Tale of Two Cities

tomkapostasy5 Comments

In a recent speech at the Carmel Rotary Club, Indianapolis Star editor Dennis Ryerson warned the audience of the risk of a central city meltdown in Indianapolis as he had observed in Cleveland 20 years ago.  As someone who has lived in each region for more than 20 years, this prompted me to collect some historical statistics and speculate on the differential success of these two mid-sized Midwest areas.

In 1900, Indy was two-thirds the size of Cleveland, which at 654,000 people, was the nation’s seventh or eighth largest urban area by various definitions.  Indianapolis was in the 21st-25th range.

By 1930, Cleveland had grown by an astonishing 173%, adding 1.1 million people for a total of 1.8 million, reaching a peak national ranking of 6th to 8th.  Indianapolis was the turtle in this race, adding a mere 200,000 residents to grow by 50% to reach Cleveland’s 1900 650,000 population level, while maintaining a 21st-25th highest population ranking.

By 1960, Cleveland had added another one million residents (50%), reaching 2.7 million residents and maintaining a top 10 population ranking.  Indianapolis grew a little faster on a percentage basis, adding 400,000 residents to reach the 1.1 million population level.  Its national population rank slid to 26th as Sunbelt and west coast cities began to grow.

In the next five decades to 2009, Indianapolis continued its modest 1-1.5% annual growth rate, adding 750,000 residents to reach a population of 1.8M, while sliding to 34th place in the national metro population rankings.  Cleveland reached a peak population of 3M in 1970 before declining to 2.8M in 2009, good for a 26th place metro population ranking. 

In summary, Cleveland grew by 1 million people from 1900-1930 and from 1930-1960, but added ZERO population in the next 50 years!   Indianapolis added a quarter, half and three-quarters of a million people in those 3 periods.  What could possibly account for these divergent trends in cities located only 300 miles apart?

The locations are not very different.  Indy claims to be the “crossroads of America”, while Cleveland has said it is “the best location in the nation”.  Cleveland is on the New York to Chicago train line, the Great Lakes and interstates I-80, I-90 and I-77.  Indy boasts I-70, I-65, I-74 and I-69 interstate access.  Indy has leveraged its location and lower labor costs to become a greater distribution hub.  Cleveland has enjoyed a decade as a mini-hub for Continental, while Indy once served as a minor USAir hub.  Both cities have attracted rural residents from a 100 mile circle, but Cleveland’s area is only half as large due to Lake Erie.

Both cities had strong historic banking companies.  All of the Indy companies are gone.  Cleveland maintained National City Bank and KeyCorp as major banks through most of the period.

Cleveland has maintained a large Fortune 500 headquarters lead.  Firestone, Republic Steel, Uniroyal, Goodrich. TRW, Std Oil, White Motor, Eaton, Sherwin-Williams, Cleveland-Cliffs, Hanna Mining and Reliance Electric appeared in the 1960 list.  Cleveland had grown from 12 to 15 firms by 2009, adding Progressive Insurance, National City, KeyCorp, Parker-Hannifin, PolyOne, Lubrizol and Travel Centers of America.  Indy had 5 firms in 1960: RCA, Lilly, Curtis Publishing, Stokely Van Camp and Inland Containers.  It maintained only Lilly, WellPoint and Conseco in 2009.

On the professional sports scene, Cleveland has maintained football and baseball teams, while adding basketball, but dropping the second level hockey Barons.  Indy added the Colts and moved the Pacers from the ABA to the NBA.  Indy has successfully pursued an amateur sports strategy, attracting the Pan-Am games, the NCAA and many collegiate tournaments.

The cities share historical strengths in their art museums and orchestras, with Cleveland’s ranked higher.  Indy has added the Children’s Museum and Eiteljorg Museum, while Cleveland added the Rock n Roll Hall of Fame museum and lost the Salvador Dali museum.  Neither city has a major state university, with IUPUI and Cleveland State growing in parallel.  Cleveland has Case Western Reserve as a local research university.  Greater Cleveland has a much stronger community college system.  The Cleveland Playhouse and theatre groups offer more than Indy’s scene.  Cleveland’s Coventry/University Heights area is more vibrant than Indy’s Broad Ripple.  Cleveland adopted Michael Stanley while Indy embraced John Mellencamp.

Both cities focused on manufacturing for growth, especially automotive and metal forming manufacturing.  Cleveland had a greater emphasis on basic manufacturing in steel, rubber and plastics.  Indianapolis attracted a significant amount of investment from Japanese manufacturers.  Indianapolis’ health care industry has benefited from Lilly, Roche and IU, while Cleveland has leveraged CWRU University Hospitals and the Cleveland Clinic.

Net, net, Cleveland should have continued to grow slightly faster based on the factors above.  The drivers for Indianapolis’ positive differential growth include:

Better public relations regarding momentum.  Cleveland’s river fire and “mistake on the lake” moniker have hurt.  Indy was able to overcome the “naptown” label through continued positive growth and publicity.

Indianapolis and Indiana have maintained a low tax and low service environment conducive to business investment.

Indy has benefited from being the state capital and the only large city in Indiana, while Cleveland has battled Columbus and Cincinnati for state leadership.

Indianapolis has avoided major racial conflicts.  The 1966 Hough riots in Cleveland contrast with the calming Bobby Kennedy speech after Martin Luther King’s 1968 assassination.

Indianapolis public schools have not fallen as far as IPS.  Busing and white flight had a bigger negative impact in Cleveland where a more established Catholic school system option existed.

