Leading to Recovery - Presentation at 2009 PMI MN Professional Development Days

Leading to Recovery


GOOD MORNING!! - Thank you for coming. When I looked at the presentation schedule I was a bit surprised to find myself speaking about leadership in the Technical Skills & Tools track. But it works out well as the two sessions in the Soft Skills track this afternoon, “Influencing Others: How to Get the Results You Want” and “Leadership: the Final Frontier”, will be excellent follow-on discussions to this presentation.

In thinking about what I could share with you today I considered topics like best practices in project management, reasons projects fail, characteristics of successful project managers, and similar topics – but these have been covered very well by many others. The thing that kept coming to mind was the monumental change we’ve experienced in our economy and how we can cope and compete in a post investment banking world. A situation brought about largely by a massive lack of leadership by many people at many levels.


Today I will discuss how we might turn the enormous baskets of lemons that have been dumped on our doorsteps into lemonade. I will share insights from a management guru, contrast characteristics of leadership and management, examine some of the changes we’ve experienced, discuss reforms needed to lead to recovery, and present opportunities hiding in desperate situations.

A word of warning, You will undoubtedly find the distinctions between I am going to present between leadership and management quite harsh as I initially did. However I hope you will accept the challenge to reflect on these distinctions and allow new insights to form.

Reflecting on the massive change we are experiencing I began to wonder if what I’ve learned from my formal education and subsequent experience was still valid, what adjustments to my mental model of the world were needed, and what opportunities could be realized from such a catastrophic economic situation. I found myself revisiting writings from people whose experiences span decades and still remain relevant. I was particularly struck by the insights of Peter Drucker, recognized as the founder of modern business management and self described “social ecologist”.

Drucker was born in 1909. He authored 39 books, countless articles, and was still actively contributing to the management body of knowledge when he died in 2005 at the youthful age of 96. At the risk of turning this into a Drucker fest I will share more than a few of his insights that seem particularly relevant now. Reflect on these quotes in the context of what we are experiencing.


On Banking. “Commercial paper (that is, short-term notes originated by nonbank financial institutions) did not originate with banks, but had a tremendous negative impact on them. Under U.S. law, commercial paper is considered a security, which means that commercial banks cannot deal in it. Because financial service companies, such as Goldman Sachs, Merrill Lynch, GE Capital, and so on, discovered this, they have largely replaced commercial banks as the world’s most important and leading financial institutions.”


On corporate greed and corruption. “It is easy to look good in a boom. But also, every boom – and I have lived and worked through four or five – puts crooks at the top. The only thing new is that the last boom considerably increased the temptation to fake the books – the exclusive emphasis on quarterly figures, the overemphasis on the stock price, the well-meant but idiotic belief that executives should have major financial stakes in the company, the stock options (which I have always considered an open invitation to mismanagement), and so on.”


On excessive compensation. “I am for the free market. Even though it doesn’t work too well, nothing else works at all. But I have serious reservations about capitalism as a system because it idolized economics as the be-all and end-all of life. It is one-dimensional. I have often advised managers that a 20-1 salary ratio between senior executives and rank and file white collar workers is the limit beyond which they cannot go if they don’t’ want resentment and falling morale to hit their companies.

Today, I believe it is socially and morally unforgivable when managers reap huge profits for themselves but fire workers. As societies, we will pay a heavy price for the contempt this generates among middle managers and workers. In short, whole dimensions of what it means to be a human being and treated as one are not incorporated into the economic calculus of capitalism. For such a myopic system to dominate other aspects of life is not good for any society.”


On our government. “We are rapidly moving to doubt and distrust of government. We still revise unsuccessful programs over and over again, and assert that nothing is wrong with them that a change in procedure will not cure. But we no longer believe these promises where we reform a bungled program for the third time. We no longer expect results from government.”

Today we face challenges the likes of which have not been seen for three generations and probably not in the memories of many, or any, here today. Clearly, we will not be able to manage our way out. What we will need is strong leadership – in many places, at many levels.

It is important to understand the distinction between leadership and management. One is not better than the other. Both are essential. We probably all think of ourselves as leaders and we probably are in our own unique situations but most people are better suited to one or the other.

There is one incontrovertible maxim in leadership. You can only lead if you have followers. There are many reasons to follow but you will only have (loyal) followers if people trust you. Trust is earned. It is given. Trust will only exist if you CONSISTENTLY:


1. Demonstrate integrity. Honor your commitments & promises.
2. Set high – but achievable standards.
3. Listen – seek first to understand then be understood. It is easy. All you have to do is keep your mouth shut.
4. Engage people in creating the future. People will (or are more likely) to accept change they helped create but will predictably resist or outright reject change that is forced upon them.
5. Treat people with respect and trust in their abilities. Support your coworkers. Be there for them when it counts. Encourage them to freely share their thoughts and feedback – encourage constructive dissent - and act to incorporate their views.
6. Publically recognize success as the accomplishments of others. Don’t claim success as your own. Have a sense of humility.
7. Treat people fairly in all things. Be consistent.
8. Accept and do not punish failure – provided one learns from the experience and does not repeat the mistake.
9. Inspire optimism
10. Speak truth to power

We would all follow someone who lived these principles and I believe that we all aspire to these things in our own lives .

We are only successful to the extent that we make those around us successful – up, down, and sideways. This is true whether you are a leader or a manager. So what are the distinctions?

In his book Leading Change, John Kotter, professor of Leadership at the Harvard Business School, describes management and leadership as follows.


“Management is a set of processes that keep a complicated system of people and technology running smoothly. The most important aspects include planning, budgeting, organizing, staffing, controlling, and problem solving. Leadership is a set of processes that creates organizations in the first place or adapts them to significantly changing circumstances. It defines what the future should look like, aligns people with that vision, and inspires them to make it happen despite the obstacles.”

A good friend of mine observed that the positional power of management is given by superiors. The influential power of leadership is given by people above, around, and below. You cannot manage outside your position in an organization but you can lead from anywhere.

Frequently, leadership and management are conflated. Typically, management and control is what is emphasized & institutionalized. Change is a disturbance to the smooth functioning of an organization and is something to be systematically controlled or better yet – squashed. The result is organizations that are over-managed and under-led. That being said – managing change is important otherwise a well structured transformation process can get out of control. However, for most organizations the bigger challenge is leading change. Successful transformation is 70-90% leadership and 10-30% management. Yet almost everyone thinks about the problem as “managing” change.

Warren Bennis, Professor and chairman of The Leadership Institute at the University of Southern California, makes a harsher, but essentially compatible, distinction in his book On Becoming a Leader. In the following try to focus on what is being said – not how it is being said.


Bennis says that the difference between managers and leaders is defined by those who master the context and those who surrender to it.
· Managers administer, leaders innovate
· Managers are a copy, leaders are original
· Managers maintain, leaders develop
· Managers focus on systems & structure, leaders focus on people
· Managers rely on control, leaders inspire trust
· Managers have a short range view, leaders have a long range perspective
· Managers ask how and when, leaders ask what and why
· Managers’ eyes are always on the bottom line, a leader’s eye is on the horizon
· Managers imitate, leaders originate
· Managers accept the status quo, leaders challenge it
· Managers are the classic good soldier, a leader is his own person
· Managers do things right, leaders do the right things

If you are like me, I’m sure you are, to say the least uncomfortable, perhaps downright incensed, with Warren’s judgmental characterization of management. Forcing myself to re-read and examine what he has said I’m more inclined to accept his words as statements of fact rather than indictments.

The truth is that we need both leaders and managers. In fact we need fewer leaders than managers. If everyone were “leading” establishing their vision, setting direction,… we would have chaos. Leaders are not the people who make things happen. Leaders are frequently quite poor at detailed implementation.

Think of Steve Jobs. He is a very creative and inspiring leader. No one else in the company is like him. Now imagine the disciplined management it takes to transform his vision into and I-phone or and I-pod. However, also recognize that this management comes after setting the vision and leading the needed change.

Leadership is not easy. Remember, Steve Jobs was kicked out of his own company. In fact this is not an uncommon fate for entrepreneurial leaders.

Now that we are again supremely comfortable with the role of management and feel power and purpose again coursing through our veins, just remember – the manager is the boss and boss spelled backward is double SOB.

Leaders create an atmosphere of collaboration. If a leader creates an atmosphere where people are more concerned about failing at what they are doing rather than doing it the leader will not succeed. Fear leads to massive waste. The same can be said for internal competition. A company must have internally focused collaboration and externally focused competition.


Max DePree said in Leadership Is an Art, “The first responsibility of a leader is to define reality. The last is to say thank you. In between, the leader is a servant.”


Drucker identified the following characteristics for the next generation of leaders:
1. Broad education
2. Boundless curiosity
3. Boundless enthusiasm
4. Contagious optimism
5. Belief in people & teamwork
6. Willingness to take risks
7. Devotion to long-term growth rather than short term profit
8. Commitment to excellence
9. Adaptive capacity – comfortable with ambiguity
10. Empathy
11. Authenticity
12. Integrity
13. Vision

Leaders are needed to lead change as well as to react to unexpected change – to see opportunities, revise the vision, and set the new direction. Change creates opportunity – in this case is opportunity of a lifetime. What we are experiencing is a paradigm shift and in a paradigm shift everyone goes back to square one.

