Executive Styles – Effective or Efficient?

My own style of management mandates that I only hire people who are better than me at what I am hiring them for. Only weak executives/managers hire second rate candidates! They also tend to enjoy the mushroom style management, meaning to keep people in the dark and feed them S#!T. These execs fit perfectly into some of those large, inept enterprise bureaucracies that spend top-advertizing dollars to sell themselves as being perfectly efficient and effective at what they do. Only, that it is mostly no more than a marketing ploy.

Truly, what does being efficient and effective mean?

Efficient refers to doing something with the least amount of expendable energy/money! Correct? Well, to be honest a lazy person will be perfect in achieving that because he will think before wasting energy. Hmm, describes me pretty well. Give the same job to a non-lazy busybody and you get a lot of activity but the last thing you get is efficiency.

Efficient has a relative meaning. It has to mean ‘more efficient than other ways.’ Now what are the other ways? Who knows how efficient they are? I know a lot of efficiency experts (of the BPM kind mostly) who do nothing else than to come up with creative ways for business cases for relative efficiency improvements. Most of it is illusion and if true it is achieved by firing people. One persons idea of efficient – to take for example the car to save time – may be utterly inefficient for someone with an ecological perspective. Thus I would not see being efficient as a personal quality.

Being efficient without considering effectiveness is fairly inefficient and it is often difficult to combine the two from all perspectives. You might even see them as opposite sides of a coin. If you take the bicycle to the store rather than the car to save energy but you get there too late, you were not only ineffective but by all means also not efficient. So is being effective also therefore more efficient? No, because burning down the house would get rid of pest infestments, but so would the right dose of insectizide.

On the other hand, being effective requires that the goal has been clearly stated and is in some way measurable. Often the most effective thing is to reevaluate the goals, sometimes because of efficiency considerations. You have evaluate efficiency options to see if they are effective and possibly restate goals again. Is the goal to kill the insects or not to be pestered by them? Can I keep them out rather than kill. Can I get a deterrent (i.e. cat)?

The same line of thought applies to all questions of economy, ecology and business. Unfortunately, most people coming off universities with a great education have been brainwashed with a huge amount of ‘working procedures’ and ‘best practices’, ’standard methodologies’ and ‘research results’ that they think they need to try and understand what all the considerations around effectiveness and efficiency are. They apply ‘template 2711′ because it has been effective in the past and try to squeeze everyone to doing it to the lowest possible cost. If it turns out to be effective (50% chance) and the price is lower than the first offer or how ‘template 2711′ has been applied in other situations, that person is a genius! Possibly it is absolute nonsense, but who would know how to measure it?

In that busybodies-applying-templates lies the problem of governments, global enterprises, and any other typical bureaucracy. Putting lazy people in charge who are free to reevaluate goals to their ultimate purpose is the most efficient and effective way of management.

How do we find the right kind of lazy people?

Obviously we all look for certain character traits for particular positions. Remember the 80/20 Pareto Rule. 20 percent of people will do 80% of the important or profitable work. The problem is that you can’t fire the other 80% percent because the rule would still apply. The important part is to make sure that those 20% are the right people – I see them as the process owners. The very top 2% are the most important as those are your leaders and it is their character traits that define what your business is like. The executive’s job is to select those leaders and make sure they understand what you stand for. You do not need to have a clue how to do it yourself (it does help however). My experience tells me that you can neither classify those people nor put them in quadrants or look for efficiency or effectiveness – they just need to feel right and you need to try them out if they have a positive resonance with you. You can trust them and they feel respected and valued.

This is why being a great executive is a personality trait and not something you can be taught … you can maybe learn it through the school of hard knocks. Don’t tell me you are efficienct or effective, but tell me about those hard knocks, the stuff that you messed up and learned from. Do that, and you would be ‘my (wo)man’.

