NOTE TO SELF

This post isn't about my business school experience - although I'm sure I could manufacture some kind of connection by talking about the allocation of resources among First World and Developing World nations.  About how we have enough resources on the planet to take care of everyone; they're just unevenly distributed.  But the macro-economic analysis would just be a facade that would quickly break down into the real point about doing the right thing - so I'll skip the economic foreplay.

I just watched the latest news report about the drought in Somalia / Ethiopia / Kenya and it was unnerving.  I've been to Kenya and have seen IDP camps, small medical missions and HIV orphanages.  But I've never seen anything like this.  The numbers are numbing:

 - 12 Million people living in the area directly effected by drought conditions
 - 500,000 in camps in northern Kenya and 20-30,000 new arrivals each day
 - 7.4 per 10,000 dying every day; most of them children
- At least two more months of severe drought expected
- $300M in food/water supplies needed; the US can't provide supplies directly to Somalia because of rebel troops supporting terrorists

Before you feel yourself start to shut down in preparation to endure another rant seeking to blame others or a hand-wringing about how awful this situation is or how God shouldn't allow this to happen.  Please know that's not my intent.  It's not to blame the rich (although I'm tempted when I recall reading recently about Mukesh Ambani building his home in Mumbai at a cost of $1Billion) or to blame corrupt African governments (many are); or the poorly organized, over-politicized response from the West.  There's enough blame to go around and spending time assigning it doesn't help. 

This blog isn't much of a pulpit to speak from ... only a few of you read it.  But it's what I have available so I'm using it.  I've been to Africa several times and the temptation for someone from the West is to be overwhelmed by the scale of the problem and to throw our collective hands in the air and say it's just too big; nothing I do is going to make a difference.  I know that's how I felt many times.  But it does help; and not just the people to whom we send money or devote our time.  It helps us.  We are called to treat others as we'd want to be treated; to put the needs of others ahead of our own.

"Lord, when did we see you hungry and feed you, or thirsty and give you something to drink?  'Truly I tell you, whatever you did for one of the least of these, you did for me.'" 

My prayer for myself is this:  Let this be one time when I don't just listen to CNN and shake my head in disgust; let it be one time when I don't turn off the bad news and lose myself in the comforts that I have been given; let this be one time that I hear that "still small voice" that reminds me to love my neighbors ... and that my neighborhood extends to Somalia and Kenya and Ethiopia.

ACCOUNTING FOR GOODWILL

When I've noticed that a company is in the process of re-branding some part (or all) of its image, I've thought about cost implications of performing the actual re-branding - everything from new market directions, changes in operating procedures, down to the changes in logos.  However, I hadn't thought about the potential accounting costs as a result of having to write down the value of intangible assets such as "branding" and "goodwill".  When FedEx decided to re-brand its retail outlets to essentially eliminate the Kinko's brand from these stores in 2008, it took nearly a $900M write-down of the intangible assets associated with its 2004 purchase of Kinko's (the after-tax effect on income was $696M).  When I saw the name change on the store where I go to send my FedEx packages, I didn't think about this accounting impact.  Making the decision to change branding strategies has a broader financial impact than I'd previously considered.

YOU KNOW YOU'RE GETTING OLD WHEN ...

Had an odd experience a couple of weeks ago in Accounting class.  We were reviewing a Harvard Business School case about a company that got into some trouble for not clearly disclosing information to investors.  The professor was trying to make a point about how accounting information can be manipulated to hide problems.  This one turned out to be a bit more than manipulating; the company and its CEO and CFO were charged by the SEC with violations of anti-fraud and securities laws.  The company settled with the SEC for $10M and the CFO settled the personal suit for $100K (and the agreement that he not serve as an officer in a public company for the next 5 years).  The names of the CEO and CFO were included in the HBS case write-up that we reviewed in class.  Turns out the CFO is a guy that I worked with when we were both working for the same large company about 20 years ago.  Made me feel a bit old having personal experience with someone that is subject of a cautionary tale case study.  Small world.

