Posts tagged ‘Harvard Business School’

An Idea on Grade Inflation

Grade inflation is back in the news, as the Harvard Crimson reports that the median grade at Harvard is an A-.  This is clearly absurd.  It reminds me of some of the old Olympics judging where they had a 10 point scale but everyone scored between 9.7 and 9.9.  The problem is not necessarily that the mean is skewed, but that there is almost no room left to discriminate between high and low performance.

There is one potential way to combat this, and it was invented by colleges themselves.  Consider grading in high school.  My kids go to a very tough-grading private school where A's are actually hard to get.  The school sends (for Arizona) a fairly high percentage of its students to Ivy and Ivy-level schools, but the school produces someone with a perfect 4.0 only once every four or five years.  Compare that to our local public school, that seems to produce dozens of perfect 4.0's every year -- in fact since it adds a point for honors classes, it produces a bunch of 5.0's.

Colleges understand that a 3.7 from Tough-grading High may be better than a 5.0 from We-have-a-great-football-team High.  They solve this by demanding that when high schools provide them with a transcript, it also provide them with data on things like the distribution of grades.

Employers should demand something similar from colleges.  This is a little harder for employers, since colleges seem to be allowed to legally collude on such issues while employers can get sued over it.  But it seems perfectly reasonable that an employer should demand, say, not only the student's grade for each class but also the median and 90th percentile grades given in that same class.  This will allow an employer to see how the school performed relative to the rest of the class, which is really what the employer cares about.  And schools that have too many situations where the student got an A, the median was an A, and the 90th percentile was an A may get punished over time with less interest from the hiring community.

One way to get this going is for an influential institution to start printing transcripts this way.  The right place to start would be a great institution that feels it has held the line more on grade inflation.  My alma mater Princeton claims to be in this camp, and I would love to see them take leadership on this (the campus joke at Princeton during the Hepatitis C outbreak there was that at Harvard it would have been Hepatitis A).

Postcript - An alternate grading system from Harvard Business School:  When I was at HBS, they did not give A's and B's.  We had three grades called category I, II, and III.   By rule, the professor gave the top 15% of the class category I, the bottom 10% category III, and everyone else got a category II.  I actually thought this was a hell of a system.  It discriminated at the top, and provided just enough fear of failure to keep people from slacking.

Harvard Business School and Women

The New York Times has a long article on  Harvard Business School's effort to change its culture around women.  Given that both my wife and I attended, albeit 25 years ago, I have a few thoughts.

  • I thought the article was remarkably fair given that it came from the NYT.  Men who are skeptical of the program actually are allowed to voice intelligent objections, rather than just be painted as Neanderthals
  • I would have abhorred the forced gender indoctrination program, as much for being boring as for being tangential.  I am fortunate I grew up when I did, before such college group-think sessions were made a part of the process everywhere.  I would presume most of these young folks are now used to such sessions from their undergrad days.   I would not have a problem having an honest and nuanced discussion about these issues with smart people of different backgrounds, but I thought the young man they quoted in the article said it really well -- there is just no payoff to voicing a dissenting opinion in such sessions where it is clear there is a single right answer and huge social and even administrative penalties for saying the wrong thing.
  • I went to HBS specifically because I loved the confrontational free-for-all of the classes.   It was tailor-made to my personality and frankly I have never been as successful at anything before or since as I was at HBS.   I say this only to make it clear that I have a bias in favor of the HBS teaching process.   I do think there is an issue that this process does not fit well with certain groups.  These folks who do not thrive in the process are not all women (foreign students can really struggle as well) but they are probably disproportionately women.  So I was happy to see that rather than dumb down the process, they are working to help women be more successful and confident in it.
  • It is interesting to see that the school still struggles to get good women professors.  When I was there, the gap between the quality of men and women professors was staggering.  The men were often older guys who had been successful in the business and finance world and now were teaching.  The women were often young and just out of grad school.  The couple of women professors I had my first year were weak, probably the two weakest professors I had.  In one extreme case our female professor got so jumbled up in the numbers that the class demanded I go down and sort it out, which I finally did.  I thought it was fun at the time, but now I realize how humiliating it was.
  • To some extent, the school described in the article seems a different place than when I was there.  They describe a school awash in alcohol and dominated by social concerns.  This may be a false impression -- newspapers have a history of exaggerating college bacchanalia.   At the time I was there, Harvard did not admit many students who did not have at least 2 years of work experience, such that the youngest students were 24 and many were in their 30's and 40's.  A number were married and some even had children.   To be there, they not only were paying a lot of money but they were quitting paying jobs.  The school was full of professionals who were there for a purpose.  I had heard that HBS had started to admit more students right out of college -- perhaps that is a mistake.
  • The fear by the women running the school that women would show up on Halloween wearing "sexy pirate" costumes represents, in my mind, one of the more insidious aspects of this new feminist paternalism (maternalism?) aimed at fellow women.  Feminism used to be about empowering women to make whatever choices they want for their lives.   Now it is increasingly about requiring women to make only the feminist-approved choices.
  • I actually wrote a novel where the protagonist was a confident successful female at HBS.   So I guess I was years ahead of the curve.

Postscript:  Below the fold is an excerpt from my novel.  In it, the protagonist Susan describes how an HBS class works and shares my advice for being successful at HBS.

Continue reading ‘Harvard Business School and Women’ »

College Grade Inflation

Apparently the news of the week is that the letter grade "A" is now the most common.  Mark Perry has more on college grade inflation.

