Profits

Saving the Middle Class: Josh Brown on Corporate Stupidity

As anyone who reads this blog or follows me on Twitter knows, I'm beyond being a fan of Josh Brown and his blog, The Reformed Broker.

I think he's a hero - particularly because the truths he's telling are about his own industry: Financial Services. Most important of all, he gives those of us not in the industry the information we need to make smart decisions, see charlatans for what they are and the knowledge of when to run like the wind.

Well, he did it again over the weekend with his piece: "Forget Fairness, Let's Talk About Stupidity."

Only this time, he takes on what the multi-year corporate decision to hold down wages really means. Not just the dismantling of the middle class - although that's definitely happening. It's that the companies are giving themselves a slow death by not ensuring that employees have enough money to buy the products and services the companies, themselves, are providing.

Short-sighted idiots.

Here's a taste:
The corporations are every bit as vulnerable to the disappearance of the middle class as the middle class is itself. 
They've managed around this issue thus far with an increasing emphasis on exports (now responsible for half of the S&P 500's sales and profits) as well as systemic and legally-sanctioned overseas tax evasion. Consider that Exxon Mobil made $19 billion in profits in 2009 and paid zero Federal income tax (you want to laugh, they actually got a rebate of $256 million). GE earned $14 billion in 2010 and also paid zero in Federal income tax. Microsoft and Hewlett-Packard have each set up offshore subsidiaries which they use as payment conduits so as to keep their profits shielded from the IRS. 
But offshoring of profits and the export of goods and services won't sustain these corporations forever. At a certain point, native companies within the developing world will nudge our adventuring multinationals aside (China's already building its own version of Wall Street).  And when that happens, Corporate America is going to turn around and be horrified by the devastation in its own backyard. 
"Where did all our customers go?" 
Well, you enormous fucking idiots, you fired all your customers. You've spent the last decade or so suppressing wage growth in the name of "creating shareholder value" and now even your shareholder base is disappearing. 
You allowed wages to stagnate for a decade and made every decision you could in the service of nudging the quarterly profit higher, thinking less of the yearly profit and virtually nothing of the long-term viability of your business.
Read the full post here. It's more than worth it.

Thanks, Josh.

It's What's In Back That Counts

There's a lot of talk about infrastructure these days.  Whether it's roads and bridges or teachers, firefighters and police - it's all about what's done behind the day-to-day life of most citizens.  It's the stuff we see but don't really notice...until either it's not there or it doesn't work.

Then it's a problem.

It's the same in your organization - only in your case those problems are occurring every day for all your employees. They've just learned to work around them.

That's because the infrastructure they're dealing with is everything from your...
  • organization's structure - which defines communication and information flow...
to your
  • policies and procedures - which directly impact efficiency and effectiveness...
to your
  • training and development - which is, ultimately, what your customers interact with every day...

and that's just hitting the high points.

When you think infrastructure, think about all the decisions you make and have made for your business that no one outside sees directly but everyone in the organization knows are there.

The good news is, when you focus on the infrastructure it becomes easy to figure out and change all those things that weren't working the way you want...because, predictably, the infrastructure became invisible to you, too.

The more you focus on the seemingly invisible, the more quickly and visibly you'll see the positive results in productivity and morale, customer satisfaction, innovation and profitability.

LEAN: Lessons Learned from Banking Regulation

There's a fascinating piece in Joe Nocera's New York Times column today about bank regulation and complexity.  In it, he raises the question of whether the over-complexity of new banking regulations worldwide are going to cause greater difficulties and possible failures than a more sensible, streamlined approach.

This is an easy one. The answer is: Yes - because complexity causes failure.

Big failures or little.  Lost time or opportunity. Lost money, customers, employees, profits, revenues, parts...you name it, if there's complexity built into your system, there are losses and failures going on.

The problem is, in most cases, it's hard to see them.  That's because, in most cases (and unlike what's going on now around the world with banking regulations) the complexities are so deeply built into the way you do business that you don't even see them anymore.

That's actually why Quality, Lean and all the rest exist: to hunt out the variation (for which read 'complexity') in your systems.  Once you can see them, then you can decide whether or not they serve your purposes.

Just so you know - in most cases, they don't.  They're there because someone at some point came up with a solution that made sense at that moment that was reactive to a situation that no longer exists.  Or wasn't as well thought out as it should be.

What we know is that the banks need to be better regulated - simply because the world can't afford another meltdown like we saw in 2008.

What we also know is that, not only because of Dodd-Frank in the United States, but in looking at banking regulation being imposed around the world (and, yes, that includes China, too) there is no coordination or consistency.