A TALE OF TWO COUNTRIES

We are two weeks in to Quarter #2 and our classes are Financial Accounting and Statistics.  Interestingly, our accounting professor is from Germany and our Stats professor from Shiraz, Iran (both male this time; last quarter, both were female).  The two experiences could not be any more different.  Our German accountant is an avid surf fan - our first case analysis was on Volcom - with a very mellow demeanor.  He tells us that he's not trying to turn us in to accountants; just wants to give us the tools to know how to organize the numbers and make use of them in making business decisions.  To prove to us that he doesn't fit the accountign stereotype, he shows YouTube videos (Family Guy, etc) at the beginning of every class.  The pace is fairly leisurely ... at least in comparison with ....

Stats.  A very different experience.  The professor loves his subject matter and, I think, assumed that we knew far more than we did about the subject coming in to the class.  Our assignment before the first class was to read six chapters (250 pages) of our textbook.  After breezing through the first 6 chapters in the first class he gave us our first assignment which we turned in last night.  The assignment comprised 11 multi-part questions that took me, I'm ashamed to say, 5-6 hours to complete.  Turns out I wasn't alone.  There was a mini-mutiny in class last night as everyone was very concerned about having the time to keep up with this pace.  The professor commiserated with us and was very open to the dialogue, agreeing to provide extra help away from class.  However, he didn't waver regarding the content or pace of the class - "You are getting an MBA from UCI.  It's a serious degree."  Kind of respect him for that.  He probably doesn't surf ...

By the way, we've been discussing sample distributions in Stats and the prof frequently uses average class age as an example.  I've learned that I am what is known as an "Outlier" in the data (I loved the Malcolm Gladwell book; so I guess Outlier is a good thing?).  My age is beyond the upper limit in a Box & Whiskers Plot of the age distribution for my class.

SUMMER SCHOOL

We started our 2nd quarter this week - our classes are Financial Accounting and Statistics.  Doesn't sound exciting, does it? - especially for summer school.  However, I hear among my classmates an excitement about getting into some of the financial meat of our coursework.  These classes, we believe, will start to unlock some of the skills that will help us move to the next level in our organization or make that transition to another company or industry.

My two accounting classes in undergrad were taken nearly 30 years ago and I know that I didn't retain much from those classes.  However, I'm finding that I must have accumulated more accounting knowledge during my career than I'd expected as the concepts that I've read about in the first few chapters of the book seem very familiar.  The prof's approach to this class seems to be that he doesn't want to make us into accountants; he just wants to make sure that we have a facility with balance sheets and income statements so that we can understand and use this data in making decisions as managers.  So, it looks like the pace of this class will be manageable.

Stats may be another story.  We were required to read the first 250 pages of the textbook before the first class and the professor will assume that we know this as he starts the class on page 251.  If I remember very little of accounting from my undergrad years, I remember absolutely nothing from my stats class and I'm fairly certain that I haven't used much of it since.  First stats class is tonight ...

MORE OB LESSONS TO IMPLEMENT AT HOME

Just finished reading the last of my 565 pages of OB reading for the quarter (last class for the quarter is tomorrow!).  The readings ended with one by Peter Drucker entitled Managing Oneself written for the Harvard Business review in 2005.  Drucker's premise is that we all need to manage our own careers - the organization won't manage it for us.  Not a stunning revelation, certainly.  However, to do this Drucker recommends that we understand some things about ourselves and that the answers to these questions are part of our DNA.  That it is a waste of energy to change these things about ourselves.  We are far better served if we recognize them and then manage our career to put ourselves in the best possible position to take advantage of who we are.

