The Greatest Own Goal or the Greatest Collapse

The Greatest Own Goal or the Greatest Collapse

Last week saw the birth and collapse of the European Super League (ESL). Living in Atlanta, to me, the defeat was on a par of the Falcon’s 2017 Superbowl and Greg Norman’s 1986 Masters. On Sunday evening, there was the announcement of the formation of the ESL, comprising 12 “founding clubs” from England, Spain, and Italy. Three other unnamed clubs were soon to join, along with another five teams that would qualify annually for the 20-team competition. Within 48 hours, it was dead!

The announcement of the ESL was accompanied by a promise to “deliver excitement and drama never seen before in football,” and did they deliver!

Why was the ESL formed?

Why? Simply, MONEY. The fifteen founding clubs were guaranteed a place every year with no messy football stuff like qualifying and relegation! The teams would capture a larger share of the revenues with less risk. Expectations were that broadcasting rights might generate €4bn a year, nearly double the €2.4bn brought in by the Champions League in the 2018-19 season. 

As Martin Baumann put it, “We can sell just about anything to the Europeans. Why not our hyper capitalistic cartel-based pro sports system?” That sentiment seems very popular on this side of the Atlantic. Many other commentators pointed out that the owners sought profits before tradition, financial opportunities before culture, and self-interest before communal identity. The ESL was the logical outcome of the increasing commercialization of football and powerful few’s desire for monopolistic control. To enable the ESL, J.P. Morgan underwrote its formation with a $4 billion line of credit. 

While I like capitalism, I find it interesting the claim that this is capitalism. So saying ignores a couple of the mainstays of capitalism – no monopolies or cartels and creative destruction. The owners were not imposing an American capitalistic system on football; they sought to create an American-style cartel to reduce risk and transfer more money to themselves. This has just been done with F1 under the ownership of Liberty Media, turning the ten existing teams from car manufacturers into holders of very valuable franchise charters. Of course, technology development will slow, and the product quality fall. But we can’t let that get in the way of making money.

American sports competitions, especially the major leagues, are all effective money-producing cartels. Professional sports leagues in the United States are monopoly-like structures that ensure that the riches are spread evenly among a self-selected group. The teams stay in the league no matter how they perform. So much for the American ideal of meritocracy! 

The only economic competition they face is from rival leagues; that is why the U.S. system is a century-old marketplace of rival sports leagues. The combination of less risk and less competition for talent produces higher profits for owners. According to a ranking last year by Forbes magazine, forty-three of the world’s 50 most valuable sports teams are American – aren’t cartels wonderful! Such a structure has several results:

  • “Brand value” is not necessarily tied to on-field success. The “worst teams” in one season get the best players through draft picks the following year. 
  • It provides an inferior product, as I have discussed before. Guaranteed a place in the league means there is no need to invest in the team and deliver a good product for the fans. Recognition that the product is inferior is reflected in U.S. sports capturing a smaller share of the global viewing audience each year. 
  • It delivers more money to the billionaire owners, who theoretically have invested in the clubs. In every American sport, an inferior on-field product isn’t a reason for billionaire owners to make less money, e.g., Tampa Bay Buccanneers. The Bucs, I believe, have the worst record of any team in the NFL, even though they have two Super Bowl titles – 278-429-1. With such a record, they would have probably been relegated in European sports and no chance at any championship.

For those unfamiliar with relegation, unlike American teams, European sides play in open leagues, where the three poorest performers get demoted to a lower tier, with stingier broadcasting and sponsorship deals. The three top performers in the lower leagues get promoted to a high league reaping greater rewards. Club owners thus gamble on making it to the top, investing generously at the expense of profits.

The European model is genuinely a capitalistic one where owners take risks and invest for a potential reward. Creative destruction is evident: between 1992 and 2014, there were 45 insolvencies in the top three tiers of English football, 40 in France and 30 in Germany. 

So why did the ESL collapse? 

I believe it was because of hubris. Through hubris, the founders ignored the sport’s business model and Ben Horowitz’s sage advice, “Take care of the People, the Products, and the Profits— IN THAT ORDER.” 

Hubris

Hubris is a terrible thing and causes many failures in life and business. Only hubris can cause a few rich people to come up with an idea that generates such visceral and universal hatred, or put another way, Never underestimate the incompetence of people.” The hubris of the American owners that they could easily impose the U.S. system on European clubs showed that they were willfully ignorant of an alien culture.

Value Creation

Value creation is about “the job to be done” for the customer. The league claimed it would be an exhibition of elite football. However, with no qualification, the teams would not have had to try very hard and thus reduce the value of the “job to be done.” However, even more concerning was that the league’s criteria were not based on being the best in Europe but merely the richest. Once a world power, Arsenal is barely one of the best in England and just a bougie to Newcastle United. Arsenal currently sits ninth in the Premier League table, out of reach of Champions League qualification, and likely to miss out on the less lucrative Europa League as well. Choosing the clubs by the wealth of the owners killed any pretense at value creation.

Marketing

The key to marketing is delivering on your brand promise. The brand promise in European sports is the promise of the club’s success. The basic unit is the club in European sports, which tends to be much older and more locally rooted than any franchise and far more fervently followed. Many clubs are over a century old and ripple with local associations and mythologies. For those who want a greater understanding, I would suggest watching Sunderland Til I Die.

Not only is the club the basic unit, but there is a “holy trinity” in a football club, the fans, the players, and the manager. The owners are there to invest and collect profits. Unlike in the U.S., when a team wins a championship, the owners are never seen lifting the trophy, only the players and the managers.

Sales

The key to sales is to know your core customer, the FANS. The fans were not amused, to put it bluntly. Unlike peripatetic American sports fans, English football clubs’ fans are even more zealous and less forgiving. The Glazers, Stan Kroenke, and John Henry were pretty much despised by the fans of Manchester United, Arsenal, and Liverpool, respectively, before the ESL. If they were unaware of this, the fans that welcomed the Glazers to Manchester chanting “Die, Glazers, die!” should have been a hint. The ESL announcement only made things worse. Liverpool fans were burning effigies of John Henry outside Anfield. A banner outside Old Trafford read, “Created by the poor, stolen by the rich.” A YouGov poll found that 79% of British football fans opposed the Super League, 68% of them “strongly.”

