Greenwashing or Hogwashing: It’s a Dirty Business…

“Greenwashing” is what you get when you combine the words “green” and “whitewashing” or when a company uses environmental trends to its benefit by lying or misleading its customers. First coined in the mid-1980′s when hotels started claiming that by reusing towels you could save the environment…

Greenwashing is the practice of making an unsubstantiated or misleading claim about the environmental benefits of a product, service, technology or company practice. Greenwashing can make a company appear to be more environmentally friendly than it really is. It can also be used to differentiate a company’s products or services from its competitors by promising more efficient use of power or more cost-effective.

Consumers researching their buying decisions can consult the National Advertising Division (NAD) of Council of Better Business Bureaus (CBBB), which administers a system of voluntary self-regulation for the advertising industry. Online, site likes coopamerica.org, treehugger.com, corpwatch.org, greenbiz.com and others provide additional assistance. As blogged by Marketing Green, social bookmarking Web sites like DotheRightThing.org are allowing consumers to rate the actions of companies based upon the perceived positive or negative environmental impact.

In the article “Green” Hypocrisy: America’s Corporate Environment Champions Pollute The World” by Ash Allen at 24/7 Wall St. writes: “A majority of America’s largest companies have become part of the “green” movement. Some have fleets of hybrid trucks. Others install solar panels on their large buildings to consume energy more cost effectively with less of an impact on the environment.  Many give generously to environmental non-profit organizations.

The irony of the “green” movement of US companies is that many of the firms that spend the most money and public relations effort to show the government, the public, and their shareholders that they are trying to improve the environment are also among the most prolific polluters in the country.  Pollution does not mean that the companies are doing anything illegal. Instead, it simply refers to natural consequence of the companies’ industrial efforts which result in contamination to the air, soil or water by the discharge of substances that are toxic to the environment”…

At the heart of greenwashing is a company’s desire to represent its business as environmentally friendly at the expense of honestly portraying their environmental character. Common methods used by corporations include advertising, press releases, and websites.  Less obvious methods that are equally pernicious include trade groups that lobby the public on the company’s behalf, touting the adoption of non-governmental standards serving environmental protection, and establishing endowments for green academic research…

In the article “Is the Corporate World’s Patina of Green, a Sea-Change, or a Course Correction?” by Keith Johnson writes: This is the question that Joel Makower, green business guru, set out to answer with his State of Green Business Report…His verdict: It’s a mixed bag…“We’re more or less treading water,” he writes: “Greenwashing” is a buzzword in ascendance: when companies over-tout what they’re doing for the environment in order to win points with consumers. In response, environmentalists, regulators and media are increasingly scrutinizing what companies are claiming in the green arena.

Wal-Mart got the green gospel in 2004—at least in part on the advice of management consultants—and since then they’ve been on a mission to preach the company’s environmental efforts…So far, the retail giant has taken steps to trim energy use in stores, its trucking fleet, and its supply chain, with some success.  Critics like Wal-Mart Watch take aim not just at the retailer, but at the whole economic model supporting it. Wal-Mart Watch argues the retailer’s efficiency gains are more than offset by its relentless growth, featuring ever-bigger-box stores in ever-more-remote places…

In the Commentary: Greenwashing puts Businesses in Danger by Matthew R. Wilmot at the firm Schwabe, Williamson & Wyatt PC writes: All industries should make sure that their green claims are valid and substantiated. Greenwashing comes in many forms and is engaged in by companies in a variety of industries. For example, a carpet company offers for sale a single type of carpet that contains 70 percent recycled content, with all other carpets being of a much lower percentage.

The company then markets its carpets as containing up to 70 percent recycled content. This statement is arguably a form of greenwashing because, while technically true, it tends to deceive consumers. Similarly, a product that claims to contain 50 percent more recycled content than ever before is unfairly deceptive because the statement could technically be true even if the manufacturer only increased the product’s recycled content from 2 percent to 3 percent.

The Federal Trade Commission is beginning to pay more attention to deceptive advertising claiming environmentally friendly or sustainable products or services. Under Section 5 of the Federal Trade Commission Act, the FTC is authorized to police deceptive marketing claims, including bringing law enforcement action against companies the FTC finds to have engaged in unfair or deceptive practices. Companies found guilty of deceptive and unfair advertising and marketing practices are subject to potentially significant fines…

The FTC has issued the Guides for the Use of Environmental Marketing Claims (Green Guides). Green Guides sets forth a variety of rules and restrictions on green marketing and requires all marketers making express or implied claims regarding the sustainability of their products have a reasonable basis for their claims. When it comes to environmental claims, a “reasonable basis” might require competent and reliable scientific evidence, including, without limitation, tests, research, analyses or studies. Thus, a company that overstates the environmentally friendly nature of its products or services may run afoul of the FTC’s rules on deceptive environmental marketing…

In the article “Is Greenwashing Good for Business?” by Auden Schendler writes: The reality is that U.S. consumers increasingly take into account the environmental and social impacts of products and manufacturers. One Roper Survey showed that two-thirds of consumers say that if price and quality are equal, they are likely to switch to a brand or retailer associated with a good cause.

And according to the Lifestyles of Health and Sustainability Journal (LOHAS), in 2008, market was $300 billion in the U.S. which represents a 36% increase over 2005. Meanwhile, for businesses like oil companies that require local and government approval for exploration, a green image provides “license to operate.” If drilling is inevitable, then give the contract to the oil company that has a green reputation. However, it’s not always clear who’s greenwashing and who’s for real.

In the article “Greenwash: A Way to Say Hogwash” by Jonathan D. Glater writes: More and more developers have endorsed green construction, planning buildings that are energy-efficient wonders made with recycled materials. But, how can anyone be sure that a particular carpet really was made from old trash bags, that a redwood did not die for that deck, that a pump in an air-circulation system was a high-efficiency model?

The danger is what Anthony Bernheim, an architect at SMWM in San Francisco, calls “greenwash.” “Greenwash is when somebody says that, ‘Oh, we have the greenest building in town,’ and they do not have the metrics to show it”…

Glater continues: The U.S. Green Building Council, a nonprofit group, promotes energy efficiency and other environmental benefits in construction and design, and has established criteria to measure how green buildings are. “The way that we have tried to build better buildings and affect building stock is to create a rating system that recognizes certain characteristics of the building, including products, materials and technologies,” said S. Richard Fedrizzi, chief executive of the council. But he added, “For the most part, today we are relying on the honesty and the integrity of the manufacturers of those products and systems and services”…

In the article “Green Marketers Are Still Sinning” by Andrew Winston, Harvard Business Review, writes: The green marketing research firm Terrachoice released its annual “Sins of Greenwashing” Study where it explored 34 stores in Canada and the U.S. (from chains that have over 40,000 locations) and looked for any product that made a green claim…

The Study comes to one interesting conclusion; larger retailers apparently have a lower percentage of greenwashing products than boutique and specialty green stores. Terrachoice uses that data to conclude that larger retailers are more trustworthy…

In the report, “Understanding and Preventing Greenwash: A Business Guide,” lays out a “greenwash matrix” of the different types of poor communication about corporate environmental activities, and explores the ways firms can move toward messages that more clearly explain their green works. “[Shoppers] want to trust the company from which they are buying goods and services, and honest communications are key,” said Diane Osgood, BSR’s Vice President of CSR Strategy, in a statement. “Our guide helps companies curtail greenwash and build the trust of consumers.”

In the article “Ben & Jerry’s Backs Off ‘All Natural’ Claims” by GreenBiz Staff writes: In the wake of a complaint filed by an advocacy group, “Ben & Jerry’s Ice Cream” will remove the phrase “all natural” on its products that contain partially hydrogenated soybean oil and other questionably natural ingredients.

According to a report from The Guardian: Ben & Jerry’s mission statement trumpets an aim to make “the finest quality, all-natural ice-cream and euphoric concoctions” and to promote business practices that “respect the earth and the environment”. But the firm has come under fire from the Washington-based Centre for Science in the Public Interest (CSPI), which took issue with ingredients such as alkalised cocoa and corn syrup as well as partially hydrogenated soya bean oil.

The pressure group contended that the ingredients had either been chemically modified or did not exist in nature: “Calling products with unnatural ingredients ‘natural’ is a false and misleading use of the term.” In an abrupt about-turn, Ben & Jerry’s agreed to remove the term from its product descriptions… Although the CSPI’s complaint didn’t lodge a greenwashing charge against Ben & Jerry’s for the use of “all natural,” the move comes as governments and consumers are growing more aware of false marketing claims, in health as well as environmental areas.

