Community Section -
Book Reviews
Ron Baker - 02/01/2012
Reading business books is tedious, as former management consultant Martin Kihn reminds us:
Business books are boring. They are bloated compendiums of half-baked ideas committed in fourth grade prose. Their purpose is to transform a commonsense concept or two into a consulting career through the catalyst of hollow jargon.
If you’re over reading business books, here are my ten favorite books from 2011, which I thoroughly enjoyed.
Steven Levitt and Stephen Dubner. Super Freakonomics.
An enhanced version of the hardback book. It does contain more information, much of it quite interesting. If you read the original hardcover, though, this one is probably not needed, but still a fun read.
William J. Bernstein. The Birth of Plenty.
I enjoyed this book immensely; it is a tour de force of history, economic growth, and the importance of institutions.
The author, a Medical Doctor, has truly done his homework. His question is simple: Why did economic growth explode when it did (1820)? Until 1820, per capita economic growth was near zero. He concludes it’s not geography, climate, exposure to microbiological agents (as Jared Diamond has argued in his books), but rather four factors:
- Property rights
- Scientific rationalism (positing and falsifying theories)
- Capital markets
- Improvements in transportation and communication
Which of the four is most important? All of them are like ingredients to a cake, all are equally important to produce a just dessert.
It’s not physical objects (materialism) that matters, but rather institutions. Yet here I believe the author doesn’t go deep enough. What about Human Capital, and not formal education, but attitudes, entrepreneurship, linguistics, and faith in the future? I think Deirdre McCloskey is closer to the answer with her book series on Bourgeois Virtues.
Also, the importance of trust in expanding the number of strangers we can deal with is critical to free markets.
And yet for all it’s virtues, there are major points where I disagree vigorously with this author.
He claims that government needs to regulate the stock market to prevent accounting scandals, fraud, and protect investors. He should read George Stigler’s work on why the SEC is ineffective.
We’ll never reach perfection, nor zero fraud, nor is riskless risk an option. He points out market failure but never discusses government failure. In the real world intentions don’t matter; results do.
He does the same with the Great Depression, without ever mentioning the recent economic research that shows the government and New Deal policies prolonged and deepened the Great Depression.
He claims that income and wealth inequality rises during periods of rapid industrialization as a few prosper at the expense of the rest of society. Yet this is zero-sum thinking, and it’s economically illiterate.
He’s a “gapologist” who believes inequality matters. But relative inequality is another word for envy. What matters is absolute poverty. I rather be poor anywhere in the world today than 200 years ago.
Nor does he seem to realize the poorest people are not the same people over time—we do have tremendous mobility in the USA and other free market economies. He’s read Thomas Sowell on history, he should read his work on income and wealth inequality.
But the only known antidote to poverty is wealth, and while this book is an exploration of how wealth is created, the author seems to revert to the socialist idea of redistribution rather than creation.
He also pulls out the old canard about CEO pay, again so what? It’s not his money, and if it is, sell your stock if you think Apple pays Steve Jobs too much.
The author states near the end that property rights are expensive to enforce. So what? This is one of major reasons we have government, so the price is worth paying.
The book rarely uses the word freedom and liberty, except in the discussion about property rights. But the author seems to be too enthusiastic to suspend these rights in his quest to close the inequality gap.
As long as you are grounded in the works of Thomas Sowell and George Gilder, read this book for a great historical tour, but ignore his conclusions for a better ordering of the universe. He’s off the mark too often.
Top Choice: Kevin Williamson. The Politically Incorrect Guide to Socialism.
This is a fantastic book! It is well written, irreverent in places, and an excellent historical tour of the failures of socialism and communism.
Kevin Williamson is an editor at National Review. He begins by defining socialism, and not as the “ownership of the means of production” but by two factors:
- Public provision of non-public goods; and
- Economic central planning.
Even a mixed economy like the USA can have pockets of socialism—public schools, Medicare, Obamacare, Social Security, etc.—just like communist/socialist countries can have pockets of free markets.
There is a learned discussion of the enormous difference between the Labor Theory of Value and the Subjective Theory of Value, and the importance of the role of prices.
Williamson devotes a chapter each to debunking the socialist paradises of India, Sweden, North Korea, and Venezuela, and one on why socialism is really bad for the environment (the ten dirtiest cities in the world are all in socialist or former socialist countries).
If you think the BP oil spill was bad, it’s nothing compared to a government run company that takes zero responsibility and pays no damages to injured parties.
I also loved how he lambasts the idea of “US energy independence,” a centrally planned socialist dream if there ever was one. Why should we be independent with respect to energy? This is the road to poverty, not wealth.
He even does an excellent job at explaining why mark-to-market accounting is so wrong, and how it contributed to the Great Recession of 2008. This is because GAAP cannot predict value into the future, but rather only record it after a transaction has taken place.
I highly recommend this work, and it makes me want to read other books in the series.
Top Choice: Guy Sorman. Economics Does Not Lie.
What’s scarcer than bird crap in a cuckoo clock? A French intellectual who champions the free market. This is an excellent book, well written and researched, on how societies create wealth and how economics leads the way.
The enemy of human development is bad economic policies. Since the 1980s, 800 million people have escaped mass poverty, especially in China and India. The book is a wonderful exploration of how wealth is created, and the author believes in the premise of explaining wealth, not poverty (which is rare in circles other than economics).
He devotes an entire chapter to Paul Romer’s New Growth Theory and the necessity of ideas. And while economists know how to create wealth and avoid poverty, they cannot guarantee prosperity for any one individual anymore than a doctor can heal every patient.
The author favors globalization, and cites the leading economic thinkers who defend it as one of the most effective ways for countries to escape poverty.
Just look at the countries that were isolated (USSR, China, India) and how they only escaped by opening up to trade. Look at the countries that remain isolated to see how the alternative works (North Korea).
The author rightly points out that the Chinese Yuan has become a scapegoat for outdated US companies, and how China’s prosperity depends on US consumers.
It never made sense to me why we fear China, India, or indeed any other country, becoming rich. If China invents the cure for cancer, aren’t we all better off even though we didn’t get the jobs?
The author devotes a section to the limits of rationality, and discusses behavioral economics. As for the argument that behavioral economics will lead to statism, he argues that this is unfair to the theory since it also accounts for the irrationality of government actors (as does Public Choice Theory).
There’s a chapter on the Asian Tigers, India, and Brazil. Another chapter explains why China’s capitalism is not a third way, but rather the result of capitalism being highly diverse and capable of handling many types of regimes—from Hitler and Pinochet to Francos.
Another chapter looks at Europe and the USA, with some very interesting insights on which is declining. Another looks at the setting sun of Japan, and another asks if the Greenhouse Effect will leave us broke? The answer is no.
The author even explains why the Kyoto protocols aren’t working in Europe; because you cannot create a market by decree.
The only disagreements I have with this author are minor: his claim that diversity in universities create better business managers is more conventional than wisdom, and his views on why insider trading laws are necessary. But these are minor quibbles.
His concluding chapter lays out a synthesis of the findings of economics into 10 propositions, a consensus, if you will, among economists:
- The market economy is the most efficient of all economic systems.
- Free trade helps economic development.
- Good institutions help development.
- The best measure of a good economy is its growth.
- Creative destruction is the engine of economic growth.
- Monetary stability, too, is necessary for growth; inflation is always harmful (this last point is debatable).
- Unemployment among unskilled workers is largely determined by how much labor costs (why Europe’s labor markets are so rigid—it’s expensive to fire).
- While the welfare state is necessary in some form, it isn’t always effective.
- The creation of complex financial markets, despite excesses, has brought about economic progress.
- Competition is usually desirable.
This is a refreshing, optimistic book. Coming from a French intellectual—in the mold of another Frenchman who understood capitalism, Jean-Francois Revel—makes it that much more pleasant. Highly recommended.
Donald Luskin and Andrew Greta. I am John Galt.
This is an innovative book, and the authors have really done their homework on Ayn Rand.
They compare the heroes and villains from her novel, Atlas Shrugged, to real-life people from today, drawing some interesting parallels, while demonstrating how prescient some of Rand’s fictional scenarios have turned into ugly reality.
Some of the heroes: Steve Jobs; Bill Gates; John Allison, of BB&T, the 12th largest bank built on Objectivism principles, and a bank that refuses to loan to developers who seize property through eminent domain; TJ Rodgers of Cypress Semiconductor and an outspoken capitalist; and the last chapter is devoted to Milton Friedman, the Champion of Liberty, even though Rand had some disagreements with his views.