There have been massive protests by Chelsea, Liverpool, Arsenal, and United fans at Stamford Bridge, Anfield, The Emirates, the Carrington training ground, and Old Trafford within the past 5 days. All the fans have been complaining about the money taken out of clubs rather than investing in them. Opposition was fiercer still among fans of clubs outside the ESL, some of whom burned Liverpool shirts. However, American billionaires excel at ignoring public outrage. Kroenke and the Glazer family might’ve waited out the protests until kingdom come. However, the rest of the founders abandoning the ESL gave them no choice.

Value Delivery

The key to value delivery is keeping the customer satisfied which in European sports is RIVALRY. The rivalry between teams is local, not leagues as in the U.S. Liverpool’s main rival is neither of the Manchester teams but Everton, a mile from Anfield. The ESL would have removed these rivalries. Further, ESL was not designed with these in mind, but for millions of foreign fans, in Asia and America who care less about such details. In European football, this was heresy. But overall, the ESL would have stopped the key rivalries that make European football what it is and thus reduced value delivery.

The Outcome

There were apologies all around. John Henry issued a groveling apology to Liverpool’s fans: “I’m sorry, and I alone am responsible.” This is something I don’t any U.S. fan has heard from an owner. Also, JP Morgan has apologized, which shows how much it has realized that its role might damage its chances of getting business in Europe. However, apologies are the least of the owners’ issues as hubris takes its toll. The speedy collapse presents an opportunity for the wider community [members of the Premier League] to drive a harder bargain during the auction of a new round of Premier League broadcasting rights. The result is that the ESL founders may receive a small cut this year.

However, the real threat is regulation. Boris Johnson, Britain’s populist prime minister, read the tea leaves and thus vowed to “do everything I can to give this ludicrous plan a straight red [card].” Oliver Dowden, Britain’s sports minister, wants to examine everything to stop the new league, from competition law to governance reform. His words, “Owners should remember that they are only temporary custodians of their clubs; they forget fans at their peril,” should be a stark warning. Also, the British government launched a wide-ranging review into how football is run this run. There is pressure for British clubs to adopt the German community-ownership model with fans owning 51 percent. While some point out that fan ownership did not dissuade Barcelona and Real Madrid from joining, the Spanish and Italian leagues’ financial health is more impoverished than England’s.

Who says football is boring?

 

Copyright (c) 2021 Marc A. Borrelli

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So how to solve this problem?

Working with some teams recently, I have come across the following system, which, while not perfect, helps get closer to what we want to achieve. For example, let’s say the topic is “Grow repeat business.”

 

100 Ideas, No Less

When starting the process with your team, the first rule is that we will not stop with ideation until we have at least 100 ideas on the board. Not only do we need 100 ideas, but no one is allowed to criticize, demean, promote, or challenge any idea until the 100 are there. This rule’s logic is to stop ideas from being shut down by some of the dominant participants. It is hard to get 100 ideas up on the board, and we progress through them, they get crazier, but that is sometimes where the gems lie. So, following our example, we could have the following ideas:

  • Create a membership club
  • Offer discounts to repeat customers.
  • Provide value behind a paywall for member customers
  • Offer bundling
  • Offer easy returns, e.g., Zappos.
  • Provide special shopping events for repeat customers or members
  • Offer suggestions to customers based on what they have purchased.
  • Free shipping for members
  • Special shopping days for members only
  • Early access to new products for members or repeat customers
  • Send you products that we believe you want and if you don’t return them then charge for them.

As can be seen from the above, many of these ideas are common, and we have seen them with Amazon and others. However, at one time, they were all new. Also, the last one, someone might think is “crazy,” but it doesn’t matter; it is still an idea to be put down.

 

Mind Map

Once you’re over 100 and there are no more ideas, time to organize. If there are still ideas at 100, don’t stop. I find organizing through Mind Mapping the best. For those of you who haven’t done Mind Mapping, take your ideas and organize them into “topics.” Elaborate on those by creating sub-topics and use short phrases or single words to identify them. Thus, once done, your 100+ ideas are organized into subtopics within topics, so it is easier to look at what each is seeking to achieve. In some cases, the ideas are just variations on prior ideas to be lumped into one. So, again looking at the ideas above, we could organize them as follows:

Membership Ease of Use Promotions
Create a club Offer easy returns Special shopping events
Provide additional value for members Offer bundling Discounts
Special shopping events for members Offer suggestions to customers based on prior purchases Special shopping days
Free shipping for members Free shipping for everyone  
Early access to new products for members   Early access to new products for prior customers
Send products and customer decides if they want them.    

 

10% AND ?

Once we have divided everything into our subtopics, then we go through them one by one. Each person has to identify at least 10 percent of what they like about any idea and then add to it. The next person builds on the last person’s statement, again identifying at least 10% they like and then adding to it. This ensures that nothing is shut down and that the creative exercise can take place. By having to build on something regardless of whether or not you agree, forces you to find the best in it and make it better – KAIZEN. The number of participants in the meeting will determine how many times you go around. As you go around, each iteration is recorded. This process further frees the imagination as you have to identify something you like about the statement before you and add something good. At the end of this process, some excellent ideas may have been arrived at. Then you can use a multiple voting system for the participants to identify what they like best.

 

So, Give it a try!

So, give it a try; you may find you get some fascinating and novel ideas from your group. Besides, as the group’s ideas flow, you should find a greater commitment to the ideas than those that the usual dominant people promote.

 

Copyright (c) 2021, Marc A. Borrelli

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Tony Hsieh, a Corporate Culture Icon, RIP

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Last week, we lost a great visionary when Tony Hsieh died from complications from burns and smoke inhalation sustained in a house fire that had occurred nine days earlier, on November 18. Among other things, Hsieh showed how that culture is the most important thing in an organization. He believed that by investing resources in its cultural commitment to customer service, the delighted customers then do the valuable word-of-mouth marketing.

For those that don’t know his background, Hsieh co-founded the Internet advertising network LinkExchange, which he sold to Microsoft in 1998 for $265 million. He then co-founded Venture Frogs, an incubator and investment firm, with his business partner, Alfred Lin. In 1999 following an approach from Nick Swinmurn to invest in Zappos, Hsieh and Lin decided to invest through Venture Frogs. Two months later, Hsieh joined Zappos as the CEO, and by 2009, revenues reached $1 billion, when it was sold to Amazon.

