Early in my career as a general manager I realized that business is about embracing chaos and driving process. My research as a mathematician in theory of chaos helped me with internalizing this embrace of chaos, and working on flexible processes that can be easily tuned with small perturbations so that the organization can adapt well to different market scenarios. This approach of embracing chaos, while driving process is often misunderstood. The root of the misunderstanding is that managers put too much emphasis on trying to create highly optimized efficient processes and the organization then becomes a victim of inflexible mechanization, thereby stifling entrepreneurship.
I do not subscribe to the school of thought that all problems are fixed by good processes. Intelligent, continuously evolving organizations with a bare minimum of processes are sustainable and successful. I encourage good people to achieve excellence by driving process where it makes sense or breaking processes when they do not make sense. We need to ensure that companies do not fall prey to their own processes.
I am a frequent traveler on Singapore Airlines, and have amassed more frequent flier miles than is probably good for me. Once when I was travelling with my wife and our twins to San Francisco we had an issue with a process. The twins were barely 9 months old. We had a one hour layover in Seoul. The airline staff refused to allow the unloading of the twin stroller in Seoul stating the process did not allow unloading of strollers for transit passengers. I finally spoke to a customer service person and asked her if the process that forces young parents to carry their children during a one hour layover where passengers are forced to leave the plane with their belongings makes any sense. She immediately understood the situation and instructed the ground staff that the process had to be ignored, and to allow the stroller to be brought out in Seoul for all passengers who needed it. No wonder why SIA is a favorite airline for many travelers, and one of the few consistently profitable airline companies.
In each of our organizations we should empower and encourage our employees to break processes that do not make sense. Having been in startup phases of launching products and of running start up phases of regional business within a larger company, and managing the growth of the teams, I have seen that even enterprising young teams tend to start overly relying on process as they grow bigger. The key challenge is growing leaders in the organization who can strike a balance between encouraging some minimum processes and avoiding the over reliance on process to drive growth.
I had a long discussion with Jim an employee of a company whose prime philosophy is that good process drives good business. The problem that Jim and his colleagues faced were that process soon became rules, and the rules became unquestionable. And his organization is trapped in a cycle of sharply declining innovation. The private equity firm that bought out the company likes the situation because in the short term, the perceived increase in efficiency makes it easier to make a quick profit from selling the company or parts of the company. But as a chief technologist for his organization Jim knows that in 2 years they will be overtaken by competition.
As I have mentioned in an earlier blog, many of the ideas that hit a lot of us as obvious has been well articulated before. Ross Mayfield in his blog entry “the end of process” does a good job of talking about this and a favorite quote that he states is from Clay Shirky “ process is an embedded reaction to prior stupidity”.
The point of this musing is to encourage PEOPLE in organizations to invest in the empowerment and encouragement of PEOPLE and not be ruled by PROCESS.
Friday, July 11, 2008
Wednesday, June 25, 2008
Hub It ? Decentralize It? -- Atomize it!!
Last month, I was invited by the Economist Intelligence Unit to present in Hong Kong on business hub strategies. Waltraut Ritter a managing partner at Knowledge Enterprises also presented at this conference. One of the statements she made "hubs remind me of delays at airports....hubs are great for the airline but terrible for the customer" was extremely impactful, especially living in Singapore where "hub" is an overly used word. Singapore is positioning itself to be the bio-tech hub, education hub, logistics hub, Asian aerospace hub, etc..
I spoke more from an organizational point of view. The talk generated quite a bit of dialog. In this article I will summarize some of my talk and the feedback that it generated.
One of the most important aspects is to understand what is driving the Hub or decentralization strategy? I referred to some ideas I had talked about in an earlier blog entry “Agenda coloured glasses”.
Each functional unit such as finance, R&D, sales, marketing, etc has their own agenda for wanting to drive a decision to centralize or decentralize. The agenda could be based on anything from tax rebates for the organization, to a leader wanting complete control over all aspects of an organization. However, from an organizational point of view it is imperative to align the drivers of the different agenda, with the overall organizational goal.