The villains are also interesting: Paul Krugman—the one author, Donald Luskin, actually founded the Krugman Truth Squad blog, whose purpose was to debunk his NYT editorials with facts, evidence, and the truth; Barney Frank is exposed for his major role in the housing crisis, which is also covered in depth and brilliantly in this work; and Angelo Mozilo from Countrywide Mortgage fame for his role is sub-prime lending, illustrating the perils of moral hazard created by government entities Fannie and Freddie.
If you’re a Rand fan, you’ll enjoy the parallels to her books, as well as the chapter on Alan Greenspan ("The Sellout"), who was a Randian insider, and to this day believes in her philosophy. A good, cogent read.
Todd Buchholz. Rush.
In the spirit of The Rational Optimist, Todd Buchholz has written an uplifting book. He makes the very counterintuitive claim that happiness comes from us rushing around.
There’s no evidence that cutting out the frenzy in our lives would make us happier. In 1900, the average life expectancy was 47; today it’s fast approaching 80. Could it be that competition and stress actually extend life?
Buchholz cites a lot evidence—from all fields—that they do. He takes on the “Edenists” who believe we are all on a hedonic treadmill. But it’s not envy, greed, or keeping up with the Smith’s that keeps us rushing around. It’s the drive to improve ourselves, create, build, and earn our keep.
Why else would anyone attend college, take the Bar, or CPA exam?
This drive is encoded into our genetic nature. Aristotle believed in cultivating good habits, and the very term “second nature” recognizes we have a first, while holding out hope it can be changed.
What separates humans from animals is our ability to create for the future; indeed, Buchholz says we spend 12% of our time thinking about the future. Personal control predicts happiness much better than income.
Why aren’t you happy is the wrong question. Social scientists ask the wrong question a lot: like, what are the root causes of poverty? (rather than what creates wealth?), or why do bad things happen to good people? (why don’t bad things happen all the time?).
I also love Buchholz’s discussion on how an advanced economy relies on transactions among strangers. It’s strangers, not neighbors or a village, that creates wealth. Commerce fosters the Rule of Repeats, which turns strangers into partners (think of how your life is the hands of an airline pilot).
This is the virtue of a competitive economic system. Reputation counts:
Trusting someone we have just met—or even more astounding, trusting someone we will never see face-to-face—that is the trick to moving from mud huts to prosperity. ...It requires more flexible brain patterns. We are a face-to-face species.
He also discusses the Industrial Revolution, saying perhaps it should be called the Industrious Revolution.
Also, even though GDP is a flawed measurement, happiness measurements are worse. At least GDP shows a strong correlation with longer life, higher IQs, more charity, and less crime.
Buchholz also debunks the Emotional Intelligence and self-esteem fads. He even takes on Dan Ariely’s work along with behavioral economics. Relying on young people, in contrived laboratory experiments, has major biological flaws.
But what he wants the Edenists to answer is when should we stop moving forward. 1776? 1900? If so, we wouldn’t have airplanes and polio vaccines.
Without the Twentieth century’s progress, we’d all be watching television by candlelight, according to Milton Berle.
The philosopher Kierkegaard called anxiety the dizziness of freedom. If everything is stress, then the only answer is Timothy Leary’s “turn on, tune in, drop out.”
Surely that’s not the answer. We are fine-tuned for adaptation and survival, much less so for happiness.
Yet we try, even though it’s elusive. The stress, competition, and struggle is what keeps us all going. On balance, it’s all good.
Top Choice: Thomas Sowell. The Thomas Sowell Reader.
As usual, brilliant!
Paul Johnson. Humorists.
This is the fourth book in Paul Johnson’s excellent series; the first three being Intellectuals, Creators, and Heroes (all reviewed on my Shelfari shelf).
He starts by stating that comics are probably the most valuable of the four, as the world is a “vale of tears,” and the central force that creates laughter is chaos, contemplated in safety.
As with any Johnson work, this book is full of interesting historical facts, and no one profiles historical figures better than he does.
We learn that both Karl Marx and Jeremy Bentham thought punning was beneath them, the latter calling it “an atrocity.”
Where else would you learn that Field Marshall Helmuth von Moltke, the leading nineteenth-century Prussian strategist, laughed only twice: once when told that a certain French fortress was impregnable, and once when his mother-in-law died.
Also that the catch-phrase was invented in the 18th century. His first profile is Hogarth, then Ben Franklin, who invented the one-liner in Poor Richard’s Almanac, and maybe even the term “smart aleck.”
We learn that Charles Dickens used to write a paragraph, stand up and act out the scene, including facial expressions, in a mirror. Not very efficient; but highly effective.
Reason itself is a matter of faith, which is why “poets do not go mad—but chess-players do.” See Bobby Fisher. Maybe this is how House, M.D. will meet his end?
Damon Runyon is profiled, as is, of course, W.C. Fields, who along with J. Edgar Hoover hated Eleanor Roosevelt.
Fields was full of one-liners, “Women are like elephants. I like to look at them but I don’t want to own one.” Mae West is also mentioned, along with one of her favorite jokes: “She was Snow White, but she drifted.”
Charlie Chaplin comes in for some criticism, his biggest moral failure being he never criticized communism. His most famous movie, Modern Times, was an attack on industrial capitalism, but the movie was banned in Nazi Germany and Fascist Italy.
Laurel Hardy and the Marx Brothers are included, with some great one-liners from Groucho: “I never forget a face but I’ll make an exception in your case.” “I’ve been around so long I can remember Doris Day before she became a virgin.”
The book ends on a note of pessimism on the state of humor. Johnson points out that over the last generation Political Correctness has created “hate terms” and allegations of “racism,” creating the most comprehensive system of censorship since the days of Hitler and Stalin.
He writes:
The future of humorists thus looks bleak, at the time I write this. The ordinary people like jokes, often crude ones, as George Orwell pointed out in his perceptive essay on rude seaside picture postcards.
Let’s hope that our comedians are braver than the forces of PC, for the only line drawn in humor should be whether or not the joke is funny. Would you agree, Greg Kyte?
Mark Steyn. After America.
Mark Steyn is one of my favorite writers. Not only does he provide brilliant commentary, he does it with an acerbic wit that’s a joy to read.
His column in National Review, and blog, are must-reads. His latest book is a force to be reckoned with.
Using the acronym ARMAGEDDON to arrange the book, Steyn touches on the world’s woes.
Here’s what it stands for: Addiction; Redistribution; Monopoly (i.e., government); Arteriosclerosis; Global Retreat; Engineering; Decay; Disintegration; Open Season; and Nukes Away.
Steyn offers excellent analysis of: Europe’s idiocy; cultural decline; demographic decline (the future belongs to those who show up for it); how debt is a moral issue, not an economic issue; the strangulation of the human spirit from government regulation and Nannyism (big government makes small citizens); the failure of Keynesian economics’ the self-deluding self-esteem movement; and of course, PC lunacy.
He thinks the USA’s inability to replace the World Trade Center after a decade is a shame, noting that the Empire State Building was built in 18 months during the Great Depression.
Today, you couldn’t build the Hoover Dam, and even if you did, it would be shut down for not being wheel chair accessible.
That’s not to say I agree with everything he writes. He seems to believe in “manufacturism” and the materialist fallacy, since he cites the Boeing 747, Concorde, and the Moon Landing as the era when human capability peaked (1965-1975).
This ignores Google, Apple, and a host of other advances since then.
I find Matt Ridley’s The Rational Optimist far more compelling on why our future will be better.
Steyn also seems to believe that buying a house is the surest route to wealth for most Americans. But surely human capital is far more important, which he recognizes when he chastises China for destroying so much of it.
He also uses the line “They have our souls who have our bonds.” But this is debatable. What does it mean that China buys our debt? Is that a sign of weakness or strength?
Nevertheless, you will LOL at many places in this book. Steyn is incredibly entertaining, probably more so Than PJ O’Rourke. This is well worth reading, and pondering. It will, no doubt, change your mind on a variety of issues.
Mark Kramer, et. al. The Black Book of Communism.
This is a somber, but critically important, book. It sets out to answer the question, Why?
Why did communism exterminate its enemies. Why was it bloody no matter where it was implemented? It claimed it needed to break eggs—and it did, to the tune of about 100 million deaths—to make an omelet. But there was never an omelet.
Why did it inspire other nations, whereas the French Revolution never did (all communist nations were linked by an umbilical cord to the Soviet womb)?