Hsieh stepped down as CEO until August of 2020, but his legacy at Zappos lives on. Hsieh learned how to make customers feel comfortable and secure with shopping online by offering free shipping and free returns. Hsieh’s belief in employees and their ability to self-organize let him rethink Zappos’ structure, and in 2013 it became for a time a holacracy without job titles. Of all the applicants that applied, the company hired only about 1%. Zappos was often listed in Fortune as one of the best companies to work for. Beyond lucrative salaries and being an inviting place to work; it delivered extraordinary customer service.

Hsieh made Zappos fanatical about great customer service. The company was not just about satisfying customers but amazing them. It always sought to over-deliver on its promises.

Also, to ensure great customer service, Zappos mastered the art of telephone service. Telephone services are a black hole for most Internet retailers. For Zappos, they made it key. The company publishes its 1-800 number on every single page of the site. All employees are free to do whatever it takes to make you happy, a step up from the Ritz Carlton where anyone could spend $1,000 to make a customer happy. The call center has no scripts, no time limits on calls, which means no robotic behavior! Zappos employees had an amazing emotional connection to the company through its culture and core values, which then infected their customers. As Richard Branson has said, “Clients do not come first. Employees come first. If you take care of your employees, they will take care of your customers.” Thus, Zappos is a company that’s bursting with personality.

According to Hsieh, if you get the culture right, the rest will take of itself. Besides, Hsieh believed that a company’s brand is just a reflection of the culture. You can see how this value was applied in Zappos’ hiring process.

 

The Interviews

There are two sets of interviews. The first set is done by the hiring manager looking for the appropriate skills and ability to fit with the team. The second is done by HR and is only looking at culture fit. You have to pass both to be hired at Zappos.com because they will only hire people who fit with its culture. Also, regardless of performance, they will fire someone who doesn’t fit with its culture.

 

The Training

All Zappos’ employees, when joining the company, spent the first four weeks going the same training regardless of whether they were a call center rep or a software engineer. The employees receive full pay during training, and this training immerses them in the company’s strategy, culture, and obsession with customers. The training starts with Call Center Training. The next two weeks, they all spent time on the phone taking customer calls because if the brand is all about providing the greatest customer service, then customer service is not a department but the entire company. A side benefit of this approach is that when the busy time of the year occurs, all employees can help in the call center because they have all done it, reducing the need for temporary workers to help. Finally, the last week is at one of their warehouses, picking and packing.

 

The Offer

At the end of the first week of training, all the new employees are offered a bonus of $2,000 to quit and leave the company right then. This is a standing offer that remains throughout the training period. After the training period ends, the offer is raised to $3,000 and extended for a few more months.

As a Harvard Business Review article put it, “Because if you’re willing to take the company up on The Offer, you obviously don’t have the sense of commitment they are looking for.”

The rationale behind the offer was that Zappos.com didn’t want anyone who was there for the paycheck; they wanted people who bought into the company’s culture and vision. Furthermore, those who didn’t take the offer had to go home and tell their family and friends that they had turned down the offer because they believed in its culture and wanted to be a part of such an organization. Zappos.com found that those employees were more committed to the organization when they turned down the offer.

When Zappos started the offer, it was only $100, but the company has increased yearly because they feel not enough people take the offer. According to Hsieh, about 2-3% of employees took the offer. Amazon was so impressed by “The Offer” they have instituted a version of it.

 

Performance Reviews

All employee performance reviews focus on job performance, and are you living and inspiring the Zappos.com culture. If not, you will not remain at the firm. Culture is essential.

 

The Culture Book

Once a year, all employees are asked to write a few paragraphs about what the Zappos.com culture means to them, and these are put in the Zappos.com Culture Book. Their submissions are only edited for typos, but otherwise, everything left as written, the good and the bad. It is organized by department so you can see how culture may differ within departments. Here is a link to one of their culture books.

Some examples of how Zappos employees define their culture.

  • Happiness. Great culture leads to employee happiness. The same way a toxic culture leads to unhappiness. Happy employees mean higher engagement, profitability, and low turnover.
  • People. Our culture would not be what it is today without the people, past and present. We are all protectors and cultivators of the Zappos Culture; it’s what makes it unique and something that changes every day.
  • Being Yourself. I love that I get to be me all day. The culture encourages you to be the same person you are at work as you are at home. I don’t have to pretend to be something I’m not, which makes Zappos a comfortable place to be.
  • Unique. Every company has a unique culture that’s all their own. Just like every person has their own personality, every company has its own culture. Building a culture is a special process that can’t be taken lightly. It’s the responsibility of every employee to represent and foster culture.
  • Fun. Work can be fun! We have 2 annual parties at Zappos. Our Vendor Party where we invite all of our brands to thank them and celebrate our partnership. And our employee holiday party. Past epic party themes have ranged from Mardi Gras and old-school hip-hop to a Hawaiian luau at a waterpark. Each has had its own twists and tricks to surprise and delight partygoers. This year, we invited our vendors to run away with us to the “Untamed Circus.”
  • Perpetual. Your culture doesn’t stay the same; it will continue to evolve. Having a defined set of values will serve as your guide to continue your culture’s growth and evolution in a positive direction.
  • Not Always Measured. A strong culture means lower employee burnout and, therefore, lower turnover. It leads to higher employee engagement and higher profitability. But really, companies should focus on their culture because it matters. Because it’s just the right thing to do. To quote Tony Hsieh, “Just because you can’t measure the ROI of something doesn’t mean you shouldn’t do it. What’s the ROI on hugging your mom?”
  • Work-Life Integration. Companies and employees worry about work-life separation or work-life balance. But why? Wouldn’t you rather be a company where your employees easily combine their full self into everything they do? Wouldn’t you rather work for a company whose focus on culture allows your job to integrate with your life? It shouldn’t be a struggle to find a balance between life and work where you are truly fulfilled and happy.
  • Partnerships. Your vendors have the same objective as you: to sell their product, be successful in their work, and maybe have some fun while doing it. Something unique that Zappos does is allow brand representatives access to all the same sales and inventory information on their products that Zappos has. By working as a team, by partnering, you are setting the stage for success!
  • Real. Your company has a culture. You may not have “planned” it. You may not like it. Or maybe you love it. But it’s there. It is real. You can choose to be thoughtful about your company culture. You can set values and identify the behaviors that you want to be the core of your culture. That part is fairly easy. The hard part is committing to the values once they are set. Living them.
  • Core Values. Values are more than just words; they’re a way of life. They are the foundation of your company culture. We know that companies with a strong culture and a higher purpose perform better in the long run. As we continue to grow, we strive to ensure that our culture remains alive and well.
  • Your Brand. A company’s culture and a company’s brand are really just two sides of the same coin. The brand is just a lagging indicator of the culture.