I am actually a fan of the grading system at Harvard Business School when I was there.   15% of the students in each course get the top grade (category I) -- no more, no less.  10% get the bottom grade (category III) -- again by rule, no more and no less.  All the rest are in the middle.  It effectively acknowledges that for most folks, the point is to demonstrate you have satisfactorily learned the course material, while still allowing folks to distinguish themselves on both ends.  Budding young executives who complain that it is unfair to automatically "fail" the bottom 10% of each course are reminded that this is exactly how many Fortune 500 companies run their HR systems, seeking to constantly weed out the bottom 10%.

Update:  The argument usually is that students need high grades to compete with other kids from grade-inflated schools in the marketplace.  I just don't think this is true.  Colleges themselves deal with this all the time in admissions.  When they get a high school transcript, attached to that transcript is a fact sheet about the high school that gives its distribution of grades.  That way the recipient can discount the GPA as appropriate.  Every company doing hiring should demand the same of colleges.

Here is a personal anecdote.  My son Nic's school grades hard.  Something like 2 kids over the last 2 decades have graduated with a 4.0.  One could argue my son's grades could have been higher at another school, but knowledgeable consumers of high school GPA's know how our school works and we have never felt he somehow was at a loss due to the school's grading policies (but Oh God can type A parents fret about this incessantly among themselves).   [edit:  took out brag about my son.  Nothing more boring than other people bragging on their kids.]

Dispatches From the Corporate State: Apparently, Taxpayers Don't Give Enough Money to Solar Companies

Well, it appears that Solyndra has not scared solar companies off from feeding at the state trough

More subsidies for the solar industry in Arizona are crucial to avoid being left behind by other states and China, a Phoenix business leader said today at a solar-power conference.

Tax incentives and loan guarantees "make a lot of sense" right now in Arizona, which is already a leader in the industry, said Barry Broome, president and CEO of theGreater Phoenix Economic Council at the Solarpraxisconvention.

Despite the high-profile financial failure of the Solyndrasolar plant this year in California, Broome told a packed conference room that solar power is destined to be a major force in Arizona and elsewhere. The only question, as he sees it, is whether sunny-skied Arizona will take full advantage....

Behind Broome on an overhead screen, a chart showed that Texas, Oregon, Nevada and other states provide more "aggressive economic development tools," (a.k.a. public money), for solar power than Arizona, and the state can't compete without doing the same thing.

What is this, a football game?  This strikes me as turn-of-the-century small town boosterism updated to the 21st century, with a dollop of tribal rivalry thrown in. He's talking mainly about manufacturing of solar components.  I am left with a couple of questions

  • Why should the fact that Arizona has sunny skies have any bearing on whether or not it is an appropriate spot to manufacture solar panels.   Should Seattle subsidize umbrella manufacture because it is rainy there?   My sense is that transportation costs are a small part of the price to end users.  Arizona clearly will be a great spot for solar panels to be installed -- why does that mean we need to manufacture them?
  • If other states like Oregon or China are subsidizing solar products that we might buy, shouldn't we celebrate that?  Thanks, taxpayers of Oregon, for forking over your tax money so we can buy solar panels cheaper in Arizona.  Why in the hell should be try to out-do them at this?  Now we can go invest our capital in a business that actually makes money.
  • I am obviously not a fan of government-led economic/industrial policy, but if I were, why in the hell would I want to direct my state's capital and manpower towards a business that requires subsidies, ie can't make a profit  on its own in the marketplace?

Its just too easy to snipe at about everything in this article, but this caught my eye in particular

To help move the industry's message, Broome said, solar advocates must stop infighting over their competing technologies and present a unified and positive position.

Normally, I think an economist would argue that in an immature (both market-wise and technologically) product, competition and creative destruction between various competitors is critical to ultimate success.  So in fact this advice is totally senseless, unless you see the industry as a taxpayer-money-magnet rather than a real business, and then it makes perfect sense.  Politics, after all, demands simple sound bytes and a unified front.

Update:  In the first week of Harvard Business School, I learned a lesson from strategy class, in a series of two cases, that still may be the most important thing I learned there.  The cases were a hot, sexy electronics company, and a boring, dull as dirt water meter company.  To cut to the chase, the electronics company sucked as an investment, and the water meter company was a gold mine.  The moral, among several takeaways, is don't get fooled into thinking the hot, sexy business of the moment is necessarily a good investment.  Our development agencies in AZ are making this mistake in spades.  In fact, the entire history of government economic development efforts in Phoenix has been to chase sexy businesses at the top of the market, spend taxpayer money to get some plant relocations, and then see the businesses struggle.  We certainly did this with semiconductor fabs a couple of decades ago.

Ten Years Ago Today

Ten years ago, for the first and only time in my life, I invited my wife to come along on a business trip from Seattle to New York.

On 9/11, I was sitting in the restaurant at the W hotel in Midtown Manhattan having breakfast with some bankers. I had recently been hired to see if I could make something out of a startup that was trying to manage aircraft parts sales and inventories over the web. My incredibly ill-timed pitch to the bankers was that the commercial aviation business, which had been somewhat in the doldrums, was on the verge of a turnaround. Oops.

My wife came down to breakfast to tell us something funny was going on in the news. We ended up going to one of the banker's hotel rooms -- he had a penthouse suite with a balcony from which we watched the now-famous and horrible events play out.

The rest of the day was odd to say the least. People on the street flinched whenever a plane flew over. The entire island emptied out, such that in the evening, we walked through Times Square and not a single care came through in 5 minutes. Someone was skateboarding in lazy circles, I suppose just because he could.

For us, 9/11 fortunately was only a hassle. We scrambled to find someone to watch our kids in Seattle, and found the last rent car in the city and ended up driving all the way back to Seattle from New York. We still made it back before air travel resumed.

