The Right and Left Brain Blog

In 2007 I wrote:

Between the years 2001 and 2006, if you bought 100 shares each of the following large prestige leading companies : Coca-Cola, Citigroup, Dell, Exxon-Mobil, GM, GE, IBM, Disney, 3M,  Johnson & Johnson, Microsoft, Wal-Mart, Pfizer and Proctor & Gamble,  you would have invested about $50,000 and gained about $500.”

In contrast, if you invested equally a total of $50,000 in Cognizant, Ralph Lauren, Cheesecake Factory, Google, Hanes, Coach, VMware, Costco, Apple, and Amazon in 2002 or whenever they went public it would be worth about $ 200,000 or about a 30% annual return. The numbers today say you would have lost $12,000 in the large stocks and even in the market decline made $41,000 in the growth stocks.

Our financial experts, corporate leaders and government experts discuss the financial aspects of these results every day, but vastly underestimate other key impacts. In particular, they are ignoring the structural and competitive assumptions that are dooming these large companies.  The reality is the president of General Motors and a bunch of others deserve to get fired. As we are learning with the auto companies, forget the bailout money, bonus controversies, and regulation debates, etc. These companies need completely new structures and managements.

Why is this phenomenon so apparent when these large companies have so many resources to effectively compete? The obvious answer is that the economy and society are changing so quickly those major corporations lack the flexibility to respond and that:

Bigger is not Better.

Many operations experts have long promoted that 80% of sales are with 20% of your products. Yet, suppliers continue to proliferate styles, colors, sizes, models and features to presumably serve more customers and provide more features. There is even a book that promotes the concept of The Long Tail, which explains a theory that the internet provides a great opportunity to offer consumers almost unlimited variety and flexibility.

The flexibility rule is a myth. We are nearly drowning in a sea of choice, and it’s killing us and the economy.

The 80-20 rule rocks in business, marketing and our personal lives. A Harvard Business Review article analyzed numerous business examples and found that virtually all products seldom increased profits by increasing offerings with little real impact. We waste time, money, inventory dollars and frequently add confusion by adding complexity. Nowhere is this more evident than the opportunity to custom build a computer. You have to make 10-15 decisions with 2-6 options and usually have no clue what you are answering.

It’s not just computers. This tough economy offers a great opportunity to reduce proliferation of products that just aren’t producing. The selection of brands, products and colors in cosmetics is simply nuts and confuses the customer more than it helps. It took crises for GM to realize Pontiac sales have been declining for over 20 years and should be eliminated. However, the auto industry has still not figured out that it doesn’t need all the models, companies or dealers because it is easier to ask for government money than face the reality of making the tough decisions. Have we really lost anything in the last few months without the endless proliferation of credit card offerings that no one needed? No one wants to admit that much of the success of Wal-Mart is eliminating thousands of inefficient retailers.

The rule even applies to government. Is more or less regulation really the issue? In contrast, it may be increasing the effectiveness and integration of the regulations we have. We added Sarbanes-Oxley in accounting, which costs billions of dollars in fees and clearly did nothing to prevent the recent financial fiascos. Imagine the savings of consolidating some of the local, county, township and state government activities rather than spending more money and more taxes.

Keep reading to learn how we can simplify the process.

“Most folks are about as happy as they make up their minds to be.”

Abraham Lincoln

“The individual who knows the score about life sees difficulties as opportunities.”

Norman Vincent Peale

“The desire not to be anything is the desire not to be.”
Ayn Rand

We are in a rut that seems to be self-defeating. Everyone I talk to is frustrated, scared, pessimistic and more afraid than confident. Madoff, bank bonuses, housing defaults have replaced the excitement of people like Buffet, Gates and Jobs. My argument is that until our attitudes improve, the personal, corporate and financial malaise will not subside. While there is a whole circular argument going on, we need positive thinking at all levels. This does not mean to ignore realities but it does mean to find the opportunities where the glass may be half full. Here are some examples of the potential for success:

Positive thinking can become self-fulfilling. We need to believe that we can overcome anything. Positive thinking is also enhanced by support. Successful organizations seem to breed success with their energy, openness, and resources to succeed. One concern today is that in today’s difficult situations, many leaders are reverting to pressure, privacy, and indecision rather than sharing, support and problem solving. This involves a balance between recognizing the need for change such as downsizing and also focusing on the things that are working.

