VeraSage

Best Books 2011

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:

1. Property rights
2. Scientific rationalism (positing and falsifying theories)
3. Capital markets
4. 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:

1. Public provision of non-public goods; and
2. 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:

1. The market economy is the most efficient of all economic systems.
2. Free trade helps economic development.
3. Good institutions help development.
4. The best measure of a good economy is its growth.
5. Creative destruction is the engine of economic growth.
6. Monetary stability, too, is necessary for growth; inflation is always harmful (this last point is debatable).
7. 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).
8. While the welfare state is necessary in some form, it isn’t always effective.
9. The creation of complex financial markets, despite excesses, has brought about economic progress.
10. 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.

Book Review: Baker’s Dozen Best Business Books 2011

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).

#irony

Ed Kless - 01/20/2012

As the keeper of the @VeraSage Twitter handle I get all the follow notifications sent to me. I was quite amused yesterday when I received this one.

 

Special thanks to fellow Senior Fellow Michelle Golden for the idea for the title of this post.

Too Many Notes

Ed Kless - 01/16/2012

VeraSage Founder, Ron Baker has often used Snow White and Seven Dwarfs to illustrate the problem of applying efficiency to knowledge work.

“A LEAN six sigma guru would have advised Walt Disney to make Snow White and the Three Dwarfs as it would have improved efficiency by over 50 percent,” he intones.

Recently I was reminded of a scene from the Academy Award winning film Amadeus where the Holy Roman Emperor Jozef Franz (or was it Franz Jozef) criticizes Mozart’s opera for having, “Too many notes.”

 

Unfortunately, the clip cuts off before Mozart’s brilliant response, “Which few did you have in mind, Majesty?”

Knowledge work cannot be LEAN six sigma-ed. Once again, effectiveness trumps efficiency!

If you say “Value Billing” you are already wrong

Ed Kless - 01/13/2012

So today, I have heard or read the phrase "value billing" about a dozen times and I decided to write a rant post about it, only to discover that I had already written one almost three years ago.

Bottom line, if you say "value billing" you are already wrong.

ET HORA LIBELLUM DELENDA EST