What role do the executive have in an organisation?

Today I read one of the more disturbing articles about Apple and its manufacturing processes in China. It was from the New York Times and has been linked on many other sites. The scariest thing about this article is the blasé way in which a senior Apple executive referenced the working conditions in one of the manufacturing centres in China. I've never been one for conspiracy theories and I've always defended an organisations right to set up shop wherever they believe value is but I think this article is the classic demonstration of how capitalism without regulation can be completely screwed up.

Now I created mbh in 1999 with the full passion of a capitalist working within democratic frameworks that provide freedom of thought with associated stability of government. And yet, I can't help feel that all those who rage against the machine and fight for workers rights/regulation are being proven right but this article. This is the classic modern day version of chemical companies dumping toxic waste down river systems in the 19th century leading to the modern day FPA regulation environments.

And yet, I can't help thinking that this is an opportunity for Apple's competitors. Surely people would shy away from Apple's products if they new that staff were treated in such an inhumane manner. Perhaps their competitors can't differentiate because they are no different?

As a managing director and owner of a small company that has done reasonably well, I can't understand the logic of this philosophy against the human race. Within our company people are to be respected. Criticised constructively when they say something in error, challenged to achieve but never to be received as anything other than an equal in the group.

I was on a flight on the weekend from Melbourne to Sydney. Due to flight cancellations and my premium loyalty qualification with the airline I was upgraded to business class. Now the flight is only of 1 hour duration so why there needs to be a class differentiation I have no idea but here I was in business class. The main reason I have always used this airline is that as apposed to their competition, they've never gone in for the elitist garbage that makes up the class system on planes. All people were treated equal and entertained. This flight had 8 people in business class and about 170 in economy. These 170 were made to feel as inferior as possible. AND, sitting in business class, the air steward was trying so hard to treat us like royalty that she stood next to me for at least 1 minute waiting for the person sitting next to me to notice her waiting to deliver her meal. Eventually, I couldn't handle it any longer and tapped the persons shoulder and waved her to the fear stricken steward. WHAT IS GOING ON!!!

Class driven societies and a lack of respect for other human beings seems counter productive to me. It impacts negatively on all private organsations as the few bad apples (pun intended) make it more expensive for the rest of us to do businesses. If the worker could trust the boss to respect them and not rip them off we'd all be able to do business far cheaper than we do today (even though all workers would be paid more). The logic for this is that the burden of compliance and the overhead of union negotiations would be eliminated. Kind of like collaborative contracting where everyone is in it together so you may as well make it work....for everyone.

The role of the executive in a modern capitalist organisation operating in a democratic country has to change to one that includes social responsibility and the requirement that respect is shown to all employees no matter what their background. How you affect this change is depressingly beyond my comprehension.

Distributed information systems

A week after posting on my UniPhi blog about capturing programme management data through the aggregation of distributed project data entered by project managers, an article about distributed energy and communication comes online at my preferred energy blog http://peakenergy.blogspot.com/2012/01/jeremy-rifkins-third-industrial.html. This guys positive views on the growth and potential of a third industrial revolution are very refreshing. There are several risks to this revolution coming to fruition. One of which is corporations lack of awareness of the distributed communication possible through web based platforms.

Organisations that realise the power of distributed data capture will definitely be able to invest in systems and processes that generate significant competitive advantage. The primary advantage is the ability to know when something goes wrong (or right) the moment it does so. Through the power of Twitter it was possible for any person with internet access anywhere in the world to know that the US were engaging with Osama bin Laden as it was happening. Although at first it was unknown who it was they were attacking, the fact that hundreds of millions of people could have known about a top secret mission as it was happening is an incredible example of distributed information systems. Suddenly, managing a multi-national business with 50,000 employees doesn't seem too difficult, and yet all the example companies I have worked with that fit the 50k plus definition would struggle to generate real time financial, customer and product related information. 

