JACK MIXNER STRATEGY

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At the Allen & Co. conference in Sun Valley, Idaho in 1999 (Schroeder, 15-21), Warren Buffett explained - to derision from the tech CEOs in the room - that he didn't think that much of the tech boom. They listened politely, but weren't buying. Buffett talked about the fact that the market was at 874 in 1964 and at 875 in 1981, the decline of horses ("I wish I'd shorted horses"), the fact that the airplane didn't make any investor rich, oil prospecting, the apparent over-valuation of internet stocks, Edgar Lawrence Smith's 1929 view that stocks always yielded more than bonds, and more. No one could really refute what Buffett said, but not many agreed with him. Schroeder's book has attracted a lot of interest in the press. If you want, you could read all 830 pages, or you could just read the second chapter on the Sun Valley Conference. It all boils down to the fact that Buffett really wanted to succeed at making money, that he continually learned all he could about investing, that his family life was different but successful in the end if you squint a little bit, that he was a contrarian investor at the right times, that he looked, early on, for under-valued stand alone companies to buy, and later on for bigger companies with special plays. Ultimately, as folks started to mimic his style, he found it harder and harder to invest the hoards he earned and was entrusted. For me, the best part of the story is understanding the joy Buffett finds in learning about companies and investing for profits. He's given away most of his money, so clearly he about more than money. He needs people, family - and investing.

Reference

Schroeder, Alice. The Snowball. Warren Buffett and the Business of Life. Bantam Books. 2008.

Posted by jackmixner at 02:13 PM | Permalink

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Here are fifteen strategies to reduce carbon dioxide build-up in the atmosphere. Picking just eight - any eight - of them will solve our carbon dioxide problem. Pretty simple, yes? Now look at the list and then answer the question (Friedman, 212-213).

1. Double fuel efficiency of two billion cars from 30 miles per gallon to 60 mpg.
2. Drive two billion cars only 5,000 miles per year rather than 10,000, at 30 miles per gallon.
3. Raise efficiency at 1,600 large coal-fired plants from 40 to 60 percent.
4. Replace 1,400 large coal-fired plants with natural-gas-powered facilities.
5. Install carbon capture and sequestration capacity at eight hundred large coal-fired plants so that the carbon dioxide can be separated and stored underground.
6. Install carbon capture and sequestration at new coal plants that would produce hydrogen for 1.5 billion hydrogen-powered vehicles.
7. Install carbon capture and sequestration at 180 coal gasification plants.
8. Add twice today's current global nuclear capacity to replace coal-based electricity.
9. Increase wind power fortyfold to displace all coal-fired power.
10. Increase solar power seven-hundred-fold to displace all coal-fired power.
11. Increase wind power eightyfold to make hydrogen for clean cars.
12. Drive two billion cars on ethanol, using one-sixth of the world's cropland to grow the needed corn.
13. Halt all cutting and burning of forests.
14. Adopt conservation tillage, which emits much less carbon dioxide from the land, in all agricultural soils world-wide.
15. Cut electricity use in homes, offices, and stores by 25 percent, and cut carbon emissions by the same amount.

Still think the green problem is easily solved? The problem is defined, the first step in a strategic solution. Now we know what to do. 

Reference

Friedman, Thomas L. Hot, Flat, and Crowded. Why we need a green revolution - and how it can renew America. Farrar, Straus and Giroux. 2008.

Posted by jackmixner at 10:34 AM | Permalink

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Economists sometimes make interesting assumptions. They assume "perfect competition" is the best model for the allocation of resources and rewards (Drucker, 184). Most times, however, imperfect competition rules. The learning curve is a good example. If your economy gets on the learning curve faster on a new technology, for instance, than its competitors, it is almost a given that your economy will dominate that technology over time. Economists assume that an economy is defined either by consumption or investment (Drucker, 184). In a knowledge economy, however, neither consumption or investment are good measures of success. There are three kinds of knowledge: continuous improvement of current processes, exploitation of existing knowledge to create new products and services, and, finally, real innovation (Drucker, 185). Positive economic returns require that the three knowledges work in tandem. The business press assumes they operate independently. It hawks the technique of the day over the technique of the century at its peril. So what do we do, especially since measuring a return on knowledge is so crucial on the one hand, and impossible on the other? How do we increase the output of knowledge? Knowledge productivity requires a long "gestation period" (Drucker, 191). The big bang for the buck comes at the end of a long period of activity. How do we know how long to wait? Long term productivity is measured by short term results. Set the expectation of results along the way early in the process. Don't invest in the long term unless there is a short term. Now, how do we do that? Well, part of it involves applying what we already know, i.e. connecting what we learned along the way to the problem at hand and, this is the hard part, trusting ourselves and our teams to apply knowledge in productive ways. The first step? Become a better problem definer than a problem solver. The definition part takes longer sometimes than the solution part. Spending more time earlier in the process on definition makes for a more productive outcome later (Drucker, 193). Making knowledge productive is crucial to competitive success. Let's consider the current Green initiatives.