In the article “FTC Moves Signal Start of ‘Greenwashing’ Crackdown” by Gabriel Nelson at Greenwire writes: The Federal Trade Commission (FTC) is expected to crack down on “greenwashing”… David Vladeck, director of FTC’s Bureau of Consumer Protection, told the Senate Subcommittee on Consumer Protection that tougher enforcement and environmental guidelines are a major part of the commission’s agenda. “In response to the explosion of green marketing…

Environmental groups are excited that FTC is examining the issue of greenwashing though they are not sure what to expect. The agency has remained tight-lipped on details… said Claudette Juska, a research specialist at Greenpeace. “It’s been a little bit hard to see into the process,” said Juska… “The FTC’s Green Guides serves as great guidelines,” Juska said. “But if they’re not being enforced, they’re not useful.”

In the article “Greenwashing Being Caught Red Handed” by Debra Kent Faulk writes: Buzzwords like “environmental-friendly,” “energy efficient” and “carbon offsets” flow freely from corporate press releases, brochures, web sites, blogs, and other promotional materials. Some claims are accurate, certified, and verifiable while others are misrepresentations designed to sell products.

It is amazing how everywhere you turn, products and practices are suddenly “green” and “earth-friendly”: A natural spring water company promotes their new “Eco-Shape Bottle.” An airline entices employees to leave their cars at home for a month by offering them frequent flier points. A fur trade organization says their product is “Eco-Fashion.” Television is producing “green” programming. An on-line retailer advertises electric lawn and garden tools under the headline “Think Green.”

A recent survey of 1,018 products found 99 percent falsely claimed green credentials. Through an examination of everyday products purchased at category-leading big box stores — consumer goods ranging from oven cleaner to caulking to toothpaste and shampoo — the researchers studied each one for false or misleading green marketing claims…

The U.S.-based watchdog group CorpWatch defines greenwash as “the phenomena of socially and environmentally destructive corporations, attempting to preserve and expand their markets or power by posing as friends of the environment.” This definition was shaped by by the group’s focus on corporate behavior and the rise of corporate green advertising at the time. However, governments, political candidates, trade associations and non-government organizations have also been accused of greenwashing.

In 2008 the environmental group Greenpeace launched a website “Stop Greenwash” to “confront deceptive greenwashing campaigns, engage companies in debate, and give consumers and activists and lawmakers the information and tools they need to … hold corporations accountable for the impacts their core business decisions and investments are having on our planet.”

Failure of Corporate Governance is Killing U.S. Corporations…

In 2003 Warren Buffett wrote to the Shareholders of Berkshire Hathaway Inc. on the subject of Board of Director’s passivity.  “Warren Buffett … confessed … “after sitting on 19 boards in the past 40 years”… “Too often I was silent when management made proposals that I judged to be counter to the interests of shareholders.  In those cases, collegiality trumped independence,” Buffett said.  “A certain social atmosphere presides in boardrooms where it becomes impolitic to challenge the chief executive.”

“Who guards the guards?” ~ Plato

There are many different models of corporate governance around the world. These differ according to the variety of capitalism in which they are embedded. The liberal model that is common in the U.S. and U.K. tend to give priority to the interests of shareholders. The coordinated model that one finds in Europe and Japan also recognizes the interests of workers, managers, suppliers, customers, and the community. Each model has its own distinct competitive advantage. The liberal model of corporate governance encourages radical innovation and cost competition, whereas the coordinated model of corporate governance facilitates incremental innovation and quality

In the article How Inept Boards of Directors are Ruining Once Great American Companies by Daniel Gross writes: “The failure of the financial system in 2008 wasn’t simply a massive failure of common sense, regulation, and leadership. It was also a failure of corporate governance. In theory, the corporate boards at Lehman Brothers, Bear Stearns, AIG, and General Motors were paid handsome sums to oversee the activity of the executives and protect shareholders’ interest. In practice, they slept as the CEOs ran the companies into the ground…

In the articleFailure of Corporate Governance by James Kwak writes:  “In the great consensus of the past twenty years, government regulation was unnecessary because the free market would prevent companies from abusing their customers, while corporate governance would prevent them from abusing their shareholders. In an article by  McClatchy (news outlet) on what went wrong on Moody’s, the bond rating agency, warnings about the toxic assets it was rating by . . .and firing the people making the warnings:

In the words of an executive on a Moody’s risk committee “My question; “Where the hell has the board(board of directors) been? I would have expected, sitting where I was, that I would have got a lot more calls from the board. I got none of that.” Another Moody’s executive added, There was no (corporate) governance at the firm whatsoever. I met the board, I presented to them, and it was just baffling that these guys were there. They were just so out of touch.”

Board members often serve at the pleasure of the CEO, who controls who receives the perks of board membership. The result is often, but not always, boards that rubber-stamp the decisions of the CEO and his or her inner circle. Court precedents make it difficult to hold board members personally liable for anything, and companies buy liability insurance for their board members just in case. As Lynn Turner, former chief accountant of the SEC, said to McClatchy, “I personally think until law enforcement agencies start holding these boards accountable, . . . you’re probably not going to get a lot of change.”

In the article “Failure of Corporate Governance” by Ari Weinberg writes: Lax corporate governance at the New York Stock Exchange and several mutual funds enriched insiders at the expense of small investors. Since both entities fall outside the scope of 2002’s Sarbanes-Oxley corporate governance reforms, the stage is set for new rules with a lasting impact on stock trading and investing. No question that the stakes are high: $16 trillion worth of corporate securities trade on the NYSE and $7 trillion in assets are managed by U.S. mutual funds.

At the NYSE, a close-knit board full of representatives from Wall Street firms… run the exchange in the best interests of specialists, brokerage firms and, of course, himself. As a self-regulated organization, the offense was doubly egregious. Under pressure from the Congress, the SEC and pension funds, and the entire board was replaced. State and federal regulators have teamed up to expose exclusive trading agreements that allowed certain shareholders to profit at the expense of others. Overburdened fund directors were either in on it or asleep at the switch, prompting the SEC to consider new rules for fund trading and governance…

In the book Money for Nothing: How the Failure of Corporate Boards Is Ruining American Business and Costing Us Trillions by John Gillespie and David Zweig write: …“Our sense of the entire issue was that the CEOs have gotten most of the attention as the cause within these companies, when they’re supposed to be reporting to boards of directors… the board members are supposed to represent shareholders…but in practice they are more like a private club…

Several executives at Lehman Brothers told us… the board was a joke and a disgrace… Another example of a decline and failure that was much longer in the works was General Motors. There the CEO and Chairman (CEO fills both roles), which is a problem itself, actually told a reporter a few years ago:I get good support from the board. We say here’s what we’re going to do, and here’s the time frame, and they say, Let us know how it comes out.” So even though the company pursued a disastrous strategy … the board didn’t push back. The board should have been there asking tough questions instead of being cheerleaders.

Gillespie and Zweig write: We’ve spoken to a lot of disillusioned board members who are completely captured by the CEO in most companies. CEOs either have selected you, or approved your being on the board. They control your re-nominations, your perks, and your pay, almost all the information that goes to you, your committee assignments, and your agendas. Unfortunately, boards are a narrow group who come from the same backgrounds as the CEOs. They tend to therefore see the world the same way the CEOs do.

At both Bear Sterns and Lehman Brothers they had folks who either weren’t paying attention or, in the case of Lehman, who were deliberately selected because they were unqualified. Lehman’s risk committee only met twice a year, and five of the directors were in their 70s or 80s. They had a person who was the former head of the Girl Scouts, a television-company executive, an art-auction-company executive, and an actress and a socialite who’d been on the board for 18 years…

Carl Icahn writes: “it is difficult to see how one could reach any conclusion other than that the boards of directors of a number of these imploded financial firms utterly failed to successfully implement some of their primary tasks – to oversee management and monitor and evaluate risk controls.” Icahn continues: “First there is the problem that these board members are most likely paid far too much for doing far too little. The board seat might even constitute a substantial portion of the board member’s total salary.

With high compensation, it is little wonder that a director would not want to challenge management lest he or she be terminated and lose that easy money.” Warren Buffett’s requirements for his Board of Directors: Align the director’s interests with the shareholders: (1) must be longtime shareholder, (2) substantial shareholder, and (3) only receive minimal compensation.