Downtown Indianapolis has recovered based upon major public and private investment in the Circle Center Mall, convention center and sports arenas.  Cleveland’s investment in the Brown’s stadium, Jacobs Field, Cavaliers arena, major office buildings and “the flats” has never reached the critical mass required for downtown growth.  Indianapolis’ downtown residential growth has been modest, but adequate.

Indianapolis pioneered the concept of uni-gov, merging the city into the county.  Cleveland has remained an island within Cuyahoga County and a small island within the metro area. 

Indianapolis civic leaders found a variety of ways to preserve and grow the central city and avoid having widespread areas of decay.  As Mr. Ryerson noted, this strategy will be more difficult to maintain as the surrounding counties grow at the expense of Marion County.  Both cities could benefit from some degree of regional government and taxing authority that aligns the interests of suburbs with the central city.

  Cleveland Indy  
  7 counties 9 counties  
       
1900          654         429 66%
1910          913         489 54%
1920       1,426         569 40%
1930       1,784         656 37%
1940       1,817         702 39%
1950       2,154         829 38%
1960       2,734       1,071 39%
1970       3,000       1,248 42%
1980       2,833       1,305 46%
1990       2,759       1,381 50%
2000       2,844       1,605 56%
2009       2,791       1,824 65%
       
1900-30       1,130         227  
  173% 53%  
       
1930-60          950         415  
  53% 63%  
       
1960-2009            57         753  
  2% 70%  

Personal Strategies for Adding Value

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The Great Recession has expedited the transition to a virtual labor market, where each individual is an independent contractor constantly in the market, selling their services.  To succeed in this world, individuals need to define their product, sharpen their sales skills, actively manage their time and add greater incremental value.

The 12 million unemployed Americans are bombarded with advice on defining their personal brand.  Setting aside the gloss and polish offered by career counselors, the remaining content is the need to be easily defined in a 15 second elevator speech.  Simple and specialized products sell.  Complex and generic products die.  Specialized professional functions and industry experience are marketable.  Generalists need to become repositioned with specialist labels: as entrepreneurs, six sigma black belts, project management professionals, etc.  Certifications are highly valued.  The “signaling” theory of the labor market is winning, with HR, hiring managers and recruiters all relying upon external signals such as certifications, national/Big 4 consulting experience, top 25 university/MBA degrees and Fortune 500 experience.  Personal communications and sales skills command a premium within the universe of certified professionals.

At work or as a consultant, the most important driver of added value is the allocation of time.  Individuals divide their time among the functions of doing, managing, investing, planning and reporting.  Stephen Covey’s path breaking “Seven Habits of Highly Successful People” enlightened a whole generation on this topic.  There is a critical trade-off between doing and other functions, which senior staff and managers must exploit.  There is a trade-off between urgent and important tasks at the heart of personal time management.  There is value in “sharpening the saw” by investing in activities with long-run benefits. 

The marginal product theory of labor value applies at work.  Individuals who devote their time to the highest incremental value activities at work are rewarded.  Those who do their “fair share” of low value activities are left behind.  Managing people, suppliers, customers, assets, risks and processes offers opportunities to leverage value.  Individuals with the greatest scope of authority deliver the greatest value and are rewarded.  Investing in people, products, processes and assets provides another opportunity to add greater value.  Strategic, functional, project and individual planning offers opportunities to leverage time in a more abstract dimension.  Developing, operating and enhancing reporting and feedback systems allow key staff to identify enhanced improvement and risk management options. 

Individuals who have managed to define and sell their personal branded product and secured significant opportunities to deliver value must also know how to deliver incremental value.  There are seven generic strategies for adding maximum value.

Buy low and sell high.  All activities must be delivered by the lowest cost resource.  If there is any individual, machine or supplier that can deliver a service more cheaply, eventually they will.  Identify the lowest cost resource and employ it.  Delegate.  Divide jobs.  Outsource.  Automate.  Simplify.  As Andy Grove once said, “only the paranoid survive”.  Get this done before others.

Match skills and talents to assignments.  Functional skills, industry experience, soft skills, courage, flexibility, creativity and other talents vary greatly across available resources.  Identify the 3-5 key talents required and employ those with natural talents.  Employ personality profiles, test results and Gallup Strengths to find matches.  Create an internal labor market that encourages staff to know and apply their talents as often as possible.

Leverage the cumulative positive impact of process engineering.  Call it TQM, ISO 9000, six sigma or lean manufacturing.  Employ incremental continuous process improvement, tactical Kaizen blitzes, re-engineering projects, management systems and cultural changes to obtain the maximum value from the quality revolution.  World-class firms continue to improve and leave others behind.

Leverage the benefits of learning curves in all activities.  Individuals with one year of experience may be twice as productive as trainees.  Those with three years of experience may be another 50% more productive.  Reach mastery level in critical activities. 

Create synergy through cross-functional project teams.  There is a limit to the returns on the first four strategies.  Eventually, a senior financial analyst, research chemist or national accounts manager will find incremental improvements more difficult to achieve.  For some projects, processes and functions there is a need to combine the highest talents of complementary functions. 

Leverage the unique assets of the organization.  Firms have core competencies, intellectual property, cultural assets, brand assets, relationships, best practices and most productive assets.  Sales or product growth in adjacent space has a high success probability.

Leverage the organization’s goodwill with stakeholders.  Suppliers, customers, regulators, investors, staff and communities have a vested interest in the organization’s ongoing success.  Provide them with opportunities to reinvest in the organization’s future.