Because leaders are continuously learning and adapting, you can substitute learners for leaders.


Eric Hoffer of Vanguard Management observed, “In a time of drastic change, it is the learners who inherit the future. The learned find themselves equipped to live in a world that no longer exists.”

Well there are a lot of things that no longer fit our assumptions. It has been said that it is not the things that we don’t know that cause problems. It is the things we know for sure that just ain’t so.


Here are some things that we used to know for sure that just ain’t so:
1. Here is one straight from business school - Corporate debt is good for shareholders – the underlying now questionable assumption being that financing is readily available
2. Home prices will go up forever
3. You can always refinance a mortgage that you can’t afford
4. Regulators Regulate
5. The market will regulate itself
6. Profit motive will prevent risky investment and behaviors
7. Government oversight is adequate
8. Auditor reports are reliable (PWC and Satyam)
9. Investment bankers and credit rating agencies properly assign and manage risk


In response, consumers have drastically altered their buying habits. Here is a short list of what’s in and what’s out
1. Neiman Marcus is out – garage sales are chic
2. Land barges and corporate jets are out – Prius is in
3. Dirty energy is out – alternative energy is in
4. Financing lavish lifestyles is out – living within our means is in
5. Onerous credit card debt is out – paying off debt is in
6. Making loans with no documentation of income & debt is out –bringing mountains of papers to prove every nickel of income or obligation is in
7. Complex un-ratable financial instruments are out – treasuries are in
8. Lavish compensation is out – clawbacks are in
9. Lax oversight and enforcement is out – accountability and regulation is in
10. Onerous credit card rules & interest rates are out – consumer rights are in
Reality has changed. Our paradigms have drastically shifted.


Drucker says the following, “In a time of change you need to carefully examine “the future that has already happened”. Assess what has occurred that does not fit your current assumptions and thus creates a new reality – a need for a new intellectual framework to win in the new market.

Today’s realities fit neither the assumptions of the Left nor those of the Right. They don’t mesh at all with “what everybody knows.” They differ even more from what everybody, regardless of political persuasion, still believes reality to be. “What is” differs totally from what both the Right and the Left believe “ought to be.” The greatest and most dangerous turbulence today results from the collision between the delusions of the decision makers – whether in governments, in the top management of businesses, or in union leadership – and the realities.”


I believe that our ability to recover and indeed to lead the recovery requires sweeping reforms in government and the regulation of financial institutions (which I won’t address today), ethics, education, energy and the environment (which are inextricably linked), and health care. In recent months some progress has been made on some of these issues but much remains to be done.

What happened to ethics? How did we create Tom Peters, Bernie Madoff, and Allen Stanford? Why would loan originators push families into home loans for which they clearly were not qualified?

We talk about business ethics as if it were separate form any other form of ethics. Why is there any notion that our business ethics should be any different than our personal ethics? Hippocrates established the basis of ethics 2,400 years ago with the oath among other things, to "Above all, do no harm". This applies to everyone and to all endeavors. It is a sad commentary that we need to write policies on business ethics, provide training on business ethics. To be sure there are cases that present dilemmas but those situations bear no relation to the lapses that brought us to where we are today.

What we are experiencing is nothing less than the fruits of a massive loss of personal integrity in leadership.


Heraclitus (hair a clight us) , the Greek philosopher, said, “The soul is dyed the color of its thoughts. Think only on those things that are in line with your principles and can bear the full light of day. The content of your character is your choice. Day by day, what you choose, what you think, and what you do is who you become. Your integrity is your destiny. It is the light that guides your way.”

Leadership cannot be faked and integrity cannot be acquired at a later date. Our deeds are who we are. As Emerson echoed, “What you are speaks to loudly that I cannot hear what you are saying.”

What is needed is nothing less than the expectation that we return to the private virtues that Drucker describes.


He said, “In a moral society the public good must always rest on private virtue. To make what is good for the country good for the enterprise requires hard work, great management skill, high standards of responsibility, and broad vision. It is a counsel of perfection. To carry it out completely would require the philosopher’s stone that can translate the basest element into pure gold. But, if management is to remain a leading group, it must make this rule the lodestone of its conduct, must consciously strive to live up to it, and must actually do so with a fair degree of success. For in a good, a moral, a lasting society, the public good must always rest on private virtue. Every leading group must be able to claim that the public good determines its own interest. This assertion is the only legitimate basis for leadership; to make it a reality is the first duty of the leaders.”

Back in 1959 Drucker coined the term “knowledge worker” as distinct from craftsman performing manual work that relied on skills acquired through apprenticeship. Knowledge and skill are different in that skills change very, very slowly. Knowledge changes itself and makes itself obsolete and very rapidly. To stay relevant, knowledge workers must engage in continuous learning throughout their careers.


Knowledge workers rely on substantial formal education and the ability to acquire and apply theoretical and analytical knowledge. Knowledge workers change the nature of work itself and the structure of organizations. The ascendance of knowledge and the transition from manual to knowledge work made workers free agents. Information technology has rapidly accelerated this transition and continuously changes the speed and dynamics of knowledge and information exchange in nearly unimaginable ways and has lead to the DIS-integration of the familiar corporate structure, the most visible manifestation of which is currently outsourcing. In today’s global economy, a vast and increasing percentage of work is “knowledge” work. We are in competition daily with the best and brightest knowledge workers around the globe and we are steadily losing our ability to compete.

We need to reform education in order to maintain our leadership position in a knowledge-based world and particularly in one where a paradigm shift has set everyone back to square one. Further, the foundation of any successful reform, any breakthroughs in any field, is education, and in that respect we are in serious trouble. Our schools are not world class, the products of our K-12 education system are high dropout rates and a minority of students actually performing at the level of a high school senior.

Consider as a poster child for reform, a bill that passed our state legislature. Elimination of GRAD requirement (HF 501, Mariani, DFL-St. Paul/SF 405, Wiger, DFL-North St. Paul): This bill allows students who cannot pass the GRAD test – Graduation-Required Assessments for Diploma – to still receive a high school diploma.

There is plenty of data to show that our schools are failing. Nationwide, 58% of ADULTS cannot calculate a 10% tip on a $24 restaurant bill. 30% of high school students drop out and in inner cities the rate exceeds 50%. The percentage of students going on to college is falling as is affordability and the number of students pursuing math, science, and engineering careers.


The Trends in International Mathematics and Science Study 2007 International Mathematics Report presents some worrisome findings - emphasis mine.
(report available at http://timssandpirls.bc.edu/TIMSS2007/mathreport.html )


“At the eighth grade, Chinese Taipei (known to us as Taiwan), Korea, and Singapore had the highest average mathematics achievement. These three countries were followed by Hong Kong and Japan, also performing similarly and having higher achievement than all the other countries except the top three performers. There was a substantial gap in average mathematics achievement between the five Asian countries and the next group of four similarly performing countries, including Hungary, England, the Russian Federation, and the United States. Among the benchmarking participants, the two U.S. states, Massachusetts and Minnesota, and the province of Quebec were outperformed by the five Asian countries but had higher average achievement than the group of four countries.


Remarkable percentages of students in Asian countries reached the Advanced International Benchmark for mathematics, representing fluency on items involving the most complex topics and reasoning skills. In particular, at the fourth grade, Singapore and Hong Kong had 41 and 40 percent of their students, respectively, achieving at or above the Advanced International Benchmark. At the eighth grade, Chinese Taipei, Korea, and Singapore had 40 to 45 percent of their students achieving at or above the Advanced International Benchmark. The median percentage of students reaching this Benchmark was 5 percent at the fourth grade and 2 percent at the eighth grade.”

Let’s look at some of the results.
Page 82 – International benchmarks 4th & 8th grade
Difference between 4th & 8th grade
Interesting finding Page 70 – Gender performance


Here were the factors for higher achievement. None of these will be a surprise.
Homes with more books
Higher levels of parent’s education
Access & use of computers (at home & at school)
Positive attitude towards math
Schools with fewer students from economically disadvantaged homes
Schools with few attendance problems (particularly in 8th grade)
Few resource shortages & good working conditions for teachers
Teacher’s positive view of school climate & student perception of being safe


Here are some things that I believe need to be part of educational reform.

1. Stop social promotion – students need to perform at grade level. Social promotion may be an easy solution for teachers and administrators but this practice does an incredible disservice to students and condemns them to continual failure as they are promoted to ever higher levels of expectations when they cannot perform even at the lower level.
2. Establish uniform standards for subjects at each grade level. These standards must compete with world class standards in other (even developing) countries. Local communities can choose to exceed these standards but they set a competitive floor on expected knowledge. When a student graduates there needs to be a uniform understanding across the country and around the world about the level of mastery achieved.
3. Establish a system that rewards excellence in teaching and prepares teachers to effectively present world class learning opportunities
4. Assure that teaching is of uniform quality regardless of where it is delivered.
5. Assure that our schools focus on teaching. It is not possible for schools to solve social problems that result in kids who are not ready to learn or see no value in learning.
6. Create a system that uniformly funds schools so that schools in Hector are as equipped to deliver a 21st century education as those in the Hamptons.
7. Fund programs that help prepare kids for school and keep them in school. Kids don’t learn when they are hungry, or afraid, or tired from working to support their families, or associated with gangs that to say the least, disparage academic achievement.
8. Assure that higher education is available to those who are prepared. This implies two things. First that those going on to college are indeed prepared to master work at that level. Too many resources are expended within our state college system trying to remediate problems that should have been addressed in high school. The increasingly scarce funds for higher education need to be focused on higher education – not continuation of high school. Second it implies that higher education is affordable. Just as we as a country decided that government sponsored K-12 education was necessary to complete in an industrial society we need to recognize that a college education or similar advanced training is now the entry level standard to succeed in a knowledge-based, global economy.