I posted a note on Facebook requesting people to describe good things that are happening. Within about 10 minutes, I got three responses from people who are planning weddings. It is as important to get positive thinking in our personal lives as well as organizational. One positive outcome of the current period is that people are replacing superficial efforts with meaningful activities. A recent report of consumers by COMSCORE describes how people are spending more time with families, socializing and exercising than before. They are spending dramatically less time buying jewelry, expensive purses, eating out and attending expensive events. Unfortunately, they are also smoking and drinking more.

One key unintended positive consequence of the economy may be a restructuring of several industries to become better and more efficient. Poor and excess products and structures need to disappear. Pontiac, Home Depot Express, Linens and Things, Bear Sterns, Circuit City, Domino Magazine and others have been struggling for years and their demise should make other companies stronger in the long run. For example, Pontiac sales have been declining for 20 years. More companies need to eliminate unproductive products and efforts.

Breaking rules, tolerating what can be considered almost deviant behavior, allowing minor responsibilities to fall through the cracks are characteristic of what is needed. I am working with the apparel division of a search firm named SRI Search. They have packaged a group of resumes of their top applicants who are willing to face the realities of the job market. They are then successfully marketing them at reduced compensation to companies who need short term highly skilled staff and new innovative solutions.

A marketing firm named Egg Marketing has developed unique PR and social marketing programs for small companies. They have signed up two new clients in the last few weeks and get 1000 clicks per month on their sites through social marketing.

A project I have been involved in has experienced a withdrawal of emotional and financial support from management. This week we received three new leads and launched what appears to be a successful new product that has been in the works for a year. Frankly, I just ignored them and went on my own. They are back on the bandwagon on at least one project.

In short, we need to stop blaming anyone and everyone. We also need to stop waiting for miracles, government or everything to go back to the way it was 2-4 years ago. Rather what we need as Emerson says is “to believe your own thought, to believe that what is true for you in your private heart is true for all men.”

Please share your successes so others can get some ideas.

Discussions of the stimulus package are extremely frustrating regardless of political perspective… Everyone agrees we have a problem and need to do something significant. However among 535 independent Congressional members who are dedicated to doing the best thing for America, only three initially determined that they could cross party lines.

The reasons and issues are less relevant than the fact we are stuck in black and white perspectives. If you watch Rachel Maddow and Hannity & Colmes any night discussing the exact same issues, it is like they live on different planets. It is not just Congress and newscasters. Even before all the arguments and research are completed, one can usually predict individual votes of the Supreme Court. There was even an article in the New York Times Style Section about hostesses being afraid to invite Republicans and Democrats to the same party.

Similarly, any discussion of social media like Facebook and Twitter usually produces the same example of this enthusiasm versus resistance. While many adults don’t know about them, over one hundred millions people visit these sites every day. That and the fact that a majority of young people under 25 spend a significant amount of time on them make social media a factor in our society. Many of those young people find them a valuable places to interact, learn, meet people, express their true feelings, etc. In contrast many adults unsuccessfully try to block it and unknowingly think that everyone on the sites are deviants. In the middle are the marketers who are faced with declining media audiences in vehicles like T.V. and newspapers. These people, who could care less about the social values, are primarily concerned with the opportunity to sell something.

The result of this Black and White orientation dramatically affects our day to day lives. Instead of lively discussions of alternatives, we settle for developing solutions that we know the key decision makers will buy into. I am currently involved in negotiations on a project where the subordinates of each group spend most of their time developing solutions their superiors will accept rather than trying to develop innovative solutions that will fly with all parties. Similarly, even the bank executives acknowledge that they didn’t get it and have been working in an old reality. However the openness, looking at alternatives, and understanding others perspectives seem missing from most decisions.

There are some simple recommendations to reduce the black and white perspective:
1. First, get alternative approaches on the table then try to evaluate them objectively.
2. Take the time to understand the reasons and goals for different perspectives. Specifically, put yourself in the other person’s shoes instead of just rejecting the approach.
3. Be willing to consider new ideas and realities particularly when some of the old ones aren’t working.

Do you have other suggestions?

