Archive for February, 2011

The New American Man

You just can’t beat the former Soviet Union as a source for discredited, unworkable and downright crazy ideas. Not only was their economic system sheer insanity as communism attempted to override the natural right of individuals to keep the fruits of their labor, but the social engineering efforts of the Soviet regime were just downright ….spooky.

“But wait, why did they try to change society’s social values and mores…Isn’t communism just an economic system?”, comes the catcall from the upper balcony.

I find many people asking the same question…and missing the point.

As we have pointed out during many a prior Recon post, economics is not a physical science. As much as economists would have us believe that with their impressive mathematical formulas, they can magically understand and predict the behavior of hundreds of millions of buyers, sellers, investors, consumers, etc……they simply cannot.

Economics is more correctly labeled a “social science”, although we are not really even convinced that the word science should be in there at all. It’s more like sociology or social work to us, as the root of the whole profession is the study of people’s behavior…and what gets them to behave a certain way.

In other words, a country’s economic system is a product of that country’s society. For example, if a society values individual freedom, respect for family bonds and private property then that society is more or less likely to adopt a free market economic system.

Now we come to the heart of the matter. If someone comes up with an economic system that goes against people’s natural tendencies (like communism) then they have to come up with some way to convince them to do what they otherwise would not.

They have to change society itself.

Enter the harebrained concept of the “New Soviet Man.” Sometime during the earlier days of the Bolshevik revolution, this concept was cooked up as way to change society to be more accommodating of the “ideals” of communism. Let’s go to Wikipedia for a definition of this New Soviet Man (our humble emphasis added):

The Soviet man was to be selfless, learned, healthy and enthusiastic in spreading the socialist Revolution. Adherence to Marxism-Leninism, and individual behavior consistent with that philosophy’s prescriptions, were among the crucial traits expected of the New Soviet man. This required intellectualism and hard discipline. He was not driven by crude impulses of nature but by conscious self-mastery – a belief that required the rejection of both innate personality and the unconscious, which Soviet psychologists did therefore reject. His work required exertion and austerity, to show the new man triumphing over his base instincts.

Among the major traits of a new Soviet man was selfless collectivism. The selfless new man was willing to sacrifice not only his life but his self-respect and his sensitivity

I think perhaps the last line sums it up best. The New Soviet Man must be willing to sacrifice his self respect and his sensitivities.

For those in the peanut gallery, allow me to translate this line. The New Soviet Man must be willing to work like a dog and watch serenely as others enjoy the fruits of his labor. He must also reject any of the “base instincts” he may have to own the property on which he labors…or any silly reaction he may have to his wife joining the communist “community of wives.” Any rejection of these new values landed the unfortunate man in a gulag….or worse.

In summary, to make an unnatural economic system like communism work, you have to change the natural instincts of man to make him compatible with the values of the economic system you are trying to force upon him.

Who said economists were harmless?

Anyway I’m sure glad none of that stuff is happening around here…….

In brighter days of yore, our own economists confined themselves to understanding the reasons why people behave in a certain way. In our “advanced” era many economists have abandoned the passive role and started devising ways of coercing people into behaving a certain way.

Take our current interest rate and inflation policy (yes I did call it that) for example. As everyone knows real interest rates are negative, meaning that the rate of inflation is higher than the interest you earn on your money. Therefore, any money in the bank decreases in value day after day.

Let’s say someone has capital and just wants to earn a steady, but low, rate of return. Like a retiree for example.

The economists say, “We can’t have that! Society requires you to either spend your money or invest it in risk assets like the stock or bond markets to try and keep pace with inflation.”

But what if someone doesn’t want to? What if they don’t want to chase risk assets in a very distorted market that has departed from fundamental economic behavior a long time ago? Doesn’t our hypothetical retiree at least have a right to have his purchasing power protected?

Nope. I can almost hear Lord Keynes saying in his British accent, “Your money will be worthless quite soon my boy. Comon now and pick a nice banking stock”

Investment decisions are only one way in which we are being coerced. Ever dream that one day (like it or not) we all would all be forced to buy health insurance? How about some of the ridiculous restrictions placed on the use of private property?

Normally in a free market system, it is people’s self interest that guides them. They do what they believe is best for them and for their families, naturally and without any punishment, coercion or gulags. They simply do what they think is best.

Of course this does not mean that people will always do what is best for themselves.  Anyone who has visited a university can easily observe that people are very capable of ignoring their own self interest. But the system is self balancing and has automatic feedback loops built into it. Those who cannot see, or ignore, their self interest are rewarded accordingly. Quite frankly, when people are the cause of their own misery they are far more sanguine about it than when they believe their misery is caused by others.

By the way, how did that whole New Soviet Man thing turn out? The way we all expected it to of course. Let’s go back to Wikipedia for the ending (our emphasis added):

Some critics of the Soviet Union argue that a new kind of person was indeed created by the Soviet system, but hold that this new man – which they call Homo Sovieticus – was in many ways the opposite of the ideal of the New Soviet man.

The effort was concurrent with a rise in crime–”hooliganism”–and saw many imprisoned in camps for the petty crimes the regime was supposed to be eradicating.

