Right now there’s a lot of attention on the health care system in the United States, and while I agree that is a big mess that needs fixing, this morning I couldn’t help but wonder about the justice system when I read this article in the paper this morning.

Like many of the topics that I write about, I am not an expert and I don’t pretend to be, but when I see something really obvious, I feel comfortable offering an opinion.

This was a case of banking fraud, and was well summarized in three sentences:

Eric Butler and an associate were charged with conducting “an illegal scheme in which they had falsely told clients their products were backed by federally guaranteed student loans and were a safe alternative to bank deposits. The products were actually linked to auction-rate securities.

John Nowak, an assistant United States attorney, told jurors in closing arguments that the two ran a high-stakes bait and switch, promising clients one product and delivering another to get higher commissions.”

That’s pretty clear in three sentences.  And if there’s clear evidence of this “bait and switch” it seems to me that this should be prosecuted pretty quickly.  But Mr. Butler was indicted last year (so at least eight months ago), and the guilty verdict they arrived at yesterday was the result of a three week jury trial.  Three weeks of time away from presumably productive lives to settle something Bloomberg News can summarize in three sentences?  Broken.

I am not saying securities fraud has much in common with a speeding ticket, but there are many things in the legal system like speeding tickets that are binary in the sense that you either did break the law, or you did not.  Innocent until proven guilty – if there’s evidence of guilt, you are guilty.  Pretty simple.  Speeding is a good example of that, as is driving under the influence of alcohol, since there’s a test for that.  There’s a clear pass/fail test and we tend to trust the police officers who cite people for these crimes, so the guilty parties pay the fine and move on, unless they think there was a mistake or extenuating circumstances, then you can request a hearing to be heard, though I was recently told even that option has gone away in my home state.  That part of the system works a high percentage of the time.

So why for more serious crimes do we essentially not trust the arresting officer in this case who indicted Mr. Butler?  If there’s evidence of something as clear as offering one product and selling another, why does it take a judge, a jury, probably at least two lawyers three weeks to sort that out?

I don’t know Mr. Butler and I honestly picked his case as a random example, but don’t you experts and non-experts agree there’s some rethinking to be done in the way we manage justice?

-Ric

Every Sunday in the paper’s business section there’s an interview with a leader talking about some of their best lessons learned and management tips.  The interview with Best Buy CEO Brian Dunn was no different.  He first points out the importance of keeping in touch with the actual employees and customers at the front lines so he can stay in touch with what’s really going on.  I agree with him that as simple as it sounds, it’s vital.

Though I agreed with his next big point, it did make me wonder.

He talked about how a family medical issue (his wife had breast cancer) helped him really focus on what is most important.  In the case of the medical issue, the most important thing was getting his wife and three kids through it.  He then went on to talk about how he applied this lesson to work:

“It changed me as a leader. I got really focused on: What are the big rocks that we need to move? I still can fall into some of the petty traps, but I worked really hard to say, is this really important or is this just like a little ego thing for me?”

My question after he said this was how he knows which “rocks” to pick?

When Bob Nardelli saw that he needed to lower costs at The Home Depot a few years back, that was in fact the correct outcome to focus on, but he went about it without really understanding which costs could, and could not, be cut and made some big mistakes.  He ended up ignoring what his customers valued, which was good advice from the store employees, so when he cut spending in benefits and the good employees left, so did the customers.  It was a disaster.

Interestingly, I think Dunn’s first point about staying in touch with the people on the front lines can help make sure he’s picking the right rocks, but I would suggest something with more rigor and discipline like one of the “heat” maps shown here is a way to significantly reduce the risk of picking the wrong rocks, while at the same time dramatically improving the transparency of  discussions about prioritization of work (“rocks” in Dunn-speak).  In every shape in this heat map, there are two elements, an “outline” color indicating how the work is performing (red is bad, green is good), and each shape is filled with a color indicating business value (red is high value, green is low value).  I build these maps by interviewing the people who do, and manage the work – it’s a great listening device.

