HBR Blog Network has an interesting article today, "Capitalism’s Future Is Already Here". The thesis of the article is that we should reject Milton Friedman's dictum,"the purpose of the corporation is to maximize shareholder returns", which first appeared in the New York Times in 1970. This type of thinking lead to a now outdated set of management practices according to the author because Friedman does not recognize the growing needs of society.
The focus of management should now be the customer and by serving the customer well, you serve the shareholder's best interest. This concept was first presented by Roger Martin, an academic who I have a great deal of respect for. Martin's special talent, in my opinion, is that he always finds the perfect balance between sound theory and workable practice. However, this time I think he got it wrong. Yes, a corporation should always make the customer the priority and the focus of management. (As I tell my students, if it does not affect the customer or put you out of business, it is not an important decision.) Focusing on the customer gives the corporation the flexibility (opening) to consider societal issues, but what is the framework for selecting the issues. Simon Synek of Golden Circle fame would probably say to pick the societal issues and let the customers pick your corporation/product to identify with. The problem with this logic is that homeless dogs and homeless children would be equally valid social objectives for a corporation. Perhaps we should have corporations commit to the UN Millenium Development Goals (UN MDG) or at least one goal. Probably no large corporation would have the courage to pick "human rights" but maybe startups could make that commitment and eventually we would have large corporations committed to human rights. Corporate support in the U.S. for the UN is almost non-existent so the UN MDG is probably not a workable model, but it points us in the direction to address Martin's shortcoming.
This closing comment from the article sums up the important point very well:
"It’s a shift in what society demands of the managers of its most powerful institutions: from narrow definitions of their owners and decisions that serve their short-term interests, to broad acceptance of the responsibility that comes with power and leadership concerned with what is best for society. In the shift, we are learning that an argument about the proper activities of managers can be logical, can be strongly argued, can influence decades of practice in the world’s largest corporations – and can still be plain, flat, dead wrong."
Changing the way that corporate managers think about society in the context of their decisionmaking is one of the objectives of the modern business education. Eventually everyone will realize that Friedman actually did leave us the room to be good corporate citizens.
HBS Working Knowledge has an interesting article today, "Food Stamp Entrepreneurs: How Public Assistance Enables Business Bootstrapping". A controlled study shows that people on public assistance opt for self-employment, start new businesses and increase family income from such activities in greater numbers than another group of equally poor people that do not qualify for government assistance.
One's first reaction might be that government assistance has a real economic and social value, as shown by this study. However, a study in Sweden shows that undergraduate students who exit an entrepreneurship program where venture funding is guaranteed for selected businesses are more likely to opt to start new businesses. Do you recognize the similarity between U.S. public assistance and the program in Sweden?
In each case the program reduces the economic risk of cash flow uncertainty sufficiently for the individual to start a new business. Government assistance is not really relevant. Any program that reduces cash flow risk is likely to spawn new business entrepreneurs.
One of the most effective ways for children to learn is by doing, by doing something they enjoy and are passionate about. Some subjects like math and writing are easy to teach in a hands on fashion. For example all of introductory math can be taught through fishing and texting or blogging easily develops writing skills. However, how do you get a student interested in learning a foreign language? Show travelogues?
Professor Ann Abbot at the University of Illinois teaches Spanish to children through lessons in entrepreneurship. "Video Lessons about Entrepreneurship that Spanish Students Will Love". Native speakers who are reportedly entrepreneurs present a short explanation of a key point in entrepreneurship, which is followed by a lesson the students complete. This may not be at the standard of HBS but it definitely would engage a child's interest. The videos are here on Medium.
Thanks to @Mariana_lud for the reference to this article. Mariana is a voracious reader and social media enthusiast on children, learning and home schooling. She is also emerging as a leading bi-lingual health and nutrition coach.