Most organisations still track their progress towards their vision through centralised systems. The main reason for this is the perceived need for security when all security is only as strong as the employee who wants to keep his or her password a secret (or even accidently release this information through the need of tracking the ever growing number of usernames and passwords). It seems that large IT business units pride themselves on restricting the implementation of a distributed data capture model. Actually, it seems large IT business units pride themselves on being as value destroying as possible rather than enabling the true power of software to transform the way businesses function.

These business units are supported by the product development of traditional enterprise software houses producing thick client software with complicated user interfaces that only the specialist business analyst, accountant or marketing guru can master.

Why is Oracle, SAP, Sun and others still insisting on developing centralised thick client financial systems? I know of one project manager that knows the true financial position of their project as at 31st of October 2011! He thinks they may have under invoiced $10m but isn't sure because he has to wait for the head office processes to catch up with where his multi billion dollar programme that crosses multiple countries and states is at. He is trying to catch up through the use of an excel shadow system. Good luck!

Funding versus investing decisions

One of the more annoying examples of mismanagement is decision makers insistence of mixing funding decisions with investing decisions. This seriously erroneous practice is endemic throughout many organisations but festers most prominently in government. Take this article published in the Sydney Morning Herald . Aside from it being an hilarious example of an investment decision being woefully inadequate to meet the policy objective, the retort made by the leader of the opposition is even more humerous. How is retraining laid off employees and supporting business innovation a mutually exclusive decision to the original investment decision of providing a subsidy for relocation to regional areas? I guess one could hope that the statement to "use the money" from the axed programme could be a misquote but I doubt it.

The point here is not whether any of these investment decisions actually helps the policy objective of spreading the population across the state of NSW but that the investments described are not mutually exclusive and hence should be invested in based off their own merit and funded accordingly. By making the statement that you would scrap one investment so you can invest in another you are making the erroneous assumption that using the money saved from one justifies the investment in another. What about just not spending the money at all? The fact that you have money to spend is not an argument to spend it. Each investment should have its business case argued for, not subsidised by the fact that you're not going to spend the money on something equally moronic.

http://www.wired.com/wiredscience/2011/11/starling-flock/

I know this video has gone viral but I had to add it here using the weird science link for future reference. It's a great example of the complexity article http://mbhconsulting.blogspot.com/2006/09/project-management-and-complexity.htmlI referenced here http://www.red3d.com/cwr/boids/

Tax reform (Part 2)

The smh yesterday had an article written by Michael Pascoe on the pending fiscal doom of Australia.

The demographic shock of the retiring baby boomer horde, the soaring health inflation rate, the urgent need to lift our education investment to at least the OECD average and bringing our transport infrastructure up to speed all require someone to pay for them. And, no, there actually isn't a Hockeynomics Magic Pudding that will provide for everything by cutting back on a few existing government programs.

Read more: http://www.smh.com.au/business/markets/a-surplus-could-do-australia-more-harm-than-good-20111001-1l2q1.html#ixzz1ZgOXkRW8

What is curious about this article is the lack of inclusion of Australia's super wealth in the whole doom and gloom. Australia currently has one of the largest pools of superannuation in the world with $1.34 Trillion according to APRA. I thought this money was for people's retirement income. When you look at the nitty gritty detail of pensions and standards of living it becomes very complex. For some reason, people are retiring in Australia at 57 or 58 but have very small super funds to do so. These people won't qualify for the pension until they're 65 so why are they doing this?

However, a macro policy debate has to be based off macro data and if you think that this $1.34 Trillion barely existed 30 years ago and is expanding every year then surely some of the fiscal strain of the baby boomers is removed. It seems however that the debate never considers that an eventual draw down on this lump sum is a favourable thing whereas my view would be this was the whole reason for it. As more and more baby boomers retire, more and more of them will start to draw down on their super and with less work force adding to the number, the total value will decline. Any decline in the value of super through this process is a direct positive to the fiscal situation which would have made up this gap if the money didn't exist.

