by Adam Hartung | Jul 1, 2014 | Current Affairs, Defend & Extend, Leadership, Religion
Yesterday the U.S. Supreme Court ruled in favor of Hobby Lobby and against the U.S. government in a case revolving around health care for employees. I’m a business person, not a lawyer, so to me it was key to understand from a business viewpoint exactly what Hobby Lobby “won.”
It appears Hobby Lobby’s leaders “won” the right to refuse to provide certain kinds of health care to their employees as had been mandated by the Affordable Care Act. The justification primarily being that such health care (all associated with female birth control) violated religious beliefs of the company owners.
As a business person I wondered what the outcome would be if the next case is brought to the court by a business owner who happens to be a Christian Scientist. Would this next company be allowed to eliminate offering vaccines – or maybe health care altogether – because the owners don’t believe in modern medical treatments?
This may sound extreme, and missing the point revolving around the controversy over birth control. But not really. Because the point of business is to legally create solutions for customer needs at a profit. Doing this requires doing a lot of things right in order to attract and retain the right employees, the right suppliers and customers by making all of them extremely happy. I don’t recall Adam Smith, Milton Friedman, Peter Drucker, Edward Demming, John Galbraith or any other historically noted business writer saying the point of business to set the moral compass of its customers, suppliers or employees.
I’m not sure where enforcing the historical religious beliefs of founders or owners plays a role in business. At all. Even if they have the legal right to do so, is it smart business leadership?
Hobby Lobby Store
Hobby Lobby competes in the extraordinarily tough retail market. The ground is littered with failures, and formerly great companies which are struggling such as Sears, KMart, JCPenney, Best Buy, etc. And recently the industry has been rocked with security breaches, reducing customer faith in stalwarts like Target. And profits are being challenged across all brick-and-mortar traditional retailers by on-line companies led by Amazon, who have much lower cost structures.
All the trends in retail bode poorly for Hobby Lobby. Hobby Lobby does almost no business on-line, and even closes its stores on Sunday. Given consumer desires to have what they want, when they want it, unfettered by time or location, a traditional retailer like Hobby Lobby already has its hands full just figuring out how to keep competitors at bay. Customers don’t need much encouragement to skip any particular store in search of easily available products and instant price information across retailers.
Social trends are also very clear in the USA. The great majority of Americans support health care for everyone. Including offering birth control, and all other forms of women’s health needs. This has nothing to do with the Affordable Care Act. Health care, and women’s rights to manage their individual reproductiveness, is something that is clearly a majority viewpoint – and most people think it should be covered by health insurance.
So, given the customer options available, is it smart for any retailer to brag that they are unwilling to offer employees health care? Although not tied to any specific social issues, Wal-Mart has long dealt with customer and employee defections due to policies which reduce employee benefits, such as health care. Is this an issue which is likely to help Hobby Lobby grow?
Is it smart, as Hobby Lobby competes for merchandise from suppliers, negotiates on leases with landlords, seeks new store permits from local governments, recruits employees as buyers, merchandisers, store managers and clerks, and seeks customers who can shop on-line or at competitors to brandish the sword of intolerance on a specific issue which upsets the company owner? And one where this owner is on the opposite side of public opinion?
Long ago a group of retired U.S. military Generals told me that in Vietnam America won every battle, but lost the war. Through overwhelming firepower and manpower, there was no way we would not win any combat mission. But that missed the point. As a result of focusing on the combat, America’s leaders missed the opportunity win “the hearts and minds” of most Vietnamese. In the end America left Vietnam in a rushed abandonment of Saigon, and the North Vietnamese took over all of South Vietnam. Although we did what leaders believed was “right,” and fought each battle to a win, in the end America lost the objective of maintaining a free, independent and democratic Vietnam.
The leaders of Hobby Lobby won this battle. But is this good for the customers, suppliers, communities where stores are located, and employees of Hobby Lobby? Will these constituents continue to support Hobby Lobby, or will they possibly choose alternatives? If in its actions, including legal arguing at the Supreme Court, Hobby Lobby may have preserved what its leaders think is an important legal precedent. But, have their strengthened their business competitiveness so they will be a long-term success?
