New Comment from "The Secret" of Management

I just finished an excellent book about servant leadership called "The Secret." It contained a statement that I really liked; "with every pair of hands you hire you get a free brain." Let's make sure we are not ignoring the power of all those brains we have working for us, at every level of the organization!

When I was at New Madrid last week a mechanic offered his thoughts on preventing a repeat equipment failure. This item had been reviewed by the OEM and recommendations had been made, but I think his suggestion was excellent, not just from a practical functionality standpoint but it was also very inexpensive, almost free!

Don't forget to ask the question - someone just might have a better idea.

Is it 1979 All Over Again?

(Is History Repeating Itself in the Power Business?)

1979 may offer a glimpse into 2009, and we may learn something about the current recession by looking back at how the industry fared in post-1979 recession of the early 1980s.

Life in the late 1970s
In the mid-1970s, electric utilities in the United States were struggling to keep up with the growth in electricity demand. Nationwide demand was creating shortages of critical plant equipment such as turbines, generators, and large transformers. Prices were increasing rapidly, and with rapid load growth utilities found it hard to keep up with demand. As a result, they were making commitments for ever-larger plants, more frequently.

At Associated Electric, each generating unit was larger than the last. The 1960s ended with the completion of Thomas Hill Units 1 and 2. In the 1970s New Madrid Units 1 and 2 were completed in 1972 and 1977. So, at the end of the 1970s it was not at all unusual to consider adding Thomas Hill Unit 3, Associated's largest generating unit, planned to come on-line in 1982. In addition to the coal-based projects, Associated made commitments for a share in a large nuclear power plant, the Black Fox Nuclear project.

In the last 50 years in the U.S. there has never been a significant rise in the price of oil that was NOT followed by a recession. The Iranian Revolution of 1979 was just such an event. Oil prices shot up, driving inflation, and the US Federal Reserve enacted a tight monetary policy in response. This led to the extended 22-month recession of 1980-1982.

Increases in energy prices led to increased conservation by consumers, with the result that, by the time Thomas Hill Unit 3 was completed in 1982, not a single megawatt of its output was needed to serve customer demand. The 670 MW unit was entirely surplus to Associated's needs.

We weren't the only utility in this situation. Many of our neighbors had also made commitments for large generating units and the entire region found itself with extreme surplus capacity.

Moving into the 1980s
In order to pay for the increasing fuel costs and unneeded generating capacity, Associated enacted a series of rate increases throughout the early 1980s. The rate increases in turn resulted in further reductions in the rate of growth of customer demand.

In the years that followed in the early- to mid-1980s, Associated found that it could replace the output of its coal units at a price equivalent to running them. There was no longer a reason to spend extra money to shorten scheduled maintenance outages. Policies were enacted to suspend the use of overtime to shorten outages. A program known as “intermittent operation” was initiated at the New Madrid plant, in which one of the two units was shut down for economic reasons, and some of the workforce experienced a layoff.

Then and Now
Compare this situation of 1979 to our current situation. Since 1999 we have been building new generating capacity at a rapid pace. Intense worldwide competition for equipment such as turbines, generators, and transformers resulted rapid escalation in the cost of new plants. Strength in the rural Midwest economy kept customer demand increasing at a constant, reliable pace. Associated planned its next large generating unit (first Norborne, then Chouteau 2) and considered a commitment to a share of a large nuclear unit.

To cover increasing fuel and environmental-control costs, Associated enacted a series of rate increases over the past four years, putting additional pressure on customer demand.

There was not an Iranian Revolution, but in 2008 U.S. oil prices reached an all-time high following the announcement of Iranian missile tests. While the recession that followed is largely blamed on the collapse of the housing market, collateralized debt obligations and mortgage-backed securities, the increase in energy prices was a significant trigger to the mortgage meltdown.

Now one year later we find that customer loads are no longer growing at their former pace. The large generating unit under construction at Chouteau 2 is now expected to be entirely surplus at the time of its completion in 2011. Our participation in a previously planned nuclear unit has been suspended, and the equipment for our planned 100 MW peaker at Essex 2 has been placed in storage.

