THE ENTERPRISE--DENIAL
THE ENTERPRISE--DENIAL
SCENARIOS FOR MANAGEMENT
One of the most challenging jobs of management, and especially of senior management led by the CEO is to decide what to do in the face of a constantly changing tableau of the competitive environment. Developing "scenarios" that might unfold is a management technique that can be very useful. While there are sophisticated scenario analysis methods, some simpler ones work well in a macro sense. To do this, it is necessary to carefully construct the current environment in a coldly accurate assessment. A common flaw in such decision processes is denial. Denial is insidious. It undermines the validity of assessments, plans and strategies because it is sets a flawed baseline. The challenge, then, for successful managers and executives is to overcome the natural human tendency toward denial or harsh realities by forcing a clear understanding of what's happening, and what's likely to happen in the world in which they compete.
COMPLEXITY DEPENDS ON DENIAL TO EXIST
I don't intend this issue of THE ENTERPRISE to be all about complexity. I do want to point out that complexity comes about with the best of intentions--the quest for growth at faster than the underlying markets. It grows unchecked because accounting systems fail to capture it in a way that makes it evident as to cause and effect. Finally, when the bottom line results are disappointing because complexity has eroded them, denial sets in, followed shortly thereafter by excuses and blame games. Government is no different. Denial is convenient. It is cooperative because it is malleable, and can be shaped to fit almost any situation. Take the current political candidates. Both are practicing denial is one form or another. Obama's denial is that his plans are affordable, and that his history of being shaped by Chicago politics and his church are not relevant. Both assumptions are wrong. McCain's denial is in the flawed plans he still espouses as he tries to embrace the more conservative wing of his party—his health care plans are simply inadequate to the current needs. His straddle position on areas like immigration is a form of denial. When I lived out in OK, an old saying was "Cowboy who straddle fence, get sore crotch." Both of these men must be chafing a bit by now.
SO WHAT NOW? INFLATION, $150/BBL OIL, SLOW GROWTH, COSTLY ENTITLEMENTS PLUS AN EXPENSIVE WAR, ETC. LEAD TO WHAT?
"We learn from history that we do not learn from history." (Georg Friedrich Wilhelm Hegel, a German philosopher) Here is the scenario. The US is engaged in a costly, unpopular and unsuccessful war; the Middle East is racked with turmoil; the US dollar is in free fall; commodity prices are surging; oil prices have increased dramatically; food prices are also soaring; and massive climate shocks have hit the USA. A Republican President is battling historically low approval ratings. Dick Cheney is close to the seat of power. The country seems to be adrift. THE TIME WAS THE FIRST HALF OF THE 1970s.THAT'S RIGHT--THE EARLY 1970s, WHICH SAW STAGFLATION, SLOW GROWTH, A STOCK MARKET GOING MOSTLY NOWHERE.
The Club of Rome published its Limits to Growth predicting that the world economy would overshoot the Earth's natural resources and collapse. (Thomas Malthus had predicted this same collapse in the late-18th century, too.) Unfortunately, each time history repeats itself; the "cure" gets tougher. China is poisoning its environment and draining its aquifers to grow crops for its huge population. Global warming--and natural weather-related disasters--whether a long-term catastrophe or a short-term cycle, is damaging crop production causing food shortages. North Koreans are starving. Europe is quickly becoming a Muslim outpost. Israelis must deny Palestinians any democratic equality because the Palestinians outnumber the Israelis and would quickly dominate a democratic state if combined.
Russians are literally dying out, with a birth rate so low that it will not be able to manage its vast geography in a generation, although it is feeling its "power" grow near term as the other European powers weaken and fade. Iran is squandering its oil while investing in nuclear plants for power--or for weapons? Vietnam takes work from China, but struggles with inflation in the 15-25% range, and devalued currency. The USA, thanks to partisan politics is grid-locked into a leaderless mass of sheep, all trying to graze off the same pasture--the wealth producers--in order to feed and care for the indigents, who neither want to work, nor care where their support comes from. The corporate world staggers through this turmoil, struggling to merge into success, but finding that putting together two or more inept companies yields just a larger inept company.