A key take away from this view of understanding the agenda was that the “players should not be the score keeper”. This idea resonated with almost all the business leaders in the room. It was agreed that often decisions are made or forced through, promising great returns for the business. But as time passes, the metrics, expectations or goals are changed, thereby rendering the changes either unecessary in the best case or destructive in the worst case.
The discussion then moved to a centralized company structure. The concept of centralization could broadly be categorized in terms of hubs and decision or control centers.
From a centralized hub point of view there was broad agreement that having a hub made sense for
▪ Low margin , often high volume products
▪ Undifferentiated products
▪ Low value add to customer interfacing roles
▪ Franchise model requiring consistency
From a centralized control perspective there was agreement that it often lead to
▪ Policed innovation
▪ Limited growth of leadership except at the centre
▪ Organizational distance from the customer and finally
▪ Increased risk of “critical exposure” because the controls for a organization in very few hands can lead to bad decisions that impact the whole organization (like at Enron)
From a decentralized point of view there was broad agreement that it made sense for
▪ Higher margin products
▪ Value added customer interfacing roles,
▪ Differentiated products/systems/business models
From a decentralized control perspective it leads to
▪ Increased customer centric innovation
▪ Closer understanding of customer needs
▪ Decreased risk of “critical exposure” since the organization is “atomized” into a multitude of P&Ls hence a bad decision could capsize a atom but have small impact on the whole organization.
I also presented a couple of case studies where it was clear that with a decentralized business approach, companies had tremendous improvement in performance like at Sony TV division (Sony's Newest Display Is a Culture Shift ) where the America business Unit started showing tremendous results when the product definition for TVs in America was delegated to Sony’s America team instead of the earlier centralized approach of all decisions being made in Japan.
Finally a highly simplified conclusion on the impact of these complex issues was as follows:
Impact of Centralization
- Increase control of operations (at least a perception of increased control)
-Increase efficiency of certain functions in an organization
-Less investments on sharing best practices
-Open loop decision making
**Impact of decision may not be seen immediately
**Build bureaucracy – often forgetting their job is to service the business
**Skill of negotiating the company labyrinth gets rewarded
Impact of Atomizing
- High customer contact and market understanding
-The cell/atom can be replaced with minimum pain!
-Higher investment in sharing best practices
-Closed loop decision making and control
**Immediate effect, high accountability
**Cannot hide behind the bureaucracy
**Skills of understanding the market and customer expectation gets rewarded
One of the things that this session highlighted to me is that each person has a different understanding of centralization or decentralization. The biggest misconception is that centralization equals location when in fact the essence of centralization or decentralization should be defined based on where the final decision is made, and not necessarily where resources are located.
I spoke more from an organizational point of view. The talk generated quite a bit of dialog. In this article I will summarize some of my talk and the feedback that it generated.
One of the most important aspects is to understand what is driving the Hub or decentralization strategy? I referred to some ideas I had talked about in an earlier blog entry “Agenda coloured glasses”.
Each functional unit such as finance, R&D, sales, marketing, etc has their own agenda for wanting to drive a decision to centralize or decentralize. The agenda could be based on anything from tax rebates for the organization, to a leader wanting complete control over all aspects of an organization. However, from an organizational point of view it is imperative to align the drivers of the different agenda, with the overall organizational goal.
A key take away from this view of understanding the agenda was that the “players should not be the score keeper”. This idea resonated with almost all the business leaders in the room. It was agreed that often decisions are made or forced through, promising great returns for the business. But as time passes, the metrics, expectations or goals are changed, thereby rendering the changes either unecessary in the best case or destructive in the worst case.
The discussion then moved to a centralized company structure. The concept of centralization could broadly be categorized in terms of hubs and decision or control centers.