It is likely that we will find our neighbors with similar surplus capacity. New large coal-based units were recently completed in southwest Iowa and southeast Nebraska, and other units are nearing completion in Kansas City, southwest Missouri, northeast Arkansas, and western Illinois.

Even today our coal-units do not have the same value they had just a few months ago. Natural gas prices have collapsed, driven by low demand and high storage reserves. While we cannot yet buy energy for the same price as production, we are getting very close to those levels.

So, is it likely that we will see the situation of the early and mid-1980s repeat itself in 2010 through 2015? Might we see years of low customer demand growth? Might we find ourselves with the ability to buy surplus energy from our neighbors at prices competitive with our existing units? Might we find ourselves shutting a coal unit down for economic reasons? How might this impact utility negotiations with labor unions, railroads, and coal companies?

Exceptions
There are two additional significant factors that were not present in the 1980s: shale gas and carbon-dioxide regulation. Massive domestic reserves of natural gas trapped in shale formations, formerly considered uneconomic to recover, are now being extracted at very low incremental costs, a result of improved horizontal drilling technology. These reserves will put a price cap on natural gas, keeping our fleet of high-efficiency gas-based units competitive with some coal-based units. And the currently debated cap-and-trade bill, if passed, will further increase all energy prices, further depressing demand and placing coal-based units at an even greater disadvantage.

This future may NOT come to pass. This current recession could end and we could return to business as usual. But, if the current forces continue, we will need to maintain tighter cost control and top-tier unit performance in order to remain competitive in the market. Those who can do this well will survive. Those who cannot may find themselves looking for work. We want to be the former.

What do you think – are we back in the 1980s or will the roaring 1990s return? I would love to hear your comments.

So now that I'm back, what next?

Ok, I’ve been attempt to reintegrate my life at AECI for a week now, so where am I going? What are my current priorities?

Emphasis on our core mission – maintenance and reliability of our power plants, especially our coal-based units.

Emphasis on cost consciousness – this is a key part of our mission and vision. I want to make sure we are all living it. One objective of my training was to gain a broader industry perspective. After all the case studies and exposure to classmates from 160 businesses in 44 countries I have developed an increased appreciation for the importance of continued vigilance on costs.

Exploring the application of Social Networks – I had the opportunity to experiment with social networking tools such as Facebook, Linkedin, and blogs during my training, and I have seen how these tools work to improve communication and “flatten” the organization. I see a high potential for using these and similar methods for online collaboration across multiple locations. I am very excited about some new Sharepoint tools that will soon be available on our office intranet. They will provide us with in-house capabilities similar to those available today on the unsecure commercial sites.

Continually explore alternate and divergent ideas –it is easy for a business to fall prey to groupthink and complacency and miss significant opportunities and threats. We studied a number of examples of human-system failures, from Everest mountain climbers to NASA engineers to managers of financial services companies. In every example, humans are humans, and we share some common biases that often prevent us from seeing events outside our expectations. I will be using some new techniques to lessen the likelihood of becoming the next Harvard failure case study.

I am eager to hear from each of you on these ideas. Please feel free to share your comments online or by email. Think of it this way: if you hesitate to share an idea that you think could help us improve, you may be delaying our progress!

I'm not saying I work with a bunch of turkeys, but...

This turkey and her friend keep walking by my office window every afternoon.  Are they lost or what?

Back Home!

I want to thank everyone who made this trip possible, all my staff and colleagues at AECI who continued to work on all the challenges the coop faces, my friends for their support and encouragement, my family and my beautiful wife Lisa who always amazes me with her strength, wisdom, and kindness.  God bless you all!.

Final class, final day, final advice from Harvard (alternate title: Why would I ride a motorcycle to Boston and back?)

To laugh is to risk appearing a fool,
to weep is to risk appearing sentimental,
to reach out to another is to risk involvement,
to expose your feelings is to risk exposing your true self,
to place your ideas and dreams before a crowd is to risk their loss,
to love is to risk not being loved in return,
to live is to risk dying,
to hope is to risk despair,
to try is to risk failure.

