Tuesday, December 31, 2013

Live Life Like Vanderbuilt - A New Year's Resolution

image of new year celebration fireworks with a legend "happy new year!" below
Happy New Year! 
In a day when one must conduct an inventory of old failures and accomplishments while finishing to write the plan for the new year, I would like to share a fantastic American story.

I recently finished the book The First Tycoon; The Epic Life of Cornelius Vanderbilt by T. J. Stiles. What a fantastic narrative!
Would you consider yourself to be both lucky and important to society if you:

  1. Met Lincoln
  2. Helped Lincoln win the civil war
  3. Donated the largest and most feared Union Navy vessel
  4. Fought for the union Navy
  5. Became a key player in helping New York become the economic center of the US
  6. Facilitated the migration of people to California during the Gold Rush
  7. Be a key player in the fight to create a shorter route through Panama and Nicaragua
  8. Be a pioneer in the idea that companies are entities
  9. Be a pioneer in the idea that markets should be free
  10. Be a pioneer in pushing the value of stock markets
  11. Be a pioneer in the deployment of steam engines
  12. Be a pioneer in the deployment of railroads
  13. Rescue the stock market more than once
  14. The builder of Grand Central in New York
  15. Did business with two youngsters: Rockefeller and Carnegie
  16. Being criticized by Mark Twain while the writer was alive
  17. Created the idea of luxury cruising
  18. Built comparable wealth to 20 times that of Bill Gates
  19. Accomplish all after starting from nothing and without any education
image of the cover of the book "The First Tycoon; The Epic Life of Cornelius Vanderbilt" by writer T. J. Stiles
The great story of C. Vanderbilt
That was Vanderbilt's life. Before him, Texas and California were part of Mexico. The US was just a bunch of disjointed groups trying to find their way. After his death, the US was much more like what we know today. This happened two centuries ago!
He lived to an extended age at a time when half as old was usually the end of one's life. It would be easy to rewrite history and be critical of such a man. But to do so would be to be blind to the fact that his accomplishments were larger than life. This is a highly recommended book for all and anyone.
I wish all that 2014 begins a better tomorrow.
Feliz Año Nuevo!

Wednesday, December 18, 2013

Great MIT Research - Free Access for a Limited Time

logo of MIT Sloan Executive Education
MIT Sloan
MIT is giving free access to a few of their incredibly valuable research papers to MIT Sloan Executives. It goes without saying that I feel that MIT is the absolute best school in the world. MIT researchers are the only ones that balance the art of business with the rigidity of data. I loved my marketing class because of this exact thing. As a result, their research is essential for all managers, from the middle to the top.
Make note of the fact that the availability is for a limited time. So hurry.
Below are the papers available. Otherwise follow the general link.

Articles by Deborah Ancona
Deborah Ancona is Professor of Organization Studies at MIT Sloan and Faculty Director of the MIT Leadership Center. She teaches in Transforming Your Leadership Strategy and the Advanced Management Program (AMP).
The Comparative Advantage of X-Teams

Articles by Erik Brynjolfsson
Erik Brynjolfsson is Professor of Information Technology and Director of The MIT Center for Digital Business. He teaches in Big Data 4Dx (online); Big Data: Making Complex Things Simpler; and Future of Manufacturing.
Winning the Race With Ever-Smarter Machines
Competing in the Age of Omnichannel Retailing
What the GDP Gets Wrong (Why Managers Should Care)

Articles by Steven Eppinger
Steven Eppinger is Professor of Management Science and Engineering Systems and Co-Director of the System Design and Management Program. He teaches in Managing Complex Technical Projectsand Systematic Innovation of Products, Processes, and Services.
How Sustainability Fuels Design Innovation

Articles by Tom Kochan
Tom Kochan is Professor of Work and Employment Research and Engineering Systems and Co-Director of MIT Sloan Institute for Work and Employment Research. He teaches in Strategies for Sustainable Business.
The Management Lessons of a Beleaguered Industry
Taking the High Road
MIT Executive MBA