By choice I read about 200 blogs every day. My reading has grown from about 100 blogs three years ago probably because my interests have increased. After Google reader died I have been very happy with Feedly to manage my blog reading. I also use Google+ to get a more international perspective on my interests and I use Facebook to get a local perspective on entrepreneurship and social entreprenership. I only use Twitter to distribute my content and rarely read it, although the Spanish language content on entrepreneurship is excellent.
There are two content providers that I read on their blog, Google+ and FB:
My experience is that I find different articles on different sites for each of these sources. In other words to get all the content from either one I have to go to three places on the web (or maybe more). No one "channel" offers all the content for either publication. In fact I stay on FB because I like the SSIR articles and one person who posts interesting stuff on local Miami entrepreneurship.
My question is "why can I not find all the SSIR or HBS content in one place with an RSS feed"? Why do I have to go to three sites? The answer is that HBS and SSIR are tailoring their content to the distribution channel--FB, Twitter, LinkedIn, etc. in the mistaken belief that the users are different on the channels. This is a mistake. I am the same person with the same interests whether I am on FB, Google + or LinkedIn. World class publications such as SSIR and those from HBS need to put all their content in one place to make it easy for the user. They can still duplicate all their content on FB, Google+ or LinkedIn, but I will follow them in only one place.
As content increases and the hosting sites multiply, world class publications will be better off to concentrate all their content to make it easier for the user. A better user experience will be appreciated.
It has been awhile since I did a summary post of the most popular recent articles here at Sophisticated Finance. Please see below.
This list is fairly representative of the major themes here at SF. I am thinking a lot about market opportunity and considering a book on the subject, so we might see more on the subject in the future.
The all time most popular posts at SF are the series, "Excel models and tips".
If you lost count, this is the 1127 post since SF began in 2007.
Vivek Wadhwa's Washington Post op-ed piece, "We’re heading into a jobless future, no matter what the government does", has gotten a lot of pick up on the Internet. Wadhwa is a professor at Stanford with a distinguished academic career. The article basically discusses the dramatic decline in employment opportunities due to technologies such as AI, automation and robots. I particularly like the joke about a factory:
“The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.” Carl Bass, CEO Autodesk
Wadhwa makes a more serious point when he discusses the role of government in addressing the lack of future jobs. In the industrial age government could manage policy to create enough work for people to provide for their families and maintain self-respect. Wadhwa believes that government can no longer manage policy to create sufficient jobs. The current efficiency of production and the expected increase in productivity will result in government policy being ineffective to create new jobs faster than existing jobs are eliminated.
If Wadhwa is correct, which I think he is, then what is the role of government. If government cannot manage the economy to satisfy individual economic needs then what role is left for government. This is perhaps the bigger question raised by Wadhwa. Why do we need a government with 2.7 million government employees, excluding the military, if the government cannot satisfy the most fundamental economic well being of people. Maybe government should be re-thought.
Of course, many, including Hayek and Wadhwa, have said that government cannot manage complex problems. Doubtful government will redefine its role and equally unlikely government will develop economic policies that counterbalance the natural job loss from new technologies.
Image credit: http://markingourterritory.wordpress.com/2013/06/04/my-favorite-quotations-about-dogs/
I spend quite a bit of time considering the future. This practice started in Indonesia where I had to consider the future in order to mitigate risk. Since Indonesia I have tried to predict the future in order to better understand technology. This thinking has led me as well to take a serious interest in the nature of the customer experience and how it will evolve. All of this thinking about the future hopefully also has some positive impact on my teaching of entrepreneurship.
Steve Jobs once asked his former boss, Nolan Bushnell, “How in the world do you figure out what the next big thing is?" Bushnell answered:
"You’ve got to figure out how to put yourself into the future and ask what you want your computers to be able to do"
I rarely think about the future of technology this way but the technique looks imminently reasonable after Bushnell points it out. Excellent advice for an aspiring entrepreneur.