Why was there no Nuremberg trial, no stigma, no accounting for the massive crimes of this regime?
Why was there never a “benign” period in the evolution of communist regimes? All were bloody form the start.
The Tsarists, between 1825-1917, committed 3,932 deaths. This number was surpassed by the Bolsheviks in four months.
Communism didn’t just commit criminal acts; it was a criminal enterprise.
Whereas Nazis killed based on race and territory, communism murdered based on class.
All I could think of as I read this work was Stalin’s memorable line: “One death is a tragedy; one million is a statistic.” The death toll is almost unbelievable:
- USSR = 20 million
- China = 65 million
- Vietnam = 1 million
- North Korea = 2 million
- Cambodia = 2 million
- Eastern Europe = 1 million
- Latin America = 150,000
- Africa = 1.7 million
- Afghanistan = 1.5 million
- International Communist movement not in power = 10,000
This approaches 100 million deaths. By (gruesome) comparison, Nazism murdered about 25 million.
Yet the French government’s National Lottery actually used an image of Stalin and Mao in an advertising campaign. Could you imagine if some enterprise dare used Hitler or Goebbels? At least Nazis were made to account for their crimes.
The book catalogs the crimes of the USSR, from the Red Terror, Great Terror, Great Famine, collectivization and dekulakization, The Gulag, the Katyn massacre, up to Khrushchev’s Secret Speech.
In chapters, it explores communism around the world: Spain, Poland, communism and terrorism, Central and Southeast Europe, China, North Korea, Vietnam and Laos, Cambodia, Latin America, including Cuba and Nicaragua, Africa, and Afghanistan.
What also makes this book amazing is that the authors are a group of French scholars, many of whom were actually supporters of communism at one time, but now are rethinking that position.
This has not made them popular with their left-wing friends, but as they say, they have to go where the truth leads them.
I’m not sure this book answers the question as to why. Maybe there is no answer, excepts man’s unbelievable capacity for cruelty in the quest for Utopia.
No one can read this book and walk away without feeling an incredible hatred for not only a bad idea (communism) but also the ruthlessness of the people who acted in its name.
This is a heavy book, and it is a bit dated (1999), since more research is coming out everyday from the opening of archives in the former Soviet Union. However, it is one volume that chronicles, in graphic detail, the murderous regimes and should be read by anyone interested in the history of ideas.
Ron Baker - 01/30/2012
Someone recently asked me which were the best business books I read last year. Since we here at VeraSage are inveterate readers, I’d love to know your best books from last year.
Tom Hood recently posted his, so I thought I’d share my Baker’s Dozen.
Some of these books I’ve already reviewed elsewhere, so will limit my remarks to books not previously discussed.
I’ve also noted my absolute Top Choices, so if you only read a few from this list, start with these.
Also, as always, you can access my shelf at shelfari.com for my complete library, my Top 100 Best Business Books of all time (see tag “bbb” underneath the shelf).
Business Books
Peter Drucker. Technology, Management and Society. Read full review here.
Jim Rains. Target Cost Management. Read full review here.
Top Choice: Thomas Alexander. Stanley Marcus: The Relentless Reign of a Merchant Prince.
He was called “America’s Merchant Prince,” and “the melancholy Plato of retailing.” I consider Stanley Marcus the grandfather of Total Quality Service.
Here’s a man who understood the value of each and every customer, long before CRM and Lifetime Value became management fads.
The founders of Neiman Marcus also certainly understood their “Why” (see Simon Sinek’s Start with Why).
Stanley wrote four books during his lifetime, but this is one of the only ones I’ve seen written about him by an insider, Thomas E. Alexander, who met Stanley in 1965 and served nearly 20 years as his executive vice president of marketing.
This was an incredibly demanding job, since Marcus was the consummate marketer, and many previous men failed in this role. Alexander obviously did something right that made Marcus keep him around that long.
Alexander gives you an insider’s view of the famous Neiman Marcus Fortnights, a Dallas institution until they were discontinued in 1986.
There are many fantastic pictures and other inside stories of how Marcus conducted business, treated customers, his team, and foreign government officials. Many of the pictures come from the Stanley Marcus Collection at South Methodist University, DeGolyer Library.
You’ll read about the first out-of-state store in Bal Harbour, Florida, opened in January 1971, and also the controversy of the San Francisco store opening at Union Square.
The columnist Herb Caen was an vocal critic of Neiman Marcus opening there, and the irony was that Stanely Marcus was farther to the left than Caen ever dreamed of being.
One very amusing anecdote about Marcus are the two things that exceeded his expectations, which were very high. One was Sophia Loren, and the other was the Bohemian Grove in San Francisco.
In the final chapter, “Saying Goodbye,” Alexander tells of Marcus, age 95, reflecting: “Without change, there is no challenge, and without challenge there is only the status quo but no progress.”
Wise words. Stanley Marcus was an amazing man, and his story is compelling on many levels. This book adds another dimension to a man who has left an indelible legacy on the culture. Well worth reading after you read Marcus’s own, Minding the Store, the best book ever written on customer service.
Robert Kanigel. The One Best Way. Read full review here.
Bob Lutz. Car Guys vs. Bean Counters. Read full review here.
Top Choice: Howard Hansen and Steven Geske. Healing Leadership. [Kindle Edition only].
I had the honor of writing the foreword to this book, but it doesn’t change the fact that this book had a profound influence of my thinking. Here is an excerpt from that foreword:
They say any writer should be able to sum up the purpose of their book on the back of a business card. I can do that for this book by using another author’s book:
The colossal misunderstanding of our time is the assumption that insight will work with people who are unmotivated to change. If you want your child, spouse, client, or boss to shape up, stay connected while changing yourself rather than trying to fix them.
As with most ideas and relationships, it is no coincidence that the above was written by Edwin H. Friedman, in his masterful book A Failure of Nerve: Leadership in the Age of the Quick Fix.
Healing Leadership takes a totally different approach, and one that is not very comfortable for those of us used to reading business books. How many books on leadership have you read where the central message is you can’t succeed at affecting change in the people you lead? That you need to get out of the business of needing others to change? The authors even admit they won’t get rich by dispensing this type of advice.
Rather than assaulting the reader with endless platitudes and checklists of “do this and don’t do that,” this book advocates a “way of being,” recognizing that leadership is an emotional process, not a mechanistic science that treats humans like machines.
You are about to explore some very profound, powerful, and simple concepts. But please don’t confuse simple with simplistic. Virtuoso bass player, accomplished pianist, bandleader, and composer Charles Mingus said: “Making the simple complicated is commonplace; making the complicated simple, awesomely simple, that’s creativity.”
Three creative concepts from Healing Leadership have permanently altered not only my worldview, but my behavior. The authors present the “Energy Management Model,” which teaches how we could have greater success in achieving our goals if we tried not so much to control time—an impossibility, as it is outside us—and instead tried to control energy—eminently possible, as it is within us.
You’ll learn the difference between episodic and chronic anxiety, along with the 10 telltale signs of someone who is chronically anxious, and what to do about it.
Finally, the concept of Emotional Triangles—what the authors call “the weather of human relationships.” This framework ties everything in the book together, while offering an enormously effective way to lower your anxiety. After reading about Emotional Triangles you’ll wish you had understood them in elementary school.
But don’t confuse simple with easy. These frameworks are very counterintuitive, and they will no doubt cause some confusion. Don’t despair. That’s a leading indicator that your understanding is deepening. You simply must wrestle with the concepts in this book if you want to achieve real change—transformations that will truly make a difference in your life.
One of my favorite definitions of the role of leaders comes from business consultant Peter Block: “The real task of leadership is to confront people with their freedom.” In Healing Leadership, Steven and Howard do exactly this. It’s not comfortable, it’s vexing, and it goes against everything you were taught in business school. The difference is: it works.
John Kay. Obliquity.
John Kay is an economist who has written many books I highly recommend. He does a good job blending economic theory with business strategy.
This book is all about obliquity, which he defines as “Goals are often best achieved without intending them.” Achieving complex objectives indirectly rather than directly. The real world isn’t like Sudoku, where you can arrive at your objective directly.
Citing many different examples of this concept, Kay does an excellent job of applying it to business. A couple of example of the obliquity route: cities. Jane Jacobs despised the urban planners who believe they can directly create a great city. Great cities flourish when they are unplanned, which leads to creativity.
