The holidays are the season for Yankee Swaps. Now, a Yankee Swap would seem to be a fairly simple and straightforward activity: each person either chooses a wrapped gift or steals an opened gift from someone else. This latter activity can, of course, trigger a chain reaction, but that’s part of the fun. At the end, everyone feels like they had at least some measure of control over the outcome. One would think it difficult, if not impossible, to mess up a Yankee Swap.
However, all things are possible. In this case, one company held a Yankee Swap with incredibly detailed and complicated rules which had as its most salient feature that no gifts were opened until the very end. In other words, the experience was transformed into the equivalent of a very slow grab bag: a long, frustrating, totally random process at the end of which people felt that they had no control over the outcome. Ironically, the most common complaint from employees at this company is that many of the rules are complex, time consuming, and leave them feeling like they have very little control over how they get their work done.
Not long ago, an article in the New York Times discussed how Merck created what appeared to be an independent, peer-reviewed journal, and then used that journal to convince doctors to prescribe Merck products.
What is particularly amazing about this story is that Merck is the same company that 20 years ago created a cure for River Blindess, even though they knew that the people most in need of that cure would never be able to pay for it. At the time, the cost to the company was estimated at $200,000,000. Then CEO Roy Vagelos said that he felt that there was really no other choice: he was living up to Merck’s ideals of “health before wealth” and “do good and good will follow.”
As things worked out, the long-term benefits to the company, in terms of prestige, being able to attract top-notch researchers, and access to emerging markets, were immense. Merck did good, and good did indeed follow for the company and its shareholders. It just wasn’t obvious at the time that things were going to work out that way.
So what happened? How did a company that lived up to its ideals as Merck did come to be the same company that used rather questionable practices to convince doctors to use its products?
Now I have no particular contacts or channels into the brains of the people at Merck, so what follows is purely supposition based on observing similar patterns of behavior in sports and business.
It’s well known in sports that athletes who are solely focused on winning do less well than those who are focused on personal excellence and skill mastery as well as winning. Indeed, a total focus on the outcomes and not the process can lead to a number of problems, including depression, burnout, and reduced enjoyment in the activities. Failure, instead of being a learning experience or an opportunity to evaluate and adjust, becomes something to avoid at all costs.
Ways of avoiding failure might involve only facing easy opponents, or it might involve cheating in various ways. Fear of failure is a very powerful force; the most successful athletes are those who master the art of learning how, and when, to not care if they win or lose.
When a business becomes totally focused on making money, it falls into a trap similar to that of the athlete. Milton Friedman to the contrary, a business cannot be solely about making money. Rather, a business is about producing innovative, or at least useful, products and services. These products and services must, in some demonstrable fashion, provide value to people. Money is how the business knows it’s succeeding.
Like sports, however, when the focus becomes too short-term and too outcome oriented, it becomes increasingly easy to justify behaviors that make money now instead of behaviors that maintain the product pipeline. It’s really no different from the athlete who sacrifices long-term health or career for a victory today. Living up to ones ideals is easy when things are going well; it’s when things get difficult that the real test comes.
Being a successful athlete, at any level, takes a great deal of work and dedication. There are always people who are looking for short-cuts. Being a successful company takes work and dedication as well; staying successful is, arguably, even harder. Over the years, very few have managed it. The tendency to take short-cuts is always there. It’s the businesses that stick to their ideals and are not captured by the fear of failure that last the longest and are most likely to survive the inevitable tough times.
Swine flu is in the air. After a brief flurry of panicky news reports, what we’re hearing now is that it’s not so bad, not such a big deal, and so forth.
A common event that I’ve seen at company after company is that when someone spends all night fixing a bug that they caused, they are a hero; however, the person who went home at 5pm after carefully checking their work and making sure they didn’t have any major bugs is told they aren’t working hard enough.
We don’t know yet why the swine flu outbreak is turning out to be mild. To some extent, this may be due to the virus being wimpy. It may also be due to the precautions that are being taken. It’s not clear that we’ll ever be able to tell.
What we do know is that flu pandemics come around on a fairly regular basis. We also know that the 1918 pandemic started with a mild, “wimpy,” wave in the spring and summer before turning into the deadly outbreak of the fall.
When I ran a Pandemic Flu simulation exercise in Washington DC during the summer of 2006, the response to the flu was disastrous. Fortunately, the previous and current adminstrations learned from that and other exercises; the current administration is taking all the right steps.