From a centralized hub point of view there was broad agreement that having a hub made sense for
▪ Low margin , often high volume products
▪ Undifferentiated products
▪ Low value add to customer interfacing roles
▪ Franchise model requiring consistency
From a centralized control perspective there was agreement that it often lead to
▪ Policed innovation
▪ Limited growth of leadership except at the centre
▪ Organizational distance from the customer and finally
▪ Increased risk of “critical exposure” because the controls for a organization in very few hands can lead to bad decisions that impact the whole organization (like at Enron)
From a decentralized point of view there was broad agreement that it made sense for
▪ Higher margin products
▪ Value added customer interfacing roles,
▪ Differentiated products/systems/business models
From a decentralized control perspective it leads to
▪ Increased customer centric innovation
▪ Closer understanding of customer needs
▪ Decreased risk of “critical exposure” since the organization is “atomized” into a multitude of P&Ls hence a bad decision could capsize a atom but have small impact on the whole organization.
I also presented a couple of case studies where it was clear that with a decentralized business approach, companies had tremendous improvement in performance like at Sony TV division (Sony's Newest Display Is a Culture Shift ) where the America business Unit started showing tremendous results when the product definition for TVs in America was delegated to Sony’s America team instead of the earlier centralized approach of all decisions being made in Japan.
Finally a highly simplified conclusion on the impact of these complex issues was as follows:
Impact of Centralization
- Increase control of operations (at least a perception of increased control)
-Increase efficiency of certain functions in an organization
-Less investments on sharing best practices
-Open loop decision making
**Impact of decision may not be seen immediately
**Build bureaucracy – often forgetting their job is to service the business
**Skill of negotiating the company labyrinth gets rewarded
Impact of Atomizing
- High customer contact and market understanding
-The cell/atom can be replaced with minimum pain!
-Higher investment in sharing best practices
-Closed loop decision making and control
**Immediate effect, high accountability
**Cannot hide behind the bureaucracy
**Skills of understanding the market and customer expectation gets rewarded
One of the things that this session highlighted to me is that each person has a different understanding of centralization or decentralization. The biggest misconception is that centralization equals location when in fact the essence of centralization or decentralization should be defined based on where the final decision is made, and not necessarily where resources are located.
Wednesday, June 4, 2008
Leading from the middle
I was in the process of writing up some training/discussion material for the managers on my team when I realized that what I really wanted to communicate is that I wanted a team that was configured to lead from the middle, where a steep narrow pyramid of hierarchy was not needed. So I googled the term "leading from the middle" and got more than 15 million results. In a nutshell my idea was not "new" and tremendous amounts of research has been done on "leading from the middle". Nevertheless I will write my ideas down, knowing full well that most "good ideas" were already thought of.
In Organizations the three aspects of leading from the middle involve
In Organizations the three aspects of leading from the middle involve
- Commitment, where one needs to be committed, understand the vision and purpose, and most importantly be competent to lead.
- Managing your bosses and the people who report to you. This is an essential part of leading from the middle, and comes from confidence of knowledge of the market, the customers, the technologies, the processes, and very importantly your own organization
- Leading from the middle of an ecosystem of businesses/organisations that compliment your own business/organization.
Commitment is a choice, a choice of ownership of the organization that you choose to lead from the middle. In leading a team, it is important to distinguish commitment from competence. There are a lot of competent people with out commitment or passion. And one of the things I have learnt over the years of managing people, is that passion is the more difficult aspect to inculcate.
In an age where most information is a google search away, the confidence of knowledge, is often mistaken to be an abstract concept, and the confidence of knowing is mistaken to be the confidence of having accomplished the things you know about. Achieving the goals of your organization, working through the details and having it done yourself gives you the ultimate knowledge. Case studies etc. can not substitute experience , they can only offer some insight.
Leading from the middle of an ecosystem really means partnership. It means to truly build internal and external partners who compliment your organization. Conceptually building partnerships is easy, but in practise it is very difficult. From a business perspective, partnerships have different shades, like technology partners, commercial partners, Industry focused partners etc. One of the most natural tendencies in many partnerships that I have seen, are for the partners to look for exit strategies even before the partnership really matures. Thought of exit strategies come up because one believes that their organization could get better margins without the partner, because the partners get "scared" of dependency, and a score of other reason. Ultimately, looking for exit strategies is an excuse , often the main reason is because you do not want the partner to be extremely successful.
