When Morons Have Power

This week’s edition of BusinessWeek warned that casinos are losing money. Well, duh. It’s not hard to figure that when you have no disposable income, you will be even less inclined than usual to do things that are wasteful and expensive. Or at least that’s how normal people think. For some reason, some people with a lot of power make incredibly stupid decisions. Today’s example is Drayton McLane, owner of the Houston Astros Major League Baseball club.

The Houston Chronicle released a study which showed that MLB has been trying to protect fan interest and attendance during the recession, and one of the steps taken by almost every club is to allow fans to bring in their own food and drink. While certain conditions apply (no glass bottles for example), every Major League club but one allows folks to bring in their own food and drink. That exception is the Houston Astros club.

The Astros actually set up sentries at the gate to catch anyone trying to sneak in food. Ahhh, but it gets better. An NBC reporter noted “inane stadium policies seem to be Houston's stock in trade. From personal experience, you should know that if you should purchase a beer on one level of Minute Maid Park you are not permitted to bring said beer with you to your seat on a different level. Attempts to figure out why that's the case via conversation with the guard stopping you from the stairwell will result in splitting headaches.”

Nice to know that the ‘Stros are building a national rep in that category, huh?

The Astros first tried to claim that they are bull-headed about food price because they have low ticket prices, but that turns out to be a lie as well: 19 of the other 29 teams offer lower average ticket prices than the Astros.

The team also tried to suggest that we are paying for a quality team. Problem there is that the Astros are in last place in the NL Central, and playing like they mean to stay there.

McLane then tried to claim that banning outside food at Astros games “has been kind of a tradition in Houston”, said Astros owner Drayton McLane, who purchased the team in 1992. Spoken like a descendant of Louis XVI, not a guy who knows baseball or gives a fart about anyone but himself. Even Steinbrenner would know better than to toss out that kind of arrogance to the public.

So all that establishes that the Astros club doesn’t care a fig about its fans, and is just a business based on greed. That proves poor morals, not bad business, right?

To answer that, let’s consider the business model of MLB club. There are four sources of revenue for a ball club; ticket sales, shares of broadcast revenue, marketing and souvenir sales, and concession sales. McLane is not about to open his books to the public – that kind of honesty has never been how Baseball clubs work – but we can figure out some general numbers from public data. USA Today says that the Astros have a payroll of $103 million, which happens to be the highest in the NL Central. The average ticket price for an Astros game is $28.73, and average attendance for Astros home games so far this season is 29,932, lowest in more than a decade.

That’s down 13.9% from last year’s average at this time, which was also no record-setter. But the revenue from attendance, using the year-to-date pace, would produce $69.6 million for the Astros, more than $33 million short of the payroll even if it cost nothing to operate the stadium, equip the team or pay anyone else. The drop in attendance from last year means at least $11 million lost in lower ticket revenue, unless the Astros do something to attract more fans.

The same effect happens in broadcast games, in fact it’s amplified. The networks only run games that they believe have significant fan interest. While the Astros would receive a minimal amount of attention, their poor performance and low fan attendance would reduce their network profile, meaning fewer televised games and lower revenue from broadcast. Specific numbers are closely protected, but it’s just common sense to conclude that empty seats mean lower broadcast share revenue.

Then there’s souvenir and marketing sales, like jerseys and bobbleheads and so on. How hard is it to understand that if folks don’t buy tickets and go to the games, they won’t buy anything from the gift shops? And even though many stores sell Astros merchandise, last-place teams are not known for strong team product sales. Combine the lousy performance this year, the recession, and management’s jerkwad attitude towards the fans, and it’s very reasonable to guess that product sales are sharply down, by even more than attendance.

Then there’s that concession revenue. Just how stupid McLane is being, becomes evident when you think about the fact that absolutely no one will buy food at Minute Maid Park unless they actually go to a game there, meaning that Drayton’s ridiculous attitude is punishing the people he should be bending over backward to make happy – the fans who are still coming to games. As attendance goes down, concession revenues will also necessarily decline, and given the nature of concession inventory, profit margins will also fail. I used to run movie theaters, and I know that when attendance falls below certain levels, your losses from unsold food increase, no matter how well you try to plan ahead. That is, a 14 percent drop in attendance will necessarily mean about a 16 percent drop in concession profits, unless you lose even more.

Forbes says that the Astros' operating income is only 8.76% of their total revenue, meaning that unless the Astros had a 5.1% profit margin or better in 2008, they are going to lose money this year. This is because so much of the Astros’ costs are fixed, like payroll and leases; they are not going to be able to reduce costs to any great degree, because their variable costs are below 10 percent of their total costs. The short version of MLB clubs’ model is that they are profitable only when their home games have high attendance; low attendance produces business losses. Accordingly, the only sane strategy for a team owner is to attract the maximum number of fans, and this is why 29 of 30 clubs have relaxed their rules on outside food and drink – it’s much better to lose a bit of concessions revenue but protect the fan base, than to lose money in all four categories through sheer stupidity.

It’s curious that Drayton McLane could fail to understand this rule of business. McLane is very wealthy, and became so through running his father’s grocery business, spending 14 years as a general manager of operations. The key seems to be that from 1964 on, McLane moved out of operations and into distribution planning. That is, McLane has not had real contact with regular people for decades and has increasingly come to believe not only that he is competent at whatever he chooses to do, but also that only he understands the situation and the best plan of action. Not so long ago, Sports Illustrated wrote that McLane is obsessed with control, unwilling to allow anyone else to make adjustments, even when those people know far more than he does about what needs to be done.

It appears that this is another such situation.

In the 2005 season, the Astros started off horribly but rallied and frankly got a lot of luck on their way to the World Series, where reality set in and they were swept by the Chicago White Sox. The Astros have not even made it to the playoffs since then, something McLane seems to miss every time he raises prices or does something else to show his contempt for Houston and the people who live there. The bottom line is that McLane does not understand the bottom line, strange as that may sound. He has the power to do what’s needed, but would rather ram the iceberg at full speed in order to prove he has control.

Sadly, there are many people like McLane around right now, in all sorts of positions of power.

Job Schemes

For all the talk – and dear Lord there’s been so much noise from the politicians – the economy basically comes down to people working and making money. If folks are not working, you can forget about companies making profits, about cities, states or even the federal government having any way to provide for the public welfare, not to mention all those things politicians promise every election. In the end, everything – and I mean everything is paid for by people who work. That’s why President Obama is starting to show stress in his speeches; he knows that “blame Bush” can only work so long, and as unemployment nationally creeps up to ten percent he’s headed for trouble. I’m sure he thought his “create or save” caveat for jobs was a clever way to make promises he could never be called on, but the fact is Obama’s plans don’t work, mostly because he does not understand the forces at work, and so he cannot hope to direct them to better results.

There are basically three kinds of jobs – necessary permanent jobs that need to be done by someone all the time, like firefighters, police, doctors and accountants; temporary needs that may or may not be filled long-term, like construction, retail, or manufacturing; and make-work assignments to fill one-time needs or give individuals something to do, like hiring an intern or paying your kid to wash your car. Government can create jobs, but only to a point, whether in number or duration. The most significant jobs, it must be understood, are not created by government or artifice, but by the economy’s needs and the community. The rise in unemployment happening now is the combination of hard-hit sectors shedding non-essential jobs (like real estate and automakers) and the large-scale reduction in unskilled labor. People get angry because they want their seniority to matter, but in the end the key question is whether your work is essential to your employer. Government cannot change that critical value.

The history of employment has always included changing times, as demographics and industries changed. After the Civil War in the United States, for example, many people moved to cities for work because they had lost too many young men to be able to work their farms effectively. Railroad workers, farmhands, cattlemen, surveyors, and even the Pony Express came to their end as they became obsolete. Those who could do so learned new skills and found new work in emerging industries, like automobile manufacturing and power generation in the early 20th Century. Other changes were more gradual and subtle, but no less significant, like the outsourcing of most customer service work and the use of contract labor for low-level clerical tasks. In every case, the change was in reaction to changing realities of life and business. While better-run businesses learned better how to adapt and anticipate change, in no case was the change directed or controlled by the government; strategic change is organic in nature and human actions are influenced by that change, not the other way around.

In the short term, government can create jobs, but that creation is limited by the degree of public support. The military, for example, is popular and large in wartime, but when the war ends (or public support for it) then the military contracts whether it wants to or not. Even FDR’s vaunted Civilian Conservation Corps had a relatively short life, due to its non-essential character. Job creation for the sake of job creation is by definition a failed effort even before it begins.

Turf War?