The threat - at least by the banks - is that the regulations are so overly complex and onerous that they won't be able to operate or keep their best talent.  That may or may not be correct, but, let's face it, they've got skin in the game and a real reason for not wanting to be held accountable.

Putting their arguments aside, we come back to the same issues you need to be addressing in your own enterprise:

  • Where does complexity exist?
  • Why? What was the purpose of those policies or procedures?
  • Do they still apply?
  • If no, how do we get rid of them without causing replacement complexity?
  • If yes, how do we redesign what we've got to reduce the complexity?
  • And, finally, do we have the right measures to ensure that this - as well as other - complexities in our system are findable and addressable?
Go through that mini-assessment and you'll suddenly find that there are LOTS more profits available in your existing organization than you currently gain.  Fast and easy, too.

Then you can start taking on the hard stuff.

For more information on successfully implementing Quality and Lean, take a look at:

About Those Consultants...


When the email alert from FastCompanypopped up on my screen promoting an article entitled, “6Golden Rules for Turning Consulting Relationships Into Breakthroughs,” Iimmediately thought, “I’ve got to see this one.”

Mostly because, no matter what itpresented, I probably wasn’t going to believe it.  Or agree.

Not that I have anything against Mr.Vossoughi or his 27 years as an innovation consultant at Ziba.  I’m sure he’s done some very fine work.

It’s the consulting model that Ihave a problem with – and so should you.

Full disclosure, here.  I’ve worked as a confidential executiveadvisor for as long as Mr. Vossoughi. During that same time period, I’ve written and spoken and been a serialentrepreneur – and fought against the consulting model starting from the days before I started my ownbusiness and continuing, as you can see, to right now.

Why?  Because it’s a toxic model designed to create a sense ofdependency – not just for the immediate help you’re getting, but for any andevery other service the firm or its partners can justify selling you.

Don’t blame the consultants –especially if you have them in house at the moment.  (You really don’t want to get on their bad side.)  They’re stuck within the same toxicmodel as they’re imposing on you.

Instead, let’s take a quick look athow the model works – and what you can do about it now and in future wheneveryou think about bringing consulting help in.

The Consulting Model

No matter how expert in yourindustry the consultants you hire might be, the first thing to remember is thatthey’re not, actually, part of your industry.  They’re part of the consulting industry only. 

Sure, they’ve got smarts andexpertise you want – but they’re not you. They’re them and they have a different agenda than yours – even for yourcompany.

Because the way that consultingengagements work from an inside-the-consulting-firm perspective has nothing todo with the work they’re doing for you right now.  It’s all about the follow-on work that they can sell you.

If you’re playing with the Big Boys,the partners are expected to cross-sell other services.  If you’re playing with a mid-size orboutique firm, it’s in their best financial interests to generate continuingbusiness with a handful of clients rather than the senior members spending theirtime marketing.

That’s what the writing and speakingis for.  Marketing in absentia.

And even if you’re working with asmall or mid-sized firm, you can probably count on their being part of someform of consortium of consultants…which means they’re cross-selling into theother consultants’ expertise.  Justlike the Big Boys.

Don’t get me wrong.  They won’t do a ‘bad’ job for you onthe gig they’re doing.  In fact,they’ll do the best they can to do a great job for you.

It’s their agenda that’s importantfor you to know and understand. It’s not this gig.  It’s thenext.  And the one after that.  And the one after that.

So What’s an Executive To Do?

There are three keys to making theconsulting relationship make sense from a corporate perspective.  They are:

1.    Define the Terms
2.    Make Sense of the Measures
3.    Terminate.  Forever.

We’ll take them one at a time.

1. Define the Terms

You probably think you’re alreadydoing this – and you are.  At leastfrom your perspective.  But nottheirs.

When you define the terms of theengagement, limit the services you’re buying to very specific, time-limited,highly measurable outcomes – one of which is to ensure that the consultants arebuilding expertise and an infrastructure within your organization made up ofyour employees so that there is no need for the consultants to return.

2. Make Sense of the Measures

Consultants usually provide theirown measures for success.  Theypromise you that they will deliver a something – whether in the form of hoursor cost reduction or something else that they can easily tie to theiractivities.

The trick for you is to make surethat what they’re delivering ties directly into your strategic measures.  Not their operational ones.

Frankly, their measures don’t – orshouldn’t – matter to you at all. The only measures that count in your organization are the ones thatdemonstrate that the enterprise is achieving the strategic goals you set outfor it.

Otherwise – consultants or not – whyare you doing what you’re doing?

So don’t let them tell you how youmeasure the success of their activities. You tell them.