Have a great weekend,

Michael Bechara, CPA
Managing Director
Granite Consulting Group Inc
mbechara@consultgranite.com
www.consultgranite.com

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Resistance to Change: Martyrs, The Oasis and Copycatters

It seems like the times are changing…in more ways than one. This week I thought we’d take a break from the usual and talking about changes in a corporate environment.

Change. It’s one of the most common words used in business. Even the greenest business school student can provide his professor or prospective employer the requisite soliloquy on why change is good, how it benefits the company and how all employees must openly embrace change.

Ironically, a quick survey of today’s business environment leads us to the inescapable conclusion that the need for real change is no longer theoretical.

Our economic environment has not simply changed, it has morphed and metastasized to such an extent that is unrecognizable by many. If you were to go back two years and describe to someone the nationalizations, bailouts, new regulations and market volatility that is commonplace today, they would have thought you were describing an economy in some faraway land.

In order to cope with these seismic changes, companies need to identify, implement, manage and monitor organizational changes that will ensure their survival in the coming years.

Of the steps mentioned above, the most difficult is clearly implementing change. We have often acted as a change agent to improve the efficiency, profitability and customer satisfaction of our clients. We have witnessed many reactions from managers in implementing changes. Below we have compiled a few common impediments to enacting positive change in organizations.

The Martyr’s Excuse
Throughout history martyrs have suffered for the mistakes of others. Corporate Martyrs are no different. Oftentimes employees compensate for weaknesses in one area of the company by taking it upon themselves to perform another function’s work. This often continues for years and becomes accepted business practice.

This is damaging to the company because it does not solve the root cause of the problem but instead shifts the burden for the problem elsewhere. In addition, this type of behavior distorts the employee review process by masking the poor performance of the underperforming area.

It is counterintuitive that these Corporate Martyrs resist changes to the organization that will benefit them as they would be relieved of the burden of compensating for another function’s weaknesses. Their resistance stems from a pessimistic view that shouldering another function’s responsibilities is the lesser of two evils. They believe any attempt at change would result in an even greater burden being put upon them by reworking the underperforming unit’s work product.

For example, a manufacturing plant was not allowed to create their own shipping and invoicing documents due to past mistakes. To compensate for this, headquarters’ employees created the shipping and invoicing documents on behalf of the plant which delayed on time deliveries of product to the customer.

The key to enacting change with Corporate Martyrs is to convince them that there is a third way! Their choices are not confined to doing the work themselves or cleaning up after other’s mistakes, but rather a path exists to correct the root cause of the poor performance at the other location.

In the example above, after a process improvement and system training was instituted at the plant, they began issuing their own shipping and invoicing documents and delivery times were reduced by 3-4 days.

Life is Good in This Oasis
We all enjoy being content and comfortable. The feeling that everything is under control and that we understand, and are good at, our jobs is a great feeling. Unfortunately the desire for stability and comfort can drive us to resist the changes necessary to keep us competitive.

Bringing organizational change to an area of the company that has found an “oasis” is a tough sell. Change is inherently uncomfortable, risky and requires effort above and beyond the daily responsibilities of those involved. Some common retorts from managers in the Corporate Oasis are:

“I get paid to manage (the system, the status quo) and I don’t get paid to implement change.”

“I fear your change will create more work for me and my organization. This is unacceptable for me endorse. I am satisfied with the current process, systems and the people like what they have.”

“If it aint broke, don’t fix it.”

In this case it is incumbent upon us to really make sure the change we want to implement is truly needed. The only way to obtain the support of those that must implement the change is through the presentation of a very convincing cost benefit analysis.

In other words, the only way to get people out of the oasis is to show them, with concrete evidence, that after the initial time and effort spent to implement the change they will end up in a better and more secure oasis.

Many change agents fail at this point because they cannot make the case convincingly enough to gain the support of those in the oasis.

Those in the Corporate Oasis can serve as a useful check against unnecessary and capricious changes to other wise solid corporate processes. Corporate executives must make sure; however, that effective and needed changes are not being thwarted out of lethargy or inertia.

Copycatters Beware
It’s difficult to underestimate the herd instinct in humans.

We are conditioned, perhaps by nature and perhaps by upbringing, to stay within the realm of what others have done before us. Many managers bray platitudes about “thinking outside the box” but when it comes to taking the risk to implement something they haven’t seen 1,000 times before, they simply wilt away.

Major advancements or breakthroughs are not attained by implementing run of the mill strategies. While incremental gains can be made implementing basic improvements, changes that will “take the company to the next level” are internally generated, unique to the company and have never been implemented before.

These kinds of structural changes are anathema to the Corporate Copycatter. While maintaining that they are open to change, they prefer to play it safe by cherry picking ideas that have been implemented many times before.

If you are trying to implement significant change that has huge upside potential, you cannot let Copycatters sidetrack you into a discussion about whether “this has been done before.” Everyone needs to understand that the company is undergoing the change precisely because it is unique and because the upside potential of making a successful change is so great.

Similar to any critical process, change within a company must be managed effectively. A clear vision of what needs to be done, coupled with the appropriate execution, will often determine the success of the outcome.

As macroeconomic changes continue to radically alter the business landscape, the ability to cope and manage change will be a leading factor in determining profitability, growth and survival.

Have a great weekend,

Michael Bechara, CPA
Managing Director
Granite Consulting Group Inc.
mbechara@consultgranite.com
www.consultgranite.com

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