Lately I have been reading Our Mathematical Universe: My Quest for the Ultimate Nature of Reality by Max Tegmark. While the book largely deals with cosmology, the origin and development of the universe, the part I find more fascinating is the scientific methods used by the scientists. Given that the universe began around 14 billion years ago, many of the problems are very complex. One technique is the reverse of Bushnell's approach. The scientists know the status of the universe today from observations. Therefore, they assume what had to happen 14 billion years ago according to quantum mechanics to explain today's universe. Then they look for empirical eveidence to support their assumptions about the start of the universe. A lot of math later, if the empirical observation matches the assumption about the beginning of the universe, then the assumption is correct. If the assumption is proven wrong, it may actually mean that the question asked in making the assumption was wrong. Another example of the importance of asking the right question.
Bushnell says to assume the future you want. The cosmologists assume the past to prove their theories. No guessing about the future or the past. Assume what you need and then develop it.
This weekend I read an article in Pieria, the British equivalent of 3 Quarks Daily, both of which promote intellectual thought (2008) on a wide range of subjects. In Pieria a writer defined the extremes of thought on economics as Marxism and the Austrian School. Given my hearty respect for the Austrians, I was somewhat disturbed to be categorized as an extremist.
I actually think anarchists are at the opposite extreme of Marxists, but the anarchists write very little about their economic system. Marxists define the one extreme because of their heavy reliance on centrally planned economies, whereas the anarchists advocate for no government and consequently no regulation. However, I digress.
The Austrians were probably the first economists to acknowledge the role of self-interest in markets and economic activities. From these writings many derived a negative view of capitalism and the Austrians. Both the capitalists and the Austrians have suffered from this association with self-interest for over 100 years, the same period in which perhaps the greatest economic development in history has taken place. What has been overlooked by the critics is one simple fact:
" A man may promote the interests of others even though the interests he seeks to promote are his own. " (1)
If you do not understand this quote, then it could be re-stated:
What has been overlooked by the critics of capitalism and many capitalists is that the most fundamental premise of capitalism is that one serves one's self-interest by serving others....profitably.
An additional article on intellectual thought from 2012.
(1) Arthur Shenfield 1970 Modern Age article “The Ideological War Against Western Society” courtesy of Cafe Hayek
Harvard Business School (HBS) has long been the worldwide leader in business and management education. I think that they deserve much of the credit for the awareness and development of advances in strategy, process management and productivity improvement. However, these fields are now almost completely developed and understood.
For HBS to maintain their leadership position they must find a new field to explore, study and document. Such a field must also be of interest to the readers of the several HBS publications or else that publishing empire is also under threat. I think the new field that HBS has chosen is the "role of the corporation". Many of the most prominent and the newer faculty are taking old concepts such as creating value, morality and economics and applying it to better explain the role of the corporation in a new world with large social and environmental problems. Perhaps another way to explain where HBS looks to be going is "what is the role role of the corporation in sustainability".
In a new working paper, "The Role of the Corporation in Society: An Alternative View and Opportunities for Future Research", HBS Assistant Professor George Serafiem explores several interesting issues about the 1000 largest corporations. First, these large multinational corporations are states unto themselves. Serafiem:
"The combination of larger corporations that exert more power over society and the separation of ownership and control led to shareholders surrendering their right that the corporation should be operated for their sole interest (Berle and Means 1932). In the words of Walter Rathenau (1918), ‘The depersonalization of ownership, the objectification of enterprise, and the detachment of ownership from the possessor leads to a point where the enterprise becomes transformed into an institution which resembles the State in character.’ "
The concept that these large corporations are accountable to their shareholders is no longer valid. These corporations are accountable to their management, but Serfafiem and I would both prefer that these corporations have responsibility to society. However, Serafiem goes to great lengths to explain that this is not a normative point but in fact just good business.