Most of us will add the greatest possible value by following the path of least resistance.  We will leverage relative market values, talents, process improvement techniques, learning curves, teamwork, core competencies and common interests.  A self-aware, proactive strategy will pay the greatest personal dividends, while delivering value to firms and society.

Dow 15,700

tomkapostasy1 Comment

Dow 35,000 was a dream in the go-go 1990’s when the new economy had supposedly broken all of the old rules.  Dow 3,500 was a distinct fear in March, 2009 when stocks had fallen by more than half from their peak.  Dow 10,000 is the most visible reference point in the current stock market.

Every investor and business degree holder knows that stock values are fundamentally based on the expected risk-adjusted net present value of future after-tax cash flows.  They are also tempted by the “efficient markets hypothesis” that says that stock valuations incorporate all information about future returns and therefore set the present value in a rational manner.  On the other hand, they understand fluctuations, random walks, animal spirits and the history of under and over valued stock markets.

http://stockcharts.com/charts/historical/djia1900.html

http://www.investorsfriend.com/return_versus_gdp.htm

Individuals who believe that stocks return 7-8% on average in the long-run through 2-4% dividend yields and 4-6% price increases, must conclude that the stock market is inherently irrational.  It has been 30% undervalued or overvalued a majority of the last 100 years.  Overvalued 1922-31.  Undervalued 1932-54, except for 1936-37.  Undervalued 1974-86.  Overvalued 1996-2008. 

Stocks were overvalued by 137% in 1929 before tumbling to -67% undervalued in 1933.  Stocks reached an undervaluated low of -58% in 1942.  Stocks reached a new -50% undervaluation during the depths of the 1982 recession.  In 15 short years, by 1997, they reached a 57% overvaluation.  They rose to 115% overvalued in 2000, before retreating to a mere 38% overvaluation in 2003.  In 2008, stocks were 67% overvalued compared with the long-run trends.

Based on 100 years of history, the Dow Jones Industrial Average at the end of 2010 should be 9,000.  The expected value in 2020 is 15,700, providing a 5% annual valuation return and 2% dividend return.  Investors who bet against long-term average valuations do so at their own risk.

Year  Trend  Actual +/-
1910             50 62 24%
1911             53 60 14%
1912             55 60 9%
1913             58 60 4%
1914             61 58 -5%
1915             64 56 -12%
1916             67 80 19%
1917             70 80 14%
1918             74 70 -5%
1919             78 75 -3%
1920             82 100 23%
1921             86 70 -18%
1922             90 80 -11%
1923             94 90 -5%
1924             99 85 -14%
1925            104 100 -4%
1926            109 130 19%
1927            115 140 22%
1928            121 190 58%
1929            127 300 137%
1930            133 250 88%
1931            139 190 36%
1932            146 80 -45%
1933            154 50 -67%
1934            161 90 -44%
1935            170 90 -47%
1936            178 130 -27%
1937            187 175 -6%
1938            196 100 -49%
1939            206 130 -37%
1940            216 125 -42%
1941            227 125 -45%
1942            239 100 -58%
1943            250 125 -50%
1944            263 130 -51%
1945            276 160 -42%
1946            290 200 -31%
1947            304 170 -44%
1948            320 170 -47%
1949            336 175 -48%
1950            352 200 -43%
1951            370 250 -32%
1952            388 260 -33%
1953            408 260 -36%
1954            428 260 -39%
1955            450 380 -15%
1956            472 500 6%
1957            496 500 1%
1958            521 475 -9%
1959            547 525 -4%
1960            574 600 5%
1961            603 580 -4%
1962            633 700 11%
1963            664 550 -17%
1964            697 750 8%
1965            732 900 23%
1966            769 950 24%
1967            807 850 5%
1968            848 900 6%
1969            890 950 7%
1970            935 800 -14%
1971            981 850 -13%
1972         1,030 900 -13%
1973         1,082 1000 -8%
1974         1,136 850 -25%
1975         1,193 700 -41%
1976         1,252 850 -32%
1977         1,315 1000 -24%
1978         1,381 850 -38%
1979         1,450 850 -41%
1980         1,522 850 -44%
1981         1,614 950 -41%
1982         1,710 850 -50%
1983         1,813 1000 -45%
1984         1,922 1200 -38%
1985         2,037 1200 -41%
1986         2,159 1300 -40%
1987         2,289 1900 -17%
1988         2,426 1900 -22%
1989         2,572 2100 -18%
1990         2,726 2600 -5%
1991         2,890 2500 -13%
1992         3,063 3000 -2%
1993         3,247 3300 2%
1994         3,442 3700 8%
1995         3,648 3800 4%
1996         3,867 5000 29%
1997         4,099 6500 59%
1998         4,345 7800 80%
1999         4,606 9000 95%
2000         4,882 10500 115%
2001         5,175 10000 93%
2002         5,485 10000 82%
2003         5,815 8000 38%
2004         6,163 9500 54%
2005         6,533 10500 61%
2006         6,925 11000 59%
2007         7,341 12000 63%
2008         7,781 13000 67%
2009         8,248 7000 -15%
2010         8,743 10000 14%
2011         9,268    
2012         9,824    
2013       10,413    
2014       11,038    
2015       11,700    
2016       12,402    
2017       13,146    
2018       13,935    
2019       14,771    
2020       15,657    

Things Fall Apart

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California voters in every county except far left San Francisco County and far right Orange County approved Proposition 14 which changes the state constitution to require the primary election to select the two highest vote recipients, without respect to their political party.

http://en.wikipedia.org/wiki/California_Proposition_14_(2010)

California may once again be on the leading edge of American history.  This change seems to be a rejection of the current primary system where candidates in both parties are required to pander to the extremists and activists before tacking back to the center to win in general elections.  Ironically, the Tea Party movement seems to be tapping some of this frustration by the average centrist voter, while at the same time pulling the Republican Party even further to the right.