What you can do with a map like this is really start to get into the details of where the real value is, and where things are performing well and not well.  Seeing parent/child relationships like these allows you to make (and test) assertions about which changes at the child level will cause the parent to change.   If you aren’t making decisions about what micro-level changes will change the macro areas, you are at great risk of picking the wrong “rocks.”

I would be very interested to know how Mr. Dunn is picking his rocks, and I hope for the sake of the Best Buy shareholders, he’s a lot better at it than Bob Nardelli.

-Ric

So now textbooks for school can be rented in many cases.  One question I haven’t heard answered is if the book  you rent is already highlighted, is that considered good or bad?  It would be handy to know what kinds of grades the previous renter got.

Anyway, I heard about this idea of renting textbooks on National Public Radio Friday morning  and thought it would be an interesting subject for a rethinking blog entry, but it seemed a little ho-hum.

I presumed that someone looked at the furniture rental model (which makes no sense for most people because they charge so much, it’s ultimately cheaper to buy it if you rent it for more than 12-18 months in many cases).  Books are a little different, but basically if you assume two or three renters, have an efficient book collection model, it’s not too hard to find a price point that works for the publisher and the student.

Then I read this article in the paper by Tamar Lewin and realized there are some really big implications that extend far beyond the book world into lots of other industries. And I will give you the key points that caught my attention:

1) Some publishers are doing the renting themselves, like Cengage Learning, while others, like McGraw-Hill are working with a rental company, Chegg

2) In the case of Cengage, in their model the author gets a royalty for every rental, which doesn’t happen in the McGraw-Hill model because they sell their books to Chegg and Chegg doesn’t have any royalty agreements with authors

3) Then the wild-card is how many years professors are willing to commit to the use of a given textbook.  If they won’t agree to at least three years of using the same book, the model doesn’t work, so now there’s a risk that a financial incentive for the schools will influence their decisions about what books are best for their students.  That is a little scary

Why do I think that’s so much more interesting than just another rental business?  When you have a re-usable asset like this (again somewhat like furniture, software as well in a different sense), and people are thinking about renting it for the first time and experimenting with different models that include royalties and long time contract commitments, it’s very likely that some interesting models as well as best (and worst) practices will emerge.  Additionally, because most of these students are young, this segment of the population will enter the workforce with a different notion of buying vs. renting assets.

As we see more use of software-as-a-service and renting software becoming a hotter and hotter topic under the expanding umbrella term “Cloud computing” – I have to believe efforts like this will end up having some effect on the software business both for the customer in terms of what they want and expect, as well as the providers and the manufacturers.  Stay tuned on this one.

At least the highlighting isn’t an issue with software. . .

-Ric

This one is a bit of a stretch, and I have a reverse example of this approach from the business world that I will talk about at the end of this.

I will start with an uncontroversial example, and then progress to one that’s a little harder.  Somewhere between trivia and common knowledge is the tactic that’s used by firefighters to put out forest fires.  Do you know what they do?  They start fires.  Really.  Fires need fuel to keep burning, so if the firefighters burn the portion of the forest that’s in the path of the larger forest fire, by the time it gets to that area, it’s already burned, and there’s no more fuel for the fire and it goes out.  Stop the larger burning by starting (and containing) smaller fires.  The trick in this one is to go through the logic of the outcome you want (stop the fire), and then to ask what techniques accomplish that, and while pouring water is a way to put it out, removing the fuel source is in many instances a better way.  So ask what it will take to achieve an outcome, and if the current path isn’t working, ask if there’s another way.

On to V-J Day.

64 years ago today World War II ended.  This article in the paper today by Dan Barry talks about a man, Albert Perdeck, who was a soldier in that war and he was in the aircraft Bunker Hill that was attacked in 1945.

One of the primary points of the article is that people don’t talk about V-J day anymore, and a lot of people don’t even know what it stands for (Victory-over-Japan).  I think there’s a lot of validity to Dan Barry’s observation that a lot of time has passed and celebrating victory over Japan has a very different ring to it than simply saying the end of WWII.  Japanese/American relations are now very good and I expect people don’t want to stir up some of those awful memories, from Pearl Harbor to the atomic bombs.