Eleven pages into the article Serafiem comes out of the closet, with this definition of sustainability:
"While there are many definitions of sustainability, broadly speaking it represents a portfolio of environmental, social, and governance (ESG) considerations upon which company performance can be evaluated. " [my emphasis]
Serafiem concludes the article by showing that there is a positive correlation for large corporations between support for sustainability and financial performance. In other words, supporting sustainability does not lower financial returns. Serafiem:
"At this point, a conversation is warranted about whether sustainability has a positive, negative, or irrelevant effect on future financial performance. If it is the case that sustainability destroys financial value, then an implication from the previous discussion is that large firms are at a competitive disadvantage compared to smaller competitors. .....The evidence seems to support a positive relationship between sustainability and future financial performance (Orlitzky, Schmidt, and Rynes, 2003). Very little evidence exists to suggest that sustainability can be an impediment to corporate profitability."
I think the type of research Serafiem is doing is in the early days but very interesting and worthwhile. Proving that saving the world produces better financial returns ties in perfectly with this post on social entrepreneurship from yesterday (just a coincidence), "Another reason to explain social entrepreneurship". The Corporate 1000 can provide the capital for social entrepreneurship to accelerate addressing social problems...and it will improve their financial performance....according to HBS. Sounds perfect!
Earlier writing by Serafiem on large corporations on Bloomberg.com, "Top 1,000 Companies Wield Power Reserved for Nations".
I have some concerns about the notion that the 1000 largest corporations are "states" unto themselves. I have known this for a long time, but now I need to really think about what it means for society and the role of government.
Since I began teaching social entrpreneurship, one of the earliest themes I establish in every course is:
"Government is not the default"
Most students have not thought about why we have government, what the role of government is and what services should government provide. How you define the role of government determines the domain of the private sector and capitalism. Within this domain of the private sector is where social entrepreneurship operates. Perhaps the larger the scale and effectiveness of social entrepreneurship, the less we need government.
A post on Cafe Hayek this morning made me realize that perhaps I need also to define capitalism for my students. Amongst the many benefits of capitalism, choice is one that does not get enough attention. This quote from Yale Brozen in the article ”The Revival of Traditional Liberalism", makes the point about choice clear and points out one inherent weakness in any government.
"The modern “liberal,” the reactionary in disguise, suspects every businessman of an intent to bilk him. On the other hand, he trusts every bureaucrat and trade union officer to look out for his interest. I, on the contrary, suspect everybody of looking out for his own interests, be he businessman, bureaucrat, union officer, consumer, Congressman, workman, or the ordinary citizen. I am somewhat willing to trust a businessman to serve me well since any attempt to bilk his customers will mean that he will lose business to competitors. This, at least, means that it is to his self-interest to serve me well.
The average politician I trust a great deal less since he is quite willing to serve my interest badly if the support he gains at my expense is crucial to his election. Besides, he can confuse the issue by offering a few items in his platform which have some appeal to offset the other things which are distasteful. In every election, I have had to choose either the grab bag of proposals offered by one party, 95 per cent of which are distasteful, or the grab bag offered by the other party, 97 per cent of which are distasteful. That is hardly a choice. At least, when I buy a General Motors automobile, I do not have to buy GM gasoline, GM schools for my children, GM garbage collection service, GM old age annuities, or GM anything else. In a free market, I can separate my decisions on what automobile I buy from my choice of what gasoline I consume, which service station I patronize, which mechanic I go to for repairs, or which company insures my car or administers the funds I save for my retirement income." (my emphasis added)
I recently saw this quote:
"Too often we are entangled in short sightedness. We need to adopt a more far-reaching view. We forget our basic human values. If we want to live in a better world, who do you think is going to bring it about? Only we human beings. Such change won't come about if we wait for government or the UN to take action, but if we take initiative as individuals. What we need is confidence and determination." (my emphasis)
No, it was the Dalai Lama, one of the most revered spiritual leaders in the world. The Dalai Lama is advocating that individuals and the private sector solve the social problems today. Good enough for me.
On Friday I taught in the program I cannot talk about. After almost every event within a day, whether it be a panel, lecture, case, etc., we have a period of reflection and sharing. First students consider alone the theme and content of the event and then they share their thoughts with each other in a moderated discussion. A few observations on reflection and sharing:
If you would like to try this in a learning setting, this article by two professors at HBS provides some research and findings to support the use of reflection and sharing. An abstract of the paper referenced is below.
