September 2014

Episode #14 - Top Ten Business Myths - Part 2

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On Friday the October 3, 2014 Show

Top Ten Business Myths, Part 2 (Myths 5-1). This episode is dedicated to the possibility that many myths exist about business and it would be better to rid ourselves of these ideas. Thinking about these myths is difficult because it requires us to examine some of our most deeply held beliefs and either dismiss them or at least think differently about them. If you are interested in challenging the conventional wisdom about these business myths, you are invited to listen to this episode of The Soul of Enterprise: Business in the Knowledge Economy, hosted by Ed Kless and Ron Baker.

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Episode #13 - Top Ten Business Myths - Part 1

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On Friday the September 26, 2014 Show

Top Ten Business Myths, Part 1 (Myths 10-6). This episode is dedicated to the possibility that many myths exist about business and it would be better to rid ourselves of these ideas. Thinking about these myths is difficult because it requires us to examine some of our most deeply held beliefs and either dismiss them or at least think differently about them. If you are interested in challenging the conventional wisdom about these business myths, you are invited to listen to this episode of The Soul of Enterprise: Business in the Knowledge Economy, hosted by Ed Kless and Ron Baker.

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Episode #12: The Moral Hazards of Measurements

As long as measurements are abused as a tool of control, measuring will remain the weakest area in a manager’s performance. —Peter Drucker

The illusion of certainty in our measurements creates—to borrow an important concept from the insurance industry—a moral hazard.

Simply defined, people have an incentive to take more risks or act carelessly when they are insured. Fire insurance causes arson; unemployment insurance allows people to not be as diligent in finding a job; life insurance causes suicide, or worse, murder; auto insurance can cause reckless, etc.

Our current cult of calculation, perpetuated by the infamous McKinsey maxim—what you can measure you can manage—creates the same type of risk, offering today’s business executives the illusion of control and mastery of knowledge.

It allows them to substitute statistics for thinking. It gives them a false sense of security where there should exist more doubt.

If we want to peer into the unknown future, our measures need to be linked to a theory, otherwise we are simply predicting the past—since history is the only dimension for which numbers can provide precision. With theory, we can also avoid the moral hazards of measurements so prevalent in today’s society.

Seven Moral Hazards of Measurements

In the Handbook of International Trade and Development Statistics, 1988, per capita output in 1988 in East Germany—one year before the Berlin Wall was pushed over—was placed at roughly seven-eighths of the West German level.

But as any Berlin taxi driver crossing through Checkpoint Charlie after the fall of the Wall could have told you, the economy of East Germany was manifestly inferior to that of West Germany, yet somehow—due to the moral hazard of measurement—those in the know got it precisely wrong rather than approximately right.

Taking into account the following seven moral hazards of measures may assist executives in avoiding these types of errors.

Moral Hazard 1: We Can Count Consumers, But Not Individuals

Singer Joan Baez used to say it was easier for her to have a relationship with 100,000 people than with one person. Stalin’s famous remark that “one death is a tragedy, whereas a million is a statistic” illustrates the danger of lumping individuals into aggregate, amorphous lumps as if they did not have a soul.

Stanley Marcus, the son of one of the founders of Neiman-Marcus, led the store through the difficult Great Depression, and one point he was especially fond of making was there was no such thing as a market, only customers.

In 2003, General Motors sold 8.59 million vehicles, yet each was sold one at a time. The micro level, where the customer interacts with the seller, is inherently a flesh-and-blood transaction. As economist Herbert Stein always used to say, “There is nobody here but us people.”

In the final analysis, markets and consumers are statistical abstractions, whereas customers are human beings who want to be treated specially and individually.

Moral Hazard 2: You Change What You Measure

Scientists call it Heisenberg’s Uncertainty Principle, which applies to all measures: that the observer in a scientific experiment affects the result. Central bankers call it Goodhart’s law: Any target that is set quickly loses its meaning as it comes to be manipulated. People will always find ways to make their numerical targets, even if it leads them to ineffective or, sometimes, unethical behavior.

A further hazard lies in the fact that in order to count something it must stand still, which is why the first statisticians were called “statists.” But people don’t stand still; they are constantly moving, changing, growing.