On a final note, not all people can lead from the middle. The challenge for senior management is to identify and encourage the right people to lead from the middle. This requires the courage at an organizational level to encourage friction!!
Friday, May 16, 2008
Creative Destruction is Essential for long Term Success
The Economist Joseph Schumpeter (http://en.wikipedia.org/wiki/Joseph_Schumpeter) in his book Capitalism, Socialism, and Democracy, published in 1942, popularized the concept of creative destruction (http://en.wikipedia.org/wiki/Creative_destruction).
Creative destruction simply is the process or practice of reinventing oneself constantly often at the expense of the past. What this means is that after the process of reinvention, the final product or idea or paradigm may be vastly different from the past.
This concept resonates with ancient ideas in many philosophies where it has been understood that a paradigm that works, or a civilization that works very well needs to "destroy" it self and reinvent itself, otherwise it will be destroyed and replaced by another paradigm, civilization etc. over which you will have no control or ownership. This thought can be extrapolated to nations, governments and businesses as well.
In the late 19th and most of the 20th century, large, inflexible forms of organizations would come to dominate governments and industry in the name of stability. Companies would respond to these organizations of stability and implement hierarchies and strategies that would in effect render them complacent, leaving no room for what Schumpeter and others called creative destruction.
So the question is are you an agent of creative destruction or are you scared of change? From a business perspective this means that are you willing to have your organization change in fundamental ways that render it vastly different from what it is now, or would you rather have a competitor destroy your organization.
Over the years many organizations like Nokia and others have changed themselves as the markets and society has changed, but many more have bitten the dust or become secondary players because they failed to reinvent themselves.
The need for creative destruction within organizations is normally understood as a concept, but rarely practised because it threatens the status quo. Often leaders in organizations themselves protect status quo because the alternative would mean apparent loss of control or position at a personal level. Sometimes organizations in order to show their willingness to change practise ideas like that of TQM (http://en.wikipedia.org/wiki/Total_Quality_Management)or other such methods that bring short term gains but do not address the fundamental issues.
In the business and technology world the days of a stable visions of the future can debilitate you. To run a successful business you need to embrace and thrive on chaos and drive process. Some of the interesting events that will unfold in the next decade will be Microsoft's attempts at creative destruction. Microsoft is clearly aware of the issues, the next decade will tell us if they can act on this awareness and continue to remain the primary player or be relegated to a secondary role. On the political front most major powers of the past like Great Britain have failed at their efforts of creative destruction and have been relegated to secondary roles. The most obvious question now is whether the United States has the ability to embrace creative destruction and remain a primary player, say in 50 or 100 years.
Creative destruction simply is the process or practice of reinventing oneself constantly often at the expense of the past. What this means is that after the process of reinvention, the final product or idea or paradigm may be vastly different from the past.
This concept resonates with ancient ideas in many philosophies where it has been understood that a paradigm that works, or a civilization that works very well needs to "destroy" it self and reinvent itself, otherwise it will be destroyed and replaced by another paradigm, civilization etc. over which you will have no control or ownership. This thought can be extrapolated to nations, governments and businesses as well.
In the late 19th and most of the 20th century, large, inflexible forms of organizations would come to dominate governments and industry in the name of stability. Companies would respond to these organizations of stability and implement hierarchies and strategies that would in effect render them complacent, leaving no room for what Schumpeter and others called creative destruction.
So the question is are you an agent of creative destruction or are you scared of change? From a business perspective this means that are you willing to have your organization change in fundamental ways that render it vastly different from what it is now, or would you rather have a competitor destroy your organization.
Over the years many organizations like Nokia and others have changed themselves as the markets and society has changed, but many more have bitten the dust or become secondary players because they failed to reinvent themselves.