But risk must be taken because the greatest hazard in life is to risk nothing. The person who risks nothing does nothing, has nothing, is nothing.

He may avoid suffering and sorrow, but he cannot learn, feel, change, grow, or live. Chained by his certitude he is a slave who has forfeited all freedom. 

Only a person who risks is free.

-William Arthur Ward

Nearing the End (one day more, one more day, one day more)

It’s almost over. Eight weeks, eight professors, a number of other guest faculty, 160 peers from 45 countries, current and former corporate CEOs, and over 100 corporate case studies. We have covered a lot of ground. For example, we just concluded our ethics and corporate accountability track (one of eight learning areas) in which we discussed independent cases studies that covered each of the following issues:

• whether to take personal advantage of a “corporate opportunity”
• responding to a fire that destroys your manufacturing operations
• handling a strike over labor contracts at a newly acquired plant
• managing environmental, community, government, and human rights issues
• how to reward top management for closing a proposed merger
• responding to a low-ball hostile takeover bid
• dealing with a potentially serious health risk in a major product line
• responding to a serious global health crisis
• formulating an investment strategy that advances sustainable development
• preventing organizational drift and creating an effective governance system
• deciding on executive pay and responding to activist investors
• dealing with illegality and fostering organizational compliance
• whether to accept a “politically connected” candidate into an internship program (List courtesy Professor Lynne Paine.)

Also today we completed our track on managing innovation and change that I have found personally rewarding. To influence the outcome of a business, a manager has four tools that can be modified: the people and their skills, the process under which they operate, the formal organizational structure, and the informal organization which is influenced by culture, cliques, and coalitions. We spent a lot of time on this last point, focused on the impact of corporate culture, how to assess it, and even how to facilitate change in it.

Steve Jobs - Commencement Address to Stanford University

http://www.youtube.com/watch?v=D1R-jKKp3NA

As we wind our coursework down this week, we were invited to watch this Youtube video.  Several classmates found it inspiring.  If you have an extra 15 minutes to burn, you might want to watch it. 

His advice?  "Stay Hungry, Stay Foolish".

What do you think?  Comments?

Michael Porter on the Competitiveness of Nations

Michael Porter is the superstar professor of Harvard Business School. He is the author of Competitive Strategy, in which he developed “Porter's Five Forces” that are frequently taught in business schools and MBA classes (google Porter's Five Forces). In a class session this week, he shared his thoughts on his latest book, Competitive Advantage of Nations.

His main idea on national competitiveness is that it is not what you do, but how productively you do it that determines success. While national prosperity can begin with natural resource endowments, such as oil reserves, simply selling your endowments will not necessarily make your nation rich (the average per-capita annual income in Saudi Arabia is only $3000). To succeed, nations need a good social infrastructure in terms of education systems, health care systems, and good law enforcement. A stable national government, with sound fiscal and monetary policy, is also essential.

Relying on endowments can actually hurt an economy. The easy access to trade revenue allows for low productivity and bad government practices to be masked, leading to continuing inefficiency. In resource-rich countries, the fight is often over how to divide the revenue pie, not over how to make the overall pie larger through greater efficiency.

These same concepts can be applied at a more micro-economic level. Consider the competitiveness of a state, or even a region such as the Missouri bootheel. It is not enough just to have great farmland that can grow cotton and beans; the people of the bootheel will not be prosperous as a whole until their institutions (education, law enforcement, etc.) are also prosperous.

Leading Change

You may have noticed that I haven’t had too much to say in the past few days. This is for two reasons. One, we have been very busy with extra “optional” classes each day, and two, I’ve been doing a lot of thinking about how all this can be applied to help Associated succeed.