As has happened to me several times in this class, I've found application of this concept beyond my career.  I have children ages 16 and 14.  I wish I had started a bit sooner with them but I am going to start a dialogue with them about the ideas presented by Drucker.  If my teenage children start thinking about some of these things now, it might help them focus on areas of study and occupation and life pursuit that fits with what God made them to be.  It certainly can help them eliminate what doesn't fit earlier than I did.  For myself, I know that I suffered in my college and early career years from not having eliminated anything as a possible career path.  So, rather than banging their heads against the wall of what they think society demands or what is "right", I'd want for my kids to start thinking about these things now.  I'll let you know how this goes as they are teenagers and, right now at least, I'm not one of the smartest people in their estimation.

If you're interested in some of the details, here are the four elements of Drucker's analysis:

1.  What are my strengths?:  Drucker says that organizations, schools, parents, all of us waste a good deal of time trying to take our weaknesses and make them at least acceptable.  Instead, we should focus this energy on improving our strengths such that we become experts in these areas.  This, also, is not a new concept.  Don Clifton, who later became the CEO of the Gallup organization, was probably the original proselyte of the idea almost 50 years ago.  Clifton developed his StrengthsFinder organization and, with Marcus Buckingham, published a book and a program for helping people discover what they are good at.  I remember listening to Clifton 20 years ago as he spoke to a small group of us at a company I was working for and I found his ideas - particularly about how we educate our kids - very refreshing at the time.  Drucker basically repeats much of what Clifton and Buckingham institutionalized years ago.

2.  How do I perform?:  Most people do already know a piece of this: the "How do I learn?" element. Am I a reader or a listener?  A writer or a talker?  These are easy self-assessments and can be easily confirmed by asking a couple of friends or colleagues.  However, we have to dig deeper and be tougher on ourselves to answer the questions:  Do I work well with people or am I a loner?  Am I suited to be the leader or the adviser to the leader? (hard to admit that you're best at NOT having to make the tough decisions).  Do I perform well under stress?  A big organization or a small firm?  Even if we ask ourselves these questions and have the answers, we frequently do nothing about the knowledge.  We continue in the safety of a large firm when we would take best advantage of who we are by moving to a smaller organization.  We strive to be in charge when our abilities are best suited to being a great #2 person.

3.  What are my values?:  This isn't about ethics.  It is about the value system of the organization with which you are working or considering a relationship.  Does the company hire from within or seek new blood?  Does the company focus on short-term results or long-term gains?  These (and many more questions like this) state emphatically what the organization values.  Items 1 & 2 on Drucker's list rarely conflict with each other - our strengths and the way we perform are complimentary.  However, this values item frequently presents a conflict with our strengths and the way that we perform.  It's up to each of us to recognize this conflict and, optimally, to place ourselves in organizations and groups that are consistent with our values.

4.  What Should I Contribute?:  As a society, we are no longer automatons that are simply told what to do by management.  Most of us are knowledge workers and we have to answer this question for ourselves.  To do this, Drucker says we need to ask ourselves three other questions:  a) What does the situation require?;  b) Given my strengths & my way of performing and my values, how can I make the greatest contribution to what needs to be done?  and, c) What results have to be achieved to make a difference?  I think most of us stop at question "a" and just do what needs to be done without much thought toward how I apply my own strengths to the situation and even less thought toward what has to be achieved to really make a difference.

One of the final points Drucker makes in his paper is that we need to realize that there are other people in our equation.  We don't manage our careers or our lives in a vacuum.  Understanding how the people around us work best; what their strengths and values are; and what and how they should best contribute is as important to our success as is understanding our own.  It sounds like a lot of work, but the anecdotal evidence Drucker presents regarding those that do this well suggests that it is worth the effort.

ECON HAS RUINED MY TRIPS TO THE GROCERY STORE!

At my age (and gender), grocery store strips are highly efficient.  I know exactly what I want, where it is and I keep it under 15 items so I can get out quickly.  However, since taking my micro-econ class, I've started paying attention to how companies are marketing their products and why they are positioned in a certain part of the store.