Moral Hazard 3: Measures Crowd Out Intuition and Insight

Once a measure becomes entrenched as part of the conventional wisdom, it is usually impenetrable to logic, intuition, critical thinking, or better ways to do something. Poverty statistics are a perfect example, as everyone accepts them as a precise measure of those citizens living below what we consider an acceptable standard of living. But how was this measure developed? Where did it come from?

The poverty rate measures the income of the poor, not their consumption, which is a false talisman of someone’s standard of living. It is not what you earn, it is what you are capable of spending; thus consumption should be measured, which would take into account nonreported earnings, noncash subsidies, and other services provided.

It is also a national statistic, and does not take into account regional differences in the cost of living. Further complicating the error, during the Johnson administration’s war on poverty, it was decided the “poverty rate” would be set at an arbitrary three times the cost of the U.S. Department of Agriculture’s economy food plan, as explained by Nicholas Eberstadt in his book The Tyranny of Numbers: Mismeasurement and Misrule.

Using a consumption-based, rather than an income-based, poverty measure, Eberstadt has concluded elsewhere the rate drops from approximately 13 percent to between 2 and 3 percent. Quite a difference, and illustrative of how far off even old measurements can be and how firmly entrenched they remain despite being precisely wrong.

If you have ever been bribed off an oversold airplane—with a free flight voucher, upgrade, or airline money equivalent—you have economist Julian Simon (1932–1998) to thank. Until 1978, and before the airlines were deregulated, travelers were bumped off overbooked planes rather capriciously (the airlines preferred to bump old people and military personnel on the theory they would be least likely to complain) and this caused enormous amounts of customer complaints and ill will.

Worse yet, the problem fed upon itself, because passengers began to expect being bumped and so would book several flights under various names to ensure a seat on at least one. This caused the airlines to increase bookings even more to ensure decent load factors, which of course were measured very precisely.

Had the airlines changed the process and tested Simon’s idea sooner, the airlines and its customers both would have been better off. Simon did not analyze countless numbers and statistics, but used his intuition, grounded by the economist’s theory of human behavior being rational, to solve a quite vexing problem.

Daniel Boorstin, librarian of Congress, wrote: “The greatest obstacle to discovery is not ignorance—it is the illusion of knowledge.”

Moral Hazard 4: Measures Are Unreliable

A country’s per capita gross domestic product increases when a sheep is born but decreases when a child is; or how divorce actually increases the GDP since almost two of every commodity must now be purchased rather than just one.

Picasso once said, “Art is a lie that tells the truth.” It seems in some instances, measurements are truths that tell lies.

Another example of the unreliability of measures is illustrated by the consulting firm Bain & Company’s Web site, where it proudly proclaims: “Our clients outperform the market 4 to 1,” shown over a graph from 1980 to 2012 depicting the S&P 500 Index and Bain clients.

This is the equivalent of the rooster taking credit for the sunrise because he crows every morning. One expects this type of unscientific hyperbole from politicians, not management consultants. I would be willing to bet that Bain’s clients perform better than the S&P 500, thus have more money to spend on consultants.

Moral Hazard 5: The More We Measure the Less We Can Compare

Engage in this gedanken: You (or a loved one) need(s) heart surgery. You talk to nurses, friends, and other people you trust and respect, and two surgeons are consistently recommended to you. You go online to do some research on these two practitioners and discover their mortality rates (i.e., the risk of dying from surgery: surgeon A = 65 percent; surgeon B = 25 percent. Which surgeon would you choose?

I have conducted this gedanken in seminars attended by various educated professionals—who certainly have taken a statistic class or two—and, astonishingly, the overwhelming majority select surgeon B. When I ask why, they say because of the lower probability of death.

Perhaps they think they need to choose between the two without gathering other information. But that is not how I set up the thought experiment: I left it open as to whether they could ask further questions. Not many do.

But wouldn’t you want to know what type of patients the two doctors serve? What if surgeon A takes a disproportionate share of hard cases and thus has a higher failure rate? He or she just may be the better surgeon.

The point is, we simply do not know without gathering more information, both quantitative and qualitative, and making further judgments based on our own risk profile. Seeing the two numbers side by side seems, though, to give people a false sense of precision and, in this case, could lead to a deadly decision.

