THE ENTERPRISE--BUSINESS AND ECONOMICS
TEN COLORFUL WAYS TO RECALL ENDURING TRUTHS
I have used these Ten Points when speaking to college seniors this past year, and realized that I think they are so relevant to all situations, and especially business settings, I'd share them with everyone. I'm sure for many it is a welcome break from politics and current events.
1) The purpose of a business is to create and keep a customer. — I first read this in Theodore Levitt's fine book, THE MARKETING IMAGINATION, over 25 years ago. As the years go by, I realize how profoundly true it is. I would only add one word to make this legendary statement truer yet. Add the word "happy" after customer. Don't forget that.
2) People are most important of all--then comes Profit. — I usually test the class asking them what 6 letter word starting with P is the most important thing in business. They usually say "Profit," to which I must say, "Close, but not right." People are the most important thing in business. Everything happens because of people, including profit which is how we keep score in business. Business is a competitive game where the score is kept in money (profits) and if you "win" you get to play again, and again, and again.
3) Trees can't grow to the sky, but forests can grow to the horizon. — I learned this as I studied why so many once admired companies like Rubbermaid (where I once worked) fail to grow past some point. I could have used Sears, USSteel, GM, and any number of others, including lately, Walmart. Trees have limits to growth imposed by nature. I think companies do too. Perhaps because the "laws of nature" apply as more than just metaphors for business. I once wrote an opening to a book about the BIg Tree and I later published it as a standalone paper on amazon.com. It was one of the most profound things I ever wrote (I realize now, I didn't then.) http://www.amazon.com/Forest-Trees-Business-Parable/dp/B00007K45S/ref=sr_1_17?ie=UTF8&s=books&qid=1276201406&sr=1-17
4) Making a ranch bigger makes it harder to manage with more manure. That's why most mergers do not work. — Many corporations figure a merger is a quick way to grow larger. It is, but what often happens is that the merger doesn't work right. Merging the DNA of two totally different companies is hard. Which merger partner will win the tug of war to be in charge. Whose facilities and people will be found to be redundant. And so on, and so on. My rancher friend was right, and experts at McKinsey have studied it and find the same thing. After the first year or two when the "synergies" of duplicate people, facilities, etc. are flushed out, the merged company falls back to a level that is less than the total of the two merger partners. A high percentage of mergers destroy shareholder value, not increase it. Prime examples: AOL-TimeWarner, Lucent & Alcatel.
5) Never double cross a partner--Partners are critically necessary. — In this increasingly complex global economy, no one, no company can be "good enough" at everything. That's why they need partners--and I don't just mean "outsourcing suppliers." True partners rely on trust, shared goals with reasonable risk and rewards for both partners, and open communications. Mutual dependence is a strong bonding agent for partnerships. Where both partners need something the other one has, somehow that works very well. When one partner tries to use power over the other, power is like poison and the partnership dies. Trust is built slowly and can be destroyed rapidly, so to be trusted, be trustworthy.
6) How do you eat an elephant? One bite at a time. — You all knew the answer to this one, and yet many people still run at the whole elephant with their mouth wide open. The result is ugly. Big problems, big tasks, big acquisitions, etc. all need to be broken down into manageable size bites and each of those managed or they become indigestible. And by the way, if you decide to "dance with an elephant" (a huge customer), "the elephant will want to lead!"
7) FInd the root cause; don't just treat symptoms. — If you have a headache because someone is hitting you over the head with a bat, taking aspirin will not cure your headache. Take the bat away. If you have customer service problems because your culture is bad or your processes are flawed, more inventory and expedited shipping won't solve the problem. Those things are just expensive Band-Aids. Inspectors don't make quality better, they just pick out some of the defects. The rest get through and get shipped. Track problems past the symptoms, all the way to the root causes and fix those. Japanese root cause theory suggests you might have to ask "Why" 6 or 7 times to get to the bottom of things.
8) When you are hot, you're hot; when you're not, you're not. (When you are in a hole, stop digging!) — This could apply to BP. Or to Blago. Or to Tiger Woods. Or to lots of other situations. When "you're hot" almost anything is possible. (President Obama just after his election.) When you are not, almost nothing is possible. (President Obama now?) The same applies for companies and stocks. Walmart could do no wrong for 20 years. Now, everything they do is under the microscope, and a lot of it is "not so hot." Once you've been "hot," and get "not," it's really hard to get "hot" again. Best advice: try to stay "hot" or at least "warm," and don't get "not."
