Chaos Creator?

A number of go-getter upper middle managers within my employer’s mgmt structure participated recently in an excellent round table on the subject of rescuing at-risk programs.

When an audience member asked about what qualities might be common for leaders who excel at pulling rabbits out of deeply-troubled hats, one manager in particular discussed, oddly enough, the quality of being someone who is willing to create a little bit of chaos. Being willing to question the current methods, not being satisfied, not being afraid of pissing people off….

All of this I totally agree with, but on the other hand, I’m also a rigorous advocate of “enlightened process,” and will vehemently argue that most programs that “go red” do so because they fell off the process wagon – they forgot the basics of “blocking and tackling.”

I suspect most “process documentation” was done by smart people who put hard thought and energy into making smart road maps for value-stream efforts to follow. But rarely, it seems, do these program efforts appreciate the golden eggs laid by these geese.

I am the last to advocate blind adherence to process. Rather, I advocate knowing WHY the processes are what they are — and to make a conscious decision to forgo following them for sound reasons — before the program train steers off the plantation after which our over-confident program leader hopes/expects that the “magic management cattle prod” will fix his/her cost and schedule woes.

A bit of a paradox…. it’s helpful to be a chaos creator / excrement disturber if you are to be successful at rescuing troubled programs, but most often, the trouble came from not utilizing the system the way it was designed!

The Death of Demand? Part II

(see Part I)

To bring all this to a head:

Since the housing collapse and the “inflated-home-equity-ATM,” people are coming back to their senses… actually starting to save money again.

Demand didn’t “die.” (i realize the point of The Death of Demand is likely more subtle and probably has a lot of insight)

What’s happening is that *valuations are re-aligning* — or at least starting to — back towards what they *always should have been.* Not to mention, the hangover from all that debt.. people are realizing… “I’m in debt up to my eyeballs…..”

Now, there is less demand for fluff, less demand for short-term fixes and the latest fad or fashion. People are sobering up. The trick is now to find the value stream.

People must still live. Eat. Love. Produce. Interact. They still want to make their lives better. They just have a lot less ability to do it than they thought they did. Entrepreneurs and market participants must find the *real* value streams.. realign their activities to meet the new market demands.

What DID die is the artificial demand for non-sense, spending on which made economic numbers look all pretty and vibrant, but were the result of people having higher time preferences artificially the result of policies by conniving central bankers both here and abroad.

Steve Pavlina has a great article about prospering in the downturn that captures it succinctly that I highly recommend :

How to Make Lots of Money During a Recession 

“Consequently, businesses that provide genuine value can actually do better during a recession.”

Please note that Pavlina has some controversial ideas and I’m not an advocate for everything he spouts, but he has genuine insights that I find valuable.

See Part I

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The Death of Demand? Part I

I was recently introduced to the title of the book “The Death of Demand” by Tom Osenton (I have yet to read it, and look forward to so doing).

Taking the title at face value, let me share some thoughts from an Austrian autodidact’s perspective .. bear with me on this, and it culminates in Part II:

The US Dollar is currently the world reserve currency. So What? So, this means the Federal Reserve can perpetrate to print profligately porcine piles of green pieces of paper without creating any real value … and trade said paper (or digital equivalent) for real goods and services around the world.

The impact on the American consumer is access to perpetually cheap credit (so long as the Fed keeps interest rates low … which they do by fiat as if the interest rate does not get created organically through market forces….)

Cheap credit for too long a time, coupled with Asian “weak” currency policy (making their exports to us artificially cheap) has led to a display of gluttony by the American consumer likely unparalleled since the city of Rome at the peak of its wealth-siphoning power.

But cheap credit and manipulated interest rates cannot facilitate long-term prosperity. The distortions in the allocation of capital created by these machinations plant the seeds of their own correction (a “bust”).

See Part II

Regrettably, Trends on which You Can BET THE FARM

1) Trend toward continued lack of general understanding of economics by people in general. “We need more spending to fix the economy.” “We have a ‘savings glut.’” “Govt needs to raise taxes so it can spend more.”

