One of those great coincidences that brings joy to my family's life is the close proximity of Traverse City, MI to the Interlochen Arts Camp where my daughter spends her music-filled summers. Before delivering her to camp this weekend, we enjoyed a couple of days in Traverse City, home to a lifestyle retail center housed in the former state asylum (creepy and yet very cool; trust me), renowned National Cherry Festival (sadly, not the season just yet), and (in)famous film festival (happily, well-timed for our return visit at the end of camp). This visit, we were able to take in a movie at the State Theater, which is closely aligned with the film festival. I love their tag line, 'Just Great Movies' -- it captures the paradoxical humble bravado of a small community theater (they 'just' show great movies) that regularly leads the nation's art houses in film receipts -- despite the fact that they compete against much larger demos in places like NY and LA (they JUST show great movies).
This is a perfect example of the 'constructive capitalism' that Umair Haque argues 'creates "thicker" value: value that's meaningful to humans — not just value that pumps up spreadsheets, computer models, and bonuses.' The State Theater exists to provide a unique value to its community (and through the film festival, that community extends to people like me who live far away): great movies yes, but also a great movie experience. Tremendous care is taken to provide with each screening an unparalleled movie experience at affordable ticket prices so that the entire community can participate. The seats are divinely comfortable, and are spaced well apart with plenty of leg room. You are provided an unobstructed view of the screen, even if someone tall is seated in front of you. The theater is cleaned quickly and efficiently between screenings. Professional projectionists ensure the film quality is nothing less than superior -- unblemished, gorgeous color, with great sound. It felt like a different medium entirely from what we have become accustomed to in movie theaters - small, cramped spaces with muddy sound and inconsistent film quality. The State experience was like discovering a new technology, although indeed we were rediscovering what film was meant to be, before my generation and well before my daughter's.
The experience felt so novel because the theater's ownership has opted for the 'thicker' value of bringing something meaningful to its community. The community validates this with their patronage. It matters to customers that their needs are honored, and that care has been taken to enhance their lives with an art form that is entertaining as well as challenging -- and all of this for about what you'd spend on a fast food meal.
The Great Depression witnessed a tremendous surge in movie ticket sales, since customers could pay an affordable price for a few hours of respite from their daily cares and hardship. During our current recession, the venues that are recording surges in patronage are community libraries, which now loan movies on DVD at no cost to members. It's not apparent that people can't spare the price of a movie ticket -- but they don't see the value of renting a DVD when they can get it from the library for free, and they realize even less value in visiting a metroplex to see a movie on the 'big screen' all the while being treated like the great unwashed the proprietors apparently assume to be their customers. That doesn't mean the community doesn't value seeing movies -- they just don't value what's on offer. If you're going out to a movie, it had better be an engaging experience or why bother?
I don't know how businesses can attempt to provide an engaging experience if their single purpose is to create value for themselves. At a time when stress and uncertainty impel many individuals to isolation and insularity, it is a profound experience to witness the opposite, in a business that seeks to bring just great movies to its community.
Wednesday, June 24, 2009
Tuesday, June 16, 2009
You Say You Want a Revolution...
Umair Haque continues building his 'Case for Constructive Capitalism' in this post on the Harvard Business Review site. I enjoy reading not only his posts but also the commentary they generate. Since he argues for nothing less than a revolution, some are enraged, some energized. This is, after all, an HBR audience.
Until this morning, I had been thinking about this challenge strictly from a leadership perspective: how do the principles of Capitalism 2.0 change the way we think about strategy and the corporation's contributions to the world it creates (the work life of its employees) and influences (its customers and community)? I was struck today by a commenter who drew attention to the 'back-side where the change is made and the value lands.'
This is the nut of it. Capitalism 1.0, as cast by Haque, is the business mentality that created wealth destructively. Decisions were made in board rooms that enriched those within them, at the expense of the people outside them. Innovation that will create lasting and constructive value must surely break down the silo of the board room. To Haque's four pillars in his Smart Growth Manifesto I would add inclusiveness. Unless employees are included in this discussion, the outcomes, connections, people and creativity will be as self-serving as the last 'revolution.'
Until this morning, I had been thinking about this challenge strictly from a leadership perspective: how do the principles of Capitalism 2.0 change the way we think about strategy and the corporation's contributions to the world it creates (the work life of its employees) and influences (its customers and community)? I was struck today by a commenter who drew attention to the 'back-side where the change is made and the value lands.'
This is the nut of it. Capitalism 1.0, as cast by Haque, is the business mentality that created wealth destructively. Decisions were made in board rooms that enriched those within them, at the expense of the people outside them. Innovation that will create lasting and constructive value must surely break down the silo of the board room. To Haque's four pillars in his Smart Growth Manifesto I would add inclusiveness. Unless employees are included in this discussion, the outcomes, connections, people and creativity will be as self-serving as the last 'revolution.'
