THE ENTERPRISE--INNOVATION, TECHNOLOGY, PAY ABUSES & A "FOCUSED" STIMULUS?
INNOVATION STILL SELLS; COMPLEXITY STILL WASTES MONEY
Those who want THE ENTERPRISE to focus more on business issues, here you go. Have you forced a hard cut at complexity in the companies you run, work in, own or influence? If not, why not? Studies prove, over and over, that all the profit and shareholder value comes from the top 20-25% of customers and products, and that the bottom 20-25% is almost all losers, destroying value and consuming valuable resources.
TAKE ACTION--NOW
So why not dump them. Afraid of lost sales? Afraid of lost customers. Perhaps those are sales and customers that you are sending money along with the products or services they buy. Did you think of that. Lowering the sales of losers actually increases profitability. The last I heard, profitability was the goal, not just sales for sale growth sake.
The Booz study I cited a few weeks back proved it yet again: Supermarkets in 1980: 15,000 items; in 2007: 40,000 items. A typical consumer buys 650 of them in a year! The top 25% make virtually all the money, the bottom 25% are virtually all losers.
GET HELP, IF NECESSARY
There are usually a few good prospects among the bottom customers (or products). If you are worried about "throwing the baby out with the bath water" by dumping all of that bottom 25%, then contact my associates at Sixth Sense Partners who will help you sort them with much greater insight using their proprietary analytics. http://www.sixthsensepartners.com
INNOVATION IS THE ONLY TRUE PATH TO PROFITABLE GROWTH
When an organization is drowning in complexity, there are few or no resources to allocate to innovation. When complexity is removed, there are two opportunities--the first is to save money by cutting part of the resources being consumed by the products, customers, facilities, etc. The second is to reallocate the resources to innovation--which includes not only new products, but new processes, and finding new ways to grow with the best customers. Caution: "creativity" is not the same as "innovation." Innovation is a combination of creativity and commercialization of those creative ideas to yield profitable outcomes. Now we're talking "good growth."
TECHNOLOGY IS BEING UNDER--UTILIZED
I have an iPhone. While ATT's network still is not as good as Verizon's, the App Store and the iPhone's remarkable range of features is what holds me. it's a level when I hang pictures. It's a pedometer when I go for a walk. Its a GPS system when I need directions. It's a stock monitor when I want to watch those. And by the way, it is also a phone, an appointment calendar, home to my 1300 contacts, a voice recorder, a camera, a photo album, etc. etc. You get the idea. Info-tech has made it a pocket sized device that replaces a computer (yes, it's also a web browser and email system too).
WHERE CAN TECHNOLOGY BE USED MORE, BETTER?
Everywhere. What's the hold up? People! Stuck in the mud of old ideas and "why can't we" thoughts.
--Why are we still using an antiquated Air Traffic Control System that increases congestion, delays flights and limits traffic handling. The technology to replace it exists right now.
--Highways could handle much more traffic if computers monitored the waves of congestion that build up and metered cars on and off, changed speed limits to match weather conditions and traffic.
--Cars can save fuel and reduce emissions if all of them used the cylinder shut-off technology (GM uses it) and similar, related fuel efficiency and ULEV technology (most Hondas use these).
--Our home heating systems could be equipped with telemetry devices to communicate with the energy provider and adapt to periods of low or high demand to relieve peak generating problems.
--All the medical health records people have will fit on one flash memory device. Many of them are created digitally already and then printed to be viewed and filed. What a waste. Yes, someone needs to mandate a uniform system architecture, and fast. This could also reduce deaths and sickness from misread prescriptions and adverse drug interactions that computers would catch but a busy Doctor might not. Perhaps Apple, Intel, Microsoft, AMD, HP and IBM might form a coalition to do that with the government as the mandate originator and paying the bills.
--Then there are smart ID cards. We should welcome immigrants, but require that EVERY ONE OF THEM carry a secure, hard to alter or forge ID card, by which they must report their whereabouts once every so often until they complete citizenship requirements (a period of 2-3 years?)
--The same ID technology combined with biometrics would read us through airport security, relieving us of removing our shoes ( a stupid bottleneck) and putting only 3 ounce or smaller gels and liquids in a separate bag to go through security. I've forgotten to re-store some of my toiletries and put them through mixed with other stuff, and NO ONE has ever noticed.
--The same ID card with additional "validations" will qualify us to vote, and match a photo ID--with NO exceptions--NO ID, NO VOTE.