The total paid in pensions in 2011 is $40.7bn. So, it would be possible to pay this amount out every year for 30 years and still have money left in the kitty even if no further payments were made into super and no income from that super was obtained. This would take us up to 2041. The fact that more super contributions are going to be made and that income will be made (hopefully) on the money invested means that it is theoretically possible to pay the current pension out of super reserves for the next 50 years. The pension however, is expected to double over this time period. So we could theoretically maintain the current level provided by the government and draw down the rest through super. 

Unfortunately, superannuation has not provided the answer as this $1.34 Trillion is not evenly distributed across the population (check out the median versus mean in this publication by the ABS) and is a large contributor to what will become a worsening Gini Coefficient unless of course the government in 20 years time decides to tax this pot of gold and re-distribute it to those who did not accumulate super from those who did. Hmmm sounds like there is a magic pudding for the offering.

Tax reform

Tax reform is THE topic in business and economics conversation at the moment. Europe is going through hell trying to re-balance various countries balance sheets, the US has blown out its budget trying to keep the economy from dying a dramatic death and now seems determined on using fiscal austerity to reverse this attempt as all the stimulus did was create stagnation (seems like hell is better than purgatory). Here in Australia, having a strong fiscal balance sheet and very little economic problems we've been inventing them and not wanting to be left out have created our own tax summit to be held this week in the lovely Canberra.

As per my previous post, I've been impressed with the amount of dodgy facts that have been presented by a variety of sources for each element of the tax and spend reviews that are busily being performed. Probably the highest profile of these is Warren Buffet's cry that the rich should be taxed more and that it is an outrage that he pays less tax than the average salary earner. Now, I don't have much issue with the possibility that the rich should potentially pay more tax. The Gini Coefficient in the US has been getting worse and worse over the past 40 years  and tax redistribution is the best way to make this trend decline. However, one of the knight in shining armour's claims is that he pays less tax than the average salary earner. He says he paid only 17.5% on his income last year. Is this true?

The answer is no and he must know this. His income comes from investment. Personal income from investment whether it be dividends or capital gains in America is taxed at 15%. However, this income is derived from the income generated by the investments made. These investments (mostly in companies) pay their own tax and hence their value is reduced by the taxes paid. If (as the Economist magazine has recommended) company tax was abolished then the value of all shares would rise significantly. Hence, Mr Buffets income would rise significantly. This means his current income is reduced by the taxes paid by the companies he invests in. As the company rate is 35%, you could add this to the 15% already paid and you would be closer to the true tax rate of Mr Buffet; that of 50%.

What is interesting is that while this obvious error is pointed out in this Forbes article, confusion then reigns in the comments and in his attempt to correct errors that aren't errors. More interestingly still is a different article that is trying to argue against Mr Buffet assertions to tax the rich more but accepts his statement of 17% and argues against the % on his receptionist/secretaries income (a trivial argument, who cares if its 31% or 29% it is still higher than 17). If an article trying to argue against the assertion misses the most obvious point then how are people ever going to know the real facts and lobby politically for the right tax outcomes? What chances for a decent outcome in Australia this week at the tax "forum"?

Quantitative decision making, stakeholder influence and gut feel

For a long time now I've pushed the benefits of modelling to aid in decision making. It was never believed that modelling would result in 100% accuracy and that decision makers would not need to make decisions based off judgement or gut feel, just that a well modelled business case would make this judgement a more informed one and hence more likely to be the correct one. Even with the push for long term and triple bottom line analysis, it was always understood that this analysis played a supportive role.

This passion for investment analysis has led to our business case training course being delivered to over 1,000 attendees since 1999. However, of late, I have found that facts are ever increasingly hard to come by. The internet and enterprise search allows for verification of statements in a second. Using these tools to verify statements made in business cases invariably leads to the identification of falsehoods rather than the verification of facts.

I still believe that a well modelled and fact based business case can greatly improve the performance of both business and government, I am being more and more disillusioned with the use of erroneous facts and robust yet erroneous business cases being used to justify what is essentially a gut feel decision (i.e. make the facts bend to the decision that's already made rather than explore the options and decide after the analysis is presented).