Creating shareholder value (which Jack Welch called one of the dumbest ideas) is an example of a direct objective, but it’s obtained indirectly by creating great products (think Apple). No one works to maximize shareholder value.
We do so more in line with Simon Sinek’s Start With Why. Kay does a good job dispelling the notion that business is based on greed: “A corporate culture that extols greed cannot, in the end, protect itself against its own employees.”
He talks about how measurements can cloud judgment. Using [Benjamin] “Franklin’s Rule” (drawing up a list of Pro and Con to make rational decisions), Kay illustrates that real decisions aren’t made this way—though we think they should be.
Robert McNamara’s tragic management of the Vietnam war by the numbers illustrates the flaw in this thinking.
Kay also discusses the “teleological fallacy,” which infers causes from outcomes, and how it’s one of the oldest mistakes people make. Today we call it the Halo Effect.
Kay explains why business autobiographers can describe their success, but not explain it. Sort of like John Paul Getty’s advice: “Strike oil.”
Kay also explains why it’s more important to be right rather than consistent (unlike, say, in legal matters, where precedent is more important).
The book validates much of my own thinking in Measure What Matters to Customers, especially the Seven Moral Hazards of Measurements.
Numbers give a false sense of precision and it’s no way to build a great business. Think Six Sigma when Kay writes: “The process in which well-defined and prioritized objectives are broken down into specific states and actions whose progress can be monitored and measured is not the reality of how people find fulfillment in their lives, create great art, establish great societies or build good businesses.”
Top Choice: Tim J. Smith. Pricing Strategy.
I met Tim Smith at the Professional Pricing Society conference in Chicago in April 2011. He told me he read my book (Pricing on Purpose) while in Prague, which kept him from getting into trouble...LOL.
He does cite my book in his, as a justification for pricing discrimination. Although this book is more like a textbook, and is very quantitative, it’s still very readable and enjoyable.
He’s got plenty of thought-provoking exercises (there’s a companion workbook for this text). Smith understands that pricing is not just about the numbers; that it’s more art than science, but he does discuss both, and even has a chapter on behavioral economics.
Overall, this book needs to be in every serious pricer’s library.
William Taylor. Practically Radical.
I enjoyed William Taylor’s other book, Mavericks at Work.
This book is also good, with three major themes: 1) Transforming your company; 2) shaking up your industry; and 3) challenging yourself.
A lot of it is profiles of change agents from a wide swath of sectors, some of whom you’ll find fascinating. Most change fails because it focuses too much on what’s wrong while undervaluing what’s right.
The book advises not to benchmark your competitors for new ideas (stop looking in the same places) and gather as many “zero-gravity” thinkers as you can—folks who are not weighed down by the baggage of industry expertise.
Taylor also understands the importance of a company’s “Why” or purpose, and provides many thought-provoking examples and research supporting this concept.
He’s wrong about the housing crisis at the start of the book, but other than that, this is good journalism, along with some important lessons. If you enjoy reading about entrepreneurs and change agents, this is well written and very interesting.
Dan S. Kennedy and Jason Marrs. No B.S. Price Strategy. Read full review here.
Andreas Widmer. The Pope & The CEO.
This is a great book by a former Swiss Guard, who are charged with guarding the Vatican.
Adreas Wedmer spent two years (1986-88) in his early 20s guarding Pope John Paul II, and this book discusses the leadership lessons he learned, which helped him become a successful entrepreneur.
He met Ronald Reagan at the Vatican in June, 1987, two days before Reagan delivered his “Tear down this wall” speech in Berlin. There’s a great discussion of ethics in the book, with the point being made that utilitarianism is the framework behind pornography.
Also, how firms are not moral agents because they have no soul. Hence, a person-centric framework is what the Pope espoused. Other lessons from the Pope apply to business as well, since business and faith go together.
I found the inside look at the Swiss Guards fascinating. A very worthwhile read.
Joseph Maciariello and Karen Linkletter. Drucker’s Lost Art of Management.
This is an incredibly deep book, which contains a wonderful idea: Management is really a liberal art—not a science or a profession—and should be a humanities discipline.
This would lead to a more humane and moral society. The idea that business is a science has always seemed strange to me, since we are dealing with human beings, not machines. This is an idea Matthew Stewart discusses in his excellent book, The Management Myth.
A liberal art is defined more by what it’s not: vocational training. Its purpose is to educate citizens to be society’s leaders, by emphasizing judgments and values.
Drucker first mentioned this idea in 1988, but he didn’t clearly define it. The two authors of this book both knew Drucker personally, and they are scholars, one from business and the other a historian.
They have researched all of Drucker’s writings on this link between liberal arts and management, shedding light on how this could be accomplished.
Drucker defined himself as a social ecologist—someone who creates and maintains a society of functioning organizations that anticipate change, and manage both continuities and discontinuities.
The book is a deep look at which philosophers, political scientists, economists, and other thinkers influenced Drucker’s worldview. It discusses his concept of the knowledge economy and knowledge workers. It’s a bit long, but still a very worthwhile read.
I now believe society would be better off closing its business schools and folding them back into the humanities. On average, I rather be led by someone with a liberal arts degree than an MBA.
Inder Sidhu. Doing Both.
Why do we build such beautiful bridges, such as the Golden Gate? After all, the military build utilitarian bridges all the time, capable of handling extreme loads. It’s costly to achieve the aesthetic appeal of the Golden Gate, so why bother, especially since the Bay Bridge right across the way does the job just as well without the flocks of visitors or suicide jumpers.
The premise of Inder Sidhu in this book is you can do both most of the time. He’s a veteran of Cisco, the 1984 startup that is now the 14th most valuable brand in the world, according in Intrabrand, and part of the Dow Jones Industrial Average.
This book was recommended to me by a colleague who suggested it would shed light on the “efficiency vs. effectiveness” that we have been engaged in over at VeraSage for years. It didn’t really help settle that issue, but actually reinforced the view that effectiveness everywhere and always trumps efficiency. But it’s an interesting book nonetheless.
Doing both is not a balanced compromise between two objectives but rather a mutually reinforcing multiplier. Each chapter provides an example in broad categories, such as:
Sustaining and Disruptive Innovations. A company doesn’t have to choose between one or the other, but should strive for both.
Multiple business models. Cisco embraces new business models either by acquisition or internal development. This is not easy, but it’s often necessary in order to capture new markets and not be cannibalized. Software as a Service and Subscription based pricing, as with WebEx, are examples of how they have changed their business model.
From volume to value with partners. Cisco evaluates its 55,000 partners not based on volume, but on value contributed—new customers, solving difficult technical problems, entering new vertical markets, etc. Rather than just providing discounts that can be used by bigger partners against smaller ones, Cisco changed the criteria to evaluating value, a great idea.
Excellence and Relevance. “By zeroing in on what matters most to customers, Cisco became excellent by focusing on customer pain points. But it became relevant by moving from customer frustrations to their aspirations.”
Superstars and winning teams. You can have both in your company. I think this one is tougher to achieve than the author leads us to believe.
Westpoint and Woodstock. This deals with the governance model of authoritative vs. democratic leadership. Cisco has both types, and it is a very interesting model, including councils, boards and working groups for decentralized management, and the traditional functions, geography and countries for centralized management. This has potential for professional firms as well.
Overall, this is a short book and a good read. But I still remain convinced that efficiency and effectiveness cannot be “balanced” as they are different things, and this book supports that view.
Honorary Mentions
Two of my VeraSage colleagues wrote books that I read in 2011.
Tim Williams. Positioning for Professionals.
Even with all my bias, this is a fantastic book—a concentrated, yet cogent, look at how professional knowledge firms can position themselves based upon value creation.
Tim dispels many myths in this work, from size being the path to profit, and why going broad is not really as profitable as going narrow.
Tim also takes on “commodity” thinking, debunking this myth as well. As he writes, “Service is a commodity. Smart thinking is not.”
If you are a leader of a PKF, you will profit immensely from Tim’s intellectual capital on how to position and differentiate your firm. As Tim argues persuasively, this is the only way to capture more of the value you create and command premium pricing. A fantastic read.
Jay Shepherd. Firing at Will.
This is an excellent guide to everything an employer needs to know in protecting its legal rights, and avoiding costly litigation and other legal issues. Written beautifully, and very non-lawyerly, it’s easily accessible to everyone. You will get the benefit of Jay’s 17 years of practicing law on the management side. Indispensable. (Ignore the foreword).
Ron Baker - 11/25/2011
Any book that states on the first page, “price is a terrorist,” is bound to grab your attention. It makes sense: price instills fear into sellers, and much of that fear is unwarranted.