--Oh, Yes, for my next colonoscopy, how about sending one of those pill-sized mini-cameras through, and only putting me under if it sees something bad that requires the "scope?" Save time, save money, save inconvenience all at once. Perhaps that's a fitting place to "end" this list.
THAT'S JUST A SHORT LIST
Imagine what would happen if we tasked a group of really smart people to expand that list. We're planning on spending money on a Mag-Lev train from Los Angeles to Las Vegas--for what--"partying?" How about the one from Boston to Washington with stops along the way? Ten times the need, and one hundred times the importance. I used to work on the Railroad, and then the Telephone company a long, long time ago. One of the things I did was acquire right-of-way agreements from neighboring homeowners to install buried cables, etc. A railroad roadbed takes 1/3 the space an interstate highway does. In some cases it can be elevated and run down the median of Interstates for passenger trains.
WANT TO BE OUTRAGED?
Somebody MUST go after Merrill Lynch and the 700 employees who were "contractually entitled" to receive an average of $1 million each in compensation that was paid early to avoid getting caught in the buy-out by Bank of America (although B of A knew about the payments, it is alleged). To reward people for a company's failure is just plain WRONG--and should be "UNDONE" by some kind of "clawback" mechanism. The act of moving it up and doing it early smacks of criminal behavior.
I CAN'T BELIEVE I'M EVEN WRITING THIS--BUT THERE IS A LIMIT--OR SHOULD BE
Understand, I hate it when the government meddles in private companies and their deals--but this one simply STINKS. I bet those in office are too busy spending our tax money to take time to do this. Of course they'd find time to investigate someone from the Bush administration or to stick their noses into steroid use in baseball. I guess it is unreasonable to expect them to actually "represent" us--their constituents--and right this grievous wrong.
A POLITICAL POLYGLOT OF PATRONAGE, WISH LISTS -- AND STIMULUS TOO.
In response to a friend's comments about the "theft" language used by Sen. McCain, I said this. I'd state it more simply: "Irresponsibly throwing money at parts of the problem (there is some real stimulus in there--30-40% at least, but way less than it might have been, and making sure some (40%) of the money ends up allocated to their pet projects." Stimulus is needed. But this bill was written by irresponsible politicians--(wait, was that a redundant term?)
Worse yet, the other side of the aisle is firmly entrenched in "old-think" and can't come up with a workable compromise idea to save their souls (if they have any left). Doing nothing is probably the soundest plan--but totally unacceptable for elected officials (Obama knows that). Spending money they way this bill does is crazy. But then, why is that surprising? Look where it originated. By the way (GOP members of Congress), tax credits are not much of a stimulus if you are losing money, paying no taxes anyway and running out of cash, which banks won't lend due to the risk factor--which is the plight of many businesses right now. How about some new ideas from you too.
A FOCUSED STIMULUS?
After further thought, I realized that some fundamental principles could be applied as a test for the so-called Stimulus Bill. I wish someone would get these thoughts to Obama and his staff.
1) What does this expenditure "stimulate?" (e.g., What is the economic benefit of it, and to whom does it accrue?)
2) How many new jobs does it create and in what time frame (by year)?
3) Is there a better way this money could be spent to stimulate the economy and create jobs?
Will someone please ask--and answer--these questions? And then reconfigure the bill (of course not, it is a "runaway train" now).
CONGRESS PASSED SARBANES-OXLEY FAST--WHEN ENRON, ET. AL. MISBEHAVED
Perhaps it is time to take a more uniform look at what constitutes irresponsible behavior and what to do about it. Obama's misguided cap of $500,000 on executive salaries is a cute PR play, but makes no sense. If A-Rod is worth $200MM plus over a multi-year contract, it might be appropriate to pay "market rates" to get quality executives. It isn't the salary that raises alarms anyway. It's the non-cash portions of the comp packages: stock options, SARs, bonuses, etc. Why not leave the $1MM deductibility limit on CEO salaries but add a cap on everything over $1MM limited to a percentage of company earnings? Thus, no earnings = no extra comp. Period, end of story. Now everyone is on the same incentive system--CEO, shareholders, etc.
PRODUCTIVITY IS UP--GOOD AND BAD NEWS
That means that companies are cutting jobs faster than they are cutting output. That is good news except for those who lost their jobs. It is what companies are supposed to do when faced with a downturn. The "bleeding hearts" are right to feel bad for the jobless employees, but companies responsibilities are to their shareholders, and to those stakeholders (including the employees who remain) to stay as profitable and viable as possible.
