Tag Archives: Unintended Consequences

Why You Should Feel Good About the Economy, and Why That’s Good for the Economy!

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While I was growing up with my grandfather (who was quite a management whiz) in India, he explained the concept of inflation when I was quite young.  He told me that people were going out and buying necessities and then storing them to protect against rising prices.  India was going through very high inflation in those days.  He went on to explain that what these people didn’t realize was that it was exactly that thinking and behavior that would lead to higher prices.  A self-fulfilling prophecy!  The science of economics has long conceded this point to the behavioral economists.  How people think about the economy and their economic future actually has an impact on their economic future.

For a fascinating discussion on this, you should read this transcript from NPR here. Two very authoritative prognosticators, David Wessel of The Wall Street Journal and Zanny Minton Beddoes of The Economist, have much to say when they read the tea leaves.  Granted that their focus is on the US economy. As you will note, the health of the US economy is very elastic to the global economy, at least in the short term. Some things to note are:

  • Steady decline in unemployment
  • European meltdown averted – for now
  • Manufacturing showing signs of life
  • Interest rates make government borrowing very cheap
  • Mortgage rates are nudging the housing recovery along
  • The so called “asset bust” related to real estate is almost over
  • Stock Markets – need I say anything about this?
  • Actual growth in the number of jobs

They both sound notes of caution that it’s not quite time to start celebrating, but that the light at the end of the tunnel is not a mirage.

  • Europe has only managed to defer the crisis for now. That does buy the global economy and the U.S. economy some extra time to recover without that Damocles’ sword hanging over our head.
  • Gas prices are always volatile and very elastic to world events and speculation.  They are already showing their volatility.
  • The political situation still does not look like it will lead to actual governance in the near future.  The impact of that was clearly felt during the debt ceiling discussions in Washington last year, including the credit downgrade.

But then the discussion turns to what they call the “intangibles,” which is all about how people feel about the economy.  They agree that how people feel about the economy actually drives their economic decisions.  When people feel good about the economy, they generate far more economic activity (spending, investing, borrowing etc. etc.).  They all agree that the intangibles are finally turning positive.  People are starting to feel better about the economy and their economic future.  David Wessel summed it up best when he said, “Larry Summers, the former Treasury Secretary, once said that you know a period of crisis is over when the surprises are consistently on the up side. And we’ve been through a period where for so long, the surprises have been negative. The fact that they’re positive now does kind of breed a self-fulfilling cycle of confidence that could be very important.”

My advice – pour yourself your favorite libation, and start feeling good about the economy.  It’s the least you can do to help the global economy?  N’est ce pas?

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The Unintended Consequence of Efficiency

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The Internet along with our iPads, Kindles, Androids, iPhones, laptops, etc. have made our lives infinitely more efficient over the last several years.  Twitter and Facebook give us access to information we didn’t even know we needed.  And who needs an encyclopedia when we have Google search and Wikipedia. We can do almost EVERYTHING virtually through technology – communicate, shop, learn, bank, pay bills, manage investments, etc. and the list goes ON and ON.  Our lives have been made immeasurably easier by our access to technology, almost to the point that we cannot function without it.  Most would agree that this has been a positive step forward and the “intended consequence” of creating efficiency has been accomplished.  BUT I would argue that the unintended consequence of having our entire lives exposed to the world is one that is rarely discussed and can have some serious and even devastating implications.

In an article titled “Google Defends New Privacy Policy” by The Wall Street Journal, it is apparent that we are being constantly monitored and followed when we use any Google product (and don’t we all?).  According to Google, this is being done to make our lives easier, not to mention making Google infinitely richer through increased advertising dollars.  What many users translate this into is receiving targeted ads every time you go to the internet – annoying but not necessarily devastating.  Right?  Wrong!  You are clearly being followed just as if someone was stalking you in a shopping mall.  It is an invasion of privacy and is pretty darn scary.

An article came out yesterday in Business Week entitled “Microsoft Ads Bid to Capitalize on Google Privacy Backlash”.  In the article, Microsoft Corp. is aiming to take advantage of a backlash against Google’s privacy policy changes by rolling out new ads that say its rival is risking users’ privacy to squeeze more revenue out of them.  Will Microsoft really be any better?

Facebook, by the way, may soon be facing the same issue.  In an article in the Daily Caller entitled “Facebook Surrenders Its Privacy In IPO Documents”,  Facebook  openly admits that it has concerns that both the U.S.  and Europe may impose tougher privacy rules that would make it more difficult for the company to stockpile information about its users.  Everyone is doing it!!!