I’m wondering what the public reaction will be if the flu continues to be “wimpy?” Will the administration be seen as having panicked, or as having taken reasonable precautions?
If the swine flu turns out to be nothing this summer, what will happen if it comes back in the fall?
Put another way, is it a waste of time to play it safe? It is in many companies, or at least it’s not nearly as popular as going for heroics.
If you’re a fan of the Daily Show, you probably saw Jon Stewart eviscerate Rick Santelli. This was extremely funny, and triggered quite the entertaining backlash from former hedge fund manager Jim Cramer. In one of the clips that Jon Stewart subsequently played, Cramer is shown talking about how his instincts for the market are telling him that Bear Stearns is doing fine. Of course, we all know what happened to Bear Stearns.
Now, my point here is not to bash Jim Cramer. The fact is, anyone who makes market predictions the way he does is going to be wrong a lot. That’s the nature of the game. Rather, my point is that trusting one’s gut is not always the best approach.
Gut instinct is not a magic power. The “gut instinct” for an untrained person being thrown in jujitsu is to reach out to protect themselves; that’s a great way to get hurt. Instinct, or gut feel, or whatever you want to call it, is something that is built up through practice and experience. Sandy Pentland, in his book Honest Signals, has a couple interesting suggestions for how gut feel might work. The short form, though, is that gut feel comes from rapidly and often unconsciously, recognizing that the current situation is similar to other situations you’ve experienced, and, through this pattern matching process, devleoping an appropriate response.
Sounds good, right?
To a point, it is. Any athlete will tell you that you have to train until your responses become instinctive. In fencing, for example, you don’t have time to think, you have to trust your intuition. That’s great, except when intuition leads you down the wrong path.
In sports, that’s relatively easy to fix. You go back to the drills and exercises you originally used, you go back to training with your coach, and you practice the correct response to the scenario. The tough part is when the trained response conflicts with the gut response. It’s difficult to accept when our intuition is wrong and work to change it.
Furthermore, the more complex the situation and the more hidden variables there are, the harder it is to pattern match correctly. Surface similarities will often fool our intuition into thinking it’s one situation when, in fact, it is another. Legendary stock trader Jesse Livermore once wrote that though he listened to his gut, he followed his rules. Why? Because when he just listened to his gut he lost money in a big way.
When you just rely on your gut, you have nothing to fall back on when things don’t work. Is this a temporary aberration or are you fundamentally wrong? If your gut told you to buy Bear Stearns at 50, well, your gut might be feeling a little bit unhappy right now.
Bruce Lee is famous for saying, “Learn the drill, master the drill, forget the drill.”
If you started with the drill, you have something to fall back on when instinct or intuition isn’t giving you the right answers. If you’re just relying on your gut and it stops working, what else do you do?
A great many organizations are depending more and more on volunteers to help fill the gap created by the economic downturn. Now, one might ask, “So what? That’s nothing new.”
There’s some truth to that: churchs, synagogues, trade groups, sports clubs, and so forth have always relied on volunteer labor. That hasn’t changed. However, some attitudes have.
Many organizations provide some sort of perks or guarantees to volunteers: this might mean dinner with a guest of honor, reduced rates for events, reimbursement for expenses on behalf of the organization, a chance to win a free vacation, and so forth. Many organizations are being forced to cut back on such things. There is a right way and a wrong way to handle such cutbacks.
The wrong way is best exemplified by a comment I heard recently: “What’s wrong with you people? Don’t you know we’re a volunteer run organization?”
The comment was in response to someone asking why the organization in question was not covering certain volunteer expenses to the level it had in the past, especially after the organization had stated that it would cover them.
Volunteer organizations are being hit, just like everyone else. Fair enough. But acting like the volunteer had no right to ask the question is highly unprofessional, quite possibly unethical. If you’ve agreed to pay a contractor to work on your house, would you turn around and refuse to pay if the work were done according to specs? How about your doctor? I doubt very much that anyone would appreciate having their employer tell them that they were expected to continue working, but that the company had decided to stop paying their salary.
Now, the argument is often made that there’s a big difference between a volunteer and a paid employee. While there are certainly superficial differences, at root, there’s also a great deal of similarity. In fact, one can argue that virtually everyone is a volunteer: it’s just a question of whether they’re paid in cash, benefits/perks, recognition, or some combination and how much.