GOD KNOWS WE NEED CHANGE--BUT WHAT KIND OF CHANGE
The Democratic candidate, Barack Obama eloquently cries out for change. But his past, and his party show no ability to craft successful change. Their plan is to take from those who create wealth (tax increases), and spend (or waste) the money on programs where they see the "needs." Karl Marx, author of The Communist Manifesto, defined this method: "From each according to his ability, to each according to his needs!" This is not the kind of change we need in the USA. John McCain also wants change. His idea of change is fiscal responsibility. If he were elected President, he could wield the veto pen to stop spending that was not supported by revenues (an idea that seems to have escaped George W. Bush). It seems what we need is Obama's inspiring style with McCain's down-to-earth experience and spending control.
In foreign policy the two differ widely--McCain pressing on to (we hope) victory in Iraq ("Victory" means sufficient stability, supported by the Iraqi people, government, and police, to allow a withdrawal of the substantial majority of US troops. Neither candidate imagines total withdrawal. Obama's plan is to start withdrawing immediately, regardless of the consequences. Of course the fact that he has neither been to Iraq in recent years, nor talked to any military officials involved with the actual situation there casts doubt on how he arrived at his "plan." The simple use of the word appeasement in a Bush speech touched off a defensive flinch by Obama--in the category of "if the shoe fits..." Finally, IF the Democrats achieve a "veto-proof" majority in Congress (a real possibility), then even a McCain presidency could do little to stop the tax and spend methodology the Democrats have relied on for so long. It only took Jimmy Carter one term as President to create chaos of high inflation, high unemployment and high interest rates--all at once.
BUSINESS PLANS MUST CONTEMPLATE THESE SCENARIOS
The only thing a prudent businessperson can do is find ways to "diversify" from what could be a "toxic" business environment in the USA. This is not without problems, and other places have different challenges. Headquarters will move to friendlier, far away places like Dubai. Investments will move to either developing countries in SE Asia (where the rule of law and high inflation present a different set of challenges) or to more business-friendly places in other parts of the world (Ireland? India? Where else?) Production in the US may see a temporary resurgence if a protectionist administration controls the US government. The weakness of the dollar and inflationary pressures in Less Developed Countries are already starting to make the USA one of the places to consider for production. China's rapid growth and development combined with intrinsic high inflation (there and in other Asian countries) will make certain kinds of US production competitive again. Examples are where technology and capital equipment supplants much of the labor, or where the size or nature of the product makes it impractical to import (HVAC equipment is one example.) In other cases, the US has lost certain industries for a long, long time (consumer electronics, for one example).
THE ULTIMATE ISSUES: ENERGY AND WATER--MOSTLY ENERGY
Since the Earth is 70% water, there should be plenty of water. The problem is that most of it is salt water. But salt water can be desalinated with enough energy. There's the rub. "ENOUGH" ENERGY--and at what price? Energy from oil will be insufficient unless a much more realistic stance is taken on exploration, drilling and other oil-based sources (oil shale), and conservation that has just begun in the US gains momentum. Strangely, the most obvious solution is being almost entirely ignored (or submerged by special interest protests) in the USA. Nuclear power. It is less costly, cleaner, and sustainable for a long time. The fears triggered by Chernobyl (a plant designed and run by irresponsible fools) and Three Mile Island are irrational, illogical and untenable. The debate about what to do with nuclear waste is similarly foolish. At some point, sensible adults have to take control of decisions. It seems we are more willing to deal with the solid and gaseous emissions of coal-burning plants that the minute risk that cleaner nuclear plants will solve many of our energy problems. Oh my, the critics cry, wringing their hands.
