Gabriel’s scarcity rent - it’s management stupid!

I’ve just arrived from Delhi. In fact it has been 24 hours but, in the meantime, my mind kept wandering inbetween all kinds of different landscapes, smells and tastes until it settled back again. So many different faces, so many different paces: our hectic effort of preparing a presentation on the club lounge of a five-star hotel, the five-year-old child making his frenzied small monkey shout and dance to attract our attention and a few coins, the slow-moving cow trying to take a nap in the middle of the street and the agitated drivers trying to pass as close as possible. Definitely distances are measured differently in this huge place.

The billion cattle estimated to be alive today are more less one sixth of the estimated human population on Earth. The lucky ones live here, where they are revered and spoiled, where they can live tranquil and blissful lives, where they can thrive and be loved. It’s a wonder that there is no cow immigration process to this beautifully colored lands. If the other cows knew!

Humanity. This word takes new meaning here. So many people. We Europeans have tended to grow aseptic, almost inhumans. We hide within huge buildings of concrete, glass and steel, like the new terminal I’ve nurtured along with my peers, and we become insignificant below our not-so-functional monuments. We want them to serve as a rule to measure our cities and civilisation, instead of ourselves, our little selves.

In India you see so many people, so many happy -and not so happy- faces. The wonder is that it’s not easy to infer which faces will be happy and which won’t. Usually you won’t see that in the colours -or cost- of the robes. Humans… sometimes so happy owning nothing but conceiving nice thoughts… you never know.

This column, blog, page -whatever this is- wouldn’t be complete without the management reflection. And today it comes from Professor Geert Hofstede, of Maastricht University: “Culture is more often a source of conflict than of synergy. Cultural differences are a nuisance at best and often a disaster.”

Are they? I’m personally a cock-eyed optimist and I tend to see the positive side to it. If we kept narrow mindedly to our own culture and background, the learning process would surely be impaired. Nonetheless cultural divergences must be managed.

As a reference, it is very interesting to examine Hofstede’s cultural dimensions, built from a handful of parameters:

• Power distance or the degree of acceptance of the less favoured members of one society of the inequalities they are subjected to.
• Individualism versus collectivism, or the degree to which the members of a society are integrated into groups.
• Masculinity versus femininity, or the degree of distribution of roles between genders.
• Uncertainty avoidance or degree of tolerance to uncertainty or ambiguity.
• Long-term orientation versus short-termism.

As an example, the former dimensions applied to the Indian, Spanish and British cultural dimensions, according to the available data by Hofstede. Of course generalisations are unfair, and the Spanish profile was never actually completed, but the exercise is still interesting.

Some weeks are so hectic that you simply don’t have time to write. And if you do, it’s not because you’ve had the chance to sit back and reflect about something, but because you have some free time in-between things to be done. That’s the case for today: a few free minutes.

The day began in Madrid, in the Indian embassy, queuing for such a simple and stupid thing as a visa. It’s incredible how certain processes are still done as the last century, or even the previous one. The fact is that if you want to travel to India from Barcelona, first you must go to Madrid to get your visa. The alternative is waiting around three or four weeks to have it.

And if you went there without a warning, you’d be astonished to know that they only issue a limited number of visas, clearly outnumbered by the people that need them. So the queue starts around two hours before they open. By the time they unlock the doors, there’s enough people waiting to fill the entire waiting room. If you arrive at ten, just forget the visa. Come back tomorrow (in Spanish “vuelva usted mañana” although the Indians speak more English than Spanish). And that’s the only way for the 46 million inhabitants of Spain to visit the 1,100-million-people country.

Well. I finally made it. I was sixth on the line. Then, to the airport to take a plane back to Barcelona. And from the airport to one of Barcelona’s marinas: the Olympic port, built for Barcelona’s Olympics 15 years ago.

From air planes to boats: time to sail. That’s why I am here for. I am to renew my sailing licenses and, following legal requirements, I need several navigation hours with a captain instructor. A good way to ensure that people actually know about boats before granting them the right to sail them. That’s what I am here for.