Fundamentally, the organization is making a deal: in exchange for a certain level of value provided to the organization by the volunteer, the organization will provide some form of recompense or recognition for that effort that demonstrates that the volunteer is contributing to the success of the organization. In fact, that recognition is doubly important: the organization is showing that it appreciates the volunteer’s efforts, and the volunteer is receiving solid evidence that the work they are doing matters to the organization. Let’s face it, no one likes to spend their time doing something that doesn’t matter to anyone.
When the organization reneges on its end of the deal, it risks leaving the volunteer feeling taken. Worse, it’s telling the volunteer that it doesn’t actually care about their contribution: that it’s clearly not all that valuable to the organization or the organization wouldn’t be so cavalier about it.
All in all, not a great way to maintain motivated volunteers during tough times.
So what should the organization do? Optimally, it should honor its commitments. However, if there are real economic reasons why they can’t (an unfortunately likely occurance today), then the organization should be not just open, but preemptively open.
In other words, as soon as the organization knows that it can’t meet its obligations, it should notify everyone affected by that. Lay out the situation; not “due to the bad economy,” but “due to an unexpected drop in enrollment costing the organization $xx, and unexpected expenses in the areas of xxx” and so forth. The more specific and open the organization is, the more forgiving people will be. In fact, they are likely to work even harder on behalf of the organization: after all, if they’re volunteering it’s probably because they care.
When things are bad, the instinct is to circle the wagons and not communicate. That’s the wrong response. All it does is alienate those who would help. Instead, demonstrate trust by bringing people in and being open with them. Not only will it keep the volunteers motivated, you might just get some unexpected, novel ideas that will benefit the organization.
A great deal has already been said about the plane landing in the Hudson River last Thursday. What’s amazing to me is how many people have ascribed to luck the happy ending to what could have been a major disaster.
Was luck involved? Certainly!
It was lucky that the plane went down at a time of day when there was very little commercial shipping on the river.
It was lucky that the ferries were out at the time the plane went down.
It was lucky that the particular pilot just happened to have the necessary and appropriate training to recognize what had happened and not panic. Instead, he remained calm and relied on his training to glide a passenger jet down to the river.
As the old saying goes, luck is when 10,000 hours of preparation meets a moment of opportunity.
The lack of shipping and the presence of ferries wouldn’t have helped much if the pilot had lacked the skill to bring the plane down safely. It’s doubtful that he ever really believed that all that time he spent training, flying, and in a simulator would matter, other than for his own growth and development. What are the odds of a double-bird strike? What are the odds that just the right person was in the right place at the right time? Who could have known what would happen?
No one.
And this is the lesson for businesses. It’s easy to see what skills and knowledge are useful today. No one knows what skills or knowledge will prove useful tomorrow. Trends can change in a metaphorical heartbeat. When businesses cut training and development, or restrict the courses an employee can take (refusing to pay for a course unless a “clear” business need exists), that business is focusing entirely on the problems of today. It is not creating a workforce that is ready for the problems of tomorrow. Ready, in other words, to face unpredictable situations, unexpected problems, and unplanned for or unlikely circumstances.
On the other hand, those who have had the opportunity train and develop their skills, who have the freedom to explore their interests and learn the things that may or may not be obviously useful, are the most likely to come up with a good solution to an unexpected problem.
In the end, luck really does favor the prepared mind.
In today’s high-tech workplace, it is virtually impossible to not be part of a team. Projects are too big, too complex, too involved for a single person to do it all. Yet far too often people find teamwork to be frustrating and exhausting. Even when the team successfully ships a product, team members often feel burned out, frustrated, or surprisingly unhappy with their accomplishment.
Many managers have heard of the four stages of team development: Forming, Storming, Norming, and Performing. What is not as well known is the importance of that early, forming stage. During this phase, team members determine whether or not they feel emotionally and intellectually safe working with one another; they develop a sense of group identity, or remain a collection of individuals.
There’s an old saying that a couple isn’t really married until they’ve had their first fight. The same is true of teams. Part of working together involves arguing with coworkers: put any group of people together, and they are bound to have their own approaches and solutions to problems. If team members feel unable or unwilling to argue with one another, they avoid any conflict. If they are forced to argue but haven’t developed effective means for conflict management, the argument can quickly turn personal. In either case, the exchange of thoughts and ideas is blocked, anger builds, tension mounts, and the ability of team members to work together is severely compromised. Instead of developing group identity, team members may become convinced that their best strategy is maximizing personal gain instead of team performance.