Many of our friends were not so lucky. As both my wife and I were grads of the Harvard Business School, we knew scores of people who worked in the WTC. Over the coming weeks, word floated in of friends that had died that day, including our friend Steve who did not work there but got talked into going to a training session he really did not want to be at. I actually think of him many times, when I am asked to do tedious business trips I see not value in. I have learned to skip a lot of them. Life is too short.

Amazon Bargain

My novel BMOC is now $0.99 at Amazon.  With my second book coming out sometime soon (I hope) I thought I would experiment with online pricing models.  I sold about 30 a month at the old price, but Glen Reynolds linked an article praising the 99-cent Kindle price point.  So what the heck, let's try it.  My loss is your gain, as the ads say.

Reasons you might like the novel:

  • It's a sort of combination of Harvard Business School case study and murder mystery, with some humor thrown in
  • The business at the center of the novel is actually the good guy (err gal, I guess, since the protagonist is female). While sympathetic to capitalism, the book is primarily a light crime novel, not some sort of Randian morality tale.
  • The villains include a media mogul, a tort lawyer, a local news anchor, and a US Senator  -- just like life!
  • Several of the business models were made up on the fly when I attended boring cocktail parties and entertained myself creating whimsical businesses for myself.  Since that time, readers of the book have emailed me with news stories of recent startup companies following almost identical strategies.
  • 4-stars at Amazon

Credentialism: A Problem that Cuts Both Ways

From the Chronicle of Higher Education via TaxProf Blog

If you want to get a job at the very best law firm, investment bank, or consultancy, here’s what you do:

1. Go to Harvard, Yale, Princeton, or (maybe) Stanford. If you’re a business student, attending the Wharton School at the University of Pennsylvania will work, too, but don’t show up with a diploma from Dartmouth or MIT. No one cares about those places. ... That’s the upshot of an enlightening/depressing study about the ridiculously narrow-minded people who make hiring decisions at the aforementioned elite companies. ... These firms pour resources into recruiting students from “target schools” (i.e., Harvard, Yale, Princeton) and then more or less ignore everybody else. Here’s a manager from a top investment bank describing what happens to the resume of someone who went to, say, Rutgers: “I’m just being really honest, it pretty much goes into a black hole.”

Being, I suppose, an insider to this process (Princeton - Harvard Business School - McKinsey & Company) I'd like to make a few comments

  • First and foremost, this problem cuts both ways.  I can imagine outsiders are frustrated with the lack of access.  But as an insider I can tell you  (cue Admiral Akbar) It's a Trap!  You go to Princeton, think, wow, I did well at Princeton, it would be a waste not to do something with that.   You are a competitive sole, so getting into a top grad school is an honor to be pursued just like good grades.   So you go to Harvard Business School (it could have been Harvard Law) and do well.  And what is the mark of achievement there? -- getting a job at a top consultancy or top investment bank.  So you take the McKinsey job, have your first kid, and what do you find out?  Wow, I hate this job!  In fact, the only thing I would have hated more is if I had taken that Wall Street job.   Eventually you find happiness running your own company, only to discover your Ivy League degrees are a liability since they intimidate your employees from sharing their ideas and most of the other guys you know successfully running businesses went to Kansas State or Rutgers.
  • My only data point inside this hiring process is from McKinsey about 15-20 years ago, so it may be out of date.    But at that time, the above statement would be BS.  Certainly hiring was heavily tilted to the top Ivies and a few top business schools.  But we had people with undergrad degrees from all over - in fact most of our office in Texas had undergrad degrees from the Texas state schools  (at lot from BYU too -- McKinsey loved the Mormons).  At the time, McKinsey was hiring hundreds of people out of business school around the world each year.  No way this could have come from only a few schools.
  • My hypothesis is that this may be more a regional than an industry bias, limited to Boston/New York/East Coast.  Since many top law firms and consultancies and investment banks are in NYC, they reflect this local bias.  But I would bet these same firms and industries hire differently outside of the East Coast.
  • There is some rationality in this approach - it is not all mindless snobbism.   Take Princeton.  It screens something like 25,000 already exceptional applicants down to just 1500, and then further carefully monitors their performance through intensive contact over a four year period.  This is WAY more work and resources than a private firm could ever apply to the hiring process.  In effect, by limiting their hiring to just a few top schools, they are outsourcing a lot of their performance evaluation work to those schools.

Let GM Fail!

This is a reprise of a much older post, but it struck me as fairly timely.

I had a conversation the other day with a person I can best describe as a well-meaning technocrat.  Though I am not sure he would put it this baldly, he tends to support a government by smart people imposing superior solutions on the sub-optimizing masses.  He was lamenting that allowing a company like GM to die is dumb, and that a little bit of intelligent management would save all those GM jobs and assets.  Though we did not discuss specifics, I presume in his model the government would have some role in this new intelligent design (I guess like it had in Amtrak?)

There are lots of sophisticated academic models for the corporation.  I have even studied a few.  Here is my simple one:

A corporation has physical plant (like factories) and workers of various skill levels who have productive potential.  These physical and human assets are overlaid with what we generally shortcut as "management" but which includes not just the actual humans currently managing the company but the organization approach, the culture, the management processes, its systems, the traditions, its contracts, its unions, the intellectual property, etc. etc.  In fact, by calling all this summed together "management", we falsely create the impression that it can easily be changed out, by firing the overpaid bums and getting new smarter guys.  This is not the case - Just ask Ross Perot.  You could fire the top 20 guys at GM and replace them all with the consensus all-brilliant team and I still am not sure they could fix it.

