Business Insight Zone

Sometimes I get an idea for what I think would be a good blog post, but then come across someone else’s great post or article that has already done all the work for me. (Since I’m sometimes lazier than I should be when it comes to research, this is a good thing in my book.)

Case in point: the historian in me considered writing something about the business fortunes that have been launched during hard times . . . and then I came across this November 2008 Daniel Roth article from Wired:

Back to the Garage: How Economic Turmoil Breeds Innovation

. . . [F]or the bravest inventors and entrepreneurs, conditions are ideal to pounce on a business opportunity. . . .

The most memorable crucible in modern history is, of course, the Great Depression. During that era, several firms made huge bets that changed their fortunes and those of the country: Du Pont told one of its star scientists, Wallace Carothers, to set aside basic research and pursue potentially profitable innovation. What he came up with was nylon, the first synthetic fabric, revolutionizing the way Americans parachuted, carpeted, and panty-hosed. As IBM’s rivals cut R&D, founder Thomas Watson built a new research center. Douglas Aircraft debuted the DC-3, which within four years was carrying 90 percent of commercial airline passengers. A slew of competing inventors created television. . . .

This doesn’t mean that big new ideas emerge because of turmoil—in fact, the data shows no relationship between major breakthroughs and economic conditions. But the benefit of a global money drought is that competition tends to vaporize. And for some, the stress of tough times has an amazing way of concentrating the mind on the way forward.

The whole thing is well worth reading, especially if (a) you’re working for a company that has some resources but has been sitting on the sidelines out of fear, or (b) you just need some cheering up about where the commercial world might be headed once the dust settles from the current recession.

A philosophical meditation for your weekend:

Do we work as hard as our grandparents did?

My father’s parents raised four children through the Depression and World War II, all on a small-town pastor’s salary, and footed the bill for a private college education for all four of them. When they died, my grandparents left a surprising amount of money in their estate — as did my mother’s parents, even though neither of them ever finished school.

Don’t get me wrong: I’m not trying to say what was “better” or “worse.” We should all be glad that we’re not living through the Depression, the Dust Bowl, the World Wars, et cetera. We should be glad we live in the age of computers and readily available antibiotics. There’s no need to wallow in nostalgia.

But the fact is, many Americans (and others) who came of age during the Depression had a fundamentally different view of economic life. Many of them grew up on farms — far more than today — and they carried the ethic of the farm with them as they faced the gritty personal choices created by the sweeping events that we casually lump under the abstract terms “depression” and “drought” and “war.” For most of us in the white-collar world, we see those choices distantly and through a haze; for them it was real.

When I look at my kids, I like to think my wife and I are raising them with good values. They say “please” and “thank you” most of the time, and they know that there’s no whining in our house. But there’s no way that they’ll ever grasp the reality of the hard physical work that my grandparents did from childhood forward. And why would I subject them to it, since we don’t live on a farm and that kind of labor isn’t necessary for us?

One way of looking at it is that our grandparents — the “greatest generation” or whatever you want to call it — did their work so well that they spared us the kind of grueling effort that would make us as tough as they were. Again, I’m not passing judgment on what’s “good” or “bad” here, especially since the historian in me knows I’m glossing over a ton of details and variations.

But it’s worth reflecting on how rapidly our view of the world may be changing. None of my friends 40 or younger — not one — thinks that they can rely on Social Security for their retirement. And given the flat returns of the stock market across this decade, I hear more of my friends talking about old-fashioned concepts like “cash and carry” and “rainy-day funds” and living debt-free.

That would have sounded like crazy talk 10 or 15 years ago when I was fresh out of college. But today it’s starting to make as much sense to thirtysomethings as it did for our grandparents back in the 1930s.

The business implications of this I leave as an exercise for the reader.

• Do you think our fundamental assumptions about the economy and the markets are changing?
• What do you think current economic events will mean for businesses in the decades to come?

Looking forward to your thoughts on this.

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Related:

• The downside of a consumer-driven economy.
• Historical perspective can lessen the sting of the economic crisis.
• Not logic, but culture.
• Bringing externalities inside the system.

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Photo from the Seattle Municipal Archives.

When the Armistice came, the guns of August at last fell silent. Relief washed over combatants from all armies, whose lives and countries had been riven by the bloodiest war anyone could remember.