Monday, June 8, 2009
On profits and value
We watched Schindler's List last night with my daughter who was experiencing it for the first time. One of the movie's interesting yet subtle narrative arcs involves the transformation of Oskar Schindler as a businessman. Through the course of the movie, the character evolves from self-interest toward a deep understanding of the fundamental difference between profit and value. The strategy he undertakes to create value results in the dissolution of his business -- inevitable in any case, since it depended on Nazi war contracts -- but even more importantly of course it results in generations of lives that otherwise would not have enriched the world.
I find most striking that the film makers resisted the lazy path to this transformation, either by softening his self-interest in the beginning, or using the easy device of a conversion scene. Instead, what makes him a really good businessman enables him to become a good person. The character's singular strength, my husband pointed out to me, is his ability to read people. From the first scene in the nightclub, where he begins the evening an outsider and ends it owning every important Nazi business contact in the room, commences with him simply observing the players from his solitary table. Through the rest of the movie, he watches and analyzes every relationship around him. In the end, his amorality crumbles with the weight of his analysis, and he breaks through to understanding the difference between value and profit.
Of course the film is about much more than Oskar Schindler; it is really about the list, and the human lives both on and not on it, as the title makes clear. But in this story of one businessman, I cannot resist seeing an archetype of business' obligation to create value. We often hear that every business exists to create profit; that is, move cash in a zero sum transaction from one party to another. Someone loses; someone wins. Where is the lasting value in that? Yet, value and profit are not mutually exclusive:value can create more for you and more for me. For instance, as a customer of the press, I profit from reading the newspaper in print and online, and am happy to pay for it. I hope that the newspaper enjoys profitability so that it can continue to bring value to me and our democratic society that depends on a knowledgeable populace. The profitability of newspapers is now at risk, and we will see a transformation in the media as it seeks new models that support both the vision and the commercial requisites of funding independent journalism. Jettisoning the journalism and the independence could create short-term profits, but will destroy potential value to the customers, to society, and ultimately to the corporation.
Is any industry today not in need of transformation? Health care. Banking. Energy. Retail. Education. Housing. Transportation. Technology. Manufacturing. Is any industry not experiencing the rapid and chaotic winding-down of old models that no longer create value? Unlike Schindler we don't need the catalyst of a war; the widening gyre is manifest in every news report. We do need to attend to creating real value, for business owners, workers, and the societies in which they exist. I hope that leveraging talents well-suited to business will enable this transformation, as long as we confront honestly the reality that is not of our making, and which exists outside of the paradigms to which we are long accustomed.
I find most striking that the film makers resisted the lazy path to this transformation, either by softening his self-interest in the beginning, or using the easy device of a conversion scene. Instead, what makes him a really good businessman enables him to become a good person. The character's singular strength, my husband pointed out to me, is his ability to read people. From the first scene in the nightclub, where he begins the evening an outsider and ends it owning every important Nazi business contact in the room, commences with him simply observing the players from his solitary table. Through the rest of the movie, he watches and analyzes every relationship around him. In the end, his amorality crumbles with the weight of his analysis, and he breaks through to understanding the difference between value and profit.
Of course the film is about much more than Oskar Schindler; it is really about the list, and the human lives both on and not on it, as the title makes clear. But in this story of one businessman, I cannot resist seeing an archetype of business' obligation to create value. We often hear that every business exists to create profit; that is, move cash in a zero sum transaction from one party to another. Someone loses; someone wins. Where is the lasting value in that? Yet, value and profit are not mutually exclusive:value can create more for you and more for me. For instance, as a customer of the press, I profit from reading the newspaper in print and online, and am happy to pay for it. I hope that the newspaper enjoys profitability so that it can continue to bring value to me and our democratic society that depends on a knowledgeable populace. The profitability of newspapers is now at risk, and we will see a transformation in the media as it seeks new models that support both the vision and the commercial requisites of funding independent journalism. Jettisoning the journalism and the independence could create short-term profits, but will destroy potential value to the customers, to society, and ultimately to the corporation.
Is any industry today not in need of transformation? Health care. Banking. Energy. Retail. Education. Housing. Transportation. Technology. Manufacturing. Is any industry not experiencing the rapid and chaotic winding-down of old models that no longer create value? Unlike Schindler we don't need the catalyst of a war; the widening gyre is manifest in every news report. We do need to attend to creating real value, for business owners, workers, and the societies in which they exist. I hope that leveraging talents well-suited to business will enable this transformation, as long as we confront honestly the reality that is not of our making, and which exists outside of the paradigms to which we are long accustomed.