If this scenario plays out as it might (absent government meddling--which will not be the case). Consumers and companies cut spending due to fear of the recession's impacts on them. Sales begin to drop; overall demand falls. Companies cut back production and purchases, to keep them in line with lower demand, which requires layoffs. Even so, the time lag between the decision and the action causes inventory to build. In order to dispose of excess inventory, companies cut prices. In the fight for business in the face of slumping demand, companies also cut prices. Eventually, the price cuts reach levels that incite consumers to begin buying "at bargain prices" and the inventories begin to drop, coming in line with demand.
As the inventories are worked off, there is a need to replenish some of them. This causes production and procurement--albeit a lower levels--sustaining employment for the time being. When enough of the excess inventories have been liquidated, and the competitive pressures lower prices enough, buyers will come back into the market--after months of having "saved up" by not buying. At this point demand begins a slow recovery. If this recovery is sustained, some level of hiring begins again. This makes consumers a bit less fearful, and they begin buying again. Slowly, if not interrupted by external (read: government, meddling) this recovery cycle builds upon itself. This is how business cycles work. Why is this such an apparent mystery or surprise to so many?
That's enough for today. I hope it got your brain going. I have added two pieces at the end for those who are still looking for more info. Both are thought provoking and by capable people. I hope you enjoyed this one.
All the best, John
BONUS READING
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* OPINION---FEBRUARY 6, 2009 © The Wall Street Journal
. . . They Violate Good Sense and the Constitution
The government cannot condition benefits on the nonassertion of rights.
BY ANDREW P. NAPOLITANO
The executive compensation caps that President Barack Obama and Treasury Secretary Tim Geithner summarily announced this week violate both the Constitution and Economics 101.
I have argued on this page that the Troubled Asset Relief Program for the banks is itself inherently and profoundly unconstitutional for several reasons. It promotes only short-term private benefit, rather than the general welfare as the Constitution commands of all federal spending. It evades the constitutional requirement of equal protection by saving some businesses and letting others that are similarly situated simply expire. And it delegates to the secretary of the Treasury the power to spend taxpayer dollars as he sees fit, in violation of the express constitutional grant of the nondelegable spending power to the Congress.
Now the federal government wants to interfere with private employment contracts already entered into -- and regulate those not yet signed -- in order to satisfy the perceived populist instincts of the electorate. To do so, it demands salary caps as a condition to the receipt of public assistance.
Salary caps are unconstitutional because they violate the well-grounded doctrine against unconstitutional conditions. Simply stated, the government may not condition the acceptance of a governmental benefit on the non-assertion of a constitutional liberty. The government cannot say to individual welfare recipients that they may not criticize the Congress or their welfare checks will be cut off, because the right to criticize the government is a constitutionally protected liberty. It similarly may not condition corporate welfare on the prohibition of contracts with employees above an arbitrary salary amount, because freedom of contract is protected by the Constitution as well.
The salary caps also constitute a taking. High ranking executives are corporate assets with experience and knowledge unique to their employers' businesses. By arbitrarily reducing their salaries to serve the government's political needs, deflating their worth to their employers, incentivizing them to work less, or chasing them away, the government has stripped these individuals of their personal value and of their value to employers without just compensation. Such a taking is prohibited by the Fifth Amendment.
Moreover, government-mandated salary caps will impede economic progress. We can presume that the senior executives of the banks that have received TARP funds who are paid more than $500,000 annually are worth at least that much to their employers. Otherwise the employers would be violating their fiduciary duties to their shareholders by paying those salaries. These employers are banks which the government has "rewarded for failure," to use the president's phrase, by investing money from taxpayers who would not voluntarily invest their own money there.
So, not only are these banks in distress, not only do they seek federal dollars in order to stay afloat, but under these salary caps they cannot go out and get the best talent to run them. The government that is trying to save them, the government that has forced taxpayer dollars into them, has denied them the freedom of contract necessary to assure their salvation. Why would underpaid executives stay with a bailed out bank when their true worth will be compensated elsewhere?
The government can't run a business. Just look at the Post Office, which loses $6 billion a year and has salary caps. Is this what's coming to the banks? If the government can evade the Constitution and violate the basic laws of economics what will it do to free enterprise next?
Mr. Napolitano, who was on the bench of the Superior Court of New Jersey between 1987 and 1995, is the senior judicial analyst at the Fox News Channel. His latest book is "A Nation of Sheep" (Nelson, 2007).
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Ruin Your Health With the Obama Stimulus Plan
Commentary by Betsy McCaughey Feb. 9 (Bloomberg) -- Republican Senators are questioning whether President Barack Obama’s stimulus bill contains the right mix of tax breaks and cash infusions to jump-start the economy.