All these management factors, from the managers themselves to process to history to culture could better be called the corporate DNA*.  And DNA is very hard to change.  Walmart may be freaking brilliant at what they do, but demand that they change tomorrow to an upscale retailer marketing fashion products to teenage girls, and I don't think they would ever get there.  Its just too much change in the DNA.  Yeah, you could hire some ex Merry-go-round** executives, but you still have a culture aimed at big box low prices, a logistics system and infrastructure aimed at doing same, absolutely no history or knowledge of fashion, etc. etc.  I would bet you any amount of money I could get to the GAP faster starting from scratch than starting from Walmart.  For example, many folks (like me) greatly prefer Target over Walmart because Target is a slightly nicer, more relaxing place to shop.  And even this small difference may ultimately confound Walmart.  Even this very incremental need to add some aesthetics to their experience may overtax their DNA.

Corporate DNA acts as a value multiplier.  The best corporate DNA has a multiplier greater than one, meaning that it increases the value of the people and physical assets in the corporation.  When I was at a company called Emerson Electric (an industrial conglomerate, not the consumer electronics guys) they were famous in the business world for having a corporate DNA that added value to certain types of industrial companies through cost reduction and intelligent investment.  Emerson's management, though, was always aware of the limits of their DNA, and paid careful attention to where their DNA would have a multiplier effect and where it would not.  Every company that has ever grown rapidly has had a DNA that provided a multiplier greater than one... for a while.

But things change.  Sometimes that change is slow, like a creeping climate change, or sometimes it is rapid, like the dinosaur-killing comet.  DNA that was robust no longer matches what the market needs, or some other entity with better DNA comes along and out-competes you.  When this happens, when a corporation becomes senescent, when its DNA is out of date, then its multiplier slips below one.  The corporation is killing the value of its assets.  Smart people are made stupid by a bad organization and systems and culture.  In the case of GM, hordes of brilliant engineers teamed with highly-skilled production workers and modern robotic manufacturing plants are turning out cars no one wants, at prices no one wants to pay.

Changing your DNA is tough.  It is sometimes possible, with the right managers and a crisis mentality, to evolve DNA over a period of 20-30 years.  One could argue that GE did this, avoiding becoming an old-industry dinosaur.  GM has had a 30 year window (dating from the mid-seventies oil price rise and influx of imported cars) to make a change, and it has not been enough.  GM's DNA was programmed to make big, ugly (IMO) cars, and that is what it has continued to do.  If its leaders were not able or willing to change its DNA over the last 30 years, no one, no matter how brilliant, is going to do it in the next 2-3.

So what if GM dies?  Letting the GM's of the world die is one of the best possible things we can do for our economy and the wealth of our nation.  Assuming GM's DNA has a less than one multiplier, then releasing GM's assets from GM's control actually increases value.  Talented engineers, after some admittedly painful personal dislocation, find jobs designing things people want and value.  Their output has more value, which in the long run helps everyone, including themselves.

The alternative to not letting GM die is, well, Europe (and Japan).  A LOT of Europe's productive assets are locked up in a few very large corporations with close ties to the state which are not allowed to fail, which are subsidized, protected from competition, etc.  In conjunction with European laws that limit labor mobility, protecting corporate dinosaurs has locked all of Europe's most productive human and physical assets into organizations with DNA multipliers less than one.

I don't know if GM will fail (but a lot of other people have opinions) but if it does, I am confident that the end result will be positive for America.

* Those who accuse me of being more influenced by Neal Stephenson's Snow Crash than Harvard Business School may be correct.
** Gratuitous reference aimed at forty-somethings who used to hang out at the mall.  In my town, Merry-go-round was the place teenage girls went if they wanted to dress like, uh, teenage girls.  I am pretty sure the store went bust a while back.

Why Its OK If GM Fails

This is a reprise of a much older post, but since I have limited time for blogging, I thought it might be timely to reprise it:

I had a conversation the other day with a person I can best describe
as a well-meaning technocrat.  Though I am not sure he would put it
this baldly, he tends to support a government by smart people imposing
superior solutions on the sub-optimizing masses.  He was lamenting that
allowing a company like GM to die is dumb, and that a little bit of
intelligent management would save all those GM jobs and assets.  Though
we did not discuss specifics, I presume in his model the government
would have some role in this new intelligent design (I guess like it
had in Amtrak?)

There are lots of sophisticated academic models for the corporation.  I have even studied a few.  Here is my simple one:

A corporation has physical plant (like factories) and workers of
various skill levels who have productive potential.  These physical and
human assets are overlaid with what we generally shortcut as
"management" but which includes not just the actual humans currently
managing the company but the organization approach, the culture, the
management processes, its systems, the traditions, its contracts, its
unions, the intellectual property, etc. etc.  In fact, by calling all
this summed together "management", we falsely create the impression
that it can easily be changed out, by firing the overpaid bums and
getting new smarter guys.  This is not the case - Just ask Ross Perot.
You could fire the top 20 guys at GM and replace them all with the
consensus all-brilliant team and I still am not sure they could fix
it. 

All these management factors, from the managers themselves to
process to history to culture could better be called the corporate
DNA*.  And DNA is very hard to change.  Walmart may be freaking
brilliant at what they do, but demand that they change tomorrow to an
upscale retailer marketing fashion products to teenage girls, and I
don't think they would ever get there.  Its just too much change in the
DNA.  Yeah, you could hire some ex Merry-go-round** executives, but you
still have a culture aimed at big box low prices, a logistics system
and infrastructure aimed at doing same, absolutely no history or
knowledge of fashion, etc. etc.  I would bet you any amount of money I
could get to the GAP faster starting from scratch than starting from
Walmart.  For example, many folks (like me) greatly prefer Target over
Walmart because Target is a slightly nicer, more relaxing place to
shop.  And even this small difference may ultimately confound Walmart.
Even this very incremental need to add some aesthetics to their
experience may overtax their DNA.