Articles by Donald Lessard
Donald Lessard is Professor of Global Economics and Management and Professor of Engineering Systems. He teaches in Strategy in a Global World.
Building Your Company’s Capabilities Through Global Expansion

Articles by Fiona Murray
Fiona Murray is Associate Dean for Innovation. She is also Faculty Director of the Martin Trust Center for MIT Entrepreneurship. She teaches in the Entrepreneurship Development Program and the MIT Regional Entrepreneurship Acceleration Program (REAP).
Spurring Innovation Through Competitions

Articles by Alex Pentland
Alex ‘Sandy’ Pentland is the Toshiba Professor of Media Arts and Sciences, Director of Human Dynamics Lab, and Director of the MIT Media Lab Entrepreneurship Program. He teaches in Big Data 4Dx (online); Big Data: Making Complex Things Simpler; and Leading Change in Complex Organizations.
Understanding ‘Honest Signals’ in Business
Can High-Frequency Trading Drive the Stock Market Off a Cliff?

Articles by Douglas Ready
Douglas Ready is Senior Lecturer in Organization Effectiveness. He teaches in the new program,Building Game-Changing Organizations: Aligning Purpose, Performance, and People.
Enabling Bold Visions
Leading at the Enterprise Level
Why Leadership-Development Efforts Fail

Articles by Jeanne Ross
Jeanne Ross is Director and Principal Research Scientist at MIT Sloan’s Center for Information Systems Research (CISR). She teaches in Essential IT for Non-IT Executives and Revitalizing Your Digital Business Model.
Finding Value in the Information Explosion

Articles by José Santos
José F.P. dos Santos is Visiting Professor at MIT Sloan and Professor at INSEAD, Fontainebleau, France. He teaches in Strategy in a Global World.
Is Your Innovation Process Global?

Articles by Peter Senge
Peter Senge is Senior Lecturer in Leadership and Sustainability at MIT Sloan.
Collaborating for Systemic Change
Innovating Our Way to the Next Industrial Revolution

Articles by/featuring David Simchi-Levi
David Simchi-Levi is Professor of Engineering Systems at MIT. He teaches in Future of Manufacturing and Supply Chain Strategy and Management.
Is It Time to Rethink Your Manufacturing Strategy?
Your Next Supply Chain
When One Size Does Not Fit All

Articles by John Sterman
John Sterman is Professor of System Dynamics and Engineering Systems and Director of the MIT System Dynamics Group. He teaches in Business Dynamics: MIT's Approach to Diagnosing and Solving Complex Business Problems; Leading Change in Complex Organizations; Strategies for Sustainable Business; and Understanding and Solving Complex Business Problems.
What the Future May Bring

Articles by Scott Stern
Scott Stern is the School of Management Distinguished Professor and Chair of the Technological Innovation, Entrepreneurship, and Strategic Management Group at MIT Sloan. He teaches in theMIT Regional Entrepreneurship Acceleration Program (REAP).
Innovation: Location Matters

How Companies Can Avoid a
Midlife Crisis by Donald Sull
Articles by/featuring Donald Sull
Donald Sull is Senior Lecturer at MIT Sloan. He teaches in the new program, Building Game-Changing Organizations: Aligning Purpose, Performance, and People.
How Companies Can Avoid a Midlife Crisis
Closing the Gap Between Strategy and Execution
Using Commitments to Manage Across Units

Articles by Catherine Tucker
Catherine Tucker is the Mark Hyman Jr. Career Development Professor and Associate Professor of Marketing at MIT Sloan. She teaches in the Global Executive Academy; Strategic Marketing for the Technical Executive; Systematic Innovation of Products, Processes, and Services; and theEntrepreneurship Development Program.
Why Managing Consumer Privacy Can Be an Opportunity