The other factor that impressed me immediately about this book was how the authors, Dan Kennedy and Jason Marrs, disagree that pricing and profit are about greed. They then suggest you read Ayn Rand’s Atlas Shrugged, and Rabbi Daniel Lapin’s Thou Shall Prosper (a fantastic book).
Your prosperity is your price strategy. We’ll never get paid more than we think we are worth. I like their line:
Go to the ocean with a teaspoon or bucket; the ocean doesn’t care.
They make the point that the rich are paid in advance, whereas the poor are paid after they work.
Another great insight is how the majority of customers want to make purchasing decisions on factors other than price—like, “It’s good for my family,” which is true for Michelin tires and even toilet paper.
The importance of price integrity—similar to brand integrity—is a theme throughout the book.
There are a few case studies that are very interesting. One by a Canadian doctor who has opted out of Canada’s health care system in favor of a concierge-type model.
Over 5,000 doctors in the USA have already done the same, and more are expected to do so if Obamacare remains the law of the land.
The author’s are on the same soapbox as VeraSage: There’s no such thing as a commodity, and they offer several poignant and entertaining examples:
- Allen Brothers steaks: it places top steakhouse logos on its catalog pages, creating the framing effect of comparing its prices to that of dining out.
- Kennedy Barber Clubs, just for my dad and brother.
- MotoArt sells furniture made from real airline parts, obviously to a specialized customer segment.
- In 2009, Americans spent $45.5B on their pets, up 5.4% from 2008, and $3 million of that went to Doggles—sunglasses for your pets! We often say in our economics course that American’s pets eat better than a lot of the world’s poor.
- But my favorite has to be Kopi Luwak—cat-poo coffee. And you thought Starbucks was expensive.
The authors also deal with aspects of behavioral economics, especially the anchoring and framing effects.
One interesting example is a chiropractor who has sold more treatments when patients were escorted from the waiting room to the examining room, rather than simply being called out.
Differences and Annoyances
Jason Marrs brags about the hourly rates his therapists make relative to the competition. Yet he understands that customers buy results, not time or costs. I wonder if he’s ever run across the labor theory of value?
There’s a comment made about how most recent trends are disadvantageous: our diet, chemical-laden foods, stress, etc. But then why are we living longer than ever before?
One chapter mentions “intrinsic value,” but other than life itself, there’s no such thing. Because the book offers no theory of value, this is a shortcoming. But like Adam Smith, the authors may get some of the theory wrong, but they get the practice right.
The authors also claim that .99¢ pricing works, but ignore evidence to the contrary. But they also believe in testing.
I also have misgivings about Dan Kennedy’s idea that your business is not about improving your customer’s lives. He makes an interesting argument; I just don’t find it persuasive (but I do totally agree that business is not about creating jobs, which is something you rarely see in a business book).
After all, if business isn’t about improving human beings, what’s the point?
The most annoying aspect of this book is the constant sales pitches for both author’s websites, services, etc. This really grates on my nerves, and it will turn a lot of people off.
Which is too bad, because this book is a worthwhile read.
And, if after reading it, you say: “But my business is different!"—the authors rightly point out that this is the rallying cry of the poor.
Ron Baker - 09/21/2011
I’ve long been a fan of Michael Gerber’s E-Myth book. His concept of working “on” the business rather than “in” the business was a major theme of the Accountant’s Boot Camp, developed by my good friends Paul Dunn and Ric Payne.
So when I learned that Darren Root co-authored The E-Myth Accountant with Gerber, and especially since I was presenting with Darren at the Sage Summit, I was looking forward to reading their views on what Darren calls The Next Generation Accounting Firm™. The Firm of the Future is a topic near and dear to my, and VeraSage’s collective, heart, and I was looking forward to learning another perspective.
Areas of Agreement
There is a lot of good advice in this book with which I agree. Here is a bullet point summary of some of their better recommendations, most of which come from the chapters that Darren Root wrote:
- Darren asks a good question: “How did the accounting profession become a mass of technicians and very few business leaders?” David Maister’s book, True Professionalism, is necessary reading to overcome this.
- Firms engage in mass client acquisition, whether or not they are a good fit for the firm. We call this the market-share myth, a form of cancer (growth for the sake of growth). It leads to incredibly weak pricing power.
- Same as above with offering too many services, which Darren argues keep CPAs at the technician level as well. The debate between the specialist and generalist is over—the specialist won. This video from the late Paul O’Byrne illustrates this very effectively.
- Darren writes:
It’s time to trust your people, let go, and give yourself the opportunity to work on your practice...not in it.
Good point. Follow this path to its logical conclusion: it leads to scrapping timesheets and implementing a Results-Only Work Environment (ROWE).
- It’s hard to disagree with this:
The old business model has long been to sell billable hours. Instead of selling billable hours, your firm sells complete solutions. If your goal is to get off the proverbial hamster wheel and build a business, it is critical to abandon the billable-hour model and adopt value billing [sic—he means value pricing].
Darren believes that accountants are finally starting to hear the value pricing message, and I hope he’s right. He says that hourly billing doesn’t take into account efficiency or new technologies.
However, that’s not the major weakness of the billable hour. It’s Achilles heel is it doesn’t take into account customer value, and is based upon an incorrect theory of value.
- In a chapter written by Gerber ("On the Subject of Clients"), he discusses how to deal with client dissatisfaction with a 7-step process. What’s missing, though, is the recommendation that firms offer a guarantee to all customers.
- Darren suggests spending a good portion of your marketing budget geared toward strengthening existing client relationships. Indeed. As the AICPA pointed out years ago, it costs eleven times more to acquire a customer than to retain one.
The Gap
For as many topics as we agree on above, I’m afraid the chasm that exists between my vision of the Firm of the Future and the one laid out in this book is simply irreconcilable.
But as with most disagreements, this is more a conflict of visions rather than a disagreement about facts. I’m reminded of what Blaise Pascal wrote in Pensees:
When we wish to reprove with profit, and show another that he is mistaken, we must observe on what side he looks at the thing, for it is usually true on that side, and to admit to him that truth, but to discover to him the side whereon it is false. He is pleased with this, for he perceives that he was not mistaken, and that he only failed to look on all sides.
The side the authors are coming from is to build the McDonald’s of professional firms, by laying out a path for creating “a highly efficient money-making practice.”
Yet a glaring omission from this work is any mention of the knowledge economy, or knowledge workers. This is the dimension the book ignores completely.
A professional knowledge firm isn’t McDonald’s, nor should it be. This example of Gerber’s has always irritated me, but it is particularly egregious in a book for professionals.
This is where the author’s analogies to the importance of systems break down in a knowledge economy. Gerber posits “The People Law: without a systematic way of doing business, people are more often a liability than an asset.”
This is strange statement, given that 75% of the world’s wealth resides in human capital, according to the World Bank.
The prominence given to the “system” over people is redolent of Frederick Taylor, who wrote:
In the past the man has been first; in the future the system must be first.
Peter Drucker refuted this logic in his 2002 book, Managing in the Next Society:
What made the traditional workforce productive was the system—whether it was Frederick Winslow Taylor’s “one best way,” Henry Ford’s assembly line, or Ed Deming’s Total Quality Management. The system embodies the knowledge. The system is productive because it enables individual workers to perform without much knowledge or skill....In a knowledge-based organization, however, it is the individual worker’s productivity that makes the system productive. In a traditional workforce, the worker serves the system; in a knowledge workforce the system must serve the worker.
Yes, knowledge workers will create their own systems. That’s the point. Two surgeons will not perform an operation the same way. Even two barbers won’t cut hair the same way (nor would we want them to).
This is why Steve Jobs says:
The system [at Apple] is that there is no system. That doesn’t mean we don’t have a process.
Sure, there are things that can be turned into a repeatable process, but the value in knowledge work lies in where there is applied judgment, creativity, and wisdom. And you simply can’t systemized those virtues. Indeed, if you try—with Six-Sigma, Lean, etc.—you kill them.
The better solution is to capture the knowledge that is tacit in those unique ways of doing things so the knowledge can be spread across the firm. Yet any discussion of knowledge management and capture is missing from this book.
The authors also seem to think that the systems should only be designed by the firm’s owners, rather than its workers—this is a large part of working “on” the business rather than “in” it.
But to borrow from Steve Jobs again, does it really make sense to hire smart people and then tell them what to do? Apple hires smart people so they can tell Apple what to do. Welcome to the knowledge era.
