(This is the 4th installment in a series of articles about the problems associated with government's attempts to ignore free market principles in a free market world ecomony.)
Misunderstanding the Concept of Value.
What is the real force behind the problem we associate with the inequality of riches? It is, simply, the lack of universal understanding of value. We don't understand what it is, and we don't understand how to create it.
Value is simply, and only, the realization of a greater benefit than the resource expended to secure it. It is the enhanced well being of one realized from the contribution of another.
Value, in economic terms, has the mystical ability to be realized on both sides of a transaction. In fact, in an appropriately negotiated transaction, both parties will gain value, both will be benefitted. A transaction with only one beneficiary is simply theft. To be willing to buy the services of another for a price, I will realize that the benefit I gain is worth more to me than the money I give to secure the service. The service provider will realize that the money he receives is worth more than the time, effort, or material he expends to deliver. Such transactions are accomplished in the free market every day. Give and take. Value given, value realized, value returned.
The Higher the Value Realized, the Higher the Value Given - The More it's Worth, the More you Pay.
Why does Lebron James receive $19MM in endorsements before his 20th birthday? Because the companies making the offer will receive more than $19MM in benefit for what Lebron provides. Does he deserve it? Yes, once you understand the principle of value. If a major league baseball team can earn $50MM in enhanced profitability by obtaining the services of a gifted athlete, why wouldn't it be willing to invest $20MM to get him? Without making that investment, they miss the $30MM differential. To make the decision to not buy the players services would cost the franchise, and be a poor decision. Is the athlete overpaid? Not unless you don't understand value.
The same holds true, even for a commodity. Oil is a commodity. OPEC may control the price of oil, but their controls are only as strong as the value that oil has in the market to which they sell it. Their prices will only stand if someone else is willing to pay what they ask. And, in the case of oil, until the price of the resource exceeds the value produced by using it, the price can rise. It's as simple as that.
Value Has Nothing to do With the Product, the Service, or the Time Itself.
Some would argue that professional athletes are "overpaid." Here's the reason that the issue is an issue at all. We have erroneously determined to quantify the appropriate wage based on the actual task being done, not on the value of the impact of that task upon a particular company in a particular market. We have assessed a wage based on some assigned value of time, not on real value delivered.
After learning that Roger Clemens would be paid $18MM for pitching 1/2 a season, we make activity based value assessments. He might pitch in 20 games. He might throw 100 pitches per outing. That's only 2000 pitches. In activity terms, we might say Roger Clemens would be paid more than $9,000 per pitch.
If this bothers you, you must realize that you don't understand value at all.
Roger Clemens may have pitched, but he isn't paid just to pitch. He is paid to improve the conditions for the franchise willing to pay him. He is paid to be Roger, and to give the team whatever things come from his participation. Roger Clemens fills seats. People come to see Roger pitch. That accounts for something. Roger Clemens helps the team win. He helps less experienced pitchers. He brings a championship mentality to the team culture. These help the team win games. This fills seats, sells beer and hotdogs, advertizing, and on and on. Roger's employment is a value creator for a sports franchise.
It's the same for all professional athletes, for actors, for musicians, for lawyers, for producers, for business builders. Each of these gains substantial financial rewards which are always less than the value they contribute to their employer or the direct customers they serve.
This bears repeating: The financial reward realized, a workers compensation must always be less than the value they contribute to their employer or the direct customers they serve. Always.
Why is Your Compensation so Small? Why is Anyone's?
So what about all the other, little people? What about the "increasing" gap between the "haves" and the "have-nots"? Shouldn't this be adjusted? I won't argue the point. It would be a tremendous benefit to all of us to bring up the individual standard of living for all of us. And, I believe, it can be done. . . but not as long as we continue to misunderstand and misrepresent the concept of value.
We are our own enemy in this effort. We continue to create and maintain the very vehicle which proliferates the problem.
CJ Coolidge is a regular contributor to HRTools.com.
You can now get your own copy of his groundbreaking book, The Squaredime Letters.
You can vist CJ online at www.cjcoolidge.com.
Monday, October 6, 2008
Sunday, October 5, 2008
Capitalism's Potential for Income Inequality: Scourge or Benefit
(This is the 3nd installment in a series of articles about the problems associated with government's attempts to ignore free market principles in a free market world ecomony.)
There is Nothing Wrong with Capitalism.
The American Heritage dictionary defines capitalism as an economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market.
This is not a hard concept to understand. In a capitalist system, private citizens are permitted to own the means of production, the capital, and can freely invest in that capital out of the increased production, or the profits returned. The more they invest, the more the capital can produce, the higher the profit, the higher the standard of living. Good picture.
Income Inequality: Scourge or Benefit?
I do not defend the companies whose poor compensation strategies allow their executives to be paid untold millions even as their enterprises fail. There is no excuse for this. It is an abomination and an aberration to appropriate capitalism.
The knock, particularly on American capitalism is the apparent inequality it seems to produce. There are a relatively small, but ever growing number of executives and entrepreneurs earning millions while millions of others are earning a relatively small amount.
Remember basic economics. For economic stability, all participants in the economy must provide some contribution to the economy in proportion to the resources they consume.
However, because of age, or infirmity, or whatever, some percentage of every population will not be able to contribute in proportion to their consumption. By the same token, some percentage will be capable of producing more than they need. The balance is struck when the production of the more capable can be allocated to serve the needs of the incapable. This is what happens when a father produces enough to feed his children, as of yet too young to produce for themselves.
This is exactly the condition that has occurred in our well developed capitalist system.
There are the relative few who, through investing in the capital they have purchased and improved, produce substantially more than they need. It is because of this group that our standard of living is ever increasing. There are more who, not wishing to shoulder the risk and responsibility of capital acquisition and improvement, make other, smaller contributions, roughly equivalent to the resources they use, and consume. And there is a yet smaller group who cannot, or will not produce as much as they use or consume. All benefit from the high standard of living available in this country, perhaps the highest in the world.