"Research on learning has primarily focused on the role of doing (experience) in fostering progress over time. In this paper, we propose that one of the critical components of learning is reflection, or the intentional attempt to synthesize, abstract, and articulate the key lessons taught by experience. Drawing on dual-process theory, we focus on the reflective dimension of the learning process and propose that learning can be augmented by deliberately focusing on thinking about what one has been doing. We test the resulting dual-process learning model experimentally, using a mixed-method design that combines two laboratory experiments with a field experiment conducted in a large business process outsourcing company in India. We find a performance differential when comparing learning-by-doing alone to learning-by-doing coupled with reflection. Further, we hypothesize and find that the effect of reflection on learning is mediated by greater perceived self-efficacy. Together, our results shed light on the role of reflection as a powerful mechanism behind learning."
I plan to continue to use reflection and sharing in my traditional classrooms starting in the fall.
This really interesting article on Brain Pickings referenced a quote from NPR:
"NPR recently shared a survey that found 40% of the American public doesn’t believe the world is more than 6,000 years old."
Of course, when was the last time you saw a reference to something older than about 2000 BC or about 4,000 years ago? Given the peculiar nature of Americans, we rarely reference anything that pre-dates the founding of the U.S. All of this just points out that we have a predjudice in the Kahneman sense with respect to time or perhaps more precisely history. The brain conserves energy by considering a very short timeline compared with the actual time that humans have walked the earth.
What this suggests is that we do not study and understand sufficiently the basic nature of humans, which may be constraining our abilityto really understand consumer problems and develop new business concepts.
If we go back about 40,000 years, two interesting things happened which enabled early humans to advance beyond their then current status as hunter gathers. First humans learned to trust beyond their immediate family and tribe and technology appeared for the first time. Technology allowed abundance and scarcity, fundamental economic concepts, to appear, which led to sharing (which required trust) and specialization. Specialization led to barter and the emergence of those efficient organizations called "firms", another economic term. However, as specialization and firms succeeded and made lives better, barter broke down and the more efficient money emerged. Congratulations, we have now reached approximately 12,000 BC.
Now we can argue about whether trust preceded sharing or not and whether firms came before specialization, but what is clear here is that the fundamentals of civilization include:
You might ask why this is important. The reason is that every time you change one of these four concepts a huge new market opportunity emerges. A huge new market opportunity emerges! For example, look at this abridged list of changes in money:
Every single change created a huge market opportunity and large companies that recognized the opportunity.
If you can insert trust or sharing into a new situation, one spawns a huge market opportunity. Ebay succeeded when it solved the issue of buyers trusting sellers, Airbnb allowed us to share our real estate. Amazon redefined the retail "firm".
Not a lot has been written about the techniques to identify the large market opportunities. Change one of the four fundamentals of civilization and you may have a large opportunity.
Many genius and near genius people have studied thinking and creativity. Another example is the work of the mathematician Jacques S. Hadamard.
In this post from Farham Street, "Einstein on The Essential Feature of Productive Thought", the correspondence between Einstein and Hadamard is discussed. Hadamand went on to publish "An Essay on the Psychology of Invention in the Mathematical Field".
This quote of Einstein from the correspondence is well known but still interesting.
"The words or the language, as they are written or spoken, do not seem to play any role in my mechanism of thought. The psychical entities which seem to serve as elements in thought are certain signs and more or less clear images which can be “voluntarily” reproduced and combined."
A story at the Santa Fe Institute led me to this fascinating article, "Arrogant physicists — do they think economics is easy?". A few quotes from the article.
Interesting notion that economics was in part defined by the math available at the time.
I also find the description of economics as a complex system one of the better descriptions of complex systems. This could, however, just be explained by the fact I understand more about economics than physics or quantum mechanics.
A related article from Santa Fe Institute.