 

Twitter

The company is very active on Twitter. They introduce employees to Twitter during the training, and at the end of the training, it is up to the employees if they wish to remain engaged on Twitter. Zappos has a Twitter page that aggregates all the employee tweets together, enabling employees to learn about their fellow employees who they may not have met and build better relationships. As a result, many of its employees are power users of Twitter so that their friends, colleagues, and customers know what they’re up to at any moment in time.

 

Core Values

Zappos didn’t initially have core values because they felt they had to “real” to the organization and not just some words on a wall developed by a public relations firm. Hsieh and his team emailed all the employees asking what they thought the company’s core values should be and then spent a year going through the responses to come up with Zappos core values. Zappos has 10 core values are they are:

  1. Deliver WOW through Service
  2. Embrace and Drive Change
  3. Create Fun and a Little Weirdness
  4. Be Adventurous, Creative, and Open-Minded
  5. Pursue Growth and Learning
  6. Build Open and Honest Relationships with Communication
  7. Build a Positive Team and Family Spirit
  8. Do More with Less
  9. Be Passionate and Determined
  10. Be Humble.

Today, according to Hsieh, if you Google search any one of these core values by themselves, Zappos is among the in first results. The company has interview questions for each one of these core values.

Other interview questions:
#3 Create Fun and a Little Weirdness. On a scale of 1 to 10, How are Weird are you? With 1 being not weird and 10 being very weird? If you are 1 – 2, you may not be too weird. If a 10, maybe too weird. The answer is not the issue, but everyone is different, and what Zappos is looking for work-life integration so that the person is the same at the office as at home. If they can be who they are at all times, then creativity comes out, and true friendships are made.

#4 Be Adventurous, Creative, and Open-Minded. On a scale of 1 to 10 how lucky are you in life? 1 is “I don’t know bad things always happen to me,” and 10 is “I don’t know why good things always happen to me.” Zappos doesn’t want the 1, not because they are unlucky, but that luck is about being open to opportunities so looking for people who are open beyond just the task.

#6 Build Open and Honest Relationships with Communication. Zappos is about Transparency and its beliefs are, “Be real and you have nothing to fear. Your culture is your brand. Don’t try to be someone you are not.” Zappos when they have reports come by, they allow them to go around and talk to anyone because they are comfortable with that. This is because every employee is living the brand, have the same cultural views as the company, and they are authentic

#10 Be Humble. This value causes the most problems in the hiring process because many smart people are egotistical and if you accommodate them, you lose the corporate culture. To look for humility, Zappos had would question the shuttle driver who picked up the applicant up from the airport and drove them around to see how they were treated. If the candidate did not treat the shuttle driver well, they were not offered an offer regardless of how the other interviews went.

Tony Hsieh’s legacy will live on, but I challenge those among you to consider how your corporate culture stands up to Zappos and do you really live it. If not, why not? It could revolutionize your business.

 

(c) Copyright 2020, Marc A Borrelli

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Yes, We Are a Country (Team) Divided

Yes, We Are a Country (Team) Divided

So, as we await the final election results, the only thing that is abundantly clear is that we are divided as a country. Fifty percent wanted a change, and the other fifty percent didn’t. I don’t intend to discuss the whys or rights of either side. However, this has enormous implications for any leader.

As you sit with your team, you have to realize that fifty percent don’t agree with your view of the world, regardless of what they say, and fifty percent do. Previously, the difference was harder to discern. People kept opinions to themselves and didn’t get drawn into political discussions. However, with the polarization of COVID, we now know where people stand from how they feel about masks and social distancing. Regardless of what your people say, they are already deciding how they feel about issues and teammates, those they disagree with, and those they are damning.

However, as a leader, you have to get all these people to pull together, support each other, and achieve more as a team than they can individually. The key is, how?

There are two ways to lead people:

  • Divide people. Create a mutual enemy and lead a crusade to conquer it. Life becomes a life or death situation; the sense of urgency provides unconditional support. Conquering, winning at-any-cost, is all that matters.
  • Unite people. Find a common cause, a shared ambition, and inspire people to build it with you. Make it a life quest, and people are united by the the mission to build something bigger than themselves. The desire to leave a lasting legacy is what keeps the people joined in the mission.

So how do you intend to lead your organization?

 

Dividing People

The dividing strategy has been around since the beginning of time; Julius Cesar’s supposed strategy for conquering Gaul was “Divide et impera.” Gaul. As a leader, Nicholas Machiavelli believed it’s better to be feared than to be loved, and the leader should rely upon the art of manipulation to build followers and allies. As George Orwell put it so well in 1984, “The Party believed that they could endlessly engage in a war to keep peace in the country.”

Such leaders use the illusion of division to create a fictional reality. They are compulsive storytellers, using every opportunity to feed anger and violence. One of the problems is that anger is a powerful motivator but hard to sustain in the long run. So, the stories and illusions have to become worse to drive the same level of anger. It is not sustainable.

In some organizations, the competition is the enemy and the desire to destroy it at costs. Someone once told me that everything was portrayed as a life and death battle to destroy their biggest competitor during their corporate orientation. Leadership used every war analogy, including death chants about the competitor. One day he was ill with 104 fever, and there was a blizzard outside. He called his superior to say that he could not make it in, and the superior’s response was, “You will allow [the competition] to fight for another day, causing untold damage on us. Get up and fight to kill them. We need it done today.” They urged him to die on the altar of the war between the companies.

The problem with the deception strategy is it only works in the short term; in the long run, people separate fiction from reality. Leaders who use the divide and conquer approach often create a de-individuation environment, where individuals let go of self-awareness and self-control to imitate others, and one’s individuality becomes lost in the group identity. In such a situation, the organization’s threats are groupthink, and no one stops asking the critical questions as the mob rushes forward with the pitchforks and torches.