The need for creative destruction within organizations is normally understood as a concept, but rarely practised because it threatens the status quo. Often leaders in organizations themselves protect status quo because the alternative would mean apparent loss of control or position at a personal level. Sometimes organizations in order to show their willingness to change practise ideas like that of TQM (http://en.wikipedia.org/wiki/Total_Quality_Management)or other such methods that bring short term gains but do not address the fundamental issues.
In the business and technology world the days of a stable visions of the future can debilitate you. To run a successful business you need to embrace and thrive on chaos and drive process. Some of the interesting events that will unfold in the next decade will be Microsoft's attempts at creative destruction. Microsoft is clearly aware of the issues, the next decade will tell us if they can act on this awareness and continue to remain the primary player or be relegated to a secondary role. On the political front most major powers of the past like Great Britain have failed at their efforts of creative destruction and have been relegated to secondary roles. The most obvious question now is whether the United States has the ability to embrace creative destruction and remain a primary player, say in 50 or 100 years.
Wednesday, May 7, 2008
Frugal Engineering - Ghosn has it wrong?
The announcement of the TATA Nano (commonly called the 1 lakh or $2500 car - http://tatanano.inservices.tatamotors.com/tatamotors/) has brought the concept of frugal engineering to the forefront. Business leaders like Ghosn the CEO of Renault and Nissan have adopted with good intention the theme of frugal engineering and evangelized India as a frugal engineering hub. Ghosn seems to focus on engineering with less. Ghosn says "Frugal engineering is achieving more with fewer resources. The cost of developing a product in the West is high since engineers there use more expensive tools. In India, they achieve a lot more with fewer resources," (http://www.dnaindia.com/report.asp?newsid=1130636)
The sentiment that frugal engineering is about engineering with less is wrong. Successful products including frugally engineered products always start with the customer. The customers in the developing world are demanding useful features that benefit them in improving their quality of life. If the Nano succeeds as many people expect, then it is because the Nano meets the needs of the customer within their budgetary constraints.
The danger from Ghosn’s interpretation is that companies will only look to designing or engineering products cheaper. This will lead to short term gains but will not address the challenges they will face in business from emerging markets.
Engineering teams in the developing world, working for local companies are addressing local needs. Often simple low cost solutions like the Nano will make a huge difference to the quality of life to a large number of people. There are a number of companies in developing countries that are successful, but not on the radar screens of large corporations who are perceived market leaders in their fields. Look at the Indian http://www.icsa-india.com/ in the infrastructure electronics space , the Chinese http://www.suntech-power.com/ in the solar energy space, the Malaysian http://www.agni-inc.com/ in the fuel cell space. These companies and many more initially cater to the developing world, which in effect forces them to frugally engineer products, they build tremendous mass – all under the radar of the established players, and then are in a position to be truly global companies. Ghosn and the like should be spending energy on understanding the customer needs in the developing world as opposed to just reducing the cost of engineering. On a parting note, I think the next phase of business success will entail the globalization of frugally engineered products. These products will initially be tremendously successful in the local developing markets, and then there will be enhancements to meet the needs of the customers in the developed world.
The sentiment that frugal engineering is about engineering with less is wrong. Successful products including frugally engineered products always start with the customer. The customers in the developing world are demanding useful features that benefit them in improving their quality of life. If the Nano succeeds as many people expect, then it is because the Nano meets the needs of the customer within their budgetary constraints.
The danger from Ghosn’s interpretation is that companies will only look to designing or engineering products cheaper. This will lead to short term gains but will not address the challenges they will face in business from emerging markets.