In the article “The Current Board of Directors System Must Go” by Odysseas Papadimitriou writes: … The job of the directors is to act in the best interest of the company’s investors, to hire executives so as to further those interests, and to make decisions so as to keep the company healthy. The board system has failed at these tasks because it inclines members to work towards other interests even when those interests run contrary to those of the investors.

The system, simply put, requires a complete overhaul.” Such failure at the top is a problem because it sets the tone for the rest of the company… An incompetent board will hire incompetent executives who will surround themselves with incompetent subordinates. Moreover, if an incompetent board of directors allows executives to keep their jobs despite poor performance, it creates a corporate environment in which there are no repercussions for bad decisions.”

“The current problems stemming from the board of directors system now demand solutions… What is required is a revision that creates direct linkage between shareholder representation and board representation.  Whatever is done to revise the system, we must first acknowledge that the current system of the board of directors has failed and as a result, corporate incompetence and greed has been allowed to flourish.”

In the article “The Failure of Corporate Governance” by Steve Vanechanos, American Stock Exchange Board of Governors from 2005 – 2008, writes: A reckless pattern of behavior was common to the massive failures at Fannie Mae, Freddie Mac, AIG, Lehman, Merrill, Bear Stearns, Citigroup, Wachovia, Countrywide and Washington Mutual, et al. They all had boards of directors who as fiduciaries were charged with oversight responsibility through a duty of care obligation, but who presided over operations that: i.) bet the business on a massive leveraging of minimal enterprise equity; ii.) used such leverage to produce extraordinary non-cash “profits” that ended up as toxic assets on the balance sheet; and iii.) authorized generous bonus payments – substantially in cash – to senior management for the production of those illusory non-cash balance sheet “profits”.

While reasonable people may disagree on the proper role of the board in the management of the enterprise, even advocates of a minimalist approach would acknowledge that: i.) enterprise risk management and ii) executive compensation are core responsibilities. It’s difficult to see the collapse of these entities as anything other than a failure of the respective board’s duty of care to protect the well being of the enterprise and its shareholders and to fairly and equitably administer executive compensation.

Common sense reform needs to be substantive and the non-negotiable driving principle must be to end the cozy relationship between management and the board and to more closely align the board with those that it represents through election – shareholders. Coziness between the board and management undermines the board’s ability to provide substantive oversight.

In its ‘Global Investor Opinion Survey’ of over 200 institutional investors first undertaken in 2000 and updated in 2002, McKinsey found that 80% of the respondents would pay a premium for well-governed companies. They defined a well-governed company as one that had mostly out-side directors, who had no management ties, undertook formal evaluation of its directors, and was responsive to investors’ requests for information on governance issues… Other studies have linked broad perceptions of the quality of companies to superior share price performance, and companies with the highest rankings for governance had the highest financial returns.

Failure in corporate governance is a real threat to the future of every corporation. Corporate governance as a business ethics issue is a hundred times more powerful than the internet or globalization and can destroy your business in a week. To make matters worse, standards of corporate governance are changing rapidly in response to random events which capture public imagination. In business ethics, what was good is becoming bad and what was considered bad is now good. Standards for corporate governance that have worked for decades are looking old fashioned or immoral while other practices that raised questions are becoming totally acceptable.

“What a CEO really expects from a board is good advice and counsel, both of which will make the company stronger and more successful; support for those investments and decisions that serve the interests of the company and its stakeholders; and warnings in those cases in which investments and decisions are not beneficial to the company and its stakeholders.” —Kenneth Lay, former Chairman and CEO of Enron Corporation

“Enron is not just the hundred year flood of fraud, but is in fact a warning that there are fundamental weaknesses that require immediate attention.” —William T. Allen

Decommoditization: The Winnable Game…

“Our research shows that commoditization is as much a psychological state as a physical one. A commoditized market is one in which buyers display rampant skepticism, routinized behaviors, minimal expectations, and a strong preference for swift and effortless transactions regardless of product differentiation” ~ Marco Bertini and Luc Wathieu.

The C word (as in commoditize) is business greatest fear and failure. Customers consider your products or services to be a commodity when there is no measurable difference between your features and benefits and those of competitors. Although convinced they provided the most value, you realize that the lowest price will win. Let the bidding wars begin.

Why didn’t the most value win? In the minds of the customers, it did. They think lowest price equals the highest value. When the business does not give customers the means to measure value in terms other than price, then the business turn their products and services into commodities. The business and not the customers are responsible, but that can be good news: What one takes away, one can give back. Armed with the proper tools and knowledge, you can decommoditize sales.

When customers’ technical knowledge of your products is equal to, or better than yours, they view your products as commodities. They feel they can accurately compare products without your input. They no longer depend on you to explain the technical differences between competitive offerings. You now lost a key opportunity to justify a higher price than that of your competitors. Fortunately, you can recapture this opportunity and lost value (and then some) when you make customers rely on you as an expert in their industry.

CBC’s blog writes: Why does the consumer seem to have all the power? The reason is very simple: High availability of alternatives…there’s a large supply and a fixed amount of consumer demand…which means you don’t have as much control. But you probably already knew that. In fact, this situation suggests a pretty obvious strategy… create something for which there is no alternative…

If you create something that’s one-of-a-kind, and there are no alternatives, then the power dynamic shifts. Suddenly you have all the power, because if the consumer wants what you’re selling, you’re their only option. We know what you are likely thinking right now: “we are creating something for which there is no alternative: unmatched customer service, superior products and services, and an unsurpassed commitment to our communities…” Let’s get real…

Currently, you’re not trying to create a truly different alternative you’re just trying to create a better alternative. Focuses on service, products, and commitment to the community–while admirable–will never turn you into something for which there is no alternative. Remember, our goal is to be different, not better. You’re not practicing “differentiation,” you’re unwisely attempting “betterentiation” instead.

That is, Different Not Better: A Mango in a Sea of Apples. Your goal is to be a mango, standing out in a sea of apples. Focusing on better customer service, products, and community involvement will only make you a better apple…never a mango. When you focus on “better”, all you’re saying is “we’re still an apple, but we’re just a better apple.” Not a very compelling argument especially considering that’s what everyone else is saying too.

The blog continues with an example: It’s no secret, banks and credit unions are all essentially selling the same products and services. It’s been that way for quite a while, and few bankers deny it any longer. To amplify this challenge, today there are even more non-traditional players selling those same (or substantially similar) products and services: companies like E-Trade Bank, Edward Jones, Lending Club, etc. Umpqua Bank’s respected CEO, Ray Davis, is known for being among the first to point out that with so much similarity in banking products and services, the only real way to differentiate a financial institution is in the way the company delivers those products and services.

In our experience, most financial services leaders agree with this perspective, yet it’s amazing how few have successfully applied it at their banks and credit unions. If the commoditized parts of banking are the battlefields upon which you are fighting, you cannot win. It’s impossible. That’s because a competitor will always be able to outdo you on these fronts, if they want it badly enough. If they are willing to reduce their margins enough, they can always “buy the market” by offering a lower loan rate, or a higher deposit rate, than you. They can always build an extra branch, or place additional ATMs, or stay open later…

Still, most credit unions and banks spend a large amount of their energy trying to differentiate themselves based on products and services: the best rate on the rewards checking account, the easiest auto loan, the most flexible CD. Again, this is a strategy based on being “better,” not “different.” If you’re battling the competition on these terms, you’re playing an un-winnable game. So, you’ve got two options:

  • Keep trying to beat them at an un-winnable game
  • Change the game to something you can win

Decommoditization is about changing the game to something you can win: “Giving people a reason beyond products, services, and rates to bank with (buy from) you”: This is changing the game. When people are shopping for a product or service, they look for attributes that allow them to comprehend and sort through the landscape of options at their disposal.

People crave meaningful differences between products because it allows them to navigate their sea of options and determine which products are going to best fit their needs. There’s nothing more frustrating than looking at two products and not grasping how they differ from each other. This leads us to a critical principle:

When there is no meaningful difference upon which to base a selection, it makes decision making difficult…and leaves the buyer to consider only commodity attributes like price.

Most businesses think differentiation is something they do for themselves—to make their companies more successful… But it’s not the real reason for differentiation:

Differentiation is something you do for your customers and potential customers—to give them meaningful criteria upon which to base their best decision.

Differentiation is your way of helping people evaluate you and determine if you’re a good fit for them. You’re giving them a meaningful way to sort through their options, so they don’t have to resort to commodity attributes like price to make a decision. The point of differentiation is not to build a compelling argument that you are the best product or service, and it’s not a tool of persuasion: It’s a tool for clarification and understanding.