When we are so polarized and angry, many may think the divide and conquer strategy the best, as people are already on that path, and we have to refocus the anger. However, when angry and divided, divisions are more easily sown within the group. Suppose problems arise within the organization, the anger quickly moves from an outward focus to an inward one, e.g., production is not keeping up with orders, or customer service is losing our customers. Once the divisions start occurring within the ranks of the organization, it is hard to stop. Enemies and anger spread, and trust falls. The team is dysfunctional. The company is adrift without strategy or guidance, as those within fight among themselves, but the leader is safe.

Focusing on division and a common “enemy” makes it hard to live your core values in many cases. If one of your core values is to treat everyone with respect, then it must apply to your perceived “enemy.” However, that goes against the strategy and dies. Soon there are no core values left, and the only guiding light is winning at all costs. In this environment, the ends justify the means, and the organization destroys everything. As Attila the Hun said, “There, where I have passed, the grass will never grow again.”

I would argue that today, this is the worst way to lead. Leaders choosing this tactic are playing with fire and one that they cannot control.

 

Uniting People

Leaders who unite people are “builders.” They take a different approach; they don’t tell you to follow orders, but rather to “Join me and follow the mission, not me.” Such leaders and their follows are driven by a purpose bigger than themselves. They are more focused on the impact on society than quarterly earnings. It is not that the latter doesn’t matter, but making money is not enough. Studies show that when leaders connect to a meaningful purpose, it is more likely for employees to connect to it and work harder to achieve their goals.

Thus, it takes far less energy to motivate the employees and customers because their excitement with the mission does a lot of it for you in such an environment. The focus on the mission also allows the team to collaborate effectively. The principle is the mission’s success, which makes them feel good, overriding the divisions in other areas.

However, while getting everyone to follow the mission, there are two dangers: the rise of the “Messiah” within the organization and groupthink. First, leaders focused on the task can become the paramount leader where what they say goes, as no one is allowed to question the Messiah. Second, groupthink creates such an environment where, once more, “the ends justify the means.”

The organization’s core values are essential to ensuring that neither of these outcomes occurs. If, as above, a core value is “Treating everyone with respect,” then those who disagree are not denigrated in such an organization. They may not be on the team, but hatred is not directed at them, and as such divisions are less likely to occur.

In today’s environment, it is worth revisiting your mission, “Why do we exist?” It is also a great time to look at your core values and see how they fit with the organization’s mission and drive behavior. In many organizations, I am aware of, they have core values, but even the CEO cannot articulate them at a moment’s notice. In such organizations, they are just words on a wall. They are not core values. To find your core values, ask your team. “What are the top, non-illegal activities that would get you fired from this organization?” The answers are the opposite of your core values. Compare them to those words on the wall – do your people know and live your core values?

However, while we often have our core values posted within the office, we don’t ask what they mean. Take, for example, Google’s corporate philosophy of “Don’t be evil,” which the company had in the 2000s. An ex-Google employee told me that there was lots of internal debate about its meaning and what actions were allowed. Many core values sound good, but on examination, the organization has done little to define what they mean or show how to live them in difficult situations. Here corporate folklore is of enormous importance. Your organization needs lots of stories that demonstrate the living of its values that are shared with everyone, from new employees to customers. As humans, we love stories and relate to them more than words. Suppose your organization has many stories about how it lived its core values in difficult times. In that case, your employees will know the corporation’s values and how to behave when similar times arise. As I am sure few companies will have a core value that includes the words, hate, discrimination, etc., these behaviors are less likely to develop.

In a divided country, you need to reinforce your core values, live by them, and, as Jim Collins says, be prepared to take a loss to live by them. Start recognizing everyone in your organization that does demonstrate your core values and allows others to do the same at meetings. It needs to be a part of your hiring and review process, as this is the glue that will hold the organization together in a COVID world. When you are hiring, looking where the applicant worked previously, and that organization’s core values may help you decide if they will fit with your team.

Our core values are far more similar among most of us than we realize. If we believe in those together, we can overcome our other divisions and have a friendship because the bonds outweigh the divisions.

Finally, I believe teams need to look at Special Forces teams, e.g., SAS, Seal Team 6, SBS. What I think makes them so effective is that:

  • They are solely focused on the mission;
  • Their core values are paramount;
  • They discuss openly and to determine the best plan to execute the mission. Nothing is personal, but everything is open to challenge;
  • Once the plan is adopted, there is full buy-in from the entire team. No one is sitting with their arms folded, hoping it fails so they can say, “I told you so.”
  • They know when the mission is no longer viable, and they need to determine a new mission; and
  • They undertake extensive post mortems on the plan to learn how they could be more effective and what mistakes were made.

At this time, I would suggest all leaders look to their mission and core values to unify their teams and lead their organization more effectively through the country’s divided landscape. Reach out if you need help defining your mission, BHAG, and core values.

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What I have noticed

When I arrived in the U.S., the first thing I noticed was all the wires that hung from poles along every road and provided squirrels with their spaghetti freeways. Other than these wires’ unsightliness, I could not understand why they weren’t buried like they were in other countries where I had lived.

Other areas of infrastructure that those of us who have traveled through Europe and Asia notice are:

  • The poor state of the roads, airports, and trains.
  • The lack of wireless coverage and high-speed internet.

Why are things this way in the U.S.? Well, as far as I can ascertain, the reasons are:

  • It is cheaper for the power companies to repair fallen lines than bury them;
  • No one wants to invest in the roads because it will raise government debt;
  • No one cares about trains because they are expensive, and cars are better;
  • There is no pressure to roll out fiber and make it available; and
  • The cell companies will get to it when it makes a return.

 

Why Does It Matter?

Now I know many of you are already up in arms, saying that the U.S. doesn’t need to follow anyone else’s example, and the U.S. cannot learn anything from anyone else.

 

Power Lines

However, I live in Atlanta, probably 5 miles from the State Capital, as the crow flies. On Wednesday, Hurricane Zeta passed through. As a result, we lost power for 36 hours, so no computers, phones, or the internet. We were not alone. According to the Georgia Power website, there were hundreds of thousands like us.