The Real Conditions Behind Income Imbalance
As I have said, there is an income imbalance. It may even be growing, and may even be a problem, worthy of correction. But the current approaches deny the realities at work, some going so far as to destroy the conditions which encourage the improvements of the quality of life which we all enjoy.
Capitalist Income Imbalance is Essential, Even Good.
The cause of any economic imbalance and its potential remedies are being erroneously identified. Greed and injustice are blamed. Those few who "overproduce" are being accused of performing some injustice. Their "over-production" is viewed, not as the positive contribution that it is, but as some ill-mannered, inappropriately realized gain.
This thinking ignores this important reality: Their production is voluntary. These "over producers" could, just as easily, choose to produce only what resources they use, or consume. They could choose not to invest, and, therefore, not contribute to increase the standard of living for us all.
Legislation and Regulation: A Dangerous Way to Correct the Situation.
With this perspective, increasing law and regulation become the tools used in effort to correct the situation. Investment is penalized. Earning is discouraged. Progress is thwarted.
This approach can only destroy an economy. Eliminating high producers will reduce the resources available, and the improvement of the capital, the means of production, which will lead to a decrease in the standard of living for a growing population. Law and regulation can be used to minimize the imbalance, however. The playing field could certainly be leveled. But, doing so will reduce the productive capacity as the population grows. It will put the economy in decline.
I don't care how socialist or utopian you may be, you don't want the USA to become a 3rd world, simply balanced, economy.
The next installment will offer real practical considerations to the perceived problem of Income Inequality. It has to do with connecting compensation to productivity.
CJ Coolidge is a regular contributor to HRTools.coms.
You can now get your own copy of his groundbreaking book, The Squaredime Letters.
You can vist CJ online at www.cjcoolidge.com.
There is Nothing Wrong with Capitalism.
The American Heritage dictionary defines capitalism as an economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market.
This is not a hard concept to understand. In a capitalist system, private citizens are permitted to own the means of production, the capital, and can freely invest in that capital out of the increased production, or the profits returned. The more they invest, the more the capital can produce, the higher the profit, the higher the standard of living. Good picture.
Income Inequality: Scourge or Benefit?
I do not defend the companies whose poor compensation strategies allow their executives to be paid untold millions even as their enterprises fail. There is no excuse for this. It is an abomination and an aberration to appropriate capitalism.
The knock, particularly on American capitalism is the apparent inequality it seems to produce. There are a relatively small, but ever growing number of executives and entrepreneurs earning millions while millions of others are earning a relatively small amount.
Remember basic economics. For economic stability, all participants in the economy must provide some contribution to the economy in proportion to the resources they consume.
However, because of age, or infirmity, or whatever, some percentage of every population will not be able to contribute in proportion to their consumption. By the same token, some percentage will be capable of producing more than they need. The balance is struck when the production of the more capable can be allocated to serve the needs of the incapable. This is what happens when a father produces enough to feed his children, as of yet too young to produce for themselves.
This is exactly the condition that has occurred in our well developed capitalist system.
There are the relative few who, through investing in the capital they have purchased and improved, produce substantially more than they need. It is because of this group that our standard of living is ever increasing. There are more who, not wishing to shoulder the risk and responsibility of capital acquisition and improvement, make other, smaller contributions, roughly equivalent to the resources they use, and consume. And there is a yet smaller group who cannot, or will not produce as much as they use or consume. All benefit from the high standard of living available in this country, perhaps the highest in the world.
The Real Conditions Behind Income Imbalance
As I have said, there is an income imbalance. It may even be growing, and may even be a problem, worthy of correction. But the current approaches deny the realities at work, some going so far as to destroy the conditions which encourage the improvements of the quality of life which we all enjoy.
Capitalist Income Imbalance is Essential, Even Good.
The cause of any economic imbalance and its potential remedies are being erroneously identified. Greed and injustice are blamed. Those few who "overproduce" are being accused of performing some injustice. Their "over-production" is viewed, not as the positive contribution that it is, but as some ill-mannered, inappropriately realized gain.
This thinking ignores this important reality: Their production is voluntary. These "over producers" could, just as easily, choose to produce only what resources they use, or consume. They could choose not to invest, and, therefore, not contribute to increase the standard of living for us all.
Legislation and Regulation: A Dangerous Way to Correct the Situation.
With this perspective, increasing law and regulation become the tools used in effort to correct the situation. Investment is penalized. Earning is discouraged. Progress is thwarted.
This approach can only destroy an economy. Eliminating high producers will reduce the resources available, and the improvement of the capital, the means of production, which will lead to a decrease in the standard of living for a growing population. Law and regulation can be used to minimize the imbalance, however. The playing field could certainly be leveled. But, doing so will reduce the productive capacity as the population grows. It will put the economy in decline.
I don't care how socialist or utopian you may be, you don't want the USA to become a 3rd world, simply balanced, economy.
The next installment will offer real practical considerations to the perceived problem of Income Inequality. It has to do with connecting compensation to productivity.
CJ Coolidge is a regular contributor to HRTools.coms.
You can now get your own copy of his groundbreaking book, The Squaredime Letters.
You can vist CJ online at www.cjcoolidge.com.
Friday, October 3, 2008
Capital: The Key to Economic Survival, and Improved Standards of Living
(This is the 2nd installment in a series of articles about the problems associated with government's attempts to ignore free market principles in a free market world ecomony.)
No matter what we may think, the world economy is a free market, even capital based, economy.
Basic Economics 101
For any government/state system to exist, and maintain, it must have an associated economy which can make available, at minimum, the basic necessities and consumables for its citizenry. For economic stability, the participants in the economy must provide some contribution to the economy in proportion to the resources they need.
As a population grows, so must the availability of these necessities and consumables. More people require more food, more housing, more clothing, et al. And, to the degree that the consumer/participants maintain a suitable level of contribution, the economy maintains a balance, and is sustainable. If this condition is met, the standard of living can be maintained.
However, in this modern age, simply maintaining the standard of living is unnacceptable in most economies. But an improved standard of living, by definition, requires an even greater availability of resources for each member of the population, and, therefore, an associated increase in production offered by the participants.