One of the odd things about the Supreme Court, is that the justices don’t always rule the way they are expected to rule. I hear a lot that the Presidents who appoint the justices don’t always look deep enough to know what they are getting, but sometimes they just do something surprising. Like today. It’s one thing that SCOTUS wants to take a look at the Chrysler deal, but how odd is it that it’s Justice Ginsburg who threw out that pitch?

Think about it. You might expect that from the Chief Justice, maybe Scalia or one of the more constructionist justices. But Ginsberg, an Obama fan if there is one on the SCOTUS? That’s sending a message, and that message is turf. The boundaries have been there for a long time. Theoretically, the Legislature makes law, the White House sets policy and direction, and the Supreme Court interprets law and policy by the Constitution. But in reality, there are areas where each wants to increase its power, and in politics that means at the expense of the other.

Bankruptcies are handled by the courts. Period. That’s how it works, only President All-About-Me wasn’t about the trust Chrysler’s fate to the courts, so he took a page out of the Godfather movies and went thuggy on everyone involved. Turns out that stepped on some toes belonging to people in the black robes. And today’s halt could be a shot across the bow to warn Obama off, or it could be targeting for a salvo if he tries to force the issue.

This could get very interesting.

Designing the Case Competition

There is a risk in being trendy, to do something simply because others are doing it. In the matter of business schools, case competitions have become trendy, which means that in some cases the school does it without fully understanding the purpose or how to get the best results. The first order of business for any school whether they are considering creating a case competition or already run a competition, is to decide why you are doing it and what goals you want to achieve. The majority of schools performing case competitions seem to be doing a sloppy job of it.

After looking through the available information on case competitions, there appear to be three main types of competitions – intramural competitions between teams finishing their MBA studies, league competitions between schools, and open tournaments with sponsors and press events. The goals for each type of tournament are different, although it should be noted that there is no rule that a school cannot work to have all three types of competition.

The intramural competition is generally done as a capstone course for the BBA or MBA candidates, and as such focuses on grading their accumulated knowledge, skills and work on a project level. The key stakeholders for this level of tournament are the students, the faculty, judges, and the school’s dean and trustees. The optimal organization structure would plan for participant and judge orientation, along with modest logistical requirements. Goals and objectives for each group would be planned and published in advance, as well as the method for publishing results and feedback. In the ideal situation, the following sample schedule might be used:

December: Guidelines for the competition are published on the school website, focusing on real-world conditions and objectives rather than superficial. Judges are invited and given orientation reports, students sign up for the classes, the focus company is advised of the competition and invited to participate with observers.

January: Capstone classes begin, requirements and rubrics for the competition are included in the syllabus.

March: Individual work completes in each class, teams form up and begin

late April: non-tournament grading is completed, teams submit final documents for project

May, week of competition: Judges meet and are refreshed about company orientation and tournament objectives, and are presented with the project documents for the teams they will be judging. Company is forwarded recommended project papers through its observers or by mail if no observers.

Competition day: Teams present their cases as scheduled, to teams of judges familiar with both the focus company’s objectives and requirements, and the specific analysis and recommendations from the teams’ reports. Judging can take place, therefore, on the basis of how well the team has done its analysis, made effective recommendations, and sells the recommendations to the judges. Scoring on the basis of the rubrics published in December.

May, post-competition: Class grades, written evaluations and feedback from judges and awards, including individual honors, are formally presented. Participants are also asked for feedback about their experience and suggestions for improving the process. This feedback is reviewed twice, at the time of submission and again in planning for the next competition.

I leave it to the reader to decide how well this format would serve, and how well present competitions are planned and managed.

The interschool and sponsored competitions would be similar in form to the intramural event, except that the focus is on school competition as well as the teams. Also, given the higher profile a press element is to be expected, and this should be encouraged so as to produce goodwill and prestige for the schools involved. This is the academic equivalent of varsity sports, with direct and significant effect on the businesses which will hire these BBA and MBA candidates when they graduate. Again, I leave it to the reader to consider the potential for case competitions between schools and tournaments with corporate sponsors, and to consider the success of present efforts. I merely submit here that the process is new and undeveloped enough, that those schools which best plan and promote such competitions will make a name for themselves as stand-out schools with commensurate gains in reputation and enrollment. Despite calling this part 4 of 4, I will have more to say on case competitions.

What A Case Competition Should Be – Part 3 of 4

The case competition is the flagship of a business school’s curriculum, where if the candidates live up to their promise and ability, and if the program is properly administered, the school, students, and the business world in general all gain from the experience. Unfortunately, there is a real risk that the competition will fail in at least one major respect, and miss the accomplishment of its potential. Strategic and tactical planning and execution are paramount, not only for the competing teams but also for the school and even the judges.

Let’s stop here and consider what the case competition means to each stakeholder. For the students competing, at one level it represents a grade in a capstone course, a chance at some personal glory and just maybe the right kind of attention from a potential employer. It certainly never hurts to be able to boast on your resume that you beat out other teams for a tournament win. But the tournament is also important for the school, and properly done for business as well. While some business schools make their name on the strength of their alumni and the renown of the overall school, case competitions have allowed some schools to demonstrate excellence in comparison with other schools in head-to-head academic tournaments. Developing a top-notch case competition format, therefore, is a way for even a small school of modest resources to set itself apart and above its rivals. As for business, consider if you were a CEO of one of the companies chosen for a competition focus. You might very well take interest in the recommendations of several teams of MBA candidates, especially given that the advice is free and thorough. One obvious step I would recommend for any school sponsoring a case competition, is to submit the winning cases to the focus company. There would be no obligation, and the potential for goodwill and a future sponsorship is well worth the effort.

All of these results presuppose, however, that the final product of the teams, especially the winners, will be something the school and the MBA candidates are proud to stand behind. To that end, style must be reduced significantly in importance, and the actual substance of the analysis and recommendations must be much more strongly emphasized, taught, and rewarded. The teams, faculty, and sponsors must be clear about what is desired, how it will be judged, and feedback during case preparation and after the presentations must be clear, ongoing, and complete.

Problems in Case Competition – Part 2 of 4

In my first post, I noted that the case competition was developed as a practical test of the skills expected from MBA candidates, which is why the competition is so often used in capstone courses at the end of a course regimen for the Bachelor’s and Master’s degree in Business Administration. I also noted, however, that the common practice in such competitions is to give too much weight to style and far too little attention to the actual research, analysis, and recommendations.

To show what I mean, below is a sample of the presentation rubric used this Spring in the UHV MBA Case Competition:

Presentation Rubric

Organization:
1. Audience cannot understand presentation because there is no logical sequence of information.
2. Audience has difficulty following presentation because some of the information is not in logical sequence.
3. Team presents information in logical sequence which audience can follow.
4. Material is presented in logical interesting sequence the audience can easily follow.

Subject Knowledge
1. Team does not have grasp of case and cannot answer questions.
2. Team is uncomfortable with case and can only answer simple questions.
3. Team is at ease with case and can answer all questions, but fails to provide elaboration.
4. Team demonstrates knowledge of an array of business models, answering all questions completely.

Issue(s) Clearly Defined
1. No issues are clearly defined or do not fit the analysis.
2. The issue(s) discussed are poorly defined and insignificant.
3. The issue(s) discussed are either poorly defined or not clearly significant.
4. Team has identified strategically significant and well defined issue(s).

Recommendation Quality
1. Recommendations are weak or vague and do not address the issue defined.
2. Recommendations are fair or not clearly explained or do not thoroughly address the issue defined.
3. Recommendations are good but may not be clearly explained or may not thoroughly address the issue defined.
4. The recommendations presented are logical well presented, thoroughly explained and fit the strategic issue(s) well.

Business Analysis
1. The quality of analysis is poor, incomplete and may apply the wrong models.
2. The quality of analysis is fair, may be incomplete or may misapply the models.
3. The quality of analysis is good, the models applied well, but one or more unit of analysis may detract.
4. The quality of the analysis is excellent. The industry, firm and its issues are well articulated

Audience Interaction
1. Team members just stand in one spot and read presentation with no eye contact or use of appropriate gestures.
2. Team members primarily read presentation and occasionally move around, use eye contact, and use appropriate gestures.
3. Team members maintain eye contact, move around, and use appropriate gestures while often referring to notes.
4. Team members maintain eye contact and seldom refer to notes.


At first glance, this rubric appears to be a solid way to evaluate a case performance. It’s divided into Organization, Subject Knowledge, Issues Definition, Quality of Recommendation, Business Analysis, and Audience Interaction in equal measures. When examined more closely, however, flaws become evident.

