Corporate Objectives?

An especially vivid statement of this point of view was expressed over 30 years ago by the CEO of a textile company called Indian Head Mills:

"The objective of our company is to increase the intrinsic value of our common stock. We are not in business to grow bigger for the sake of size, nor to become more diversified, nor to make the most or best of anything, nor to provide jobs, have the most modern plants, the happiest customers, lead in new product development, or to achieve any other status which has no relation to the economic use of capital. Any or all of these may be, from time to time, a means to our objective, but means and ends must never be confused. We are in business solely to improve the inherent value of the common stockholders’ equity in the company."1

Internal Yardsticks

At one point, he said, Buffett asked whether he'd rather be the world's best lover and have the world think he's the worst, or be the worst and have it think he's the best. The point was that a good investor should have faith in "internal yardsticks," and not second guess strategies just because they seem unconventional to others.

windfall tax. just plain stupid.

“I think it is very hard to have windfall taxes,” Buffett told CNBC’s Becky Quick on “Power Lunch” from New York City.. “Steel has doubled in price. Is that a windfall for the steel producers? Sure. Corn is $7 a bushel; soybeans are at $15 a bushel. I don’t think any candidate in his right mind with the number of electoral votes in farm states would say you ought to tax farms specially because they are getting a windfall.”

“But they [farms] are getting a windfall from commodity prices,” Buffett said. “Maybe they deserve it because commodities have been under priced, but to pick out one commodity – with copper at $3.60 a pound, you could say that the copper producers are getting a windfall. The networks are getting a windfall because of the Olympics. So, I don’t think that picking anybody that’s had a commodity that’s increased in price a lot and saying that there’s a special tax because of that makes any sense.

Getting past No

Joint problem solving relies around interests instead of positions. You begin by identifying each sides interests – the concerns, needs, fears, and desires that underline and motivate your opposing positions. You then explore different options for meeting those interests. You goal is to reach a mutually satisfactory solution in an efficient and amicable fashion.

Striking back rarely advances your interests and usually damages long-term relationships. Even if you do win the battle, you may loose the war.

Marking to myth

speed up your decision making cycle

1. let your hypothesis determine your analisys
2. get your analytical priorities straight
3. forget about absolute precision
   
4. triangulate around the tough problems

From the McKinsey Way.

before investing

Ask yourself what do i need to believe in order for this to be a good investment. What are the ways in which this investment could blow up?

Passing Judgement

There is nothing wrong with offering an opinion in the normal give-and-take of business discussions. Bit it's not appropriate to pass judgment when we specifically ask people to voice their opinions about us.

Try this: for one week treat every idea that comes your with from another person with complete neutrality. Don't take sides. Don't express an opinion. If you find yourself incapable of just saying "Thank you" make it an innocuous "Thanks, i hadn't considered that" or "Thanks, you've given me something to think about".

Following this advice will reduce the number of pointless arguments you have at home and work.

Marshall Goldsmith, What Got You Here Won't Get You There

do you add too much value?

call it the curse of the intelligent, successful, or arrogant.

it is extremely difficult for most people to listen to others tell them something they already know without communicating somehow that 'i already know that' and 'i know a better way'.

Sticky Ideas

1. Simplicity
2. Unexpectedness
3. Concreteness
4. Credibility
5. Emotional
6. Stories

From Made to Stick (Chip & Dan Heath)

The pardox of a learning organization

There are two other things that companies need to do to get smarter that are also contrary to common practice. The first is letting people do new things, a decision that often has costs in terms of short-term efficiency. It is obvious that learning at the level of the individual involves a certain amount of beginner’s clumsiness—whether one is learning how to play a musical instrument, speak a new language, or make investment decisions. The irony is that even as companies want to become learning organizations, they don’t want to be places where people can learn new things— because that requires putting people in positions where they do tasks they don’t yet do very well.