We need to consider how to receive a huge ROI for our knowledge of the green problems confronting us. While I am leery of suggesting that we pause and plan before we attack the green problems facing us, that is precisely what I suggest. Since I am peripherally involved in Orange County discussions about green initiatives for the near term, this does provide me with some insight, and hope. My first observation is that this is not an arithmetic problem. It's logarithmic. What's that mean to me? The solutions we start now are going to take some time to have an effect, so pick wisely or we may not have time to re-visit our planning efforts effectively. Yes, we can depend on technology to solve some of the problem. Fuel cells, batteries, and solar devices are going to get more efficient. That is going to take time, however. We need to act now. What to do? There are two entrenched constituencies involved in the green problems and solutions, industry (both green technology manufacturers and industrial energy users), and individual consumers. Legislation is the first step, not locally, but nationally or globally. Since the US has resisted all the existent accords, there are low-hanging fruit to pick. Sign up for the global initiatives and force industrial users and consumers to begin to clean up their acts using existent rules and technologies. That will begin aligning the US with the rest of the developed world. Second, and this is both a strength and weakness of America, is begin to lead - now. Get out ahead of everything every other country on the planet is doing. Make green initiatives hurt. Much like the monetary crisis facing us, the hurt, if it doesn't kill us, will make us stronger long term. Friedman's suggestions (Friedman, 212-213) are a good place to start. Read his list (Mixner) and make your decision on how to begin. Then begin. This is an interesting example of ROI from knowledge. We have been avoiding obvious truths for quite some time. We can continue to ignore things until it is too late, or we can do something. This is a group decision. It is going to take leadership. Unfortunately, we don't have a lot of time for discussion. We have to act now.

Reference

Drucker, Peter F. Post-Capitalist Society. Harper Business. 1993.

Friedman, Thomas L. Hot, Flat, and Crowded. Why we need a green revolution - and how it can renew America. Farrar, Straus and Giroux. 2008.

Mixner, Jack. Green Problem - or Is It Solution? - Defined. http://mixnerstrategy.com/blog/2009/04/green_problem_or_is_it_solutio.html

Posted by jackmixner at 09:41 AM | Permalink

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We've been saying all along that once you have chosen your management team and created a plan you shouldn't wait around too long to implement your plan, and, as well, that the pace of implementation shouldn't lag, or, you're leaving money on the table. Today, that money on the table might actually represent your whole profit margin. Who wants to miss out on profits in a tough economy? Your pace of implementation speeds up if you have a coach involved to keep you focused on what is important. "Now," you say, "my plan keeps me focused. I don't need help."

Kolata talks about running the Boston Marathon. Her times didn't start to improve even though she trained regularly until she joined a coaching program related to the Marathon. She showed up for coaching - religiously. They pointed out things she hadn't considered and kept her accountable for the commitments of time and training she was making to herself. All along we have said, chose the right team, have a plan and speed up the pace. There are three ways to do that: set date quantified objectives and strategies, be ready to actually follow your plan, and finally, dump the things that aren't working quickly if it makes sense so you are able to focus on what is working. This is where coaching comes in. Chose your team using outside advice. Get more than one opinion on new hires. Hire for talent, not experience. Don't trust gut instincts. Create you plan while making sure it represents the best of what is available in your industry. Change your plan according to your own rules and - this very useful - realize that sometimes you have to keep sticking to the plan even when it isn't working. A coach will point things out from other situations - from your competition and other similar companies - that will help you keep focused. Actually implementing your plan is the first step. Making changes - informed changes - is the next step. And keeping focused on a plan that isn't delivering as much as you'd like makes sense, especially when the pay-off is long term. Building heart in a marathoner takes longer than you might think. Building share in a tough economy also takes time. Both present opportunities to take advice about implementation and opportunities for improvement along the way.

References

Kolata, Gina. Want to Go Faster? You Need a Trainer. New York Times. 23 April 2009. http://www.nytimes.com/2009/04/23/health/23best.html?_r=2

Posted by jackmixner at 09:31 AM | Permalink

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Porter's Five Forces Driving Industry Competition (Porter, 4) have been around awhile:

1. Potential Entrants - Threat of new entrants
2. Buyers - Bargaining power of buyers
3. Substitutes - Threat of substitute products or services
4. Suppliers - Bargaining power of suppliers
5. Industry Competitors - Rivalry among existing firms.

Why do they matter today? I mean, they were derived in the Stone Ages of Strategy, way back in the seventies, weren't they?