The March 26th, 2009 Minnesota Public Radio’s MidDay program had an excellent discussion relevant to needed educational reforms. You may want to access it online and listen to it.

For the above to be judged a success, and indeed to measure the success of any effort, metrics and criteria for success must be established.


Drucker observed, “In any social situation of the kind we deal with in enterprise, the act of measurement is neither objective nor neutral. It is subjective and of necessity biased. It changes both the event and the observer. Events in the social situation acquire value by the fact that they are being singled out for the attention of being measured. The fact that this or that set of phenomena is singled out for being “controlled” signals that it is considered to be important. Controls in a social institution such as a business are goal-setting and value-setting. They are not objective. They are of necessity moral. Controls create vision. They change both the events measured and the observer. They endow events not only with meaning but with value. And this means that the basic question is not “How do we control?” but “What do we measure in our control system?”

Drucker has essentially restated the Heisenberg uncertainty principle that essentially says that the very act of measurement changes the system. What you measure is what you get so care must be taken in choosing the metrics to avoid harmful distortions as people predictably try to game the system.

For sure these are drastic and potentially costly changes, but they are necessary for our competitiveness and indeed our security. Consider the payback on investing in 16 years of education and 50 years of productive work, paying taxes, and leading in production and delivery of the goods and services needed in a globally competitive, knowledge-based economy. Consider the costs of continuing as we are where dropout rates are high, many “graduates” are ill prepared for higher education, and many of those that are cannot afford it. Consider the costs of more crime, more jails, more social programs, teen pregnancy, health care for the indigent, and ever shrinking tax revenues in the face of ever increasing demand.

We view education as an expense rather than as an investment, particularly if it is other people’s children that are being educated. No substantial progress will be made as long as we hold this view. The reality is that there is nothing with a higher return on investment than education. It is an investment we simply cannot afford NOT to make.

In the sixties our educational system was devoted to math and science so that we could put a man on the moon before the decade was out. Today, our efforts in the sciences face a no less daunting challenge – the remaking of our energy system to avoid catastrophic climate change.

To be sure there are people who do not believe that climate change is real or if it is that it is manmade. There are also those who believe that we did not go to the moon, that the earth is flat, and that Elvis is not dead. I don’t believe any amount of rational discourse is going to alter these people’s minds. But even if global warming is not real, surely it is still better to not pollute. It surely will not harm us to develop sources of clean energy that will not be depleted. Given that virtually the entire world’s scientific community agrees on the causes and effects of global warming, that changes are happening even faster than they have predicted, and given the magnitude of the social and economic effects – I think we are better off accepting that global warming is real and that we had better deal with it NOW.

In our capitalistic world (including China, Russia, India, - virtually all but the most failed, totalitarian states) nothing will happen until the cost of doing something are outweighed by the costs of doing nothing. Only advances in technology and supporting government policies are going to make that happen. No single company can make the necessary long term investments in basic R&D in alternative energy nor can companies create policies that encourage commercialization and adoption. This is the role of government. We have the talent available, we know the need, there are many technologies to develop. We need to act NOW!

Why is it important to make these investments? Other than not toasting the ice caps, it will be hugely PROFITABLE - IF we are in a position to lead. Currently the largest producers of photovoltaics are in China and Germany. .


Of the 10 leading wind turbines manufacturers one, only one, GE, is a U.S. company. Will we invent, license, and sell worldwide or will we be buying someone else’s technology, sending them our money instead of reaping the rewards.

Consider the global market for technologies that reduce consumption, reduce emissions, remediate existing contamination, recycle existing resources (anyone for mining our landfills?) and provide renewable energy resources. Consider that China is in fact recognizing the impact of pollution on its economic wellbeing and the wellbeing of it citizens. Consider the fact that as soon as the economy recovers the demand for energy will rebound and again drive prices sky high increasing our security risks as we compete for scarce resources and trigger another economic slowdown.

In setting policies we must be much more aware of unintended consequences of well intended actions. Ethanol is big – but we didn’t fully understand the energy efficiency of its entire life-cycle nor did we foresee the global impacts of burning food for fuel. When considering the next generation of biomass incinerators and cellulosic ethanol plants we must think about the implications of burning or fermenting everything that grows, leaving nothing left in fields and forests to return to the soil, increasing erosion and the need for more petroleum-based fertilizers.

Our new challenges are long term, the solutions are long term, and the investment required is long term. The problem is that we have an exceedingly short memory.

Thanks goodness for the economy that we again have cheap gas – right?? A year ago when gas was $4 a gallon you couldn’t give SUVs away. If you bought a high mileage car dealers would throw in a SUV for $50. All we heard about on the news was high mileage cars, hyper-mileing, alternative energy sources we hadn’t even heard of – algae, new photovoltaic, bio-diesel from coffee grounds, hydrogen comes back every time, and now even salt power. Earlier this year when gas was back to $1.45 we stopped hearing about these things. Trucks were selling and cars that got good mileage sat on dealer’s lots.

There is no single solution to the world’s energy needs. The solution will involve every imaginable energy source standardized for delivery into transportation fuels and smart electrical distribution systems. Our future lies not in the rumble of Hummers but in the hum of electric vehicles and the swoosh of wind turbines – but these are today’s technologies and can only be the start.

To recover sustainably and to our full potential will require finally addressing the issue of health care. I don’t pretend to have answers but I would suggest that you have a cup of coffee with my sister, a physician who constantly struggles to balance the tension between the time she would like to spend with her patients and the demands for “productivity”.

As I said, I don’t have answers and the topic is too complex to cover here but I do have some basic questions. When did the practice of medicine shift from the physician’s office to a call center cube in an insurance company staffed by a high school dropout telling doctors what they can and cannot do? When did health care’s customers cease being the patient become the insurance companies? And more recently, just when did the focus change from health care reform to “health insurance reform”?

I remember a different era in health care. It was a time when the statue of Chief Kandiyohi was on the bank at the corner of 5th street and Litchfield Avenue in Willmar, MN. It was a time when, if I walked with my Mom from my grandparent’s apartment above Shorty’s hardware and she took at right at the statue, the entire city of Willmar knew from tennis shoe skid marks and wailing for the next block and a half that I was being taken to the clinic where I would be punctured with HUGE needles. It was a time when doctors practiced medicine, not insurance companies. Doctors were able to spend time with patients and provide the care needed without ordering all possible diagnostics in order to defend against lawsuits. Aside from the needles, I think it was the golden age of medicine.

Education, energy and the environment, and healthcare - these are government level issues. Only the government can set policies and bring sufficient resources to bear. Our role is to become engaged in the discussion, communicate with facts, provide our elected representatives workable solutions, and demand fiscally responsible, effective, programs with accountability for success. The resulting policies and programs must direct investment to areas that will provide both a short term boost and long term value.

Let me share some thoughts that I hope will generate continued discussions and creative solutions in our own communities.

The new realities are that businesses of every size are under enormous pressure to cut costs. Markets are radically changing and businesses must be able to react or they will cease to be in business. The world is in agreement about the reality and threat of global warming. People and business in particular are becoming more conscious of their own carbon footprint not only because of environmental correctness but also because of economic savings. The centers of outsourcing are losing their attractiveness due to decreasing labor arbitrage advantage, and increasing political instability.

So what does this mean for us? Here is one possibility. It means that short supply chains could easily trump global supply chains. Why? .


1. Reduced transportation costs throughout the supply chain. Currently many countries import raw materials to make (for instance) circuit boards and integrated circuits. These components then get shipped to (more often than not) to China for assembly. After that, the finished products are shipped around the world to distribution centers, then to retailers, and finally to the end customer.
2. Shorter chains are more responsive and have less inventory in process
3. Shorter chains are less complex and costly to manage
4. Geographically “close” suppliers likely operate in the same language, in the same legal system, and within a few time zones
5. Efficient manufacturing and engineering offset the decreasing advantage of low wage locations
6. Goodwill is generated by creating and keeping jobs at home. I am NOT advocating protectionism. I am suggesting that when the fully allocated costs (including carbon) of global supply chains are taken into account I believe there is a case to be made that short supply chains provide economic and competitive advantage.

Companies are desperate to find low cost, productive, easily accessible areas with low turnover, low political and natural disaster risks, excellent transportation links, redundant high speed telecomm and data capabilities, and an educated, English speaking, easily managed workforce, located within a few time zones, in the same legal system.

This presents large opportunities for communities outside traditional locations to present their value proposition. Notice that the word “presents” means that they must get the word out about their community’s potential. Just because they know their potential does NOT mean that people will be beating a path to their door. Just because you build it does NOT mean they will come.

