Innovation for Jobs

Innovation for Jobs

Steve Denning, Why ‘The System’ Is Rigged And The US Electorate Is Angry

heather mcgowan

Mon Jan 25 2016 08:59:07 GMT-0500 (EST)

Great recent piece by Steve in Forbes. Excellent framing of

Great recent piece by Steve in Forbes. Excellent framing of the economic situation and illusions from both left and right.

http://www.forbes.com/sites/stevedenning/2016/01/23/why-the-system-is-rigged/#548a029e8223

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Stephen Denning

Mon Jan 25 2016 09:28:06 GMT-0500 (EST)

Thanks, Heather.

This obviously has huge implications for "innovation for jobs,"

Thanks, Heather.

This obviously has huge implications for "innovation for jobs," as we will
be discussing at Menlo Park later this week.

Warmly
Steve

Steve Denning
Forbes blog: http://blogs.forbes.com/stevedenning/
The Leader's Guide to Radical Management
http://www.stevedenning.com/Books/radical-management.aspx
Twitter: http://twitter.com/stevedenning
<http://stevedenning.typepad.com/steve_denning/>
Email: […]
Web: http://www.stevedenning.com/About/default.aspx

On Mon, Jan 25, 2016 at 8:59 AM, heather mcgowan <
[…] wrote:


Curt Carlson

Mon Jan 25 2016 13:39:20 GMT-0500 (EST)

Thanks. A very thoughtful and provocative piece. This is a

Thanks. A very thoughtful and provocative piece. This is a critically important set of issues. Thanks. A very thoughtful and provocative piece. This is a critically important set of issues.

You posit that a singular focus on stockholder value, not the customer, started with the likes of Friedman and that is when we started to decline. Earlier you pointed to this article as perhaps the seminal event: http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

But Friedman seems to have a very balanced view. His topic was not stockholder value, but “social responsibility” in the larger sense of engaging in activities not in the interest of a company, its employees, or its customers. He says over and over, the " stockholders or the customers or the employees.” That is, he recognizes that all three must have a value proposition appropriate to their role. He has it right. He actually supports your great point about the critical importance of a focus on the customer. Perhaps he said otherwise in some other reference?

As CEO that is how I thought about it. As my colleague Len Polizzotto always points out, all three have to be in balance. Friedman clearly understood that too. If you get too far out of balance with any one the enterprise will suffer or even die. Indeed, if you forced me to take one over the other two it would be my employees. With great staff you can recover from an emergency. Without them you are nothing. But since we had a good balance between the employees and stakeholders almost all of our time was focused on our customer’s needs within a vision and mission that worked for our employees and stakeholders.

I am also not sure the data you show really supports your conclusions. The first chart is remarkable. Productivity continues to climb and after 1982 at an increasing rate until 2008. Actually it is spectacular performance implying no reduction in innovation. But after 1982 incomes did not keep up. That is clearly a huge problem. But well before 1982 the rate of increase in incomes was already declining significantly. Thus 1982 looks like a discontinuity but is it really? Likely not. Since 1949 (the start of your data) the rate of increase in incomes was going down. Productivity was going up. In 1982 they crossed, as they had to. If anything is striking about that graph it is the increase in productivity after 1982.

The second figure for ROA also shows continuous decline from 1965. What about before then — does the same curve just continue? This curve also suggest that something else was going on, not just a change in focus from customers to stockholders. Is there other data that supports your conclusions?

I agree with you that policies that incentivize value extraction at the long-term expense of the enterprise can be a disaster and can, at their core, be even immoral. At the same time I have worked in many of the largest firms in the world and this has not been their main problem. It is that they can’t respond fast and correctly enough to keep up with competition.

The taxi business will go away because of AI, communications, autonomous transport, and an unrelenting tsunami of new customer-focused companies, such as Uber. It will happen; there is nothing the taxi industry can do except politics. Walmart is in decline because of on-line retail. It has gone from being a terrific customer-focused model to one that looks more and more like Blockbuster (it will take longer to go away and maybe they can recover, but it will likely be a very different company in 10-20 years). We may wish Walmart's business model payed employees more but when the company goes away things will likely be worse. Sadly, these might be the “good old days."

I just came back from a week in Finland. They certainly have a different view of companies and they mostly support “corporate social responsibility.” But they too are falling behind. A slavish focus on stockholder value is certainly a terrible strategy and parts of our conceptual, political, and regulatory environment push people that way. This should be fixed. But I suggest larger economic forces are at work, as we have discussed.