In the shadow of “The Great War”, William Butler Yeats wrote:

Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

http://www.online-literature.com/donne/780/

http://en.wikipedia.org/wiki/The_Second_Coming_(poem)

The optimistic progressive consensus of 1880-1910 among the leading classes had been severely weakened by the war.  World War II shattered the last idealistic sentiments in Europe, leading to the post-war time of European community, skepticism and limited idealism.  The United States picked up the progressive banner with the New Deal, WWII, post-war global organizations and economic recovery, the cold war, New Frontier and Great Society.  Temporarily derailed by the Vietnam War, Energy Crisis and Japanese competition, the U.S. once again embraced the optimistic progressive spirit in the 1980’s, but with a distinctively right-wing flavor following the Reagan revolution.  Twenty years of economic and geopolitical progress delivered a new sense of American exceptionalism, leading to the Bush administration’s overreach in Iraq in response to the perceived terrorist threats after 9/11.   Most commentators agree that we now face a more uncertain multi-polar future (see 2/1/2010).

How did the American public reach this point where most voters clearly see that the political system does not work (see 1/26/2010)? 

Congressional and state legislator gerrymandering has played a major role.  The average voter can see that many legislators are simply incompetent party hacks with extremist, populist rhetoric, but no sense of responsibility for governing on behalf of the citizens.  The advantages of incumbents have lead to their re-election and increased voter cynicism (see 12/12/2009).    This year, unprepared voters elected Alvin Greene as the Democratic SC senate candidate and nominal Democrat, 29 year-old Tim Crawford to oppose Dan Burton.

http://en.wikipedia.org/wiki/Gerrymandering

As the financial and volunteer resources required for election have grown, the power of extremist/activist groups in both political parties has grown significantly.   As the country’s population and standard of living have grown, narrow economically rational voters have reduced their participation, thereby increasing the power of those with strong ideological views.

Citizens of all political views have become more independent, decreasing the role of many individual and institutional influencers who once promoted the center (think US News & World Report in the 1960’s).   Politicians and political parties have become far more sophisticated in identifying and capturing the resources of those with the strongest beliefs.

After the break-up of the Democratic Party’s “solid south” position following passage of the 1960’s civil rights legislation, the Republican Party developed a more philosophically consistent right wing position on all economic, military and cultural issues.  The Democrats have tried to move towards the center, but the left-right and Democratic-Republican dimensions of American politics have become synonymous for almost 40 years.  The Republicans have effectively attracted millions of Catholic, Baptist, working and middle class voters from Democratic strongholds, while the Democrats have rode demographic trends and recaptured some socially moderate and upper middle class voters on the coasts.

The modern media has returned to its 19th century roots, adopting explicit political and populist positions in order to sell advertising.  This promotes partisan posturing and coverage.

Politics no longer attracts citizen legislators with moderate views.  Political positions have very low compensation compared with other options for highly competent citizens.  The price of entering a campaign is so high that only individuals with hopes for a 20 year political career, radical idealists or the very wealthy rationally pursue elected office.

Non-party primaries, campaign finance reform, independent districting commissions and grass-roots political participation can all help to return our political system to the center, where reasonable compromises can be found for the benefit of all.  Without some structural changes, we run the risk of having the divisive and unproductive political results seen in Italy, Greece, Mexico, Venezuela, Japan and Germany.  A solid majority of the American people desire centrist solutions to our challenges.  Structural changes can help to ensure that we have a self-improving system, or at least that we do not see “things fall apart”.

What Customers Really Want

tomkapostasy1 Comment

As organizations and organizational units adopt more customer-focused strategies, there is a need to better understand what customers really want.   Although firms can invest years and decades in marketing research on this question, they can also choose to obtain 90% of the value in a single day by facilitating an honest discussion with key leaders and customers.

 Those who have adopted the quality/process view believe that the first step is to confirm that customers mostly (only) care about the perceived value of final results.  They will pay for a value added process or feature, but don’t care about other activities.  Richard Schonberger proposed that all customer needs can fit into a small number of categories, which can be used to define and prioritize the findings.

Customers value final product or service quality.  More today than before; and more tomorrow than today.  Some customers value process quality, because it reduces their risk, serves their customers or is required by regulators.  What quality level is required to remain in business, to meet expectations or to differentiate a product?

Customers value delivery speed.  Product lead times have fallen from weeks to days to hours to minutes.  Service delivery is sometimes measured in seconds. 

Customers value flexibility.  They expect your firm to have the capacity to meet their orders within standard lead times.  They expect you to make exceptions.  As in the Pink Panther movies, they may agree to a standard lead time or capacity, but when they need an exception, they want you to ignore what they told you before.  Expectations regarding flexibility vary widely across industries and firms and can change rapidly.

Customers seek value.  They want lower prices or total cost of ownership.  They want features and benefits that are cost-effective, which meet their needs or which are market leading.  This is a very broad category, but firms must operate with some understanding of what is expected.

Customers value information.  They want business relations with clear information flows, minimal transaction costs and shared accountability for risks.  Ideally, you anticipate and fulfill their needs in a cost free way, without surprises and take care of surprises of all kinds: regulatory, supplier, customer, competitor, acts of god, etc.