Time for the final comment. Where is management in all this? Well. Ask it to Captain Marcos Rivera. In a ship, there’s only one captain. Such affirmation is something that we tend to forget. Authority is not a very popular value these days. It is still necessary nonetheless. Someone has to decide. There must be someone in charge, asessing the risks, analysing and drawing conclusions, and then, finally, deciding.

That doesn’t mean that he (or she) is the only one to think. That would be a great loss of value, rationality, thinking capacity, a loss of options. Empowerment is still essential (and compatible), as it is dissent. But there’s a limit to it. And when the captain decides, the others must follow.

Have you ever felt that, in a project or a workgroup, the problem was that the decisions were not actually being made? Or being enforced? Have you ever felt that authority was missing? That indecision and ambiguity was undermining the whole execution? That’s when a good methodology for making decisions is needed.

There’s a time when every task becomes critical: just give it enough wandering time and you’ll see. IT comes a time when further procrastination is no longer possible. That’s when a chieftain is needed.

What happens if in a meeting something is said and you think it’s not right? Easy. You say no. You can say it softer or louder, directly or through complicated verses, but you say no. That’s all.

Now let’s add another ingredient to the soup: power. Some people have more power than others, and I’m referring to an organisation. And you are the one not to have it. Unlucky you. And relationships are in a touchy state… you no longer can afford to say no… but you still have to disagree. What can you do?

Just remember that you can acknowledge something, being either the cat or the mouse, and that doesn’t mean you agree. It means you’re still able to listen. Don’t let your defensiveness show through your lack of attention. Don’t let your position, whatever it is, impair your education or politeness, you’re still a professional.

You don’t have to think that listening, and acknowledging what you’ve heard means yielding. Nor you should thing that expressing your point of view means winning. It’s good to put your cards on the table even so to understand everyone’s position. And it’s something that speaks highly of you to acknowledge the position of the other, the only compromise is on behalf of your professionality.

Still if you are the mice you have to find ways to make the ideas move around the table, to show contradictions in the other’s position. Just visualise their ideas from your point of view “so you mean that if things are done like this then… but if they are done that way like you say, those issues are no longer problematic… is this, thus, what’s at stake?”. Don’t refrain to be challenging “… isn’t that a contradiction” or even reassuring yourself “isn’t this more less the same I was saying” and minimise the differences “could that be that our only difference is where we locate that square… is that really so important?” or don’t fall into distractions “aren’t we moving out of track here?”.

And last, but not least, wherever you are, don’t make it personal. People are not at stake here, issues are. The rather provocative “could you express this less personally?” requires to have shown interest in the other person, to have been careful about showing attention, to avoid gestures that show rejection, to avoid aggressive voice tones. Only then you’ll be able to mediate yourself, be able to reconcile whilst being an active part, keeping the link open whatever happens…

I often travel the route Barcelona Madrid (and backwards) for the day. By plane it’s rather tiresome and expensive: with an open fare you end up paying around 400€ for a 630 km flight (+ 630 km back).

Barcelona - Madrid is the world’s busiest route with 971 operations per week. The second one is Sao Paulo - Rio (894 per week) then Jeju/Seoul Gimpo (858 per week) and fourth is Melbourne/Sydney (851 per week).

In fact you have to go very low in the ranking to find another crowded European route. That would be Rome - Milan with less than 600 operations per week, which, by the way, is more than the most crowded North American continental route: Las Vegas - Los Angeles (553 per week)

Source: www.oag.com, data from September 2007

But things change. And this milk cow for the airlines faces its first serious menace ever: the high speed Spanish train service, also called AVE.

These brand new trains travel the distance of 630km (410 miles) in two hours and 35 minutes. Not too bad when it’s compared with the plane that takes roughly two and a half hours (not just flying but also spent in the check in and departure processes), and possibly more.

But, from an economic point of view, there are many hidden costs that must be taken into account. After all, what is it that you do in a plane? Well, you sit in a narrow seat, trying not to disjoint your legs, and pray that the person that will be sitting beside you is not extra overweight. In the train you have plenty of space. Being uncomfortable has a cost.