Capital is the Centerpiece of all Economies: Improved Capital Means Improved Productivity. Improved Productivity Means Improved Standard of Living
Increased production comes from the development of improved means of production. And, means of production is, by definition, capital. To cause the means of production to increase in its ability to produce, hence an increase in the standard of living, there must be an investment of some sort, capital investment.
Restated, since all economies require some means of production, they must be said to be capital based. Since all economies desire an increase in their standard of living, there must be capital investment.
Even Non-Capitalist Economies Require Developing Capital
Yes, Virginia, it doesn't matter what China, India or Middle eastern countries call themselves, communist, socialist, facist, capitalist, or whatever. It doesn't matter that their own domestic economies aren't considered free market, capitalist economies. The world economy, at its core, is a free market, capital based economy, no matter who controls the means of production.
A socialist country may own the means of production. But, the means of production is still capital, A government may "control" the earnings of its citizens, but those citizens must still have access to sufficient resources to secure the things they need for the economy to exist. If a particular economy's consumption needs exceed the availability of available resources, that economy, hence the system it supports, cannot survive.
And in order for even the socialist economy to exist, to improve the standard of living demanded by its citizenry, there must be capital investment. It logically follows that the governmental system that does the most to encourage investment in capital will obtain the greatest increase in production, and improvement in its standard of living. Such has been the experience of the nations who espouse the economic system called Capitalism.
Recognize these Principles at work:
But there are knocks on capitalism, one I will discuss in the next installment.
CJ Coolidge is a regular contributor to HRTools.coms.
You can now get your own copy of his groundbreaking book, The Squaredime Letters.
You can vist CJ online at www.cjcoolidge.com.
No matter what we may think, the world economy is a free market, even capital based, economy.
Basic Economics 101
For any government/state system to exist, and maintain, it must have an associated economy which can make available, at minimum, the basic necessities and consumables for its citizenry. For economic stability, the participants in the economy must provide some contribution to the economy in proportion to the resources they need.
As a population grows, so must the availability of these necessities and consumables. More people require more food, more housing, more clothing, et al. And, to the degree that the consumer/participants maintain a suitable level of contribution, the economy maintains a balance, and is sustainable. If this condition is met, the standard of living can be maintained.
However, in this modern age, simply maintaining the standard of living is unnacceptable in most economies. But an improved standard of living, by definition, requires an even greater availability of resources for each member of the population, and, therefore, an associated increase in production offered by the participants.
Capital is the Centerpiece of all Economies: Improved Capital Means Improved Productivity. Improved Productivity Means Improved Standard of Living
Increased production comes from the development of improved means of production. And, means of production is, by definition, capital. To cause the means of production to increase in its ability to produce, hence an increase in the standard of living, there must be an investment of some sort, capital investment.
Restated, since all economies require some means of production, they must be said to be capital based. Since all economies desire an increase in their standard of living, there must be capital investment.
Even Non-Capitalist Economies Require Developing Capital
Yes, Virginia, it doesn't matter what China, India or Middle eastern countries call themselves, communist, socialist, facist, capitalist, or whatever. It doesn't matter that their own domestic economies aren't considered free market, capitalist economies. The world economy, at its core, is a free market, capital based economy, no matter who controls the means of production.
A socialist country may own the means of production. But, the means of production is still capital, A government may "control" the earnings of its citizens, but those citizens must still have access to sufficient resources to secure the things they need for the economy to exist. If a particular economy's consumption needs exceed the availability of available resources, that economy, hence the system it supports, cannot survive.
And in order for even the socialist economy to exist, to improve the standard of living demanded by its citizenry, there must be capital investment. It logically follows that the governmental system that does the most to encourage investment in capital will obtain the greatest increase in production, and improvement in its standard of living. Such has been the experience of the nations who espouse the economic system called Capitalism.
Recognize these Principles at work:
- An economy can be stable only when it is able to produce and deliver the goods and services necessary to support its population.
- Economic balance occurs when the participants produce at least what they consume. A simply balanced economy maintains a stable standard of living.
- The standard of living increases when production exceeds what participants use or consume.
- Productivity is effected by the means of production, by definition, capital. When capital is improved, the standard of living is improved. When capital is diminished, the standard of living is diminished.
- The basic element by which capital can be improved is investment. Every economy, no matter its form, is subject to this principle.
- Economies that discourage investment in its capital inherently diminish their ability to improve the quality of life for its participants.
But there are knocks on capitalism, one I will discuss in the next installment.
CJ Coolidge is a regular contributor to HRTools.coms.
You can now get your own copy of his groundbreaking book, The Squaredime Letters.
You can vist CJ online at www.cjcoolidge.com.
Tuesday, September 30, 2008
The Value of Work is Inextricably Linked to its Impact
(This is the first installment in a series of articles about the problems associated with government's attempts to ignore free market principles in a free market world ecomony.)
There is no free lunch.
It seems an obvious foundational principle to all things business - at least all things business in our capitalist system. Somehow, somewhere along the line, we seem to have forgotten.
We have started to believe, even in business, that we are entitled to something, simply because we are. We live and act and conduct our enterprises as though we are entitled to remain profitable on the basis of our existence, our history, the size of our assets, or the supposed quality of our product. Employees think that they should continue to be paid just because they show up, and do some work. It doesn't work that way, and it never should have.
Can you say that any job/activity has quantifiable, intrinsic value?
I once heard Hillary promise to use government programs to guarantee jobs to the manufacturing workers in the northeast. I once heard Obama say that he will do the same to restore the jobs of auto workers. They speak as though they believe that any and all workers should be entitled to be paid whatever they need, doing whatever they can, without considering the real value of their work for the company or the customers they work to serve. These people act like one can dictate prices and wages, without regard for the associated value of the products or the service provided. They are deceived.
Anyone believing that there is intrinsic, quantifiable, fixed or naturally escalating value in performing the tasks themselves is equally deceived.
What Determines the Value of Work?