To take advantage of the new realities communities must bring new alternatives to business. They cannot wait for business to figure it out because most of them won’t and it is easier for them to continue with existing business relationships.

We must also assess government policies to identify and leverage unintended consequences. For example:

Firms that have received government bailout funds have restrictions on hiring people with H-1B visas. This doesn’t sound so bad, but it doesn’t apply to the outsourcing vendors working for these firms. This can have the consequence of driving companies that had planned on keeping jobs onshore – even if partly done by H-1B vias holders – to take all the work offshore. This presents an opportunity for creative communities to capture this business.

Not all challenges involve technology, outsourcing, or the politics of immigration. Consider opportunities hiding in the most desperate situations. Take Flint, MI where entire blocks of housing are deserted and elected officials are actively considering bulldozing large tracts of their own city and shrinking the city’s boundaries. The sad fact is that some places simply are not going to come back to their former glory. Other areas are going to grow. How to reconcile supply with demand? Clearly we can’t move houses across the county – or can we if we move them in small pieces. What if we provided jobs to an army of unemployed or underemployed workers to recycle entire houses? Some companies already do this. We need to scale this up massively.


This is a win win win opportunity. Benefits include:
Reuse & Recycling virtually entire homes
Rafters, doors, floors, cabinets, lumber, electrical outlets & faceplates,…
Roofs and foundations – ground to provide aggregate for road construction
Essentially everything except the sheetrock can be recycled – and perhaps even this
Reduced demand for natural resources
Employment to dismantle and build new homes
Learning new skills
Dismantling is not destruction
Learn how things are built
Apply skills to building new homes

I hope that this has been a thought provoking discussion. We have covered prescient observations of a management guru, the need for and the qualities of leadership, examined what has changed, what reforms and investments need to be made, and shown that there are substantial opportunities available if we frame the new realities correctly.

Although we call ourselves project managers we in fact have the capability to engage in our communities as leaders as envisioned by Kotter, Bennis, and Drucker.

In closing I would like to share two more thoughts. First a thought on competition.


“Every morning in Africa a gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed. Every morning a lion wakes up. It knows if must outrun the slowest gazelle or it will starve to death. It doesn’t matter if you are a lion or a gazelle. When the sun comes up you’d better be running.”

Lastly, a thought on how to reach out to those who have been impacted in so many ways by this recession. Although we can do more I think this would be a good start.


Here is Peter Drucker on the purpose of society: “For the individual there is no society unless he has social status and function. There must be a definite functional relationship between individual life and group life. For the individual without function and status, society is irrational, incalculable, and shapeless. The “rootless” individual, the outcast – for absence of social function and status casts a man from the society of his fellows – sees no society, He sees only demoniac forces, half sensible, half meaningless, half in light and half in darkness, but never predictable. They decide about his life and his livelihood without the possibility of interference on his part, indeed without the possibility of his understanding them. He is like a blindfolded man in a strange room playing a game of which he does not know the rules. Make time to reach out to a “rootless” person who may be unemployed. Drop them a note of support or take them out to lunch.”


Thank you. I look forward to hearing your comments and taking your questions. Two comments before I do. I deliberately presented controversial distinctions between management and leadership in order to provoke a gut reaction and get everyone thinking. I also talked about leadership as if it exists only in the upper echelons of companies. If this is big “L” leadership then there are an infinite number of little “l” leadership opportunities for all of us to be leaders in our own situations.

If you are a mentor, if you exude the characteristics necessary to establish trust, if you exemplify Drucker’s characteristics of leadership – then you are recognizing and seizing these little “l” opportunities and are likely already recognized as a leader.

Globalization & Healthcare

The following article was published in a small local paper nearly three years ago. At that time I suggested that healthcare would be subject to offshore outsourcing. It is now coming to pass and insurance companies are actively looking at this alternative to control costs.

With the current debates about healthcare, education, and the environment I thought it would be useful to revisit a three year old editorial.

Here are links to recent articles about Medical Tourism:

http://www.eturbonews.com/10910/medical-tourism-outsourcing-health-care
http://www.cio.com/article/499827/Offshore_Outsourcing_Sending_Healthcare_Overseas
http://abcnews.go.com/Travel/wireStory?id=6240372
http://www.oregonlive.com/travel/index.ssf/2009/08/medical_tourism_becomes_an_ant.html

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Mom and Dad, How’s the Curry?


I have a picture in my office that is an apt metaphor for competing in a global economy. It is of a male lion lying down in the foreground and a gazelle standing in the background. The text under the picture reads, “Every morning in Africa, a gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed… Every morning a lion wakes up. It knows it must run faster than the slowest gazelle or it will starve to death. It doesn’t matter if you are a lion or gazelle. When the sun comes up, you’d better be running.”

There is a lot written in the press about globalization usually framed as a polarized vision of it being good for large companies and bad for workers. As with most issues, the truth lies somewhere in the middle.

Globalization has been characterized a race to the bottom when in fact it is a very intense race to the top. Articles on the export of manufacturing and service jobs being lost to offshore competition appeals to our fears even though the loss of jobs is a very small percentage of the overall workforce. We cannot ignore this reality but fear-based responses are nearly always counterproductive. There is in fact opportunity IF we respond aggressively and productively.

We have all heard of the offshoring of jobs that involve repetitive process that can be clearly documented and executed anywhere. We tend to think of “low end” types of work but technology is enabling more and more high-skill jobs to be performed remotely such as reading x-rays and MRIs in India. Medical cost are driving insurance companies begin encouraging their insured to have operations in Europe as they have high quality medical facilities at much lower costs.

The fact is that production will flow to the area that can deliver the “product” at a sufficiently high level of quality at the lowest cost. You may think that areas where services must be performed “in person” such as in nursing homes as being immune from this trend but think again. As healthcare costs continue to rise in the United States, there may be a time when it is economically advantageous to send Mom and Dad to a very comfortable nursing home in India with doctors and nurses trained in the U.S. and a staffing level that allows care workers to dote on their every need. Mom and Dad, I hope you develop a taste for curry. Sorry about the monsoons, just pretend you’re in Seattle.

By now we have probably all accepted the fact that when we call a company to place a reservation, get help with computer problems, or resolve billing problems we will be talking to someone in India. While we may cringe at the prospect of having to deal with accents we find difficult to understand, the task at hand is usually successfully concluded (eventually) and even in the face of our frustration the person helping us is always impeccably polite. In the U.S. this work is minimum wage and unlikely to support a family, but in India this is a sought after job that pays a high (relative) wage and attracts educated and ambitious young people. The offshore companies creating these jobs gain valuable experience running large telecommunications systems and designing and securing complex data centers. Taken in its entirety, this is not the minimum-wage, low-tech, low-skill operation it appears. Moreover, these companies are continuously seeking to leverage their experience to take on more complex operations. This is in turn encouraged through government policies that emphasize technology and education.

Make no mistake, today’s offshore companies are not content to just do the “low end” work we don’t want to handle ourselves. Tomorrow they will be capable of doing what we (still) do here today. Unless we have the capacity to continually create the technologies and jobs of the future the offshore companies will assume this leadership role leaving us with neither the capabilities to invent the future nor the cost structure to compete in what has passed us by.

We in the U.S. are not entitled to global leadership. We must earn this position every day. This will not be accomplished by trade or industry protection but rather with policies that encourage research and development, affordable higher education in science and engineering, and immigration policies that encourage the world’s best and brightest to come to the U.S. and help create the future here.

Currently, we attract the best and brightest students from all over the world, educate them in our finest colleges and universities, and then force them to leave the country. Increasingly, due to policies put in place post 9/11 these students are choosing to attend fine educational institutions in countries other than the U.S. This further exacerbates the problem depriving us of their valuable research and post-graduate work that would have otherwise been done here, not to mention going on to start the next eBay, Google, or Intel in some other country. It should also be noted that our best students also have these options and are increasingly taking advantage of them.

We need diversity and we need college education to be affordable for all our citizens. We also must assure that our high-school graduates are prepared to immediately undertake demanding college-level work. While in Minnesota we may compare favorably with other states (although recently we slipped seven places) we must recognize that we are competing with countries like India, China, and Finland and not Arkansas, Mississippi, or California

Our national security is preserved only if our economic security is assured. Even military strength cannot be sustained without the capabilities required to preserve economic security. This security will not be sustained in a country with our current high-school drop out rate, where graduates need remedial training before attending college, and where there is a lack of emphasis on science and engineering needed to create our future and assure our security.

There is no cause to act out of fear, but there are reasons for considerable concern. Our leadership position and security are ours to lose. Affordable, high quality college education and prepared students are the best investment we can make in our future security and prosperity. We must retreat from polarized, fear-induced positions to study, understand, and respond with comprehensive and cohesive public and private initiatives to the challenges of living in a global economy.

In a race to the top we must be the ones raising the bar. We face a real and growing challenge. As Americans we have always risen to the challenge. It is time to unite and rise again.

Chief Seattle: Beautiful Environmental Statement

In 1854, President Franklin Pierce made an offer for a large area of land in Washington State that was occupied by the Puget Sound Indians, and promised a reservation for the Indian people. Chief Seattle’s reply, in full below, has been described as the most beautiful and profound statement on the environment ever made.