In our new world of working from home, we have two fundamental issues. For employees to be productive, they need power and internet access, as everything is now in the “cloud.” As someone recently remarked, Maslow’s hierarchy of needs has added a new bottom layer: battery storage and high-speed internet access. With COVID, there is a migration of people from cities to small towns across America. Blue Ridge to the north of Atlanta is experiencing a boom and a recent article referred to the numbers of people moving West. However, work in these small towns requires reliable power and high-speed internet, neither of which are readily available. Zeta tore through northern Georgia, and over 1,000,000 homes lost power. Twenty-four hours later, that number is still around 250,000.

In Georgia, Georgia Power and others are constructing Plant Vogtle, Units 3 and 4. Plant Vogtle is a nuclear power plant, and the original estimated cost of Units 3 and 4 was $14 billion when construction began in 2013. Currently, the estimate for these is $25 billion and rising as neither is on schedule. In 2013, it was apparent that nuclear power was far more expensive to generate at operating levels than natural gas (nearly 3x). The cost of the plant was unsustainable without enormous subsidies. If Georgia Power had built natural gas generation and spent the difference on burying power lines, the plants would be open, and we would have a more stable electrical supply.

 

Planes, Trains, and Automobiles

Peter Zeihan said, “The balance of transport determines wealth and security.” According to Zeihan, the Mississippi-Ohio river system is the most important globally and a vital driver of the U.S. power and wealth. The Mississippi and Intracoastal system accounts for 90 percent of the United States’ 17,600 miles of internal waterways. This length alone is greater than the size of all the inner waterways of the rest planet combined. Furthermore, America’s rivers transform cities in the interior such as Pittsburgh, St. Paul, Sioux City, and Tulsa into ocean ports. Finally, the U.S. has more “port potential” along its coast than the rest of the world combined. According to Zeihan, “The Chesapeake Bay alone boasts longer stretches of prime port property than the entire continental coast of Asia from Vladivostok to Lahore.” The United States has more port possibilities than it has ever needed. However, it has been the world’s largest producer, importer, and exporter of agricultural and manufactured goods for most of its history.

These geographical advantages did several things.

  1. They generated enormous amounts of capital. Any culture based upon waterways like the U.S. will be ridiculously capital-rich.
  2. They knit the country together culturally. Rivers promote unity, and an integrated maritime network promotes unity over a far broader swath of territory. As a result, the U.S. has one of the most robust national identities of the major powers.
  3. The U.S. didn’t have to invest in expensive infrastructure and military investments in its early history that other countries made. For example, Germany had to develop a road system in the 1830s and 1840s to provide what the U.S.’s rivers gave and then update it further in the 1930s.

With all the benefits of rivers, today, the U.S. is also reliant on planes, trains, and automobiles for transportation.

Planes
U.S. airport infrastructure is not what it should be. From their three largest funding sources, U.S. airports collectively received, on average, $14 billion annually for infrastructure projects between fiscal years 2013-2017. However, airport officials said that these combined funds might not be enough to cover the costs of their planned infrastructure projects. Estimates are that projects will cost an average of $22 billion annually between fiscal years 2019-2023.

Air transportation services support 1.4 million U.S. jobs, and international tourism brings in hundreds of billions of dollars of tax revenue. But some studies have found that delays and avoided trips due to the poor state of the nation’s airports cost the economy over $35 billion per year.

Trains
To be clear, I like rail and enjoy using it, so I must be biased. However, in looking at the U.S. while I think high-speed rail would be excellent, that is not what I think is needed. I doubt many would take a train across the country anymore since planes do it more efficiently. However, building better rail connections between cities would be a business generating. Again, not looking at high-speed rails like Japan’s Bullet trains or France’s TGV, but rather what is considered express trains in Europe, which travel at 130 mph on upgraded conventional train lines.

The problem in the U.S. is that the automobile industry pushed to get rid of passenger rail from 1930 and succeeded in nearly doing so. While the U.S. freight train services are the most effective globally, passenger rail is the Ugly Stepchild. Amtrak uses freight lines for its many of its passenger trains; however, the freight lines are not suitable for passenger traffic, keeping the average speeds below 60 mph. Besides, Amtrack has more than a $30 billion backlog of infrastructure investments.

If I could take a train from Atlanta to Charlestown, Savannah, Jacksonville, Chattanooga, Nashville, or Charlotte that did 130 mph and provided me with high-speed internet, I would never drive again. Combine that with a car rental in the destination city, e.g., ZipCar, and I wouldn’t give it a second thought.

Finally, I expect many smaller U.S. towns to find that they are no longer serviced by airlines as the U.S. airlines retract services with the downturn in business travel. Thus, they will only be serviced by road, making them less appealing to business.

Many complain about the high cost of rail, but analysis has shown that rail is cheaper overall than roads. This analysis uses the cost of rail construction in the U.S., which is higher than in other industrial countries. The cost of infrastructure construction in the U.S. is higher than in other industrial countries.

Automobiles
The U.S. benefited from The Interstate Highway Program started by President Eisenhower in 1956. Currently, about twenty-five percent of all miles driven in the U.S. is on the Interstate System. These road and river systems helped the U.S. continue its growth through the post-war period.

However, our road system is no longer the envy of the world. According to estimates, the delays caused by traffic congestion alone cost the economy over $120 billion per year. It needs investment and improvements. Congress’s failure to increase the fuel tax is an embarrassment, and failure to keep our infrastructure current will pose significant barriers to growth in the long term as transportation costs and delays increase.

Besides, COVID has decimated state budgets everywhere. Now the states have to fix many of these highways but don’t have the funds to do so, and Congress’s reluctance to help is just kicking the can down the road and increasing the ultimate bill.

Finally, with automobiles, Elon Musk and Tesla are changing the landscape. However, with the Administration’s opposition to electric vehicles, the U.S. is falling behind. Today the U.S. has about half a million charging stations in the country, of which 100,00 are public charging stations. In China, there are 808,000 charging stations, of which 330,000 are public. As of 2019, Europe had 170,000 public charging stations.

Furthermore, expectations are that European distribution will grow faster than the U.S.’s over the coming years. As other countries increase their rollout of charging stations, electric vehicle adoption will grow more quickly in those countries, making it harder for the U.S. to maintain its leadership in the development of electric vehicles. That trend has started with many car manufacturers launching E.V. models in Europe and China and Tesla opening production facilities in Shanghai and Germany.