So what does all this mean for the user?  Be careful!!!  In our eagerness to share excessive amounts of personal information from our daily/hourly goings-on in Facebook to our everyday (don’t even think about it anymore) transactions, we are opening ourselves to Trouble (yes, with a capital T).   Many negative unintended consequences such as cyber bullying, robberies, cheating, identity theft, reputation bashing, etc. are all a result of making our lives more “efficient”.  As a recent victim of one of these unintended consequences, identity theft, I can tell you that trying to fix the problem FAR exceeds the efficiency that was initially created.  By the way, my problems were not caused by a local hooligan but by a VERY sharp hacker (most likely tens of thousands of miles away) that helped himself to ALL my personal information.  But for the internet, I would never have crossed paths with this individual (this is an assumption since this person will most likely never be caught).  As a result, I have fallen back to the good old U.S. mail, writing checks that actually require a signature and no longer do any “transactions” on-line.  Inefficient maybe, safer YES!

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Troops in Afghanistan – a Dramatic Case Study for AEIOU

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Today’s post is from Anne Kohler, COO & Executive Vice-President, of The Mpower Group (TMG) and a contributor to the News U Can Use TMG blog.

What do these historic events have in common?

  • U.S. Invasion on North Korea
  • The Bay of Pigs
  • Watergate
  • Escalation of the Viet Nam War
  • The Hostage Rescue in Iran
  • The Challenger Disaster
  • The Bush Administration’s Invasion of Iraq

This list represents some of the biggest decision-making disasters in history.

A few weeks ago, the famous Washington Post White House author, Bob Woodward wrote an article entitled “Military thwarted president seeking choice in Afghanistan” which was all about the critical nature of decision-making.  What greater decision can there be than deciding the fate of tens of thousands of young U.S. men and women as they are sent into war-torn Afghanistan?   The article chronicles the process that President Barrack Obama undertook in finally deciding to send 30,000 additional troops as opposed to the 40,000 (which came highly recommended by his military leaders) in December 2009.

Obama discovered after months of negotiating with national security officials and being in the middle of a war entering its ninth year that three simple questions could still NOT be answered:

  • What is the mission?
  • What are we trying to do?
  • What will work?

In other words, what is the intended consequence in Afghanistan? . . . . . . . . . . . . . . . .

As it turned out, Obama’s military leaders wanted to provide a solution (40,000 new troops) without defining a strategy – the answers to those three simple questions (obviously not so simple!).  Obama asked for a strategy (the answers to those questions) and asked for options, but the inability to answer those questions kept leading back to NO viable options except for an option that was UNacceptable to Obama.

Having been well versed in decision-making disasters from the past (see above), Obama chose to follow a more structured decision-making process.  He knew he had many intelligent key stakeholders at his disposal and wanted input, alignment, and buy-in from all of them.  He actually made a meta-decision – he decided how to decide by answering the following:

  • Who needed to be included in the decision-making process (stakeholders)?
  • What role would each stakeholder play in the decision-making process?
  • How would the decision be made – what criteria would they use to decide?
  • When did the decision need to be made?

Obama did a thorough stakeholder analysis to determine who needed to be included in the decision-making process.  He realized that it was critical to include both military and civilian leaders.  He also determined each stakeholder’s role in the process; keeping the final decision for himself.  He then determined the decision criteria and insisted on being provided options by his advisors, which was critical.  Finally, he did not allow himself to be rushed into making a quick decision (his military leaders tried to do just that) which allowed him the opportunity to consider many alternatives.

At the end, he “sold” his decision to all his stakeholders and insisted that they put their full support behind it.  Obama said, “I don’t want to have anybody going out the day after [the speech] and saying that they don’t agree with this.”

Time will tell whether or not this was the right decision for the U.S.  BUT what we can glean from this article is the importance of having a disciplined approach to decision making.  Even if all of Obama’s stakeholders did not necessarily agree with the final decision, it appears that they did respect the process.  Right before the decision was announced Obama gave Robert Gates, his Defense Secretary, a final opportunity to dissuade him saying, “Can you support this?  Because if the answer is no, I understand it and I’ll be happy to authorize another 10,000 troops, and we can continue to go as we are and train the Afghan national force and just hope for the best.”  Gates did not take Obama up on his offer.

This is just one example of the importance of decision-making.  This is the one skill that most leaders are never trained in, even though it is the most critical part of their job.  It is one of the elements of our AEIOU model, which stresses that the best infrastructure (people, process, tools, and technology – the consonants) in the world is useless without the glue that holds it together (Adoption, Execution, Implementation, Optimization, and Utilization – the vowels that turn the consonants into a language).