Take chips, for example.  I just noticed that most stores no longer have a "chips aisle".  Instead, the chips are strategically placed at the end caps of almost every aisle.  On a typical trip to the store, I'm not looking for chips and don't notice where they are.  But I've started walking through the grocery store looking for how the items are arranged and thinking about which items are high-margin items for the seller.  It makes my trips to the store more time-consuming as I find myself staring at items that I have no intention purchasing just to figure out why they are placed where they are.

I walked in my grocery store yesterday and noticed pita chips and hummus placed in an attractive display at the store entry.  Now, I like pita chips and hummus and I will eat them if they are put in front of me but I didn't go to the store with that in mind and I certainly wouldn't have searched for them.  So, does the knowledge that your behavior is being manipulated change your behavior?  It didn't change mine.  I knew it was the store's attempt to get me to grab an item that I wouldn't normally buy; but I stuck it in my cart anyway.  By the way, I was told not long ago that the milk is at the back of the store for a reason:  they know you need it so your trek to pick up milk will inevitably lead you past a thousand other items and attractive displays in the hope that you'll impulsively pick up more than just the milk that you need.   Maybe even pita chips ......

UCI BUSINESS SCHOOL DEAN - THE FUTURE OF UNIVERSITY FUNDING

About two weeks ago I attended a presentation by UCI's Paul Merage Business School Dean, Andy Policano.  The focus of the presentation was the dire financial straits of the California public university system.  Policano has co-authored a book (called Public No More) on the subject of tuition policy in public universities and he recently presented his points of view to UCI's B-school students.  His economic analysis - and even his suggestions for radically changing the system - are compelling and it is difficult to find fault with his ideas.  However, the "devil is in the details" of implementation and, after listening to the 1-hour pitch, it appears to me that he's about to grab several political "third rails" in proposing demolition of the current funding system.  I asked him a question about that during the presentation and it sounds as if he is realistic about the political obstacles; but he is passionate about his subject and seemingly willing to take this on to its logical conclusion (even if that's in the wastebin of "good ideas killed by the System").

First, though, are the facts and they are interesting:

- In the 1950's, the State of California provided 50-60% of the funding for its public universities.  Fifty years later, with the State budget consumed by increasing costs in its prison system, elementary education and welfare program, that amount is less than 20%. 

- While Policano claims that the cost (inflation-adjusted) of a college education in the US has dropped, the percentage of that cost has shifted from the State to the student:  student's share of cost has risen from 25% in 1984 to 37% in 2009.

-  Notwithstanding the much-reduced financial stake, state legislators still want to lay claim to the idea that the state provides inexpensive higher education to its in-state students believing that to be advocating for "access" to public education for all.  A highly political organization itself, the California Board of Regents (the entity that sets tuition policy) has artificially set tuition at a level that is below what the market would bear.

-  From my micro-econ class, I know that the State's reduced subsidy should cause an increase in tuition and a decrease in the number of students at this higher price.  However, the  political mandate that tuition be kept low keeps demand high at the artificially-set low price.  While we do hear about increases in tuition, they have nowhere near reached a market-rate level. 

-  This results in universities looking to fill the extra demand with out-of-state students who pay much higher fees.  This creates the ironic situation whereby applying the artificial cost cap has the opposite effect of increasing access as colleges seek more out-of-state students making classroom seats less accessible for the in-state students they were purportedly built to serve.  Further irony:  if the in-state student wanted to pay the out-of-state tuition to make him/herself more attractive to the school, they would be told that they could not voluntarily pay the increased tuition.  So, if students with identical high school records applied to Berkeley, one from CA and one from NV, the one from NV would be more likely to get in based on ability to pay higher fees.

Policano's solution?  Equalize tuition for in-state and out-of-state residents.  This would entail an increase in the yearly in-state tuition from today's average of about $11K to $22K/yr.  He proposes this to burn in over a 5-yr period.  He claims that this wouldn't reduce access for those in lower income brackets as households with family income less than $70K would go to school for free (this would be where the state's subsidy would be applied).