What will we do with that dangerous nuclear waste? Perhaps use a more sophisticated form of what we do with our excessive waste of garbage. Dig a hole and bury it--but deeper and with better containment than just "dirt." Millions of acres of the Western US, especially in Nevada are empty, barren and virtually uninhabitable by humans. What better place to dispose of (meaning: store ad infinitum) nuclear waste. Yet special interests block such efforts. France uses predominantly nuclear power (75%). China has a couple of dozen reactors under construction. We have become a country so preoccupied with the bleeding hearts and extreme special interests, political correctness militia that we are endangering all of the people because of our sensitivity to this impractical and zealous minority. But wait—that's Harry Reid's state, and of all the misguided people in positions of power, he must rank in the top 2-3. So stop everything and suffer.
The Western deserts of the US (and other deserts in Africa, Australia, and China) offer natural environment for solar power generation. The false solution of "electric cars" seems to overlook that the electricity to recharge them has to be generated from some kind of fuel. Offshore drilling is acceptable in most parts of the world, but somehow the US is "holier than thou." When will the "inmates who hold the institution hostage" release their grip? Will it be soon enough? I fear not. Businesses must find their own alternative energy sources, and not rely on government to solve this problem. If that means moving to where the energy can be generated (solar, wind, hydro-electric, tidal, geothermal?) If we can land people on the moon and robots on Mars, we might, just might be able to figure this out if a minority of Americans would stop being obstinate and DO SOMETHING. (Check how the votes on off-shore drilling go: Democrats unanimously against it; Republicans unanimously for it.) The accusation: the GOP just wants to enrich big oil. WHAT CRAP!
IT'S ODD HOW THE PEOPLE WE CHOOSE TO SERVE US, ACTUALLY WORK AGAINST US (AND FOR PERSONAL POWER OR GAIN)
ANOTHER BUSINESS PERSON'S TAKE ON THINGS
Personal Observation on America’s Problems
By Doug Allston, President, Advantage Consulting, Inc.
I got a really great email the other day titled Non-Partisan Sentiment. I don’t even remember who sent it to me. I did a little research and found that Charley Reese wrote the original text. I have been following the oil issue very closely and wondering why we can’t get out of our own way. We can’t drill for oil off most of our coastlines. We can’t drill for oil in Alaska. The Senate Appropriations Committee just killed the shale oil drilling bill. The US is literally the only country in the world with energy resources that has been systematically closing access to those resources. The Senate’s action made the following make a lot of sense.
“Politicians are the only people in the world who create problems and then campaign against them. Have you ever wondered why, if both the Democrats and the Republicans are against deficits, we have deficits? Have you ever wondered why, if all the politicians are against inflation and high taxes, we have inflation and high taxes? You and I don't propose a federal budget. The president does. You and I don't have the Constitutional authority to vote on appropriations. The House of Representatives does. You and I don't write the tax code, Congress does. You and I don't set fiscal policy, Congress does. You and I don't control monetary policy, The Federal Reserve Bank does.
One hundred senators, 435 congressmen, one president and nine Supreme Court justices - 545 human beings out of the 300 million - are directly, legally, morally and individually responsible for the domestic problems that plague this country. Those 545 human beings spend much of their energy convincing you that what they did is not their fault. They cooperate in this common regardless of party.
What separates a politician from a normal human being is an excessive amount of gall. No normal human being would have the gall of a Speaker, who stood up and criticized the President for creating deficits. The President can only propose a budget. He cannot force the Congress to accept it. The Constitution, which is the supreme law of the land, gives sole responsibility to the House of Representatives for originating and approving appropriations and taxes. Who is the speaker of the House? She is the leader of the majority party. She and fellow House members, not the president, can approve any budget they want. If the president vetoes it, they can pass it over his veto if they agree to. It seems inconceivable to me that a nation of 300 million cannot replace 545 people who stand convicted -- by present facts - of incompetence and irresponsibility.