Today we are completing a series of classes on leading organizational change. We have had the privilege to hear from senior executives at several firms that have completed sensational turnarounds: a major South African bank, a Japanese car manufacturer, the largest maker of set-top boxes for cable and satellite reception, a European beer manufacturer, and the UK’s largest newspaper company, to mention a few. These sessions have given us the chance to hear from these individuals, not only regarding what worked well, but also to hear from them and question them about the part that doesn’t always get discussed in the business books, which is where they made their mistakes in implementation and what they learned from the experience. I am very excited about the opportunity to apply these lessons to our plant maintenance activities. At Associated we have made fantastic advances in plant performance from the late 1990’s through about 2004, but since then we have struggled to break records, and our competitiveness with our peers has slipped. When I return I hope to begin the process within our division which will return these plants to a position of excellence. This effort will require cooperation from our entire team. Our employees are the day-to-day guardians of the members’ assets, and they will be the people who will ultimately enable us to succeed.

Investment advice from an old business book...

Blessed is the man who finds wisdom, the man who gains understanding, for she is more profitable than silver and yields better returns than gold.

Proverbs 3:13

What is equity worth to a cooperative?

We have often debated the appropriate discount rate to use in our long-term capacity expansion and capital budgeting decisions. In the past I have argued for a "risk premium" over the cost of debt, but I could never justify a number. If we could somehow determine the value that our members would place on their cash, we could determine a better discount rate. 

How should we value the member’s equity held by AECI?  One approach would price the equity as if it were being held by a publicly traded, investor-owned utility.

When we retain earnings at AECI we are essentially investing our member’s money in the cooperative for them. Our returns that our customers expect from their investments depends on the riskiness of the investment.  If they choose to invest their money in a savings account, they would expect very low returns, but they would be taking very low risk. An investment in a startup company may provide high returns but presents much greater risk.

We could estimate a value for the members’ equity by comparing it with an alternate investment of similar risk.  Imagine if, instead of investing their cash in AECI, our members could have invested in a neighboring investor-owned utility, an investment which should present risk simlar to an investment in AECI.

The value (cost) of equity in a publicly-traded company is determined using this formula:
Cost of Equity = Risk Free Rate + Relative Riskiness of IOUs * Average Stock Market Risk Premium

The Risk Free Rate (T-Bill rate) is currently near zero, but over the past 80 years it has averaged 3.8%. In just the last 20 years (ending 2008) it averaged 4.25%.

The relative riskiness of a stock relative to the market can be computed using regression and is known as the stock’s “beta”. The beta of our neighboring utilities is 0.72 for Ameren, 0.79 for Great Plains Energy, and 0.77 for Empire District Electric (showing that Empire and Great Plains are considered a higher risk investment than Ameren). The overall average beta for utilities over a 30-year period has been about 0.75.

The average large company stock market return over the last 80 years has been 11.7%, which represents a 7.9% Average Stock Market Risk Premium (the difference between 11.7 and 3.8).

Using these figures, the long-run cost of equity for a large Midwestern utility should be:
Cost of Equity = 3.8 + (0.75 * 7.9) = 9.725% (say about 10% in round numbers).

What do you think of this approach?  Does it make any sense?  Should this be our new discount rate?  This higher number would bias us toward shorter-term projects, but maybe that is a better approach.  I would love to hear your comments.

Outsourcing, Offshoring, Anti-Trust and Integrity

We covered a lot of ground today.  Outsourcing.  Off-shoring.  Anti-trust law.  And the best part was a visit by Ben Heineman, former Chief General Counsel for GE (he worked for both Jack Welch and Jeffrey Immelt).  Now retired, he has written the book “High Performance and High Integrity.”  A group of us had a working lunch discussion with him, talking about governance, trust, and the fiduciary duties of the Board.

Bill George on Authentic (True North) Leadership

Today we had the privilege of Q/A with Bill George, Harvard professor, former Chairman and CEO of Medtronic, current director to ExxonMobil, Goldman-Sachs, and the Carnegie Endowment, and author of the business best-sellers Finding Your True North and Authentic Leadership.

Here are some highlights from this discussion.

Command and Control Leadership is dead, or it should be.

·        Your subordinates know (or should know) more than you.

·        People want a chance to make a difference.

·        People are motivated by meaning.

To Achieve Values-Centered Leadership (True North Leadership in his book):

·          Align people around the mission and values of the company.

·          Empower people to step up and lead.

·          Serve customers and employees (and in doing so, you will be serving your shareholders).

·          Collaborate within your organization and with other organizations.