You may recall last week's post, "An Observation on Thinking", in which I speculated on the way thinking evolves. My hypothesis was mathematics--computer science--artificial intelligence--cognitive learning, based on examining the lives of several great thinkers.
Today I came across this story, "What is Computational Creativity?" The author defines "computational creativity" using a definition from the Computational Creativity Conference Steering Committee :
"Computational creativity is a multidisciplinary endeavour that is located at the intersection of the fields of artificial intelligence, cognitive psychology, philosophy and the arts....The goal of computational creativity is to model, simulate or replicate creativity using a computer, to achieve one of several ends.."
Not surprising, the computers are being programmed to think in ways very similar to the founders of AI, Minsky and Simon.
I recently heard a story first hand where HBS staff visited a high school in Mexico to evaluate how effective the case method was for younger students. To evaluate the students' learning, the HBS staff first question to the students was "what is the difference between leadership and management?" I wonder how many of the MBAs in the U.S. could provide as good an answer as the Mexican high schoolers who had been using HBS cases with their non-business teachers for five years.
According to an excerpt from a new book by John Kotter at HBS, "Accelerate: Building Strategic Agility for a Faster-Moving World",
The theme of Kotter's book is that we have perfected management over the last century, but that leadership has not kept up with the changes in technology, information, globalization, etc. The vision and mission of organizations need to be update by the leaders to recognize the new environment.
How do leaders deal with complex problems might have been a better theme. Management has advanced sufficiently to deal with simple and complicated problems, but it is not suited for complex problems. That is one reason that scenario planning and design thinking have emerrged as "new" processes. A comprehensive presentation of the various techniques and processes to deal with complex problems would have been interesting contribution to the leadership literature.
For the difference between complex and complicated problems, see this post.
I just found a link to Alan Kay's reading list. He is one of those legendary people at MIT and is credited with inventing the graphical user interface for computers (while at Xerox).
The subjects covered in his reading list include:
What is interesting to me is that so many genius level people start in either mathematics (Kay, Minsky) or economics (Simon, Hayek), move into computer science or AI and end up in cognitive learning or psychology. Note that Kay reads in all those subjects except economics but I suspect that the reading in "political" involves some economics.
I believe the evolutionary path is mathematics--computer science--artificial intelligence--cognitive learning. If you have not progressed to reading and thinking about cognitive learning or psychology, perhaps you still have a ways to go in your study of economics or computer science. Both Herbert Simon and Marvin Minsky, generally credited as the founders of artificial intellligence, spent the end of their careers in psychology/cognitive learning. Simon, who won a Nobel Prize in economics ended his career at Carnegie Mellon as a professor in the psychology department.
Obviously there are other paths. For example, Hayek started in economics, probably founded behavioral economics and finished his career in psychology.
My sample data is small but everyone mentioned is at least a Nobel Prize winner, a genius or both.
"The Act Of Creation is absolutely fantastic — necessary, even — in its entirety. It will change the way you think about everything, including thinking itself." Big Think
I have been studying creativity for about three years. This quest began after the simple realization that a process or heuristic is only as good as the thinker. So how does one think better, which really means more creatively. Early on I realized that Einstein explained creativity correctly as a combinatorial process. Effectively all new ideas are just combinations of old ideas rearranged. It has to be that way. It's obvious if you "think" about it.
I took to explaining creativity as a slot machine where when the three apples line up, out pops the creative idea. Metaphor is not my strong suit so I was very pleased that I had a metaphor to explain a complex subject--creativity. Today I found out that Arthur Koestler used the same metaphor in 1964 to explain creativity in The Act of Creation. Big Think calls the book the seminal work on the "anatomy of creativity". More on Koestler, creativity and thinking is in this Big Think story, "How Creativity in Humor, Art, and Science Works: Arthur Koestler’s Theory of Bisociation". Well worth reading in its entirety.
Studying creativity changes the way you understand thinking and the way you think. Readings on creativity, like philosophy, should be a required subject for college students.