Tragically, no one from either party is objecting to the health provisions slipped in without discussion. These provisions reflect the handiwork of Tom Daschle, until recently the nominee to head the Health and Human Services Department. Senators should read these provisions and vote against them because they are dangerous to your health. (Page numbers refer to H.R. 1 EH, pdf version). The bill’s health rules will affect “every individual in the United States” (445, 454, 479). Your medical treatments will be tracked electronically by a federal system. Having electronic medical records at your fingertips, easily transferred to a hospital, is beneficial. It will help avoid duplicate tests and errors.
But the bill goes further. One new bureaucracy, the National Coordinator of Health Information Technology, will monitor treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective. The goal is to reduce costs and “guide” your doctor’s decisions (442, 446). These provisions in the stimulus bill are virtually identical to what Daschle prescribed in his 2008 book, “Critical: What We Can Do About the Health-Care Crisis.” According to Daschle, doctors have to give up autonomy and “learn to operate less like solo practitioners.” Keeping doctors informed of the newest medical findings is important, but enforcing uniformity goes too far.
--New Penalties---Hospitals and doctors that are not “meaningful users” of the new system will face penalties. “Meaningful user” isn’t defined in the bill. That will be left to the HHS secretary, who will be empowered to impose “more stringent measures of meaningful use over time” (511, 518, 540-541) What penalties will deter your doctor from going beyond the electronically delivered protocols when your condition is atypical or you need an experimental treatment? The vagueness is intentional. In his book, Daschle proposed an appointed body with vast powers to make the “tough” decisions elected politicians won’t make.
The stimulus bill does that, and calls it the Federal Coordinating Council for Comparative Effectiveness Research (190-192). The goal, Daschle’s book explained, is to slow the development and use of new medications and technologies because they are driving up costs. He praises Europeans for being more willing to accept “hopeless diagnoses” and “forgo experimental treatments,” and he chastises Americans for expecting too much from the health-care system.
--Elderly Hardest Hit---Daschle says health-care reform “will not be pain free.” Seniors should be more accepting of the conditions that come with age instead of treating them. That means the elderly will bear the brunt. Medicare now pays for treatments deemed safe and effective. The stimulus bill would change that and apply a cost- effectiveness standard set by the Federal Council (464). The Federal Council is modeled after a U.K. board discussed in Daschle’s book. This board approves or rejects treatments using a formula that divides the cost of the treatment by the number of years the patient is likely to benefit. Treatments for younger patients are more often approved than treatments for diseases that affect the elderly, such as osteoporosis.
In 2006, a U.K. health board decreed that elderly patients with macular degeneration had to wait until they went blind in one eye before they could get a costly new drug to save the other eye. It took almost three years of public protests before the board reversed its decision. [Editor's Note: I spoke to the National Health Service Annual Convention about 10 years ago in Birmingham, England--and it was their opinion then that the U.K. Health system was badly failing and needs a complete redesign!! And this is what we choose to emulate?)
--Hidden Provisions---If the Obama administration’s economic stimulus bill passes the Senate in its current form, seniors in the U.S. will face similar rationing. Defenders of the system say that individuals benefit in younger years and sacrifice later. The stimulus bill will affect every part of health care, from medical and nursing education, to how patients are treated and how much hospitals get paid. The bill allocates more funding for this bureaucracy than for the Army, Navy, Marines, and Air Force combined (90-92, 174-177, 181). Hiding health legislation in a stimulus bill is intentional.
Daschle supported the Clinton administration’s health-care overhaul in 1994, and attributed its failure to debate and delay. A year ago, Daschle wrote that the next president should act quickly before critics mount an opposition. “If that means attaching a health-care plan to the federal budget, so be it,” he said. “The issue is too important to be stalled by Senate protocol.”
--More Scrutiny Needed---On Friday, President Obama called it “inexcusable and irresponsible” for senators to delay passing the stimulus bill. In truth, this bill needs more scrutiny. The health-care industry is the largest employer in the U.S. It produces almost 17 percent of the nation’s gross domestic product. Yet the bill treats health care the way European governments do: as a cost problem instead of a growth industry. Imagine limiting growth and innovation in the electronics or auto industry during this downturn. This stimulus is dangerous to your health and the economy.
(Betsy McCaughey is former lieutenant governor of New York and is an adjunct senior fellow at the Hudson Institute. The opinions expressed are her own.)
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