Moral Hazard 6: The More Intellectual the Capital, the Less You Can Measure It

Ideas only come from sentient beings, not inanimate objects or pets. Since 80 percent of any country’s wealth-creating capacity resides in its human capital, how could it be otherwise?

To complicate matters, a lot of that knowledge is tacit, which is hard to capture in spreadsheets and pie charts. We may be able to count the physical assets of a Google or a Microsoft, but traditional accounting pays no attention to its human capital, what has been labeled the “invisible balance sheet.”

Traditional book value accounting—assets minus liabilities equals equity—can only explain about one-fourth of the value of the market capitalization on the nation’s stock markets. Accountants call the difference between market value and book value goodwill; but that is just a label for their ignorance. In an intellectual capital economy, debits don’t equal credits, because value is subjective and flows from free minds, not tangible commodities.

Data, reason, and calculation can only produce conclusions; they do not inspire action. Good numbers are not the result of managing numbers. As David Boyle wrote in The Sum of Our Discontent (Cloth): Why Numbers Make Us Irrational: “Decisions by numbers are a bit like painting by numbers. They don’t make for great art.”

Moral Hazard 7: Measures Are Lagging

Imagine driving your car with your dashboard gauges informing you of last month’s speed, fuel level, temperature, oil pressure, RPMs, and the rest. This is precisely the status of accounting information: it is like walking into the future backward.

It is a lagging indicator—or at best coincident, assuming real-time accounting takes place. This type of information can only tell us where we have been, never where we are going. Auditors come in after the battle and bayonet the wounded; they are historians with lousy memories.

Summary

The Danish philosopher Søren Kierkegaard wrote: “Life is lived forward but understood backward.” Certainly measures help us reflect on past events and aid us in improving our theories. But they can never take the place of dreams, imagination, passion, and the soul of enterprise where entrepreneurs toil and struggle to create our future.

No measure is capable of capturing the richness of free minds operating in free markets dreaming of better ways to improve our future, and it is folly to believe otherwise. It may even lead us into moral hazards, or a world where we are so preoccupied about measuring past performance we do not take the time to dream about the future.

Other books and resources mentioned

Minding the Store, Stanley Marcus

Episode #11 - Interview with Howard Hansen and Steven Geske

Ed and Ron interview Howard Hansen and Steven Geske, coauthors of the groundbreaking book Healing Leadership - A Survival Guide for the Enlightened Leader. Here is how they explain the thesis of their groundbreaking book, in a summary titled “Healing Leaders Manifesto”:

What is “Healing” Leadership?

We see leadership as primarily an emotional process, rather than a strategic one. It is about courage and being oneself, rather than strategies and techniques to change someone. It is being the one who says what he or she sees ("The emperor has no clothes.") and letting people make their own choices accordingly. We call “bullshit” on traditional models of leadership and advocate for a rational approach to leadership that will not hinder meaningful change.

Quite simply, the “Command and Conquer” style of leadership does not work, long term. What’s more, it ultimately proves to be toxic. Therefore, Healing Leadership is about giving up the irrational hope of trying to change others, and instead focusing on one's own courage, growth, maturity and functioning. This is a rational decision to move from what does not work to what does work; from Command and Conquer to Cooperate and Nurture.

How is Healing Leadership Nurtured and Maintained?

We have developed a model, called the “Energy Management Model” that provides a kind of "Leadership GPS" to help leaders as they navigate the emotional process of leading. It has 4 dimensions that are based on 4 "big questions" every person must wrestle with in his or her life:

Self-Care – Who am I? (Focus on health, the courage to be ourselves and the ability to build personal energy)

Self-Dare – Where am I going? (Focus on personal values, mission and the courage to follow one's heart. This is how we invest our energy)

Self-Aware – Who will go with me? (Focus on how we get caught in futile or abusive relationships and learning to protect our energy, rather than waste it)

Self-Share – How am I connected to all things? (Focus on the Source of our energy and the energy of everything. A spirituality, if you will)

We believe this is a process and a life long one at that. We don't teach these in "4 easy steps." Instead we offer the Energy Management Model as a kind of "Leadership GPS" that allows leaders to organize and monitor their own functioning as leaders. It gives reliable information from our environment without giving up internal authority. As such, it is a tool for building courage and maturity as a leader.