What Were They Thinking? Unconventional Wisdom About Management by Jeffrey Pfeffer

Feedback Effects

When I teach executives, I sometimes run the following little thought experiment. I will go up to one and say, “Assume that you work in my company and that you are who you are—a competent, experienced, hardworking, intelligent individual, doing your best to do your job as you think you should. Now I come to you and say, ‘Our organization has fallen on hard times—which, by the way, may be because of strategic mistakes you had no part in making—and in order to restore profitability and financial viability, we need to cut salaries and other employee expenses such as benefits, by about 25 percent.’ How do you feel about this, and what are you going to do in response?” I have never once had an executive respond by thanking me for making the tough decisions required to keep the organization economically viable. Instead, I typically get one of two responses. The first, often communicated with a reasonable amount of anger and emotion, is that the person is immediately going to look for another job and leave. The second response, if I add that general conditions of the job market preclude such a move, is that he is going to withhold effort and ideas, cut back on what he does, and maybe even find ways of getting back at management by intentionally messing things up.

Note what cutting salaries does beyond the immediate benefits of reducing the wage expense. First, it drives people to leave. And who is most likely to be able to find another job? Usually, the best people—those who have the most skills, experience, and the highest levels of performance. As the best people leave, turning the company around becomes more difficult, because turnarounds require insight and skill, and both are being lost. Second, cutting salaries creates a desire on the part of those who remain to passively (by slacking) or even actively (by sabotaging) harm the company. Such actions, or inactions, obviously make organizational performance worse and improvement in results more difficult to achieve. As a consequence, companies frequently find themselves in a pernicious race to the bottom, to see whether or not they can cut costs faster than the unintended consequences of those cost cuts reduce subsequent organizational performance.

Jeffrey Pfeffer
What Were They Thinking? Unconventional Wisdom About Management

Predictions

"a lot of people would rather have utterly meaningless predictions than no predictions at all." - Steve Gibson (The future and its enemies).

***

Isn’t it strange that the same people who laugh at fortune tellers take economists seriously? (The Rotarian,July 2000). Famous MIT economist and 1970 Nobel laureate Paul A. Samuelson called this fact to our attention in an article in Newsweek, September 19, 1996: “Wall Street indexes predicted nine out of the last five recessions.”

***

The fact is that no forecasters or experts, not even the best-equipped or the best-informed experts, including the CIA and the big international media networks, predicted any of the great events of recent history, including the fall of the Berlin Wall, the fall of the Shah and the subsequent surge of the Islamic Revolution in Iran, the Asian economic crisis in the 1990s, the terrorist attacks on the New York World Trade Towers and the Pentagon in September 2001, or the Asian tsunami in December 2004.

***

Just for the fun of it, and to avoid the feeling that we exaggerate, here are three experiments that anyone can make:

1. Dig out some old copies of business or finance magazines or newspapers, read their forecasts for the period that has elapsed, and compare with what really happened. In some exceptional cases, you may find that the difference between prediction and reality was small. There is nothing to say that guesses about the future have to come out wrong. Guesses can go either way. Chances are, however, that you will have a good laugh at the comparison.

2. Go back to your own company files of a couple of years ago and review some of the planning or forecasting documents that the management team discussed and perhaps acted on. Check how much of the forecasts came close to the real outcome!

3. Find a newspaper page showing the development of stock prices over a day, a month, or a longer period. They register what really happened, so they are safe. Now take a marker or a pen and try to establish a point, or a few points, for each of the curves and decide when you would have felt comfortable to go in and make a forecast!

(Credit: Performance-Based Reporting: New Management Tools for Unpredictable Times by Hans V. A. Johnsson and Per Erik Kihlstedt )

***

Predictions can anchor us (thoughts, framing).

Simplicity

Simplicity is about subtracting the obvious, and adding the meaningful.

Probability and Textbooks.