Finally, customers value personal relationships.  This varies by culture, industry, firm and purchasing agent.  Business relations are rarely purely business relationships.  Personal connections, loyalties, favors, culture and understanding often matter.

Firms or business units should understand what their customers want.  They should identify minimal, expected and differentiated performance levels.  They should understand relative customer priorities.  This may require formal marketing research or trial policies or pricing exercises to determine real preferences.  This may require sales, marketing, engineering, production and finance to work together like never before.

A consensus one-page QSFVIP customer profile can help to shape decisions at the strategic and tactical levels.

Project Opportunity Analysis Template

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    Opportunity Analysis – Name of Project
     
    1. Key Strategic Priority Areas/Critical Success Factors
10 A Creatively addresses more than one of the nine key strategic priority areas.
7 B Directly targets a significant improvement in one key strategic priority area.
3 C Contributes to the achievement of one key strategic priority area.
  D Provides benefits, but does not address any of the nine key strategic priority areas.
     
    2. Annual Strategic Plan
10 A An integral and significant preplanned component of the annual strategic plan.
7 B An initiative within the annual plan.
3 C Consistent with focus areas of the plan, but not defined as a planned initiative.
  D Provides benefits, but is not connected to the initiatives defined in the plan.
     
    3. Mission, Vision and Precepts 
10 A Creatively addresses more than one precept or component of the mission.
7 B Directly targets a precept or component of the mission.
3 C Contributes to a precept or component of the mission.
  D Provides benefits, but the connection to the mission and precepts is weak.
     
    4. Long-term Strategic Plan
5 A Creatively addresses more than one goal of the plan.
4 B Directly targets a significant improvement in one goal of the plan.
2 C Contributes to the achievement of one goal of the plan.
  D Provides benefits, but does not address specific goals of the plan.
     
    5. Program/Product Portfolio
5 A Builds on an existing area of strength, leveraging a core competency.
4 B Provides services the organization has targeted for growth or improvement.
2 C Addresses an area of weakness considered critical to portfolio of services.
  D Serves a new area, a weak area, or one that de-emphasized.
     
    6. Customer(s) Served
5 A Targeted to serve an existing primary customer group.
4 B Serves a customer group which has been identified for growth potential.
2 C Serves a secondary customer group, by leveraging an existing program.
  D Serves a secondary customer group or channel,  which others could serve as well.
     
    7. Proven Demand for this Service
5 A Members, customers and sponsors have paid for this program before.
4 B Marketing research and tests indicate that this is a top priority service.
2 C Marketing research supports some demand, but dollar value is unproven.
  D Some constituents demand this service, but no research or market proof.
     
    8. Brand Consistency
5 A Service reinforces key brand messages and is promoted with existing vehicles.
4 B Service is consistent with key brand messages, but requires separate promotion.
2 C Service connects with some brand messages and requires separate promotion.
  D Service is not consistent with key brand messages.
     
    9. Delivery Channel Environment
5 A Reinforces historical and current programs and values in delivery organizations..
4 B Consistent with historical programs and values in delivery organizations.
2 C Some degree of innovation or stretch that may be a concern to some players.
  D Innovative program designed to introduce change for delivery partners.
     
    10. Financial Resources
5 A Earns a financial payback of investment in one year or less.
4 B Earns a financial payback in two years or less.
2 C Breaks even in more than 2 years, but provides significant qualitative benefits.
  D Qualitative benefits are deemed to exceed quantitative costs.
     
    11. Sponsor/Funding Resources
5 A Creates a strong opportunity to attract new sponsors and contributions.
4 B An attractive project 80% likely funded in a year, without harming programs.
2 C More than 50% funding chance, but may compete with existing programs.
  D Less than a 50% funding chance or clearly competes with existing programs.
     
    12. Information Technology
5 A Uses existing capabilities without modification.
4 B Uses existing or planned strong capabilities with minor enhancements.
2 C Uses existing capabilities, but requires development outside of current plans.
  D Requires pioneering development work to provide appropriate service.
     
    13. Delivery/Operations/Processing Capabilities
5 A Uses existing strong capabilities without modification.
4 B Uses existing strong capabilities with minor enhancements.
2 C Uses existing capabilities, but requires significant development.
  D Requires pioneering development work to provide appropriate service.
     
    14. Human Resources
5 A Service can be provided by existing staff and structure.
4 B Service requires some additions to staff in existing categories.
2 C Service requires new staff skills and minor adjustments to structure.
  D Service requires major initiatives in recruiting, retention and structure.
     
    15. Monitoring and Evaluation
5 A Success is easily measured by existing measurement and evaluation tools.
4 B Success can be measured with only minor enhancements to current system.
2 C Success can be measured, but will require adjustments to existing measures.
  D Success is difficult, if not cost prohibitive, to measure directly.

2010 Graduates: Live a Great Life

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Graduates, I encourage each of you to “Live a Great Life”.  This is your right, your choice and your destiny. 

We each live in three worlds: the world of commerce, the world of choice and the world of community.  I believe that “a great life” comes from balancing these three worlds.  In eighth grade, our industrial arts teacher, Mr. Laurie, told us that our first project would be a foot stool and that it would have three legs.  One student spoke up, “Mr. Laurie, I think it would be better with 4 legs”.  Mr. Laurie calmly responded, “Tom, I have found that 3 legs provide the proper balance for a successful footstool.  If you tried 4 legs, it would take you the whole semester to make them the same length and the final stool would be 3 inches tall”.  As I learned in this school, balancing the three legs of commerce, choice and community is essential to “living a great life”.