The Dean states that the UC President is trying, in vain, to get the State to agree to return to its subsidy levels of yore.  Policano says that's a fool's errand (my words not his).  The State isn't going to be able to find money to re-instate its subsidy even if it wanted to.  UCI's business school this year received only 3% of its funding from the State and next year he expects that number to be 0%. 

Other next steps advocated by Policano are that universities need to evaluate their programs like a business and prune those that are not high-quality programs and/or "net revenue positive".  They also need to streamline their processes so that they can be more market-reactive.

Here's the rub:  In order for Policano's system to work the older UC schools (e.g., Berkeley), that are currently the beneficiaries of an unbalanced UC financing system wherein they get a disproportionate share of the funding proceeds, would have to agree to a new system where everything is more "fair" but they get less funding.  One thing I learned from my OB class this quarter is that people will go along with an unfair system as long as the result for them is beneficial.  What is going to compel these old-guard schools to allow the system to change isn't clear.

I like the way Policano thinks - more accountability; schools thinking more like businesses - but I don't envy his chosen task of trying to tear down and re-construct the UC funding system.  Good luck, Dean Policano.  I'm rooting for you!

MOTIVATIONAL PRINCIPLES APPLIED AT HOME

This week in our OB class, we talked a good deal about the what motivates employees in the workplace.  One of the foundational principles of motivation is called Expectancy Theory.  It states that "before expending effort at work, employees ask themselves three sets of questions:

1.  What are the costs and benefits of my efforts?  Can I expect any rewards from the organization?  What costs might I expect from that effort?  Do my benefits from this effort outweigh my costs?

2.  How much do I, personally (not my friends, family, co-workers, etc) value each of these benefits and costs? 

3. If I expend the effort, what is the chance that I can actually perform at a level that would result in receiving the benefits that I value?  Do I have the ability and the resources necessary to succeed?


Expectancy Theory says that if any one of these three elements is missing, we would not expect any effort.  As the father of two teenagers, my mind went immediately went to my children and how, over the years, I've tried to motivate them.  I know that I almost always have focused on the first two concepts - helping them understand how expending effort now can lead to getting something they want in the future.  The concepts of delayed gratification and 'actions have consequences' have been been a focus in my trying to pass on work ethic and wisdom to my kids.

However, I think the one question that I haven't asked as often - and really is the critical first question - is 'Do you believe that you can do it?".  It's a different thing than me simply telling a child "You can do it!".  That support is usually helpful but isn't the same thing as understanding where the child is in believing in him or herself.  Asking the question says that I'm interested in understanding what they believe about the problem or challenge and engages them in working out what is important in their lives (creates buy-in) and in developing workplans and solutions that they feel that they have equity in because they've helped create the plan.

Applying this to a specific issue, I might ask these questions of my son or daughter:

1.     Do you believe that you can get A’s and B’s in school?  Why or why not?  Are there resources that you need that you don’t have that would get in the way of you accomplishing this goal?

2.     What are the benefits you perceive from getting A’s & B’s in school?  How much value do you place on these benefits?  What are the costs of pursuing A’s & B’s?  Do you value the benefits more than the costs?

 3.  What are the incentives that will motivate you to get A’s & B’s?

I may be naive in thinking that teenagers will engage in this dialogue, but I'm hopeful that it might lead to something beyond a simple carrot / stick approach and might actually let my kids arrive at something that at least looks like self-motivation?  I think it's worth a try.  Stay tuned.