9) Nothing happens until you take action. (Making a decision is nothing; taking action on it is progress.) — "Three frogs are sitting on a log; one decides to jump off. How many frogs are on the log?" If you said two--WRONG. Still three. There is a huge difference between decision and action. Nothing happens until you act on a decision, and follow it through to a successful outcome. Otherwise you're still just a "frog on a log."
10) Time is the perishable of the three key resources--Time, Talent, and Money. (Two MIle Trip) — The most difficult job in business (and in life) is setting priorities--and then allocating scarce resourced to the best opportunities. In business there are really only three resources to allocate: Time, Talent (People) and Money. Spend those on nagging problems and the big opportunities go untapped. Worse yet, one of those resources—Time—is perishable. Once spent, it's gone. No way to get it back. Here's another riddle for you: "You have to make a two-mile drive and you must average 60 mph for the two miles. You decide to be cautious and drive the first mile at 30 mph. How fast must you drive the second mile to average 60 mph?" If you said 90 mph or 120 mph--WRONG. This is a trick question. There is NO speed you can drive the second mile to average 60 mph because to do so, you'd have to make the trip in 2 minutes, and you used up your 2 minutes going too slowly on the first mile. Time lost can never be recovered, so it is critical to plan well, and take action swiftly--while you still have time.
A COUPLE OF TIDBITS THAT MAY FORETELL THE FUTURE OF BUSINESSES
US Companies are currently holding more cash than at any point on record. The Federal Reserve reports that non-financial companies have $1.84 trillion in cash and other liquid assets as of March 2010, up 26% from last year. That is 7% of all company assets. So--if we want to trigger a recovery, it might be wise to give companies an incentive to invest that cash in growth initiatives. Hmmm. I wonder if anyone in Washington, DC would ever think of that? (Doubtful. They be more likely to tax it, so they can spend it!)
INVENTORY BUILDING MAY NOT BE OVER YET
There was the rebuild of inventories depleted by caution during the worse of the recession. Those are now restored, but companies are losing sales due to out of stocks. That means more inventories are needed to grow sales. It won't solve everything, but might help keep the recovery moving while consumers take a pause and don't spend as much--as long as the pause isn't too long.
THE ELEPHANT IN THE ROOM FOR STATE GOVERNMENTS
Public pensions combined with runaway wages and benefits for public employees are going to break many states. No one is willing to face what needs to be done. Unions and governments worked together to cause this problem. Unions demanded more in wages and benefits including pension plans. Governmental officials agreed and gave them what they wanted. The Unions turned around and donated to the campaigns of the government officials so they could be reelected. To make matters worse, states did not account for the pension plan deficits correctly, and hugely understated them. Now there is a bigger problem: now that the problem exists, nobody wants to "give back" what they shouldn't have been given in the first place. And no elected officials want to ask for the give-backs because these overpaid public employees are also voters.
WHAT IS THE SOLUTION--STATE AND FEDERAL EXORBITANT PAY AND BENEFITS
What's the solution? Rational, responsible people know what it is. There simply have to be cuts in public pay and benefits--just like there was at GM, Chrysler, et. al. The alternative, to raise taxes and continue paying exorbitant levels of pay and benefits in totally impossible. The state pension plans are insolvent. There is not enough money to pay the benefits they have promised. What's the shortfall? Only about $1 trillion! (That's only state pension plans.) People who faithfully served and earned pensions are now going to have to give back part of what they earned. Yikes! Can that be true? Yes, sadly, it is. Why? Because there is NO MONEY to pay them. Sound familiar? Sure it does: Social Security, Medicare, Medicaid, etc.
SOCIALISM IS A SYSTEM THAT DOESN'T WORK ECONOMICALLY
That's the problem. The further the US Governmental units push in that direction, the deeper the hole gets. Remember the earlier statement: "When you are in a hole, quit digging!"
That's plenty for this week. Next week will be a long one, so I'll cut this one short.
Best, John
====================
A BONUS FEATURE ON WHAT AMERICANS' CONCERNS ARE:
American Pulse™: Economy, Healthcare and Deficit Top Concerns Regarding America’s Future
49% Give Poor Or Failing Grade for Handling of Gulf Oil Spill
COLUMBUS, OH – (MARKET WIRE) – 6/10/10 – When it comes to issues that concern Americans regarding the future of America, the economy tops the list at 81.2%, followed by healthcare (67.6%) and the federal deficit (64.9%), according to the latest American Pulse™ Survey (N= 5,123). The economy is also the #1 issue worrying Americans about their personal well-being (79.1%). Healthcare (66.6%) is #2 and terrorism (47.7%) is #3. In both instances, national affairs outpace international affairs, indicating that matters closer to home are weighing heavy on the minds of Americans.