Articles by/featuring Eric von Hippel
Eric von Hippel is Professor of Management of Innovation and Engineering Systems and the founder of the Entrepreneurship Program at MIT. He teaches in Building, Leading, and Sustaining the Innovative Organization and the Global Executive Academy.
The User Innovation Revolution
The Age of the Consumer-Innovator
Innovation by User Communities: Learning From Open-Source Software
Innovation Process Benefits: The Journey as Reward
The Benefits of Combining
Data With Empathy

Articles by Peter Weill
Peter Weill is Chairman of the Center for Information Systems Research (CISR) and MIT Sloan Senior Research Scientist. He teaches in Essential IT for Non-IT Executives and Revitalizing your Digital Business Model.
The Benefits of Combining Data With Empathy
The Business Models Investors Prefer

Articles by Peter Weill & Stephanie Woerner
Stephanie Woerner is Research Scientist at the MIT Sloan Center for Information Systems Research. She teaches in Revitalizing your Digital Business Model.
Optimizing Your Digital Business Model

Articles by Ezra Zuckerman
Ezra Zuckerman is Professor of Technological Innovation, Entrepreneurship, and Strategic Management and Chair of the MIT Sloan PhD Program. He teaches in Developing and Managing a Successful Technology and Product Strategy and the Advanced Management Program (AMP).
Improving Capabilities Through Industry Peer Networks

Monday, December 9, 2013

Wealth Gap Simplified

Is there a simple way to understand how the wealth gap is created? 
image of a graph illustrating the exponentially growing wealth gap between the rich and everybody else.
Wealth is now the bad guy in the movie
Considering the latest wave of wealth-redistributionists lurking around every corner of the internet, this is an important question that should be addressed as succinctly as possible. So, let's take a shot at it.
Two people, Person A and Person B, get a job at company X. They make the same income. They both pay for the basics like housing and food.
Besides the basics, Person A prefers to buy things that loose value over time, like a new car. The car is, of course, bought with a loan.
Person B buys only the basics and accumulates any leftover as savings.
Over time, Person A continues to show a better standard of living but creates no wealth.
Meanwhile, Person B takes the accumulated savings and invests them into a machine that makes gizmos. She operates the machine after hours and sells the gizmos during weekends. There is decent demand for the gizmos and the machine is quickly paid for. Soon, a third person is hired to handle the machine and gizmo sales. All along both maintain their job at company X.
Person B continues to accumulate savings from her job plus the proceeds from the sales of the gizmos. These savings are later used to buy more machines, thus increasing the investable cash flows.
image of a lady investor next to the three gizmo making machines that she bought with her savings and which are operated by a the third person in the story.
Should entrepreneurs be punished?
Fast forward a few cycles and Person A continues to have a good standard of living from his job. Unfortunately he has also failed to accumulate wealth.
In comparison, Person B has invested in income generating machines and has accumulated great wealth thanks to the compounding effect of re-invested earnings.
The wealth gap is now massive, even when both have done their job at company X just as well.
No one acted badly at any moment. The only issue was that Person A did not know about the benefits from compounding savings through investing; but that could easily be solved with a little education.
The understanding that neither has been unfair with the other is what makes America what it is today. Here, our presidents don't discuss taking money from investors to give it to those who only spend. In other countries, on the other hand, people complain when others succeed. Not in America.

Thursday, December 5, 2013

Message to Houston: "Fail or Else"