We have been hearing from people that this book has changed their lives and their way of looking at everything. We know this works. The best favor you can do for a struggling leader is to point them in this direction.

We are glad to offer it to support people who dare to step forward as leaders in their relationships, their families, their organizations and the world.

Ron was honored to write the Foreword to this book, and here is part of what he wrote:

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. I read Friedman’s book back in the summer of 2007 because my good friend and colleague, Ed Kless, highly recommended that I do so.

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. Commitment is best measured not by the time one is willing to give up, but more accurately, by the energy one wants to put in, by how present one is.

You’ll learn the difference between episodic and chronic anxiety, along with the 10 tell-tale 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. Indeed, the struggle and bewilderment might be the most important part of this journey.

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.

Friedman's Theory of Differentiated Leadership Made Simple

Episode #10 - Corporate Social Responsibility: Progress or PR?

Lenny Bruce

Lenny Bruce

Capitalism is the best. It’s free enterprise. Barter. Gimbels, if I get really rank with the clerk, ‘Well I don’t like this,’ how can I resolve it? If it really gets ridiculous, I go, “Frig it, man, I walk.’ What can this guy do at Gimbels, even if he was the president of Gimbels? He can always reject me from that store, but I can always go to Macy’s. He can’t really hurt me. Communism is like one big phone company. Government control, man. And if I get too rank with that phone company, where can I go? I’ll end up like a schmuck with a dixie cup on a thread.

–Lenny Bruce

Capitalism is a counter-intuitive system since human action is coordinated by a pricing system that results in a hidden order that is not determined by a central plan. After all, it sounds far more rational if some central bureau were to organize what, how much, when and where to produce, and who should get a fraction of the result. But history has proven that centrally planned economies are abject failures, and the market is fare more just and efficient at allocating a society’s scarce resources.

Yet, for all the eloquence of Adam Smith and other free-market advocates, capitalism still lacks a moral theory. Even its most ardent defenders have nothing but contempt for businesspeople and entrepreneurs.

An often-heard remark is: The problem with capitalism is capitalists. It appears capitalism suffers from a unique paradox––it is better in practice than it sounds in theory. There is a certain “inarticulate wisdom” about the free market, and in this show Ed and Ron discussed the social responsibility of business.

Profits and Social Responsibility

Businesses are often praised for what they do worst (e.g., social work, fighting inflation, reducing welfare rolls) and denounced for what they do best (e.g., create jobs, wealth, goods and services people desire).

Milton Friedman’s famous 1970 article The Social Responsibility of Business is to Increase Its Profits essentially argues that businesses should pursue profits justly and within the bounds of the law and norms of society.

Friedman makes this argument because management personnel are acting as agents for the principals––that is, the stockholders of the company. For the agents to spend money and resources for “social” purposes denies the profits to the shareholders, who would then be free to donate and spend the proceeds as they see fit.

Another argument, often ignored by Friedman’s critics, is that a business doesn’t have particular expertise––or a comparative advantage––in performing social work, but does have expertise and knowledge about producing, say, automobiles or copiers.

In the famous Michigan Supreme Court case Dodge v. Ford Motor (1919), Ford was sued by a shareholder (Dodge) for lowering prices on cars and raising wages of employees (Ford thought the company had made enough profits), and the court ruled Ford had to increase dividends to shareholders.

Friedman’s argument is easier to understand if you imagine an employee of a sole proprietorship dictating to the owner how she should spend her profits.

Profits and social responsibility are not mutually exclusive goals. In fact, given the realities of free-market exchanges––where both parties are better off after the exchange––profits are actually an indicator of social value created.

Those who believe that earning a profit is morally neutral rather than a morally good way for a corporation to discharge its responsibility should be asked if they believe deliberately running losses is ethical––particularly if it’s with someone else’s money?

The economic and ethical responsibility of a business is to serve others, and increase the wealth of its customers. The business world instills, and requires, the practice of a number of virtues: diligence, industriousness, prudence in risk taking, reliability, kindness to strangers (customers), and fidelity in personal relationships.