What dictates the value of the work done by an auto worker, or anyone, for that matter? What guarantees him or her a position by which wages can be justly deserved?
Only the value of the contribution the position makes to the product or service produced, and the customer who buys it.
When that contribution does not exceed the value available, recognized, delivered, received, and desired by customers, that work is no longer worth doing. The worker can no longer expect to continue to be paid for his services. The work is no longer valuable, or necessary.
At one time, thousands of people were gainfully employed as elevator operators. The landscape changed, and elevators became automated. Attempting to maintain that the elevator operators of the world should continue to be paid for operating elevators would be pure foolishness.
Why are there no more people employed as elevator operators? That service is unnecessary.
Attempting to maintain that any job should be preserved, "just because so many people do it" is equally foolish. It is nothing short of a "free lunch."
The same principle is at work in every industry, in every healthy economy.
This same mentality will produce disastrous, protectionist policies to be imposed on a world economy. They won't work. They can't work. They never have worked in a free market economy. And, no matter what we may try to tell ourselves, the world economy is a free market, even capital based, economy.
Somebody will pay, even for a "free lunch." And whatever the cost, it exceeds the value received. It is a bad deal.
There is no free lunch.
It seems an obvious foundational principle to all things business - at least all things business in our capitalist system. Somehow, somewhere along the line, we seem to have forgotten.
We have started to believe, even in business, that we are entitled to something, simply because we are. We live and act and conduct our enterprises as though we are entitled to remain profitable on the basis of our existence, our history, the size of our assets, or the supposed quality of our product. Employees think that they should continue to be paid just because they show up, and do some work. It doesn't work that way, and it never should have.
Can you say that any job/activity has quantifiable, intrinsic value?
I once heard Hillary promise to use government programs to guarantee jobs to the manufacturing workers in the northeast. I once heard Obama say that he will do the same to restore the jobs of auto workers. They speak as though they believe that any and all workers should be entitled to be paid whatever they need, doing whatever they can, without considering the real value of their work for the company or the customers they work to serve. These people act like one can dictate prices and wages, without regard for the associated value of the products or the service provided. They are deceived.
Anyone believing that there is intrinsic, quantifiable, fixed or naturally escalating value in performing the tasks themselves is equally deceived.
What Determines the Value of Work?
What dictates the value of the work done by an auto worker, or anyone, for that matter? What guarantees him or her a position by which wages can be justly deserved?
Only the value of the contribution the position makes to the product or service produced, and the customer who buys it.
When that contribution does not exceed the value available, recognized, delivered, received, and desired by customers, that work is no longer worth doing. The worker can no longer expect to continue to be paid for his services. The work is no longer valuable, or necessary.
At one time, thousands of people were gainfully employed as elevator operators. The landscape changed, and elevators became automated. Attempting to maintain that the elevator operators of the world should continue to be paid for operating elevators would be pure foolishness.
Why are there no more people employed as elevator operators? That service is unnecessary.
Attempting to maintain that any job should be preserved, "just because so many people do it" is equally foolish. It is nothing short of a "free lunch."
The same principle is at work in every industry, in every healthy economy.
This same mentality will produce disastrous, protectionist policies to be imposed on a world economy. They won't work. They can't work. They never have worked in a free market economy. And, no matter what we may try to tell ourselves, the world economy is a free market, even capital based, economy.
Somebody will pay, even for a "free lunch." And whatever the cost, it exceeds the value received. It is a bad deal.
Sunday, September 7, 2008
Beware of Business HIV: It's On the Rise
The less you pay, the better the deal. Right? The less time you spend, the more money you save. Right? These precepts are the foundation of a creeping business virus I call the Hidden Inefficiency Virus or Business HIV.
At its most fundamental DNA, Business HIV is the average individual’s response to too much and contradictory information. Needing to make decisions that guard profit and no longer having a grasp on the millions of pieces of data that dart in and out of their field of vision, business people have settled into a way of thinking that makes them wrong often but rarely willing to admit that they’re wrong. Doing so would require more in-depth study of data than they feel they can do. Sticking with saving money as the bottom line seems like the wisest course of action to many decision-makers.
Economic, human and social realities fly in the face of this sort of out-dated logic, however. The more time you spend investigating your own needs and the offerings of different vendors, the more money you can save – not only in the purchase but also in the long-term. The more money you spend on individuals with specific expertise, the more money you are likely to make as your operations improve.
Business HIV removes the real logic and replaces it with a sense of false scarcity and urgency. Business HIV is an emotional and intellectual disease that prevents decision-makers from seeing how off course they really are. It’s ego, comfort, fear. . . and it’s just plain illogical.
The remedy to Business HIV is a restructuring of the big picture. A realization that costs such as energy, taxes and insurance are spiraling and they’re not going to come down. Competition is more rampant than ever in the history of commerce as Third World countries replicate everything better and cheaper. A new strategy based on people creating profit through innovation is the only antidote to Business HIV.
Are you ready to move from a sick mechanical business model to a healthy organic business model? Are you ready for that shot in the arm?
CJ is a regular contributor to HRTools.coms.
You can now get your own copy of his groundbreaking book, The Squaredime Letters.
You can vist CJ online at www.cjcoolidge.com.
At its most fundamental DNA, Business HIV is the average individual’s response to too much and contradictory information. Needing to make decisions that guard profit and no longer having a grasp on the millions of pieces of data that dart in and out of their field of vision, business people have settled into a way of thinking that makes them wrong often but rarely willing to admit that they’re wrong. Doing so would require more in-depth study of data than they feel they can do. Sticking with saving money as the bottom line seems like the wisest course of action to many decision-makers.
Economic, human and social realities fly in the face of this sort of out-dated logic, however. The more time you spend investigating your own needs and the offerings of different vendors, the more money you can save – not only in the purchase but also in the long-term. The more money you spend on individuals with specific expertise, the more money you are likely to make as your operations improve.
Business HIV removes the real logic and replaces it with a sense of false scarcity and urgency. Business HIV is an emotional and intellectual disease that prevents decision-makers from seeing how off course they really are. It’s ego, comfort, fear. . . and it’s just plain illogical.