Let’s start with the biggest problem; judges’ familiarity with the material. The Case Competition at UHV used a panel of six judges for each room, three faculty members and three panelists from prior winning teams. It quickly became apparent as the presentation went along, that the judges were not given any special orientation about the target company, PetSmart Inc. This is critical to the judges’ participation in the competition, as our team prepared for questions relevant to to the specific company’s situation. The pet supply and services industry is far different from the nominal retail environment, and PetSmart was genuinely unique in its business strategy, particularly CEO Philip Francis’ repeated insistence that the company sharply reduce capital expenditures. From discussions with other teams after the event, I discovered that the winning teams all proposed actions which involved significant risk and capital commitment, in direct contradiction to PetSmart’s known focus and corporate vision. That is, if any of these teams had tried their recommendations on the real board of directors at PetSmart, they would have been shot down in short order. I don’t mind losing to a better team, but I do have to say it’s annoying to see recommendations win that my team rejected because we knew they were unrealistic, but the judges did not recognize the context of the target company. It also demonstrates a weakness in the competition, if teams are encouraged to produce a flashy but unrealistic presentation. There is no way to effectively judge substance, if the judges are not made aware of what is on or off the mark. If the actual company’s strategy and vision are not incorporated into the competition, the whole thing devolves to no more than a drama contest, the business version of ‘American Idol’. This is supposed to be business school, not show business.

Let’s also look more closely at those scoring categories. The case competition was meant to be loosely connected to the course grading itself, from the description on the school website. Consequently, organization, the issue definition and the business analysis would already have been developed over the course of the semester; it would be a strange team indeed that did not earn most of the possible points in those areas. The only real distinction would come from how well the judges believed your team delivered its message in those areas – on style. The two most important areas of substance, Subject Knowledge and Recommendation Quality, as we have seen, were diluted to purely subjective impact because the judges were unaware of the target company’s actual strategy and parameters.

That’s not to begrudge the winners their prizes, nor dwell too much on the errors in UHV’s competition. The case competition at UH-Victoria is a great way to finish the course to the Strategic MBA, and the winning teams worked hard and deserve their glory. But it illustrates how even a great idea can fail in execution, and the best correction begins with recognizing those errors and discussing alternatives and opportunities. Also, from looking around at the various competitions out there, it occurs to me that a really well-done competition could set a school above the rest for quality.

The most prominent competitions are those which involve multiple schools, have at least one corporate sponsor, and not only recognize teams for excellence but also outstanding individual performance. My next post will present an outline for such a competition, a new addition that will raise the profile of the school which organizes it.

The Evolution of the Case Competition, Part One

Business Schools do not always get much respect from other schools in a university. Partly because of the relatively short history of business schools (just a few decades, where many classic schools can boast 150 years or more), but also because the worth of a business degree remains in some debate. Of course, a reasonable person could challenge the real value of certain liberal arts degrees, but I shall leave that be for here. The problem really gets going at the graduate level, and of course I mean the Masters degree in Business Administration, the infamous MBA. For many people, the MBA is a pretentious degree acquired by people who can’t do real work. In reality, the MBA is a necessary credential for many business professionals, especially those who want to work in the C-suite someday. But like all degrees, not all MBAs are equal or indicative of a competent professional. Most of the value of any degree depends on the individual, of course, but the school plays an integral role in helping the student reach their full potential and prepare for the real world of business.

The MBA therefore was always meant to be a practical degree, designed to produce a professional able to gather data, analyze it critically, and produce a cogent set of recommendations to improve effectiveness and profitability. Law schools also produce graduates who are expected to put their degree to practical use, and for that reason law school present various trial exercises called moot court. Some of them are quite entertaining and there are various competitions between law schools. The business schools decided to follow suit, and created case competitions.

There are a variety of case competitions available. The most common by far are intramural events held at graduate and undergraduate schools of business as part of the capstone course, meant to test and exhibit the whole spectrum of abilities and skills by BBA and MBA candidates. But there are also inter-school, national, and international competitions, as well as competitions sponsored by corporations or organized by special-interest groups. Some schools have had case competitions for more than a decade, while others are just getting started.

The case competition, generally, takes either a situation or a company, and directs the teams to provide answers, either in the form of a business plan, operational strategy, or a specific recommendation for one aspect of the company (such as a human resource, finance, accounting, or logistics challenge). Teams are judged by a panel which considers their prepared documents, the flow of their presentation and the quality of the team’s analysis, supporting evidence and recommendations, and how well the team answers questions and challenges to their recommendations. Done properly, a case competition gives graduates a good sense of their acumen and presentation ability, qualities they will need in the real world.

That said, I have been looking into the grade weights of a number of competitions, and the manner in which judges are recruited/selected for the competitions, and I have found some weak areas. For instance, in case competitions the overwhelming weight of points come from the way the case is presented, rather than the strength of analysis and recommendations. This becomes significant when one considers the effect of sending competition winners out into the work world convinced that style is more important than substance, something we have seen all too often in failed leadership at more than a few companies. The second problem is that judges, all too often, treat the competition as a minor event requiring little preparation on their part, so that they miss errors in analysis and recommendation that would be disastrous in a real-world situation. Again, what is needed is a way to not only reward one aspect of the presentation, but also critically challenge the teams so they have a good idea what they need to do to be ready for real-world situations.

In my next post, I will examine ways that the case competition device may evolve into a more effective teaching tool for creating effective business solutions.

Government Lies

I took my daughter to the city pool today. Unfortunately, despite publishing that the pools would be open from 1 PM to 8 PM, neither of the two pools within driving distance of our house were open. Locked gates, empty pools, no staff at all. It was obvious that not only did the pool staff not show up, there was no intention of actually opening the pools. I could guess about why that happened, although with the City of Houston it’s not really unusual for the city to make promises it does not even try to keep.

Not that the City of Houston is unique in that arena; local, county, state and national governments often say one thing and do something else. This is one important reason why mature people tend to mistrust government – governments are not often held accountable, and people in government tell a lot of lies to get what they want. Consider how many taxes were initially ‘temporary measures’ that somehow never ended. Consider how many pet projects were ushered in under the claim that they were necessary ‘emergency’ measures. Consider how seldom anyone in power ever accepts, really accepts, their responsibility for the consequences of their decisions.

Never judge government by its promises, only by what it actually does. Because the government lies, and will always lie if that gets it what it wants.

Lawfoolery

I read an unfortunate novel this week, “Security Breach” by Humphrey Hawksley. It’s a waste of time, partly because it could have been much better. One of Hawksley’s blunders is his desire to be the next Orwell, by imagining a near-universal police state. Simply put, he does not sell the idea well. Hawksley plays on media-driven fears, and comes off as a neo-Luddite instead of a thoughtful critic of modern technology. But the book did get me pondering about the tipping point of the police state.

Law is necessary, but when the power to make and enforce laws is abused law degrades to oppression. This can be understood on a linear scale:

Without law at all chaos reigns, there is no justice or sense of order, and people will do little to risk their safety or possessions. Law is demanded by the people, to protect their persons and property.

At a certain point, sufficient law and its enforcement creates conditions where the public experiences security and freedom in a balance which allows individual expression and industry, but also protects both individual rights and the general welfare.

However, as time progresses political agents become inclined to act in the nominal public interest, and impose burdens on the public in the feigned interest of the public welfare. Laws which are not reasonable, which are too numerous or intrusive, or which benefit a few at the cost of the many, represent oppression and represent the road to the police state.

Taxes, for example. If you own land, you know that you will never be done paying for it, because the government has arranged for perpetual property tax. If you make money, it will be taxed as income or as an investment, and if you spend it it will be taxed again as sales tax, plus luxury tax if you dare to spend it on something the government considers non-essential. Your gasoline is taxed, so are your utilities, so even necessities lead to you paying more tax. Need I continue? Anyone who works or is successful, gets taxed in virtually every way possible.

It’s not just the rate either, but the infinite number of ways the government lies about what it’s doing. Taxes are hidden and disguised as ‘fees’, ‘tariffs’, ‘funds’, and so on, in a never ending con game that fools no one but the politicians.

No one with an IQ above 50 or a birth date in the 20th century seriously considers themselves to be under-taxed.

Many people accept their condition, either as a fact of life or a condition beyond their control to change. That’s not the same as thinking it just or a true representation of the people’s will, as our country’s Founding Fathers intended.

Why does excessive taxation represent a police state? Enforcement is universal, for one thing, and opposition is either mocked, suppressed, or both. The IRS may be fair or not, but they do not have to follow the normal court procedures required; they have their own courtrooms and judges, in fact. Where money is concerned, the one thing you may be sure of is that if you have any, the government will chase you down to get it.

Moving back to the overview though, the excess of law is also apparent in just how easy it is to get into legal trouble. You can be charged for not wearing a seat belt, even though you put no one else at risk. You can be fined for failing to sign your tax return in ink. You can be fired for a bad credit report, even if the report is in error. Government now instructs you on how you should eat, drive, exercise, sleep, enjoy yourself on vacation, and on what you should spend your discretionary income. The government also can now abrogate your property rights, devalue your investments, and limit your access to your own bank accounts, all in the name of ‘stimulus’ – how’s that for “hope and change”?