Are not these the same virtues parents try to teach their children? As Michael Novak explains in Business as a Calling:

My general position on these three questions has two parts. First, business is a morally serious enterprise, in which it is possible to act either immorally or morally. Second, by its own internal logic and inherent moral drive, business requires moral conduct; and, not always, but with high probability, violations of this logic lead to personal and business disgrace. Immoral acts do occur in business. But to behave immorally is neither necessary to nor conducive to business success.

These men [industrial barons] did more than make money; calling them “money-makers” trivializes what they accomplished. Nor does the word greed capture their state of soul. “Greed” does not explain why Andrew Carnegie gave virtually all his money away. Instead, he poured [profits] back into his firm as an investment in its future. In other words, he put it at risk. “Greed” is for the impoverished socialist imagination a term of art; its purpose is neither descriptive nor analytical. Its purpose is moral denunciation, for ideological reasons.

The aim is not acquisition but increase. The clutching fist is not the capitalist style.

Honesty and ethical standards do not always pay off. They often have costs. For moral reasons alone, these costs are worth paying. Also for business reasons, too, since reputation is a priceless asset, and loss of that reputation is the single biggest risk a company faces.

JnJ-Our-Credo-700

JnJ-Our-Credo-700

Consider the Johnson and Johnson Credo that the company turned to during the two Tylenol poisonings in 1982 and 1986, which had a cumulative effect of $140 million in write-offs. Founder R.W. Johnson wrote this Credo in 1943 and it has often been cited as precedent for ethical decisions made since then, and is carved in stone at the company’s New Brunswick, New Jersey, headquarters:

Our Credo

We believe that our first responsibility is to the doctors, nurses, hospitals, mothers, and all others who use our products. Our products must always be of the highest quality. We must constantly strive to reduce the cost of these products. Our orders must be promptly and accurately filled. Our dealers must make a fair profit.

Our second responsibility is to those who work with us––the men and women in our plants and offices. They must have a sense of security in their jobs. Wages must be fair and adequate, management just, hours reasonable, and working conditions clean and orderly. Employees should have an organized system for suggestions and complaints. Supervisors and department heads must be qualified and fair-minded. There must be opportunity for advancement for those qualified and each person must be considered an individual standing on his own dignity and merit.

Our third responsibility is to our management. Our executives must be persons of talent, education, experience, and ability. They must be persons of common sense and full understanding.

Our fourth responsibility is to the communities in which we live. We must be a good citizen––support good works and charity, and bear our fair share of taxes. We must maintain in good order the property we are privileged to use.

We must participate in promotion of civic improvement, health, education, and good government, and acquaint the community with our activities.

Our fifth and last responsibility is to our stockholders. Business must make a sound profit. Reserves must be created, research must be carried on, adventurous programs developed, and mistakes paid for. Adverse times must be provided for, adequate taxes paid, new machines purchased, new plants built, new products launched, and new sales plans developed. We must experiment with new ideas. When these things have been done the stockholder should receive a fair return. We are determined with the help of God’s grace to fulfill these obligations to the best of our ability.

Summary and Conclusions

Dr. Samuel Johnson wrote “There are few ways in which man can be more innocently employed than in getting money,” and John Maynard Keynes agreed, stating, “It is better that a man should tyrannize over his bank balance than over his fellow citizens.”

No doubt businesses act in a social context, as do all individuals, and should be held accountable for doing the right thing for the right reasons. None of this is inconsistent with the pursuit of profit and meeting human needs and wants. Parents do not raise their children to become rugged individualists, and no company was built by the efforts of a single human being.

Ethical conduct, integrity, trust, and honesty are not just moral principles, they are also major economic factors, and one all businesses and professionals should be judged against and held accountable for.

Other books and resources mentioned

Creative Capitalism: A Conversation with Bill Gates, Warren Buffett and other Economic Leaders, edited by Michael Kinsley

The criminalization of American business,” The Economist, August 30, 2014

A mammoth guilt trip,” The Economist, August 30, 2014

Seven time lucky,” The Economist, August 30, 2014

A new green wave,” The Economist, August 30, 2014

Episode #9 - Interview with Rory Sutherland

Rory-Sutherland

Rory-Sutherland

We knew our interview with Rory Sutherland, Vice-Chairman, Ogilvy Group, UK, would be an exciting and exhilarating exchange of ideas. It’s safer to say it was an idea explosion, which will be difficult to summarize.