The remedy to Business HIV is a restructuring of the big picture. A realization that costs such as energy, taxes and insurance are spiraling and they’re not going to come down. Competition is more rampant than ever in the history of commerce as Third World countries replicate everything better and cheaper. A new strategy based on people creating profit through innovation is the only antidote to Business HIV.
Are you ready to move from a sick mechanical business model to a healthy organic business model? Are you ready for that shot in the arm?
CJ is a regular contributor to HRTools.coms.
You can now get your own copy of his groundbreaking book, The Squaredime Letters.
You can vist CJ online at www.cjcoolidge.com.
Wednesday, August 20, 2008
Often Wrong, Never Unconvinced
I grew up with a certain amount of arrogance that's tied to a perception I have about my own intelligence. I suffer from a malady described by Dr. McFarland in 1961. I am often wrong, but never unconvinced. You may benefit from a realization that the same situation pertains to you, or to others you work with every day.
Choosing to recognizing it can help you make better decisions and do better business.
Here is a small portion of a talk that I gave recently describing this phenomenon.
Choosing to recognizing it can help you make better decisions and do better business.
Here is a small portion of a talk that I gave recently describing this phenomenon.
You can visit CJ online at cjcoolidge.com.
Wednesday, July 9, 2008
Do You Know too Much to Increase Your Profitability?
In 1267, Roger Bacon published his Opus Maius, an 845 page work, said to contain all the knowledge in the world. Imagine that. All the knowledge in the world in a single person, and in a single volume. You'd have to be a teenager to make such a claim today.
In 1961, before the dawn of Moore's Law, and before the proliferation of the silicone chip, Dr. Kenneth McFarland wrote that there was already a veritable information overload, such that a seeker could often find entire sets of developed knowledge in direct contradiction of other entire groups.
The only way that a person could hope to avoid inaction and indecision caused by confusion due to such disparity of truth would be to limit the intake of information, and the type of source for information.
Dr. McFarland said that such a defense strategy would necessarily produce individuals who would be "often wrong, but never unconvinced."
In January, 1999, UNESCO reported that there were some 869,000 books in print. By December, that number had jumped to 1,963,000. The pronouncement that, for the first time in verifiable history, human knowledge had more than doubled in less than a year.
With Moore's Law in full swing, there have been at least 30 doublings since Dr. McFarland's pronouncement in 1961, and 6-8 doublings since 1999, when UNESCO reported its findings.
To whatever degree Dr. McFarland's observation could have been observed to be true in 1961, there can be no doubt that it is certainly true today, true of more people, and true more often.
More than in 1961, today there are multiples of bodies of information in direct contradiction to other bodies of information.
How else could NASA Scientist, James Hansen assert that oil company CEOs should be tried for crimes against humanity for their contribution to "Global Warming" now called, simply, "Climate Change." At the very same time, meteorologist and founder of The Weather Channel, John Coleman, wants to sue AL Gore for financial fraud in order to "expose [his] fraud of "global warming." You can't get any more diverse with these "bodies of information."
There are thousands of other examples.
As to the tendency to limit the types of sources from which we learn: Well, some listen to Rush Limbaugh, others to Al Franken. But nobody listens to both. What about the blogosphere? Some read Townhall.com, others DailyKos.com, but nobody reads them both.
How else could we find our political system so polarized?
Now I'm not advocating that people need to become open-minded. And I'd be the last one to say that every position is valuable, or even worth consideration. What I am saying is that if Dr. McFarland could report way back in 1961 that people are "often wrong but never unconvinced," that the situation is multiplied many times over today, particularly in the entrepreneurial world.
The average entrepreneur, small business owner, is dangerously susceptible to this condition. With ever increasing distractions and decisions, the opportunity for error is increasing by the day. The occurrence of error is increasing every day. But the error is invisible. (The decider is convinced that he is right!) As a result, the inefficiency created, will also be invisible.
I've started calling this condition "Business HIV." It's the "Hidden Inefficiency Virus." It's the situation in which a business builds inefficiency into the very business model. It's what a 2008 Reuters report says about a software business that spends 10x more "fixing" than "producing."
You might have Business HIV if:
In 1961, before the dawn of Moore's Law, and before the proliferation of the silicone chip, Dr. Kenneth McFarland wrote that there was already a veritable information overload, such that a seeker could often find entire sets of developed knowledge in direct contradiction of other entire groups.
The only way that a person could hope to avoid inaction and indecision caused by confusion due to such disparity of truth would be to limit the intake of information, and the type of source for information.
Dr. McFarland said that such a defense strategy would necessarily produce individuals who would be "often wrong, but never unconvinced."
In January, 1999, UNESCO reported that there were some 869,000 books in print. By December, that number had jumped to 1,963,000. The pronouncement that, for the first time in verifiable history, human knowledge had more than doubled in less than a year.
With Moore's Law in full swing, there have been at least 30 doublings since Dr. McFarland's pronouncement in 1961, and 6-8 doublings since 1999, when UNESCO reported its findings.
To whatever degree Dr. McFarland's observation could have been observed to be true in 1961, there can be no doubt that it is certainly true today, true of more people, and true more often.
More than in 1961, today there are multiples of bodies of information in direct contradiction to other bodies of information.
How else could NASA Scientist, James Hansen assert that oil company CEOs should be tried for crimes against humanity for their contribution to "Global Warming" now called, simply, "Climate Change." At the very same time, meteorologist and founder of The Weather Channel, John Coleman, wants to sue AL Gore for financial fraud in order to "expose [his] fraud of "global warming." You can't get any more diverse with these "bodies of information."
There are thousands of other examples.
As to the tendency to limit the types of sources from which we learn: Well, some listen to Rush Limbaugh, others to Al Franken. But nobody listens to both. What about the blogosphere? Some read Townhall.com, others DailyKos.com, but nobody reads them both.
How else could we find our political system so polarized?