PS: I hate that gender-political-correctness stuff …
PPS: I have many excellent female managers …
PPPS: They are better because they are emotional about what they do!
PPPPS: I think that CLAIMING to be efficient and effective is most probably reducing your chances of employment. At least to me it means that this person is a yes-(wo)man busybody.

The End of Capitalism?

Because of the financial crisis the political left is obviously trying to make points by pointing fingers at the nasty and greedy capitalists who are responsible. They proclaim the end of Capitalism or at least Neo-Liberal Capitalism – whatver that is. It was however the governments – the American administration and Alan Greenspan as head of the Federal Reserve – who were responsible for the crisis because of micro-regulating businesses, markets and not regulating capital flows. Banks and all of us who benefited – and we all did – were just very willing accomplices.

Capitalism is not at an end now because it has ended quite some time ago. What we have is a strictly regulated economy. You think I must be wrong? Go and read it up please! Capitalism is commonly defined as a system in which wealth and the means of economic production are not only privately owned, but are considered rights protected by a LIMITED regulatory framework of laws – call it the rules of the game if you will.

We have no rights of ownership, but so many laws that the cost of compliance and legal will soon be a quarter of total business expense. Additionally these rules cover extremely detailed facets of operation that hurt the true carrier of free markets – the individuals and small businesses. Those are further restricted in free market execution by the financial power of government sanctioned monopolists (a.k.a. global enterprises) or government subsidized enterprises – which now includes banks. When then these huge businesses are not allowed to go bancrupt because they are ‘too big to fail’ then it is obvious that we do not have a free market anymore. Governments meddle like crazy with free markets all the time and on all levels.

They do however not regulate in areas that would ensure a balanced free market economy by for example RESTRICTING THE FREE FLOW OF CAPITAL (in terms of monetary instruments or money). Free flow of capital IS NOT a necessary part of a free market capitalist economy. Particularly when it has already been slanted by previous regulation. Capital (in terms of money supply) is not wealth per-se but it is a resource that simplifies business operations in comparison to barter.

The financial crisis was caused by access to too much cheap cash (Thank you Alan Greenspan) multiplied by leveraged real-estate loans. Consider the following: The 2008 US gross domestic product was $13.8 trillion. The AIG securitized bundles of consumer loans and home mortgages that were sold for more than $27 trillion since 2001 (Source: SIFMA) created the global fincancial crisis. Remember, that I am asking for LESS – NOT MORE regulation, but we need regulation of the right kind in terms of dealing with the taxation of monopolies and free flow of capital (including stock markets).

When individuals are higher and more progressively taxed than businesses that is also a distortion that meddles with free markets and creates the huge financial conglomerates who are too big to be sensibly managed or controlled. If an executive has to pay 50% income tax and his business just 25% in capital gains then don’t be surprised if he uses any means to push up revenue and thus his salary payments or share price. If he would just pay 25% and his business 50% then he would not see the benefit in pushing up revenue by any means. I am talking about large businesses, not SMBs.

So now the governments are claiming to save us from the greedy capitalists. I am sorry, Mr. Politician. But you are more or less just cleaning up your own mess. The illusionary share values used as collateral are simply no longer good enough and even banks don’t trust each other any longer. To avoid a collapse, governments are now taking control of the financial institutions and regulate them in even more detail. Consequently, any advance optimism on a recovery is an illusion. In a few years the US will be a worse government controlled state than the old USSR ever was. Actually, the same thing is happening in the EU. Yes, the economy will be fine (the governments will make sure that the numbers look good) but it will not be a free market economy.

There is the influence of the media who created the economic crisis by flogging people with the news of the ‘financial’ crisis – because the connection between the two is limited. Then there is electronic communication (Internet) that has in principle a positive balancing effect because people like me can go out and take part. Governments will however soon utilize social media also for political (mis)information (look at the Obama campaign) and do their magic there.