Top 5 Issues Concerning…
Future of America Americans' Personal Well-Being
Economy (81.2%) Economy (79.1%)
Healthcare (67.6%) Healthcare (66.6%)
Federal deficit (64.9%) Terrorism (47.7%)
Job Creation (63.5%) Job Creation (46.1%)
Terrorism (60.6%) National Security (42.6%)
Source: American Pulse™, June-2010
It doesn’t appear that Americans believe the economy will recover soon. 68.8% have little-to-no confidence that government’s economic policies will get the economy back on track, compared to 31.3% who do. Similarly, 73.8% have little-to-no confidence that government policies will help lower unemployment (v. 26.2% who do).
Another issue on the home front is the Gulf oil spill, and Americans tend to score the Obama administration low on handling it. 29.3% gave it a “C,” 25.4% gave a “D,” and 23.4% assigned an “F.”
Uneasiness about domestic issues may be affecting how Americans would vote for president. If the election were today, 36.8% of adults would vote for a generic republican candidate versus 34.7% who would vote for Obama. 37.8% of registered voters would vote for a republican (v. 35.1% for Obama).
Complimentary trended data and full report: http://americanpulse.bigresearch.com.
Other findings:
• 67.9% agree/strongly agree that Americans are consumed by technology…10% disagree/strongly disagree.
• 44.3% think technology overload is bad for Americans saying its changing behavior…31.8% think it’s good; Americans can never get enough technology.
• 71.9% say watching movies at the cinema is too expensive…19.7% say it’s worth it. Only 25.9% are waiting for a summer blockbuster to attend… 74.1% aren’t.
About American Pulse™
The American Pulse™ Survey is collected online by BIGresearch® twice a month exclusively utilizing Survey Sampling International’s (SSI) U.S. panel covering topics such as politics, pop culture and the economy. Over 5,000 respondents participate, providing greater insights and accuracy of +/- 1%. www.bigresearch.com
TEN COLORFUL WAYS TO RECALL ENDURING TRUTHS
I have used these Ten Points when speaking to college seniors this past year, and realized that I think they are so relevant to all situations, and especially business settings, I'd share them with everyone. I'm sure for many it is a welcome break from politics and current events.
1) The purpose of a business is to create and keep a customer. — I first read this in Theodore Levitt's fine book, THE MARKETING IMAGINATION, over 25 years ago. As the years go by, I realize how profoundly true it is. I would only add one word to make this legendary statement truer yet. Add the word "happy" after customer. Don't forget that.
2) People are most important of all--then comes Profit. — I usually test the class asking them what 6 letter word starting with P is the most important thing in business. They usually say "Profit," to which I must say, "Close, but not right." People are the most important thing in business. Everything happens because of people, including profit which is how we keep score in business. Business is a competitive game where the score is kept in money (profits) and if you "win" you get to play again, and again, and again.
3) Trees can't grow to the sky, but forests can grow to the horizon. — I learned this as I studied why so many once admired companies like Rubbermaid (where I once worked) fail to grow past some point. I could have used Sears, USSteel, GM, and any number of others, including lately, Walmart. Trees have limits to growth imposed by nature. I think companies do too. Perhaps because the "laws of nature" apply as more than just metaphors for business. I once wrote an opening to a book about the BIg Tree and I later published it as a standalone paper on amazon.com. It was one of the most profound things I ever wrote (I realize now, I didn't then.) http://www.amazon.com/Forest-Trees-Business-Parable/dp/B00007K45S/ref=sr_1_17?ie=UTF8&s=books&qid=1276201406&sr=1-17
4) Making a ranch bigger makes it harder to manage with more manure. That's why most mergers do not work. — Many corporations figure a merger is a quick way to grow larger. It is, but what often happens is that the merger doesn't work right. Merging the DNA of two totally different companies is hard. Which merger partner will win the tug of war to be in charge. Whose facilities and people will be found to be redundant. And so on, and so on. My rancher friend was right, and experts at McKinsey have studied it and find the same thing. After the first year or two when the "synergies" of duplicate people, facilities, etc. are flushed out, the merged company falls back to a level that is less than the total of the two merger partners. A high percentage of mergers destroy shareholder value, not increase it. Prime examples: AOL-TimeWarner, Lucent & Alcatel.