Laws are necessary to protect the public from violence, but excessive control by government is intolerable, historically so. Strange as it may sound, President Obama seems to be a man who knows many details of the law, yet he fails to understand its context and limit.

The God Factor

People follow habits all their lives, and even subsequent generations often follow in the routines and practices they know. This creates the impression that human behavior is predictable, and that strategies can be created which take advantage of human habits and routines. To a degree, this impression is valid.

But only to a degree.

Things change, and not always in predictable ways. Historians spend a lot of time trying to link apparent causes and effects in events, though often their judgment is subjective and really does not prove their case. The connection between events, conditions, and subsequent actions is real in some cases, but not all. Like the belief that human behavior will always proceed as it has gone before, the belief that the future can be predicted perfectly by drawing up behavioral theory from past events is mistaken, and when trusted too much will itself draw people into grave error. There is an additional factor to consider besides the habit and history of humanity, a factor which is not obvious but very real in the direction of events and reality as it unfolds. That factor is sometimes a catalyst, sometimes the controlling direction itself, and in some cases it displays an unstoppable force which turns back events against the tide of history and human predilection. That factor brought about the rise and fall of empires, whether Egypt, China, Rome, Britain, or America. That factor singled out individuals of note to rise in prominence, to be ‘in the right place at the right time’ for the need of the moment, whether an Adam, an Abraham, a Moses, a Cincinnatus, a Plato, a Paul, a a Galileo, a Luther, a Newton, a Washington, a Franklin, a Lincoln, a Churchill, and so on.

God.

Such a simple noun, a word immediately rejected by some because it denies the individual his imagined right to hubris and narcissism, by others because it begins the illumination of our limits, by still others for its inconvenient Absolutism. Others read the word and imagine a puppet to do their bidding, or an intellectual construct which just so happens to fit their personal worldview. Others imagine a force against which to rebel, and others a weapon to use to coerce people to obey their will. Few indeed stop to consider God as a being, let alone listen for His word and will, much less submit to holiness as a vocation. Discovery of one’s mortality, defined not only in length of life but limits to control of your own condition and choices, is more than most of us can easily accept, myself included. And many people, overtly or without even knowing it themselves, rebel against the right and authority of God to rule His own creation.

When I was younger, I saw many things to wonder at, and many things to despair. Racism is not what it was, but it has not died away completely, only changed its face and membership. Sexism also continues, though it also metamorphosed into something unforeseen yet still potent and feral. It is still fashionable to praise the popular and the beautiful, while mocking and taunting those unfortunates whose appearance or station is not sufficient to guard them from the malice of the elite. The ‘wrong’ politics, an unfortunate disadvantage in articulation, a sudden shift in the mood of the media or the public, and everything can be lost in a moment. In the same way, we see over and over some new mogul, leader or celebrity who has done nothing to merit his sudden ascent to fame and power, but who seems almost to have been created for the moment. The matter is not often considered, and when it is, too often it is dismissed with a shrug and a word synonymous with ’coincidence’. That is not to say that our efforts are unimportant, but it reminds us to consider that we do not control everything in our horizon, and there are many things out of view which will have great meaning for our fate and future.

Not all goes as planned, nor as badly as feared. I am old enough to recall many fears of Doomsday, and many promises of permanent improvement which failed. It is well to be cautious of the promises of men, whether good or ill, but important as well to trust God, for in His hands alone the truth unfolds.

When the “B” in MBA Does Not Stand for ‘Business’

I have just completed my course of study in earning my Master of Business Administration degree. While the official grades will not be released until May 22 and the actual degree will not be mailed until the end of June, I have finished all the coursework and will finish at UHV with a GPA of 3.94. More to the point, I have had the pleasure of working with a broad range of faculty and students. And while I am generally proud of my fellow graduates and respect the talents and hard work of our faculty, I also understand why Scott Adams has been making fun of MBA holders this week.

Sadly, there are quite a few MBA candidates and graduates who really do not understand what the degree is for, and who are frankly going to cause harm to the company they join and damage the school’s reputation by association, because their focus is on their own advantage, rather than in seeking to improve their company through hard work . I am appalled to see that so many people think that the MBA is a lever for their own advancement, rather than a tool to be used to find solutions and improve performance. That is, the MBA holder does not solve problems and find solutions simply by being on the scene, he or she should understand that the courses and resources provided in the MBA curriculum are meant to provide tools that the individual may use to find the answers and solutions needed in their work, and that while they may hope for personal reward and advancement, the proper focus is on service, not ego.

Another problem is the unprepared MBA holder, someone who has the degree but does not know how to properly use it. I discovered a sad example of this at the MBA Case Competition, where the majority of teams proposed recommendations which were actually in conflict with PetSmart’s clearly stated goals and objectives. In a real-world situation, a consulting group which is unaware of the corporate strategy of its client is going to go out of business very soon. In this case the individuals may have the best intentions, but failing to base recommendations on the company’s actual condition and needs is well below a professional standard.

My father warned me many years ago against being impressed by lofty degrees, While he himself held a Masters degree in Mathematics, as well as Bachelors degrees in Chemical, Electrical, and Mechanical Engineering, he made it a point never to boast about it or give the impression that he was smarter than other people. At the same time, he was never impressed by people in high office or who attached proud initials after their name, be it ‘PhD’, ‘MD’, ‘JD’, what have you. He always seemed to me to take after John Adams in that respect, a man who truly understood the character of republican democracy in practice. That may seem a non-seqitur in this discussion, except that many people fall into the habit of assuming that a grand title or high-sounding designation makes a person more capable than ordinary folks. That’s not to disparage the value of an MBA, I agree it implies a degree of work and ability, but at the same time no MBA makes a person immune to mistakes, and foolishness from a self-important person can be much worse than the same nonsense from someone more willing to admit he could be wrong.

Preparing Business Professionals

My team did not win the Spring 2009 MBA Conference at UHV. I am not writing this out of bitterness, I think, but clarity and full disclosure before the rest of this article. That is, the reader should know about any reason I have for bias. This article examines the practice and assumptions of the Case Competition at UHV, and suggests improvements.

The Master of Business Administration degree (MBA) is a unique academic credential. Academic degrees verify that the student has demonstrated knowledge and comprehension of a subject material to the degree required by his college, but the MBA also certifies practical ability; the MBA holder has been authenticated as a problem-solver and business leader, a person capable of making his employer stronger and more successful. The degree was designed for the real world, not merely the one in theory. Consequently, the MBA course of study ought to include a capstone course which tests the candidates’ ability to address real-world strategic decisions.

The University of Houston system has fortunately grown up with an ingrained need to prove itself. The Houston metropolitan area offers many opportunities for college and university experience; institutions in the area include Rice University, Houston Baptist University, St. Thomas University, the University of Texas Medical Branch (UTMB), the Baylor College of Medicine, Houston Community College, Prairie View A&M, Texas Southern University, Texas Woman’s University, Tomball College, Lady of the Lake University, Sam Houston State University, a number of for-profit schools like the University of Phoenix or DeVry, and of course the University of Houston. But that’s not all. UH also has had to compete with major players at the state and regional level for attracting top students, like the University of Texas and Texas A&M. The University of Houston has done well for itself over the last few decades, especially the Bauer School of Business. UH has established itself as a solid business school, recognized for excellence in its MBA programs.

Of course, UH-Victoria cannot claim quite the same prestige as UH’s main business school, although its faculty is shared to some degree. However, UHV’s growth strategy over the past half-decade reflects an ambitious set of goals, including the school’s accreditation as a member of the AACSB, its expansion from a two-year school focusing largely on graduate students to a four-year university with dormitory space and a full-scale staff for a complete range of academic studies, and the development of three major MBA programs in six fields of concentration. UHV is well on its way to becoming a force to reckoned with among business schools in Texas. The key focus for UHV, however, is to be aware of its relative newness, which can work to its advantage or represent a threat to the school’s success. And that is where the Case Competition comes into the story.

The Strategic MBA is UH-Victoria’s mainstream MBA plan (the other programs are the Global MBA for international business, and the ‘bridge’ MBA for BBA students who want to fast-track to their MBA as well). The Strategic MBA requires a capstone course called Strategic Management. That course is designed to test the MBA candidates’ knowledge from the courses they have taken in their time at UHV, combining the knowledge and experience from class and work to research, analyze, and make strategic recommendations for a real-world company. This project is done in stages, both individually and in teams, and culminates in a formal presentation to a panel of judges at a case competition held at the end of the semester. The top three teams as voted by the judges are recognized with certificates and permanent citation on a school plaque. Since the MBA program does not recognize cum laude, magna cum laude, or summa cum laude accolades, nor is there an official class ranking for graduate students, winning the case competition is one of few ways for a student at this level to stand out. The other notable honor is selection to Gamma Beta Sigma, the business school honor society.