Houston's Response: "Else" then. 
I just visited Houston and was blown away. I saw capital being deployed everywhere. Recession? What Recession?
color photo of construction cranes in Shanghai, China
Shanghai Construction Boom
While not quite the same as Shanghai, China at the turn of the century, there were construction cranes all around the I-45 corridor.
But how is this possible? I live in another large and powerful metropolitan area with lots of wealth and I have not seen a construction crane in years. How is it that two similar cities could be so different?
Moreover, why is Houston experiencing such great infrastructure boom; especially when it is the center of energy in the US and Obama, arguably the most powerful man in the world, has declared war on hydrocarbons?
black and white illustration of president Obama angrily pointing towards the phrase "Obama to Energy: Fail or Else"
Fail or Else Campaign
In economics, long term capital spending is a sign of business confidence. Most large projects require quite a bit of money to launch. Such large investments typically create returns only after decades. It is therefore paramount that businesses are confident in their projects' viability for management to want to part from money for such a long time. In this context, construction cranes symbolize long term capital spending because small projects do not usually call for their use.
In the United States, 20-year capital spending has dropped close to zero. While there is no public denouncement against any guilty party, it is my opinion that Obama's wealth redistribution threats have successfully scared businesses out of any notion of long term investment.
Photo Image of traders screaming their orders to buy and sell
All the capital in the markets today is being used for immediate gains. Starbucks borrowed money to buy back its stock and immediately improve earnings per share; thus increasing its valuation. Last year, Costco borrowed money against long term earnings to distribute an unusual dividend before tax increases started. Risk-adverse money is being deployed to buy volatile stocks everyday, in this way pushing the stock market to record levels. The signs are clear. Make money as fast as you can because there is no certainty that you may be able to keep any in the future.
But Houston seems to be different. Apparently, a confident outlook exists there. Could it be that American innovation has come to the rescue of our nation once again? After our energy resources were deemed to be in the path to extinction, we suddenly have the technology to extract oil and gas from previously unreachable places and at very competitive costs. In fact, it is now said that we are the Saudi Arabia of natural gas. We have so much gas that we do not know what to do with it... literally. In North Dakota, the excess of gas and the absence of a pipe to send it to the rest of the country means that enough energy to light up Chicago gets burned every night.
night time image of the US showing how the North Dakota gas facilities illuminate the sky
Click to enlarge map of US at night
Compare night-time satellite images of the US from just three years ago to today and you will see that suddenly a large metropolis much larger than Denver illuminates the skies above North Dakota. The issue is that there isn't a metropolis there. It is the gas being burned that creates the effect. Think about it. We have so much energy that we have to burn it.
Why not send it to the people who could use it around the country? Because there is no infrastructure to do it. Regardless of the jobs that such project would create, the President refuses to support the permits needed or anything else associated with hydrocarbons. So, North Dakota residents get their gas for free and the rest is used to increase the atmospheric carbon; a fantastically green solution.
By the way, next time that a hipster environmentalist accuses you of destroying the earth, ask them how exactly is it that they wash their fashionable clothing. Last I checked, environmentalists had not quite made it back to hand washing or hand drying their attire. They too have yet to go back to the old way to keep food refrigerated. So, to Mr. Obama and his environmentalist bodies who refuse to let the rest of the country get into the US energy boom, I say "stop moving your lips and get out of the way". "There is lots of work to get done!"
At least, this is exactly what Houston has replied to Obama.
black and white image of Houston's response to Obama: "Else" with construction cranes in the background.
Houston's Response: "Else" then
Even when North Dakota and Pennsylvania are also booming with all the new energy that has been found, Houston is the captain of this ship.
Since the beginning of the 80's, US energy production continuously dropped year after year. But in just three years, it is now up to levels from 1989. Considering the fact that California, a former juggernaut in energy, has continued to refuse to participate in the renaissance, it should be clear how magnificent Houston's feat has been. Even under threat from the most powerful man in the world, the city has pushed upward at a rate never again though possible in the US.
Things have moved so fast in Houston, that I had almost missed the changes. I constantly scan all sorts of economic data for signs of change but it was the cranes that made me come to my senses. If we could only replicate the effect around the US.
Capital spending means jobs. Jobs mean the end to the stagnation. The change would demonstrate once again that progress can be had without cheap labor. US inventiveness would save the day once again. But the president is lost in LA-LA-Land while the rest of his nation grows hungry.
image of luggage set for traveling
Moving to Houston
When will he learn that markets respond not to political-will but to consumer demand? When will he understand that jobs are the best kind of welfare? When will he capitulate and let the infrastructure needed around the country take place? Once out of the way, businesses would do the investing without a single dollar being taxed.
Until then, I am moving to Houston.