Corporate DNA acts as a value multiplier.  The best corporate DNA
has a multiplier greater than one, meaning that it increases the value
of the people and physical assets in the corporation.  When I was at a
company called Emerson Electric (an industrial conglomerate, not the
consumer electronics guys) they were famous in the business world for
having a corporate DNA that added value to certain types of industrial
companies through cost reduction and intelligent investment.  Emerson's
management, though, was always aware of the limits of their DNA, and
paid careful attention to where their DNA would have a multiplier
effect and where it would not.  Every company that has ever grown
rapidly has had a DNA that provided a multiplier greater than one...
for a while.

But things change.  Sometimes that change is slow, like a creeping
climate change, or sometimes it is rapid, like the dinosaur-killing
comet.  DNA that was robust no longer matches what the market needs, or
some other entity with better DNA comes along and out-competes you.
When this happens, when a corporation becomes senescent, when its DNA
is out of date, then its multiplier slips below one.  The corporation
is killing the value of its assets.  Smart people are made stupid by a
bad organization and systems and culture.  In the case of GM, hordes of
brilliant engineers teamed with highly-skilled production workers and
modern robotic manufacturing plants are turning out cars no one wants,
at prices no one wants to pay.

Changing your DNA is tough.  It is sometimes possible, with the
right managers and a crisis mentality, to evolve DNA over a period of
20-30 years.  One could argue that GE did this, avoiding becoming an
old-industry dinosaur.  GM has had a 30 year window (dating from the
mid-seventies oil price rise and influx of imported cars) to make a
change, and it has not been enough.  GM's DNA was programmed to make
big, ugly (IMO) cars, and that is what it has continued to do.  If its
leaders were not able or willing to change its DNA over the last 30
years, no one, no matter how brilliant, is going to do it in the next
2-3.

So what if GM dies?  Letting the GM's of the world die is one of the
best possible things we can do for our economy and the wealth of our
nation.  Assuming GM's DNA has a less than one multiplier, then
releasing GM's assets from GM's control actually increases value.
Talented engineers, after some admittedly painful personal dislocation,
find jobs designing things people want and value.  Their output has
more value, which in the long run helps everyone, including themselves.

The alternative to not letting GM die is, well, Europe (and Japan).
A LOT of Europe's productive assets are locked up in a few very large
corporations with close ties to the state which are not allowed to
fail, which are subsidized, protected from competition, etc.  In
conjunction with European laws that limit labor mobility, protecting
corporate dinosaurs has locked all of Europe's most productive human
and physical assets into organizations with DNA multipliers less than
one. 

I don't know if GM will fail (but a lot of other people have opinions) but if it does, I am confident that the end result will be positive for America.

* Those who accuse me of being more influenced by Neal Stephenson's Snow Crash than Harvard Business School may be correct.
**
Gratuitous reference aimed at forty-somethings who used to hang out at
the mall.  In my town, Merry-go-round was the place teenage girls went
if they wanted to dress like, uh, teenage girls.  I am pretty sure the
store went bust a while back.

Chicken Contact Lenses

Jane Galt makes a case against industrial animal husbandry, a position which she argues is not inconsistent with being a libertarian or classical liberal.  While I don't get as worked up about such practices as cruel, I don't think it is inconsistent for a libertarian to be so concerned.  And I don't rule out that I would be just as worked up if I were more informed about what was going on.

However, what really caught me eye was this:

This is an approximate description of what happens to industrially
farmed chickens . . . lifted, mind you, from a business school case
aimed at helping industrial farms be more efficient, by using rose
coloured chicken contact lenses to cut down on the need for debeaking
'em.

I can attest that this was indeed a real case that we studied at Harvard Business School*.  In fact, it so freaked me out at the time as a concept that I included it in my most recent novel.  From BMOC [warning, profanity lurks ahead]:

Poor, boring, earnest Julian
was always prepared, because he was always terrified, scared to death
that one night slacking off might somehow destroy his future Career
(always with a capital-C), and therefore future Life, much like the
fear of catching AIDS from a one night stand.  Julian participated
(unfortunately) all too much in class, droning on in that irritating
voice of his, advocating positions as spectacularly expected as
Susan's were non-conformist.

Julian,
therefore, was not really a candidate to get cold-called to open the
class discussion, particularly this late in the year.  However, it
was clear to everyone in the room, particularly the professor, that
Julian longed to open a case.  Every day Julian would look at
the professor with this hopelessly wistful expression, only to be
followed by a look of desolation when someone else was chosen.

So
today, letting Julian open was in the same spirit as the homecoming
queen giving a pity-fuck on the last day of high school to the geek
who has been mooning and sighing over her for four years.  And right
at this
moment, Julian had the same surprised and ecstatic look on his face
that the geek would have.

But it was not just the site of
Julian creaming all over himself at his chance to open that had Susan
longing for the piranha button.  Some satanic twist of fate had
Julian Rogers earnestly and painstakingly laying out a strategy and
plan for the new product roll out of ... contact lenses for chickens.
Contact fucking lenses for Christ-sake chickens.  Right this very
second he was outlining his sales pitch to chicken farmers,
explaining how putting contacts in chicken's eyes will somehow
reduce the number of chickens that have to have their beak cut off.
Did she hear that right?  This had to be a joke "“ but no,
everyone seemed to be taking it seriously, and certainly Julian was
taking it deadly seriously.

* I know those anti-capitalists out there will be using this as evidence that business school is crafted to keep us cold and heartless.  HBS consisted of studying 2-3 cases per day for about 200 days a year, which means that over two years one might read a thousand business cases.  This case was more in the spirit of breaking the monotony of yet another case on brass vs. plastic water meters rather than part of a consistent attempt to make us cold and heartless.