5) Never double cross a partner--Partners are critically necessary. — In this increasingly complex global economy, no one, no company can be "good enough" at everything. That's why they need partners--and I don't just mean "outsourcing suppliers." True partners rely on trust, shared goals with reasonable risk and rewards for both partners, and open communications. Mutual dependence is a strong bonding agent for partnerships. Where both partners need something the other one has, somehow that works very well. When one partner tries to use power over the other, power is like poison and the partnership dies. Trust is built slowly and can be destroyed rapidly, so to be trusted, be trustworthy.
6) How do you eat an elephant? One bite at a time. — You all knew the answer to this one, and yet many people still run at the whole elephant with their mouth wide open. The result is ugly. Big problems, big tasks, big acquisitions, etc. all need to be broken down into manageable size bites and each of those managed or they become indigestible. And by the way, if you decide to "dance with an elephant" (a huge customer), "the elephant will want to lead!"
7) FInd the root cause; don't just treat symptoms. — If you have a headache because someone is hitting you over the head with a bat, taking aspirin will not cure your headache. Take the bat away. If you have customer service problems because your culture is bad or your processes are flawed, more inventory and expedited shipping won't solve the problem. Those things are just expensive Band-Aids. Inspectors don't make quality better, they just pick out some of the defects. The rest get through and get shipped. Track problems past the symptoms, all the way to the root causes and fix those. Japanese root cause theory suggests you might have to ask "Why" 6 or 7 times to get to the bottom of things.
8) When you are hot, you're hot; when you're not, you're not. (When you are in a hole, stop digging!) — This could apply to BP. Or to Blago. Or to Tiger Woods. Or to lots of other situations. When "you're hot" almost anything is possible. (President Obama just after his election.) When you are not, almost nothing is possible. (President Obama now?) The same applies for companies and stocks. Walmart could do no wrong for 20 years. Now, everything they do is under the microscope, and a lot of it is "not so hot." Once you've been "hot," and get "not," it's really hard to get "hot" again. Best advice: try to stay "hot" or at least "warm," and don't get "not."
9) Nothing happens until you take action. (Making a decision is nothing; taking action on it is progress.) — "Three frogs are sitting on a log; one decides to jump off. How many frogs are on the log?" If you said two--WRONG. Still three. There is a huge difference between decision and action. Nothing happens until you act on a decision, and follow it through to a successful outcome. Otherwise you're still just a "frog on a log."
10) Time is the perishable of the three key resources--Time, Talent, and Money. (Two MIle Trip) — The most difficult job in business (and in life) is setting priorities--and then allocating scarce resourced to the best opportunities. In business there are really only three resources to allocate: Time, Talent (People) and Money. Spend those on nagging problems and the big opportunities go untapped. Worse yet, one of those resources—Time—is perishable. Once spent, it's gone. No way to get it back. Here's another riddle for you: "You have to make a two-mile drive and you must average 60 mph for the two miles. You decide to be cautious and drive the first mile at 30 mph. How fast must you drive the second mile to average 60 mph?" If you said 90 mph or 120 mph--WRONG. This is a trick question. There is NO speed you can drive the second mile to average 60 mph because to do so, you'd have to make the trip in 2 minutes, and you used up your 2 minutes going too slowly on the first mile. Time lost can never be recovered, so it is critical to plan well, and take action swiftly--while you still have time.
A COUPLE OF TIDBITS THAT MAY FORETELL THE FUTURE OF BUSINESSES
US Companies are currently holding more cash than at any point on record. The Federal Reserve reports that non-financial companies have $1.84 trillion in cash and other liquid assets as of March 2010, up 26% from last year. That is 7% of all company assets. So--if we want to trigger a recovery, it might be wise to give companies an incentive to invest that cash in growth initiatives. Hmmm. I wonder if anyone in Washington, DC would ever think of that? (Doubtful. They be more likely to tax it, so they can spend it!)
INVENTORY BUILDING MAY NOT BE OVER YET
There was the rebuild of inventories depleted by caution during the worse of the recession. Those are now restored, but companies are losing sales due to out of stocks. That means more inventories are needed to grow sales. It won't solve everything, but might help keep the recovery moving while consumers take a pause and don't spend as much--as long as the pause isn't too long.