Monday, June 1, 2009
Watching Your Back (Not Looking Ahead)
Anand Ramand noted in a blog recently that one far-reaching consequence of the current economic disaster is the erosion of trust in supplier relationships. A single PO gone awry can easily damage trust that has built up over many successful transactions. Costs and trust are inversely proportional. This doesn't bode well for supply chains, and ultimately the consumers and economies dependent on the value created by them.
Years ago, a consultant from Ford's quality management team shared a story that speaks to the relationship between cost and trust. Ford and Mazda, new to their partnership at the time, were benchmarking their business processes. One obvious difference in their organizations was Accounts Payable: it appeared to be missing at Mazda. Ford, probably assuming a translation problem, asked again: how many people do you have reconciling invoices and entering vouchers and claims? Mazda replied that they didn't receive invoices and so didn't have a need to reconcile them. So how did they ensure that they didn't over-pay suppliers? Mazda gave as example a windshield supplier: every car has one windshield. We know how many cars leave the assembly line. Each one of them has to have an acceptable windshield. We just pay the supplier for as many windshields as cars that were produced; we send the payment electronically, so there's no handling.
That solution perfectly illustrates the cost benefits of trust in the supply chain. The supplier has to trust that Mazda is going to pay for every windshield that was used in the finished product and is going to report production accurately. Mazda receives a benefit from accurate reporting too, since the supplier must have accurate demand information in order to provide the right amount of windshields to keep the production line running. Both parties' costs are driven up if there is too much or too little raw material at the production line. The supplier has to eat the cost of every windshield that didn't leave in a finished car, even if the customer damaged the part during installation. (Realistically, this is no different from the more traditional process of invoicing and claims, however both parties save themselves the cost of personnel to handle the claims.) Mazda also has to trust that the supplier is providing the raw materials at a competitive cost, since the windshields are single sourced.
Fast-forward to 2009. Many if not most companies have made significant progress in creating tighter supply chain relationships built on trust. Inventories are much leaner, and companies are more vulnerable to cancellations or delays in purchase orders. Fearing a supplier's unreliability, companies start thinking they should diversify their sources. Decisions based on fear can unravel relationships and initiatives that previously enabled lowered costs and increased production.
The immediate reaction to fear is necessarily short-sighted: you become focused on overcoming a threat in the here-and-now. Caught up in the moment, it is easy to make decisions unmindful of long-term consequences. There's no question that managers have to make decisions to address current business objectives. But before taking an action that could substantially jeopardize the trust foundation of a relationship, it is equally important to consider what outcomes you want, and what is acceptable, for the business' long-term value and prosperity. Businesses need to remember that everything happens in the context of a relationship. Everything.
Years ago, a consultant from Ford's quality management team shared a story that speaks to the relationship between cost and trust. Ford and Mazda, new to their partnership at the time, were benchmarking their business processes. One obvious difference in their organizations was Accounts Payable: it appeared to be missing at Mazda. Ford, probably assuming a translation problem, asked again: how many people do you have reconciling invoices and entering vouchers and claims? Mazda replied that they didn't receive invoices and so didn't have a need to reconcile them. So how did they ensure that they didn't over-pay suppliers? Mazda gave as example a windshield supplier: every car has one windshield. We know how many cars leave the assembly line. Each one of them has to have an acceptable windshield. We just pay the supplier for as many windshields as cars that were produced; we send the payment electronically, so there's no handling.
That solution perfectly illustrates the cost benefits of trust in the supply chain. The supplier has to trust that Mazda is going to pay for every windshield that was used in the finished product and is going to report production accurately. Mazda receives a benefit from accurate reporting too, since the supplier must have accurate demand information in order to provide the right amount of windshields to keep the production line running. Both parties' costs are driven up if there is too much or too little raw material at the production line. The supplier has to eat the cost of every windshield that didn't leave in a finished car, even if the customer damaged the part during installation. (Realistically, this is no different from the more traditional process of invoicing and claims, however both parties save themselves the cost of personnel to handle the claims.) Mazda also has to trust that the supplier is providing the raw materials at a competitive cost, since the windshields are single sourced.
Fast-forward to 2009. Many if not most companies have made significant progress in creating tighter supply chain relationships built on trust. Inventories are much leaner, and companies are more vulnerable to cancellations or delays in purchase orders. Fearing a supplier's unreliability, companies start thinking they should diversify their sources. Decisions based on fear can unravel relationships and initiatives that previously enabled lowered costs and increased production.
The immediate reaction to fear is necessarily short-sighted: you become focused on overcoming a threat in the here-and-now. Caught up in the moment, it is easy to make decisions unmindful of long-term consequences. There's no question that managers have to make decisions to address current business objectives. But before taking an action that could substantially jeopardize the trust foundation of a relationship, it is equally important to consider what outcomes you want, and what is acceptable, for the business' long-term value and prosperity. Businesses need to remember that everything happens in the context of a relationship. Everything.
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