Having said so much to get to this point, I will try to focus on the key points from here on in to the matter. Our target company this semester was PetSmart, the leader in the Pet Supplies and Services industry. Our team did well in all aspects of our research and analysis, and our recommendations not only were effective and practical, but were also well in alignment with the strategic vision of the CEO and leadership team. Once we completed our research and analysis of the industry and company, its focus and issues were easy to determine. For example, the following points became obvious:

[] The pet supply and services industry has been growing at a faster pace each year than PetSmart
[] With the exception of long-term store leases, PetSmart has effectively no long-term debt
[] CEO Philip Francis has emphasized the reduction of capital expenditures each year, and has announced his intent that no more than 4 percent of gross revenue should be spent on any capital project, including new store openings, the reformatting of stores to emphasize services, and any additional promotions or projects
[] PetSmart maintains relatively large liquidity for its industry (33.6% of assets are current)

The combined effect of these observations means that PetSmart is very risk-averse, and the leadership team has repeatedly emphasized their intention to avoid expensive capital projects. Accordingly, any realistic recommendation to the PetSmart board would have to be paid from current expenses, and be incremental in nature to avoid significant risk. Keep that in mind, it becomes important in a little while.

My team also focused on PetSmart’s “worry list”, a 32-item list in the Annual Report which identified, in order, the top concerns for the company. Without going into too much detail here, those worries focused on the revenue from new stores, on growth for services offered at PetSmart stores, on retention and effective training of key employees, and on better control of the supply chain. This directly led to our team’s four recommendations:

1. Perform site surveys and use specific demographic data to determine specific sites for new store locations;
2. Promote services using a national campaign and the Petperks card;
3. Create the role of ‘PetStar’, for experienced and motivated employees with growth potential;
4. Expand supply lines to include local brands recommended by managers and requested by customers

What made us confident that we had a winning position, was that the recommendations neatly dove-tailed with the company’s stated goals and priorities, and were in perfect alignment with the issues identified through the analysis. We saw tremendously profitable projects, low-cost and low-risk, which could be incrementally put into practice, all of which addressed the key areas of PetSmart’s directors’ focus and aligned with the company’s vision.

The exposition of our recommendations went well, though it had a few hitches. First off, some of our team were uncomfortable with public speaking, and this diminished our presentation a bit, and also in the Q&A session. While our data was perfect and our recommendations better than anyone else’s (wait for it), this imbalance of presentation certainly cost us points. We also had a problem with one of the six panelists, a judge who all but demanded we pay for our projects with capital expenditures, even though we had determined early on that such an action was not only unnecessary for our projects, but in opposition to the clear intent of PetSmart’s directors. At the time we thought that judge’s resistance to current expense was strange, but it later revealed a more serious problem with the process.

We had to wait a week to find out the results, and even then the announcement was oddly subdued. It showed up on a school blog Friday evening, and eventually found its way to the SOBA website by Monday. As of yet, none of the teams have been told their scores, provided any detailed feedback from judges, or learned – officially anyway – what won the competition for the three recognized teams. Despite hard work which received a 99% grade from the professor for the overall project, my team did not place. There has been no announcement of how the eleven teams which did not win scored, so there is no official word on where anyone placed who was not one of the winners. All in all, a strange way to conclude the business, although both the class professor and the school’s dean had promised useful feedback from the judges. It remains to be seen what actual details will be made available to the contestants.

I have to be honest and admit that I believed my team should have taken one of the top slots, especially after we discussed the competition with members from other teams. While a comprehensive review is not possible unless the school decides to release the details from the judges’ notes and the competing teams’ presentations, informal chats with other students revealed that the chief basis for points in the competition was style far more than substance. The reason lies in two factors; the rubric used for scoring the presentation and the judges’ preparation for the competition. The rubric had six sections, with scores from 1 to 4 in each section, so each judge assigned a score ranging from 6 to 24 for each team, and with six judges that creates a range of 36-144 points total possible for a team. So far, easy to follow. A copy of the rubric can be found here.

Looking more closely at the rubric, certain additional information comes to light. For example, given the fact that the teams would have worked all semester on the project, it is unreasonable to me to imagine that any of the teams would fall into the ‘1’ grade for any of the sections except ‘audience response’, nor do I believe that even there would all of the judges be so harsh on the teams. With regard to the “Issues Definition” and “Business Analysis”, I do not even believe that any of the teams would fail to score anything but 3’s and 4’s in those areas from the judges. What this does is place heavy emphasis on the recommendations, organization, and audience response, with the strongest factor in play being style rather than function. That is, people who could speak well would have the advantage over those who were less relaxed and smooth, even if the smooth talkers presented impractical recommendations and the less relaxed team were perfect in their analysis and recommendations. The first mistake made was in constructing a rubric which counted the practicality of the recommendations to a lesser degree than the style of presentation. I certainly recognize the value of presenting your case well, but a solid recommendation presented with some rough spots should definitely be scored more highly than an unrealistic recommendation presented with flair. Otherwise, the results would be as absurd as scoring a math test on the basis of flourishes and calligraphy, discounting whether the answer is even correct. I will come back to this crucial point.

Second, the judges had not been fully briefed on PetSmart’s corporate strategy or vision. They were unaware that the company is very risk-averse, and so their board of directors would be resistant to any proposal involving increased capital expense, long-term commitment (such as buying out a rival or supplier) or significant deviation from the vision laid out by Philip Francis in 2003. The emphasis of the project was that teams would make proposals as if to the board at PetSmart, so the character and tenor of the actual board is integral to the validity of recommendations made, and the judges’ response to them. In the case competition, all of the winners made recommendations which – speaking bluntly – the real PetSmart board would have rejected because of their risk, heavy financial commitment and capital expense, that is, the need to take on debt in order to finance the projects anathema to PetSmart’s stated objectives and goals. That the judges did not challenge these recommendations for their variance from PetSmart’s position is bad enough; that these recommendations were rewarded as the best demonstrates a far more troubling consequence of the competition’s structure.

I said the need to make valid recommendations was crucial, and it is very much so. The MBA is certification that the individual, whether an employee or a consultant, is qualified to perform effective research and analysis and make recommendations which will improve a company’s strategic position and performance. This can only happen when the individual properly understands the company’s range of options, its corporate strategy and primary goals. The case competition is the final episode in the capstone course of the program of MBA certification; beyond that point the student receives their diploma and moves on to the real world, where reality is far less forgiving of an invalid recommendation, no matter how well it is delivered. The glib, the trendy, these things must have no place in the mind or focus of the true professional, and so it is the worst sort of consequence to penalize valid recommendations and reward invalid projects, no matter how polished. It may seem inconsequential, that a competition was decided more by judges’ moods and their subjective reaction to style than by the actual corporate strategy of the target company and the functional relevance of the specific recommendations, but this is an area where there is much work to be done. In future years, it would be very much to UHV’s advantage to make sure the judges were properly briefed on the nature of the target company, that actual business executives were included in the panels rather than just faculty and prior case winners, and that feedback both to and from the participating teams in the weeks following the competition should be much broader and detailed than the present practice. At the very least, the school could rest assured that their case winners would be properly equipped for the real world challenges they face so soon after graduation, and that their competition was as realistic as humanly possible to create.

Missed Opportunity

[ - pending - ]

TANJ

mutter mutter mutter

Case Competition Lessons

UHV finally released their winners of the Case Competition last night, and my team failed to place. Bit disappointing, that. That led me to some thought and analysis of our performance, and today’s post examines what I considered.

First off, congratulations to the winners. While Dr. Salazar told me that he thought our team had a “very good chance of winning”, that does not mean that we were the only team that worked hard and produced a strong result. Since the case competition counts as the final exam in the capstone course of the Strategic MBA program, it should be obvious that all of the competing teams will do their very best to produce a quality presentation. Those teams which won did do through a lot of work and some solid execution, which is the essence of the course.

Second, I admit to some doubts when I found out my team did not win. Did we make some major blunder that we never caught? Were we blind to some critical flaw? The answer to that comes not only from Dr. Salazar’s pre-conference praise that we were in a good position to win, but also from the 99% grade we received for the project. 99 percent is nearly perfect, and an A in the course (which I received and assumed everyone in my team received) is not handed out to someone who makes big mistakes. We simply were beaten out by better performance, but our own work was very good. I use that phrase, because several of the judges said that, precisely, after we finished our presentation last Saturday. I have to believe the judges meant what they said, so while we did not win I also believe we did well.