Now I'm not advocating that people need to become open-minded. And I'd be the last one to say that every position is valuable, or even worth consideration. What I am saying is that if Dr. McFarland could report way back in 1961 that people are "often wrong but never unconvinced," that the situation is multiplied many times over today, particularly in the entrepreneurial world.
The average entrepreneur, small business owner, is dangerously susceptible to this condition. With ever increasing distractions and decisions, the opportunity for error is increasing by the day. The occurrence of error is increasing every day. But the error is invisible. (The decider is convinced that he is right!) As a result, the inefficiency created, will also be invisible.
I've started calling this condition "Business HIV." It's the "Hidden Inefficiency Virus." It's the situation in which a business builds inefficiency into the very business model. It's what a 2008 Reuters report says about a software business that spends 10x more "fixing" than "producing."
You might have Business HIV if:
- You feel relieved when an employee quits, knowing that your payroll expense will be reduced while the position remained unfilled.
- You reported to your board that you had cut your health insurance plan increase in half; You didn't report or realize that the cost of the use of corporate resources exceeded the value of the reduction.
- You handle harassment training by making your employees watch the inexpensive generic videos. It was "affordable" training, too, so long as you don't recognize that you wasted an hour of time, energy and focus boring them to death, and accomplishing nothing important. Well, you did check a box on some compliance checklist.
- You try to take every offer from a vendor/associate to the simplest form so that you can "shop it" and minimize your expense. You believe that all those "value adds" are just excuses to get you to pay more than you have to.
- You assume that, if Peter Drucker said it, it doesn't apply to you.
- You believe that the less you pay, the better the deal.
- You believe that if anyone could take two weeks off from the job, you really didn't need them anyway.
- You measure and monitor your sales cycle, but not your attrition.
- You believe turnover is a "soft cost."
- You don't believe that your company can afford to hire great people.
- You believe outsourcing is a way to get another company to do the same things you used to do yourself, for less.
- You believe that outsourcing is a stopgap, a temporary way to handle things that, when you get big enough, you can bring them back in house.
- You believe that sometimes it costs too much to do it right.
The pressures of today's business world don't tolerate the same level of inefficiency acceptable in days gone by. "Often wrong" then, happened far less often, and had far less impact than "often wrong" today. And "never unconvinced" just looks stupid.
Half of being smart is knowing what you're dumb at. Then, find somebody smart, and let them handle what they're smart at. It is a lot more efficient.
Visit CJ online at cjcoolidge.com.
Wednesday, June 18, 2008
My High Cost of Not Outsourcing
If it isn't part of your central value, it ought to be outsourced.
I couldn't be any more convinced. Not doing so causes me more time and focus waste than I can afford. I can't afford doing thigs that I am not gifted, resourced, talented, or interested in doing.
Today my hard drive failed.
I turned my HP laptop on this morning. The little power lights illuminated. Then, they shut off. Then they illuminated again. Then they shut off. A 3rd time, they illuminated. A third time, they shut off. Before it happened a 4th time, I pressed the power button . . . an attempt to start over, fresh.
I removed the battery and the A/C power connection. I waited 15 minutes.
I re-inserted the A/C, and re-launched the machine. Nothing had changed.
I did notice that the light which indicates that the hard drive was spinning was not lit.
OK. This is not good. I have seen hard drive failure before.
I called the warranty service group. They asked me to repeat what I had already done. No luck.
"We will send you a lable so you can send us your machine."
"How long will that take?"
"You will have the label in 3-5 days."
"How long will you have the machine?"
"We will have it for 7-10 days."
"And then?"
"We will send it back."
So, in the perfect world, if 'everything' works, I won't be able to get back into full service for at least 2 weeks.
What if the hard drive needs to be replaced? That's easy. I'll just reinstall my backup. Whoops, I don't know how. I guess I can learn, but it will cost me another couple of hours, not taking into account the hours it will take for the data transfer.
What will this cost me?
From the mechanical model perspective, maybe nothing. The postage is paid, the warranty covers the service. They'll even replace the hard drive, everything good as new.
From the organic, real perspective, it will cost a small fortune.
There's the direct time I need to "waste" fiddling with the machine. With all the time invested, the best result would be a return to equilibrium. Time and focus invested, noting gained.
There's the opportunity cost for what I would have otherwise been doing during the direct time.
There's the opportunity cost for the things I will not be able to do because I don't have the machine.
There's the cost of the total lack of focus, and the distraction. You see, this morning I was to finish the composition of my latest speech, one I had started yesterday, a breakthrough presentation based on an inspiration I received this past week, to be delivered at a major event early July. That one speech could be worth $ thousands. But, as we creative folks know, I could lose it if I don't finish it while inspired.
Wait, with the distraction and frustration of the morning, I have already lost a good deal of that inspiration. I think I'm going to be sick.
I needed an IT outsource.
What I need is an IT outsource to make sure that my systems are what they need to be, how they need to be, and where they need to be. I don't need a full time IT person, neither do I need a quick fix technician who will get his initial look at my system only when he sees it not working.
What would a good outsource have done? I don't know all the details, but I do know this. I would have made a call to someone who knew the who, what, where, when, and why behind my little IT operation, and then I would have been able to relax. In just a minimal amount of time, I would be back in business, minimizing my distraction and down time. I would complete my inspired project. I would hardly stumble through the day.
As it is, my mechanical, cost saving approach is going to cost me a fortune.
I couldn't be any more convinced. Not doing so causes me more time and focus waste than I can afford. I can't afford doing thigs that I am not gifted, resourced, talented, or interested in doing.
Today my hard drive failed.
I turned my HP laptop on this morning. The little power lights illuminated. Then, they shut off. Then they illuminated again. Then they shut off. A 3rd time, they illuminated. A third time, they shut off. Before it happened a 4th time, I pressed the power button . . . an attempt to start over, fresh.
I removed the battery and the A/C power connection. I waited 15 minutes.
I re-inserted the A/C, and re-launched the machine. Nothing had changed.
I did notice that the light which indicates that the hard drive was spinning was not lit.
OK. This is not good. I have seen hard drive failure before.
I called the warranty service group. They asked me to repeat what I had already done. No luck.