“How can you buy or sell the sky, the warmth of the land? The idea is strange to us. If we do not own the freshness of the air and the sparkle of the water, how can you buy them?

Every part of this earth is sacred to my people. Every shining pine needle, every sandy shore, every mist in the dark woods, every clearing, and humming insect is holy in the memory and experience of my people. The sap which courses through the trees carries the memories of the red man.

The white man’s dead forget the country of their birth when they go to walk among the stars. Our dead never forget this beautiful earth, for it is the mother of the red man. We are part of the earth and it is a part of us. The perfumed flowers are our sisters; the deer, the horse, the great eagle, these are our brothers. The rocky crests, the juices in the meadows, the body heat of the pony, and man – all belong to the same family.

So, when the Great Chief in Washington sends word that he wishes to buy our land, he asks much of us. The Great Chief sends word he will reserve us a place so that we can live comfortably to ourselves. He will be our father and we will be his children. So we will consider your offer to buy our land. But it will not be easy. For this land is sacred to us.

This shining water that moves in the streams and the rivers is not just water but the blood of our ancestors. If we sell you land, you must remember that it is sacred, and you must teach your children that it is sacred and that each ghastly reflection in the clear water of the lakes tells of events and memories in the life of my people. The water’s murmur is the voice of my father’s father.

The rivers are our brothers, they quench our thirst. The rivers carry our canoes, and feed our children. If we sell you our land, you must remember, and teach your children, that the rivers are our brothers, and yours, and you must henceforth give the rivers the kindness you would give any brother.

We know that the white man does not understand our ways. One portion of land is the same to him as the next, for he is a stranger who comes in the night and takes from the land whatever he needs. The earth is not his brother but his enemy, and when he has conquered it, he moves on. He leaves his fathers’ graves and his children’s birthright is forgotten. He treats his mother, the earth, and his brother, the sky, as things to be bought, plundered, sold like sheep or bright beads. His appetite will devour the earth and leave behind only a desert.

I do not know. Our ways are different from your ways. The sight of your cities pains the eyes of the red man. But perhaps it is because the red man is a savage and does not understand.

There is no quiet place in the white man’s cities. No place to hear the unfurling of leaves in spring, or the rustle of an insect’s wings. But perhaps it is because I am a savage and do not understand. The clatter only seems to insult the ears. And what is there to life if a man cannot hear the lonely cry of the whippoorwill or the arguments of the frogs around a pond at night? I am a red man and do not understand. The Indian prefers the soft sound of the wind darting over the face of a pond, and the smell of the wind itself, cleansed by rain or scented with the pine cone.

The air is precious to the red man. For all things share the same breath; the beast, the tree, the man, they all share the same breath. The white men, they all share the same breath. The white man does not seem to notice the air he breathes. Like a man dying for many days, he is numb to the stench. But if we sell you our land, you must remember that the air is precious to us, that the air shares its spirit with all the life it supports. The wind that gave our grandfather his first breath also received his last sigh. And if we sell you our land, you must keep it apart and sacred, as a place where even the white man can go to taste the wind that is sweetened by the meadow’s flowers.

So we will consider your offer to buy our land. If we decide to accept I will make one condition. The white man must treat the beasts of this land as his brothers.

I am savage and I do no understand any other way. I save seen a thousand rotting buffaloes on the prairie, left by the white man who shot them from a passing train. I am a savage an I do not understand how the smoking iron horse can be more important than the buffalo that we kill only to stay alive.

What is man without the beasts? If all the beasts were gone, man would die from a great loneliness of spirit. For whatever happens to the beasts, soon happens to man. All things are connected.

You must teach your children that the ground beneath their feet is the ashes of our grandfathers. So that they will respect the land, tell your children that the earth is rich with the lives of our kin. Teach your children what we have taught our children, that the earth is our mother. Whatever befalls the earth befalls the sons of the earth. Man did not weave the web of life, he is merely a strand in it. Whatever he does to the web, he does to himself.

Even the white man, whose God walks and talks with him as friend to friend, cannot be exempt from the common destiny. We may be brothers after all. We shall see. One thing we know, which the white man may one day discover – our God is the same God. You may think now that you own Him as you wish to own our land; but you cannot. He is the God of man and his compassion is equal for the red man and the white. The earth is precious to him, and to harm the earth is to heap contempt upon its Creator. The Whites, too, shall pass; perhaps sooner than all other tribes. Contaminate your bed, and you will one night suffocate in your own waste.

But in your perishing, you will shine brightly, fired by the strength of the God who brought you to this land and for some special purpose gave you dominion over this land and over the red man. That destiny is a mystery to us, for we do not understand when the buffalo are all slaughtered, the wild horses are tamed, the secret corners of the forest heavy with the scent of many men and the view of the ripe hills blotted out by talking wires. Where is the thicket? Gone. Where is the eagle? Gone.”

Chief Seattle
1854

The Next "Greatest Generation"

It is Memorial Day weekend and everyone is piling into their cars and SUVs to enjoy the first holiday of the summer. Memorial Day is meant to honor all service men and women who have served in all wars & conflicts but many of our minds turn to my parent’s generation, The Greatest Generation, those that served in WWII.

Today, as we lose the last of The Greatest Generation we have a new Greatest Generation, the men and women (and their families) who have served three and four tours in Afghanistan and Iraq. We remember and honor all those who have experienced the horror of war, the stress of prolonged separation, and the compound effects of our recession.

I recall a story related to me of a son in his early twenties on patrol in Iraq. Insurgents would frequently booby-trap women and children and force them to sit in the path of (rapidly) oncoming military vehicles. If the victim stood up the booby-trap was rigged to explode. If the vehicles stopped to assist the victim the booby-trap would be detonated by remote control to kill American soldiers. Our soldiers had to make split second decisions on whether to stop their vehicles and expose themselves to a predictable ambush – or run them over.

One day there was a young girl, maybe 10, sitting in the middle of a bridge. On this occasion the young man driving the Humvee decided to stop a safe distance away. They waited in the vehicle for a moment to assess the situation. They watched as the little girl looked at them, stood up, and disappeared into a pink mist. She had saved their lives.

The horror of war has not changed. The courage to go out and face a faceless enemy has not changed. The strength needed to uphold our honor and values in the face of mindless violence has not changed.

Today I remember and honor all those who serve, and their families. I salute you. You have my undying gratitude and my deepest respect.

You are our new, the next, Greatest Generation.

Fool Me Twice

They’re back and ready to do it again. The same credit rating agencies, Standard & Poor’s, Moody’s, and Fitch, which did such a fine job of rating the risk of mortgage backed securities now have a monopoly on rating collateral being used in the Fed’s commercial paper lending program and Term Asset-Backed Securities Loan Facility. The Fed has determined that it will only accept collateral that has been appraised by the one of the “major” (read big three) rating agencies. This leaves out seven rating agencies that have recently been recognized by the SEC.

The banks and their managers have been raked over the coals for bad business decisions based on the ratings that the big three provided but I haven’t heard of rating agency executives being held to account for their disastrous risk assessments. I also haven’t heard of any justification why the leaders of our most critical financial regulatory bodies now believe in the assessments from the very people who drove the economy over a cliff.

Fool me once, shame on you. Fool me twice, shame on me…

Leading to Recovery: Part 3 of 3 - Opportunity

Leading to Recovery
Part 3 of 3
Opportunities

Let me share some thoughts that I hope will generate continued discussions and creative solutions in our own community.

The new realities are that business of every size is under enormous pressure to cut costs. Markets are radically changing and business must be able to react or they will cease to be in business. The world is in agreement about the reality and threat of global warming. People and business in particular are becoming more conscious of their own carbon footprint not only because of environmental correctness but also because of economic savings. The centers of outsourcing are losing their attractiveness due to decreasing labor arbitrage advantage, and increasing political instability.

So what does this mean for us?

It means that short supply chains could easily trump global supply chains. Why?

1. Reduced transportation costs throughout the supply chain. Currently many countries import raw materials to make (for instance) circuit boards and integrated circuits. These components then get shipped to (more often than not) to China for assembly. After that, the finished products are shipped around the world for distribution to the end customer.
2. Shorter chains are more responsive and have less inventory in process
3. Shorter chains are less complex and costly to manage
4. Geographically “close” suppliers likely operate in the same language, in the same legal system, and within a few time zones
5. Efficient manufacturing and engineering offset the decreasing advantage of low wage locations
6. Goodwill is generated by creating and keeping jobs at home. I am NOT advocating protectionism. I am suggesting that when the fully allocated costs (including carbon) of global supply chains are taken into account I believe there is a case to be made that short supply chains provide economic and competitive advantage.

Companies are desperate to find low cost, productive, easily accessible, areas with low turnover, political, and natural disaster risks, excellent transportation links, redundant high speed telecomm and data capabilities, an educated, English speaking workforce that will be easy to manage located within a few time zones and in the same legal system.

Sound like anyplace we know?

This presents large opportunities for communities like ours to present our value proposition. Notice that the word “presents” means that we must get the word out about our community’s potential. Just because we know it is here does NOT mean that people will be beating a path to our door. Just because you build it does NOT mean they will come.