So how did we not win? At this point I have to admit I am competitive, and I wanted to believe we would win, as my team needed that confidence in itself. Looking back, that was probably our biggest problem area. We started as a four person team and added a fifth member whose own team fell apart close to the end of the semester. This meant coordinating five people to give the presentation, and trying to get everyone comfortable with speaking before the judges, which was a big issue. Three members of our team were not at all comfortable in public speaking, and that hurt us two ways. The rubric used for grading the presentation had six areas, for which teams could be issued a grade of 1 through 4 from the judges, for a range of 6 to 24 total, and with six panelists that meant a total score ranging from 36 to 144. I hope we will get back the detailed notes from the judges, so I can confirm what I am guessing now, but one of those six sections addressed the comfort level of the presenters, and looking back we certainly lost points there. Another section of the grading addressed the way questions from the judges were answered, and the way that three of our members hung back also had to have cost us.

I also think the room assignment hurt us. Four rooms were used for the competition, with different judges in each room. Two of the three winning teams presented in the same room, and our room produced none of the winning teams. This is important because two of the judges appeared to be far more critical of us than the others were. I could not sit in the room while other teams gave their presentation, but I could look in from the back window and those judges remained stern and hard-nosed for those other groups. At the time I believed this would not hurt us, since the judges were showing the same attitude towards each team, but I did not consider that judges in other rooms might have a different overall tone, and I suspect that was part of the situation. The life lesson there is that you do not always get a level playing field.

Beyond that, I’d have to see the judges’ notes to know what they might have thought beyond their comments, which were positive and complimentary. While the Q&A lasted the full 25 minutes, judges were generally pleased with our responses, nodding their heads and in most cases smiling when we provided answers. We had no ‘deer in the headlights’ moments where we could not answer a question, and I believe we defended our recommendations well. The only certain problem area was that almost all the talking in the Q&A was done by two members from our team, and that surely cost us.

On the whole, the competition was fun and a great experience, although UHV still has a lot of work to do to get it where it needs to be. We were originally told that the results would be announced Wednesday, then Friday, then I only found out through doing an Internet search on the key words; the school gave the winners less press than they did to the Swine Flu update, and that’s wrong. Also, it remains to be seen how the teams will receive feedback; since the course comes right before the graduation of many students, I suspect that many will never read the judges’ notes, and that is a failure of the school in my opinion – this is a tremendous opportunity missed. Also, the school is still a bit disorganized in the competition format. If asked, I could make a number of suggestions on how they could make this a much more successful enterprise, though I would surely have more clout if my team had won the thing.

Oh well.

Post-Conference Thoughts

It’s been six days since the UHV Spring 2009 MBA Conference in Cinco Ranch, and we still are waiting for the winner announcements. I have been promised we will know today. The delay comes from the fact that grades have to be released prior to the announcement of winners, which makes sense on one level but is nonetheless a bit disappointing on another level. The case competition counts as the final exam for the capstone course, so it makes sense that the grade matters. On the other hand, the competition is separate from the course itself (per the Dean of the Business School), and the effect of the competition is a bit diluted to delay the results, especially since in past years the winners were announced the same day as the competition. I’m afraid that the delay will encourage participants to leave once they have given their presentation, rather than meet with other teams at the event and experience the competition for all its potential. We were given feedback forms the day of the competition, but I think it would be smart for the university to follow-up about two weeks following the case competition for the perspective from that distance.

My team got 99% for its project grade, which means we missed a perfect job but so far we have not seen the detailed feedback from the panel judges, nor in fact do I know for sure where we lost our point (though I have a guess or two). Hard to say if that point cost us the win.

The format for the competition itself was interesting. Over the course of the semester, we each produced three individual versions of a paper analyzing the pet supply and services industry and a company analysis of PetSmart, Inc. (the focus company assigned for the project). We then put our individual reports together to create a team report, which was eventually refined into the final report for the project. Our paper was 122 pages of text and charts, with another 9 pages of sources listed.

This paper was then distilled into a PowerPoint presentation, which in our case took 39 slides, and this in turn caused a problem for us. The heart of the presentation was the team’s set of recommendations, which is usually two or three but in our case four strategic actions. The reason the length was a problem, was because we would have 25 minutes to present our case, giving us less than 39 seconds per slide to make our case, and some of those slides would require a bit of talk to make them clear. So we faced the problem of speaking clearly and in detail, covering more than one slide a minute but without rushing. So we spent some time rehearsing and working out the tricky timing.

The other half of the presentation was the question and answer session. At the start of the semester, we expected to present our case to a panel of three judges. At the end of the semester, we saw that panel count climb to four. Accordingly, we printed and bound four copies of our presentation for the judges. When we walked into the room for the presentation, however, we found six judges waiting for us. Fortunately, they were willing to share with each other. The other big thing about having six judges, was that the question-and-answer session following our presentation was detailed and deep. We spent the full twenty-five minutes allotted for that session answering questions from the judges, everything from our reasoning behind our recommendations, to their cost, scope, payback, and so on.

It’s a little difficult to explain how hard the question-and-answer session is. On the one hand, a team should be able to anticipate most of the questions by examining their case critically, with team members role-playing skeptical judges to find places where questions would rise, but on the other almost half an hour or straight verbal questions from six different people, and meant to be answered by different team members, creates a bit of uncertainty on its own. Add to that the fact that no team can really practice for the spontaneity of panel questioning, and you have a situation that can be tense and throw you off your rhythm. Of course, it makes you feel better to consider that every team faces the same obstacles.

More to come.

Credit

Nobody likes credit card companies. Never mind that they make our lives easier, by making our budgets more flexible and opening opportunities for financial control that our parents never dreamed of having, it’s the politically correct thing to trash them. Even the executives of those companies have been acting like they were lower on the moral value meter than companies selling liquor, tobacco, porn, or political advertising. This is not to say that credit card companies and the banks behind them have all been saints and model citizens, but throwing all the blame on them is not merely unreasonable, but a poor plan for improving the future of credit.

Credit is all about risk. Let’s say you have a buddy who wants you to loan him $50 until the next paycheck. If you do, you’re granting him credit. It’s not hard to understand that you will have different levels in mind. You might not mind giving money to your spouse and kids, you might agree to loan a buddy some money interest-free for a week or two, but outside that circle, you’d probably want something for your trouble, especially since the further away from center you get, the less you can trust that the borrower will pay you back quickly or in full … and in some cases, at all.

That’s why credit cards exist. You have the choice of carrying around a lot of cash, giving someone access to your bank account with a debit card or checking account, doing without because you don’t have the money for what you want (and sometimes need), or you carry a card that will bill you later for your purchases. What’s really sweet about credit cards is not only that you can buy all sorts of things with them, but that a credit card builds a history you can use to buy important things like a car or a house, and if you pay the balance in full each month it costs you only the annual fee to use the card. Credit cards build a reputation of financial responsibility, and they offer convenience and security that cash-alone cannot offer.

So why the hostility? Basically, human habits. We live in a society that often punishes success and forgives failures, and in some cases even protects failure by punishing those who would hold individuals to their commitments and the consequences of their decisions. A lot of people carry balances on their credit cards each month, and they resent having to pay the finance charges those cards require, even though in almost every case the individual was presented with the terms clearly and directly before they started using the card. Some folks pay their cards late, and resent the late fee they earn. The Obama Administration is playing on those immature attitudes, demanding the credit card companies be punished because people cannot manage to pay their bills in full or on time.

The problem for the credit card companies, is that the business model cuts both ways here. These companies chose to sign up people who in some cases were bad credit risks – I mean really, there are credit card companies which sign up people several times for the same card, without once collating the information to track the rising debt levels and default risk. Just stupid, and even more so to imagine that such people can be led to start practicing sound financial behavior just because they get into trouble with their cards. The profit model of credit card companies, after all, depends on people carrying a balance and paying finance charges. If everyone started paying all their bills on time and buying only what they could afford, the credit cards would not be able to operate as a going business. It’s the same reason that the government doesn’t really want people to stop smoking; it’s bad for their bank accounts.

The Obama Administration does not really want to go too far the other way, though. If credit cards were punished for their usurious tactics to the degree that the President’s rhetoric implies, many of the banks behind those cards would abandon the business altogether, as it would become a poor risk for their capital. Discretionary spending would plummet even more, as consumers’ desire to save would be accompanied by a dearth of credit providers for those still eager to splurge. Finding a steady and significant source for consumer credit would become more difficult than getting Obama to say ‘Bush was right’. It just would not happen.

So, enjoy the show but don’t expect much to change. Because when it’s all said and done, only you really care about your own financial health, so you’d better not trust it to a politician or a corporation.

