The Good and Bad of Commerce

This morning as I was reading my Bible and various books, I had several different thoughts. These thoughts are easily grouped into two topics: What good commerce looks like and should be emulated, and bad commerce that should be changed.

The first group involves good commerce. There is a privately held Software Company named SAS which has an employee turnover rate of 2.6%, when compared to the industry standard of 22%, is quite impressive. Jim Goodnight, who is the CEO, has a motto “Treat employees as if they make a difference and they will.” To me this is a great example of how its business  and personal. Employees are treated well, who in turn treat customers well, who in turn treat the company well.

Contrast that with a local company that seems to have a horrible management team. A major change was announced on a Friday not allowing any discussion about why, etc. The employees who were informed of this major change fell into two camps, those that liked the change and those that were devastated by the change. The individuals most affected by this change were the employees that had been with the company over 20 years. The options provided to these employees really were horrible, and the way these changes were communicated was horrible. I don’t know what the turnover rate for this company is, but it must be pretty high. Several employees have quit recently, and the company has been sued several times by disgruntled employees.

Jeffery Pfeffer writes that a company’s employees are its competitive advantage. It seems that Jim Goodnight understands this concept, while this other company does not. How long will this second company last? It seems to be hemorrhaging customers. Everyday this company gets letters of complaint. I don’t think this company has the will to change, and is only still is business due to the fact of its size. But the size is shrinking. Eventually the fixed costs will be too great to maintain desired profitability. I predict this company will fail.

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Being Responsible

Being responsible is something we try to teach our children. We want our children to grow up and contribute positively to society, and generally speaking, all of us want to leave this world a better place when we go on to the next life. These are personal desires that should also be corporate desires. Our understanding of what sustainability means has evolved from being economically focused to a more holistic framework that includes social and environmental considerations.

The corporate world seems to be a bit confused when is comes to the social and environmental pillars of sustainability. The ability to self police, again generally speaking, is suspect. Some think that if commerce would have been more responsible and exercised self control in its relationship with the environment we would not have the tough pollution laws that we have today. Is that a fact?

History gives us many examples of how extremist business practices have negatively impacted scarce resources. One example is called the tragedy of commons. This was a phrase used to describe how the medieval practice of allowing as many cattle as desired to graze in a public area was destructive leading to overgrazing.

Another example is in the area of fishing. If one company does not catch all the fish in the common areas, international waters, then it is leaving it for someone else to catch. However, in response to this excess, some countries have instituted a property rights system that gives catch shares to individual companies. The fishing companies then have the right to fish, or buy, sell, or trade those rights. This seems to be similar to the cap and trade pollution rules currently in debate.

Our romantic ideals of a free market are good, but the reality is if business is left to itself it will gravitate toward extremism. We need a balance, or partnership between government and commerce for the good of enterprise.

Good News and Bad News

After today’s announcement that the Boeing Company has been awarded the military contract for tankers, I thought about a paper I recently completed. I started the discussion by citing a dated article by Willard Scott discussing the state of the aerospace industry.

In Aviation Week and Space Technology, William B. Scott argues that there are systemic problems within large aerospace companies in the U.S. that “are unseen cancers that could spread quickly, triggering a loss of profitability and a decrease in the quality of air transports, rockets, satellites and myriad defense systems.” He goes on to further identify these problems as a lack of vision, survival management, and ten years of downsizing. Actually these activities are part of a two-pronged attempt to create value and maintain double-digit profit margins in highly competitive market. Through an application of lean manufacturing that does not take into consideration differences in culture, human creativity is being replaced by highly defined process steps. One result of this activity is new talent, younger workers, are either going into different fields, smaller companies where their skills can be more broadly developed, or work from the beach.

What this lack of leadership has done is undermine trust between management and labor. This discussion only uses the aerospace industry as an exemplar of the condition of the relationship of labor and management throughout the US. Students in my graduate classes tell me how bad their leadership is, and how they want to do things differently. This is all anecdotal but still gives an indication that there is trouble in paradise.

In the context of global economic struggle commerce in the United States of America is a wounded warrior, and it must heal itself to better compete. The wound occurred over a period of years where management recreated an environment of distrust. The mimetic forces resulting from a changing environment  resulting in outsourcing, offsetting, and rightsizing has forged an environment of distrust and alienation between management and worker. This is counter productive and incongruent with the human need to find fulfillment within the work one does.

Gary Shapiro writes of an experience he had in China where a Chinese official stated that America was going down and China was going up. I appreciate his thoughtful response to the event. It is good that China is going up, but it is imperative that America go up too. The only way this will happen is by a collaborative effort. Management and labor working together for the good of all.

Leadership and Stakeholder Balance

When Louis Gerstner was hired as CEO at IBM he told his team at its first official meeting that employees didn’t need a bunch of feel good speeches they needed leadership. Leadership that focused on solutions and actions.

Any time one does what IBM did to reduce fat and improve performance, certain difficult decisions need to be made. Often these decisions impact people. IBM did layoff people during the years that Gerstner was CEO, but that was not his main purpose. His main purpose was to operate and build. He transformed how operations worked by ensuring the company would be one entity not many. He also reconnected with the customer. But most of all he lead by principle.

