Least Hospitable Environment on Earth," by first-time author and Web-site production coordinator James F. Thompson.

Mr. Thompson’s target: the cubicle, or "cube," as it is not so fondly known. It’s surprising to learn that this ubiquitous steel-and-fabric prison was not invented until the 1960s, the dubious brainstorm of a Colorado fine-arts professor named Bob Probst. His goal, according to Mr. Thompson, was to encourage co-workers to "freely exchange ideas and inspiration" — and not, as commonly believed, to breed a legion of the undead who feel they are somehow unworthy of, say, a door.

For the full review, see:

MARTIN KIHN. "BOOKS; The Best Way to Labor Away in Our Little Boxes." The Wall Street Journal (Weds., March 14, 2007): D9.

The reference to the book, is:

James F. Thompson. THE CUBICLE SURVIVAL GUIDE. (Villard, 216 pages, $12.95)

Should Netscape Be Viewed as a Failed Company, or as a Successful Project?

(p. 53) Recall the story of Netscape, once the darling of the New Economy. Netscape was formed in 1994. It went public in 1995. And by 1999, it was gone, purchased by America Online and subsumed into AOL’s operation. Life span: four years. Half-life: two years. Was Netscape a company—or was it really a project? Does the distinction even matter? What matters most is that this short-lived entity put several products on the market, prompted established companies (notably Microsoft) to shift strategies, and (p. 54) equipped a few thousand individuals with experience, wealth, and connections that they could bring to their next project.

And Netscape is not alone. A University of Texas study found that between 1970 and 1992, the half-life of Texas businesses shrank by 50 percent. Likewise, a Federal Reserve analysis of New York companies found that the type of firm that created the most new jobs (microbusineses with fewer than ten employees) often had the shortest life span. The life cycle of companies has been that jobs, too, have diminishing half-lives. Ten years ago, nobody ever heard of a Web developer. Ten years from now, nobody may remember Web developers.

Most important, at the very moment the longevity of companies is shrinking, the longevity of individuals is expanding. Unlike Americans in the twentieth century, most of us today can expect to outlive just about any organization for which we work. It’s hard to imagine a lifelong job at an organization whose lifetime will be shorter–often much shorter–than your own.

Source:

Pink, Daniel H. Free Agent Nation: How America’s New Independent Workers Are Transforming the Way We Live. New York: Warner Business Books, 2001.

Pushing the Flywheel of Business (and Life)

A flywheel lathe from the mid-1700s. Source of image: http://www.stuartking.co.uk/articles/lathe.htm

In Jim Collins’ book Good to Great, I really liked his flywheel analogy, that makes the point that in business (and life), success often is mainly due to the day-in-day-out exertion of effort and care. The version below is from a Collins article, based on his book.

Now picture a huge, heavy flywheel. It’s a massive, metal disk mounted horizontally on an axle. It’s about 100 feet in diameter, 10 feet thick, and it weighs about 25 tons. That flywheel is your company. Your job is to get that flywheel to move as fast as possible, because momentum — mass times velocity — is what will generate superior economic results over time.

Right now, the flywheel is at a standstill. To get it moving, you make a tremendous effort. You push with all your might, you make a tremendous effort…and finally you get the flywheel to inch forward. After two or three days of sustained effort, you get the flywheel to complete one entire turn. You keep pushing, and the flywheel begins to move a bit faster. It takes a lot of work, but at last the flywheel makes a second rotation. You keep pushing steadily. It makes three turns, four, five, six turns. With each turn it moves faster, and then – at some point, you can’t say exactly when – you break through. The momentum of the heavy wheel kicks in your favor. It spins faster and faster, with its own weight propelling it. You aren’t pushing any harder, but the flywheel is accelerating, its momentum building, its speed increasing.

Source:

Jim Collins. "Good to Great." Fast Company 51 (September 2001): 90.

“Solitude Serves as a Refreshing Balm”

The WSJ summarizes an April 2007 Psychology Today article. The study that is discussed sounds relevant to the one-sided push for more collaboration and team production in business, and co-authorship in academics. The benefits of collaboration should not blind us to the costs.

Amanda Guyer, a psychologist at the U.S. National Institutes of Health in Bethesda, Md., has found that individuals who withdraw from other people’s company are more sensitive than extroverts to a wide range of positive emotional cues. Situations rife with emotional triggers, such as parties, can be wearying for such people, while solitude serves as a refreshing balm.

For the full story, see:

"Informed Reader; PSYCHOLOGY; Loners May Not Fear Others, They Just Need Some Solitude." The Wall Street Journal (Thurs., March 1, 2007): B7.

Give People Something Better than What They Say They Want

(p. 205) The picture palaces were a commercial success. Between 1914 and 1922, four thousand new Palace Theaters opened in the United States. Movie-going became an increasingly important entertainment event for Americans of all economic levels. As Roxy pointed out, "Giving the people what they want is fundamentally and disastrously wrong. The people don’t know what they want . . . [Give] them something better." Palace Theaters effectively combined the viewing environment of opera houses with the viewing contents of nickelodeons—films—to unlock a new blue ocean in the cinema industry and attract a whole new mass of moviegoers: the upper and middle classes.

Source:

Kim, W. Chan, and Renée Mauborgne. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. Boston: Harvard Business School Press, 2005.

Jim Collins on How Boeing Leapfrogged McDonnell Douglas

(p. 202) Wisely, through the 1940s, Boeing had stayed away from the commercial sphere, an arena in which McDonnell Douglas had vastly superior abilities in the smaller, propeller-driven planes that composed the commercial fleet. In the early 1950s, however, Boeing saw an opportunity to leapfrog McDonnell Douglas by marrying its experience with large air-(p. 203)craft to its understanding of jet engines.

Source:

Collins, Jim. Good to Great: Why Some Companies Make the Leap. And Others Don’t. New York: HarperCollins Publishers, Inc., 2001.