Outside of textbooks and casinos, probability almost never presents itself as a mathematical problem or brain teaser. Mother nature does not tell you how many holes there are on the roulette table, nor does she deliver problems in a textbook way (in the real world one has to guess the problem more than the solution)…

Complex Systems

The coffeemaker or entertainment system of a commercial aircraft is not supposed to bring down the plane, but both have done so in the past, and it is within the realm of possibility that it could occur again in the future. An airliner is a perfect example of a complex system: a large mass containing explosive fuel, flying at high speeds, and operating along a fine boundary between stability and instability. As chaos theory suggests, small forces can upset the system, causing a chain of events that results in the destructive release of the large amount of energy stored in the system. Interestingly, sometimes efforts to make those systems safer, especially by technological means, can make the systems more complex and therefore more prone to accidents.1things bigger, more complex and more violent.

Coca-Cola is in the penny profit business

"Wal-Mart’s selling Sam’s Cola. And Wal-Mart is a very, very potent force. One thing that’s helpful is that they were selling it as cheap as $4 a case here. And I don’t believe that’s sustainable. That’s 16 2/3 cents a can.

It’s been a while since I looked at aluminum—and it’s down. But I think the can is close to a six-cent item by itself. The can is far more expensive than the ingredients... Distribution costs, trucking, stocking and all that sort of thing have to be fairly similar. In a 12-ounce can, there’s 1.3 ounces of sugar—which at the domestic price, would be around 13/4 cents per can. And that’s got to be the same whether it’s Sam’s Cola or Coca-Cola.

The Coca-Cola Company sells about 700 million 8-ounce servings—largely of Coca-Cola, but also of other soft drinks—worldwide every day. If you take 700 million and multiply it by 365 days, you come up with 250 billion or so 8-ounce servings of Coke or its products in the world each year.

The Coca-Cola Company made about $21/2 billion pretax last year. That’s one penny per serving. One penny per serving does not leave a huge umbrella. The generic is not going to buy the can any cheaper. And they’re not going to buy the sugar any cheaper and so on. Their trucks aren’t going to be any cheaper."

Buffett

A pint sized problem

The Fringe Benefits of Failure, and the Importance of Imagination

J.K. Rowling gave the Harvard University Commencement Address.

E-Books - where do the profits go?

From the NyTimes

"Amazon sells most Kindle books for $9.99 or less. Publishers say that they generally sell electronic books to Amazon for the same price as physical books, or about 45 percent to 50 percent of the cover price."

Seems odd that the publishers would get all of the profits. Another interesting point in the article was that purchasers of the kindle *thus far* have continued to buy physical copies at the same pace as before.

Interesting: Asset class performance

Annual returns for asset classes (1987—2007) ranked in order of performance (best to worst)

here.

Strategy as a wicked problem?

In a recent Harvard Business Review article (Strategy as a Wicked Problem) John Camillus lists the ten properties of wicked problems.

"Companies tend to ignore one compilations along the way: they can't develop models of the increasingly complex environment in which they operate. As a result, contemporary strategic-planning processes, don't help enterprises cope with the big problems they face. ... I believe many strategy issues aren't just tough or persistent - they're wicked."

Properties of a wicked problem:

1. There is no definitive formulation of a wicked problem
2. Wicked problems have no stopping rule
3. Solutions to wicked problems are not true or false, but good or bad
4. There is no immediate and no ultimate test of a solution to a wicked problem
5. Every solution to a sicked problem is a "one-shot" operation; because there is no opportunity to learn by trial and error, every attempt count significantly.
6. Wicked problems do not have an exhaustively describable set of potential solutions, nor is there a well-described set of permissible operations that may be incorporated into the plan.
7. Every wicked problem is essentially unique
8. Every wicked problem can be considered to be a symptom of another problem.
9. The existence of a discrepancy representing a wicked problem can be explained in numerous ways.
   
10. The planner has not right ot be wrong.
    

Are girls just better?

According to the economist girls are getting as good as boys in math and are better at reading.