The idea that all the intelligence rests with management didn’t work in Frederick Taylor’s industrial era and it certainly doesn’t work in a knowledge economy. Worse, you cannot inspire creative knowledge workers by spouting Taylor’s efficiency mantra.
Today, knowledge workers are the system, which means they have to have a hand is designing it. Even auto manufacturers understand that those closest to the work are the ones who can improve it the most. See Toyota.
Yet the cult of efficiency is worshipped throughout the book, even though Darren quotes Steven Covey:
If the ladder is not leaning against the right wall, every step we take just gets us to the wrong place faster.
Nowhere is the recognition that there’s nothing more wasteful than being efficient at doing something that shouldn’t be done at all. Or that efficiency—and technology—are mere table stakes, not a competitive advantage, since your competition can easily replicate those gains.
Darren even suggests you identify those services you do best, which he defines as being able to perform with a high level of efficiency. But surely you should identify those services that you can perform most effectively—better yet, efficaciously—and that create the highest value.
If there’s that much efficiency to be gained, they are probably low-value services that should be outsourced (see the Stan Shih Smile Curve).
Peak efficiency is a sign of no innovation.
The same error is made when he claims the major factor driving realization is the existence of proper systems and processes. But this is incorrect. Price drives profit more than any other factor.
Further, he writes that his firm’s realization is over 100%, but that just means he’s still comparing price to hours x rate; it has nothing whatsoever to do with pricing commensurate with value, as he claims.
He also proclaims he’s not a proponent of throwing away timesheets, since they can catch scope creep, measure efficiency, benchmark against other firms, and allow him to manage what he can measure.
These are weak arguments for timesheets. If you’re catching scope creep from timesheets, it’s way too late to price it—you’re billing and ducking in arrears at that point, and by the hour. Project management is far more effective.
And the idea that timesheets measure the efficiency of a knowledge worker has been well destroyed in all of my books. This is illusion of control and one of the seven moral hazards of measurement.
This defense of timesheets is particularly amusing when compared to what he writes toward the end of the book:
Remember: Just because you’ve always done things in a certain way doesn’t mean you have to continue that tradition. If it’s not working, it’s not working. Abandon the old and make way for the new.
Except, of course, when it comes to the ancient tradition of maintaining timesheets.
Also, towards the end of the book, Gerber explains that Time is not money; time is life. If true, then why are we dividing a firm’s revenues and costs by life?
[And even if you still believe the old canard that time is money, all that means is we are dividing cost by cost if we use the hourly metric system].
There are other major areas of disagreement with the book. Their concept of a firm’s vision is too focused on what and how, not why. It’s far more effective to develop your firm’s why, letting that drive your what and how, consistent with Simon Sinek’s TED talk, and book Start With Why.
Gerber posits that there are six types of clients around which your entire marketing strategy must be based. But I find this unconvincing, and it could benefit from Occam’s Razor. Asking customers about their expectations would be more effective. Also, innovation is the firm’s job, as customers don’t innovate, they iterate.
Then Darren writes that clients are a firm’s greatest assets. But customers are not owned by firms, anymore than human capital is owned. Speaking of them as assets is inhumane and demoralizing.
The book does not contain any endnotes, a bibliography, or index. Outside of the few books and authors mentioned, it would be helpful if the authors shared the books that have shaped their thinking.
In conclusion, if you read this book, do so with this caveat: the book’s gap of not discussing the knowledge economy is simply too wide for me to overcome. It overshadows everything they write, and the logic traps them into the cult of efficiency rather than one of creating value.
We no longer live in an industrial economy where the talisman is Frederick Taylor’s enigma of efficiency and the “one best way.” A PKF is a human relationships-based entity, not a factory.
On the positive side, now that I’ve met Darren, there’s an opportunity for ongoing dialogue. If all goes well, we’ll get him to trash his timesheets someday.
Ron Baker - 08/16/2011
The world’s first and most famous preacher of the efficiency gospel was Frederick Winslow Taylor, born on March 20, 1856, into a prominent Quaker family in an upper-middle-class suburb of Philadelphia.
His ideas permeate our thinking to this day, a classic example of a thinker of whom Justice Oliver Wendell Holmes wrote, “a hundred years after he is dead and forgotten, men who never heard of him will be moving to the measure of his thought.”
Today, if you work in a professional firm, you are still moving to the measure of this man’s thought. Peter Drucker wrote that Taylor’s Scientific Management (SM) idea is perhaps “the most powerful as well as the most lasting contribution America has made to Western thought since the Federalist Papers.”
Robert Kanigel has written a scholarly, well-balanced, book on Taylor’s life. At over 600 pages, it is not an easy read, so I thought I’d provide a review, albeit long, that synthesizes the work of Taylor as well as this enigma known as “efficiency.”
Taylorism Defined—Sort of
Taylor set out to prove that management is “a true science” with “laws as exact, and as clearly defined...as the fundamental principles of engineering.”
Thus Taylorism can be defined as:
The application of scientific methods to the problem of obtaining maximum efficiency in industrial work or the like.
To his credit, he viewed knowledge as the prime productive resource. The problem is he thought the knowledge only existed among management, not the workers, and that the system would embed the knowledge, saying in 1911: “In the past the man has been first. In the future the System must be first.” He separated the doing from the thinking.
Economists of the day coined the term “Deskilling,” the idea that knowledge lies with management, not the workers. Taylor, in effect, help create the white-collar workforce.
Taylor wasn’t as interested in how long a job took, but rather how long it should take. He searched for the ideal human performance. Work consisted of discrete pieces, each of which could timed and studied to maximize speed.
He began work at Midvale Steel in 1878, where he became an industrial engineer, testing his time theories on the factory floor among his coworkers.
He pleaded, cajoled, and even fined workers, creating a shop full of resentment. He believed a 35% pay increase was necessary to induce workers to extraordinary efforts, even more for some types of work, such as 70-80%, or even a doubling.
But how do you get workers to work faster? Pay them. Accumulative rates, Taylor called it the differential rate: you earned an amount that depended on your output for the whole day: thirty-five cents per piece, say, for producing less than what Taylor’s science decreed, fifty cents for exceeding it. And you earned the fifty cents for the whole output, not just the amount exceeding the first tier.
The Spread of Taylorism
After he left Midvale, Taylor became a “management consultant” in the 1890s, charging $35 per day (approximately $1,000 today).
He presented a paper on June 23, 1903 at the 47th meeting of the American Society of Mechanical Engineers titled “Shop Management.” In it, he laid out time-and-motion studies, including a sketch of a decimal-dial stopwatch.
With the notoriety this paper achieved, SM came to be described as a religion, with Taylor the messiah, attracting both disciples and apostles, and the rest becoming members of the church.
A writer to the New York Times asked: “And didn’t the legal profession need some science, too?” ...get Mr. Taylor to take a few stop watch observations in a typical court, and in a typical lawyer’s office, and make an estimate of the existing and obtainable efficiencies.”
Sound familiar? The father of both the timesheet and the billable hour, Reginald Heber Smith, was greatly influenced by “Speedy Taylor,” as evidenced by his writing “Efficiency and economy are a race against time.”
Taylor’s champions included Louis Brandeis, “the People’s Lawyer,” and Ida Tarbell, the legendary muckraking journalist. Henry L. Gantt—known for his eponymous chart—was a disciple of Taylor.
Frank Gilbreth, a former bricklayer, read the 1903 paper and became a disciple, calling the paper “a work of genius.” Gilbreth was even more obsessed with motions than was Taylor, and 2 of his 12 children later wrote a portrait of him titled Cheaper by the Dozen, later made into a Hollywood movie with Clifton Webb as Gilbreth.
If Taylor was idiosyncratic, Gilbreth was an even stranger duck, as David Boyle humorously points out in The Sum of Our Discontent:
Gilbreth was obsessed with measuring, breaking down every manual operation into what he called “therbligs” (Gilbreth spelled backward). He buttoned his vest from the bottom up because it took four seconds less than buttoning it from the top down. He cut 17 seconds off his shaving time by using two brushes. Using two shavers cut 44 seconds, but then he cut himself and had to spend another two minutes looking for a plaster.
But it wasn’t until 1910 that he became known across the country, thanks to the efforts of one of his disciples—Louis Brandeis.
Taylor Becomes Famous
In November 1910, a group of powerful railroads petitioned the Interstate Commerce Commission (ICC) for a $27 million rate increase. Lawyer Louis Brandeis, whom Woodrow Wilson would appoint to Supreme Court 6 years later, submitted “The Brandeis Brief.”