2) Continued trend in the general steadfast belief in broken Marxist tenets, e.g., that wealth can be “redistributed” equitably via non-market means (i.e., govt), with continued cries for it to so do; That resources must be “secured” from others, rather than traded for as civilized market players do day in and day out;

3) Continued trend by individuals to look to govt bureaucrats to fix the problems govt created, e.g., unsafe streets due to drug prohibition; inefficient and expensive healthcare due to massive govt interference and regulation; govt to fix “climate change” and pollution despite horrendeous ecological harm at govt facilities the world over;

Corrolary to 3) Continued trend by individuals to believe that private ownership of land leads to environmental destruction;

4) Continued influence by the most powerful on govt at the expense of the taxpayer (hat tip to Matt S, but caution – see #3)

5) Continued belief that laissez faire is harmful to common folk, businesses exploit workers, govt should intervene in private contracts to ensure “fairness”;

6) Continued _lack_ of willingness by the general individual to: – think critically on their own;
- realize that agitprop exists (and is arguably the *primary* task of modern corporate media); – Ask the question, “Cui Bono?”
- believe that govt and it’s cronies could be anything other than our best interest at heart.

Bet the farm on these trends, folks. You’ll get filthy rich.

Innovation needs… Capital!

To foster innovation, we must have an economy that values saving and investment – not debt and spending; you need a growing pool of capital available for people to be willing to risk on untried solutions.

The deterents to capital accumulation, investment, and ultimately innovation are the following: – Taxation;
- Regulation;
- Emphasis on debt and spending;
- The simple fear of govt confiscation through myriad of other political tricks

These things have sent – and always will send – capital screaming for the exits, looking for safer places to thrive. Sadly – and this is impossible to over-emphasize – it’s made investors less willing to take a long-term view, or be willing to accept a longer time-frame to profitability.

The more opportunity for confiscation or failure due to non-market factors, the less willing investors will be to risk their capital. No equations, no econometrics, no fancy graduate-level Neo-Keynesian hypothesis is required to understand this.

Innovation will explode when sound money returns, and govt meddling in the economy and our lives ends. Would you invest in a business in, say, Cuba? Somalia? North Korea? Ireland? Great Britain, even? Some might, but by and large, the greater threat to capital confiscation due to corruption, regulation, or inflation, the less likely capital accumulation. But if capital can accumulate, there you find innovation.

Innovation needs capital. Capital needs the act of *saving*. Postponing some consumption to allocate for the future. So simple, so profound.

We must stop the heart attack and purge the gunk from the patient’s bloodstream … manage a difficult healing and rehab period… THEN we can get the patient in shape for a marathon…

What Is The Purpose of Management?

Every business activity has a value stream. It’s not always clear who specifically is in the value stream, and who supports the value stream. And in some areas, folks may not even be accustomed to thinking in terms of “value streams.”

A value stream, for the sake of this discussion, is any activity that brings in revenue. It is quickly deduced, then, that unless they are involved in the revenue generation process, management is a SUPPORTING function to the revenue stream.

One may regard management as a cattle prod – the whip needed to keep the herd in line, staying productive and following the rules. For all the “enlightened” leadership and management theory that has blossomed since the 1960′s and 70′s, there is still a need for management to perform this function.

Given the nature of human action, though, its not hard for a management organization to begin thinking that they are a “hammer” and everything else is a “nail.” It seems that without meticulous guidance from executive leadership, management tends to overlook that they are, boiled down, a supporting arm to the value stream… That their sole purpose in life is to be a “cattle prod.”

But it is not.

Let me get to the point: I believe that the true function of management is to make the jobs of the people in the value stream as efficient and as easy to accomplish as possible – period – paragraph.

If management consists of brow beating at program reviews as its sole activity of any worth, then they are not worth their paycheck.

Granted, this definition could be construed as controversial.

First, not a few management types have a hard time considering themselves performing a supporting role to those “grunts in the trenches” (although I’m not a big fan of military analogies to business, they can be descriptive in some circumstances).