Perhaps Hobby Lobby might want to listen to the CEO of Chick-fil-A, which suffered a serious media firestorm when it became public their owners donated money to anti-gay organizations. CEO Cathy decided it was best to “just shut up and go sell chicken.” Business is tough enough, loaded with plenty of battles, without looking for fights that are against trends.
by Adam Hartung | Oct 10, 2012 | Books, Current Affairs, Leadership, Lock-in
There was a time, before primaries, when each party's platform was really important. Voters didn't pick a candidate, the party did. Then voters read what policies the party planned to implement should it control the executive branch, and possibly a legislative majority. It was the policies that drew the most attention – not the candidates.
Digging deeper than shortened debate-level headlines, there is a considerable difference in the recommended economic policies of the two dominant parties. The common viewpoint is that Republicans are good for business, which is good for the economy. Republican policies – and the more Adam Smith, invisible hand, limited regulation, lassaiz faire the better – are expected to create a robust, healthy, growing economy. Meanwhile, the common view of Democrat policies is that they too heavily favor regulation and higher taxes which are economy killers.
Right?
Well, for those who feel this way it may be time to review the last 80 years of economic history, as Bob Deitrick and Lew Godlfarb have done in a great, easy to read book titled "Bulls, Bears and the Ballot Box" (available at Amazon.com) Their heavily researched, and footnoted, text brings forth some serious inconsistency between the common viewpoint of America's dominant parties, and the reality of how America has performed since the start of the Great Depression.
Gary Hart recently wrote in The Huffington Post,
"Reason and facts are sacrificed to opinion and myth. Demonstrable
falsehoods are circulated and recycled as fact. Narrow minded opinion
refuses to be subjected to thought and analysis. Too many now subject
events to a prefabricated set of interpretations, usually provided by a
biased media source. The myth is more comfortable than the often
difficult search for truth."
Senator Daniel Patrick Moynihan is attributed with saying "everyone is
entitled to his own opinion, but not his own facts." So even though we
may hold very strong opinions about parties and politics, it is
worthwhile to look at facts. This book's authors are to be commended for spending several years, and many thousands of student research assistant man-days, sorting out economic performance from the common viewpoint – and the broad theories upon which much policy has been based. Their compendium of economic facts is the most illuminating document on economic performance during different administrations, and policies, than anything previously published.
Startling Results
Chart reproduced by permission of authors
The authors looked at a range of economic metrics including inflation, unemployment, growth in corporate profits, performance of the stock market, change in household income, growth in the economy, months in recession and others. To their surprise (I had the opportunity to interview Mr. Goldfarb) they discovered that laissez faire policies had far less benefits than expected, and in fact produced almost universal negative economic outcomes for the nation!
From this book loaded with statistical fact tidbits and comparative charts, here are just a few that caused me to realize that my long-term love affair with Milton Friedman's theories and recommended policies in "Free to Choose" were grounded in a theory I long admired, but that simply have proven to be myths when applied!
- Personal disposable income has grown nearly 6 times more under Democratic presidents
- Gross Domestic Product (GDP) has grown 7 times more under Democratic presidents
- Corporate profits have grown over 16% more per year under Democratic presidents (they actually declined under Republicans by an average of 4.53%/year)
- Average annual compound return on the stock market has been 18 times greater under Democratic presidents (If you invested $100k for 40 years of Republican administrations you had $126k at the end, if you invested $100k for 40 years of Democrat administrations you had $3.9M at the end)
- Republican presidents added 2.5 times more to the national debt than Democratic presidents
- The two times the economy steered into the ditch (Great Depression and Great Recession) were during Republican, laissez faire administrations
The "how and why" of these results is explained in the book. Not the least of which revolves around the velocity of money and how that changes as wealth moves between different economic classes.