How much? Well, it depends on what you’re willing to pay to be more comfortable, of course, and how much your time costs.

How much are you willing to pay for that extra nap? Well, in a 45-minute-long flight, you’re going to have maximum thirty minutes of uninterrupted sleep. You won’t be able to sleep while you queue, while you’re being inspected at the burdensome security checks, while you wait your turn. But on a continuous 2 hours 35 minutes journey you’ll be able to.

As for opportunity costs, you won’t be able to do anything in the plane, apart from opening your laptop for half an hour. It’s completely wasted time. In the train you can use your computer as much as you want, use your phone, combine them and access the internet. Work, eat, talk, whatever you wish.

But externalities must also be taken into account. Environmental footprints can be four times higher for planes than for trains. That means that the train will always be more sustainable and, if we ever are to reflect the true external costs, energy efficiency will give the train an important lead over the plane.

Add those costs up: discomfort costs, opportunity costs, externalities and you will have a very competitive mean of transport. Which only means that competition has been increased, with a comparable service at a better price. In the end, consumers will be benefited from the additional choices, lower prices and the increased service levels that competition will bring.

That was what I was thinking when I decided to open the textbook I was carrying with me. The Managing Financial Resources module awaited me. Fortunately it was half way to Barcelona, 300 km per hour (186.41 mph), still an hour to go.

Following with the article Financial weapons of mass destruction unleashed in the US (the party is over) that I recently wrote, it seems like the liquidity storm is enjoying some calm. Not a bad thing when liquidity is the tip of the solvency iceberg, and when investors need a break in the increasingly bearish market.

Yes, it all began with an excess of funds that permitted spending in excess. And from that excess, excessive and ultra sophisticated imaginative investing products were made. The trouble is that they were so complicated that the risk wasn’t understood enough, or simply ignored. Now the risk has resurfaced again and debt ratings are on its way down.

In that scenario we had several options: to cut the excessive spending or to find new lenders. Looks like we’ve encountered some new ones.

The first are the public lenders, also known as monetary authorities. By increasing the monetary mass, and providing low-term credit to low rates, we have financed ourselves. Not a bad thing to do if we were a socialist economy, which we are not. But time will say if we have many other options. I fear we don’t.

Wait, there’s still another option. The ones that actually created the liquidity bubble are coming to our rescue. After all they are the ones benefiting from selling 100$ barrels of dark oil. And now they can come to rescue our banks, our real state using sovereign funds. Suspiciously these new lenders remind me a lot of the old ones…

Both refuel the shrinking bubble in the hope of inflating it again, but in the meantime the true inflation is rising and growth going down the slope. Either we finance ourselves or we trust in opaque investment artefacts coming from non-democratic countries.

But this time, if we are being refinanced, it will be either at higher rates or lower prices, there’s no way to ignore the risk.  Are we really aware of the costs of refinancing? Are we facing the real issue here? Reality tends to be stubborn.

It supposedly began with a bubble. Just another bubble like the one I described on The South Sea Company (or how Sir Isaac Newton spurned the dismal science). The bubble was fuelled by an excess of liquidity. It had to end someday. We learned the word subprimes. We knew it had to mean trouble.

Liquidity injections were administered and succeeded. But they were just patches for a bigger problem. And then they asymmetrised the risk: there were institutions willing to provide liquidity when needed, to reward higher risks, to stimulate the economy further up and away from reality. Until the moral hazard was too huge.

And then it ended too abruptly. The wells of money simply drained and, those whose business was to ensure the efficient distribution of liquidity between the different players just became inefficient. From excess to world wide scarcity, even for sound projects. It became a financial crises.

Few crises have been so focused on the financial system like this one. Because that’s what’s really in trouble here, the whole financial system. I began in the UK with Northern Rock, now nationalised thanks to Alistair Darling. In the meantime Daniel Bouton from Societe Generale didn’t know what was happening in his bank until he lost more than his reputation. And the Swiss face value is also in an all-time-low: just take a look at UBS and Credit Suisse (also First Boston).