Leaders are not perfect.  Admitting mistakes is a two-way street.  Leaders cannot get buy-in without honesty.

His 7 Lessons for Leading in a Crisis:

1.      Face reality, starting with yourself (admit your mistakes)

2.      Don’t be Atlas, get the world off your shoulders (share the load with your team)

3.      Dig deep for the root cause (don’t blame others)

4.      Get ready for the long haul (it won’t be easy or simple)

5.      Never waste a good crisis (it is easier to drive change then)

6.      You’re in the spotlight, follow true north (this is your chance to demonstrate your values)

7.      Go on the offense – focus on winning now (see the crisis as an opportunity)

Energy Information

They were handing this book out at the Student Union.  I’ll see if I can pick up a few tips for when I return.

CEO Compensation Discussion

Today we talked about executive compensation, a topic debated in Board rooms around the world.  Overall, the gap in compensation between entry-level employees and CEOs has been widening in the last ten years (especially in the investment banking sector).  This has caused lots of concern, and prompted proposals for new legislation to put a limit on compensation.  Our case centered on efforts by the AFL-CIO to force boards to submit compensation plans to a shareholder approval vote. 

In our discussion, the Europeans were generally much more willing to entertain a cap on executive pay than the Americans.   One common practice that gets close to a cap is to use a programmed structure where a maximum 60% gap exists between senior management and the CEO, for example, if the CEO makes $300,000 the top senior manager would make 60% or $180,000. 

 

Net Promoter Score

Here’s a quick and simple idea for getting customer feedback on satisfaction and loyalty. Ask the question, “would you recommend X to a friend?”

On a scale of 1 to 10, those answering 9-10 are “promoters”, 7-8 are “passive”, and 0-6 are “detractors”.

This one simple question can give you a quick read on satisfaction, for retail products, for services, for conference presentations, and for employers. Jeffrey Immelt of GE uses this as his number one tracking metric.

Paul Volcker, former Fed Chairman, and currently Chairman of the U.S. Economic Recovery Advisory Board

Tonight's special guest lecturer was Paul Volcker, speaking at the Kennedy School of Business at the Harvard Business School.  He discussed the current financial crisis and took Q/A from the audience. 

He doesn't mind protecting banks, but thinks the U.S. should have allowed some of the engineered financial firms fail in the wake of the crisis.  As it was, only Lehman was allowed to fail.  He doesn't believe that banks should be running hedge funds and CDOs.  He mentioned that he had a recent discussion with a Harvard professor and former Nobel prize winner.  Mr. Volcker stated that he believed that there was no correlation to show that the massive financial engineering products (that led to the financial crisis) had contributed positively towards U.S. economic performance.  The professor replied, "No, but intellectually it is a lot of fun."  Too bad that this intellectual economic experiment led to a crash in the world economy.

When asked about the future value of the dollar, at first he dodged the question, on the basis that the former Fed chairman should not offer his opinion of such things.  Then he relented and stated that he did NOT believe that the dollar would drop, because China and other nations own far too many (they own 1/2 of our treasury debt) too let the dollar fall.  He said, "they may not like the dollar, but where else are they going to put it?  In the Euro?  No.  The Yen?  No.  The RMB?  I don't think China will allow that.  So the dollar is going to remain the world currency, because there is still no better option."

On the Fed, "the Federal Reserve Board should not be an economics seminar, it should be a policy-making body."  He believes that the Board should not be dominated by economists, but should include non-economists and business leaders.

In case you are wondering (we were) he believes we are in for a long, slow recovery.  No quick fix.  No surprise.

FBI Director Robert Mueller III

The director of the FBI, Robert Mueller, addressed our class today.  We had been studying the efforts they have made to reform the FBI following the 9/11 terrorist attacks.  Creating change in a large Federal bureaucracy like the FBI is an extraordinarily difficult task.  We had a frank Q/A session with the director following his presentation, in which Mueller discussed what has worked and what is not working in their reform efforts.