AN INSIGHT FROM OB

Notwithstanding the experiences I described last week that have led to some cynicism regarding HR programs, some of the readings that I had for my OB class this week were somewhat encouraging.  One in particular, in describing the difference between leadership and management, stated that "Everyone has the ability to seize opportunities to lead others to greatness".  It rightly suggests that we shouldn't look for our leaders to arrive on a white horse with all the answers.  That there isn't just one person in a group, organization, company, etc that leads while all others follow.  Leadership occurs - or should occur - at every level.  We are all looking to connect with a vision and to be encouraged to find how to utilize our gifts to help realize that vision.  To that end, all of us can either create or become a part of a vision and lead others through our positive emotional connection to that vision.  But, leading others isn't telling others what to do.  It's getting them connected to the vision by understanding what their needs are and helping them see how their needs and the vision are in alignment and helping them understand the unique role that they can play in seeing the vision become reality.  This probably seems like common sense.  If it is, I would think I'd see more examples of it being implemented effectively.

ORGANIZATIONAL BEHAVIOR - CLASS #1

Had our first OB class last night.  Prof is high-energy (Lisa Barron) and should make the class fun.  As I read the material (about 110 pages) in prep for last night's class, I realize how cynical I am about the actual implementation of these ideas.  The theory is interesting to read and the case studies are instructive.  But it's been my experience that companies apply these concepts and practices without having a specific problem that they plan to fix.  This results in lack of commitment and, eventually, abandonment.  HR departments, attempting to stay current and relevant, find the "next new thing", convince the CEO to go along with it, drag the employees through the exercise or the policy change, only to find the same lack of commitment and eventual abandonment.  I had files full of MBO's, 360 degree assessment profiles, Myers-Briggs test results, etc. - and I don't recall having the organizations doing a thing with this information and we never really understood exactly what the company was trying to change or improve.

I get that organizations need to align the company structure with the company objectives and I acknowledge that implementing these OB ideas can be effective.  But I've observed these programs applied without an overlying strategy and my hunch is that this is a common mistake and leads to the cynicism from which I currently suffer.  Anyone else have a different experience, I'd love to hear about it.

1st DAY OF FIRST CLASS - MICROECONOMICS

First day in class last night and it felt good to be in the classroom.  Have a high-energy professor named Kirsten Daniel (from Germany with a doctorate in economics) and the students are very engaged (but it's early; and it's econ).  It's clear that she's passionate about the subject and from the first minute she proclaimed the most important thing that we will learn in this class:  "MARGINAL BENEFIT EQUALS MARGINAL COST".

I did run across something in the reading that bothered me ... it's about how the public sector views investments.  Our text - Managerial Economics by Samuelson & Marks - states "The objective in a public-sector decision ... is broader than the private-sector profit standard ... [a task] may be worth doing even it it fails to generate a profit for the government authority."  Why shouldn't government  be held to exactly the same cost-benefit standard as is the private sector.  Now, I'm not an advocate of Ayn Rand (where's God in her world?), but the government does have shareholders (taxpayers) that are expecting a return (benefit) on their investment (taxes).  Government delivers services because we are willing to pay for them - for us, the marginal benefit of receiving the service is equal to the marginal cost of what we are giving up to pay for these governmental services.

It's unclear to me what standard other than economic benefit can be used in evaluating a governmental expenditure.  Providing social programs, while a compassionate response to a problem, is an economic decision and is evaluated on its economic merits.  Unemployment benefits, head start programs, the VA and every other service provide a benefit at a cost that someone (taxpayers) is willing to pay and it is done because we've decided that the marginal benefit equals the marginal cost.  Government's delivery of law enforcement services (or maintaining the military, for that matter) is based on the fact that the marginal benefit of providing this service is at least equal to its marginal cost and this benefit exceeds the opportunity cost of not delivering the service (the cost of lawlessness).  The decision to build infrastructure is (or should be) made solely on its ability to deliver a marginal benefit that equals marginal cost.  Even programs to preserve the environment are delivered because they reduce the long-term cost of maintaining our inventory (land, water, food supply, etc).  We don't spend more combating global warming precisely because of a lack of evidence that those expenditures would produce a marginal benefit equal to the marginal cost.

I am at a loss to think of a single public sector good or service that should have anything other than an economic analysis at the heart of the "yes/no" decision.  If anyone has an example, please let me know.