To take advantage of the new realities we must bring new alternatives to business. We cannot wait for them to figure it out because most of them won’t and it is easier for them to continue as is with existing outsourcing relationships.

We must also assess as yet unwritten government policies to assure we take every advantage of them. We must be particularly vigilant to anticipate and leverage unintended consequences. For example:

Firms that have received government bailout funds have restrictions on hiring people with H-1B visas. This doesn’t sound so bad, but it doesn’t apply to the outsourcing vendors working for these firms. This can have the consequence of driving companies that had planned on keeping jobs onshore – even if partly done by H-1B vias holders – to take all the work offshore. This presents an opportunity for our community to capture this business.

I hope that this has been a thought provoking discussion. We have covered the need for and the qualities of leadership, examined what has changed, what reforms and investments need to be made, and shown that there are substantial opportunities available if we frame the new realities correctly.

In closing I would like to share a thought on how to reach out to those who have been impacted in so many ways by the recession. Although we can do more I think this would be a good start.

Here is Peter Drucker on the purpose of society: “For the individual there is no society unless he has social status and function. There must be a definite functional relationship between individual life and group life. For the individual without function and status, society is irrational, incalculable, and shapeless. The “rootless” individual, the outcast – for absence of social function and status casts a man from the society of his fellows – sees no society, He sees only demoniac forces, half sensible, half meaningless, half in light and half in darkness, but never predictable. They decide about his life and his livelihood without the possibility of interference on his part, indeed without the possibility of his understanding them. He is like a blindfolded man in a strange room playing a game of which he does not know the rules. Make time to reach out to a “rootless” person who may be unemployed or retired. Drop them a note of support or take them out to lunch.”

Leading to Recovery: Part 2 of 3 - Reform

Leading to Recovery
Part 2 of 3
Reform

I believe that our ability to recover and indeed to lead the recovery requires sweeping reforms in government and the regulation of financial institutions (which I won’t address today), ethics, education, energy and the environment (which are inextricably linked), and health care.

What happened to ethics? How did we create Tom Peters, Bernie Madoffs, and Allen Stanfords? Why would loan originators push families into home loans for which they clearly were not qualified?

We talk about business ethics as if it were separate form any other form of ethics. Why is there any notion that our business ethics should be any different than our personal ethics? Hippocrates established the basis of ethics 2,400 years ago with the oath among other things, to "Above all, do no harm". This applies to everyone and to all endeavors. It is a sad commentary that we need to write policies on business ethics, provide training on business ethics. To be sure there are cases that present dilemmas and require the philosopher’s stone, but those situations bear no relation to the lapses that brought us to where we are today.

What we are experiencing is nothing less that the fruits of a massive loss of personal integrity in leadership. Heraclitus, the Greek philosopher, said, “The soul is dyed the color of its thoughts. Think only on those things that are in line with your principles and can bear the full light of day. The content of your character is your choice. Day by day, what you choose, what you think, and what you do is who you become. Your integrity is your destiny. It is the light that guides your way.”

Leadership cannot be faked and integrity cannot be acquired at a later date. Our deeds are who we are. As Emerson echoed, “What you are speaks to loudly that I cannot hear what you are saying.”

What is needed is nothing less than the expectation that we return to the private virtues that Peter Drucker describes. He said, “In a moral society the public good must always rest on private virtue. To make what is good for the country good for the enterprise requires hard work, great management skill, high standards of responsibility, and broad vision. It is a counsel of perfection. To carry it out completely would require the philosopher’s stone that can translate the basest element into pure gold. But, if management is to remain a leading group, it must make this rule the lodestone of its conduct, must consciously strive to live up to it, and must actually do so with a fair degree of success. For in a good, a moral, a lasting society, the public good must always rest on private virtue. Every leading group must be able to claim that the public good determines its own interest. This assertion is the only legitimate basis for leadership; to make it a reality is the first duty of the leaders.”

Back in 1959 Drucker coined the term “knowledge worker” as distinct from craftsman performing manual work that relied on skills acquired through apprenticeship. Knowledge and skill are different in that skills change very, very slowly. Knowledge changes itself and makes itself obsolete and very rapidly. To stay relevant, knowledge workers must engage in continuous learning throughout their careers.

Knowledge workers rely on substantial formal education and the ability to acquire and apply theoretical and analytical knowledge. Knowledge workers change the nature of work itself and structure of organizations. The ascendance of knowledge and the transition from manual to knowledge work made workers free agents. Information technology has rapidly accelerated this transition and continuously changes the speed and dynamics of knowledge and information exchange in nearly unimaginable ways and has lead to the DIS-integration of the familiar corporate structure, the most visible manifestation of which is currently outsourcing. In today’s global economy, a vast and increasing percentage of work is “knowledge” work. We are in competition daily with the best and brightest knowledge workers around the globe and we are steadily losing our ability to compete.

We need to reform education in order to maintain our leadership position in a knowledge-based world and particularly in one where a paradigm shift has set everyone back to square one. Further, the foundation of any successful reform, any breakthroughs in any field, is education, and in that respect we are in serious trouble. Our schools are not world class, the products of our K-12 education system are high dropout rates and a minority of students actually performing at the level of a high school senior.

Consider as a poster child for reform, a bill before our state legislature. Elimination of GRAD requirement (HF 501, Mariani, DFL-St. Paul/SF 405, Wiger, DFL-North St. Paul): This bill would allow students who cannot pass the GRAD test – Graduation-Required Assessments for Diploma – to still receive a high school diploma.

Here are some things that need to be part of our educational reform.

1. Stop social promotion – students need to perform at grade level. This does not mean that a student needs to be at a uniform grade level in all subjects. Some kids are gifted or challenged in certain areas.
2. Establish uniform standards for subjects at each grade level. These standards must compete with world class standards in place in other (even developing) countries. Local communities can choose to exceed these standards but they set a competitive floor on expected knowledge. When a student graduates there needs to be a uniform understanding across the country about the level of mastery achieved.
3. Establish a system that rewards excellence in teaching and prepares teachers to effectively present world class learning opportunities
4. Assure that teaching is of uniform quality regardless of where it is delivered.
5. Assure that our schools focus on teaching. It is not possible for schools to solve social problems that result in kids who are not ready to learn or see no value in learning.
6. Create a system that uniformly funds schools so that schools in Hector are as equipped to deliver a 21st century education as those in the Hamptons.
7. Fund programs that help prepare kids for school and keep them in school. Kids don’t learn when they are hungry, or afraid, or tired from working to support their families, or associated with gangs that disparage academic achievement.
8. Assure that higher education is available to those who are prepared. This implies two things. First that those going on to college are indeed prepared to master work at that level. Too many resources are expended within our state college system trying to remediate problems that should have been addressed in high school. The increasingly scarce funds for higher education need to be focused on higher education – not continuation of high school. Second it implies that higher education is affordable. Just as we as a country decided that government sponsored K-12 education was necessary to complete in an industrial society we need to recognize that a college education or similar advanced training is now the entry level standard to succeed in a knowledge-based, global economy.

The March 26th, 2009 Minnesota Public Radio’s MidDay program at noon had an excellent discussion relevant to needed educational reforms. I suggest you access it online and listen to it. http://minnesota.publicradio.org/display/web/2009/03/26/midday2/

For the above to be judged a success, and indeed to measure the success of any effort, metrics and criteria for success must be established.

Drucker observed, “In any social situation of the kind we deal with in enterprise, the act of measurement is neither objective nor neutral. It is subjective and of necessity biased. It changes both the event and the observer. Events in the social situation acquire value by the fact that they are being singled out for the attention of being measured. The fact that this or that set of phenomena is singled out for being “controlled” signals that it is considered to be important. Controls in a social institution such as a business are goal-setting and value-setting. They are not objective. They are of necessity moral. Controls create vision. They change both the events measured and the observer. They endow events not only with meaning but with value. And this means that the basic question is not “How do we control?” but “What do we measure in our control system?”

Drucker has essentially restated the Heisenberg uncertainty principle that essentially says that the very act of measurement itself changes the system. What you measure is what you get so care must be taken in choosing the metrics to avoid harmful distortions as people predictably try to game the system.

For sure these are drastic and potentially costly changes, but they are necessary for our competitiveness and indeed our security. Consider the payback on investing in 16 years of education and 50 years of productive work, paying taxes, and leading in production and delivery of the goods and services needed in the post investment banking economy. Consider the costs of continuing as we are where dropout rates are high, many “graduates” are ill prepared for higher education, and those that are cannot afford it. Consider the costs of more crime, more jails, more social programs, teen pregnancy, health care for the indigent, and ever shrinking tax revenues in the face of ever increasing need.

There is nothing with a higher return on investment than education. It is an investment we simply cannot afford NOT to make.

In the sixties our educational system was devoted to math and science so that we could put a man on the moon before the decade was out. Today, our efforts in the sciences face a no less daunting challenge – the remaking of our energy system to avoid catastrophic climate change.

To be sure there are people who do not believe that climate change is real or if it is that it is manmade. There are also those who believe that we did not go to the moon, that the earth is flat, and that Elvis is not dead. I don’t believe any amount of rational discourse is going to alter these people’s minds. But even if global warming is not real surely it is still better to not pollute. It surely will not harm us to develop sources of clean energy that will not be depleted. Given that virtually the entire world’s scientific community agrees on the causes and effects of global warming, that changes are happening even faster than they have predicted, and given the magnitude of the social and economic effects – I think we are better off accepting that global warming is real and that we had better deal with it NOW.