World of Commerce

The world of commerce is important as we emerge from the Great Recession.  Completing high school is a great accomplishment.  But it’s not the end of learning.  You will continue to build your problem solving and communications skills and you’ll pursue new degrees and certifications.  Lifelong learning is now required for everyone.

Our guidance counselor, Mr. McGinnis, urged us to be serious about our careers.  He said “choose something which interests you, build skills in that field and focus on one industry”.  In spite of the many options and uncertainties in life, pick that one path and treat it like it’s the only one. 

Securing employment is difficult today.  You can improve your odds by thinking about jobs from the employer’s point of view.  Employers want clear “yes” answers to three simple questions: “Can you do the job?  Are you self-motivated?  Are you manageable?”  Focus on these and you will always be an attractive job candidate.

Be confident about your economic future.  Don’t listen to the nightly news.  The sky is not falling.  The U.S. economy grows by 3% per year on average.  That doesn’t sound like much, but since the Diamond Alkali factory in Fairport closed 30 years ago, the US economy has grown by 160%, from $5 trillion to $13 trillion dollars.  There will be recessions, but you will succeed.

Education, career skills and positive attitudes will make you succeed in the world of commerce.  Always invest in yourself first.  Save the first 10% of every paycheck.  Invest it for your retirement.  When you are 53, you will thank me.

World of Choice

We also live in a “world of choice”.  In 1974, we were emerging from a “world of tradition” and sought a “world of choice” where we could “express ourselves”.  Our parents cautioned us to “be careful what you wish for”.  The number of choices and options today can be overwhelming.  You now have great responsibility for your own future. 

First, you must accept and love yourself as you are.   Believe that you were created just as you are for a purpose.  My classmate, Jim Kulma, shared a book with us in 1972. It was titled “I’m OK, You’re OK”.  It sold 15 million copies because its advice was very sound.

This is not an invitation to be self-centered.  We all need to become more self-aware.  Discover your talents and your non-talents.  Listen to others.  Seek feedback and advice. 

Because we have so many choices, engagement in life is critical.  Many adults, in their roles as workers, family and friends, choose to not fully engage in life.  They try to avoid responsibility for themselves and their choices because they are afraid of making mistakes.  Unfortunately, “there is no place to hide”.  Others will hold you accountable anyway.  Embrace responsibility and make it a habit. 

Engage in life; explore and experiment.  When you are older, you will not regret these adventures, but you might regret the things you missed.  Have the confidence to “take the road less traveled”.  As we learned playing “Milk League” baseball, “you can’t get a hit, if you don’t step up to the plate.”

View life as an exciting journey.  Don’t make it a death march in pursuit of a single goal, like career success.  Don’t think “If I only had a better job, a winning team, a better spouse, a bigger house or a full head of hair, things would be different”.  Joy comes from living life, not from dreaming about or even from reaching goals.

Accept that “life is not easy”.  Life remains a challenge.  Use the “in spite of” strategy.  In spite of the challenges, risks, hurts and pains, I will choose to do X.  If the challenges become too great, get help.  Family, friends and counselors are ready to help.  They all want you to succeed.

World of Community

We all need to earn a living and make wise choices.  But, to be happy, we must also live in the world of community.  We live in a world that glorifies material success and the individual.  However, history, science and common sense tell us that happiness does NOT come from wealth and introspection.  Happiness comes from relationships.  Every wisdom tradition, including psychology, has found that people are truly happy ONLY when they live for something outside of themselves.

In our everyday lives, family matters most.  Family life is difficult.  But, we were created to live with others.  We give and we get even more in return.  On my wife’s nightstand, there is a picture of two identical dogs sitting on a beach, much like the Fairport beach, at twilight, with the quote: “Love does not consist in gazing at each other, but in looking outward in the same direction”.  Invest in a high quality family life.  It will provide the greatest rewards.

Fun social groups matter.  Make time for bowling leagues, youth sports, church groups, boy scouts, girl scouts and playing cards with friends.  These low-cost activities create a high quality life.

Your local community matters.  There is great value in the familiarity, pride, loyalty and common interests of the local community.  Village residents already know this.  Your big city neighbors yearn to find this sense of place, security and belonging. 

Our national community and government also matter.  In a society with 300 million members, it is tempting to be a “free rider”.   We have found that democracy is the best form of government.  It allows the hopes and values of the people to be translated into laws to guide society.  Society needs your active involvement in the political process.  Our future depends upon it.

Finally, spiritual belief matters.  We all have a deep need to matter and to be significant.  This is fulfilled by connecting to something larger than ourselves.  We all ask the same questions: “what is the meaning of life?”, “where did the world come from?”, “why was I created?”, and “what happens in the long-run?”  These religious questions are part of our deepest nature.  Finding your relationship with eternity, mankind, truth and god is a vital part of your journey.

We live in these three worlds of commerce, choice and community.  Your generation inherits a world that is more complex, fast-paced and demanding than those of the past.  Some scholars wonder if we are “in over our heads”, with the demands of life exceeding our capabilities.  I believe that we are blessed to be able to lead even richer lives today.  I agree with the author Harold Kushner who says that God always provides each of us with the strength and capacity to make our journeys with confidence. 

On behalf of the “class of 1974” and the Fairport community, I wish each of you success on your journey.  I am confident that you are very well-prepared for the exciting worlds which lie ahead.