But where really is too darn hot is in the US. Bearn Sterns is in flames, expiring his final breath. Bought by $270 million, it was valued about $20.000 million one year ago. A 85-year-old Wall Street institution simply died.

And those that bought companies using leveraging, namely private equity, now see the liabilities piling on top of the roof. Take a look at Blackstone: their profit for the last quarter was less than a half of what was expected, and dropping. Of course its value is dropping too.

We gave it complete freedom. They took it. They invested again and again in the same risky assets, albeit chopped and transformed so they didn’t look like they were the same: collateralised debt, mortgage insurances, mortgage reinsurances, credit swaps and all kinds of derivatives that were the same dog, different collar.

And when the system was in trouble: more liquidity. Await for some more in the next days. New bolts and flashes from the Fed to try to contain it all. But no regulations… in any case it would be too late for that. And always paying a huge price in inflation… until that game is not longer possible.
The dollar’s dropping. The safe heaven for savings all over the world that financed the US debt has ended. If you add up the soaring energy prices, and the huge public deficits, the US credibility is under minimum. The country risk is dangerously rising… no more overspending, no more cheap financing, the party is over.

In light of a recent experience (yes, I’ve been rather busy these days) I’ve been thinking about the difference between human capital and organisational capital (organizational at the other side of the ocean, of course) and how that difference impacts into everyday work.

Let’s first use the books. When defining human capital, Bontis et al. propose the following:

Human capital represents the human factor in the organization; the combined intelligence, skills and expertise that gives the organization its distinctive character. The human elements of the organization are those that are capable of learning, changing, innovating and providing the creative thrust which if properly motivated can ensure the long-term survival of the organization.

While if we focus on organisational capital (also called structural capital), and quoting Yondt this time:

Organizational capital is the institutionalized knowledge possessed by an organization, which is stored in databases, manuals, etc

As you can see there’s a difference there, a huge difference. This difference can be named as the human factor. For there’s a difference between the knowledge that the organisation owns and contains, and the knowledge, skills and abilities that every worker possesses. It’s not only a matter of accounting these different sets of knowledge as assets or not, as I reflected in my last post HRM and the triple bottom line (do we really believe in people?), there’s much more than that: the effective use of that knowledge is far more important.

Because the employer-employee is not a simply-transactional one-way relationship (at least we can say it no longer is) but a sophisticated dialogue between different entities, an usually effective interchange inserted in the complex framework of the psychological contract.

The psychological contract is a useful construct that reflects the true relationship of the employment contract as assumed by the different parts: what we really expect, what we have understood we should expect, how we agree our post has been designed and our responsibilities are, and many other things that, albeit not written anywhere, are, sometimes unconsciously, stored in our minds.

If our psychological contract is breached, what will become of our knowledge? It won’t be as readily available to our company as it used to be. In fact that’s a moment where the organisational capital will be as available as always, but the human capital simply won’t.

The human factor means that we can make choices. And the drive of those choices can range from self-interest to commitment to your organisation. This commitment modulates the real availability of human capital for the organisation.

That’s why treating people right is so important. In a zillion of a second the most committed employee can turn into an alien counting the minutes until eating-time. And it is, and will be, the responsibility of her manager to make the right decisions, in the right timing, and using the right way to do things, whatever that is.

You can’t be a good manager without caring about people. You simply can’t. As good engineers must love the systems they are designing and good teachers must love what they teach (and children too), people that are managed must matter to the manager. There’s no other way.

I’ve blogged before about hard and soft human resources management, about the Michigan and the Harvard model, about to paying lip-service to it and the gap between theory and practice, and even about commitment (to commit or not to commit). But the more I think of HRM versus the old paradigm of “personnel management”, the more inconsistencies I detect.

Because if people was that important, it would be somewhere in the so called triple bottom line of the company, made of finance, social corporate responsibility a.k.a. CSR and sustainability a.k.a. our carbon footprint.

I feel that HRM is surprisingly absent of the triad.

But if we are to believe that people are our greatest asset they should be at our triple bottom line somewhere. Or even in several places.