The book is great at looking at today's economic myths, and using long forgotten facts to set the record straight. For example, in explaining President Reagan's great economic recovery of the 1980s it is often attributed to the stimulative impact of major tax cuts. But in reality the 1981 tax cuts backfired, leading to massive deficits and a weaker economy with a double dip recession as unemployment soared. So in 1982 Reagan signed (TEFRA) the largest peacetime tax increase in our nation's history. In his tenure Reagan signed 9 tax bills – 7 of which raised taxes!
The authors do not come down on the side of any specific economic policies. Rather, they make a strong case that a prosperous economy occurs when a president is adaptable to the needs of the country at that time. Adjusting to the results, rather than staunchly sticking to economic theory. And that economic policy does not stand alone, but must be integrated into the needs of society. As Dwight Eisenhower said in a New Yorker interview
"I despise people who go to the gutter on either the right or the left and hurl rocks at those in the center."
The book covers only Presidents Hoover through W. Bush. But as we near this election I asked Mr. Goldfarb his view on the incumbent Democrat's first 4 years. His response:
- "Obama at this time would rank on par with Reagan
- Corporate profits have risen under Obama more than any other president
- The stock market has soared 14.72%/year under Obama, second only to Clinton — which should be a big deal since 2/3 of people (not just the upper class) have a 401K or similar investment vehicle dependent upon corporate profits and stock market performance"
As to the challenging Republican party's platform, Mr. Goldfarb commented:
- "The platform is the inverse of what has actually worked to stimulate economic growth
- The recommended platform tax policy is bad for velocity, and will stagnate the economy
- Repealing the Affordable Care Act (Obamacare) will have a negative economic impact because it will force non-wealthy individuals to spend a higher percentage of income on health care rather than expansionary products and services
- Economic disaster happens in America when wealth is concentrated at the top, and we are at an all time high for wealth concentration. There is nothing in the platform which addresses this issue."
There are a lot of reasons to select the party for which you wish to vote. There is more to America than the economy. But, if you think like the Democrats did in 1992 and "it's about the economy" then you owe it to yourself to read this book. It may challenge your conventional wisdom as it presents – like Joe Friday said – "just the facts."
by Adam Hartung | Jun 15, 2009 | Defend & Extend, General, Leadership, Lifecycle
Harvard Publishing recently posted an article from a professor at the London Business School, Freek Vermeulen "Can we please stop saying the market is efficient?" The good professor's point of view was that he observed a lot of companies that were efficient which didn't survive, and several not all that efficient that did survive. He even took time to point out where some Harvard professors had identified that companies who implement ISO 9000 often see their innovation decline!
Unfortunately, the good professor is all too correct. If markets were efficient, we'd see performance move in a straight line. But any follower of equities, for example, can show you where the stock of a company may have gone up, then declined 20%, then gone back to a new high, maybe to even fall back more than the original 20%, only to then climb to even greater highs. If the market for that equity were efficient, it would never have these sorts of wild price gyrations.
Likewise, the market for products, things like copiers, aren't all that efficient. A case I describe pretty deeply in Create Marketplace Disruption. When Xerox brought out the 914 copier it changed the world of office copies. But it didn't take off. Instead, for years companies maintained their duplicating shop in the basement, using small lithographic offset presses. This went on for years, and usually the basement shop was closed when (a) the operator retired, (b) the printing press simply gave up the ghost and was ready for the scrap heap, or (c) when the company realized it had so many copiers the basement would be better served to house copiers instead of the printing press. The fact is that marginal economics – the very low cost of continuing to operate an alread-paid-for-press meant that it was easy to simply keep using presses long after they had any economic advantage. Not to mention all kinds of kinks in the decision apparatus that funded things like a print shop just because the budget "always had." But eventually, as the retirees and metal scrappers started accumulating, the market shifted. What had been a "mixed market" of presses and Xerox copiers suddenly shifted to almost all copiers. Xerox exploded, and the small offset press makers disappeared.