In terms of true free market capitalism – they way Milton Friedman defined it in 1968 – the (capitalist) world has ended some time ago. The markets are not malfunctioning because of a loss of confidence, but because government meddling allows the global players to be too big and influentual and because they can create havoc by shfting capital to any place they want. Global business bureaucracies are welcome by governments as an extension of their power and as a money supply for political activism. No wonder, they won’t let them fail. But to hope that the political left will do away with those monsters is an illusion too. If anyone will tackle them, it will be a center-right, liberal approach. I think … but I may be too optimistic.

Until that changes, free markets (and true democracy by the way) remain an illusion sold to us by the people holding the trigger and by governments that some might call fascist. I obviously will not!

Shareholder Value and Competition

The lack of understanding of most economists about human nature and nature (or the universe) per se is astounding to frightening. Shareholder value and competition do have a relationship that is not as direct as one might think because it involves human perceptions. Economy is a natural ecological (complex adaptive) system whose entities are after all humans. Rather than competing on natural resources of space and food, they compete on the abstract resource of money. The entity of a business and the even more abstract entity of shareholder value are illusions that have no counterpart in reality. Therefore it is the human illusion of perceived value that drives competition in economy and naturally the same applies to shareholder value.

Anyone involved in running a business knows how flexible accounting is when it comes to portraying a certain business result. That business result is used to sell the business as profitable on the stock exchange. Maddoff produced a lot of shareholder value for a long time by paying out newly received capital as interest, because there is only one value that produces profits and it is ‘perceived value’.

Stock markets are therefore a legalized form of Ponzi schemes because apart from being a gambling venue, their role is nothing else than to create illusionary shareholder value. I am not referring to influencing the shareprice with false information or cooking the books as Enron did. The price of one share being traded one day can change the market value of a large business by millions. That is nothing else than an illusion, because you cannot sell those shares at those prices as it will influence the price as such.

Can you see the wonderful tool that can be used to create ‘perceived value’ from nothing? You create some good illusionary story, or even fire people and reduce the competitive and service capability of a business and its value goes up in expection of the the coming rise in shareprice? Fantastic, self-fulfilling prophecy! In the very, very special situations of corporate takeovers – when one buyer wants to buy all outstanding stock – that shareholder value can be realized. The larger the merger the less it happens in cash terms and illusionary share values are exchanged for each other, therefore documenting the fact that the value is unreal.

Thus there are two reasons why we have global corporations: creating market dominating virtual monopolies of incompetence that thus can compete with much more competent smaller businesses and creating buyers for smaller corporations that as such can convert illusionary shareholder value to less abstract cash. The shareprice of the buyer typically goes down as a result of the diluted value, next to the problem of making money with a merger.

The problem is now that the share ‘value’ of the largest corporations can not be realized as there is no larger buyer. Therefore the value of the largest businesses are purely illusionary. It is supported by pooling the stocks into pension funds that are then bought by small citizens who buy them in hope of participating in a business. When that story pops, we need to call in the government so that the Ponzi scheme does not crumble. Apart from the CDO counterfeit money produced by the real estate lenders, that is the reason governments have to secure the debts that can no longer be secured by the collateral of illusionary shares.

Large public businesses have stop to compete for buyers for their products but they compete for buyers of their shares as otherwise their value and ability of dominating the market by buying much better competitors would erode. That is the true nature of relationship between shareholder value and competition. Competition is not only stifled within an organization only but also externally. Which is why global businesses sell product illusions today as they do no longer have the ability to compete on a product level. They need to outsource everything to smaller businesses, ideally in low-wage countries and resell it at an illusionary perceived value in their home market.

The profits that these large businesses produce are not real. They are created by constantly buying and selling other businesses at abstract market values, wringing them dry of assets and writing off illusionary market values to reduce the taxes on the book profits they would have to pay otherwise. No, I am not a communist or socialist. I am an observer who sees that a truly free market economy his destroyed by large monopolies. An unregulated flow of capital in stock markets kill the competitve drive of a large business and it kills the smaller competitors that are either dominated by sheer marketing power or gobbled up by using illusionary share price.