"We will send you a lable so you can send us your machine."
"How long will that take?"
"You will have the label in 3-5 days."
"How long will you have the machine?"
"We will have it for 7-10 days."
"And then?"
"We will send it back."
So, in the perfect world, if 'everything' works, I won't be able to get back into full service for at least 2 weeks.
What if the hard drive needs to be replaced? That's easy. I'll just reinstall my backup. Whoops, I don't know how. I guess I can learn, but it will cost me another couple of hours, not taking into account the hours it will take for the data transfer.
What will this cost me?
From the mechanical model perspective, maybe nothing. The postage is paid, the warranty covers the service. They'll even replace the hard drive, everything good as new.
From the organic, real perspective, it will cost a small fortune.
There's the direct time I need to "waste" fiddling with the machine. With all the time invested, the best result would be a return to equilibrium. Time and focus invested, noting gained.
There's the opportunity cost for what I would have otherwise been doing during the direct time.
There's the opportunity cost for the things I will not be able to do because I don't have the machine.
There's the cost of the total lack of focus, and the distraction. You see, this morning I was to finish the composition of my latest speech, one I had started yesterday, a breakthrough presentation based on an inspiration I received this past week, to be delivered at a major event early July. That one speech could be worth $ thousands. But, as we creative folks know, I could lose it if I don't finish it while inspired.
Wait, with the distraction and frustration of the morning, I have already lost a good deal of that inspiration. I think I'm going to be sick.
I needed an IT outsource.
What I need is an IT outsource to make sure that my systems are what they need to be, how they need to be, and where they need to be. I don't need a full time IT person, neither do I need a quick fix technician who will get his initial look at my system only when he sees it not working.
What would a good outsource have done? I don't know all the details, but I do know this. I would have made a call to someone who knew the who, what, where, when, and why behind my little IT operation, and then I would have been able to relax. In just a minimal amount of time, I would be back in business, minimizing my distraction and down time. I would complete my inspired project. I would hardly stumble through the day.
As it is, my mechanical, cost saving approach is going to cost me a fortune.
Wednesday, June 11, 2008
Rigidity: Bad for Engineering, Bad for the Economy, and Bad for Business
Rigidity has never produced a structure capable of good function in an environment of changing conditions.
It works the same way when attempting to develop increasing profitability, or human capital. Rigidity kills.
Why, then, do presidential candidates like John McCain, Hillary Clinton, and Barack Obama continue to press as though greater centralized control and rigidity offers anything of a benefit to America's economic strength in the face of ever changing conditions?
Why do so many otherwise intelligent Americans fall for the same tripe?
The Answer is simple. They all must be ignorant of the way things really work. Or, maybe, it's a power thing.
As I will continue to suggest, whatever economic conditions may seem to create problems for our society, each is solved when individual participants learn to contribute in a value producing and meaningful way.
It's the way of the organic business model.
It makes sense.
All of the mechanical model "controllers" ought to pay attention to Brian Wesbury, chief economist for First Trust Portfolios, LP. In an editorial published June 11, 2008 in the WSJ. Brian astutely observes:
"In contrast to what some people seem to believe, having the government take over the health-care system is not change. It's just a culmination of previous moves by government. And the areas with the worst problems today are areas that have the most government interference – education, health care and energy."
"The best course of action is to allow a free-market economy to reallocate resources to the place of highest returns. In the midst of all the natural change, the last thing the U.S. economy needs is more government involvement, whether it's called change or not."
Only an Organic Model solves the problems.
In today's hyper-dynamic world, hardening mechanical models in attempt to improve economic conditions will prove no more successful than removing the flexability from the wings of an aircraft. Such practices will, at best, increase the discomfort of the passengers. At worst, it will render the plane unfit to fly.
Rigidity will produce the same negative impact for the economy, or for your business.
- Skyscrapers are designed with the ability to "sway" in the wind, or to "flex" in case of an earthquake.
- The wings of the great airliners are designed to "give and take" in the face of changing air density and current so that the body of the plane can maintain maximum stability in turbulence.
- Bridges, towers, roads, ships are strengthened with flexibility.
It works the same way when attempting to develop increasing profitability, or human capital. Rigidity kills.
Why, then, do presidential candidates like John McCain, Hillary Clinton, and Barack Obama continue to press as though greater centralized control and rigidity offers anything of a benefit to America's economic strength in the face of ever changing conditions?
Why do so many otherwise intelligent Americans fall for the same tripe?
The Answer is simple. They all must be ignorant of the way things really work. Or, maybe, it's a power thing.
As I will continue to suggest, whatever economic conditions may seem to create problems for our society, each is solved when individual participants learn to contribute in a value producing and meaningful way.
It's the way of the organic business model.
- Every participant can then know what he/she does best.
- Every participant can then discover how what they do makes a difference for the people or companies they serve.
- Then, because the organic system strives to compensate based on the actual value delivered, each participant may elect to contribute, and therefore earn, as much, or as little as they desire.
It makes sense.
All of the mechanical model "controllers" ought to pay attention to Brian Wesbury, chief economist for First Trust Portfolios, LP. In an editorial published June 11, 2008 in the WSJ. Brian astutely observes:
"In contrast to what some people seem to believe, having the government take over the health-care system is not change. It's just a culmination of previous moves by government. And the areas with the worst problems today are areas that have the most government interference – education, health care and energy."
"The best course of action is to allow a free-market economy to reallocate resources to the place of highest returns. In the midst of all the natural change, the last thing the U.S. economy needs is more government involvement, whether it's called change or not."
Only an Organic Model solves the problems.
In today's hyper-dynamic world, hardening mechanical models in attempt to improve economic conditions will prove no more successful than removing the flexability from the wings of an aircraft. Such practices will, at best, increase the discomfort of the passengers. At worst, it will render the plane unfit to fly.
Rigidity will produce the same negative impact for the economy, or for your business.