For people who are unfamiliar with the timeline leading up to August 14th, hundreds of thousands of people had already died in the war.  The United States led by President Harry S. Truman notified Japan that we had created a bomb that would blow up an entire city and that if they didn’t surrender, we would use it.  They didn’t believe Truman and on August 6th we  destroyed the city of Hiroshima, and when they didn’t surrender after that, Nagasaki was destroyed.  Horrific doesn’t begin to describe those two bombings, but the reason it struck me as an example was that everyone wanted the war to stop, so many people had died already but that wasn’t ending the war, so Truman tried another more radical approach that amounted to killing people more people (sadly a LOT more people who weren’t soldiers) to stop the killing.

As I said, not wanting to stir up bad memories on this one, but with both the forest fire example and the WWII example, the tactic of doing more of something to stop a larger problem of that same something is a non-obvious approach to problem solving.

So my business example here is actually a case where a situation like this backfired for Vlasic pickles. People bought pickles at a pretty predictable rate.  Then Vlasic and Wal-Mart teamed up to sell gigantic jars of pickles.  I think Vlasic expected this to just be a great source of revenue from a great retailer and it would have a happy ending.  Not for Vlasic.  A little bit like the forest fire example, when these people bought the giant jar, it was basically two or three years of pickles for their household.  And they are fine staying in a jar for a long time.  So what happened was people stopped buying pickles at the grocery store and Vlasic had for all practical purposes put themselves out of business.  Just as the firefighters burn the fuel in the larger fire’s path, Vlasic sold them so many pickles, they wouldn’t have an appetite for buying more for a long time.

I realize these are some unorthodox examples, but the point is that when you are trying to solve a problem, think about cause and effect and what other options you have, and know that some can be really great, while others will backfire if you don’t think them through.

-Ric

I have written several times about the fact that measuring our progress in the current recession (and beyond) requires several measures, not just one.  Too often I pick up the paper and someone is talking all about one measure that is the key.  One day it’s unemployment, another day it’s bank debt risk, and the next day it’s something else.  While my opinion on that hasn’t changed, Eric Zencey’s article G.D.P. R.I.P. in the paper yesterday really surprised me, because a measure that we are all familiar with, that we all understand, doesn’t really mean what it has come to imply.

Gross Domestic Product has come to be synonymous with how well a country is doing, and I think that has gone largely unquestioned for a long time.  So when Zencey explains with compelling example after compelling example that it means something different, I agreed with him that we need a new label for this measure.  The basic argument is that G.D.P. literally only tracks the value of the transactions that take place.  As he puts, it when hurricane Katrina hit, it resulted in an $82B increase in the G.D.P., but by no means were we better off.  Someone can dry their laundry in the sun, and they are (in a very simple sense) better off, but there is no transaction captured in the G.D.P., and I can write a check for $50,000 today, which would seem good for the G.D.P., but that would send me into debt, and I would absolutely not be better off.

Thankfully, Zencey is realistic enough to know that we aren’t going to throw away the statistic known as the G.D.P., but I think he’s right in waking us all up to the fact that it is a simple transactional measure, not a measure of well being.  If we want to measure how well we are doing, as well as the value of things that aren’t on balance sheets (like the bayous he talks about that used to protect New Orleans that were also a gulf shrimp breeding ground – very valuable, were destroyed so they could be developed which look great in the G.D.P. but arguably destroyed more value than they created) we need to look for something more.

How do we do that?   That’s a great question.  The micro example of drying your clothes in the sun is a hard one, but the example of the bayous and hurricane Katrina is pretty clear, G.D.P. is basically just a part of a larger balance sheet, it’s the simple transactional bit, and there are a couple of other pieces (the bayous were adding value without transactions, so there should have been a replacement cost associated with things like that), and in the case of hurricane Katrina, it seems you almost need a waste measure, that is how much value is thrown away or destroyed (which is probably something the insurance companies can sort out).  Good food for thought.

-Ric