We used them today to help decide how to plan to spend some stimulus money that will soon flow into Orange County. We originally had the great idea that the best way to stimulate the "green" industry in OC was to pass a law that said that planning departments could only approve plans that followed a  model green abatement plan. Look closely and you'll notice that the abatement plan to decrease negative green impacts on the community focused only on buyers. It ignored potential entrants, substitutes, supplier and competitors. Something got left out of the plan, didn't it? What to do? Include them in the plan. How to do it? There's a question. The first answer is to decide if a plan is required at all. The Libertarians out there will be saying that government doesn't need to interfere in the markets. They'll be alright by themselves. Now, we know that's not so. If we let the markets control things, there are some odds that LA would still be choking on smog - or worse. So, there is a role for regulation. Is there a role for regulation effecting the green industry. Maybe. Working with the planning departments isn't such a bad idea. But there is a whole list of things that might not be such a good idea: don't interfere with the markets with subsidies or protection.

In OC, it is hard to interfere with macroeconomics, so we can't even bother there, but on the national level interference  on the macro level isn't going to help. Getting the green manufacturers to work together to share solutions sounds pretty cool, doesn't it? Wrong. Porter say it best, "Encourage new competitors; discourage cooperation (Porter, Competitive Advantage, 681)." Fierce competition is best for everyone. Yep, some companies will fail. The ones that survive will be stronger. Actually, my gut tells me that in fierce competition, there will be fewer failures, actually, because the competition will foster higher wages (how can that be good?), lower prices (again, how can that be good?), and better quality (doesn't quality cost, everyone says?). How does a government help if it wants to improve a competitive environment? Three steps, all long term: encourage better education so there will be more qualified, high level, employees; if you have enough money, invest in infrastructure, especially smart infrastructure, maybe even if you don't need it yet; consider ways to increase capital formation for smaller companies who are starving for cash in this environment. If you do it right small companies will get to profitability (and revenues, obviously) without huge venture capital infusions. If they can pull that off (and basically, in today's environment, they have to) they will be healthier, more long lasting, and more likely to create lots of very useful jobs. Sure there is an attitude. Some rules are OK, yes, but focusing on making the environment conducive to rapid growth in an environment that everyone, including the public, wins.

Porter, Michael E. Competitive Strategy. Techniques for Analyzing Industries and Competitors. The Free Press. 1980.

Porter, Michael E. The Competitive Advantage of Nations. The Free Press. 1990.

Posted by jackmixner at 08:31 PM | Permalink

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Ray Kurzweil writes books that you realize, as you read them, are beyond the thinking you have indulged in - ever. He has written books on health and the impact of technology on growth. His last book, written in 2005, takes everything he has written before and adds to it in crucial ways. Gordon Moore has Moore's Law. Encapsulated in Kurzweil's the law of accelerating returns (Kurzweil, 35), Moore's law says that the amount of computing power that can be crammed into an integrated circuit doubles every year. Lately, the doubling is even accelerating. Kurzweil takes that doubling and thinks, not about the technology involved in the doubling, but in the result of the doubling. We all learned about arithmetic progressions way back when when some teacher said something like, "Which would you rather have, two tons of gold every year, or, an ounce of gold that doubles every year." Everybody wants the two tons of gold, and, of course, they picked the bad choice. Arithmetic doubling is a wonderful way to get rich, especially if you're doubling gold. So who cares? In ends up that, while most people don't give it much thought, all this doubling effects all sorts of things. DNA was discovered in the fifties. In the early nineties, they started work on the human genome, expecting to take fifteen years to decipher it. One team started late - way late - but still ended up in the same place, only much faster, because they re-arranged their thinking and methodology. Ask a scientist when genomics are likely to significantly effect man-kind (as if they weren't doing so already) and she's likely to say, "fifty years from now, give or take." Kurzweil says that nonsense - we'll be using genomic solutions much quicker than that, because of the doubling effect. It took us fifty years to get the genome, yes, but it won't take us fifty years to put it to work. Focusing on shapes of paradigm curves, Kurzweil describes a three step curve of slow growth, rapid growth, and, then finally, a leveling off (Kurzweil, 43). What we forget is that, when stacked end-on-end, all those curves really represent an exponential sequence, not a doubling sequence. Once things get rolling with a new technology and new iterations are created as a next chapter, so to speak, those chapter sum to rapid growth, to exponential growth. He plots out the telephone industry, the cell phone industry, dynamic ram, dynamic ram price, and on and on.

The point of all this is interesting. Allow yourself to be boggled at this point because you're not going to believe what I am going to say next. Eventually, and it is not going to take too long, computer's computing - thinking - processes will catch up with man's. And it is going to take less time than we think. Kurzweil's Theory of Technology Evolution says that there is a migration occurring toward everything becoming information - everything. Nanotech manufacturing processes will allow embedding of information everywhere. So the question becomes not when will artificial intelligence become useful, but when. Then we have to decide what high level artificial intelligence means for us. Now, consider what I just said. AI is going to make significant contributions to thinking. Is that a threat? By now you probably realize that I don't always see threats, but opportunities. And I think this AI will be useful, and perhaps, the ultimate opportunity. HAL, yes. But a useful HAL. Wait and see. Or profit now. Interesting.

Kurzweil, Ray. The Singularity is Near. Viking. 2005.

Posted by jackmixner at 10:09 AM | Permalink