He claimed the railroads could save a million dollars per day if they followed Taylor’s SM System, so the rate increase was unnecessary. Brandeis asked a railroad executive a very unscientific question:
What evidence have you that these costs however they may be made up, represent not merely what was actually paid, but what should have been paid?
This is a stupid question, since all “costs” are themselves “prices,” with their own value assessments. The ICC ultimately denied the rate increase, but not because of Brandeis $1M per day savings assertion, which it deemed only a theory.
But it didn’t matter, for the $1 million savings per day was splashed on the headlines of newspapers across the country, turning the relative obscure Frederick Taylor into a person of curiosity.
People flocked to his 12,000-square foot home in the Philadelphia suburb of Chestnut Hill, which he called “Boxly,” to hear his ideas.
These “Boxly Talks” were then turned into a book in 1911, The Principles of Scientific Management, the In Search of Excellence of the 1910s. Two of Taylor’s principles are worth noting:
...[T]he workman who is best suited to actually doing the work is incapable of fully understanding this science, without the guidance and help of those who are working with him or over him, either through lack of education or through insufficient mental capacity.
...[A]lmost every act of the workman should be preceded by one or more preparatory acts of the management which enable him to do his work better and quicker than he otherwise could.
This advice seems crude and unenlightened in today’s knowledge economy, and organized labor viewed Taylorism as nothing more than a method to extract more sweat from labor, turning workers into impersonal slaves.
In 1915, Congress passed legislation, which stayed on the books until 1949, banning Taylor’s beloved stopwatches from government factories. But while government eschewed Taylorism, the private sector embraced it—and does to this day.
Unscientific Management
Any approach claiming to be “scientific” has to include a crucial element: verifiability. Yet Taylor never supplied the data or the methods that would allow others to reproduce and verify his results.
As Matthew Stewart points out in his seminal book, The Management Myth:
Instead of science, Taylor offered a kind of parody of science. He confused the paraphernalia of research—stopwatches and long division—with actual research.
One can go grocery shopping with a scientific attitude. But it does not follow that there is a science of grocery shopping.
Even Taylor himself would say repeatedly that his system had not emerged full-blown as a theory, but that it had bubbled up from the cauldron of shop experience:
Scientific management at every step has been an evolution not a theory. In all cases the practice had preceded the theory.
Of course, that’s the problem—it’s not a falsifiable theory, nor is it correct, since there’s no such thing as generic efficiency, as economists have pointed out for centuries but businesspeople—especially Lean and Six-Sigma types—continuously ignore.
Taylor’s statements were essentially tautologies, such as “work smarter not harder,” and “an efficient shop is more productive than an inefficient shop.” These are not scientific, verifiable hypotheses, but simply nonfalsifiable platitudes.
Taylor’s own work at Midvale Steel did not increase production beyond the average before his arrival. Bethlehem Steel tried his “System.” It failed, created labor unrest, and Taylor was fired. These facts were later sanitized from his work history.
Taylor was a master at taking modest successes and blowing them up into major accomplishments. Much of his touted increases in efficiency were simply the learning curve and new technology in practice. His taking credit for these natural improvements is similar to the rooster crowing and taking credit for the sun rising.
There were management consultants who criticized Taylorism, concluding “there was nothing tangible behind it.” C. Bertrand Thompson explained how loose and ill-defined a concept Taylorism had become:
As the number of those talking and writing about Scientific Management has increased, the principles have become vaguer and the spirit more tenuous, until now they are taken to cover every supposed improvement in managerial practice. I have myself seen the installation of an adding machine, or even of a telephone, referred to as “Taylorization.”
In other words, Taylor was a fraud. He claimed to bring science to the study of work, management, and efficiency, but no such science could ever be replicated.
Scientific Management is not science, nor is it a religion. It’s a business. Today’s Lean and Six-Sigma belts carry on the tradition, all the while impervious to the idea—suggested by Stephen Covey—that we are efficient with things, but effective with people.
Ridicule vs. Logic
Ridicule is often a more effective way to persuade people than logic, and Taylorism received its fair share. One of the funniest was Nelson Algren’s character Highpockets, a hardworking “hillbilly from way back at the fork of the crick”:
The time-study man, that mother-robbing creeper that watches you from behind dolly trucks and stock boxes, he’s always trying to figger a way to get more work out of you at the same pay. He’ll even ask you if they ain’t some way you could do a little more than you are. He never expects you should say yes.
But Highpockets does say yes. Let him run another machine with his left hand. Soon he’s turning out twice as much as before, which spurs the time-study man to new depths of fiendish ingenuity. Soon a block and tackle is attached to Highpocket’s right leg, and then a band to his left leg with which to pick things off a conveyor.
Finally, with a rod stuck between his teeth, he’s jerking his head back and forth to run something else. The time-study man is thrilled, and Highpockets has caught the spirit. “If you want to stick a broom someplace,” he cries, leaving scant doubt where “someplace” is, I think I could be sweeping the floor.
In his autobiography, Peter Falk (R.I.P.) reveals how he began his acting career:
I quit my job. I was working for the Budget Director of the State of Connecticut as an efficiency expert (the truth is the first day on the job I couldn’t find the office—it was in the state capitol—I ended up in the post office).
Was Columbo efficient? Did you care?
An Early Ending
Frank Gilbreth eventually went on to repudiate the validity of time-and-motion studies as unethical and “absolutely worthless.” In the meantime, Taylor pressed on, espousing his platitudes until his final day.
On March 9, 1915 Taylor was admitted to the hospital with pneumonia. Every morning Taylor arose out of bed to wind his precious watch.
One day after his 59th birthday, March 21, a nurse saw him winding his watch uncharacteristically early, 4:30 A.M. When she returned a half hour later, Taylor was dead.
He’s buried in West Laurel Hill Cemetery, high over Philadelphia’s Schuylkill River, with a gravestone proclaiming “the father of scientific management.”
Many of the so-called efficiency experts met an early death—which makes you wonder what, exactly, were they saving all that time for?
Ron Baker - 08/07/2011
Steve Pipe, founder and head of research for AVN, an association of over 200 UK accountancy firms, has published a very inspiring book, The UK’s Best Accountancy Practices.
The book profiles 41 firms, all of them having implemented Value Pricing, some trashed timesheets, and one has started a ROWE.
It’s great to see these ideas diffuse in the UK, and this book will spread the word and provide the impetus leaders need to change the dying business model of “We sell time.”
My only (minor) quarrel with the book is it does not include our own Paul Kennedy—and his firm OBK—who I’m sure blazed the trail long before any of the firms profiled.
Congratulations to Steve Pipe and the AVN Network for advancing the posterity of the profession.
Ron Baker - 06/05/2011
Ron Baker - 06/04/2011
Ron Baker - 04/06/2011
Ron Baker - 03/06/2011
Ron Baker - 02/27/2011
Ron Baker - 12/13/2010
Ron Baker - 12/01/2010
The following is an excerpt from Tim William’s new book, Positioning for Professionals: How Professional Knowledge Firms Can Differentiate Their Way to Success.
Tim leads Ignition, a consultancy devoted to helping marketing firms create and capture more value. He welcomes your comments at .
Why There’s No Such Thing as Full Service
For the first time in history, the largest agency in the U.S. is not on Madison Avenue, but in faraway Little Rock, Arkansas.
Acxiom, a firm most mainstream agency executives have never heard of, earned more U.S.-based revenues last year than any of the well-known multinational agency brands.
This one startling fact proves the point of this article so conclusively that we could stop right here. But of course we won’t, because the idea that “full service” is the ultimate growth strategy is deeply rooted in the collective business psyche.
The common wisdom is that, as a business strategy for professional firms, “broad” has more potential than “narrow.” As evidenced by the rise of firms like Acxiom—a specialist in “interactive marketing services"—nothing could be further from the truth.
Narrow is not the same as small
In fact, of the top 25 advertising agencies in America, more than half are specialist firms, not “full-service” agencies. In Minneapolis, a city that has spawned more than its share of talented advertising agencies over the past few decades, the largest agency is not Fallon or Campbell Mithun—firms that help put Minneapolis on the advertising map—but rather Carlson Marketing, a specialist in customer relationship marketing.
With revenues of some $265 million, Carlson Marketing is nearly four times larger than any other agency in the city. How did this happen? It happened because marketers are in search of specific solutions to specific problems in specific categories, not a “full-service agency with a wide range of experience in diverse categories.”