Wednesday, December 4, 2013

Confident Humility

Are confidence and humility dichotomic
I recently read the answer somewhere and, while I can't give adequate credit to the author for I don't remember who it was, I can at least share it with you.

"To be humble, don't think less of you, 
but think of you less instead" 
color image of stones in complete balance

It isn't necessary to think less of oneself in order to be humble; no need to devalue one's worth.
Instead, it's how often we think of ourselves that erodes humility.
Simple. To be a humble, yet confident leader just consider others more often every day. Yes, I have gone deep this time.

Tuesday, December 3, 2013

The Agenda: To Shield the Inept from Accountability

Is it just me or do you also get the feeling that President Obama has a deep dislike for businesses. Maybe I am a bit late but it just occurred to me why this may be the case. In business, failure is met with dismissal; and who likes to get fired? Certainly not the President of the most powerful nation in the world.
screen shot image of the Reuters headline of their article "Obama urges Americans not be discouraged by rocky healthcare rollout"
Obamacare Website Failures
What's the alternative? Well, most of us just try harder next time.
But there are those who probably wish that accountability seized to exist.
Wish granted.
...Today, if you royally fail, you get to be on TV. Again, the President tries to recover from his team's failure. In multiple television appearances, Obama has directly addressed the nation on the subject of the many problems associated with the implementation of his health bill. In my opinion, the continuous mishaps continue to demonstrate his lack of leadership.
Now that I am sure many feel that my comment is (1) unfair because the Obamacare website is surely (2) much more complex than I could ever imagine.
To the unfair part, I say that "I am not so sure I would agree". In any case, it is all about performance and not about fairness.
With regards to the website's complexity, I say "sure". Which is precisely why government should not had attempted it. You know, government should focus on what it does best like meaningless speeches for the uninformed and spending the money of those who pay taxes. But a complex website... I just don't think it was a good idea.
Case in point. If you want to sign up for Obamacara, whether you like the idea of it or not, you would be better served through a business site rather than the government's.
color illustration of the C. Vanderbilt from Wikipedia
The mighty C. Vanderbilt
"But", I hear, "businesses do not care about insuring for the under-insured"; a statement with which I disagree.
Business is all about finding an opportunity to do something better than others. In the past, when transportation was slow and expensive, those like Cornelius Vanderbilt created solutions by deploying new steam boats and railroads. Society has long benefited from their work; whether originally driven by greed or not.
Today, as the President publicly fumbles, there are those like Clint Jones, CEO of GoHealthInsurance.com, who continue to demonstrate that the free-market is ready to pick up the ball and run with it... literally. If you want to sign up for health insurance coverage under the Affordable Care Act, your experience will be fluid through this private website. On the other hand, signing up through the government's site runs the risk that you will not get coverage when you expect it due to one of many back-end problems.
By the way, Clint's website was created with the company's money. No taxes had to be confiscated for this superior interface; something interesting considering that tax-free is an idea which has proven to be foreign to our President.
image composed of two screen shots from Reuters article "Obama urges American's not be discouraged by rocky healthcare rollout" and CNBC onlive video interview of GoHealthInsurance CEO Clint Jones "Bypass Heathcare.gov to enroll in Obamacare".
Government Ineptitude vs. Business Drive
Also important, now that we are highlighting the power of free acting companies, is that businesses are agnostic about the merits of the product. GoHealthInsurance does not care if Obamacare is good or bad; it just knows that there is an opportunity. In the end, the public will decide the merits of Obamacare. If American citizens determine that Obamacare is not what they want, then GoHealthInsurance will fail as a business and no one will shed a tear. But if demand turns out to be strong, then they will do really well.
Why am I so sure they will do well even when the government is clearly their main competitor? Because launching a database is the easy part. Updating it is always the impossible task. Seeing the almighty American government fail in front of a global audience during launch time is just the start. As soon as congress changes even the smallest aspect of the law, the real complexity will begin.
I can't help but feel that Obama, who clearly thinks that he can just "will" progress for it to happen, has demonstrated an aversion to accountability. No wonder he continues to fight those that practice daily accountability: businesses. He has driven corporate long term capital investment to the lowest levels in memory. Companies are just not confident to expose their money to projects that will take more than 20 years to pay off. Perhaps the best solution would be for him to just get out of the way. He should stop protecting ineptitude. Instead, he should let businesses, the real accountable players, do their thing and score a few touchdowns. We surely need them.
color pencil sketch of a highschool touchdown
Mr. President: we need a few touchdowns