The Great War shattered a general peace that had lasted, with some exceptions, since the fall of Napoleon at Waterloo. When the fighting broke out in 1914, the fragility of that peace was revealed. For a generation of poets, thinkers, politicians, and ordinary people, the world never looked the same again.

The psychological devastation of the war was magnified by the physical methods of the fighting. In that era, defensive technology was, on the whole, better than offensive weapons, and the tactics of military commanders put no great price on the lives of common soldiers. On some of the battlegrounds, tens of thousands of men — French, Germans, Russians, Britons, Americans — perished during the years of the war without actually moving the lines of battle. Those sacrifices were for naught, because the tactics employed could not deliver the strategic goals of the warring nations.

When we look back on our current economic crisis from the perspective of ten years, or twenty, what will will we think of our own methods? What will it be that — like the trench warfare of the Western Front — will make us shake our heads?

Possibly a cooler sense of reflection will improve our thinking and serve as an early remedy for whatever foolishness we discover — an outcome that could provide us with lasting relief in our own day.

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Photo via the HIGHLY recommended Shorpy historical photo blog.

In the old days — back before the commercial revolution of the late 19th century — the biggest problem in the U.S. economy was often that of production, especially along the simple lines of “How can we produce enough to eat?” The transition away from agrarianism toward industrialization meant that the big problem became that of consumption, i.e., “How can we find adequate markets to clear all our goods?” *

Down this path lay all sorts of interesting implications, for example long-term efforts to open “the China market” and other overseas markets for American goods. For the implication du jour, I turn to this article from the New York Times:

Retailers Report a Sales Collapse

Sales at the nation’s largest retailers fell off a cliff in October, casting fresh doubt on the survival of some chains and signaling that this will probably be the weakest Christmas shopping season in decades.

The remarkable slowdown hit luxury chains that sell $5,000 designer dresses as badly as stores that offer $18 packs of underwear, suggesting that consumers at all income levels are snapping their wallets shut. . . .

Consumer spending represents two-thirds of the nation’s economic activity, and analysts said the striking sales declines at retailers almost certainly portended an extended, severe recession.

This matches Heidi Moore’s report from yesterday’s Blackstone earnings call:

[Blackstone co-founder Steve] Schwarzman . . . sums up by saying that the fourth quarter will probably read very badly for the economy, because consumers were in a financial panic between late September and mid-October. The upshot: severe consequences in the fourth quarter.

When the going is easy, consumer-goods makers can reap large fortunes by making inessentials that tickle consumers’ fancy. But when the going gets tough, there’s little that can persuade consumers frightened about their futures to open their pocketbooks.

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* Yes, the historian in me realizes that I just squished a couple of centuries of complex economic developments into a couple of overly broad generalizations. The historian in me shuddered, but then the blogger in me patted him on the back and assured him that it would be okay.

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Photo by saeru, used under a CC-Share Alike license.

I encourage you to read this article, in which Karen Blumenthal provides a useful historical perspective on the current market woes in the United States:

As Dire as the Times May Seem, History Isn’t About to Repeat Itself

Today, our mortgage mess looks like a disaster, too, but at least banks made loans against houses, assets that should continue to have at least some value. In the second quarter of this year, according to the Mortgage Bankers Association, 6.4% of mortgages were at least one payment behind and 2.75% were in foreclosure — modern-day records, to be sure, but not depression levels. The long-term impact remains to be seen, but the acknowledgment and quick action by the Federal Reserve and Congress truly set this crisis apart from 1929.

It’s worthwhile to remember just how different the plumbing of our financial system is today in comparison to earlier downturns. When the Great Depression started, there was no FDIC, and depositors could lose their life savings in a flash. Callable mortgages — now no more than a distant memory — meant that mortgage-holders could lose their homes even without defaulting.

The Bad Old Days

Go back even further, to the previous “Great Depression” of the 1890s. Back then, the “money question” that dominated 19th-century U.S. political economy had not been settled. There was no Federal Reserve, so the government could not even manage monetary policy in ways we consider routine today.

Without question, today’s pain is real. Workplace retirement plans alone — pensions and 401(k)’s — have lost more than $2 trillion in value during the past 15 months, and this week’s market declines won’t help that figure any.

Having swung too far in one direction, the pendulum of financial regulation is already swinging back the other way.