Contrast that with a company I know of right now that is destroying its customer base and employee morale. They are in a horrible state. They are using antiquated management information systems, instituting working hours that are unfriendly to the customer, and destroying the morale of their employees via human resource activities that are straight from the dark ages.

The performance ethic of this company is focused on the financial welfare of the leaders of this organization. Therefore, this organization is suffering from stakeholder imbalance. As this company’s leadership focuses on selfishness, it throttles the creativity of its employees, who in turn treat the customer horribly, which in turns causes the customer to go elsewhere, which threatens the financial needs of the leaders. The negative spiral is set in place.

This reminds me of Israel and manna in the Old testament. Those who gathered much had nothing left and those who gather little had no lack (Exodus 16:18). Leadership in organizations need to focus on a balanced operational plan. Take care of your employees, who will take care of your customers, which in turn will take care of the owner. Anything less than that will be leading the organization to disaster.

Capitalism or Socialism

A couple of years ago I discovered FDR’s Second Bill of Rights. Among other things he felt that everyone has the right to a useful and remunerative job and the right to a good education. He also proposed that every business person, large and small, had a right to experience an environment that is free of unfair competition and domination by monopolies. I have brought this up in several of my economic and business ethics classes. Many times it has led to a discussion of capitalism versus socialism.

Capitalism is a system that maintains individual ownership of the means of production, and wealth is a result of individual hard work. Socialism on the other hand advocates that ownership and wealth is owned and controlled by the community as a whole. Students will always want to jump to a zero-sum discussion where one is bad and the other good.

It does seem appropriate to bring human nature into this conversation, at least one aspect of it, self-interest. Adam Smith discussed self-interest and made the point that a economy is driven by individuals seeking to express their self-interest. Buyers and sellers both are demonstrating their self-interest within the market system through the demand and supply process. This does not mean selfishness, it just means that human beings have needs and those needs are met through an economic activity.

This basic need can be met in both economic systems, but often these systems become corrupt because humankind is less than perfect. A capitalist system that exploits humanity for the sake of the few is just as bad as a socialist system that exploits the many for the few. It either case there is a “just business” mentality. Marx’s critique of capitalism warns of a bourgeoisie exploitation of labor to create surplus capital, or profit for the capitalist. Whereas Orwell warns of some being more equal than others. In either case the relationship between those in power and regular people is violated. Instead of creating a positive relationship, the association is manipulated and allows those in power to control those that are not. This is the exact opposite of servant leadership.

Being a Leader or Being a Boss

I am reading a book named “the Empowered Leader, 10 Keys to Servant Leadership.” This book was written by Calvin Miller. At the beginning of each chapter there is a letter from the follower to the leader. There is a comment in letter 1, that I find very interesting. “I am looking for a pastor who really believes that he who is greatest among you must be your servant (see Matthew 20:26). For me, Jesus abandoned His need for CEO status that night he knelt with a basin and towel and started washing feet. This is a modern age and all that, but I’m not looking for a pastor with an eelskin briefcase and matching Daytimer. I am far more eager to follow that leader who is unashamed to carry a basin and towel. That’s the person who lives as Jesus lived.” The point of this letter is the follower is tired of Pastors starting as a leader, and finishing as a boss, “tending to their religious machines, ordering them to produce growth.”

I am not using this as an indictment against the modern pastor, it is something that God has used to challenge me. What is my role as a professor in the classroom? Am I to be a boss or a leader. If my role is boss, then I will work hard to make sure students pay attention by closing students laptops if it appears they are surfing the web or sending emails. Or I may want them to be quiet and pay complete attention to me, because I am the only one who knows anything. It seems to be this type of environment is detrimental to what I want to see in the student’s life and in my classroom. If I play the role of a leader, then I will challenge the student to think differently. I will prepare classroom events that engage different learning styles. I will ask the students challenging questions that help them learn how exciting it is to learn! These are things that are important to me, things that I have been taught over the years that have been beneficial to my growth.

If I am going to put a towel on and take a basin to wash my students feet and serve I need to be prepared and willing to love. I’d love to hear your thoughts on this. What does it mean to be a leader in the classroom?

Just Business or Personal

In Europe people are protesting the reduction of pensions and an increase in retirement age. In Wisconsin people are protesting reduction of wages. When money is plentiful it is like floating a boat down a river. The water is high, therefore all the rocks are covered and one can navigate freely to their destination. However, when the water level is reduced, all of a sudden the rocks are exposed.  What we are observing is the result of the lowering of available money. Now we are seeing all the rocks, all the problems of overspending and mismanagement. To me these events illustrate the importance of operations management. Organizations (for profit, not-for-profit, or governmental) need to be run well. Efficiency and effectiveness is just as important today as any time in the past. However, as we move down this road of economic adjustment we need to remember that organizations are made up of human beings. Human beings that are afraid of the future. During this chaotic moment of change, managers must remember to care, they must never forget to care. I thought of this the other day when I caught the end of Liam Neeson’s movie Taken. There is this great scene where Neeson’s character has broken free from his captures and confronts the man who has just sold his daughter to a wealthy man. The man who had sold Neeson’s daughter states rather mournfully that it was just business, and as Neeson shoots this man he states, “to me it was all personal.” All of a sudden I saw the essence of the tension we are experiencing. To leaders and managers it is just business, but to the people affected by these changes it is all personal. May we never forget that these actions of reduction are personal because they impact people.