Monday, June 2, 2008
The High Value Capital of Business - It's Not What You Think; It's Human Capital
Peter Drucker's comments about business structure and management emphases tickle me. They tickle me because the very statements he makes run absolutely counter to the widely held beliefs of today's "experts." The difference is staggering.
In his 2002 book, Managing in the Next Society, Drucker makes comment about the problem "financial people" have managing business.
"There's an enormous challenge ahead to educate the owners of business, many of whom, as I've noted, are financial people. I once was a securities analyst, so that gives me license to say that it is virtually impossible to make a financial person understand business. I am not being facetious. Financial people don't deal with the issue of balance between often conflicting elements - short versus long term, continuity versus change, improving today versus creating tomorrow. Corporate leaders who wrestle with these issues every day know the amount of struggle involved, but it's difficult for financial people to understand this."
This ought to shake you to your core.
Why all the emphasis on managing by financials?
It happened simply and innocently enough. We began to confuse the financial statements with the business, itself. Human capital is thought to be either non-existent, or of little real value.
For more than 50 years the relative stability of technology and demographics paved the way for repetitive, mechanical hierarchical business models to succeed. They had predictable structure, and outcome based on repetition of mechanical practices, which then yielded predictability in financial results, creating the false association. Good financials were erroneously equated with good business. The two patterned so closely that the difference would be difficult to discern.
Market Hyper-Dynamics Defies Management by Financials
Today's technological landscape is no longer as stable and predictable. The demographics are also nothing like those characteristic of the last 50 years. The entire landscape is in constant and accelerating change. In this new world, it is now necessary to see a business for what it really is, and to recognize that financial statements are merely the report card for how the business is working. That is their only relationship.
A Business is not a Machine, it is more like a life.
A business is a complex web of conversations and social relationships. Out of these comes the continuous ebb and flow of the menagerie of products and services, which are developed, created, communicated, delivered, and serviced by provider companies to their customers. In this hyper-dynamic marketplace, it is far less important what a company thinks they do as much as why, for whom, and for what betterment of the customer and the world itself.
Conversations and relationships are characteristics of a different dynamic than a machine. They are characteristic of people, humans, living things. They are organic in their very nature, and require organic processes and organizations to endure. People are the very soul of business. Human Capital produces the value of all other capital.
I heard the CEO of an energy related firm make this very interesting statement.
"When we consider the human relationships as critical in my enterprise, we have a struggle as our material "assets" as shown on our financials represent $BB, while our people "assets." even as costs represent only $MM. It seems that the larger assets are the most important. We are coming to recognize that the real value of the material "asset" is totally dependent on the performance of the people, and this is leading us to realize that the people "asset" is of greater significance to the company performance, rendering the material asset as valuable, or potentially, value-less."
Which "assets," which "capital," do you value most?
I guarantee, if you think like a financial person, you'll answer incorrectly.
If you think like a traditional business person, you'll risk the same error.
Consider thinking more like Peter Drucker. Then you can begin to place more of your energy and investment into the things that produce your greatest ROI. These, of course, are your people, your Human Capital, and if you're like most of today's managers, you are well under equipped to do much to make improvements.
It is time to get some help for your organization. I wouldn't wait. I might even call a PEO.
In his 2002 book, Managing in the Next Society, Drucker makes comment about the problem "financial people" have managing business.
"There's an enormous challenge ahead to educate the owners of business, many of whom, as I've noted, are financial people. I once was a securities analyst, so that gives me license to say that it is virtually impossible to make a financial person understand business. I am not being facetious. Financial people don't deal with the issue of balance between often conflicting elements - short versus long term, continuity versus change, improving today versus creating tomorrow. Corporate leaders who wrestle with these issues every day know the amount of struggle involved, but it's difficult for financial people to understand this."
This ought to shake you to your core.
Why all the emphasis on managing by financials?
It happened simply and innocently enough. We began to confuse the financial statements with the business, itself. Human capital is thought to be either non-existent, or of little real value.
For more than 50 years the relative stability of technology and demographics paved the way for repetitive, mechanical hierarchical business models to succeed. They had predictable structure, and outcome based on repetition of mechanical practices, which then yielded predictability in financial results, creating the false association. Good financials were erroneously equated with good business. The two patterned so closely that the difference would be difficult to discern.
Market Hyper-Dynamics Defies Management by Financials
Today's technological landscape is no longer as stable and predictable. The demographics are also nothing like those characteristic of the last 50 years. The entire landscape is in constant and accelerating change. In this new world, it is now necessary to see a business for what it really is, and to recognize that financial statements are merely the report card for how the business is working. That is their only relationship.
A Business is not a Machine, it is more like a life.
A business is a complex web of conversations and social relationships. Out of these comes the continuous ebb and flow of the menagerie of products and services, which are developed, created, communicated, delivered, and serviced by provider companies to their customers. In this hyper-dynamic marketplace, it is far less important what a company thinks they do as much as why, for whom, and for what betterment of the customer and the world itself.
Conversations and relationships are characteristics of a different dynamic than a machine. They are characteristic of people, humans, living things. They are organic in their very nature, and require organic processes and organizations to endure. People are the very soul of business. Human Capital produces the value of all other capital.
I heard the CEO of an energy related firm make this very interesting statement.
"When we consider the human relationships as critical in my enterprise, we have a struggle as our material "assets" as shown on our financials represent $BB, while our people "assets." even as costs represent only $MM. It seems that the larger assets are the most important. We are coming to recognize that the real value of the material "asset" is totally dependent on the performance of the people, and this is leading us to realize that the people "asset" is of greater significance to the company performance, rendering the material asset as valuable, or potentially, value-less."
Which "assets," which "capital," do you value most?
I guarantee, if you think like a financial person, you'll answer incorrectly.
If you think like a traditional business person, you'll risk the same error.
Consider thinking more like Peter Drucker. Then you can begin to place more of your energy and investment into the things that produce your greatest ROI. These, of course, are your people, your Human Capital, and if you're like most of today's managers, you are well under equipped to do much to make improvements.
It is time to get some help for your organization. I wouldn't wait. I might even call a PEO.
Subscribe to:
Posts (Atom)