Additional Comment:

On LinkedIn, A consumer electronics expert raised two very valuable points, which I would like to address here..
  • First, he stressed the fact that my article seems right-biased as he feels that republicans were much more disruptive to the economy. To this I offer that the article is biased for sure. But it aims to argue for less government rather than either side of the isle. Everybody knows that both parties have had pro-growth presidents as well as anti-growth ones. Unfortunately, this time it was Obama's opportunity to act against two hundred years of great American experience. Because bureaucrats fail to have any skin in my game, it is difficult for me to get too excited about any of them regardless of their party affiliation.
  • This gentleman's second point was that the stock market is at all-time highs. While I understand the fact that viewing things through the prism of stock market valuation  places doubt on any assertion that the economy is not well, it is important to make sure that the facts are better understood. It is correct that the stock market measures corporate profits. The part that's missing is that prices are on a per-share basis. This means that with less shares, earnings go up on a relative bases and stock prices follow. This without any improvement within the company. This is what we now have. Companies have been borrowing against future earnings to buy back substantial amounts of shares from the market. The net result is that low cost of capital for big companies indirectly increased stock prices. Higher S&P prices must therefore not necessarily result from a better economy. Let's also remember that stocks are an asset class just as housing. Like with housing in 2007, higher prices do not imply any degree of improved economic health. 
    Chart from the Federal Reserve Bank of Saint Louis showing the correlation between the unsustainable US monetary base and stock market prices
    St Louis Fed's Report on the Monetary Base and Stock Prices
Bernanke's monetary easing and the glut in global savings are behind the effect rather than white house brilliance. High levels of available capital, in a high risk environment, where American blue chips are viewed as offering lower relative risk, and depressed cash flows from competing low-risk asset classes like bonds, all easily result in a Dow boom. But reduce availability of capital, change the risk balance or increase interest rates, and the S&P's valuation crumbles. A recent quick test by the Open Markets Committee demonstrated this point with plenty of force. 
But that is the economic side. How about the political one? If anything, higher stock prices have benefited those with the liquidity to speculate on them and not the rest of the country; a fact that I am sure upsets Obama. He has seen the fat cats get fatter under his watch. I doubt he intended it to happen. Otherwise he would be talking it up at every TV opportunity he gets. It would become his best tool against anything thrown his way. Bit it isn't. A higher S&P is clearly painful to him.
Getting back to the main goal of the article, no one can deny that a simple website has turned into a nightmare for Obama. Meanwhile, a previously unrecognized company came out of nowhere to get it done right, on their own and without excuses or taxes. The article is about the great nature of American businesses when compared to clumsy government. 
For four years now, I have seen small businesses struggle to gain access to any of the supposedly plentiful low-cost capital and strain as regulations continue to make operations much more complex. 
Small banks continue to disappear at a dramatic rate. In the health industry, the same thing is happening with small institutions. But in industries with lesser access to capital things are much worse. For many, the alternatives are bleak. 
Today, Obamacare has created such business pressures that if you are a CFO with a deep understanding of it you can get a job anywhere and at whatever price you want. A cursory exploration of any of the online job boards will demonstrate this. About 30% of the openings are for them. This is unusually high demand under any circumstances. To compound the problems, our small businesses can't afford to hire any of these stars. Without the money, what are they to do? 
Through the article, all I ask is for small businesses to get a break.