3. Terminate.  Forever.

If the consultant has any inkling atall that there’s an open door for them – or their colleagues or consortiamembers – to come back and provide new services, you’re a goner.  Remember, that’s their goal.  That’s how they win.

So, when you’re defining terms, makesure that the most important term is the time limit and the fact that they willnot be invited back again. Ever.  Even if they do thebest job in the world for you.

In fact, if they have done the bestjob, then you won’t need them back. At least not for anything like what you have them in for now.

Be polite – but show them thatthere’s a door and you’ll be escorting them through it exactly when you say youwill.  They’ll get paid – but onlyfor this gig.  They’re not going tobe able to plan their retirement around you.

A Final Word

Consultants really are wonderful forwhat they do.  They bring newknowledge, expertise and perspectives into your organization that wouldn’totherwise be readily available.

But, even as you look to theconsulting world to answer your questions, look, also at the local colleges anduniversities to see what courses – both credit and extension – areavailable.  And don’t forget thetechnical and community colleges. Sometimes they’ve got exactly the answer you need at a much lower cost.

The goal – whether with consultantsor any other means – is to build success within.  Focus on that. Make sure that your people are being developed – all the time – andyou’ll find that you don’t need as many consultants as you thought you didafter all.

You can read more about this - and other immediate fixes to your organization - in my new ebook, The Proactive Troubleshooting Guide to Quality, Change and Development Initiatives available from Amazon.

Deming, Health Insurers and the Myth of Scarcity

There's an absolutely riveting article about the record-breaking profits health insurers are making - even as they increase premiums to their customers by double digits.

How are they achieving these incredible financial feats?  Not only is it because of the usurious fees (with ever-increasing deductibles) they charge, but they are also benefiting from the economic downturn.

People keep paying their premiums, but because of those ever-increasing deductibles - now ranging from $2-4K per year - patients are not going to the doctor.  Or having necessary tests.  Or treatment.

Like for cancer.

Because, in this economy, when so many are one paycheck (at most) away from destitution, going to a doctor is a choice.  After all, you may need that money to pay for an unjustifiably priced gallon of gas so that you can get to work.

Unjustified, that is, if you're anyone other than an oil company.

It's gotten to the point that even the shareholders don't feel as strongly as before about the levels of profits the companies they invest in are making.  Even if they receive dividends.

Because, just as the politicians are so disconnected from what's going on along Main Street - or in people's homes - CEOs have lost sight of the fact that their companies are there to serve a greater purpose than simply for the few who own shares.

Or to fill their own pockets.

No matter the product or price point, they're supposed to be contributing to the betterment of society by improving quality of life.  Of everyone's life.

I'm a capitalist to the core.  I want everyone to make money.  I want those who strive - whether minimally or maximally - to proportionately benefit from the work they do and be able to buy what they want.

But I don't believe in exclusivity.  Not when the exclusionary policies and actions on the parts of CEOs and their corporations lead to desperation, disease - and death.

When did corporations lose any semblance of having a clue?

It's more than a Gordon Gekko.  It's not just that "greed is good."

It's that greed - impossible levels of personal and corporate greed - have become standard operating procedure.

It's unconscionable.  Those CEOs, speculators and others pursuing that strategy should be ashamed.

And, frankly, while I applaud the actions of Bill Gates, Warren Buffett and others in the billionaires' club for giving their money to charity - they left it awfully late.

And it's still not enough.

Deming, the management theorist who is the father of what we now call "Lean" and "Six Sigma" (among others), always said that there was no scarcity.  That scarcity is a myth.

That we create scarcity by creating management and corporate systems that either don't access the capabilities of our employees or adequately and fairly share the benefits of what those employees have achieved on behalf of their employer.

Or both.

He was right.  And now it's worse.

Because the health insurers are only one of, literally, a world of corporations that are making, literally, incredible profits.  With war chests of money that analysts and investors are starting to worry are getting too big.

And with speculators who drive prices of commodities up so high that they have to drive their own correction because the public responds by not buying.

What's their justification?  They're afraid - yes, afraid - that things might get worse.  Later.  At some point in the future.  Possibly.

Cowards.

It's time for executives to wake up and smell the coffee.  (I'm being very, very polite here.)

It's time for them to think about the context within which they and their organizations exist.

Everything is not about you and how much you and your cronies make.  Nor is it about "satisfying the shareholders" as you so conveniently excuse your actions.

It's about whether you're willing to do more than do well.  It's whether you're also willing to do good.  On everyone's behalf.

It's time to start.  Now.

Resource:

Health Insurers Make Record Profits as Many Postpone Care (NYT)