In our capitalistic world (including China, Russia, India, - virtually all but the most failed, totalitarian states) nothing will happen until the cost of doing something are outweighed by the costs of doing nothing. Only advances in technology and supporting government policies are going to make that happen. No single company can make the necessary long term investments in basic R&D in alternative (clean) energy nor can companies create policies that encourage commercialization and adoption. This is the role of government. We have the talent available, we know the need, there are many technologies to develop. We need to act NOW!

Why is it important to make these investments? Other than not toasting the ice caps, it will be hugely PROFITABLE - IF we are in a position to lead. Currently the largest producers of photovoltaics are in China and Germany. Of the 10 leading wind turbines manufacturers one, only one, GE, is a U.S. company. Will we invent, license, and sell worldwide or will we be buying someone else’s technology, sending them our money instead of reaping the rewards.

Consider the global market for technologies that reduce consumption, reduce emissions, remediate existing contamination, recycle existing resources (anyone for mining our landfills?) and provide renewable energy resources. Consider that China is in fact recognizing the impact of pollution on its economic wellbeing and the wellbeing of it citizens. Consider the fact that as soon as the economy recovers the demand for energy will rebound and again drive prices sky high increasing our security risks as we compete for scarce resources and trigger another economic slowdown.

In setting policies we must be much more aware of unintended consequences of well intended actions. Ethanol is big – but we didn’t fully understand the energy efficiency of its entire life-cycle nor did we foresee the global impacts of burning food for fuel. When considering the next generation of biomass incinerators and cellulosic ethanol plants we must think about the implications of burning or fermenting everything that grows, leaving nothing left in fields and forests to return to the soil, increasing erosion and the need for more petroleum-based fertilizers.

Our new challenges are long term, the solutions are long term, and the investment required is long term. The problem is that we have an exceedingly short memory.

Thanks goodness for the economy that we again have cheap gas – right?? Just a few months ago when gas was $4 a gallon you couldn’t give SUVs away. If you bought a high mileage car dealers would throw in a SUV for $50. All we heard about on the news was high mileage cars, hyper-mileing, alternative energy sources we hadn’t even heard of – algae, new photovoltaic, bio-diesel from coffee grounds, hydrogen comes back every time, and now even salt power. Now that gas is $2 a gallon we don’t hear about these anymore. Trucks are selling again and cars that get good mileage sit on dealer’s lots.

There is no single solution to the world’s energy needs. The solution will involve every imaginable energy source standardized for delivery into transportation fuels and smart electrical distribution systems. Our future lies not in the rumble of Hummers but in the hum of electric vehicles and the swoosh of wind turbines – but these are today’s technologies and can only be the start.

In order to recover sustainably and to our full potential will require finally addressing the issue of health care. I don’t pretend to have answers but I would suggest that you have a cup of coffee with my sister, a physician who still believes that her first duty is to her patients, not the bottom line of some health care giant.

As I said, I don’t have answers but I do have questions. When did the practice of medicine shift from the physician’s office to a call center cube in an insurance company staffed by a high school dropout telling doctors what they can and cannot do? When did health care’s customers cease being the patient and become the insurance companies?

I remember a different era in health care. It was a time when the statue of Chief Kandiyohi was on the bank at the corner of 5th street and Litchfield Avenue In Willmar, MN. It was a time when, if I walked with my Mom from my grandparent’s apartment above Shorty’s hardware and she took at right at the statue, the entire city of Willmar knew from the skid marks from tennis shoes and wailing for the next one and a half blocks that I was being taken to the clinic where I would be punctured with HUGE needles. It was a time when doctors practiced medicine, not insurance companies. The doctors provided the care needed without ordering all possible diagnostics in order to defend against lawsuits. Aside from the needles, I think it was the golden age of medicine.

Education, energy and the environment, and healthcare - these are government level issues. Only the government can set policies and bring sufficient resources to bear. Our role is to become engaged in the discussion, communicate with facts, provide our elected representatives workable solutions, and demand fiscally responsible, effective, programs with accountability for success. The resulting policies and programs must direct investment to areas that will provide both a short term boost and long term value.

Leading to Recovery: Part 1 of 3 - Leadership & Change

Leading to Recovery
Part 1 of 3
Leadership & Change

I’ve been spending a considerable amount of time pondering how we are going to turn the enormous baskets of lemons that have been dumped on our doorsteps into lemonade. To get to the lemonade, I would like to share some thoughts on leadership, the changes we’ve experienced, and reforms that are needed.

Today we face challenges that have not been seen for three generations and probably not in the memories of many here today. Clearly, we will not be able to manage our way out. What we will need is strong leadership – in many places, at many levels.

It is important to understand the distinction between leadership and management. One is not better than the other. Both are essential. We probably all think of ourselves as leaders and we probably are in our own unique situations but most people are better suited to one or the other.

There is one incontrovertible maxim in leadership. You can only lead if you have followers.

There are many reasons to follow but you will only have (loyal) followers if people trust you. Trust is earned. It is given. Trust will only exist if you CONSISTENTLY:
1. Demonstrate integrity. Honor your commitments & promises.
2. Set high – but achievable standards.
3. Listen – seek first to understand then be understood. It is easy. All you have to do is keep your mouth shut.
4. Engage people in creating the future. People will (or are more likely) to accept change they helped create but will predictably resist or outright reject change that is forced upon them.
5. Treat people with respect and trust in their abilities. Support your coworkers. Be there for them when it counts. Encourage them to freely share their thoughts and feedback – encourage constructive dissent - and act to incorporate their views.
6. Publically recognize success as the accomplishments of others. Don’t claim success as your own. Have a sense of humility.
7. Treat people fairly in all things. Be consistent.
8. Accept and do not punish failure – provided one learns from the experience and does not repeat the mistake.
9. Inspire optimism
10. Speak truth to power

We would all follow someone who lived these principles and I believe that we all aspire to these things in our lives whether we are in a position to have followers or not.

We are only successful to the extent that we make those around us successful – up, down, and sideways. This is true whether you are a leader or a manager. So what are the distinctions?

In his book Leading Change, John Kotter, professor of Leadership at the Harvard Business School, describes management and leadership as follows.

“Management is a set of processes that keep a complicated system of people and tech running smoothly. The most important aspects include planning, budgeting, organizing, staffing, controlling, and problem solving. Leadership is a set of processes that creates organizations in the first place or adapts them to significantly changing circumstances. It defines what the future should look like, aligns people with that vision, and inspires them to make it happen despite the obstacles.”

A good friend of mine observed that the positional power of management is given by superiors. The influential power of leadership is given by people above, around, and below. You cannot manage outside your position in an organization but you can lead from anywhere.

Unfortunately management is what is emphasized & institutionalized. Change is a disturbance to the smooth functioning of an organization and is something to be systematically controlled or better yet – squashed. The result is organizations that are over-managed and under-led. That being said – managing change is important otherwise a well structured transformation process can get out of control but for most organizations the bigger challenge is leading change. Successful transformation is 70-90% leadership and 10-30% management. Yet almost everyone thinks about the problem as “managing” change.

Warren Bennis, Professor and chairman of The Leadership Institute at the University of Southern California, makes a harsher, but essentially compatible, distinction in his book On Becoming a Leader. In the following try to focus on what is being said – not how it is being said.

Bennis says that the difference is between those who master the context and those who surrender to it.
· Manager administers, leader innovates
· Manager is a copy, leader is an original
· Manager maintains, leader develops
· Manager focuses on systems & structure, leader focus on people
· Manager relies on control, leader inspires trust
· Manager has a short range view, leader has a long range perspective
· Manager asks how and when, leader asks what and why
· Manager’s eye is always on the bottom line, leader’s is on the horizon
· Manager imitates, leader originates
· Manager accepts the status quo, leader challenges it
· Manager is the classic good soldier, leader is his own person
· Manager does things right, leader does the right things

If you are like me, I’m sure you are uncomfortable with Warren’s judgmental characterization of management. Forcing myself to re-read and examine what he has said I’m more inclined to accept his words as statements of fact rather than indictments.

The truth is that we need both leaders and managers. In fact we need fewer leaders than managers. If everyone were “leading” establishing their vision, setting direction,… we would have chaos. Leaders are not the people who make things happen. Leaders are not good at detailed implementation.

Think of Steve Jobs. He is a very creative and inspiring leader. No one else in the company is like him. Now imagine the disciplined management it takes to transform his vision into and i-phone or and i-pod. However, also recognize that this management comes after setting the vision and leading the needed change.

Now that we are again comfortable with the role of management, and feel power and purpose again coursing through our veins just remember – the manager is the boss and boss spelled backward is double SOB.

Leadership is not easy. Remember, Steve Jobs was kicked out of his own company. In fact this is not uncommon. You can usually tell who the leaders are. They are the ones face down in the mud with arrows in their back.

Leaders create an atmosphere of collaboration. If a leader creates an atmosphere where people are more concerned about failing at what they are doing rather than doing it the leader will not succeed. Fear leads to massive waste. The same can be said for internal competition. A company must have internally focused collaboration and externally focused competition.