Right now, you may likely be thinking “What are you talking about!? We’re building a sales culture here—we want to help as many people as possible reach their dreams, and that means selling, selling, selling as many products and services to as many consumers as possible. We’ll serve anybody and everybody we can!” If that’s what you’re thinking, then you are wrong: You are not right for everyone—and the longer you pretend you are, the longer will be a commodity.

A question to ask yourself: What customers are you totally the wrong fit for? Keep in mind, we’re asking who is and is not a good fit for your business, not who is or is not eligible to do business with you. A great answer to this question is often phrased, “we’re a terrible fit for people who value ___…because that’s the opposite of what we value.”

Until you can answer this question, you will never be able to effectively decommoditize your product or service. That’s because it’s impossible to be an amazing fit for one group of people, without being a terrible fit for the opposite group. You have to polarize your audience, or else your brand will never resonate strongly with anyone. If you’re not a great fit for some people, and a terrible fit for others, all you will ever be is “just OK” for everyone.

In the article “Make Commodities Stand Out – De-commoditization is the Key” by Daniel Burrus writes: No matter what industry you’re in, chances are you have a few products or services in your line that are commodities. From food and beverage items to household products to daily services, commodities are everywhere and make bottom line profits harder and harder to attain. So what’s a business to do?

The answer is to de-commoditize…but not just once…continuously! For example, suppose you sell flashlights. To customers, a flashlight is a flashlight and you can only charge so much for one. But what if you made your flashlight last twice as long? And, later you can add more unique aspects to your flashlight, such as making it half the size or twice as bright…

Here’s another example: Water is water…until you put it in a bottle…then you can make it unique… make it special … add some vitamins to it and give it a fancy name…. Now you’ve taken a commodity and you’ve de-commoditized it: Innovate, that’s the key.

The fact is that every product and service can be decommoditized repeatedly. Unfortunately, most businesses don’t do this. Instead, they come up with a new product or service and they milk it (the cash cow). They make their money on it and let the product or service become a commodity.  Realize that the minute you come up with something new, a competitor will copy it.

As they do so, your de-commoditized and innovative product or service slowly becomes a commodity… You find yourself competing more on price and eventually remove the product or service from your line. Instead think creatively (innovate) about your product or service so you can repackage it, redefine it, revamp it, or somehow make it unique in the marketplace again…

Decommoditization has been identified as a strategy for sustainable consumption that acts one level up on the institutional context of consumption as compared to strategies such as eco-efficiency and eco-sufficiency. Thus, while the eco-sufficiency strategy targets the product and the eco-sufficiency strategy targets the person (the consumer as decision-maker), the decommoditization strategy targets the institutional context in which consumption takes place. It aims to decrease the influence of commodities and to limit the effect of commercialization.

“Companies tend to ask themselves “how can we make our products/services better than the competition”, where as, entrepreneurs; ask “how can we make our products/services so different such that there is no competition?” That’s a decommoditized company”.

Survive Business Crisis: Act or React?

“The Chinese use two brush strokes to write the word ‘crisis’. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger-but recognize the opportunity” ~ John F. Kennedy

“There are inevitably going to be periods of time because of the economy or industry issues where companies will be put under stress,” says Bob Rudzki, author of Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise. “It’s important while you’re taking all the necessary short-term actions to manage costs and optimize revenues, to avoid doing things that are foolish”…

According to David M. Traversi, author of The Source of Leadership, there are typically three causes for a business slowdown: General economic decline, industry or sector-specific decline, or business shortfall in which your organization, for whatever reason, can’t fulfill its promises. Whatever the cause when faced with a business downturn most business tends to panic.

“Denial seems to be the first stage,” Traversi says. “Once they see that denial is not reversing the situation, fear seems to kick in and fear-based actions are taken.” Those actions, which include making irrational and irresponsible cuts to staff, budgets, benefits and more, often debilitate a business further. The reality is when cash is tight, cuts must be made. The question is: where? Traversi says: “[Most businesses] begin cutting costs, often irrationally, with the question, ‘What costs can be cut?’ as opposed to the better question, ‘What costs should be cut?’”

Rudzki writes: “You can’t cut your way out of a crisis” or “You can’t starve your way to success”, as many companies have learned, and Nancy Duitch, co-founded Vertical Branding in 2001, the Los Angeles-based consumer products company, agrees: “Downturns and slowdowns are inevitable in every company… In order to weather slow periods, you’ve got to cut costs and build the business.” When her business began to dive, Duitch refused to let even a single employee loose.

Instead, she changed her business model to allow her company to pursue new markets and new opportunities, which in turn created new revenue streams. “You can survive any downturn if you have capital in the company,” she says. “The reality is that revenue holds as much of a solution to the problem as cost-cutting”. Traversi adds: “What about finding new customers? What about leveraging new product lines? What about developing strategic alliances?”….

Scott D. Anthony at www.silverliningplaybook.com writes: Innovators take heart; a quick study of past downturns illuminates signs of hope. Many great companies were formed in years featuring a downturn. Take NCR. The 1870s and 1880s were very tumultuous times in America.

In the early 1880s, they purchased a product called “Ritty’s Incorruptible Cashier”, re-named it National Cash Register, and began to accelerate the cash register’s development…Thomas J. Watson Sr., who went on to transform IBM, into a technological powerhouse… honed his legendary sales skills at NCR. By 1911, NCR had sold more than 1 million cash registers and had close to 95 percent market share.

NCR is not an anomaly. General Electric, Microsoft, Walt-Disney Company, Revlon, Whole Foods Market, and many others started in downturns. Similarly, Fortune Magazine’s first issue was in 1930, right after the stock market crash. Procter & Gamble introduced disposable diapers in 1961. Nokia introduced its first car phone in 1982. And Apple began its stunning transformation by bringing out its iPod in 2001.

Innosight Research looked at the last three U.S. downturns and identified 44 “on the brink” disruptors. These were companies like Nucor in late 1970s, Best Buy in the late 1980s, and Amazon.com in the early 2000s that had begun the process of transforming an existing market or creating a new one, but hadn’t quite broken through to the mainstream. In the face of tough times where stock markets sagged and market leaders stumbled, these companies grew on average by more than 30 percent a year.

Downturns can also be a great time to lock in competitive advantage. In a November 2008 interview, Cisco Systems CEO John Chambers described how Cisco historically has become more aggressive in investment during downturns. “Remember the Asian financial crisis in 1997?” Chambers said. “Most of the economies in the area were contracting.

I knew that Cisco’s peers were making a potentially major mistake by dramatically cutting back their resources there, so we did the reverse. Straight into the economic downturn, we decided to increase our resources and send a number of senior executives to expand our presence in the region. Within a year, we gained the number-one market position in almost all of the Asian countries, and we never gave it up.”

Innovation is possible, no matter how dark the times… innovation has never been more important. Industries are converging, competitors are emerging, and technology is advancing at break-neck pace. Competitive advantage that took years to create disappears seemingly overnight.

Many companies think that innovation and survival are discrete choices. They are not. Companies that put their heads in the sand and wait for times to get better are sowing the seeds of their own destruction. Thriving in today’s “Great Disruption” requires that companies confront the new reality of constant change.

The challenge of successfully navigating your business through an economic downturn lies in the realignment of your business with current economic realities. Specifically, the business needs to renew focus on the core clients/customers, reduce operating expenses, conserve cash, and manage more proactively, rather than reactively: In the article “Survive Business Downturns” by Peter Lim writes: Stay relevant during this economic turmoil with best practices that will successfully navigate your business through an economic downturn:

  • Innovation is key
  • Value your workers
  • Satisfy your customers and find new ones
  • Cut cost efficiently
  • Good business attitudes

In a study of U.S. recessions, McGraw-Hill Research analyzed 600 companies covering 16 different SIC industries from 1980 through 1985. The results showed that business-to-business firms that maintained or increased their advertising expenditures during the 1981-1982 recession, averaged significantly higher sales growth, both during the recession and for the following three years, than those that eliminated or decreased advertising. By 1985, sales of companies that were aggressive recession advertisers had risen 256% over those that didn’t keep up their advertising.

Companies facing economic slowdown must develop and implement aggressive growth strategies in their core business areas, if they are to build solid foundations that will propel them ahead of competitors…A thoughtful, managed risk strategy is essential to survive and enjoy the rewards after the recession. If you’re running your business scared and making all your decisions by fear…you’re doing it wrong, regardless of the economic situation.