The first place to look could be in financials. Maybe we could find our people in-between assets? I do not think so. After all assets are usually accounted at acquisition prices. And, fortunately, people are no longer acquired in the slave market. Consequently people are not assets for any company. Not anymore.

Where are those fundamental assets for the competitive advantage of the organisation? It’s funny to point that, not being assets, our relationship with our company is actually accounted as an expense. And some related concepts, such as our pension funds as liabilities… (wait, that’s not true, the pension funds are one of the main sources of creative accounting… where finance becomes an art. I’ll write about this another day though…)

In any case, it’s quite clear that our skills and abilities are not on the assets list. Neither the real value of our relationship with our company. Even when the opportunity cost of our leaving the company can be measured with the cost of recruiting our substitute, the cost of training her, the cost of the information the organisation is going to lack now, the cost of under-performance for our customers and many more.

But when we, employees, were encouraged to pursue our own learning and self development, it was clear that those assets would consequently become ours. So there’s nothing wrong with measuring assets that way. We are just another provider in an increasingly complex and atomised supply chain. Maybe we can still be in the second or third bottom line. Around corporate social responsibility, as stakeholders that we are. After all shareholders are only entitled the rights to the residual earnings, after the employees, the creditors and the state.

Let’s wake up. CSR and carbon footprints are only valid arguments when the company is earning money. But there’s only one bottom line: finance. And after that bottom line and before the second and the third there are still other business priorities as well as short-termism, insufficient resources allocated, resistance to change, and distrustful organisations. A huge gap that can’t be easily bridged. At least not with rhetoric.

One of the great aportations of Schumpeter was his approach to the Economy from different points of view, not just from a mathematical, technical or mechanical one, but from the diverse social sciences: human history, sociology, anthropology and even psychology.

I love his concept of the business cycles. They are based on the creative destruction idea. That’s the process that the entrepreneur leads, supported by innovation, to destroy the old way processes were run and substitutes them for new ones. Destruction and creation both at the same time. That means a whole cycle: birth and death. That was in 1911.

But Schumpeter wasn’t the only one talking about cycles. Kitchin also did, in1923, from Harvard. His cycles were bigger than the already well known seasonal cycles, lasting for approximately four years. They were to be known as stocking/destocking cycles.

The legend says that Rothschild had already discovered the cycles before, on Wall Street, around the beginning of the XXth Century. But, instead of making his name famous, decided to use them to fill his pockets. A group of investors followed and, with the help of mathematicians, they found a 41-month investing stock cycle in 1912. If they became rich, they didn’t become rich enough: as of today we don’t know their names. And the cycles are still named after Kitchin (slimmed down to 40 months).

Later, new longer cycles were supposedly discovered: Juglar cycles, around 9-10 years and Kuznets cycles, around 15-20 years…

And there are also Kondratiev waves, around 48-60 years, and the most disputed of them all. There are supposedly a few Kondratiev cycles identified: The Industrial Revolution (1787-1842), The Bourgeois Kondratiev (1843-1897), The Neo-Mercantilist Kondratiev (1898-1950?) and the The Fourth Kondratiev (1950?- 2010?). The numbers with interrogation marks are of course just approximations written long ago. Could we be close to the end of the Fourth Kondratiev? In any case the projections didn’t know anything about subprimes, wars or energy prices. And Nikolai Kondratiev was a Soviet economist (not that the fact discredits him but he was kind of eager to prove that Western capitalist economies were susceptible to high performance volatility opposed to planned ones).

But, even not having any cycle under his name (an injustice from my point of view) it was Schumpeter who already identified and described the four phases of every cycle: boom- recession-depression-recovery. It’s the existence of the four phases that converts a fluctuation into a cycle. A stubborn aspect of reality that tends to repeat itself (not only in Economy though). This page of the National Bureau of Economic Research about Business Cycle Expansions and Contractions is interesting enough.