Max DePree said in Leadership Is an Art, “The first responsibility of a leader is to define reality. The last is to say thank you. In between, the leader is a servant.”

Peter Drucker identified the following characteristics for the next generation of leaders:
1. Broad education
2. Boundless curiosity – ask endless questions
3. Boundless enthusiasm
4. Contagious optimism
5. Belief in people & teamwork
6. Willingness to take risks
7. Devotion to long-term growth rather than short term profit
8. Commitment to excellence
9. Adaptive capacity – comfortable with ambiguity
10. Empathy
11. Authenticity
12. Integrity
13. Vision

Leaders are needed to lead change as well as to react to unexpected change – to see opportunities, revise the vision, and set the new direction. Based on the changes we’ve seen in the last 12 months there is fertile ground for leadership.

Because leaders are continuously learning and adapting, you can substitute Leaders for learners.

Eric Hoffer of Vanguard Management observed, “In a time of drastic change, it is the learners who inherit the future. The learned find themselves equipped to live in a world that no longer exists.”

Well there are a lot of things that no longer fit our assumptions. It has been said that it is not the things that we don’t know that cause problems. It is the things we know for sure that just ain’t so.

Here are some things that we used to know for sure that just ain’t so:
1. Here is one straight from MBA school - Corporate debt is good for the balance sheet and shareholders – the underlying now untrue assumption being that financing is readily available
2. Home prices will go up forever
3. You can always refinance a mortgage that you can’t afford
4. The market will regulate itself
5. Profit motive will prevent risky investment and behaviors
6. Companies are too big to fail
7. Government oversight is adequate
8. Regulators regulate
9. Auditor reports are reliable (PWC and Satyam)
10. Investment bankers and risk assessment agencies properly assign and manage risk

In response, consumers have drastically altered their buying habits. Here is a short list of what’s in and what’s out
1. Neiman Marcus is out – garage sales are chic
2. Land barges and corporate jets are out – Prius is in
3. Dirty energy is out – alternative energy is in
4. Financing lavish lifestyles is out – living within our means is in
5. Onerous credit card debt is out – paying off debt is in
6. Making loans with no documentation of income & debt is out –bringing mountains a papers to prove every nickel of income or obligation is in
7. Complex un-ratable financial instruments are out – treasuries are in
8. Lavish compensation is out – clawbacks are in
9. Lax oversight and enforcement is out – accountability and regulation is in
10. And one prediction - Onerous credit card rules/interest rates are out – consumer rights will be in
Reality has changed. Our paradigms have drastically shifted.

Drucker says the following, “In a time of change you need to carefully examine “the future that has already happened”. Assess what has occurred that does not fit your current assumptions and thus creates a new reality – a need for a new intellectual framework to win in the new market.

Today’s realities fit neither the assumptions of the Left nor those of the Right. They don’t mesh at all with “what everybody knows.” They differ even more from what everybody, regardless of political persuasion, still believes reality to be. “What is” differs totally from what both the Right and the Left believe “ought to be.” The greatest and most dangerous turbulence today results from the collision between the delusions of the decision makers – whether in governments, in the top managements of businesses, or in union leadership – and the realities.”

Big Bonuses – Big Deal…

Lately there has been much wailing and gnashing of teeth over the bonuses paid at AIG. Big deal. Have we forgotten about the $3.6 billion in bonuses that Merrill Lynch paid out just hours before the deal to be bought by Bank of America was to close? AIG’s bonuses are less than 5% of Merrill’s. $165 million now days is chump change. Let’s get back to working on fixing the problem.

Distasteful as it is the bonuses were legal. If we don’t like the laws then our elected legislators should thoughtfully change them. If they don’t, we can change the legislators.
We are now working on laws to allow the government to take over failing financial institutions (not just banks). This is reactive. Laws are needed to prevent companies becoming so big that they pose a systemic risk to our financial system in the first place. Financial instruments like derivatives and others need to be regulated like securities, which also need better regulation or more competent enforcement of existing laws. If companies then fail, existing bankruptcy laws can apply.

Existing credit card company practices make it exceptionally difficult for people in credit trouble to get out. The credit card industry needs reforms to protect consumers. Here are some ideas. All terms and conditions must be printed on 8 ½ by 11 inch paper in 10 point font so people can actually read them. It should not be legal to charge interest on money that is no longer owed as rolling two month average daily balance calculations do. Conditions that will cause an interest rate change should be explicitly listed. Sufficient advanced notice of an interest rate change must be given. Interest rates should not be allowed to become usurious. The grace period to pay must allow sufficient time for payment.

People must also assume responsibility for their credit cards use. If people don’t have money to pay for something up front they certainly won’t have money to pay for it at 30% interest. We need to stop financing our lifestyles and live within our means.

Education

The Obama administration has laid out its plan to invest heavily in education. Simultaneously states are being forced to make drastic cuts in education. The net effect is likely to be severely negative. Even if net investment were to increase it is not clear that investing in our current system is producing the results needed in today’s world.

There is plenty of data to show that our schools are failing. High school dropout rates are high and graduation rates low. The percentage of students going on to college is falling as is affordability and the number of students pursuing math, science, and engineering careers. The TIMSS 2007 International Mathematics Report (full report available at http://timssandpirls.bc.edu/TIMSS2007/mathreport.html ) presents some worrisome findings (emphasis mine). When considering the ranking of the United States, note that only Minnesota and Massachusetts were included – states with strong school systems relative to the rest of the U.S.

“At the eighth grade, Chinese Taipei, Korea, and Singapore had the highest average mathematics achievement. These three countries were followed by Hong Kong SAR and Japan, also performing similarly and having higher achievement than all the other countries except the top three performers. There was a substantial gap in average mathematics achievement between the five Asian countries and the next group of four similarly performing countries, including Hungary, England, the Russian Federation, and the United States. Among the benchmarking participants, the two U.S. states, Massachusetts and Minnesota, and the province of Quebec were outperformed by the five Asian countries but had higher average achievement than the group of four countries. The provinces of Ontario and British Columbia had average achievement similar to the group of four countries.

Remarkable percentages of students in Asian countries reached the Advanced International Benchmark for mathematics, representing fluency on items involving the most complex topics and reasoning skills. In particular, at the fourth grade, Singapore and Hong Kong SAR had 41 and 40 percent of their students, respectively, achieving at or above the Advanced International Benchmark. At the eighth grade, Chinese Taipei, Korea, and Singapore had 40 to 45 percent of their students achieving at or above the Advanced International Benchmark. The median percentage of students reaching this Benchmark was 5 percent at the fourth grade and 2 percent at the eighth grade.”

We view education as an expense rather than as an investment, particularly if it is other people’s children that are being educated. Investments are things that pay off over time. Expenses sap resources and by definition do not increase in value. Frequently, failure to make needed investment is disguised as “saving”. Consider the expenses incurred as a result of inadequate education; increased crime, the need for more police and jails, more welfare, more young single parent families, increased medical expenses, decreased tax revenue, and the list goes on and on.

Now consider the payback from investing in education; reduced crime, fewer police and jails, less welfare and medical costs, people paying taxes instead of consuming via tax funded programs, people able to afford homes, cars, and healthcare, people inventing new products to improve lives. In short, educated people create wealth instead of consuming wealth. A sixteen year investment in education (not including preschool) pays of over a career of 40 or more years. We must educate everyone’s children for they are the ones who will pay for our social security, invent the technologies that will reduce our energy consumption and provide sources of alternative energy, and they will be the ones who will be saddled with paying down our national debt. Hopefully there will be enough left over for them to live a comfortable life.

It is not sufficient to throw more money at a broken system. Our productivity (% of students graduating) is poor and the quality of those who do graduate is spotty at best. It is no longer sufficient in today’s world to deliver the same lectures driven by the same lesson plans that have been used by the same teachers for their entire careers. Our delivery system is no longer adequate and must be revised to engage and energize students’ innate capacity to learn. We need a new system of assessing learning progress. Standards for “Grades K through 12” or whatever we choose to call them in the future must be uniformly defined and enforced. Social promotion must end. Because people inherently do not advance at the same rate in all subjects there is no reason that a person is entirely in a particular grade. If a student’s age is that of a sophomore they may be reading at the level of a senior, doing math at grade level, and biology at freshman level. However, when we say that a student has “graduated” this must mean that a student has at least a known level of proficiency across a defined number of subjects. These standards must be the same in Picnic Florida as they are in Kodiak Alaska and they must be competitive with those of countries around the world.

To be successful, students have to be ready to learn. However, the reality is that there are many social inequalities that impact a student’s readiness to learn. How do you tech a hungry child, a tired child that has been working a night shift to support the family, the child from an impoverished single parent home? There is no easy answer to this but schools cannot be all things to all people. They must focus on delivering quality education. Other effective mechanisms will have to focus on correcting the social issues. A solid education will vastly reduce the need for these services.

Our mechanism for funding schools and compensating teachers must be completely revised. The quality and availability of education should not vary between the hills of Arkansas and Beverly Hills. Compensation and advancement for teachers should reward excellence, weed out indifference, and render unions irrelevant.

These are just some of the challenges we face. Our investment in education will determine our future.