In the book: The Performance Power Grid: The Proven Method to Create and Sustain Superior Organizational Performance, by David F. Giannetto and Anthony Zecca they write: Provide a roadmap to help business weather an economic storm… In business, only the strong survive. Take the opportunity to sharpen your strategy, evaluate your value proposition, and ensure that you’re running your business in a financially responsible manner.

Economic malady can also be a good focusing point to rally employees. The authors call it a “momentary unifying factor” where employees are able to set aside personal concerns and rally around a greater cause. By coaching employees to provide exceptional service, a business can keep valuable customers and ride out the downturn.

Giannetto and Zecca write: Remember the difference between revenue and profit…In desperate times it is easier to forget that all customers are not created equally. Focus on your most profitable customers and find more like them… correctly place emphasis on certain segments over other less profitable ones and rebalance your customer portfolio. By using the current climate to take stock, sharpen your business, and be poised to grow, you can not only ride out shaky economic times, but emerge a stronger, better company.

In the bookThe Toilet Paper Entrepreneur” by  Michael Michalowicz,  entrepreneur, lecturer, author and television personality, writes: Have you ever been in the bathroom only to realize there are a mere three sheets of toilet paper left…but somehow, often with the help of the trashcan remnants, manage to make it work? This is how a Toilet Paper Entrepreneur runs their business in to the ground …they make do with what they have, pull “miracles” out of the trash and make more and more with less and less.

The author argues a successful entrepreneur embodies flexibility and vision many large companies lack. Michalowicz states that hard-line traditional business planning is ineffective and often detrimental; and that successful growth of a business requires a dynamic planning method… Among other growth techniques, Michalowicz argues the leap frogging strategy of significantly pushing ahead in one “area of innovation”, either Price, Convenience or Quality… The truth is that in every crisis, there are opportunities: Opportunities for business evaluation, change, reinvention, and innovation.

“Without the strength to endure the crisis, one will not see the opportunity within. It is within the process of endurance that opportunity reveals itself.” ~ Chin-Ning Chu

“In a time of crisis we all have the potential to morph up to a new level and do things we never thought possible.” ~ Stuart Wilde

Web Economy 2010-2011: Boom, Inflection, or Bubble?

“We find that … millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly. … Money, again, has often been a cause of the delusion of multitudes.” Charles Mackay ( poet, journalist, song writer) wrote these words in the 40th-anniversary edition of his classic 1841-year book, Extraordinary Popular Delusions and the Madness of Crowds.

Back then, nobody could have conceived of anything like the World Wide Web, but the hysteria that surrounds it today would have seemed awfully familiar: Recall Tulip-mania.

In 1932, at the nadir of the Great Depression, financier Bernard Baruch wrote a foreword for a new edition of Mackay’s book. He reflected on the crash of 1929: “I have always thought that if, in the lamentable era of the ‘New Economics,’ we had all continuously repeated, ‘two plus two still make four,’ much of the evil might have been averted.” It was too late then, but it’s not too late for us.

In the article “I Was Seduced by the Web Economy” by Inc. Staff writes:  We’ve read and heard so much about the Internet that it’s hard to figure out what’s real. All that business about how the rules are changing or there are no rules but here are the new rules is exhausting. It breeds myths and the madness of crowds. What we say is that reality always tends to be more complicated than the hype would have you believe. The Web really is a great frontier of opportunity… it move fast…common sense still applies…

Inc. Staff continues: The Old (Current) Web Economy. As the Internet has been maturing, our first forays into business online mimicked those of our off-line exploits. Following the rules of the industrial age, it was based on a scarcity mentality… get our products to market first, be the best, horde all the customers and put everyone else out of business. That approach worked really well when, for instance, you were the only car dealership in town…

But now that geography is no longer a limiting factor, the scarcity approach isn’t working as well. You can go to any number of on-line car dealers, find the car you want, with the features you want, at the price you want and have it delivered to your door. Now, instead of having to get a lock on the local market, business owners now have to lock the world market… a slightly more difficult task! On-line, the Old Economy is characterized by premium content, pay walls and exclusive distribution agreements. These are all on-line attempts to emulate the off-line practice of cornering the local market.

Enter the New Web Economy. The New Economy is driven by abundance rather than scarcity. It’s about finding your niche and being the provider of choice for that niche. Continuing the car dealership example; be the world’s leading authority of 1996 Jeep Cherokee Classics. You can’t corner the world market on cars, even Jeeps, probably not even Jeep Cherokees… but 1996 Jeep Cherokee Classics… that’s possible. For everything else, link out to the world’s leading authority in their respective niche; this is the new Link Economy emerging from Web 2.0.

This transition is being brought about by the transition of the web from a destination based experience to an information based experience. It is the reality of the new, post-industrial, decentralized economy… and it is changing everything. Be the best in your field, and link to everything else. If your visitors find value in the links you offer them, they will associate that value with you, and your credibility grows. Hence, you not only want to be a good link target, you want to ensure that the links you give away are high quality links, not just links to any old Jeep dealership.

Inc. Staff continues: What does this changing web economy mean to the consumer? It is crowd sourcing at its best (survival of the fittest) here the best products at the best prices rise to the top. This changes search as well: Why ‘google” a source of 1996 Jeep Cherokee parts when I can Tweet, “Where can I get parts for my 1996 Jeep Cherokee Classic” and get 10 replies from trusted sources? They are immediately more valuable and reliable that anything search can return…

In the article “What & Who Will Move The Web Forward?” by Jay Deragon writes: The web has steadily become a utility of the masses. We’ve all become familiar with using the web for communicating… receiving information in different forms and a host of other usage attributes both personally and professionally. The web economy has largely been fed by advertisers vying for eyeballs and attention.

Advertisers have been a fundamental resource of the web economy. When a change occurs that alters the old models and creates improved models with a promise of higher returns then said changes are likely to create systemic shifts across the entire web. The social web brings more influential human elements with global reach than any previous technological development in the history of the web. Combine the influence of the human elements with the innovation and demand of the swarms and you have a scenario that will fuel further changes unforeseen, unpredictable and unimaginable.

In the article “£100bn Web Economy Makes Britain a World Leader” by Emma Haslett writes: We all know that the internet is transforming the way we work, but it’s also transforming the economy, too: a new study by Boston Consulting Group (BCG) claims that the UK’s web industry now constitutes 7.2% of GDP, or about £100bn a year; Brits are now spending more money online per capita than anyone else in the world. As a result, the sector now supports 250,000 jobs, and will grow to constitute 10% of GDP by 2015. Which, presumably, makes it all the more important that we get a wriggle on with this high-speed broadband roll-out…

The report suggests that 60% of that £100bn figure is made up of what we spend on ‘internet consumption’ – things like internet connections, devices to access the internet and, crucially, online shopping. The remaining 40% (that’s £40bn, remember) is, according to the report, made up of expenditure on internet infrastructure, Government IT spending and ‘net exports’.

According to the report (commissioned by Google – fitting, since it’s one of the biggest beneficiaries), if the internet was a sector it would be the UK’s fifth largest, bigger even than the construction and the utilities industry. This is a slightly odd concept to grasp, not least because some of this money would presumably have been spent anyway (e.g. online retail is a sub-sector of retail spending, not a separate category).  But it gives a sense of scale, at least.

What’s more, the amount of cash the internet is bringing into the UK economy will make George Osborne’s eyes light up – apparently, for every £1 spent on imports, it produces £2.80 worth of exports; whereas offline, a paltry 90p worth of goods is exported for every £1 spent on imports. That’s a recovery-friendly stat. And according to BCG, Britain now has a higher online expenditure per capita than any other country on the planet. So at least we’re a world leader at something.

In the article “Did the Web Kill Economy”? by GlobalComment.com writes: Douglas Rushkoff, in a keynote speech at the Web 2.0 Conference, boldly declared that the Internet caused the economic crisis… Rushkoff points out that “The Internet allows people to create value on the periphery again. “Value” that’s capital (money)…now controlled by the banks, the same financial giants that we’ve had to bail out with taxpayer dollars, and the government… The Web allows us a different hierarchy of value…Friends on social networks serve as a sort of social capital…social capital that can be translated into financial capital…

Siva Vaidhyanathan wrote a book in 2004 called “The Anarchist in the Library”. In the book Vaidhyanathan posits that the Web’s design is fundamentally anarchistic. And it is anarchistic in the best and worst of ways—it has no central authority and is difficult or impossible to control. Yet it can be used to cut yourself off even more thoroughly from people who disagree with you—only crossing lines to shout at each other like a bad episode of Crossfire (popular TV news talk show). It can facilitate conversation—or it can facilitate your own narcissism.