What am I missing?

Great recent piece by Steve in Forbes. Excellent framing of the economic situation and illusions from both left and right.

http://www.forbes.com/sites/stevedenning/2016/01/23/why-the-system-is-rigged/#548a029e8223<http://t.sidekickopen32.com/e1t/c/5/f18dQhb0S7lC8dDMPbW2n0x6l2B9nMJW7t5XYg3M2hYgW7dKLVW2zht5dW1p7ZwM56dwXXf8YBQ0R02?si=6662230422847488&pi=07873C18-1C4B-4234-A335-8652346817F4&t=http%3A%2F%2Fwww%2Eforbes%2Ecom%2Fsites%2Fstevedenning%2F2016%2F01%2F23%2Fwhy%2Dthe%2Dsystem%2Dis%2Drigged%2F%23548a029e8223>

Heather McGowan

Curtis R. Carlson, Ph.D.
Founder and CEO Practice of Innovation
President and CEO SRI International, 1998-2014
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Our most important innovation is the way we work


David Michaelis

Mon Jan 25 2016 15:16:42 GMT-0500 (EST)

blockquote, div.yahoo_quoted { margin-left: 0 !important; border-left:1px #715FFA solid

blockquote, div.yahoo_quoted { margin-left: 0 !important; border-left:1px #715FFA solid !important; padding-left:1ex !important; background-color:white !important; } Very insightful analysis by Steve.ThanksDavid

Sent from Yahoo Mail for iPhone


Stephen Denning

Mon Jan 25 2016 15:16:42 GMT-0500 (EST)

Hi Curt,

"What am I missing?"

As usual, nothing. ๐Ÿ™‚

Thanks for the

Hi Curt,

"What am I missing?"

As usual, nothing. ๐Ÿ™‚

Thanks for the detailed comments.

Re Friedman’s article. With a generous interpretation, it is possible to
see some sense in parts of the article. But that’s not how it was
interpreted. It led on to the Meckling/Jensen article and the whole
shareholder value fiasco with executives being compensated to jack up the
stock price, trillions of dollars in share buybacks bought at the top of
the market and all the rest.

You might say that wasn’t Friedman’s fault. But if you read the article
with a less than generous interpretation you will find absurdities such as
“the corporation is a legal fiction” and “the executives are employees of
the shareholders.” If you want the less generous interpretation of Friedman
in full, I spelled it out in detail here:
http://www.forbes.com/sites/stevedenning/2013/06/26/the-origin-of-the-worlds-dumbest-idea-milton-friedman/.
Not sure how useful it is going back over this textual analysis. The
historical fact is that the way it was interpreted led to on the other
disasters.

On the ROA/ROIC data, it would be nice if we had pre-1965 figures. Maybe
you can persuade John Hagel at Deloitte to get round to having that done
one of these days?

Obviously there were a lot of other things going on in the 70 years that
are covered in the short article. The article offers the headlines. There
is a lot more covered in my forthcoming book. But I believe the main
elements of the narrative as stated in the article are broadly correct.

In particular, as you say, “I agree with you that policies that incentivize
value extraction at the long-term expense of the enterprise can be a
disaster and can, at their core, be even immoral.” That is one of the main
points.

I also agree: “At the same time I have worked in many of the largest firms
in the world and this has not been their main problem. It is that they
can’t respond fast and correctly enough to keep up with competition.”

My thought here is that shareholder value theory is a natural marriage with
hierarchical bureaucracy, which is the key reason those firms can’t respond
fast enough.

So shareholder value theory is bad in itself, but it has other secondary
effects, like locking in hierarchical bureaucracy as the modus operandi of
a large public corporation. This is why shareholder value theory has a
legitimate claim to being, not just one bad thing among many, but a root
cause of the wider set of problems listed in the article.

I agree that more research and more data are needed on all this, but will
that research data change the basic narrative?

Thanks again for your thoughtful comments.

Warmly

Steve

Steve Denning
Forbes blog: http://blogs.forbes.com/stevedenning/
The Leader's Guide to Radical Management
http://www.stevedenning.com/Books/radical-management.aspx
Twitter: http://twitter.com/stevedenning
<http://stevedenning.typepad.com/steve_denning/>
Email: […]
Web: http://www.stevedenning.com/About/default.aspx

On Mon, Jan 25, 2016 at 1:39 PM, Curt Carlson […]

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