 

High-Speed Internet

With high-speed internet, there is both wired and wireless. As we all work from home, reliable high-speed internet is a requirement, not a luxury. Those without it will not be able to get or maintain higher-level jobs.

Wired
Currently, fiber broadband is now available to more than 30% of households across the U.S. Distribution increased from 12.2 million households in 2008; however, much of the increase was due to AT&T deploying fiber to 12.5 million customers under an agreement with the government for approval to buy DirecTV. That buildout is finished. As a result, it appears that Google Fiber has effectively stopped its rollout with only one new location in the last four years.

While only 30% of homes have potential fiber access, only 18.6 million households in the U.S. have a fiber subscription. While the many rural U.S. areas with low housing density explain some of the shortage, city deployment is not significant. Millions of Americans have cable as their only choice for high-speed broadband. Another study found that Comcast is the only choice for 30 million Americans. Charter is the only choice for an additional 38 million Americans regarding broadband speeds of at least 25Mbps downstream and 3Mbps upstream. Americans have no choice in areas that don’t have cable and have to rely on DSL for wired access.

As a result of COVID, many are looking to move to smaller towns where they grew up or sought a better lifestyle. However, most of these towns have little high-speed internet or options for homeowners. Furthermore, with COVID, sales and tourism tax revenues have fallen, which will result in cuts in many essential services.

U.S. fiber access is far behind numerous other countries, according to a report. Spain, Portugal, Japan, and others are above 90%, while countries such as Norway and South Korea are above 80%.

 

Wireless
The U.S. leads the development of 4G mobile speeds and wants to ensure it retains its leadership with the development of 5G. The current Administration’s fight with China and Huawei Technologies are part of this desire for industry dominance. Also, U.S. policies will require coordination with other competitors who make up the global 5G supply chain. Otherwise, the strategy could split the development of standards, essentially setting up incompatible technology paths for 5G, e.g., 3G.

While these policies are slowing China’s development, it will take more. Huawei remains the top filer of standard-essential 5G patents, with the telecommunications giant set to remain a leading global supplier of 5G equipment. If Huawei can establish itself as a low-cost provider as it did with 4G, carriers using its gear will be able to deliver low-cost 5G service driving broader adoption. Furthermore, experience with large rollouts of 5G will make Huawei a key provider.

Through COVID, China has continued to invest heavily in its 5G rollout for the supposed purpose of monitoring the spread of the disease. Regardless, it now has a significant lead with 480,000 5G base stations nationwide and more than 100 million 5G connections. According to Frank Meng, Chairman Qualcomm China, some 15,000 5G base stations are being installed weekly in China, and the nation is likely to have more than 600,000 5G base stations by the end of 2020.

Today, entry-level 5G plans in China cost $10, done from $18 when launched in November 2019. U.S., operators, like Verizon, are charging $10 a month — on top of its lower end plans — to customers for 5G service. This pricing difference will slow down U.S. adoption vs. Chinese.

Overall, the West has fallen behind in the competition for leadership of the 5G transition, a reality that has enormous economic implications and risks the West facing a 5G supply chain provided by Chinese companies.

In the U.S., the leading wireless providers are rolling out 5G. However, in testing, a 5G phone does nothing more than 4G. 5G download speeds are roughly the same as on 4G LTE ones, and in some places, 5G phones are slower.

The 5G is expected to:

  • Enable more excellent IoT connectivity;
  • Remote robotic surgery in healthcare;
  • Safter transportation;
  • Self-driving cars; and
  • Improved manufacturing

Thus, 5G will be the new roads and rivers of the twenty-first century, and the U.S. needs to invest in 5G infrastructure to ensure it realizes its benefits and retain its leadership position.

 

So, What Needs to be Done

Congress needs to address infrastructure and provide funds for it. The returns from improvements in the above will far in excess anything that tax cuts have ever offered. Such projects are not “shovel ready,” and choosing how to will not be easy. But it is up to all sides to work for a solution which allows improved results and less waste. We need to realize there are no easy bumper sticker slogans solutions. But we need to educate ourselves about the situation.

 

Copyright (c) Marc A. Borrelli, 2020

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COVID = Caught Inside

COVID = Caught Inside

As we emerge from COVID, the current employment environment makes me think of a surfing concept: “Being Caught Inside When a Big Set Comes Through.” Basically, the phrase refers to when you paddle like crazy to escape the crash of one wave, only to find that the next wave in the set is even bigger—and you’re exhausted. 2020 was the first wave, leaving us tired and low. But looking forward, there are major challenges looming on the horizon as business picks up in 2021. You are already asking a lot of your employees, who are working flat out and dealing with stress until you are able to hire more. But everyone is looking for employees right now, and hiring and retention for your organization is growing more difficult.

Why is there not MORE common sense

Why is there not MORE common sense

“Why don’t they use common sense?!” You may have said this phrase yourself, or heard it with your managers, when discussing an employee’s actions. However, the frustrated appeal to “common sense” doesn’t actually make any meaningful change in your organization. We all make decisions based on the information we have and the guides we have to use. So if the wrong decisions are being made in your organization, it’s time to examine the tools you give decision-makers.

Do You Understand Your Costs to Ensure Profitability?

Do You Understand Your Costs to Ensure Profitability?

You can only determine profitability when you know your costs. I’ve discussed before that you should price according to value, not hours. However, you still need to know your costs to understand the minimum pricing and how it is performing. Do you consider each jobs’ profitability when you price new jobs? Do you know what you should be charging to ensure you hit your profit targets? These discussions about a company’s profitability, and what measure drives profit, are critical for your organization.

Sunk Costs Are Just That, Sunk!

Sunk Costs Are Just That, Sunk!

If you were starting your business today, what would you do differently? This thought-provoking question is a valuable exercise, especially when it brings up the idea of “sunk costs” and how they limit us. A sunk cost is a payment or investment that has already been made. Since it is unrecoverable no matter what, a sunk cost shouldn’t be factored into any future decisions. However, we’re all familiar with the sunk cost fallacy: behavior driven by a past expenditure that isn’t recoupable, regardless of future actions.