The Web gives everyone a platform, but it does not guarantee an audience. It gives you tools for connection, but does not guarantee that people will like you. It widens your reach, extends the likelihood of running into someone that shares your view, but occasionally it feels like shouting in the dark.

In the article “Dispatches from the Web Economy” by the “Inc. Staff” writes:  If you’re not on-line yet, you will be soon. That’s the finding of a recent study commissioned by Prodigy Biz Corp., which found that one-third of U.S. small businesses were on-line. The smallest organizations were the least likely to have taken the plunge. Only one in four companies with fewer than 10 employees reported that it had an Internet presence, while half of those with 10 or more employees were on-line already.

Nearly 75% of small companies reported that cost was not a barrier for getting onto the Web. The survey results ranked reasons for going on-line as follows: promoting to prospects (69%); doing E-commerce (57%); providing better customer service (48%); competing with other businesses (46%); and communicating with employees (11%).

Of course, few small businesses suggested that doing business on the Internet was easy. More than 40% of the small-business owners surveyed claimed that they did not have the staff or the time to maintain a Web site. And 66% didn’t believe that the Web offered them significant growth opportunities, because they are local businesses. Such quibbling aside, many off-line small businesses planned to get on-line in the near future. Some 40% of businesses that didn’t have Web sites — approximately 2.1 million — said they would be on-line soon. The study was conducted by International Communications Research. –Mike Hofman

“What is the State of the Web Economy 2010”: Chris Anderson at Wired Magazine led a lively discussion about the future of the web. We collected first-hand research to estimate the state of the web economy. While some may blog about the bad economy and the new web – our data concludes that it’s already alive; supporting some 600,000 entrepreneurs; and growing despite the recession…

Anderson continues: With no public reporting sources, we chose to mine the financial reports of public companies to estimate the size of this web economy. I ferreted out the advertising, app, and commerce revenues that represent the gross margins paid to the long tail of entrepreneurs.  Anderson continues: Here are my conclusions:

  • Earnings easily exceed $10 billion a quarter. Since this estimate represents gross margins available to pay salaries and rent, the web economy is roughly three times the size of Google.
  • Revenues are seasonal, includes eBay, Amazon, and Apple.
  • This earning stream can sustain over 600,000 paid jobs; probably from multiple millions of participants where hundreds of thousands have already gained self sustaining status.
  • We guess that most of this stream is paid to North American entrepreneurs. Asian and European entrepreneurs are not included in this study.
  • About half of this stream is exported outside of North America; with the payments repatriated to North American entrepreneurs.
  • In two years, Apple has become a significant payer to the long tail; and could pass eBay, Amazon, and Google in 2011.

In an article by Cybertech Corporate Blog “Web Economy Trends 2011” writes: Cloud computing and virtualization reflect a new economic trend driven by the Web (i.e., a shift towards a more service-driven economy). Revenue from the large range of content and services available from the Internet is rapidly increasing globally; travel, gambling, adult content, music, social networking, e commerce and health services are particularly popular and flourishing. In US, the web economy is booming to such a great extent that according to the Yankee group, the US online advertising market will reach $50.3 billion in revenue by 2011, more than doubling 2007 levels and growing.

According to the sources, after contracting by 3.1% in 2009, US retail e-commerce sales- excluding travel, digital downloads and event tickets will grow by 2.2% by the end of the year 2010, to $135.2 bn. It has been said that Pent-up demand will boost sales further in 2011, with growth pealing at 11% a year. Another research consultant predicts online sales will grab an increasing share of total retail spending in the US, rising to 8% by the end of 2010 from 6% three years earlier.

The emergence of the next generation of Internet technology and applications has led to the coining of the term Web 2.0, to indicate that the Internet now has more capabilities than ever before. The Internet Media companies such as Google, News Corp and Yahoo are some of the leaders taking advantage of this with the introduction of new services and applications. This revival of the Internet has also led in part to the re-emergence of the Internet economic trend, and more specifically e-commerce.

The online gaming industry has also had a tremendous impact on the economic trend of web technology. The top gaming sites in China are generating registered players in the millions and upwards of 500,000 co-current players. Research shows that Chinese gamers had spent 1.7 billion dollars on games in 2001, a staggering amount that is expected to reach a figure of 6 billion in 2012.

That is the spectacular annual growth of 29%. The web has also gone mobile with Mobile e-commerce proving to be very successful in the US. The Coda Research Consultancy forecasts that mobile e-commerce revenues in the US will reach $23.8bn in 2015. This is a compound annual growth rate of +65% over 2009.

These instances show that the web economy will in the near future become a major part of GDP of the whole world. It has already created a niche, so much so that future changes in web technology will become a backbone on which the global economy will run and prosper.

Failure of Business Leadership and the Grand Self-Delusion of the “Perfect Storm” Metaphor.

“A bit of unsolicited advice to business executives trying to explain why their company or their industry is suddenly in the soup: Please spare us the “perfect storm” metaphor. ~ Steven Pearlstein, Journalist

In Sebastian Junger’s gripping account of a shipwreck that popularized the notion of the “perfect storm”, Billy Tyne, the skipper of the Andrea Gail, received urgent and repeated warnings that he was heading into what could be a monster storm off the Grand Banks — warnings that Tyne and his crew chose to ignore.

After all, the weather immediately around them had been relatively calm, and the swordfish had been tantalizingly plentiful. And there were always worrywarts warning not to do this and not to do that. If Tyne had listened to them, the Andrea Gail would never have left port, let alone become one of the most successful sword boats in Gloucester, Mass.

In an article by Steven Pearlstein, journalist writes: “The reason the perfect storm is such an appealing metaphor for these shipwrecked captains of industry is that it appears to let them off the hook. Who can blame you if the ship goes down in one of freak, once-in-a-century storms that result when three weather systems collide? It’s an act of nature that nobody could have predicted — or so the story goes.”

Sam Zell, the real estate tycoon, who was smart enough to sell out at the top of the commercial real estate cycle, only to dive into the newspaper and broadcast business of the Tribune Company just as circulation and advertising revenue were about to collapse, then claims the “perfect storm” as the reason for the Tribune’s business failure…

Auto executives tried to convince us that the only reason they were running out of cash was a sharp drop in vehicle sales brought on by sky-high gas prices, a credit crunch and rising unemployment; it was the “perfect storm”, rather then their failure in leadership… Robert Rubin, the Treasury secretary turned boardroom consigliore, conjured up the “perfect storm” to explain how Citigroup and the rest of Wall Street nearly brought the global financial system to a grinding halt, vaporizing trillions of dollars in wealth and putting large swaths of the economy on government life support…

Pearlstein writes: “The first thing to understand about the “perfect-storm” defense is that these guys actually buy into this nonsense. The rest of us want desperately to believe that what brought us this economic crisis was some combination of greed, fraud and negligence…. What the populist critique ignores, however, is that at the heart of any economic or financial mania is an epidemic of self-delusion that infects not only large numbers of unsophisticated investors but also many of the smartest, most experienced and sophisticated executives and bankers.”

Fundamentally, they’re wrong: The only “perfect storm” was the one that resulted from the collision of Zell’s ego, his arrogance and his utter ineptitude in running a media empire, along with a total disregard for the financial well-being of thousands of employees whose retirement assets he commandeered for a financing scheme that gave him control of the company while putting in very little of his own money.

I suppose we can have a bit more sympathy for the car guys, who might not have understood that the reason Americans were buying record numbers of foreign vehicles in recent years had nothing to do with cheap credit or mortgage cash-outs and everything to do with the superior styling and quality of other auto makers products…

Pearlstein writes: “When it comes to self-delusion, however, Wall Street’s top bankers and financiers take the prize. The most common rationalization is that because housing prices had not fallen nationwide since the Great Depression, nobody could have anticipated the current meltdown in the housing and mortgage markets…how about all those discussions back in 2005 about whether there was a housing bubble? Or, were there clues when housing prices nationally were increasing two and three times the rate of inflation, year after year, which was also without recent precedent?”