Engineering teams in the developing world, working for local companies are addressing local needs. Often simple low cost solutions like the Nano will make a huge difference to the quality of life to a large number of people. There are a number of companies in developing countries that are successful, but not on the radar screens of large corporations who are perceived market leaders in their fields. Look at the Indian http://www.icsa-india.com/ in the infrastructure electronics space , the Chinese http://www.suntech-power.com/ in the solar energy space, the Malaysian http://www.agni-inc.com/ in the fuel cell space. These companies and many more initially cater to the developing world, which in effect forces them to frugally engineer products, they build tremendous mass – all under the radar of the established players, and then are in a position to be truly global companies. Ghosn and the like should be spending energy on understanding the customer needs in the developing world as opposed to just reducing the cost of engineering. On a parting note, I think the next phase of business success will entail the globalization of frugally engineered products. These products will initially be tremendously successful in the local developing markets, and then there will be enhancements to meet the needs of the customers in the developed world.
Monday, April 28, 2008
Agenda coloured glasses
I was recently invited by the Economist http://www.economist.com/ to talk to a group of senior managers in Hong Kong on May 20th. As I am preparing for this presentation, I am repeatedly being drawn into the mechanism of decision making. I am concentrating on decision making at a business level, but this probably extends to the realm of the personal life too.
Are important decisions always based on objective assessment of facts or are they heavily coloured by the glasses of ones agenda. As much as I would like to believe that we make purely objective decisions, I am getting overwhelming evidence that business decisions are heavily dependent on the agenda of the decision makers. Of course the wikipedia has a wealth of information on decision making http://en.wikipedia.org/wiki/Decision_making : but in the realm of business (which is NOT a science) I think the experts call Agenda based decision making as the "Naturalistic method"
In your organization have you come across Agenda based decisions. For example have you seen the decision to build a manufacturing plant in a particular location, not based on a comprehensive analysis on the core competence of the people or the infrastructure in the location, but instead on say heavily weighed by the the Agenda of "tax savings". Do you see finance professionals report an expense in a particular manner so that it best fits their Agenda?
In the business world Agenda based decisions are widely prevalent. However when the agenda based decision of a particular functional group is misaligned with the overall Agenda of the company - then we can have disastrous consequences like that of Enron, the failure of a number of banks in recent times - with the credit crises, etc.
As a parting note - do you understand the agenda behind the decisions that your organization makes. Do you agree with the Agenda, and most importantly if the agenda is against the overall good of the business, do you put your job at stake and openly question the Agenda?
Are important decisions always based on objective assessment of facts or are they heavily coloured by the glasses of ones agenda. As much as I would like to believe that we make purely objective decisions, I am getting overwhelming evidence that business decisions are heavily dependent on the agenda of the decision makers. Of course the wikipedia has a wealth of information on decision making http://en.wikipedia.org/wiki/Decision_making : but in the realm of business (which is NOT a science) I think the experts call Agenda based decision making as the "Naturalistic method"
In your organization have you come across Agenda based decisions. For example have you seen the decision to build a manufacturing plant in a particular location, not based on a comprehensive analysis on the core competence of the people or the infrastructure in the location, but instead on say heavily weighed by the the Agenda of "tax savings". Do you see finance professionals report an expense in a particular manner so that it best fits their Agenda?
In the business world Agenda based decisions are widely prevalent. However when the agenda based decision of a particular functional group is misaligned with the overall Agenda of the company - then we can have disastrous consequences like that of Enron, the failure of a number of banks in recent times - with the credit crises, etc.
As a parting note - do you understand the agenda behind the decisions that your organization makes. Do you agree with the Agenda, and most importantly if the agenda is against the overall good of the business, do you put your job at stake and openly question the Agenda?