We continue to hear dreadful news about the economy, jobs, housing, and the auto industry and the need for change. While there is some hopeful news about the stimulus package, good deeds like the U.S. Airways miracle and continued profitability of some strong companies, there is a feeling that our country, organizations, and individuals are not responding enough.

I argue that we continue to discuss legal, political and economic solutions rather than the deep rooted philosophical issues. This is evidenced by some of the following:

• Executives are still into excess rather than change. The President and the press had to embarrass Citi into canceling the purchase of a $50 million plane and the President of Merrill Lynch remodeled his office for $1 million while the company was imploding. What is worse is they try to justify these abuses and lay workers off rather than understand the realities and needs.

• We lack a real understanding of the problems and the impact of potential solutions. For example, while there is lots of talk about cutbacks, there is little about lending, investment or innovation. For example, if every American household went out and spent an extra $500, it would generate over $50 billion of new spending, which gets multiplied throughout the economy and creates stronger companies and less unemployment.

• We tolerate the lack of respect by people like the Governors of New York and Illinois in making Senatorial appointments a mockery. This is exasperated by the press, who loves the news opportunity, rather than being embarrassed to support this trash. As an example, the press was rampant with totally unsubstantiated stories about Caroline Kennedy’s potential affairs.

• Everyone is disgusted with health care and it isn’t just money. Doctors hate the bureaucracy, patients hate being ignored, misinformed or not informed at all, and hospitals just seem lost in terms of keeping costs down and providing service. In the meantime, there seem to be no goals to improve efficiency, service and prevention, which could dramatically improve the whole system.

• Finally, we have an insane culture that creates circumstances where even kids’ sports coaches allow excess training rules where even one athlete dies or run up the score to 100-0 against a basketball team with only 8 players from a school with kids who all had some disability.

What we need are some drastic and quick philosophical and psychological changes:

• In our corporate, political, and individual decisions, we need to consider the human and cultural impacts of our society. The U.S. Airways rescue is an example of what is needed. It was successful mainly because people were trained, did their jobs, and recognized the roles of the team. They also communicated among jobs, agencies and passengers to focus on getting the rescue done. Communication and teamwork could go a long way in getting things done better.

• We need to rebel and change what we know is wrong. Don’t support companies that don’t practice constructive behavior. Repudiate the people who are raping our society and glorify all the great examples in organizations, groups and the country.

• On a personal level, fully analyze what needs to change and how it can be done. There are lots of ways to save money, be healthier, accept some realities of a less affluent society and be a better citizen, friend and family member.

I will end with a personal example of how we can change. We bought our family a Wii Fit for the holidays. I showed up as overweight and my 7 year old granddaughter offered to help me lose weight. Unfortunately one of her tactics was to do my exercises for me. However the example illustrates key components of any change process: Recognition, goal setting, action and support.

We all hear great employment advice for professionals about dealing with the economic situation. This includes planning, writing a great resume, preparing for interviews, networking, setting goals, networking some more, thinking out of the box, assessing your strengths and weaknesses, blogging, using social internet sites, etc.

While I am not dissing any of these, I believe as a group they may be setting unreal expectations. Specifically, the current job market is challenging the belief that hard work, committed job search and a great job fit will guarantee employment. Over 1 2 million jobs have been lost in the last year.

If you are in industries like autos, financial services, luxury products, furniture, retail, or home furnishings, the job prospects are slim and almost none. Moving from investment banking to health care, internet marketing, energy, etc. sounds much more credible than it is with the exception of technical professionals like accountants.

It may realistically take 6 months to 2 years to find a job in this economy, and the higher the salary, the longer the time. In addition, there are lots of great underemployed or unemployed people out there and companies can do just fine with lower salaried and younger (they don’t admit this) workers.

I believe the issue has changed much more to finding an available position than simply having the right resume or interview skills. Here are some suggestions that do require a total rethinking of traditional approaches:

• Strike a balance between your goals and skills and reality. You shouldn’t abandon your dreams, but may have to settle for temporary lower salaries and/or responsibilities.

• Manage your time in terms of commitment, chasing long shots, focusing and the potential returns. For example, it may be more effective spending time approaching people that seldom return calls than networking with an out of work buddy looking for the same job.

• Consider consulting or being an outsourcing agent.

• Consider starting your own business. This does require a commitment, perhaps some funding, planning and the time to develop and market to clients.