What capsized the economy was not a “perfect storm” but a widespread failure of business leadership — a failure that is only compounded when executives refuse to take responsibility for their misjudgments…

The article “Perfect Economic Storm” by Kent Gilbreath, professor of economics, writes:  Modern history of the American economy teaches us that unanticipated (exogenous) events can sometimes have serious, negative economic consequences.  The forces of change do not have to be dramatic to be consequential.

Potentially individual negative economic forces, by themselves, would not constitute the “perfect economic storm” but, together, these negative forces can weaken the foundation of the American economy and produce most unwelcome consequences for recovery the next time a major exogenous force strikes the economy… There are some disconcerting economic trends and forces on America’s economic horizon, clouds that, coming together, may produce the “perfect storm” for the U.S. economy:

  • Decline in the “real” wages or “real” personal income
  • Decline in real income for millions of families
  • Decline in the labor force participation rate of women
  • Decline in the labor force participation rate of men
  • Drop in the rate ofAmerica’s personal saving
  • Growth in the level of government, personal and family indebtedness

Gilbreath continues: To truly test the “perfect economic storm” hypothesis, it is first necessary to know if the economic “clouds” actually exist, and, if they do, what is their magnitude; and what is the timing of their potential convergence?  As with most economic clouds, it is important to remember that clouds often produce only a brief squall and then blow away leaving only a few tattered sails. If there is, indeed, a serious economic threat economists must ask; “what can be done to prevent any dire consequences?” Recommended remedies might include changes in public policy or suggestions that the marketplace will take care of the problems…

In the Blog “The Rising Revolution: A Perfect Storm is Brewing“ by Robert Reich writes: The elements are there; wealth concentrates at the top, record contributions flood our democracy, and the populace fumes over a government that raises taxes…reduces services…and the lack of jobs. It’s a “perfect storm”.  A relatively few wealthy people are buying our democracy as never before. And they’re doing it completely in secret. Hundreds of millions of dollars are pouring advertisements for and against candidates in the election cycle — without a trace of where the dollars are coming from…

The Federal Election Commission says only 32 percent of groups paying for election ads are disclosing the names of their donors. By comparison, in the 2006 midterm, 97 percent disclosed; in 2008, almost half disclosed… The third part of the ‘perfect storm’: Most Americans are in trouble. Their jobs, incomes, savings, and even homes are on the line. They need a government that’s working for them, not for the privileged and the powerful. Yet their state and local taxes are rising. And their services are being cut. The roads and bridges are crumbling, pipelines are leaking, schools are dilapidated, and public libraries are being shut. Unemployment insurance doesn’t reach half of the unemployed…

Much of the income of the highest earners is treated as capital gains… The ‘perfect storm’: An unprecedented concentration of income and wealth at the top; a record amount of secret money flooding our democracy; and a public becoming increasingly angry and cynical about a government that’s raising its taxes, reducing its services, and unable to create jobs. We’re losing ‘democratic capitalism’ to ‘plutocratic capitalism’…

According to Nobel Laureate Michael Spence; U.S. companies with global interests have contributed almost nothing to American job creation since the 1980’s. The investments that U.S. global companies have made have been in the high growth markets of Brazil, China and India. These three nations create 50 plus million new consumers every year.

So, tax incentives, abatements, corporate welfare, or subsidies, none of these incentives have resulted in these companies creating jobs in America. The only firms creating jobs in America have been companies whose total business is American…hotels, retail and health care are some examples.

In a report “Pathway to Global Product Safety and Quality” the FDA said two-thirds of the fruits and vegetables consumed in the United States and 80 percent of the seafood eaten domestically are imported. Half of the medical devices sold in the country and “80 percent of the active pharmaceutical ingredients in medications sold here are manufactured elsewhere,” the report said. “There has been a ‘perfect storm’ — more products, more manufacturers, more countries and more access.

A dramatic change in strategy must be implemented,” FDA Commissioner Margaret Hamburg said. “FDA regulated imports have quadrupled since 2000,” she said. The FDA outlined four steps to increase its reach and efficiency. The steps included forming partnerships with regulators around the world and developing “international data information systems.” The agency also said it would “focus on risk analytics and information technology” and “leverage the efforts of public and private third parties and industry.”

In the article “Pharma Sector Faces ‘Perfect Storm” by David Seemungal writes: The pharmaceuticals industry is facing its biggest challenge yet. In 2011-2012, the patents for 20% of current drug sales will expire and with a lack of adequate replacements in the pipeline, low sector growth and investor apathy, pharmaceutical groups are being forced to consider how they will tackle these issues; and sooner rather than later.

The industry has been reluctant to indebt itself in the past, maintaining a strong cash-rich position on the back of the threat of litigation and the need to remain flexible in order to take advantage of investment opportunities. With the looming off-patent threat, which has been referred to as the sector’s “perfect storm”, and a tightening of regulations, the industry is clearly facing problems that could see a more aggressive use of balance sheets as companies can no longer sit back and rely on their portfolios.

An article “Buying a Business: The “Perfect Storm” by Brauer & Harper, accounting and consulting firm, write: Given the recent stock market volatility, political uncertainty, high unemployment, massive federal debt and ongoing spending, and the bleak economic outlook in general, it’s no wonder investors are fleeing “risky” investments to simply sit on cash and gold.

However, our current economic environment could have created the “perfect storm” for business buyers, and now could be the best time in decades to invest in small business given the factors as follows: Aging Population, Low Business Valuations, Low Financial Projections, Low Interest Rates, Tight Credit, and Quality Workforce.

Warren Buffett’s Principle: “Be greedy when others are fearful.”  Amid a struggling stock market and lagging economy, Buffett told reporters: “Now is the time to invest and get rich”.  Buffet was right.  Our current economic “storm” could again provide a tremendous opportunity to take advantage of the buying opportunities at a time when most others are fearful…

Management Styles: U.S., Europe, Japan, China, India, Brazil, Russia

“My main job was developing talent. I was a gardener providing water and other nourishment to our top 750 people. Of course, I had to pull out some weeds, too.” ~ Jack Welch, G.E.

Management styles are characteristic ways of making decisions and relating to the organization, managers, and subordinates. Different management styles can be employed dependent on the culture of the business, the nature of the task, the nature of the workforce and the personality and skills of the leaders. Every style has its own characteristics, strong points, shortcomings, and methods for getting work done.

There are four basic types of leadership styles, further classified as per specific methods of management. They are autocratic, democratic, participative, and laissez faire.

Democratic Management Style: Manager delegates authority to subordinates in the decision making process.

Autocratic Management Style: Manager is completely responsible for making the decisions with no participation by subordinates.

Participative Management Style: Manager allows subordinates and staff to get involved in the decision making process.

Laissez-faire Management Style: Similar to democratic management style, but less communication between the manager and staff.

Other management styles, including;

  • Charismatic Management
  • Situational Management
  • Transformational Management
  • Bureaucratic Management
  • Task-oriented Management
  • Transactional Management
  • Relation-oriented Management

In the article “Are We Entering an Era of European Management Leadership?” by James Heskett, Baker Foundation Professor, Emeritus, at Harvard Business School, he writes there are marked differences in the social environment for management in Europe and the United States. In some parts of Europe, they foster management policies that may encourage more balance in a manager’s life, between work & private activities and risk & stability. Whether this will produce sustained economic superiority or a model to be emulated in the U.S. is debatable.

Antonio De Luca, Warner International NV, describes important differences this way: “If one has to generalize, it is fair to say that Americans pursue risk and Europeans seek stability … (leading) to fewer opportunities with more limited financial rewards, but possibly more balance for Europeans. The solution, as usual, is a sensible convergence of these two nuanced cultural approaches.”

Roy Bingham, Managing Director/Partner, Health Business Partners, LLC, points out that “American management seems to work best when the key needs are speed, aggression, last-minute genius, and take-chance, inspiring leadership. In boom times when it’s expand at all costs–pick the American style. At other times the more deliberate, consultative European approach is your ally. Maybe this is why we are hearing more from the Europeans these days.”

Jose Pedro Goncalves, Managing Partner DecisionMaster, Lda, takes issue with the idea of a “European” style of management, pointing out that there is no one style. In some parts of Europe “(as a manager) I’m a human being”. In other parts, “I’m just a number”.  In general “we (Europeans) are more human, but less flexible…”

Dr. B. V. Krishnamurthy, Professor M. P. Birla Institute of Management, India, picks up this theme by commenting “to argue that Europe might be snatching the lead in management is a little far-fetched. When one looks at the very successful organizations anywhere in the world, one discerns striking similarities—emphasis on efficiency, innovation, quality, and responsiveness to customers—even as one also finds adaptations to cultural differences.”