What is also disappointing is the periodicals and people who are using this "make the facts meet the story" method in justifying their statements. In the next few blog entries I'll highlight some of the more recent blatant factual errors used to justify some policy or business decision making reason. Included in these will be statements made by Sage of Omaha - Mr Buffet, the Economist, Michael Pascoe of the SMH and some You Tube videos I've watched recently. Hopefully this will help clear the head and get the frustration out of my system.

Cross functional teams

This past month has been very reflective for me. I have met many of my old colleagues from previous consulting projects going way back to the mid 90s. What has been interesting has been the observation that the battles we were fighting then are the same now. I would have thought that basics like the need for cross functional project teams working on a prioritised set of investments that are each going to deliver competitive advantage into the future would be mainstream and yet I still am frequently having to coerce and influence organisations into adopting this philosophy.

It was, therefore, very refreshing to read the article in last week's economist on Pixar. For those of you who have attended one of our training courses you will know that we are big fans of Carlos Ghosn, CEO of Renault and Nissan. Carlos is a genius in leading large disparate organisations to deliver a common vision of being the most profitable car company in the world. He turned both organisations around in the mid to late 90s and has been running both organisations since mid this decade, achieving what other car alliances and mergers have never been able to achieve....shareholder value. The reason I mention this in relation to the Pixar article is that it describes how Pixar used the continuous improvement principles of Toyota to generate constant and never ending improvements to their animated films. This shows how looking at high performing industry's in an innovative way and adopting their best management practices can provide real competitive advantage. The other reason Carlos came to mind when reading the article was because it talks about how Pixar manages to integrate the various creative talents of its 1,200 strong workforce enabling them to work across portfolios and comment and improve works that they are not directly involved in. This is a movie production house's version of cross functional teams. Creative design teams aren't besotted with their own projects but can be called upon to critique and assist other projects that are running in parallel. A rare thing in this industry. So once again, cross functional communication, integration and a common vision creates enormous value for in this case Disney and its shareholders (sounds like a management philosophy I like to peddle).

Prioritisation the impossible dream.

A rather rueful thought has befallen me after a hectic week following up on UniPhi leads from our recently completed road show. One of the big new features in version 5 is the ability to build a tailored made prioritisation framework and then apply this framework to each project in the various portfolios. Working with clients on this concept has made me realise that this is probably the most valuable piece of consulting we provide. It seems so simple and obvious a thing to do when compiling these frameworks that I often wonder where the IP is in what we are selling and yet working with senior executives and selling the benefits of a firm prioritisation framework that is rigidly adhered to is extremely difficult.

The benefits of these frameworks are massive and in my opinion, it is better to prioritise incorrectly than not to prioritise at all. Many organisations that are failing to generate competitive advantage aren't failing due to a lack of ideas or a lack of activity but are failing because of too many ideas and too many activities. Prioritising investments and actually delivering on the top 10 - 20 is bound to be more beneficial than trying to do all 100 and not delivering any.

It is with interest that I correlate this type of thing to organisations that announce random headcount reductions that are neatly rounded to the closest thousand or hundred but can never articulate where the chop is going to be. They usually need to send out "razor gangs" to crawl each silo'd department and ask them what they can do to chop heads. Of course, if they had a prioritised portfolio of investments, a considerable number of heads could be saved by killing low priority projects that are probably no longer viable in the changed environment. This should be a very quick and easy exercise if the organisation has an enterprise portfolio and project management tool that will give them the current status of the prioritised list. Add the killing of these projects to the rationalisation or divestment of businesses that are no longer making money should bring about real savings in a challenging environment and ensure that projects that still will deliver competitive advantage remain. It's the investments you make in a downturn that will enable you to print money in the upturn (just ask the sage of Omaha).

Readers of this blog would be able to see previous articles on stage gate financing and the like to see how best to apply prioritisation frameworks but in a week where this product has come to the fore yet again, I thought it was time to remind myself as well as those who may stumble across our work...PLEASE PRIORITISE!