• Consider working on a small base with significant upside for results. I do not recommend working for nothing because clients don’t care as much. However, approaching cash starved companies with new ideas or services with an upside payout may satisfy both needs in the long run.

• Develop packaged services with colleagues that can be implemented in companies with lower cost, faster speed, and better experience. These can include efforts like new products, internet presence, customer service, inventory management, planning and accounting. These kinds of services can also be accomplished across industries.

• Develop ideas for former competitors. Sometimes the limitations of severance contracts are worse than the economic benefits. I am not advocating legal compromises, but am advocating using your skills in the most effective manner.

In general, these suggestions are designed as alternatives to simply looking for jobs that may not exist for 1-2 years. They do require commitment, time, planning and personal effort. Success is not guaranteed but it may be better than tired practices with poor results. They also may help networking and do not preclude taking that ideal job when it is available.

I am a social psychologist who is now a business executive and was fascinated by Gladwell’s Outliers book. His book is one of a few in recent years such as Freakonomics and The Drunkard’s Walk that cause us to challenge our assumptions in both our business and personal lives.

Many of the economic problems in the last year are a function of erroneous assumptions about things like housing prices, incomes and credit. In general, we like to make simple linear assumptions about cause and effect. For example, Gladwell challenges beliefs of those who think variables like effort, IQ, passion, red states/blue states, or socio- economic background are the sole cause of everything.

While Gladwell does a great job in showing the complexity and interaction among factors, he sometimes downplays the importance of some underlying variables:

• In discussing the impact of other variables besides IQ on success, he seems to downplay the fundamental requirement of IQ in many endeavors. The reality is that certain levels are a requirement but not the determinant for success in fields like nuclear physics, getting into Harvard, etc.

• The interesting aspect is who makes it and who doesn’t with the requisite IQ, skills, background, passion and timing. For example, he describes the importance of being born in January for success in Canadian hockey. However, he does not differentiate why only a small portion of Canadians born in January are successful hockey players.

The most interesting aspect of the book, which does not receive enough attention is passion. He argues that success does require effort and talks about 10,000 hours of experience (including some failure) as an important perquisite of success. However, he does not explain why some of us love to spend the 10,000 hours and others are happy playing video games, drinking, watching sports on T.V. etc.

This is particularly evident in the rise of women today in America. They now represent 46% of the labor force compared to 33% in 1960. Given the opportunity in the last few decades, women are simply taking over although they still lag in hard sciences.

There are two obvious implied recommendations from Gladwell and these other books. First, we need to analyze our opportunities and assumptions about our selves and organizations. Second, we should do a SWOT analysis or something like it (strengths, weaknesses, opportunities and threats) to help determine which and how we should pursue opportunities. In particular, we need to assess ways to take advantage of the struggling economy over the next few years.

Clearly our business, social and political environments are besieged by crises. However, the solutions are more piecemeal, insufficient, and fraught with unacknowledged consequences than we want to admit. This is particularly evident with the scandals involving the Illinois Governor and financier Madeoff who stole up to $50 billion. While everyone voices outrage, the process of resolving these issues could take months or years. If we started throwing these kinds of criminals in jail with no bail like many petty criminals, it might get quicker resolution and deter copy cat crooks. There is simply a lack of leadership and cooperation among leaders to develop firm and decisive actions instead of self-serving rhetoric.

This same lack of real action is evident on other fronts:

• Everyone is waiting for the new stimulus package to save the world just like we were told the $700 billion bailout would. However, there are all kinds of excuses for not discussing details. It is clear from early proposals that issues like creating pork, the consequences of simply printing money, timing of job creation and the amount spent on products rather than jobs will be secondary to the hype of the program.

• The lack of progress resolving auto, housing, and financial institutions issues becomes more evident every day. It is clear that the public and government continue to be misled by the depth of the problems as evidenced by the increased costs of all the programs. In addition, the solutions of the institutions involved in these crises seem mostly designed to obtain federal bailouts. We see the same executives who caused the problems trying to solve them, there is little restructuring of these institutions, and most of all little sale of assets or downsizing to be more competitive in the new economy.

In short, it is a new world and organizations need to accept the current environment as a test for the future. Flexibility, speed, and innovation will replace yesterday’s methods. Most of the rhetoric is old solutions by entrenched players. Real change is simply not evident.