Negotiating Work-Life Balance

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During the Great Recession the balance of influence has shifted markedly towards employers.  Labor productivity increased throughout the two years, in contrast to prior recessions when it declined.  Productivity increased because employers were unwilling to replace departed staff and found ways to motivate the remaining staff to redistribute the work load.  Unless firms were already over-staffed by 5% or suddenly found new ways to identify and eliminate activities, this delegation of work is unsustainable in the long-run.  Far-seeing firms and their best employees have a common interest in helping staff to improve their ability to negotiate a healthy and realistic work-life balance.  Firms which push too hard will eventually experience costly turnover.

Many firms tend to push too hard and then back off as needed.  Determining the breaking point for staff is more art than science.  Employees at every level – hourly, salary, manager, director and VP – have an important obligation to push back constructively.  Especially in the United States, where we have embraced the long-term benefits of free market capitalism without the need for balancing social values or government regulation, every employee has a responsibility to attain the work-life balance that optimizes their happiness.   Wise managers will coach staff in this direction while at the same time asking for more!

Employees need to deliver and focus on long-term value, establish personal goals, delegate, prioritize, evaluate options, negotiate and employ proper tactics.  

Employees need to actively participate in identifying ways to deliver 3-5% productivity improvements each year.  This is the price of admission to the modern labor market.  These short-term and long-term actions deliver the value required for organizational survival.  They outline a program of activities that allows managers and staff to minimize the number of reactive initiatives undertaken.

Employees need to establish their own values, mission and goals.  Without countervailing forces, the need to earn an increasing income will always prevail.  A personal life plan is required to provide a counterbalance to the unlimited requests of firms today.  Staff members need to accept that everyone is replaceable and that some day they will be gone and the firm will move on without them.  They also need to observe that most senior managers have found ways to balance their own personal objectives.  

Staff members need to become world-class delegators, moving work down the hierarchy and to supplier partners.  Individuals who constantly attract and retain new responsibilities will become overwhelmed.

Staff members need to deeply understand that there are an infinite number of goals and an infinite degree of performance that can be requested.  This applies to employees at all levels.  It is an inherent component of the employment relationship.  Employee goals need to be prioritized.  Modern firms understand that they must emphasize product innovation, customer intimacy or operations excellence.  They also know that customers desire varying levels of quality, speed, flexibility, value, information, risk and personal relations.  They know that income statement and balance sheet goals, short-term and long-term measures, financial and operational goals, accrual and cash-flow results all matter but with different priorities.  They understand the trade-offs between risk and reward.  Employees must work with their managers to explicitly prioritize what matters most and to set goals based upon achievable results.

Employees need to negotiate their annual and immediate goals.  The quality revolution has highlighted the need to base goals upon defined capabilities, instead of top-down requirements.  Employees need to master prioritization in setting annual, monthly and daily goals.  Employees, managers and the finance department need to understand that there is an optimal degree of stretch in targets and budgets.  Employees and managers need to understand that there ARE short-term trade-offs between cost, quality, speed, flexibility, risk, relations and brand perceptions.

Employees need to be effective tacticians.  Annual SMART goals need to be realistic.  Staff members need to flex their schedules to meet peak demands and address unexpected events.  They need to recoup this time in slow periods. 

In a challenging environment, every employee needs to understand their role and negotiate achievable objectives that help their firm to thrive.

Getting Started on Emergency Preparedness

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We seem to live in a world filled with unpredictable risks: a banking crisis, potential Greek debt default, H1N1 flu, gulf oil spill, Icelandic volcano ash, terrorist attempts, etc.  Many small and medium-sized businesses defer emergency preparedness planning because they are unable to find the handle to get started or they fear a bottomless pit of cost with no expected benefits.  Doing nothing is a choice, but it is not the best choice.

Any firm can complete the first three steps of an emergency preparedness plan in less than one day: outline the potential risks, prioritize their likely impact and outline the required preparedness measures which would address the risks.  Most potential risks are generic.  The attached checklist can be modified to highlight any other risks.

The identified risks can be prioritized through a simple weighting scheme.  For each risk, rank its probability of occurrence in the next 10 years as 1-5, with 5 being highest.  For each risk, separately evaluate the potential human and property/asset risks from 1-5, with 5 being the highest damage.  Calculate the potential impact as the probability score times the SUM of the human and property impacts.  Sort the risks from high to low.  There will be a natural division of scores that highlights your top 5-15 risks.

 For each risk, determine what emergency preparedness steps are required.  Most will be addressed by a small number of generic recovery steps.

  1. Shelter on-site for 4 hours, including emergency air supply.
  2. Shelter on-site for 16 hours, during threatening weather.
  3. Shelter on-site for 72 hours.
  4. Quickly evacuate building and account for occupants.
  5. Activate emergency communications plan/alternate command authority structure.
  6. Activate emergency business recovery plan
  7. Activate long-term quarantine plan.
  8. Other specialized recovery steps.

 Once these first three steps have been completed, progress can begin on developing the recovery plans, including any immediate action steps that can be taken to reduce the risks or impacts of high potential impact threats.

 Emergency preparedness is a major investment.  Getting started is the most important step.