BMOC, Chapters 1 and 2

As a way to celebrate the holidays and perhaps compensate for a more relaxed pace of blogging for a while, I am beginning a serialization of my new novel BMOC.  If there is interest, I will keep it going for a while.  So, lets get started.  Enjoy!  (You didn't really feel like doing any real work today, did you?).   By the way, for you prospective business school students, though it may seem un-serious, embodies my best advice for you.  Chapters 3 and 4 continue here.

chapter one

Robert
Gladstone, multi-millionaire CEO of the M Group, looked around the
room at his fellow conspirators and longed for the piranha
button. 

Continue reading ‘BMOC, Chapters 1 and 2’ »

That Light May Be a Train

At least one homebuilder is predicting doom and gloom:

"It would be difficult to characterize the position of
home builders as other than in a hard landing," says Robert Toll, chief
executive of luxury home builder Toll Brothers Inc., which reported yesterday that net income fell 19% in the third quarter ended July 31. (See related article.)

In his 40 years as a home builder, Mr. Toll says, he
has never seen a slump unfold like the current one. "I've never seen a
downturn in housing without a downturn in employment or... some
macroeconomic nasty condition that took housing down along with other
elements of the economy," he says. "This time, you've got low
unemployment, you've got job creation, you've got a stable stock market
and relatively low interest rates."...

In much of the country, property markets began cooling
rapidly in the second half of last year. Home builders were still
turning out houses at a rapid clip, and the surge of new and previously
occupied homes on the market convinced buyers there was no need to
hurry. Over the past year, the number of previously occupied homes
listed for sale nationwide has risen nearly 40%. In some metropolitan
areas, including Orlando and Phoenix, the supply has quadrupled.

I never got that excited about the run-up in the price of my home, so I won't worry too much if it falls again.   For the average homeowner, the paper-price run-up of housing prices doesn't really have much meaning unless they are considering moving soon to a lower-home-price area or they are going to retire and downsize.  My house supposedly doubled in value in the last four years.  We went out shopping for a home in the area, and you know what?  All the other prices doubled too.  I could trade my current house for about the same house I could trade it for four years ago.  The only really beneficial effect was that the increase in home equity made for useful collateral in a business loan I took out.

Of course, the home speculators may take a bath - there are several latecomers to the speculation / spec home business in my neighborhood who are holding houses that won't sell for the huge prices they are asking.  I posted that this was coming over a year ago, using a model for contrarian investing I learned at the Harvard Business School:  Do the opposite of what doctors and dentists are doing.

Soloman Ammendment Upheld

I must say I was not at all surprised that the Solomon amendment (requiring private universities that accept federal funds to also accept military recruiters) was upheld by the Supreme Court.  I predicted months ago that the left had made its bed on this issue with its strong support of Title IX.

Various law school faculties argued in the case that the Solomon Amendment unconstitutionally violated their rights to freedom of association (by taking away their choice of who can and cannot recruit on campus) and of speech (by forcing the university to support speech, such as military recruiting pitches, that it does not agree with).  I must say that I am both sympathetic and unsympathetic to their argument.  Sympathetic, because there are in fact free speech and association issues here.  The majority opinion notwithstanding, its impossible to make a razor-sharp distinction between prohibitions on "conduct" and prohibitions on expression.  I can't accept Robert's blanket statement that "unlike a parade organizer's choice of parade contingents, a law
school's decision to allow recruiters on campus is not inherently
expressive."  What if, say, Al Qaeda wants to set up a booth?  My accepting their booth would sure as hell be a form of expression, one that I am sure the Right would blast me for. 

I do understand that there is money involved, and the fatuous answer is that "well, they can just turn down federal funds."  Bullshit.  Like it or not (and I don't) the feds have made themselves so ubiquitous, particularly in certain research areas where they have crowded out all private funding, that it is unrealistic to tell them to take a hike.  Though I must say that it is interesting to see the left, which built this huge federal machine, hoist on their own petard.  Besides, the majority opinion said that the funding tie-in was not necessary to pass constitutional muster -- that the government had the power to just straight out compel private universities to accept military recruiters.

However, mostly I am unsympathetic.  Why?  Because these very same ivy league and faculty intellectuals have felt free in the past to step all over the free speech and association rights of the rest of us in similar ways.  As George Will asked in recent column, it would be fascinating to see what percentage of these same people who brought this suit in turn vehemently support, say, McCain-Feingold?  Or, public funding of election campaigns. 

As a business person, this ship sailed years ago.  Freedom of association no longer applies to business people.  The reason?  Well, freedom of association implies the reverse right of not associating with anyone you choose.  But there are phone-book-sized bodies of legislation today with detailed regulations telling me all the people and circumstances in which I cannot choose whom I associate with, or don't associate with (via employment decisions, for example).  For example, my business employs RV'ers who live full-time on the road and form a large transient labor force.  I have tons of applications every year from Canadian and Mexican citizens who would like to work for me, but I cannot hire them.  On the other side of the coin, I have had to actually go to court from time to time to justify why I chose not to hire or to fire someone who is a woman, or older, or handicapped.

And forced speech with which I don't agree?  My company has to, by law, maintain bulletin boards full of posters, messages, statements, etc. that I don't necessarily agree with but are legally required to post on my property as communication to workers.  And these bulletin boards have to be made a bit larger every year.  I don't have to accept any federal money to be absolutely required, at the penalty of heavy fines, to post these communications.

I would be a bit more enthusiastic in my support for these law faculty if I didn't suspect that they have been the very people out in the forefront of trashing my first amendment rights as a business person.

Postscript: By the way, is this even a problem anyway?  At Harvard Business School, the largest recruiters eschewed campus altogether, and conducted all their interviews at offsite hotels.  I would think the military could pretty easily work around these law schools prohibitions. 