The problems are exacerbated when the leader’s expertise is not management but engineering. There is a persistent, and ultimately painful, myth that engineers will only respect another engineer. Unfortunately, the very personality traits and skills that make someone a good engineer are often exactly the wrong skills to be a good manager. A team leader needs to have the social skills and empathy to manage the evolving dynamics of his team, and the interpersonal knowledge to apply those skills.
Of those people who do possess both sets of skills, even fewer can do both simultaneously. A good manager spends his time building the team. If he’s busy writing code, designing circuits, or what have you, then he’s not building the team. If he’s like most people thrust into a new situation and tasked with doing something he’s really good at, and something he’s not good at, he’ll gravitate toward the former.
Another problem faced by team leaders is that the storming phase can get, well, pretty stormy. The focus of that storm is often the leader. If the leader feels attacked, she’s likely to respond accordingly. This is a perfectly natural reaction. It’s also counterproductive. Managing conflict effectively means not getting enmeshed in the conflict in the first place: team progress can be set back weeks, months, or longer. Once conflict is joined, replacing the leader may improve things in the short-term, but can often make things worse long-term. The fundamental team dynamic needs to be repaired.
Unfortunately, more than half the teams in businesses become stuck in conflict or avoidance. When a team becomes stuck, it is stressful and exhausting to the team members. The company pays for this in lower productivity, reduced product quality, increased illness and absenteeism, and higher staff turnover, all of which can be fatal to a business.
Despite claims to the contrary, lack of regulation does not cause people to commit crimes or engage in foolish actions. Nor is the presence of regulation a guarantee that people won’t violate the law or do something stupid: remember Long Term Capital Management for a perfect example of the latter. Just as no lock can keep out a thief who is determined to rob your house, regulation will not stop someone who is determined to cheat: remember Enron? How about Bernie Madoff? Regulation will, however, provide the grounds to prosecute those who do cheat. Attempting to prevent all forms of cheating merely overburdens the system.
So, if this is true, why do we have the toxic financial mess that has shaped the news for the past several months? After all, didn’t that come because of a lack of regulation on Wall Street? Well, not exactly. While better regulation might well have prevented things from getting as bad as they have, the lack of regulation is not the cause, in much the same way that the lack of a safety belt does not cause an accident; however, the use of safety belts reduces the harm caused by an accident.
What then is the cause? Sure, we’ve all heard the news about subprime loans and toxic mortgages. But those instruments had to come from somewhere. Wall Street tycoons? It’s easy to think of Wall Street as being dominated by wealthy investors who are making millions by selling bad loans, but even that’s not true. The vast majority of people on Wall Street are people just like everyone else: working men and women whose job it is to make money. Quite simply, just like any other employee in any other company, folks on Wall Street go to work each day and worry about paying the bills, taking care of their families, and doing their jobs.
Here’s the problem: what do you do when you are told to make money and the financial markets aren’t offering up opportunities? You can’t go to your manager or your investors and say, “Sorry.” That’s not what they want to hear, and if your goal in life is to keep your job, you are not likely to go there. Instead, you get creative. Just like any employee in any job, you look for an innovative solution to your problem.
Now the fact is most people are not evil. Most people will not knowingly and deliberately break the law. If there are clear regulations telling people not to go somewhere, they usually won’t go there. But if there are no regulations, or if the existing regulations are honored in the breach, that’s a different story. It’s not that people will set out to cause harm or do stupid things, it’s that focused on the short-term needs of solving their particular problems, they are easily blinded to the larger ramifications of their actions. Regulations, optimally, map out the territory: they define the box in which people should work. They prevent you from falling off a cliff and taking everyone else along with you.
So then is the cause of the problem people just doing their jobs and the financial meltdown all a tragic “oops?” No again. The problem is that the cause is not what we have but what we don’t have.
Each bull market, each economic boom, is carried forward by some form of leadership. In the 1950, it was the electronics boom. In the 1960s, it was companies like IBM and Polaroid. In the 1990s, Cisco, Intel, Microsoft, Amazon.com, Yahoo, etc. Technology leadership leads to a flowering of innovation, and a flowering of innovation leads to technology leadership. Improvements in technology lead to greater productivity and a stronger economy.