He said that following 9/11, he established ten priorities for the FBI:

1) combat terrorism

2) counter intelligence

3) cyber security

4) public corruption

5) (he was talking too fast and I didn't catch 5-8)

6)

7)

8)

9) white collar crime

10) violent crime

So, if you are going to commit a crime, make it a violent one, since the FBI has it on the bottom of the list!

Seriously, Director Mueller said that most of his agents would rather catch bank robbers than fight terrorism, and he has fought this by creating the priority list and making performance reviews based on individual's performance on the priorities.  He also has a standing weekly videoconference with area directors to review these priorities.

Another difficulty in fighting terrorism is metrics.  It is easy to measure criminals caught and convicted, but it is hard to measure terrorist acts prevented.

One dramatic move he made was to insist that field office directors be rotated after five year of service.  In order to get champions for change, he has forced his leadership to change. 

When asked about his cooperation with China and Russia, he said, "we know they spy on us, and they might suspect that there is a possibility that we may be spying on them, but we don't talk about that.  We just share information where it is in our common interest."

He felt confident in the superiority of the U.S. intelligence system.  One area in which he envied China:  they have 1.2 million intelligence agents, whereas the US only has 13,000.

A Paparrazzi Moment

Just so you don't think its all work and no play around here, one of my living group members actually went for a run this weekend, and ran into . . . The Tom Cruise Family.  He snapped a picture of them admiring my dorm room.  Seriously.

Clayton Christensen, author of "The Innovator's Dilemma" and "The Innovator's Solution"

We had a special lecture today by Clayton Christensen, author of "The Innovator's Dilemma" and "The Innovator's Solution".  He gave a number of expamples of companies that have been able to sustain success through several business cycles, by innovation and reinvention, and also many examples of companies that did not.  One quote:

"If the capabilities of the past are what you need for success in the future, stick with them, but, if they are not...."

So, what "core competencies" will be important in the future?

Al Gore's Investment Firm's CEO is teaching us . . . Socially Responsible Investing!

Okay, this was quite a mind-bender for me.  As part of our case on business ethics and socially responsible investing, we were visited by David Blood.  He is the CEO of Generation Asset Managment (and the former CEO of Goldman-Sachs Asset Management).  "Generation" is the company that Al Gore has formed to invest in "socially responsible" firms.  Al Gore himself is the Chairman.  I was surprised to hear that they have no formal definition of the term "sustainable", it is up to them to define. 

Our case was a debate on whether this firm should invest in ABB-India as they expanded the electric service in India.  On the plus side, they would be improving lives by providing basic electric service in an improverished are of India.  On the negative, the electricity would be generated almost 100% with coal, increasing global carbon dioxide emissions.  Growth of the business (and therefore growth of the stock's value) was expected to be strong.  Can you guess what Al Gore's sustainability company decided to do?  Wouldn't you think, given their position on global warming, that they would run away from such an investment?  No!  They put the company on their list, and according to Mr. Blood, the only reason they have not yet invested in the company is because the "returns have not yet been high enough."  What do you think of that?

They hope to use their investment position to put pressure on companies to improve their business practices to become more sustainable, "by proxy if necessary."  Hmmm...

IBM Strategy Head - Mr. Bruce Harreld

Today as part of our case studying IBM's competitive transformational turnaround we were visited by Mr. Bruce Harreld.  Bruce served as IBM's Senior Vice President of Strategy until his retirement in 2008.  He created an internal "venture capital" type of structure within IBM to drive innovation.  He discussed the difficulties in merging an innovation culture with the exiting formal IBM structure, which was designed for incremental improvement, not discontinuous change.  He talked frankly about their failures with misalignment of incentives, people, and organizational structure and how they finally created a successful model.

Niall Ferguson - Author of "The Ascent of Money"

Today we had the opportunity to hear from Niall Ferguson, professor of history at Oxford, Cambridge, and Harvard, and author of many books, including “The Ascent of Money.”

His discussed his concept of “Chimerica”, the combination of China and America in trade, and how the financial crisis has changed that relationship.  His talk was titled “Has the Crisis Speeded (sic) Up the Shift of Wealth from West to the East?”