Some of the most important events in history required effective decision making and yet we spend little to no time on developing the skills necessary to make good decisions.  The recent deaths in the California wildfires have been attributed to poor decision making by the firefighters.  The good news is that this has led to the addition of decision-making to firefighter training.  One of the most critical decisions that affects all of us is that of a jury.  Yet numerous articles have been written about the fact that our present system does nothing to provide jurors with the tools to decide the fate of a human life.

We need to think about this key skill beyond our politicians and public servants.  How about executives of any kind?  Supply chain leaders?  Sourcing teams?  This should be a critical leadership skill that is purposely taught to all professionals – let’s provide the vowels to complete the language!

Thanks Anne!

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A Simple Soda: Penny Wise, Value Foolish

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Yesterday I flew coach on Delta Airlines from Atlanta to Chicago.  .  .  It was almost an hour into the flight when I realized that I had yet to be offered something to drink.  In trying to determine where the delay was coming from, I observed the flight attendants offering passengers drinks and I noticed that it was taking an inordinate amount of time when a passenger ordered soda.   This was because the flight attendant needed to fill a glass with ice, open the can, pour the soda into the cup of ice (the can needed to be tipped several times so that the liquid could be distributed slowly so as not to spill while filling the glass)  and then hand the cup (not the can) to the customer.  This process took twice as long (four times as long for diet soda since it “fizzes” more)as someone who simply ordered water (no bubbles to deal with) or beer, wine or other alcohol because the passenger was handed the entire container (bottle or can) to pour themselves.

Being a supply chain geek AND being somewhat obsessed by our recent focus on Value, I decided to apply our Value model.  I started with the flight attendant.  I asked her opinion of the soda process and was told that she had been instructed to pour the soda into a glass as opposed to offering the can because she can get two drinks out of one can – thereby accomplishing the “Intended Consequence” of cost savings.   If I were to guess, I would assume that this decision was made by the Controller (a key stakeholder in this case) – without consulting two other major stakeholders, the flight attendants and the customers.  Along with this strategy came a few “Unintended Consequences” such as a significant decrease in productivity, increased waiting time for passengers, decrease in the perception of the brand (Delta looks cheap) and poor customer satisfaction.  If I apply the Value model to this business problem I discover that the $.10 cost savings per can must be weighed against the destruction in Value (defined here as productivity, wait time and customer satisfaction).  Is it really worth it??? By the way, if I ask the flight attendant for the entire can of soda,  he/she will give it to me or if I ask for a second glass of soda later in the flight he/she will give it me.  So why not do it right the first time????

If you still don’t believe the Value model works try it on anything you buy – good or service and use the “Intended” and “Unintended Consequences” approach to see where Value is either enhanced or destroyed.  It really does works!   This is why we are rather vocal in explaining that taking a cost focus (traditional Strategic Sourcing), like my soda example, can actually destroy value.  In this case, the most important stakeholders, the flight attendants and the customers were not even considered. Does that sometimes happen in Strategic Sourcing?

Now let’s take this model one step further by taking a closer look at the Airline Industry as a whole. Over the last several years, the Airline’s have had a relentless focus on cost.  They have uncovered almost every possible source of cost savings imaginable and as a result have destroyed most of the convenience and/or enjoyment (VALUE) many of us experienced in flying.  In a traditional cost focused approach, which is considered “Best Practices”, I suppose next year the Airlines will be looking for at least another two cents to shave off the price of soda – isn’t that how Strategic Sourcing works?  Isn’t that how they are measured?  Is this model working for them??  Is it sustainable?  If not, perhaps it is time to move on to “Next Practices”.

In the spirit of exploring “Next Practices” I tested my theory on Value with a few of the passengers sitting around me on this flight.  I asked a number of business travelers (because these are frequent travelers) if they would be willing to pay more for a better experience (VALUE).   What I suggested was a nominal fee ($50 – $75) which could buy them early boarding (this costs the airline nothing), free drinks and WIFI (this costs the airline pennies), etc.  The response was a resounding YES – even if their company would not pick up the tab.  If what I heard was true then here is an untapped opportunity to increase revenue for the airline and VALUE for the customer.  This takes the “Best Practice” model of squeezing every last dime out the system (thereby destroying value) and turns it upside down.  Is creating VALUE for both sides sustainable?   Could it be a competitive advantage?  Could this approach be the “Next Practice” for Strategic Sourcing?  Should it? Without “Next Practices” we may find the next wave of cost cutting to include a charge for restroom use or a discount for standing as opposed to sitting during a flight!

As a side note, later in the flight, I overheard the flight attendants discussing this value idea.  They suggested that I send a note to the CEO of Delta which I intend to do.  I will keep you posted.

The debate continues around cost verses Value.  We welcome your comments and examples . . . . . . . . .

Anne

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