Yet again cycles catch so many off-guard. It’s interesting to see…

I’ve been reading Gartner’s key IT predictions for 2008 and beyond. (If you don’t have access to the full text you can access a summary here.)There’s one prediction regarding Apple:

“By 2011, Apple will double its U.S. and Western Europe unit market share in Computers. Apple’s gains in computer market share reflect as much on the failures of the rest of the industry as on Apple’s success. Apple is challenging its competitors with software integration that provides ease of use and flexibility; continuous and more frequent innovation in hardware and software; and an ecosystem that focuses on interoperability across multiple devices (such as iPod and iMac cross selling)”

The reflection about the failures of others it’s directly aimed to Microsoft. In a political analogy, the incumbent presidents are the ones to lose elections.And apart from the recent “downgrade” riots where many users want to go back from Vista to XP, there’s something wrong with Microsoft’s strategy. A misalignment that is growing worrisome for the huge company, accustomed to not being able to detect trends at their beginnings. Let’s think about it.Why is people downgrading from Vista? It’s not because it’s ugly, it is not ugly enough for that, and XP wasn’t the most handsome kid on the block either. People are trying to avoid vista because it requires too much hardware, because takes too much resources to run, because it’s not as snappy as it should be.Think of it from the personal computer cluster’s viewpoint: additional requirements from OSes mean more opportunities to sell more advanced hardware, and thus a growing market. The more sophisticated OSes become, the more complex hardware is needed. And the different companies are, of course, happy to indulge and sell.But that’s not what users want. There are no new necessities covered. Applications are fancier, yes, but there are no new killer applications. In fact I still have to see an application that makes full use of Vista’s new graphics engine. Everything could still be done from XP, no transparent frames, true, but who cares?After seeing Vista, people still prefer to focus their hardware on a better working machine, not on a better looking but buggier one. And they look the other way round… to XP and sometimes Apple.That’s where Apple’s new market share comes from. In evolving their Mac OS X system they have not used the extra power inherited by Moore’s law to rejoice in extra-sophisticated graphics and a huge coverage of legacy systems. Instead they have used it to get snappier applications, providing a secure and limited environment, even excluding their oldest hardware from compatibility. Once their compatible hardware (yes, all of it PC compatible hardware) has been short-listed, they have focused on making it work better.And then they have favoured usability over trendiness (without forgetting the latter). Simplicity over a spree of hidden options, users’ needs over hardware providers’ needs.But that’s not the only thing going around.And there’s still another trend going on here: from more powerful portable computers to simple ones (that are still very sophisticated by the way) but focus on doing simpler things and rely on other machines and network capabilities. We will no longer need that huge hard drive in our laptop when we will be able to store and synchronise our files on-line. Or, as the MacBook Air does, we don’t need to have a DVD unit in our laptop if we are able to access other’s people DVD drives.And sometimes, as gadgets like Blackberrys, iPhones et al have demonstrated, we can do most of the things we are requesting from our laptops if we can have better screens, better connectivity and better input methods.Or with network shared utilities and storage, as well as web-based applications (look out for some Google office hardware soon). Those web applications will increasingly have the ability of working off-line and syncing when needed. That will mean less reliance on your “own” computer and easier usability of both shared and simpler devices.That’s three dilemmas identified in this post:

• Using the additional power to provide snappier applications versus fancier looks.
• Focus on support a limited list of hardware and make the most efficient usage of it or try to keep all users (and providers) happy paying a price on performance.
• Relying on shared and simpler net-powered devices or having your own computer the more powerful the better.

As I see, Microsoft has focused on the second options of the three dilemmas, while other companies, namely Google and Apple, have focused on the first. And it’s the first trend that, IMHO, will dominate. Users do not want or need complete overhauls of operating systems that are operating within normal parameters. Only a big leap ahead in productivity could justify a radical change. That’s not the present case.What users do need are incremental and continuous improvements to operating systems that enhance productivity, stability and security without adding unknowns and uncertainties. And Microsoft is not walking the proper path.Apple, without being that brilliant (Steve Jobs *is* brilliant indeed), is doing much better by comparison… better enough to reclaim part of the market share that the incumbent is going to lose. Try a Mac OS X and tell me