Why Its OK if GM Dies

I had a conversation the other day with a person I can best describe as a well-meaning technocrat.  Though I am not sure he would put it this baldly, he tends to support a government by smart people imposing superior solutions on the sub-optimizing masses.  He was lamenting that allowing a company like GM to die is dumb, and that a little bit of intelligent management would save all those GM jobs and assets.  Though we did not discuss specifics, I presume in his model the government would have some role in this new intelligent design (I guess like it had in Amtrak?)

There are lots of sophisticated academic models for the corporation.  I have even studied a few.  Here is my simple one:

A corporation has physical plant (like factories) and workers of various skill levels who have productive potential.  These physical and human assets are overlaid with what we generally shortcut as "management" but which includes not just the actual humans currently managing the company but the organization approach, the culture, the management processes, its systems, the traditions, its contracts, its unions, the intellectual property, etc. etc.  In fact, by calling all this summed together "management", we falsely create the impression that it can easily be changed out, by firing the overpaid bums and getting new smarter guys.  This is not the case - Just ask Ross Perot.  You could fire the top 20 guys at GM and replace them all with the consensus all-brilliant team and I still am not sure they could fix it. 

All these management factors, from the managers themselves to process to history to culture could better be called the corporate DNA*.  And DNA is very hard to change.  Walmart may be freaking brilliant at what they do, but demand that they change tomorrow to an upscale retailer marketing fashion products to teenage girls, and I don't think they would ever get there.  Its just too much change in the DNA.  Yeah, you could hire some ex Merry-go-round** executives, but you still have a culture aimed at big box low prices, a logistics system and infrastructure aimed at doing same, absolutely no history or knowledge of fashion, etc. etc.  I would bet you any amount of money I could get to the GAP faster starting from scratch than starting from Walmart.  For example, many folks (like me) greatly prefer Target over Walmart because Target is a slightly nicer, more relaxing place to shop.  And even this small difference may ultimately confound Walmart.  Even this very incremental need to add some aesthetics to their experience may overtax their DNA.

Corporate DNA acts as a value multiplier.  The best corporate DNA has a multiplier greater than one, meaning that it increases the value of the people and physical assets in the corporation.  When I was at a company called Emerson Electric (an industrial conglomerate, not the consumer electronics guys) they were famous in the business world for having a corporate DNA that added value to certain types of industrial companies through cost reduction and intelligent investment.  Emerson's management, though, was always aware of the limits of their DNA, and paid careful attention to where their DNA would have a multiplier effect and where it would not.  Every company that has ever grown rapidly has had a DNA that provided a multiplier greater than one... for a while.

But things change.  Sometimes that change is slow, like a creeping climate change, or sometimes it is rapid, like the dinosaur-killing comet.  DNA that was robust no longer matches what the market needs, or some other entity with better DNA comes along and out-competes you.  When this happens, when a corporation becomes senescent, when its DNA is out of date, then its multiplier slips below one.  The corporation is killing the value of its assets.  Smart people are made stupid by a bad organization and systems and culture.  In the case of GM, hordes of brilliant engineers teamed with highly-skilled production workers and modern robotic manufacturing plants are turning out cars no one wants, at prices no one wants to pay.

Changing your DNA is tough.  It is sometimes possible, with the right managers and a crisis mentality, to evolve DNA over a period of 20-30 years.  One could argue that GE did this, avoiding becoming an old-industry dinosaur.  GM has had a 30 year window (dating from the mid-seventies oil price rise and influx of imported cars) to make a change, and it has not been enough.  GM's DNA was programmed to make big, ugly (IMO) cars, and that is what it has continued to do.  If its leaders were not able or willing to change its DNA over the last 30 years, no one, no matter how brilliant, is going to do it in the next 2-3.

So what if GM dies?  Letting the GM's of the world die is one of the best possible things we can do for our economy and the wealth of our nation.  Assuming GM's DNA has a less than one multiplier, then releasing GM's assets from GM's control actually increases value.  Talented engineers, after some admittedly painful personal dislocation, find jobs designing things people want and value.  Their output has more value, which in the long run helps everyone, including themselves.

The alternative to not letting GM die is, well, Europe (and Japan).  A LOT of Europe's productive assets are locked up in a few very large corporations with close ties to the state which are not allowed to fail, which are subsidized, protected from competition, etc.  In conjunction with European laws that limit labor mobility, protecting corporate dinosaurs has locked all of Europe's most productive human and physical assets into organizations with DNA multipliers less than one. 

I don't know if GM will fail (but a lot of other people have opinions) but if it does, I am confident that the end result will be positive for America.

* Those who accuse me of being more influenced by Neal Stephenson's Snow Crash than Harvard Business School may be correct.
** Gratuitous reference aimed at forty-somethings who used to hang out at the mall.  In my town, Merry-go-round was the place teenage girls went if they wanted to dress like, uh, teenage girls.  I am pretty sure the store went bust a while back.

OK, There May Be A Housing Bubble

I don't have access to the right kind of data to decide whether there is a housing bubble in the US, though a lot of people are writing about it

In the Phoenix / Scottsdale area, housing values have really starting going up, up, up in the last 18 months, though whether this is just a catch-up to other desirable metropolitan areas (Phoenix real estate has been pretty sluggish for years, and way cheaper than other resort-type destinations) or a true bubble, I can't tell.  Certainly speculation activity is way up, with a lot of homes being bought and renovated by investors, but again, I could argue that Scottsdale was behind other suburban markets in the whole tear-down thing. 

So, to date, I have been unconvinced about the housing bubble, at least as it applied to our community.  After all, demographics over the next 20-30 years are only going to support Scottsdale area real estate. 