Second, this philosophy could be misunderstood – “make their job easier? Heck, just stop doing all that data collection, or cut the number of drawing reviewers, don’t make them release drawings, get rid of all those overly excessive documentation processes….”

We have to consider ALL aspects of the value stream. We must realize that one of most critical aspects of the value stream, for instance, is the bidding and costing process. If good data collection and tracking methods are not in place with your design, development, and manufacturing efforts – yes, it would of course make their jobs easier not having to muck with that stuff – management fails in its fundamental function – making the job of the folks in the value stream – in this case the folks trying to capture new business- as easy and efficient as possible.

A little consideration, then, allows us to realize that “making the job as easy as possible” is a higher order concept. Efficiency in one area of the value stream cannot blindly be created by destroying efficiency in another part.

One soon realizes that it is impossible to ignore a fundamental observation – management must be process-oriented to at least some significant degree. They must investigate how things are done, develop an understanding of the process limitations, and hypothesize what roadblocks could arise.

In recent years, “lean” manufacturing has gained a foothold in the design and manufacturing world. Part of the lean paradigm is the kaizen event – a methodical charting activity of a process from stem to stern.

In other words, a framework for evaluating a process flow is available to industry. Despite the well-developed sense of skepticism many in industry have towards manufacturing and quality fads (“TQM”, anyone?), a kaizen is a genuine tool worth implementing.

Why? So management can perform its core function: making the jobs of those in the value stream as efficient and as easy as possible.

Discovering “Discontinuous Change”

I was introduced to the concept of “discontinuous change” by Dr. Manley at the Florida Institute of Technology in his Business Leadership Theory graduate course.

The term troubled me immediately. It contains an ominous connotation – Heisenberg’s Uncertainty Principle manifested in business activity.

Discovering a limit to human insight in the physical sciences can be troubling – but business activity and social structures are the affairs of men – how can there exist a state of affairs in human interaction where change can be monumental, disruptive, and unforeseeable?

The very nature of business activity – the very theoretical function of the entrepreneur – is risking capital in an attempt to meet future wants and needs.

What future does a free enterprise system have, when planning and activity is affected by discontinuous change?

My free market antennae went up immediately.

Businesses succeed. Others fail. But someone has already discovered why large numbers of business fail in a short period of time – the economists of the Austrian School.

Could it be that the phenomena of “discontinuous change” was the result of observing the deleterious effects of the fiat-based fractional reserve process in the trenches of the design and business world without realizing the drastic change had its roots in monetary policy?

The thought struck me like a bright light – the boom and bust cycle has accelerated – tech stocks, dot coms, real estate, Dubai. It made sense.

Discontinuous Change has a source. A root cause.

Discontinuous Change MUST result from the distortion of market signals.

Discontinuous Change MUST be the result of failed attempts to maintain capital consumption through the political process or through fraudulent fiat money activity distorting the flow of capital away from its most efficient use.

Discontinuous Change was simply the name business leadership and organizational behavior theory attempted to characterize the chaos caused by a corrupt monetary system.

Discontinuous Change carries the innate connotation of being mystical- unknown, unknowable, and uncontrollable.

Thanks to the heroic insights into human action by the great economists Murray Rothbard, F.A. Hayek, and Ludwig von Mises (and their modern intellectual progeny), the mystique of discontinuous change can be stripped away, and foresight can be brought back to the entrepreneurial process.

These issues – business and design activity and how they are understood in terms of true human action, are the subject of this blog.

I will explore topics important to modern business, engineering, and manufacturing: change, process flow, paradigms, barriers to design, operational efficiency, trends, monetary policy, quality, cost, schedule, tools, facilities – anything hindering or impacting the ability of humans to provide wealth and prosperity as efficiently as possible.

Join me in helping managers, planners, engineers, and entrepreneurs grapple with the technological impacts on the design process, program execution in theory and in practice, and to navigate the tumultuous sea of discontinuous change.

Bill Losapio
December 14, 2009