Because he mentioned so many useful ideas, as well as books, here are the major themes and highlights of our discussion.

Rory’s Career and Brief Biography

Pre Ogilvy (1988)

Did you meet David Ogilvy? Did you ever get to stay at his castle?

Rory’s book, The Wiki Man, which we quoted from throughout the interview.

Economics

While sick in bed, Rory read Steven Landsburg’s book, The Armchair Economist, one of Ed and Ron’s favorite economists. Rory also mentioned other economics books he’s read:

Rory discussed how Ludwig von Mises became one of his heroes. His book, Human Action, describes his theory of Praxeology, the study of human behavior, and prior science before economics, which is preoccupied with human psychology.

Ed then asked Rory: You wrote in The Wiki Man:

I think the pace of technological innovation is going to slow down. This is not a majority view, but I just think the fundamental innovations we can make just are not that huge.

But what about the driverless car, graphene, 3D printing, space travel, Bitcoin––are they disruptive or sustaining?

Ron challenged Rory on what he wrote:

I’m perfectly happy giving ideas away because an idea is worthless unless it’s executed.

Really? Thomas Sowell’s work, especially in Basic Economics, has convinced me that ideas are, always and everywhere, more valuable than their mere execution.

Try to execute a crappy idea: socialism, communism. As a creative, doesn’t the concept that “good ideas are everywhere” bother you? Good ideas aren’t everywhere, otherwise we wouldn’t get so many crappy movie remakes and TV shows.

Even you cited Henry Ford example in The Wiki Man:

Henry Ford’s reaction to a consultant who questioned why he paid $50,000 a year to someone who spent most of his time with his feet on his desk. 'Because a few years ago that man came up with something that saved me $2,000,000,' he replied. 'And when he had that idea his feet were exactly where they are now.'

For more on the idea that ideas are more valuable than execution, see Ron’s blog post here.

Marketing, Branding and Advertising

Ron asked Rory about Peter Drucker’s statement:

 Because its purpose is to create a customer, the business enterprise has two––and only these two––basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.

Rory wrote:

The purpose of marketing is to turn human understanding into business or social advantage.

On brands, you wrote:

I suggest it is by far the more valuable economic role that brands play: not to be a promise of ultimate superiority but a cast iron assurance of pretty dependable non-shitness.

And you said that you can’t understand brands without understanding “satisficing,” the Northumbrian term that means to choose the first option that is satisfactory; “good enough” (combination of Satisfy + Suffice).

Herbert Simon in his book, Models of My Life, describes “satisficing” and “bounded rationality.” Ron also mentioned Peter Drucker’s autobiography: Adventures of a Bystander.

‘Effing Debate: Efficiency vs. Effectiveness

Humans don’t like pure efficiency. Rory talks about Arithmocarcy and why the most dangerous technology is the spreadsheet.

Math requires calculate solution, then enact it. Hueristics allows us to do both in parallel—i.e., catching a ball.

In The Wiki Man he wrote:

…how, in their endless, dogged pursuit of a false efficiency, organisations can be rendered slightly useless. And stupid.

Remember that the word “dogged” is derived from the word “dog” meaning “energetic and stupid.

…belief in false efficiency is very simple; it comes from the belief that improvement comes from the elimination of apparent waste.

Rory also quoted Jules Goddard, professor at the London Business School and author of Uncommon Sense, Common Nonsense:

Strategy is the art of staying one step ahead of the need to be efficient. (Ed's note: This was the take away quote of the interview!)

Hourly Billing and Timesheets

Ed asks Rory about David Ogilvy taking responsibility for introducing the billable hour to ad agencies, in his book, Ogilvy on Advertising. Probably his biggest mistake.

Rory explains why he did it, and how entrenched hourly billing has become in ad agencies.

Last question for Rory: What’s he Reading now? Some fiction, and Super Cooperators by Martin Nowak. He also highly recommends The Origins of Wealthby Eric D. Beinhocker.

Two of Rory’s Presentations You Need to Watch

TEDtalk

Google Zeitgeist