No client ever hires an agency because it can do everything, but rather because it can do something. In fact, whenever “wide range” or “full service” appears as the main promise a firm makes, you can assume that it has been either unable or unwilling to actually name what it stands for.
What exactly does it mean to be full service?
When you stop and think about it, there’s really no such thing as full service.
There isn’t a brand in any category that actually can fulfill every need. Most agencies follow the “full service” model because they have fallen in the trap of defining their value proposition solely in terms of product or service attributes.
Believing that the more attributes the agency brand can claim, the more valuable it will be to prospective clients, they continue to add more and more services until they appear to be “all-in-one” solutions.
Saying that you do everything is not a strategy, but rather the absence of a strategy.
Nowhere is this more apparent than in packaged goods, where many categories ultimately come up with a “total solution” brand (in the U.S. there’s Colgate Total, Crest Complete, Tide Total Care). But can a laundry soap brand really stand for protecting color, enhancing softness, cleaning thoroughly, fighting stains, and preserving fabrics?
After years of marching down the “compete” path, marketers are realizing that a single-benefit brand is often stronger for the simple reason that it stands for something. It promises to do a specific job extremely well instead of attempting to do a lot of jobs moderately well.
What’s true for packaged goods is true for professional services.
Your firm is defined by the services and clients you don’t have
As a brand, would you rather be mildly appealing to a large group of prospects, or intensely appealing to a select group of prospects?
Most businesspeople would say the latter. But most often, their business strategy centers on the former.
In life and in business, our natural tendency is to go broad instead of narrow, to want the most and the biggest. Diversification feels safer and smarter.
The problem is that if your approach is to “keep your options open” and “not limit yourself,” then you actually don’t have a strategy. By definition, having a strategy means deciding to do one thing but not another.
By deciding to have low prices and broad selection, Wal-Mart is making a conscious decision not to have a high degree of sales help and ambiance. Given finite resources, Wal-Mart can’t deliver low prices and high service. Deciding what you’ll do at the expense of something else is the very essence of strategy.
Strategy at the edges
No agency wants to be thought of as just average, yet that is precisely where an undifferentiated “full-service” business strategy places them—in the center of the bell curve.
The most interesting and powerful agency brands are at the edges of the bell curve, because they’re doing things differently.
It feels like common sense to play in the center of the market, but the middle is actually the least desirable place to be. If you try to simultaneously appeal to the high end of the market and the low end of the market, guess where you end up? You’ll end up in the “mushy middle,” where you appeal to no market.
Look at most markets and there are examples of successful brands at the high end and low end, but very few successful brands in the middle.
This is most visible in retailing, where there is almost no middle market at all. Professional service brands that follow a “best of both worlds” strategy—selling to the middle—will never be the most famous, the most profitable, or the most successful.
Vertical success vs. horizontal success
Viewed another way, most agencies have the unrealistic aspiration to compete across all segments of the market. But success doesn’t require that you serve all segments. It just requires that you serve one well.
This is the difference between horizontal success and vertical success. Very few firms are able to achieve real horizontal success, although many attempt it because it has the illusion of being the richest strategy. And even those horizontal players struggle mightily to earn a profit.
Take General Motors—a horizontal player if there ever was one—versus Porsche, a car company that focuses on one vertical segment of the market. For most of the past decade, GM was the least profitable car company in the world. Guess who was the most profitable?
Consider the massive energy and resources required to maintain a horizontal positioning strategy. It only stands to reason that a vertical positioning strategy allows you to make a better product, offer better service, and charge a higher price.
This is why the premium brands in categories from golf clubs to outdoor furniture are niche players, not conglomerates. The very definition of excellence is to be good at something in particular. It’s not only impractical for a company to be excellent at everything, it’s quite impossible.
Finding a more valuable spot on the value chain
In defining your value proposition, begin by identifying where your firm falls on your industry’s value chain.
To understand the changing dynamics of the value chain concept, observe what’s happened to the music business. Consumers are still spending roughly the same amount of money on music, but the money isn’t going to the record companies and music stores; it’s going online, mostly to iTunes.
The money in the music business value chain is still there—it just moved.
The same is happening in other rapidly evolving industries like advertising and marketing. Companies are spending, but they’re spending in new and different areas of the value chain. Instead of trying to squeeze the last bit of value from traditional sources of revenue, marketing communications firms should be focused on finding a different spot on the chain.
Defining a positioning capable of producing the most profit means selecting a place on the value chain where the offerings are still scarce and underdeveloped. If you analyze the value propositions of most agencies, they’re based mostly on widely available overdeveloped services; they are placing themselves on the wrong side of the value chain.
By focusing on the underdeveloped features or benefits of the category, you are in effect positioning your firm not just for where the profits are, but for where the profits will be.
The model is Columbus, not Napoleon
Defining a focused, differentiating value proposition requires that we stop focusing on reclaiming old territory and instead discover new territory. The model is Columbus, not Napoleon. Most firms are engaged in fighting “turf wars” instead of finding new turf.
Turf wars often manifest themselves as pricing wars. Witness the rise of procurement’s role in selecting many professional services, particularly advertising agencies.
When choices in a category are perceived to be at parity, the key buying criterion becomes price. The fact that procurement now “shops” agencies based on costs and hourly rates is the clearest sign that agencies have failed to effectively differentiate and position themselves in the marketplace.
Worse, with pressure from procurement, agency executives have started to believe that efficiency is what they’re selling. But as Adam Smith taught several centuries ago, in mature markets profits don’t come from increased efficiency, but rather from increased innovation and differentiation.
Defining a positioning strategy is usually very counterintuitive. It requires a different mental map of what truly succeeds as a business strategy.
The “more is better” model that most of us carry around in our heads is the wrong mental construct. What works is narrow, not broad. And narrow doesn’t mean small, which is why the largest agencies now and in years to come will be those that stand for something instead of trying to stand for everything.
Ron Baker - 08/20/2010
Ron Baker - 07/12/2010
I received a wonderful email last week that reaffirms my faith that VeraSage is making an enormous difference in the professional sectors, around the world.
I’ve long believed that if we are going to get firms to adopt Firm of the Future practices, we must get in front of Young Professionals, the leaders of tomorrow.
One such leader is Art, from New Zealand, who sent me the following email, providing an enormous HSD—High Satisfaction Day.
Dear Ron
You may be surprised to receive this email but I felt compelled to write to you and pass on my sincere appreciation as I finished your book, Mind Over Matter, in one evening and it profoundly changed the way I view my future and see the world. I believe your book had a profound effect on me as George Gilder’s Wealth and Poverty had on you back in 1981.
The ironic thing is that I am also an accountant and am studying towards my final CPA exam in October. I stumbled across your book at the university’s library while I was wondering around, browsing Peter Drucker’s books
To top it up, Peter Drucker is also your favourite Management writer. No one here at my workplace even heard of Drucker while I have been reading his books since my university years. And as far as Drucker’s principle goes, the one that I have been living with on a daily basis is, “The best way to predict the future is to create it”.
Ron—I wrote a long email but my key message is to express my gratitude for your ideas and example. Thank you Ron and I wish you all the best.
Best Wishes,
Art
Art was then kind enough to write the second review of Mind Over Matter on Amazon.com, which reads:
I stumbled across a copy of Mind over Matter while studying for my CPA examination in the library. I borrowed it and finished it in one evening. I am a young professional who has been thinking about what he wants to do with his career and hence his future. This book, luckily, does not tell me “what” my future should be, but instead it made me think about the “why” of my future direction in life.
A young professional, particularly those who are serious about their careers and self-development, should read this book for many reasons:
- This book will challenge your current worldview about professional knowledge industry and the role your “intellectual capital” can enhance your capability as a future leader.
- This book draws from the world’s greatest thinkers and economists, combining with the author’s proposition, to provide a rich discussion about what it takes to be a first-rate knowledge worker in the 21st century.
- The author’s own life story will serve as an inspiration for many young professionals to “fly higher” and be brave enough to live their dreams and not settling for anything less.
I am so grateful to have found this little gem and I hope you will feel the same after reading it. The most amazing about being human is our mind, and this book tells you why our mind needs to be trained to achieve its potentials.
Thanks Art, I look forward to following your career path. I know you will make a dent in the world.
RSS Feed
Comments | Permalink | Book Reviews Economics Choose an Industry: Accounting Advertising Consulting Law Other Technology