Do You REALLY Know Your Business Model?

Do You REALLY Know Your Business Model?

Bringing clarity to your organization is a common theme on The Disruption! blog. Defining your business model is a worthwhile exercise for any leadership team. But how do you even begin to bring clarity into your operations? If you’re looking for a place to start, Josh Kaufman’s “Five Parts of Every Business” offers an excellent framework. Kaufman defines five parts of every business model that all flow into the next, breaking it down into Value Creation, Marketing, Sales, Value Delivery, and Finance.

The stimulus has ended; what does that mean for the economy?

The stimulus has ended; what does that mean for the economy?

The stimulus from the CARES Act has ended, and so far, Congress cannot find a way to replace it. Democrats in the House have passed a bill, but Senate Republicans, lacking a unified approach, have waited until the end of the summer to propose a plan. Currently, Secretary Steven Mnuchin is negotiating with House Speaker Nancy Pelosi to find a compromise. So, what?

Well, without the stimulus, unemployment is expected to rise. Last week’s Bureau of Labor’s jobs report showed that the job gains from April slowed dramatically, adding just 661,000 jobs. The unemployment rate now stands at 7.9%, down from 14.7% in April. Currently, approximately 25 million people rely on jobless benefits to get by, and the outlook is worse. Last week, the Walt Disney Co. said it would lay off 28,000 people, and American Airlines Group Inc. and United Airlines Holdings Inc. announced 32,000 job cuts. These are just the massive layoffs; however, lots of smaller companies are laying off workers.

So far, most of the damage has been to low-income workers, but the pain is moving up the wage scale. A recent Wall Street Journal article pointed to a couple in New York who earned about $175,000, enough to cover the mortgage, two car leases, student loans, credit cards, and assorted costs of raising two daughters in the New York City suburbs. However, since COVID hit shutting down the courts, one of them, a lawyer, is unable to work, and the family is running low on savings. They can’t keep up with $9,000 in monthly debt payments, including mortgage installments.

In the U.S., consumer spending accounts for about two-thirds of gross domestic product, and as more people are unemployed, many will deplete their saving and stop spending. A fall in consumer spending affects everyone as we are all linked in this economy. If consumer spending falls, B2C companies suffer and lay off more people and stop buying from B2B companies, so the cycle continues. No one is immune.

While many have pointed to fall credit card debt levels during COVID, more worrying is the number of people behind on their mortgages, rent, and utilities. As we head into winter, with many facing evictions, no heat or water, the prospects are even worse. As some might recall from their economics class, the marginal propensity to consume is greater for those in lower-income brackets. Therefore, to boost the economy, middle- and lower-income Americans need to be able to consume. While the wealthy will spend some of the benefits they receive, they will spend far less, so the positive impact on the economy is limited.

Many fiscal conservatives have said that they are now concerned about the deficit and deterring people from working. It is nice to see they have finally found some courage; however, it seems more that they object to anyone they believe doesn’t deserve a benefit getting one. There was a deafening silence from this crowd with the passage of The Tax Cuts and Jobs Act (TCJA) in December 2017, which provided benefits to companies and the wealthy. Many in the Administration and other conservatives claimed that the TCJA would pay for itself. Unfortunately, not! The deficit increased since its passing, and Bloomberg’s analysis showed that most corporate tax cuts went for buy back shares. In my opinion, this spending on buyback is the leading cause of the stock market’s continued rise.

While some will claim that increases income for everyone, only about 10% of the population owns shares outside of a retirement plan. So, the impact of the rising market does little for overall consumption and the economy.

During the Great Recession, Congress failed to provide enough stimulus for a full recovery. It is in danger of doing the same again, and this time I fear the consequences will be far worse. I would advise all CEOs to what cash levels and liquidity, but at the same time, we need people spending to grow out of this hole.

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COVID = Caught Inside

COVID = Caught Inside

As we emerge from COVID, the current employment environment makes me think of a surfing concept: “Being Caught Inside When a Big Set Comes Through.” Basically, the phrase refers to when you paddle like crazy to escape the crash of one wave, only to find that the next wave in the set is even bigger—and you’re exhausted. 2020 was the first wave, leaving us tired and low. But looking forward, there are major challenges looming on the horizon as business picks up in 2021. You are already asking a lot of your employees, who are working flat out and dealing with stress until you are able to hire more. But everyone is looking for employees right now, and hiring and retention for your organization is growing more difficult.

Why is there not MORE common sense

Why is there not MORE common sense

“Why don’t they use common sense?!” You may have said this phrase yourself, or heard it with your managers, when discussing an employee’s actions. However, the frustrated appeal to “common sense” doesn’t actually make any meaningful change in your organization. We all make decisions based on the information we have and the guides we have to use. So if the wrong decisions are being made in your organization, it’s time to examine the tools you give decision-makers.

Do You Understand Your Costs to Ensure Profitability?

Do You Understand Your Costs to Ensure Profitability?

You can only determine profitability when you know your costs. I’ve discussed before that you should price according to value, not hours. However, you still need to know your costs to understand the minimum pricing and how it is performing. Do you consider each jobs’ profitability when you price new jobs? Do you know what you should be charging to ensure you hit your profit targets? These discussions about a company’s profitability, and what measure drives profit, are critical for your organization.

Sunk Costs Are Just That, Sunk!

Sunk Costs Are Just That, Sunk!

If you were starting your business today, what would you do differently? This thought-provoking question is a valuable exercise, especially when it brings up the idea of “sunk costs” and how they limit us. A sunk cost is a payment or investment that has already been made. Since it is unrecoverable no matter what, a sunk cost shouldn’t be factored into any future decisions. However, we’re all familiar with the sunk cost fallacy: behavior driven by a past expenditure that isn’t recoupable, regardless of future actions.

Do You REALLY Know Your Business Model?

Do You REALLY Know Your Business Model?

Bringing clarity to your organization is a common theme on The Disruption! blog. Defining your business model is a worthwhile exercise for any leadership team. But how do you even begin to bring clarity into your operations? If you’re looking for a place to start, Josh Kaufman’s “Five Parts of Every Business” offers an excellent framework. Kaufman defines five parts of every business model that all flow into the next, breaking it down into Value Creation, Marketing, Sales, Value Delivery, and Finance.