Monday, April 14, 2008
Free Market and Social Responsibility
This note was prompted by an article that my dad sent me that was written by Ulrich Beck titled "The Free market farce - shows how badly we need the state" http://www.guardian.co.uk/business/2008/apr/10/creditcrunch.economics In the title he seems to make a case for the "State" but the in the article itself he does not clearly articulate this. I continue to believe that globalization, free market economics, and education will lead to overall reduction in poverty, good governance, justice, etc. However a major caveat is social responsibility and education of the free marketers. The financial industry with the current credit crises, the accounting industry in the early part of this decade with Enron etc., have already shown that the lure of short term profits and individual wealth accumulation take precedence over honesty, ethics, and true long-term success. But if you look at the performance of states - really, the scenario is no better. We have had states for thousands of years and they have not helped eradicate poverty, war, injustice, corruption etc. So the answer is not that the "State" can do the job better than the free market. Today, the traditional notion of power is very different. In the past the political figures were primarily the influencers. However, today the influencers in the world are not necessarily the statesman. Business leaders, Media personalities, sports professionals and a slew of others influence the world in addition to politicians. This changing mix of personalities makes it possible to recognize problems easily, but solve problems more difficult. However this mix of what I call free market influencers makes it more probable that people who society wrong will be more likely held accountable. I am still of the view that good educated citizens of the world in conjunction with the free market will lead to a better world. For instance the current credit crises was due to the fact that complex financial instruments that were unsound were bought and sold. But the fact that there was a market for these instruments is a affirmation of the general greed of our society, and the fact that the bankers fed on the greed to grow wealth exponentially in a short time. Old fashioned concepts of financial prudence and common sense still rule the roost, however old fashioned ideas that our politicians can run things better is a fallacy. Let the market correct itself with some rational intervention. People will suffer in the short term, but we will be forced to invest in instruments that they understand. If we leave it to the state, we will have a slew of legislation that will require a number of finance professionals to police the implementation and again lead to a large opportunity for wealth creation to the professionals that got us in this mess in the first place - remember Sarbanes Oxley!!!!
Monday, April 7, 2008
Tax, Pensions, Social Security and Security
Is it the responsibility of the government or the organization you work for to look after your needs when you retire?
In the thousands of years of human history, it is only in the last hundred and fifty years or so that our society has expected a third party (government, company etc. ) to help us ease our financial burden as we retire.
In the US the Social Security system is dysfunctional and I could write a long thesis on the subject. Basically, the system is bankrupt and is viewed more as an additional tax to the working class by a majority of the productive people in the economy. In Singapore there is no social security but there are mechanisms that are fairly successful in ensuring that people save for their retirement via the central provident fund. But this begs the question - Is it the duty of the government to ensure that people save?
From a a purely theoretical point of view it should not be the government's duty or mandate to influence private decisions of it's citizens. However one of the major responsibilities of government is to maintain social order - hopefully a just social order.
In this respect - taxes and mechanisms to save for a rainy day become important. The biggest threat to a large number of developed countries and fast developing countries is the increasingly divergent earning capabilities of people. Even in countries like the US, the middle class is in effect becoming poorer and smaller as a percentage of the population. In India and China, the earning gap for different sections of it's population is increasing at a rapid rate. So as much as most people do not like to pay taxes, the necessity for taxes and parts of the tax system that subsidizes the poorer sections of population is becoming more evident. In effect you are paying taxes to maintain you earnings capabilities by buying security. i.e. in the future taxes in many countries will increase so that the populations can be "controlled " against rebelling about the disparity in wealth. In developed countries the taxes will be used to "control " the sections of the middle class that are slipping into poverty. In countries like India and China, tax money will be used to control the large sections of the poorer classes that are not realizing the "middle class or wealthy class" dream.
So in effect are we all paying taxes to maintain status quo? - Once again feel free to comment on your thoughts!
In the thousands of years of human history, it is only in the last hundred and fifty years or so that our society has expected a third party (government, company etc. ) to help us ease our financial burden as we retire.
In the US the Social Security system is dysfunctional and I could write a long thesis on the subject. Basically, the system is bankrupt and is viewed more as an additional tax to the working class by a majority of the productive people in the economy. In Singapore there is no social security but there are mechanisms that are fairly successful in ensuring that people save for their retirement via the central provident fund. But this begs the question - Is it the duty of the government to ensure that people save?
From a a purely theoretical point of view it should not be the government's duty or mandate to influence private decisions of it's citizens. However one of the major responsibilities of government is to maintain social order - hopefully a just social order.