Will we get the exact balance right — the exact math that balances free-flowing markets with sensible safeguards? If history is any guide, probably not. But eventually, things will be better than they are today.

West Texas in 1982

When my family moved from Tennessee to Texas in 1982, oil prices were booming. Midland, our new hometown, was rich enough with oil money that it had its own Rolls Royce dealership.

And then the bottom fell out.

In this Week of Depressing Charts, let’s take a trip down memory lane with this one:

Set aside the run-up in price during this decade — take a look at the precipitous drop from 1980 to 1984, and imagine the effect that would have had on you as a manager in the West Texas oil business. Which geologist do you let go first? Which roustabout who’s one paycheck from hunger?

That wasn’t an easy time, either. But folks put the pieces together as best they could and moved on. The Rolls dealership became a distant memory. In the second half of the 1980s, my mom served a long stint working for the FDIC, which had become a local growth business as it liquidated banks in that whole region of the country. We knew nothing about the oil business when we moved to Midland; the education we got was very different from what we expected.

Time for a new “Great Generation”?

Tom Brokaw made much of the “Greatest Generation” — our parents and grandparents who lived through the Depression and fought World War II. Certainly their sacrifice, toughness, and hard work deserve praise, but my own belief is that they were a lot like us: virtuous much of the time, but also prone to cupidity, wrath, and all the other human weaknesses that are as common today as they were when Shakespeare or Chaucer — or the author of Ecclesiastes — were writing their takes on human nature.

In this generation, we face our own set of problems, huge ones, of which the market meltdown is only the most burning. Poverty, ecology, violence — we’ve got plenty to occupy our attention, and that’s not to mention the perennial challenges of work and family.

My hope is that we’ll take a bit of historical perspective on what’s happening around us so that we can acknowledge it for what it is: bad . . . but not completely alien to our experience, and not the worst we or our forebears have ever seen.

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Related posts:

• Where do you find calm in the financial storm?
• How much more of the hard times?
• Hopes and fears wrestle with reality in the financial markets.

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(South Sea Bubble cartoon via Wikipedia; pendulum by Ethan Hein; chart from the Dallas Fed.)

Having some grasp on the history of the mass media enables us to think through the implications and complications of social media in more productive — and potentially more lucrative — ways.

In his most recent post, Brian Haven offers some high-level thoughts on how the social media are like all previous media, and the key ways in which they — or rather, the ways we use them — differ:

All Media Is Social

[I]n reality, none of these behaviors are new. If you think about all of the social tools and behaviors happening today, in almost every case there is an equivalent comparison to activities in the past.

The piece is well worth two minutes of your time. I’m glad that Brian has expressed these ideas in such a pithy post. His thoughts reflect (wordier!) ones of my own, including two posts here . . .

Social media: the right tool for the job.

. . . As time goes on, we’ll continue to use Twitter and other social media tools in ways that overlap with older communications media, but we’ll also come to rely on them for the unique problem-solving properties that arise from the way they are structured. . . .

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Western Union and record labels.

. . . Once upon a time, Western Union was your go-to source for the fastest possible communication. Need to let somebody know something now? Run down to Western Union and send a telegram. Problem solved. Boom. Huge market. Iconic company.

Over time, of course, that advantage eroded, thanks to technological advances ranging from the Telex machine to self-dialed long-distance telephone calls to fax machines and on to e-mails and ubiquitous cell phones. By the time all this came into play, your new go-to source for the fastest possible communication was . . . well, take your pick.

. . . and two comments that I’ve made recently on Chris Brogan’s blog:

Social Media Tools Are Like Phones

. . . As with these other media, the challenges arise when we’re figuring out what to *do* with them. Few people cared about radio when it existed only in the realm of engineers and hard-bitten enthusiasts, but today most of us interact with radio in one form or another without needing to think *about* the medium — we just use it.

Workflow – Social Media Pastor

Throughout the history of Christian evangelism, preachers have used the best available technology it spread their message. By no means is it an accident that the first movable-type book printed in Europe was a Bible, and by no means was it an accident that Martin Luther used the then-cutting-edge technology of pamphlet printing to spread his message of reform through the German-speaking lands. . . .

Regular readers may recall that I’m halfway through a Ph.D. in history at my beloved alma mater. I well understand why many people rate history as one of their least favorite courses in school (it’s often taught poorly), but it’s important that we have some regard for what’s come before, simply to help us understand what we’re getting now.