The Politics of Debt

Fear is the strongest negative impulse. While rage may burn more fiercely, it dies quickly and is usually recognized for the irrational force it is, while fear can persist for a lifetime, invading the deepest parts of the mind and heart, taking over judgment and influencing disaster through timidity, worry, and panic. And one of the strongest factors in fear is money, especially debt. The sense of debt has destroyed careers, companies, and marriages, has broken the integrity of many men who never thought they would abandon their principles. Debt works on the spirit as a combination of stress, shame, obligation, and confinement. Just because there are no more debtors’ prisons does not mean that people in debt do not fear the loss of freedom, their home, property, lifestyle, and reputation. After all, the Mafia has made great profit from emphasizing just those conditions to prospective clients.

This brings us, indirectly, to politics. Politics is essentially the art of persuasion, to gain power and influence through the consent of the public. And politics have been around at least as long as money, and therefore debt, has existed. Politicians succeed by manipulating emotion, often playing on fear. Whether Republican or Democrat, American, European or Asian, whether first-world or third-world, consent of the governed is an undeniable need for politicians, and fear is always a prominent focus.

The rest should be obvious.

Weeds

Once I had one of the best lawns in my neighborhood. Now it’s Weedapolooza. I mean, I counted six different, thriving, varieties of weed in my lawn yesterday. OK, I have been spending a lot of time at work and at school, but yikes! Only about 5% of my front lawn has genuine grass now, which means that I will be spending money and time fighting the dark side of green flora.

The Fiendish Plot of Popeye’s Chicken

Well, that or an incredibly stupid mismanagement of a major promotion. I am writing about the GM-like imbecility of KFC’s now-infamous “Oprah Coupon” promotion, begun less than a week ago yet destined to make a laughing stock of the one-proud chain of chicken restaurants.

KFC is a division of Yum! Brands, a corporation of restaurants and fast-food purveyors, and one of the weaker lines in recent years. To counter its lagging position, the guys at KFC came up with two ideas to revive KFC’s fortunes. First, the company decided to introduce non-fried entrees to the menu, calling them Kentucky Grilled Chicken. This was actually a pretty good idea, a way to attract health-conscious customers and expand the menu.

The second idea was born during the Super Bowl. Another restaurant chain, Denny’s, got folks to give them another try with a time-tested promotion – a free breakfast to anyone who wanted one. Denny’s promotion had significant risk and cost, but it paid off big-time, and the company’s sales have been much improved since the promotion.

The guys at KFC saw the success at Denny’s. and decided the best way for them to get the same results was to run a similar promotion. But rather than wait until the next Superbowl, KFC worked out a venture with the reigning Queen of daytime television, Oprah Winfrey. Winfrey talked up the chain on her show and announced the promotion; a coupon for a free two-piece chicken dinner. Oprah also posted a link on her website to the coupon printout. The coupons could be printed May 5 and 6, and could be redeemed anytime at any KFC through May 19, excepting Mother’s Day.

Up to that point, this sounds like a great plan. A new product, announced on national television by a popular icon, with coupons to boot. What could go wrong?

From that point on, actually, almost everything.

In the first place, people began complaining from the start that they could not get the coupons to print. It should be noted that KFC neither acknowledged this problem, nor made any effort to address it. Of course, that’s probably because they had much bigger problems staring them in the face.

The geniuses at KFC decided to run this promotion, but without any coordination with the local restaurants and franchises. What’s worse, no one considered the likely response to the promotion, and the restaurants quickly ran out of the grilled chicken.

As a result, instead of a wildly successful promotion that could have raised KFC’s stature and impressed new customers, KFC’s promotion resulted in millions of people standing in line only to find their coupons were denied, no explanations were available, and the overworked staff was hostile and rude.

This being America, denial of the previously unknown right to free chicken led to reports of violence. KFC denied these reports of course, but right about now their credibility is such that anything they say is likely to work against them. In the same statement denying violence or angry protests, a company spokeswoman for KFC still tried to claim the company was prepared for the promotion.

The head office for KFC shut down its customer service lines and instead issued a press release promising that rainchecks would be sent to those unable to redeem their coupons. There’s a few problems with that claim, though. In the first place, customers already angry about having stood in line to be denied are now being told to go back to the restaurants, not for the promised food but to fill out forms to receive another coupon that may or may not arrive in a couple months, which may or may not be accepted at the restaurants, which in any case is less than what was promised on the Oprah show, and by the way the restaurant people I talked to today, say they have no heard anything about rain checks and there are no forms to fill out, meaning that if a customer believes KFC this time and tries to get a form to send off for the raincheck, they are likely to get the same rude reception they got the first time they came in on the matter. In other words, KFC is doing the things that guarantee maximum brand damage to themselves.

The very idea that KFC would plan, execute, and respond so badly to this situation is corporate suicide, an action that only makes sense if the marketing department and upper management at KFC were quickly and quietly replaced by operatives from Popeye’s chicken. Because the two things I can confidently claim after speaking to customers who tried to participate in the promotion, is that KFC has driven away a lot of customers, current and potential, and these folks will still go out and get chicken, which benefits Popeye’s more than anyone else. El Pollo Loco has played on the hype, promising to honor the KFC coupons on Mother’s Day, but the chain is too small to have planned and carried out a plan on this scale. As for Church’s chicken, if you have tried any of their “specials” or watched any of their ads (I know what ‘boring‘ is), you would recognize that subverting the Colonel to advance their own market share is well beyond their capabilities.

Whatever it is, this whole campaign and collapse is just one more example of how poor planning and dependence on spin is eventually just self-destructive and futile.

Case Competition 2 – Business Intel

This Saturday, my team will be competing in the UH-Victoria MBA Case Competition. It’s the culmination of the Strategic Management course, which is itself the capstone course of the program. Fourteen teams will be competing, presenting the results of fifteen weeks of research, analysis, and developed recommendations for company strategy. Along the way, our team has learned and reinforced some interesting lessons about the business world and people in general.

This semester’s target company is PetSmart, Inc., the leader for the pet product and services industry in the United States. I will be posting the results of the competition, and details of our analysis and recommendations on Stolen Thunder after the competition is over, but for now I want to note that the company was remarkable for its combination of smart moves and missed opportunities, of keen insights and odd missteps. This is generally because like all companies, PetSmart is made up of its people and is the combination of their talents, efforts, and inspiration. In their specific case, most of PetSmart’s strategic decisions reflect the fact that all of the senior management were hand-picked by CEO Philip Francis. When you do that, you get a group which is loyal, almost always in agreement, and committed to the CEO’s strategy, but you also lose the perspective of differing opinions and the chance to test assumptions, or in PetSmart’s case especially, the follow-through to make sure your strategy is fully effective. PetSmart is generally in good shape and is being run pretty well, but even so my team found several areas where the company could maximize its advantage or avoid potentially critical problems – and in most cases these opportunities seemed obvious to us from the company and industry environment and resources available.

Sometimes it comes from a proprietary way of thinking, a desire to make sure that a company keeps control of its plans and operations, so that open discussion is lost in the interest of protecting company strategy. Other times, though, it’s an unfortunate exercise of human pique, of refusing to consider alternatives or suggestions in the misguided belief that no additional perspective is needed or useful. And that attitude is mighty common. What amazes me after studying business at the macro level for a couple years, is not that some businesses get into trouble, but that every business will sooner or later face a crisis that was largely avoidable, or miss an opportunity that could have significantly improved its financial health. This does not happen through lack of ability, but is the result of strategic choices made but not revisited.

People outside business often imagine that they understand the theory and practice of high-level corporate strategy, or at least they believe the talking heads in government and the media who tell them that they understand business better than people with decades of industry experience and top-level education in the field. This is just one reason why Op-Eds and government plans are generally not able to effectively resolve business strategy problems; they are making assumptions and jumping to conclusions. This of course would give the reader pause when considering my own column, as this would reasonably challenge my own statements and judgments, which brings me to my general recommendation for businessmen and anyone interested in financial health, whether for an individual, a company, or for the nation. Use your own mind and experience in making decisions, but it’s generally important to consider as many relevant contributions as you can find. The common factor in the situations at GM, Chrysler, AIG, Merrill Lynch, and so many other companies which have run into serious trouble of late, is an insular culture that self-promotes, increasing confidence in its own strategies but ignoring potentially vital warning signs and alternatives that a simple Deming loop process could have provided. Come to that, such behavior is all too common, and the results from such assumptions all but unavoidable.

Case Competition

If you read my blog regularly, you know that lately I have been posting IR-regularly. That’s largely due to a few things at work, and the case competition at UHV. That competition concludes this Saturday, just three days from today. I will be writing about that competition and its results, so I may be even less relevant than usual for some people. If you are interested in the MBA process, however, or have an interest in the case competition process, this might be worth a read.