 Group   No.   Risks 
     
 Brand      1  Key executive or representative incident 
 Brand      2  Product recall – safety, functional problems 
 Brand      3  Public relations crisis, fraud, suppliers, legal, political 
     
 Hazard      4  Biological – plague, insects, animals, malaria, anthrax, terror 
 Hazard      5  Chemical – on-site, storage, warehouse, adjacent, terrorist, gas leak 
 Hazard      6  Communicable disease – long-term impact (Avian flu, H1N1 flu) 
 Hazard      7  Explosion – natural gas, terror, plane, truck, car 
 Hazard      8  Fire – on-site, garage, storage, adjacent, roads, utilities 
 Hazard      9  Local  accident, making buildings inaccessible for 30 days+ 
 Hazard    10  Nuclear accident, truck, terror, bomb, other radiation release 
     
 IT    11  Computer virus or malware infection, major 
 IT    12  Major internet access failure for more than 1 day 
 IT    13  Servers and co-location servers destroyed, restart 
     
 Natural    14  Earthquake – structural damage, fire, water, utility damage 
 Natural    15  Flood – on-site, nearby, preventing access 
 Natural    16  Severe winter storm, ice, heavy snow 
 Natural    17  Tornado, high wind storm, hurricane, hail storm, lightning 
     
 Personal    18  Armed threat, violence, hostage, robbery, escapee – nearby 
 Personal    19  Civil disturb, riot, war, occupation – on-site, nearby, country 
     
 Supply    20  Bank, fin system, invest failure, long-term recession 
 Supply    21  Critical supplier, shipper, facility or resource failure 
 Supply    22  Labor supply disruption 
     
 Transport    23  Major loss of staff due to travel accident 
 Transport    24  Major transportation interruption – road, train, air or ship 
 Transport    25  National travel emergency requiring alternate travel
 Transport    26  Vehicles – collision, liability 
     
 Utility    27  Communications, utility service interruption 
 Utility    28  Long-term electrical power outage 
 Utility    29  Safe drinking water failure 

Outsourcing Success

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After four decades of outsourcing in many functions and industries, it is clear that success requires more than leverage.  Outsourcing success requires a compelling rationale, a clear and flexible framework and positive personal relationships.

The rationale for outsourcing is based upon core competencies, provider capabilities, economics, strategy and fit.

  1. Buyer core competencies can not be outsourced.  The provider must deliver the outsourced function as a true core competency, not just a low price.  The provider is able to own responsibility for the outsourced function.  The provider has world-class skills and invests in improvements.  The provider is well-capitalized and experienced in the customer’s industry.  There is no beta site or learning by doing dimension.
  2. The provider has the skills and culture to be a third-party provider, including a customer service mentality, flexibility, creativity and change management skills wrapped around professional competence.
  3. The contract allows the buyer and provider to both win financially.  The provider is capable of reducing unit costs each year.  The provider’s initial bid and investment make economic sense.  The provider can justify a fully qualified account manager dedicated to making this contract work.
  4. The buyer has a clear strategic reason for outsourcing and has structured the deal to ensure its delivery.  This can be cost, quality, capacity, service, delivery time, risk management, creativity, technology, systems or intellectual property access.
  5. The hand-off from buyer to provider is a good fit.  Either the function can be very well-defined and delegated cleanly or the function is inherently virtual and both firms thrive in a matrix environment.  The buyer emphasizes product innovation or customer intimacy and the provider delivers operational excellence (or some other clear division).  The provider is able to perform in the buyer’s steady state or high growth and change environment.  The provider is comfortable with the buyer’s status in the Fortune 100, Fortune 1000 or middle market world.

 

The framework for an outsourcing agreement is well-defined, flexible, empowering, balanced and aligned.

  1. The contract is detailed, comprehensive and robust and meets the needs of finance, legal and operations.  The strategic objectives and measures of success are clearly defined.
  2. The contract is a model of world-class delegation.  Important results are defined, but the means to achieving them is left to the provider.  Micromanagement and administrivia is avoided like the plague. 
  3. The relationship between single agents for the buyer and provider is clearly defined.  The provider account manager is welcomed as a full business partner on the buyer’s staff.  A competent buyer rep is assigned to manage the contract, with his career depending upon its success.  The two reps are given the authority and flexibility to manage day-to-day issues.  A dispute resolution framework, including billing, is defined.  The contract supports a wide range of operating conditions and triggers for re-opening negotiations.
  4. The provider has adequate capacity and power in the agreement to succeed.  The minimum and maximum volumes are reasonable.  The provider has a fair economic deal and leverage to negotiate as required.
  5. Contract incentives align the interests of the buyer and provider.  The contract provides time for the provider to digest start-up costs and benefit from learning curve effects.  Each side benefits from greatly increased service volume.

 

The relationship between the buyer and provider reflects a true partnership, shared resources, trust, opportunities and planning.

  1. The partnership anoints the provider as the sole provider of services in their category.  The contract gives the provider reasonable security and expectations of ongoing business unless someone clearly outbids them.  The business is not re-bid based upon opportunities.  The business is not divided by high and low margin components.
  2. The buyer and provider work together to find every opportunity to leverage their skills, suppliers and knowledge.  Terms reflect the firm with the lower cost of capital.  Transaction and billing costs are minimized, assuming good faith.  Everything learned in the bidding process is incorporated into the contract.  The contract recognizes that there are inherent trade-offs between costs and services.
  3. A trusting relationship is developed.  The provider is on-site, attends meetings and communicates with the buyer daily.  The provider has a quality management system that provides confidence.  The provider is transparent in sharing information and risks, including competitive intelligence. 
  4. Both parties actively promote win/win opportunities.  The buyer is an active reference for the provider.  The buyer seeks new products, services and applications from the provider at list price. 
  5. The provider is involved in the planning process.  They attend strategic planning meetings.  They get 90 day notice of annual budget targets.  Both parties negotiate annual changes in good faith.

 

Buyers tend to have greater leverage in outsourcing services.  To achieve the best long-term results, they need to negotiate long-term win/win deals with providers.