However, over the weekend I had a disturbing experience:   At a social function, I heard a dentist enthusiastically telling a doctor that he needs to be buying condos and raw land.  The dentist claimed to be flipping raw land parcels for 100% in less than 6 months. 

For those who don't know, this is a big flashing red light.  When doctors and dentists start trying to sell you on a particular type of investment, run away like they have the plague.  At Harvard Business School, I had a great investment management class with a professor who has schooled many of the best in the business.  If an investment we were analyzing turned out to be a real dog, he would ask us "who do you sell this to?" and the class would shout "doctors!"  And, if the investment was really, really bad, to the point of being insane, the class would instead shout "dentists!"  Marginal Revolution has another potential bubble indicator.  Angry Bear has a lengthy analysis.

Postscript: By the way, just so you doctors and dentists won't feel like I am picking on you, we small business owners are considered to be almost as bad, which is I why I get so many boiler room calls.

Update:  OK, in one of those great moments in timing, my wife just called me to say that one of the moms at school was trying to get other moms to invest with her in some condos, and should we join in?  Eeeek!

Jim Balsillie: Congratulations on Making Me Feel Like a Loser

There is a price one pays for slipping into the Harvard Business School through some mysterious hole in the Harvard admissions process:  From time to time, one must be ready to be humbled by their peers.  Of course, with nearly 900 people in a graduating class, one expects someone in that group to distinguish themselves at some point.  However, this large groups is somehow indistinct - at HBS one spends most of their time with 90 people in their "section", spending the vast majority of waking hours, both in class and in the pub, with this group.  After a couple of years with the same 90 people, one gets the overwhelming impression of normality -- these people are just as full of shit as anyone else I have gotten to know.

So it is both expected and with some surprise that I have begun to see these 90 people start making headlines.  My section-mates have distinguished themselves as executives and industry leaders and entrepreneurs  and lifestyle writers and business writers and fashion moguls and artists even as the notorious.  Humiliating levels of fame and success seem to be the rule among these ostensibly ordinary people.

This week, however, another member of our 90-person section (1989-B, on the off chance you are a fellow alum and were wondering) has gone to the next level.  This week Time magazine named Jim Balsillie, CEO of RIM (the Blackberry people) to their list of the 100 most influential people.  Wow.  Congratulations Jim.  The bad news is we are all totaled humbled about our own success trajectories in comparison.  The good news is that Jim will obviously "draw fire" away from the rest of us when Harvard comes looking for money.  Its a funny combination of old and new to think about the CEO of Lili Pulitzer and the CEO of Blackberry sitting next to each other all through our first year.

Postscript:  By the way, for those of you who may be tempted to put me on suicide watch, I am pretty much joking, though not about my section mates - they are all as awesome as portrayed here -- but about any dissatisfaction with my career.  Several times in my life I have been presented with opportunities to pursue high-profile wealth.  In most cases, I have turned these down, with zero regrets.  In fact, since one of the first of these rejected opportunities involved following Jeff Skilling from McKinsey to Enron, I really, really have no regrets.   Each day I am out visiting my operations at some National Park or other, I will think about the rest of you filling out your TPS reports.

UPDATE:  Welcome to fellow sectionmate Karen Page, author of numerous Amazon 5-star rated books on food, wine and becoming a chef, who links to me today (oops, Karen is slipping - a few of the books only have 4-1/2 stars).  Not only is Karen part of that vast section B conspiracy to make me feel inadequate, she also has a much cooler blog than mine.

Harvard MBA Indicator for Wall Street

Roy Soifer recently suggested, as reported in Photon Courier, that the percentage of Harvard Business School graduates going to Wall Street jobs can be used as a reverse indicator of the market (i.e. lots of graduates going to Wall Street means the market is peaking and due for a fall).

As a graduate of that HBS in 1989, I have a few thoughts.  First, the vast majority of HBS graduates go into Wall Street, consulting, or the corporate world.  The relative popularity of these three destinations tends to vary over time.  To some extent this variation is due to what's "hot", and to some extent its due to simply to what jobs are available and what recruiters are showing up on campus. 

Second, though pride urges me to agree with this statement from Photon Courier, I really can't:

But one would hope that MBAs from a leading school--who have certainly studied business cycles--would reflect more on the principle of "buy low, sell high" before deciding among their various offers.

When I graduated from HBS, I don't remember having a clue what I wanted to do.  Its all fine and good to talk about trying to get in early on a growth sector, but that implies I am taking a job to maximize NPV of future incomes.  If that were the case, I would have gone to Wall Street, or remained a consultant.  But I also would have probably hated it.

A more interesting HBS graduate job indicator for me has been "how has the jobs people have evolved since they graduated".  When I graduated, everyone seemed to be investment bankers and consultants.  At our fifth year reunion, everyone was posturing as to how successful they had been, how far they had risen, etc.  Most people were still in the same type jobs, with only a few outliers who had switched careers already.  Our tenth reunion was totally different.  At our tenth, no one talked about their job - everyone talked about their kids.  The contrast was dramatic.  Many people were in different careers, including a number who were testing the dot-com waters. 

At the fifteenth reunion, everyone seemed much more relaxed.  Job performance stress at from the fifth and family starting stress at the tenth were mostly gone.  Many, many people (including me) had their own businesses, and few of these were ones anyone would have predicted;  I don't think anyone was a consultant anymore.  Here are a few examples just from our 90-person section of businesses graduates are running now:

My observation - very few were the types of businesses that come recruiting at HBS.

My parting observation about career choices through life comes from Dan Simmons' great Hyperion series, where the prophet Aenea gives here famously concise advice to humanity:

Choose Again.

Certainly true with careers.