The Masters of Business Administration (MBA) is different from most Masters degree programs, in that the MBA is intended to be a functional, real-world degree. So, rather than write up and defend a treatise in front of an academic panel, many business schools demand that MBA candidates demonstrate their knowledge and accumulated resources in a practical application of their combined skills. The case competition is an ideal way for this exhibition to be performed. At UHV, the capstone course for the “Strategic MBA” is called “Strategic Management”, and that course culminates in the case competition. The competition is open only to MBA students who have completed all or almost all of the other courses necessary for graduation, and is judged by a panel of professors from the business school, and senior officers from businesses interested in participating. The specific business officers who take part as judges is a carefully guarded secret, but it offers an additional appeal to the competing teams – performing well in the competition could not only produce a good grade in the final course, but also possibly lead to interest from a major company. Hey, the plaque is nice but who doesn’t like to improve their career profile?

The course itself is a bit sneaky, if you are not careful to pay attention. For instance, the capstone course eats up a lot of time and resources, so it’s not advisable to take the course at the same time as more than one other course. I noticed that about 15 students have dropped the course this semester, from the original group of 70. Also, the course at UHV is offered in three sections, and you choose your team from students in your own section, forming a team during the first days of the class. Careless or slow selection can be a critical mistake!

The course this semester covered 104 days, or just short of 15 weeks. Of that time, the first individual report was not due until February 21, almost a month into the semester. The second individual report was not due until March 14, and the third individual report was due March 24, representing a gradual increase in pace. The group’s first report was due April 4, the second April 18, the group’s final presentation was due May 2 and the group final paper was due May 3. The competition itself, of course, is May 9. So, the first paper was due on day 27, the second on day 48, the third on day 58, the fourth on day 69, the fifth on day 83, the sixth on day 97, the seventh on day 98, and the case competition takes place on day 105. When added to the regular course requirements of assignments and quizzes, this means that the pace increases as you approach the deadline, which is similar to real-world conditions for many companies.

There are four formal phases to the competition – first each student prepares individual analyses of the target company’s industry and the company itself. This semester the target company is PetSmart, Inc. the industry leader based in Phoenix, Arizona. The first paper examines the industry, the second refines that analysis and adds the company analysis, and the third refines the industry and company analysis and produces and issue statement – that is, a point or points on which the company needs to address a critical problem or can take advantage of a unique opportunity. The second phase comes up at that point, where the teams each meet and discuss their individual results, and reach consensus on a group opinion of these analyses and issues. The team’s first paper then presents analysis of the industry and company, in much greater depth than the individual reports, and also includes the first exhibition of the group’s recommendations. For comparison, my third individual paper was 67 pages while my group’s first paper was over a hundred pages, with ten pages of single-spaced source citations. The group’s second and third paper refine and defend the paper and recommendations; our final work was 131 pages long. We worked hard not only to cover all the bases, but also to cut out extraneous material, which is to say 131 pages was the lean version of our work. The third phase is development of the PowerPoint presentation. Since we would be presenting that work in the span of 25 minutes allotted to us, it became important to have enough slides to present the full picture of the industry, company, and recommendations, but also avoid to many words and clutter, and to be sure we finished on time but without rushing. The key there is to present relevant charts and figures, but stay away from text except where absolutely necessary. It also means a lot of discussion and rehearsal.

The fourth phase is the question and answer session, which immediately follows the presentation. This is what trips up a lot of teams, who work hard on their paper and delivery, but who do not prepare for likely questions. These questions cannot all be predicted ahead of time, but generally they are based on justifying the recommendations, explaining their selection and implementation and defending their cost and payoff.

There is, I think, a fifth and sixth phase that most students do not notice. The fifth phase is that you should communicate with your team early on – the professor mentioned from the start that you could work cooperatively with your team while producing your individual analyses, as long as your work was your own. That is, it’s OK to discuss your opinions from your analysis with your team, and develop an early consensus on some points (although with my team, it led us to examine assumptions and reconsider initial analyses), but you have to do your work and defend your conclusions with hard numbers and support. My group had several phone conferences and meetings, and well over five hundred postings on a private discussion board set up by the professor for the teams. And of course there is also the sixth phase, where you find a thread running through the industry, company, issues, and your recommendations tying everything together. Your recommendations will be strong if they make sense on every level, including alignment with the company’s leadership and direction. If you find yourself selling recommendations which are in conflict with industry conditions or the company’s present business strategy, you will have to explain to the judges why it is necessary for the company to abandon its present course.

At this time, all of the participating groups have submitted their final presentations and papers, and so all that is left is the actual competition, which means giving our presentations before the judges and answering questions. Of the initial 18 teams, 4 dropped out from students quitting the class, and it looks like three teams took in an additional member from one of the teams which dissolved, which is what our team did, so that we now have five members rather than the standard four. This has problems and advantages. Problems, because a late addition to your team can be disruptive and make roles unclear, but also advantages, because if you add a strong individual you can end up with a stronger team. We were fortunate in that respect, because the student who joined our team has strong marketing skills and is better than the rest of us at graphics. So, we are breaking up our presentation five ways rather than four, and we have all been working on our parts to be clear and confident.

More after the competition.

Democrats and Leadership

Barack Obama, like Bill Clinton some years ago, tries to lead by sticking a finger into the wind.

The only difference is which finger Obama sticks up.

Emotion Is Sometimes The Enemy of Effectiveness

When I was young, I used to take part in various events meant to change the world. None of them did, though. Later I realized that this was never the real intention, anyway – the people who set up such events are trying to make themselves feel relevant, without actually doing the work to really make a difference for the better. The protests,Earth Day rallies, and cultish devotion to an insipid narcissist who cannot fathom economics or history but speaks well and wears nice suits, all of these speak to a focus entirely on image, with no concern for substance.

A suitable example of this façade-based thinking is the recent ‘earth hour’ fad. The idea was for everyone to sit in the dark, without lights or AC or power of any kind for one hour. The idea was – supposedly – to “raise awareness”, which is lib-code for ‘no freaking idea why we’re doing this but they said it’s important’, with the sub-text being that saving power for one hour would show what commitment would do, commitment in this case apparently meaning ‘let’s live like prehistoric people, except that they had fire and common sense’. So, let’s see what they saved.

Counting all of the participants collectively, the aggregate total money and power saved through the ‘earth hour’ campaign was … zero savings.

Actually, the real total would be a net waste, due to the power and money spent planning and promoting the event, and the media resources used to cover it. All told, millions of dollars were simply thrown away, which could have been used to really help people or the environment in ways that were not considered hip and trendy, but which could have actually made a real difference.

The problem, you see, is a fundamental inability to understand the basic way power is generated, distributed, and used. Power generation is performed at plants worldwide, in each case the electricity is generated according to load specifications, and sent along distribution lines to the end users. Because humans generally behave in predictable manners, use can be predicted to a certain degree, and a certain amount of power is generated for that anticipated need, plus a certain amount of extra load for a safety zone. That safety zone avoids brownouts from unexpected surges, and also protects the equipment the same way you want to maintain an even speed rather than wear your engine with a lot of sudden accelerations.

The largest amount of load is committed to commercial and industrial use, and to large public use facilities. Residential use is collectively large but dispersed over a large geographic area, which is managed through grid and sector distribution. In an event like the ‘earth hour’ promotion, electricity consumption as a portion of the whole is negligible, unless major industries also shut down, which not only did not happen, in most cases it could not happen without major damage or cost. This may be compared to bringing a large ship to a complete stop, sitting for an hour, then starting again – it will take a lot more energy to do that than it would to simply keep the engines running. The laws of physics are not sympathetic to the propagandists selling ‘earth hour’ promotions.

But let’s say that every person in a home shut off their lights, AC, TV, and so on for an hour. Impressive yes? Actually no not at all. The power has already been generated, and unlike other commodities, unused energy is not storeable, so it just gets lost. The plants cannot scale back their production ahead of shifts in demand, they must instead respond to actual changes in usage and one hour is not long enough for the shift production to be altered. The whole ‘earth hour’ promotion was based on false assumptions and ignorance of how things really work.

But it “raised awareness”, right? Again, no. Given the need to save money, most people already want to save energy anywhere they reasonably can do that, but it’s very foolish to suggest that darkness, deprivation, and discomfort are feasible options for a lifestyle. It not only connects their political message with its inherent naivete, most people will only accept a limited amount of personal discomfort before moving on to find a plan which allows them some comfort. So ‘earth hour’ came across to many people for what it really was, a self-serving insult from arrogant morons who failed to understand basic science and economic principles.

Emotion can be important, especially in personal relationships, movies, and sporting events. But it gets in the way of clear thinking all too often.