What do you think?

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(Picture by … jc …, used under a CC-ND license.)

If you haven’t read this uber-feature already, do yourself a favor, set aside a little time, and imbibe.

“How the Web Was Won” uses small bits of narrative to link together lots of first-person anecdotes from seminal figures in the history of the Internet, including Leonard Kleinrock, Paul Baran, Bob Metcalfe, Vint Cerf, Jeff Bezos, and Vinod Khosla.

The anecdotes — and the historical insights they convey — led me to wish that the feature was even longer, which is not something I can usually say about magazine journalism.

It also led me to notice, not for the first time, how new fortunes have been made in computing in every decade since the 1960s, and to wonder, not for the first time, where the next grand fortunes in computing and connectivity will be minted.

Here’s the link again: How the Web Was Won

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Of related interest:

• The Computer History Museum’s “Internet History” exhibit.
• Martin Dodge’s Atlas of Cyberspaces.

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(Image, “The Web Is Agreement,” by Paul Downey. It’s worth it to check out the Flickr page for the image to see the annotations.)

There’s no special reason that a baseball game seems like the perfect thing for the Fourth of July . . . unless you’re one of the many millions of Americans (like me) for whom it is the perfect thing.

There nothing wrong with it, mind you, but it’s not logic — it’s culture.

Culture grows out of all sorts of things: religion, wars, landscape, historical trends, etc. But plenty of it is basically accidental. If things had been just a little different, for example, Americans might regard the Fourth of July as a perfect day for football or soccer or horse racing.

(For that matter, the Fourth of July was very nearly the Second of July, since that’s the day the delegates agreed on the Declaration of Independence. But they didn’t start signing it until two days later.)

The historical accident of cheap energy

Oil, just by coincidence, occurs naturally in abundant qualities in places like Pennsylvania, California, and Texas. It’s also a wonder-chemical when it comes to packing BTUs into a small amount of mass. Plus it’s easy to burn — in an oil lamp, a piston engine, or whatever.

If oil hadn’t occurred in abundance in the United States, or if it hadn’t been discovered until much later, or if it weren’t so easy to burn, Americans might have very different views about a lot of things: automobiles, the proper price of fuel, the Middle East, and so on.

Note that I don’t say which way would be better. Ultimately, it’s unknowable. I’m just observing that things surely would be different.

Japanese industrial cooperation

My friend James Governor, who’s a technology analyst with a focus on environmental issues, raises this issue with his latest blog post:

Collaboration On A Grand Scale: Japan and Carbon Capture

. . . Japan has a history of successfully retooling its economy to deal with economic challenges and scarcity . . . It’s a country with a particularly strong sense of duty and continuity.

Keep in mind that, in different settings, “collaboration” involving 24 power companies could be interpreted as “collusion” or “oligarchy” or something else. Keep in mind, also, that these interpretations would be culturally driven — because legal and commercial norms are parts of culture.

Getting back to oil for a minute, it might be worth noting here that the “Seven Sisters” of the 20th-century oil business were notorious for being brass-knuckle competitors, yet were also watched constantly for signs that they might be colluding to the detriment of consumers (or, later, oil-producing countries). So when, say, Exxon and Chevron pooled their resources into Aramco in 1948, they were careful to do it in a way that wouldn’t be construed as forming a trust by U.S. regulators.

Hospital patient charts

With a typically acid tongue, The Last Psychiatrist lays out

Six Quick Changes That Will Lead To Better or More Cost Effective Hospital Care

Since I’ve never been a doctor or a nurse, I can’t speak to the accuracy of the post’s suggestions. But the important thing to note is that TLP is suggesting changes that could be put into effect at any time by a change in rules, not a change in technology.

Rules are a piece of culture.

American hospitals have their own culture just like the international oil business or the Japanese energy business. TLP’s suggestions involve nothing more complex, in terms of logic, than using a pen and following some new guidelines. But TLP seems well aware that the suggestions would be resisted, in some cases tooth and nail, by doctors.

How to solve a big problem

Businesses are facing enormous challenges. Not just the forever-and-ever challenges of finding good workers, finding good customers, managing finances, and so on, but changes in the landscapes of whole industries. And many businesses — many whole industries — are figuring out that they must make huge changes of their own. But how to do it?