I can't think of a single domestic problem that is not traceable directly to those 545 people. When you fully grasp the plain truth that 545 people exercise the power of the federal government, then it must follow that what exists is what they want to exist. If the tax code is unfair, it's because they want it unfair. If the budget is in the red, it's because they want it in the red. If the Marines are in IRAQ, it's because they want them in IRAQ. If they do not receive social security but are on an elite retirement plan not available to the people, it's because they want it that way. There are no insoluble government problems. Do not let these 545 people shift the blame to bureaucrats, whom they hire and whose jobs they can abolish; to lobbyists, whose gifts and advice they can reject; to regulators, to whom they give the power to regulate and from whom they can take this power. Above all, do not let them con you into the belief that there exist disembodied mystical forces like 'the economy’, 'inflation' or 'politics' that prevent them from doing what they take an oath to do.
Those 545 people are responsible. They have the power. They should be held accountable by the people who are their bosses - provided the voters have the gumption to manage their own employees. These 545 people have created many of the problems this country faces. However, it is also true that we, the citizens of this country, reelect approximately 90% of the 545 every election. Therefore, we bear a great deal of the responsibility for the mess we have created.“
Maybe it is time we take a little advice that is over 2,000 years old. "The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance." —Marcus Tullius Cicero
Or as Pogo once observed, "We Have Met The Enemy and He Is Us" – Walt Kelly 1970.
LET'S GO BACK THE BUSINESS PRINCIPLES--SCENARIOS
Any business that hopes to compete during the next 5-10 years has to make a plan that assumes energy will be scarce, expensive and available in limited supplies as determined by people who neither understand, nor care about the wealth and health of our country or its businesses. Since businesses are social institutions created by people to improve how wealth-creating activities can be best organize, that means we are facing perhaps a decade of ANTI-BUSINESS policies from our government. Assume that inflation will be a problem. Assume that government intervention of all types will be a problem. Assume that the ability to accurately forecast dynamic global geopolitical outcomes will be poor. Stay nimble. Stay smart. Have Plan B & C ready if Plan A gets derailed. Use every bit of information and intellect at your disposal to make the best and most flexible possible decisions.
FOREWARNED IS FOREARMED
With thse as the dominant guideposts, astute business people will develop alternative plans. The smartest and most competitive ones will find new ways to achieve their goals, in spite of oppressive government, and restrictive, expensive, and scarce availability of basic needs. They will make the best possible use of every alternative at their disposal. Innovation is a combination of creativity and ingenuity—of imagination and technology applied through the efforts of smart, talented and determined people. Innovation doesn't just address new products. (One example: In the 1970's when corrugated cardboard was on shortage-based allocation, we found and entirely an new way to replace "6 and 12 pack master shipping cartons"--using corrugated trays and strapping. This protected the individual boxed product, allowed labels and address marking, stacking, palletizing, etc. and used about 40% less corrugated--and the cost was about the same.)
Watch as the campaigns and elections move closer to conclusion. If I am wrong (which happens from time to time), it will be easier to adapt to that eventuality than the one these scenarios seem to indicate.
Now you know. Plan now. Start setting actions in motion. To wait—will be too late. Don't wait for $50/bbl oil or $2/gal. gasoline--you might be waiting a very long time.
Best, John
PS: Did you ever hear of a Post Turtle?
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THE POST TURTLE
While suturing a cut on the hand of a 75-year old Texas rancher whose hand was caught in a gate while working cattle, the doctor struck up a conversation with the old man. Eventually the topic got around to Obama and his bid to be our President.
The old rancher said, “Well, ya know, Obama is a post turtle.”
Not being familiar with the term, the doctor asked him what a ‘post turtle' was.
The old rancher said, “When you're driving down a country road and you come across a fence post with a turtle balanced on top, that's a post turtle.”
The old rancher saw a puzzled look on the doctor's face, so he continued to explain.
“You know he didn't get up there by himself, he doesn't belong up there, he doesn't know what to do while he is up there, and you just wonder what kind of dumb asses put him up there to begin with.”
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"There will come a time when you believe everything is finished. That will be the beginning." —Louis L'Amour