In this respect - taxes and mechanisms to save for a rainy day become important. The biggest threat to a large number of developed countries and fast developing countries is the increasingly divergent earning capabilities of people. Even in countries like the US, the middle class is in effect becoming poorer and smaller as a percentage of the population. In India and China, the earning gap for different sections of it's population is increasing at a rapid rate. So as much as most people do not like to pay taxes, the necessity for taxes and parts of the tax system that subsidizes the poorer sections of population is becoming more evident. In effect you are paying taxes to maintain you earnings capabilities by buying security. i.e. in the future taxes in many countries will increase so that the populations can be "controlled " against rebelling about the disparity in wealth. In developed countries the taxes will be used to "control " the sections of the middle class that are slipping into poverty. In countries like India and China, tax money will be used to control the large sections of the poorer classes that are not realizing the "middle class or wealthy class" dream.
So in effect are we all paying taxes to maintain status quo? - Once again feel free to comment on your thoughts!
Wednesday, April 2, 2008
Are manufacturing jobs moving east or were US wages inflated for four decades
There is a continuous stream of noise in the media about jobs moving east, and about the negative impact of globalization. In my discussions with an old friend Dave Wilson we came up with a contrarian view.
After World War II, the infrastructure in Europe and Japan were in shambles, the population losses sustained in Europe and Japan were orders of magnitude more than those sustained in the US, and the Asian and African economies were still primarily underdeveloped. This automatically led to the US being the only country ready to be the "factory" of the world. And since the other economies had not developed/redeveloped their infrastructure fully, the competition to the US was negligible. Hence the semi-skilled and unskilled labour could negotiate high wages, since the products could sell at artificially high prices.
By the 70s and 80s, many other regions in the world had infrastructure to support manufacturing economies, and the natural forces of market economy took over. Hence the current 20 -30 year trend of rationalisation of wages and cost looks like a job migration. But in reality it is just that it took 30-40 years for the rest of the world to play catch up.
I know this is an over simplification, but is this a plausible explanation?
After World War II, the infrastructure in Europe and Japan were in shambles, the population losses sustained in Europe and Japan were orders of magnitude more than those sustained in the US, and the Asian and African economies were still primarily underdeveloped. This automatically led to the US being the only country ready to be the "factory" of the world. And since the other economies had not developed/redeveloped their infrastructure fully, the competition to the US was negligible. Hence the semi-skilled and unskilled labour could negotiate high wages, since the products could sell at artificially high prices.
By the 70s and 80s, many other regions in the world had infrastructure to support manufacturing economies, and the natural forces of market economy took over. Hence the current 20 -30 year trend of rationalisation of wages and cost looks like a job migration. But in reality it is just that it took 30-40 years for the rest of the world to play catch up.
I know this is an over simplification, but is this a plausible explanation?
Friday, March 28, 2008
Negotiating on Principle vs Position
We are constantly negotiating with our friends, spouses, colleagues, suppliers, customers etc. The old school - hard nosed way of negotiating where people take their position on issues and then wear the other side down is increasingly counterproductive. Negotiating based on principle is far more effective than Position based negotiation. i.e. if you really want to negotiate. If you are not interested in a fair or equitable result then of course negotiating on principle is useless.
Negotiating on principles is difficult because it makes you reflect on your motivations, ethics, morals, and facts-on-hand. Based on this you decide on a position in a negotiation. Laying out the principles before taking a position is essential, otherwise our egos make it difficult to make comprises. Taking a position in the beginning does not put the framework of compromise in place. But talking about principles allows the different sides in an argument to understand the motivations behind a request/claim.
Negotiating on principles is difficult because it makes you reflect on your motivations, ethics, morals, and facts-on-hand. Based on this you decide on a position in a negotiation. Laying out the principles before taking a position is essential, otherwise our egos make it difficult to make comprises. Taking a position in the beginning does not put the framework of compromise in place. But talking about principles allows the different sides in an argument to understand the motivations behind a request/claim.
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