Category Archives: rants

Master of Business Annihilation

After reading a number of recent articles on the decline of American Industry and the rise in MBAs, including this recent article in Time on “why a rise in MBAs coincided with the fall of American Industry”, I’ve decided that what MBAs were really being trained for was Annihilation of the economy.

I have to agree with Bob Lutz, who, in his new book on Car Guys vs. Bean Counters: The Battle for the Soul of American Business, says that we need to fire the MBAs and let engineers run the show. After all, who else would insist that a Cadillac ashtray be designed to function at -40F (which means that it won’t function at normal temperatures and will stay closed unless you’re in North Dakota, Northern Maine, or Canada in the middle of winter).

Just “imagine Apple with an MBA on top”, like Brooke Crothers did. There’d be no iPad and no iPhone — just netbooks and Motorola Rokr clones to take their place. After all, if you’re a MBA, all products have to be low risk, devoid of inspiration, and easy on the balance sheet. And if you’re an engineering pitching a MacBook Air to an Executive MBA for the first time, you know you’re going to hear “What? You’re saying you want to build a unibody laptop out of one piece of aluminum with only a few connectors? Do you know how much that will cost to build? I don’t see anyone else doing it? HP? Sony? And who’s going to buy it? Are you brain-dead?. And then when you try to pitch the iPad, you’re likely to get a “Hold it. Stop. I’ve heard enough. 10 inches but no physical keyboard? What would anyone use it for? Just buy a laptop. And we already make those. And I suppose you’d want to make that out of aluminum too with almost no ports. What rock did you crawl out from under? Where’s your cost argument? Didn’t you get the memo?“.

In other words, MBAs are increasingly trending toward the short-term, myopically balance-sheet-driven management that has infected American business. And while I’m all for mathematical modelling, game theory, and complex statistical analysis, they have their place. And their place is to reduce sourcing cost, not to restrict product innovation. Before the MBAs took over in the late 70s, the leading companies spent most of their time and money on new technologies to create the best possible products or service on the if you build it better, the customers will come philosophy. Which, if you look back, worked great for almost a century. Then came the MBAs. And now entire industries, like the automotive sector, are in decline.

And it’s all because of MBAs and their balance-sheet-driven management that is focussed on the quarterly numbers. As the TIME article notes, this just results in planning that’s reactive rather than smart: force the highest-paid engineers to retire, even if they are the best, and reduce payroll costs across all divisions rather than invest in the ones that are pushing the New New Thing through the pipeline. And when your brightest engineer, like your top coder, is many times more productive than an average engineer, as she is the one coming up with great new product designs, lean process reductions, and sustainable designs (that your marketing department can go goo-goo ga-ga over), this is just stupid.

Moreover, it’s ultimately their focus on the quarterly numbers that is responsible for the extended jobless recovery that we are undergoing right now. After all, as Jeffrey Immelt told a jobs summit at the U.S. Chamber of Commerce, responsibility for hiring lays with business. Business have to take action — like taking some risks, and thinking about bringing back jobs that had been moved overseas.

And this, of course, is precisely what the MBAs are advising against. Taking risks means risking the quarterly numbers, moving jobs back means, at least initially, increasing payroll cost (even though, with good ol’ American ingenuity, productivity might more than make up for it over the long term), and going first means breaking with the pack that is now blaming debt ceiling uncertainty for the jobless recovery instead of their own incompetence.

And while a change in government policies, such as new free trade agreements, a reform of visa rules, and an overhaul of procedures for permitting new projects will help, they are not hindering the average business. There’s often an alternative source for raw materials, products, and services where a free trade agreement is in place. The visa limits are high enough at the present time, considering no one is hiring anyway. Plus, if more American firms would follow Blum Inc’s example and build their own Apprenticeship program, they would have more than enough talent at home to choose from. And given the current administration’s need to create jobs, there is a real interest to make sure projects are permitted by any organization that follows all the rules. (This means you will need an expert in red-tape, but that will always be the case. Government is not ever going to regulate themselves out of the way.)

There’s just no evidence to the contrary. MBAs are the Masters of Business Annihilation.

And now the UK is a low-cost country too.

Well, not really. But you can now run call centers at parity in the UK when compared to the costs associated with running a third party call center in India. As per this recent article over in Global Services on how a “UK company reverts outsourced work from costly India”, New Call Telecom is opening a new call center in Burnley, England (a borough of Lancashire) because operational costs are on par with what they’d pay in Mumbai and New Delhi. Furthermore, since the average handling time of a call in the UK is 25% less, they will cut headcount costs as well. And the headcount they do hire will be “sticky”, unlike the Indian employees who leave for lunch and don’t come back when the call center across the street makes them a better offer.

So, now that it’s cheaper to open new call centers in the US and the UK, and now that Indian companies are hiring American citizens on American soil to fulfill the outsourcing contracts granted to them by American companies, is there really any reason to go to India? Maybe. But it is still getting more expensive by the day and will never offer home-soil advantages, especially in services.

Now, there is the problem that, because many companies outsourced all of their services, they no longer know how to even run a call center, but there is a solution for that. Insource some Indian experts to do it for you. And if you insource to Arkansas and set up some cameras, you can have the next great reality series. While NBC airs Outsourced, about ex-pat Americans shipped off to India to run call centers, FX will be airing Insourced about the life of an Indian call-center manager, who never left the country, who is shipped off to live with some hillbillies in the Ozarks.