These comments tend to question whether management leadership has a “geographic home” as opposed to a winning set of behaviors in part fostered by the competitive, social, cultural, and legal environment. Given the prospect for continued movement toward competition and the propagation of “best practice” management ideas on a global scale; is the question largely academic?

Dr. B. V. Krishnamurthy writes: “The Triad countries have dominated international business to such an extent that after Japan’s amazing success story, followed by the resurgence of American companies, it is perhaps natural that the focus should now shift to Europe. The catalyst for this might have been the economic union that Western Europe has achieved.  The search for that elusive concept of the “best style of management” continues, although one could argue on the basis of lessons learned that there may not be a best style. Centralization and decentralization can go together, flex-time and tele-working are meant to improve productivity, and many of the “either/or” concepts can be treated as complementary, to be used with discretion…

Gunasekar C Raharatnam, manaagement consultant, writes about the India Management Style: ‘I doubt if there is clear approach that can be described today. Some might point towards the many family owned and managed business organisations in India, some of these are large corporate entities and leaders in their industry but most are small tightly controlled family businesses. Even such family business are increasingly being controlled by the recent generations of well educated inheritors. The management “styles” are changing and perhaps shifting more towards Western “styles” that are being pushed by management schools.”

India is an enormously hierarchical society and this, obviously, has an impact on management style. It is imperative that there is a boss and that the manager acts like a boss. The position of manager demands a certain amount of role-playing from the boss and a certain amount of deferential behavior from his subordinates… Anglo-Saxon concepts of egalitarianism where the boss is the primus-inter-pares are virtually incomprehensible in a society still dominated by the historical conventions of the caste system… Managing people in India requires a level of micro-management which many western business people feel extremely uncomfortable with but, which is likely to bring the best results.

In Brazil a manager’s personal style is considered to be of great significance and it could almost be said that his or her vision/bearing is viewed as of great an importance as their technical abilities… Relationships are of key importance in this Latin culture and the boss and subordinates work hard to foster a relationship based on trust and respect for personal dignity. First and foremost, managers are expected to manage. The boss is expected to give direct instructions and it is expected that these instructions will be carried out without too much discussion or debate (if there is debate it should be done in private to avoid showing public disrespect to the hierarchy).

Decision-making in Brazil is often reserved for the most senior people. Taking the time to build the proper working relationship is crucial to success. Coming in as an outsider is often difficult, so it is advisable to have a third-party introduction… Often the people you negotiate with will not have decision-making authority. Decisions are made by the highest-ranking person.

China management style tends to follow Confucian philosophy: Relationships are deemed to be unequal and ethical behavior demands that these inequalities are respected: Older person should automatically receive respect from the younger, the senior from the subordinate. This is the cornerstone of all the China management thinking and issues such as empowerment and open access to all information are viewed by the Chinese as, at best, bizarre Western notions… Management is directive, with the senior manager giving instructions to their direct reports who in turn pass on the instructions down the line. Subordinates do not question the decisions of superiors – that would be to show disrespect and be the direct cause of loss of face (mianzi) for all concerned.

Japan management style emphasis the need for information flow from the bottom of the company to the top: Senior management is largely a supervisory rather than “hands-on” approach. Policy is often originated at the middle-levels of a company before being passed upwards for ratification. The strength of this approach is obviously that those tasked with the implementation of decisions have been actively involved in the shaping of policy.

The higher a Japanese manager rises within an organization, the more important it is that he appears unassuming and not ambitious. Individual personality and forcefulness are not seen as the prerequisites for effective leadership. The key task for a Japanese manager is to provide the environment in which the group can flourish. In order to achieve this he must be accessible at all times and willing to share knowledge within the group. Manager is seen as a type of father figure who expects and receives loyalty and obedience from colleagues. In return, the manager is expected to take a holistic interest in the well-being of those colleagues. It is a mutually beneficial two-way relationship….
 

Russian management style tends to be centralized and directive. The boss, especially the ‘big boss’, is expected to issue direct instructions for subordinates to follow. Little consultation will be expected from people lower down the company hierarchy. Indeed too much consultation from a senior manager could be seen as a sign of weakness and lack of decisiveness. Middle managers have little power over strategy or input in significant strategic decisions. The most powerful middle managers are the ones who have the most immediate entree to the decision-maker at the top of the organization. There is little point in wasting time debating with middle managers who do not have an easy access to the top. The most significant reason for delay in reaching a decision in Russia is that the decision has not been put in front of the real decision-maker…

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Management “Theory Z” is a name applied to three distinctly different psychological theories. One was developed by Abraham H. Maslow in his paper Theory Z and another is Dr. William Ouchi’s so-called “Japanese Management” style popularized during the Asian economic boom of the 1980s. The third was developed by W. J. Reddin in Managerial Effectiveness.

Abraham Maslow, a psychologist and the first theorist to develop a theory of motivation based upon human needs produced a theory that had three assumptions. First, human needs are never completely satisfied. Second, human behavior is purposeful and is motivated by need for satisfaction. Third, these needs can be classified according to a hierarchical structure of importance from the lowest to highest (Maslow, 1970).

Maslow’s “Theory Z” in contrast to Theory X, which stated that workers inherently dislike and avoid work and must be driven to it, and Theory Y, which stated that work is natural and can be a source of satisfaction when aimed at higher order human psychological needs.

Theory X and Theory Y were both written by Douglas McGregor, a social psychologist who is considered to be one of the top business thinkers of all time. In McGregor’s book The Human Side of Enterprise (1960), McGregor describes Theory X and Theory Y based upon Maslow’s hierarchy of needs, where McGregor grouped the hierarchy into a lower order (Theory X) needs and a higher order (Theory Y) needs. McGregor suggested that management could use either set of needs to motivate employees, but better results could be gained from Theory Y, rather than Theory X (Heil, Bennis, & Stephens, 2000).

For Dr. William Ouchi, “Theory Z” focused on increasing employee loyalty to the company by providing a job for life with a strong focus on the well-being of the employee, both on and off the job. According to Ouchi, Theory Z management tends to promote stable employment, high productivity, and high employee morale and satisfaction.

Ironically, “Japanese Management” and Theory Z itself were based on Dr. W. Edwards Deming’s famous “14 points”. Deming, an American scholar whose management and motivation theories were rejected in the United States, went on to help lay the foundation of Japanese organizational development during their expansion in the world economy in the 1980s. Deming’s theories are summarized in his two books, Out of the Crisis and The New Economics, in which he spells out his “System of Profound Knowledge“. He was a frequent advisor to Japanese business and government leaders, and eventually became a revered counselor. Deming was awarded the Second Order of the Sacred Treasures by the former Emperor Hirohito, and American businesses ultimately tried unsuccessfully to use his “Japanese” approach to improve their competitive position.

Professor Ouchi spent years researching Japanese companies and examining American companies using the Theory Z management styles. By the 1980’s, Japan was known for the highest productivity anywhere in the world, while America had fallen drastically. The word “Wa” in Japanese can be applied to Theory Z because they both deal with promoting partnerships and group work. The word “Wa” means a perfect circle or harmony, which influences Japanese society to always be in teams and to come to a solution together. Promoting Theory Z and the Japanese word “Wa” is how the Japanese economy became so powerful. And also because the Japanese show a high level enthusiasm to work, some of the researchers claim that ‘Z’ in the theory Z stands for ‘Zeal’.

Ouchi wrote a book called Theory Z How American Business Can Meet the Japanese Challenge (1981), in this book; Ouchi shows how American corporations can meet the Japanese challenges with a highly effective management style that promises to transform business in the 1980’s. The secret to Japanese success, according to Ouchi, is not technology, but a special way of managing people. “This is a managing style that focuses on a strong company philosophy, a distinct corporate culture, long-range staff development, and consensus decision-making”(Ouchi, 1981)…

Another commentary on management is by bhattathiri, management consultant, who writes: The Western idea of management centers on making the worker (and the manager) more efficient and more productive…but it has failed in ensuring betterment of individual life and social welfare. It has remained by and large a soulless edifice and an oasis of plenty for a few in the midst of poor quality of life for many. There is an urgent need to re-examine prevailing management disciplines – their objectives, scope and content. Management should be redefined to underline the development of the worker as a person, as a human being, and not as a mere wage-earner. With this changed perspective, management can become an instrument in the process of social, and indeed national development.