THE ELEPHANT IN THE ROOM FOR STATE GOVERNMENTS
Public pensions combined with runaway wages and benefits for public employees are going to break many states. No one is willing to face what needs to be done. Unions and governments worked together to cause this problem. Unions demanded more in wages and benefits including pension plans. Governmental officials agreed and gave them what they wanted. The Unions turned around and donated to the campaigns of the government officials so they could be reelected. To make matters worse, states did not account for the pension plan deficits correctly, and hugely understated them. Now there is a bigger problem: now that the problem exists, nobody wants to "give back" what they shouldn't have been given in the first place. And no elected officials want to ask for the give-backs because these overpaid public employees are also voters.
WHAT IS THE SOLUTION--STATE AND FEDERAL EXORBITANT PAY AND BENEFITS
What's the solution? Rational, responsible people know what it is. There simply have to be cuts in public pay and benefits--just like there was at GM, Chrysler, et. al. The alternative, to raise taxes and continue paying exorbitant levels of pay and benefits in totally impossible. The state pension plans are insolvent. There is not enough money to pay the benefits they have promised. What's the shortfall? Only about $1 trillion! (That's only state pension plans.) People who faithfully served and earned pensions are now going to have to give back part of what they earned. Yikes! Can that be true? Yes, sadly, it is. Why? Because there is NO MONEY to pay them. Sound familiar? Sure it does: Social Security, Medicare, Medicaid, etc.
SOCIALISM IS A SYSTEM THAT DOESN'T WORK ECONOMICALLY
That's the problem. The further the US Governmental units push in that direction, the deeper the hole gets. Remember the earlier statement: "When you are in a hole, quit digging!"
That's plenty for this week. Next week will be a long one, so I'll cut this one short.
Best, John
====================
A BONUS FEATURE ON WHAT AMERICANS' CONCERNS ARE:
American Pulse™: Economy, Healthcare and Deficit Top Concerns Regarding America’s Future
49% Give Poor Or Failing Grade for Handling of Gulf Oil Spill
COLUMBUS, OH – (MARKET WIRE) – 6/10/10 – When it comes to issues that concern Americans regarding the future of America, the economy tops the list at 81.2%, followed by healthcare (67.6%) and the federal deficit (64.9%), according to the latest American Pulse™ Survey (N= 5,123). The economy is also the #1 issue worrying Americans about their personal well-being (79.1%). Healthcare (66.6%) is #2 and terrorism (47.7%) is #3. In both instances, national affairs outpace international affairs, indicating that matters closer to home are weighing heavy on the minds of Americans.
Top 5 Issues Concerning…
Future of America Americans' Personal Well-Being
Economy (81.2%) Economy (79.1%)
Healthcare (67.6%) Healthcare (66.6%)
Federal deficit (64.9%) Terrorism (47.7%)
Job Creation (63.5%) Job Creation (46.1%)
Terrorism (60.6%) National Security (42.6%)
Source: American Pulse™, June-2010
It doesn’t appear that Americans believe the economy will recover soon. 68.8% have little-to-no confidence that government’s economic policies will get the economy back on track, compared to 31.3% who do. Similarly, 73.8% have little-to-no confidence that government policies will help lower unemployment (v. 26.2% who do).
Another issue on the home front is the Gulf oil spill, and Americans tend to score the Obama administration low on handling it. 29.3% gave it a “C,” 25.4% gave a “D,” and 23.4% assigned an “F.”
Uneasiness about domestic issues may be affecting how Americans would vote for president. If the election were today, 36.8% of adults would vote for a generic republican candidate versus 34.7% who would vote for Obama. 37.8% of registered voters would vote for a republican (v. 35.1% for Obama).
Complimentary trended data and full report: http://americanpulse.bigresearch.com.
Other findings:
• 67.9% agree/strongly agree that Americans are consumed by technology…10% disagree/strongly disagree.
• 44.3% think technology overload is bad for Americans saying its changing behavior…31.8% think it’s good; Americans can never get enough technology.
• 71.9% say watching movies at the cinema is too expensive…19.7% say it’s worth it. Only 25.9% are waiting for a summer blockbuster to attend… 74.1% aren’t.
About American Pulse™
The American Pulse™ Survey is collected online by BIGresearch® twice a month exclusively utilizing Survey Sampling International’s (SSI) U.S. panel covering topics such as politics, pop culture and the economy. Over 5,000 respondents participate, providing greater insights and accuracy of +/- 1%. www.bigresearch.com
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