That wasn't efficient. There was a huge lag between when the benefits of copiers were well known and the demise of print shops. In the end, those who had debts or equity in printing press companies suffered huge losses as the business "fell off a cliff." There was no "orderly migration" out of the marketplace. In a very short time, the market shifted from one solution to another.
As recently as 2007 almost every home in America had a newspaper delivered. By 2009 the market had begun to disappear with subscriptions down over 60% in some markets. For advertisers, the purchasing of print ads dropped by over 50% in just 24 months. Yet, the growth of web usage and internet ads had been growing for almost a decade. In an efficient market there would have been a smooth transition between the two, with say 5% of ads shifting every year. Again, the economists' "orderly transition" would have applied. There doesn't seem anything orderly if you're in a market where the newspaper has disappeared, filed for bankruptcy, or cut its pages 40% – and you're wondering how to get the local news or even the TV listings you once found in the newspaper.
Market shifts are sudden, and big. In the later half of the 1980s the PC market shifted from 60% Macintosh to 80% Wintel in just 5 years – while growth for PCs exploded. It didn't feel very efficient to people at Apple, the suppliers of apps for Macs or the user base. Thousands of people in corporations were told "surrender your Mac and get a new PC next week" with no discussion, explanation or concern.
Companies that fall victim to market shifts aren't without strategists, planners or quality programs. Many have robust TQM or Six Sigma projects. But these are all about optimizing performance against past performance – not necessarily what the market wants. When you optimize agains the past you depend on minimal change. When markets shift, these "efficiency" programs can cause you to be the last to know – and the last to react.
People like to think of evolution as sort of like Continuous Improvement. Get 5% better every year. Like a variety of mammal might lose 1/4" of tail each generation until it no longer has one. We now know that's not how it works. There are winners. They keep reproducing, get stronger and more of them every year. Like mammals with long tails. Meanwhile, an alternative develops – like a mammal with no tail. Then suddenly, without expectation, the environment changes. Tails become a big hindrance, and those with tails die off in a massive exodus. Those without tails suddenly find they are advantaged by the lack of tails, so they begin breeding fast and getting stronger. In short order, perhaps a single generation, the tailed mammals are gone and the no-tails become dominant. Not very efficient, or orderly. More like reactive to an environmental shift.
If you want to do good tomorrow, I mean one day from today, the odds are that you can accomplish that by being just slightly better at what you did yesterday. But if you want to be good in 5 years, you may well have to do something very different. If you wait for the market to tell you – well – you've waited too long. By the time you know you're out of date, the competitor has taken your position. You have no hope of survival.
We live with a lot of myths in business. The value of efficiency, and the belief in efficient markets, are just a couple of big ones. Kind of like the old myths about blood-letting. Before the USA, never before in history has anyone ever tried to establish a government of self-rule. And self-rule led America to a country dominated by businesspeople. No longer did the king determine winners, losers, prices and behavior. Now markets would do so. The people who would make these markets were the emerging business folks. But nobody knew anything about markets – except some theories about how they "should" work written by an Englishman who had grand thoughts about open-market behaviors. So most people accepted the earliest theory – with its ideas about "invisible hands" that would guide behavior.
Markets are dramatically inefficient. Just look at the prices of equities. Look at the bankruptcies all around us. GM, your local newspaper, Six Flags and your neighborhood furniture store. People who were often efficient, but didn't understand that markets shift quickly, and very inefficiently. They don't move in small increments – they change all at once. And if you want to survive, you have to
prepare for market shifts. Simply working harder, faster and cheaper won't save you when the market shifts. If you aren't ready to be part of the shift, you get left behind and won't survive.
Markets are shifting today faster than they ever have. Telecommunications, internet connections, massive amounts of computing power, television, jet airplanes – these things have made the clock speed on changes much faster. Market shifts that used to be seperated by decades are compressed into a few years. If you don't plan on market inefficiencies – on market changes – you simply can't survive.
Lots of people misunderstand Darwin. The prevailing view is that his study on the origination of species says that the strongest survive. In fact, his conclusion was quite the opposities. What he said was that it is not the strongest that survive, but the most adaptable.