There is a term in economics that many of us learned but everyone virtually forget in recent years. Ignoring this term is responsible for causing much of the current crises. The term is “ceteris paribus.” If you ever took an economics course these words are in every course and spoken in the first week or so. After those words you will see problems, lectures and formulas with all kinds of complex and impressive analytical tools that ignore them.

“Ceteris parabis” means all things being equal. In other words, this phrase becomes an excuse for all the assumptions that the formulas etc. ignore or can’t analyze if the results turn out incorrect. These include political change, social conditions, weather, other changes, scientific accomplishments etc. that may have more impact on outcomes than the variables that the extensive models analyze “ad nauseum.” For example, think of the predicative uselessness of economic or political models before 9/11 or the Iraq war.

Nowhere were wrong assumptions more apparent than in the results of the housing boom in 2000-2006.

• Home owners got cheap homes with low interest.
• Rules such as face-to-face meetings with lenders and buyers and appraisals were reduced.
• Builders got to build homes, employ people and sell the homes profitably.
• Banks got to lend money with low interest and earn significant fees.
• Traders were able to bundle the mortgages and earn more fees and interest.
• The government liked the economic growth and continued to foster and guarantee cheap loans.
• Housing values would continue to increase.
• Cheaper interest, lower down payments, lower standards, inflated housing starts etc. all followed the belief that housing prices would not decline.
• Everyone was a winner and seemed to think it would last forever.

What happened? There were two critical assumptions that were ignored in the housing mess.

• Individuals were allowed to pursue individual bonuses and commissions without regard to risk or organizational goals. With the opportunity to make millions based on individual performances, the financial executives acted normally in pursuing excess risk. What was wrong was that their organizations and financial regulators allowed them to ignore long-term risk and organizational goals.

• The second mistake was simply ignoring information and risk. Everyone had information that credit requirements became too lax and that all of the growth was based on the assumption that housing prices and demand would never reduce. In addition, as the securities were packaged and retarded, the oversight became less and less. Finally , any analysis of housing prices showed that an illogical bubble occurred that was contrary to long term trends or supply and demand.

The net result was that institutions like Lehman Brothers, Merrill Lynch and Bear Stearns no longer exist and many others are severely impacted. However, simply following normal financial procedures could have avoided much of the mess.

The “catch 22″ of “Be all that you can be” is the environment. We all learn and believe that we can succeed at anything and be anything with training, hard work, experience and a pursuit of excellence. Unfortunately, we live in a very complex personal, organizational and external world.

A critical current impact of the environment is, presumably, surprise external events. The first decade of this century has already experienced more of these than probably any time in history. 9/11, China, housing boom, financial crises of 2008, Katrina, Google, aging of baby boomers, global warming , are simply examples of events that have dramatically affected our society . I am not arguing the causes, solutions or impact of these individual events. What is important here is that they seem to be happening at an increasing rate and dramatically affect our daily lives and society. Rather than be shocked by each one of these, we need to recognize that they are occurring, are unpredictable and that we need to develop mechanisms to cope with them on an individual and social level.

Dealing with the changing environment is highly complex but has some fairly simple prescriptions:

• While we are frequently surprised by environmental factors, many are somewhat predictable and can be prepared for. On a number of different levels, factors like global warming, aging of the population, product life cycles, technology changes, and the Internet are highly predictable. What is frequently missing is recognizing and dealing with them.

• For those that aren’t, we need to recognize that they will happen and remain calm. Rudy Giuliani will always be remembered for his efforts to keep the country calm and get back to normal during that tragic period. Similarly, with job loss, takeover etc. doing one’s job or starting a search is frequently the best strategy rather than just panicking or taking drastic steps.

• The next recommendation is to recognize the change and develop speedy solutions. The increase in security precautions after 9/11 is an example. Similarly, developing a plan and understanding changes are critical to long-term success. Car companies and financial institutions have simply been abysmal at describing the issues and developing new solutions

• Finally, environmental changes frequently require much greater collaboration as they involve a number of parameters. Two different aspects are particularly needed. One is the need to recognize potential negative factors in a situation. The second is to recognize how different factors of a decision can be affected. While the severity was much less, the collaboration on Gustav in New Orleans compared to Katrina is the kind of collaboration and planning necessary to deal with these events.