What about the bull market that ran from 2003-2007? Volumes have already been written about how little “boom” this economic boom packed. Although we did see some technological innovation during this period, for example Google, Taser, the iPod, and GPS (a technology with its roots in government spending – we’ll come back to that), for most part what we had was a commodities boom. The problem with commodities is that they don’t fundamentally change the world in the ways that technology does. They don’t leave behind a world of greater productivity or improved communications.
Now, there are many reasons cited for the commodities bubble of the past few years: China, OPEC, developing countries, etc. Let me suggest a different, and more basic, reason: there wasn’t anything else. The small amount of innovative technology we saw during that period was hardly enough to drive an economy or a stock market. But people still needed to make money; investment had to go somewhere, and it went to commodities and mortgages.What happened to the innovation?
Over the past hundred years, almost every economic boom and bull market had its roots in government spending on either innovation or infrastructure. Without providing an exhaustive list, a few highlights include: railroads at the start of the twentieth century: government investment in land and track; automobiles in the 1920s: government investment in transportation technology during WWI; electronics in the 1950s: government investment in radar and military technology in WWII combined with the development of the transistor; mainframe computers in the 1960s: investment in computer technology as part of the space program; biotech in the late 1980s: government research grants in life sciences; and, of course, the Internet, which started life as ARPANet: another government program.
Quite simply, the government investments that formed the seed of so many prior booms didn’t exist: the money wasn’t there. The argument is often, and loudly, made that low taxes are a boon to the economy because people get to keep more of what they earn and this stimulates growth. While there is a nugget of truth in this, in that if taxes are too high to being with, then lowering them will have the touted benefits. However, it is also a fact that the economy grew more under Bill Clinton than under George W. Bush. Was this despite the higher taxes during the Clinton presidency, or because of them? The traditional answer is the former; the truth, I believe, is closer to the latter.
If taxes are taken too low, then something has to give. Typically, what gets cut is basic research. Even the wars in Iraq and Afganistan are not producing remarkable new breakthroughs in technology; at least, if they are, those breakthroughs haven’t become commercial yet. For the most part, it seems as if these wars are being fought with refinements of existing technology or off-the-shelf equipment.
Some level of taxes, therefore, provides the fuel for investment in innovation and infrastructure that generates the next economic boom and bull market. This is a rather different perspective on taxes than what is traditionally said. When taxes are being funneled into the economy, they lead to growth. Taxes are an investment. Now, I don’t have exact numbers on this, but when taxes are reinvested, the money we pay in taxes is returned fivefold in our 401Ks. When taxes are cut to the bone and there is no money to invest in the future, the money we save is taken tenfold from our 401Ks. Now, again, the exact numbers are open to debate; however, I will venture to guess that most of us have lost far more in our 401Ks and IRA accounts this year than we gained in the previous two years, and far more than whatever we may have saved in taxes over that same time period.
Unfortunately, when the economy is booming, people tend to assume that it will never end: just look at any bull market in history for an example of that behavior! All markets are driven by fear and greed, and the latter dominates at the height of a boom. People start thinking about all the money they are paying in taxes; they start to see that as money being taken away, not as the price we have to pay to keep the boom going. Like fear, greed causes behavior that people would never imagine that they could possibly engage in… until they do.
Regulation provides the framework and the controls to keep the economic engine operating within tolerance. Just as a governor on an engine keeps it from redlining or stalling, regulations on economic behavior help to prevent the type of meltdown we are now experiencing. Like an engine, the governor causes a small amount of overhead; there is some loss of power. That loss is the price we pay to avoid catastrophic failure. However, regulations alone can’t do prevent all forms of failure; we need an ample supply of legitimate and economically safe ways of making money to prevent widespread fraud and abuse. On the other hand, we can’t entirely do without regulation because no matter how good things are, there will always be Enrons and WorldComs. Fear and greed both lead to illogical behavior; it’s vital to have the fences in place so that the economy won’t run off the cliff in a panic or fall victim to excessive greed.
Once we’ve prevented the economy from crashing, or at least made it less likely, we can get the engine running at capacity. Taxes feed innovation which feeds the economy: taxes are, in short, an investment in our own future. It’s time to recognize that investments are more than just something we put into a 401K and forget about. Regulation, taxes, and innovation: they are all connected. Mishandle one, you break the others.
Stephen R. Balzac, "The Business Sensei," is a consultant and professional speaker. He is the president of 7 Steps Ahead, LLC, a consulting firm helping businesses get unstuck and transform problems into opportunities.