Sustainability Requires More Than High Level Planning Guidelines

A recent article in Supply & Demand Chain Executive on how “CEOs pursue business opportunities where corporate and societal priorities converge”, summarized a recent Accenture study that noted how many CEOs are looking for sustainable profitability and ways to create value in line with societal goals.

The article, which noted that the Accenture study found that

  • 70% of CEOs realize that Sustainable Value Creation strategies must be evaluated using different criteria than traditional opportunities due to the longer time horizon required to generate returns and
  • 91% of CEOs face difficulties in identifying societal issues that link to competitive advantage and in measuring the societal and business performance of ‘sustainable’ initiatives

is promising in that it indicates that CEOs are now open to strategies that create value in a sustainable manner, but disappointing in that the five implementation imperatives to help companies create sustainable value that it summarizes are reduced to the point that they are nothing more than fluff that will result in the creation of bad strategy in your average organization.

Consider the following pieces of advice:

  1. Recognize the Opportunity
    This is obvious. If the organization does not understand that it should be sustainable and conscious of societal desires, it’s not going to even go down the sustainable path.
  2. Recalibrate Your Radar
    If the organization doesn’t change the way it thinks, then it’s not going to seriously consider sustainable strategies. Also obvious.
  3. Research, Develop, Repeat
    A good strategy does evolve over time. An organization that doesn’t realize this gets left behind. But stating fact is not helpful.
  4. Rewire the Organization
    Sustainable strategies do often require a different modus operandi. It’s not business as usual to go sustainable.
  5. Reinforce the Value
    The CEO must take a leadership role. But that’s true of any initiative.

They are not likely to produce good strategy. Why?

  1. They do not address the fact that the organization must also recognize the challenge to be overcome.
  2. They do not address the fact that the organization first has to understand what sustainable means. Otherwise, the radar can’t be recalibrated.
  3. They do not indicate what the measures are that will indicate success.
  4. They do not address How? It’s difficult to successfully engineer massive organizational change.
  5. They do not address how the CEO reinforces this value vs. other organizational values.

Organizations need lots of help, and lots of depth, to get sustainable. High level fluff is not going to help them.

Some Great Ideas to Revitalize the Innovation Engine, Part II

In yesterday’s post, we discussed some of the suggestions from Henry Nothhaft’s recent book, Great Again, on “How to Revitalize our Innovation Engine”. These suggestions included the liberation of entrepreneurs and start-ups from start-up killing taxes and regulations, the restoration of the VC engine to an earlier design where it worked well, and ending the indifference to domestic manufacturing. These are all great suggestions, but probably the most important suggestion Henry makes is to:

  • Fix the Busted Patent System
    It’s an IP economy and (legitimate) patents are critical for a successful innovation economy, especially since investors (and VCs) want to see IP and protection for that IP before (continued) investing. However, the patent office has a backlog of 1.2B that is growing daily, primarily because, what should be one of the few self-funding agencies is being treated as a petty-cash drawer by the politicians, who have cut 150M in funding this year alone. The patent office needs to be fully funded, needs field offices where patents are filed, needs to modernize, and needs to be able to price with the market (including fast-tracking pricing options).

About the only thing I’d add to Henry’s suggestion list is to:

  • Abolish sotware and business process patents
    The EU has it right. Software should not be patentable and business processes have existed since the day after the invention of money. All these types of patents do is clog up the patent system, enable the patent pirates, and stifle innovation as funds that should be spent on innovation get spent on overpriced lawyers instead.

So what does this mean to your Supply Management operation?

It means that if you want to enable long-term success, you should:

  • help your company establish an innovation fund
    to fund innovative new start-ups that are working on technologies that could revolutionize your manufacturing or supply chain
  • source (some product) domestically
    as not only will this help insure supply if the overseas option(s) suddenly become(s) unavailable (due to political unrest, a shipping disruption, etc.), but it will give you ready access to another source of innovation that will complement your own and support the local economy (which needs to be strong to increase local sales)
  • NOT buy from companies that support patent piracy
    if a company is flooding the patent office with software and process patents, don’t buy from them. Period. They’re the reason we have patent pirates, and if they all go out of business, or change their ways to stay in business, things might get better.

Another Headline from the Land of D’oh: Knowledge Management New Source of Competitive Advantage

A recent SCMR blog post reviewed The New Edge in Knowledge by Carla O’Dell and Cindy Hubert of AQPC that describes the Knowledge Management (KM) concept and provides some real-world examples of leading companies that have mastered KM. The post, like the authors of the book, states that the right knowledge enables the right decisions that improves organizational performance. Well, duh!

Knowledge has been improving performance for thousand of years in all sorts of organizations — corporate, religious, government, and military. As Sun Tzu wrote, so it is said that if you know your enemies and know yourself, you can win a hundred battles without a single loss. Churchill said that battles are won by slaughter and maneuver. The greater the general, the more he contributes in maneuver, the less he demands in slaughter. And Hannibal said I will either find a way, or make one. Thousands of years, and thousands of miles, apart, and all of these great military leaders understood the importance of knowledge, and managing that knowledge, to achieve success.

Knowledge is arguably one of the two greatest sources of competitive advantage (with the other being innovation). But this is nothing new. So don’t get lost in the hype.