Unfolding the whole answer has already filled libraries. But one of the starting points to the answer is this:

Understand that you’re not just changing the reasons or the logic or the mechanics, but the CULTURE.

It’s the same for organizations as it is for individual people. Most folks don’t change their actions unless they change their whole way of looking at things. It’s true of heart patients trying to live longer. It’s true of people who want to fix what’s broken in their lives. And it’s true of organizations that want to embrace change.

Culture as a technical problem

We like to focus on technical challenges. If we can clarify specs, enumerate steps, compose a Gantt chart, we can often break down a big thing so that it seems manageable.

Culture? People issues? Not so much. Too sticky — and it’s hard to get people to change.

But in fact, steering the culture in a better direction is part of the technical challenge itself, because you can’t implement the world’s best technical solution if you don’t do it in a way that’s culturally doable.

The moral of this story: You can be as logical as you like, but until you get the culture right, you’re rowing against the tide.

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(Photo by jimcchou.)

In February, Fast Company ran a special section on oil companies and their efforts at sustainability. You can find an overview and links to various sections here:

Sensible Investing: Oil

The approach of the section puts me in mind of something I’ve been thinking about a lot lately, namely how business evolves to incorporate elements that were previously regarded as externalities. Sometimes it happens because of new regulation, sometimes in response to the concerns of customers, sometimes in response to events beyond any one company’s control. Some historical examples:

• Two hundred years ago, as the Industrial Revolution got underway, workers in Britain, the United States, and other industrializing countries had little legal protection from accidents on the job. If you lost a finger or a hand tending a loom, those were the breaks. Employers would be concerned about this only insofar as they needed to keep a supply of workers close to hand, or else only out of the goodness of their hearts.

  

• A century ago, the U.S. meatpacking industry underwent huge upheaval after Upton Sinclair published The Jungle, which exposed the industry’s health and safety shortcomings. The Pure Food and Drug Act forced meatpackers like Armour and Swift, along with companies in related industries, to come to grips with the demands of food safety — even when that meant large outlays of money.
• In the postwar boom of the 1950s, many major U.S. employers started offering health insurance and similar benefits as a way of attracting workers. What had once been an externality well outside employers’ purview became a key selling point in recruiting new employees.
• During the 1980s, anti-Apartheid activists forced many U.S.-based companies like Coca-Cola to rethink, revamp, or even retract their activities in South Africa, despite the money that the companies were making there. Coke and other companies were forced to bring political externalities into their calculations about how to do business in a major overseas market.
• Since the rise of the World Wide Web in the early 1990s, more companies than ever are offering telecommuting and other flexible work-life arrangements to attract and retain the best talent. In the old days, a company could afford to ignore issues like this, and indeed to insist that workers pattern their time around an 8-to-5 schedule. That seems to be decreasingly true.

Today, of course, the major issue is climate change. For now, companies like Exxon Mobil continue to focus on pumping hydrocarbons out of the ground, convinced — maybe rightly — that oil & gas will continue to be the world’s key sources of energy for decades to come. Other oil majors, like Shell, are taking substantial steps to reduce their carbon footprints now, since they figure that some sort of regulation on carbon (a tax, a cap-and-trade system, or the like) is probably inevitable.

Once upon a time, the key challenges of life were getting enough to eat, avoiding illness or injury, and raising one’s children to adulthood. These days, most of these basic needs are pretty well met for Americans and their economic peers. Yet the world continues to face major problems, including one — climate change — that could be The Problem for this century and beyond.

No doubt different companies and different governments will take varied approaches to bringing these new externalities inside companies’ circle of concern. But however it unfolds, the whole process can’t fail to be interesting.

His post is interesting, fairly short, and well worth a read. Here’s the crux:

In the end, this strike is not about DVD and digital royalties. Ultimately, this strike is about the massive and traumatic erosion of privileges afforded the middle-ranking factory workers. But of course, there’s not a damn thing they or their bosses can do to bring those privileges back. The landscape of media is moving away from large studios, to college dorms, downtown lofts, and suburban garages. Like Madison Avenue, Hollywood won’t disappear. But also like Madison Avenue, it’ll never command the cultural vanguard like it once did.

(Emphasis in original.)

Here’s a sketch of what I’ve been thinking about television and where it’s headed: Read more