A colorful speaker, he equated the current decisions before the Fed to be a battle of King Kong vs. Godzilla (deflation versus inflation).  The world is changing, with China building submarines, Australia building submarines, China buying up large parts of Africa and Brazil for their commodities.  The Fed will almost certainly have to raise interest rates to stem the fall in the dollar, but doing so will push inflation up and keep the U.S. in a recession even longer.  He put up charts describing an “English-speaking country, recognized worldwide, with an excellent Navy, and investments all around the world, and the standard currency for the world.”  Of course, he was speaking of Great Britian, and how it fell from its level of leadership in the world.  His point was that, he believes it is likely that we are living in the last days of the primacy of the United States, and we are witnessing its fall, and the rise of a new world order.

The members of my living group, none of them Americans, did not agree with this assessment.  They believe that the institutions in the U.S. are so strong that it is not possible for China, through sheer numbers and economic wealth, to overtake the U.S. in innovation, excellence in education, or skill in business management. 

I guess we’ll see.

It's just marketing, it's not rocket science . . . or is it?

Our reading for our marketing class this week included the following paragraph in its discussion of the impact of "free" customers on paying customers (as in some internet sites that offer services for free in hopes of attracting paying customers).  I feel like I'm back at Rolla!

The Future of Business Learning

Today our learning group had the privilege of sharing lunch with Dr. Srikant Datar, the Director of Research for the Graduate School of Business Administration at Harvard. He also serves on the Board of Directors for Novartis and ICF.
Our discussion became interesting as he offered his opinion on the future of business school education. Last year, 2008, was the 100th anniversary of the Harvard Business School. As part of the celebration of looking back at the last 100 years, he and a colleague were asked to look forward to envision the future of Harvard University. They took their task seriously and undertook what has become a two-year research project into the future of business education.

He first discussed the difference in emphasis between existing business schools on the scale of intellectual Rigor versus practical Relevance. Having previously taught at both Carnegie Mellon and Stanford, he suggested that Harvard has a stronger reputation for Relevance among its peers. Of course he may be biased, but I tend to agree with him.

His research involved a review of hundreds of business school programs and interviews with many corporate CEOs. Based on his research, he and his colleague have written a book, to be released within months, called “Rethinking the MBA”. It will discuss the three key teaching areas for future of business education.

1) Knowing (specific book knowledge, tools and techniques)
2) Doing (how to actually accomplish things outside of the classroom)
3) Being (how to lead groups of people)

In his opinion, business education is unique in that it involves more than just knowing. To be successful in business it is not enough to have book knowledge. As a business leader you MUST accomplish your objectives through the efforts of other people. How people react to you determines to some extent how successful you can be as a leader. He contrasted business education to Law or Medicine or Engineering by saying that business education relies more on the “doing” and “being” skills than just on knowing.

Many business schools focus only on the knowledge and Knowing. This is like teaching someone to swim through lectures and reading. You can read, discuss, and watch videos all day, but that still will not help you to swim when you graduate. There is a reason why we do not teach swimming in a classroom. It is because it is a Doing skill. So is business management.

Their research has discovered techniques now in use at a few schools that truly help to bridge the gap between Knowing and Doing. They have even documented ways that some schools are teaching the Doing skill of innovation.

The third dimension of education in future business schools will be Being skills. This is the skill that some people have which allows them to inspire people, to create trust, to influence and to lead. They have also documented techniques for teaching this skill. In our discussion, Dr. Datar agreed that our use of temporary developmental assignments at Associated Electric achieves the same objective, allowing people to test out some Being skills in real-life situations.

He described four types of critical thinking skills: deductive, inductive, analogical, and integrative thinking, and emphasized the need to teach all types.

When describing the Being skill of leadership, he has documented the change over time from a High Authority/Low Conflict culture towards a developing Low Authority/High Conflict leadership culture. This culture, which is becoming more prevalent in business, requires leadership skills that are different from those that have been taught in the past.

He said that the main challenge facing most MBA students in that in their entire life they have only known people very much like themselves – all very successful, driven, intelligent MBA students. This leaves them ill-prepared to understand what it takes to motivate the broad range of employees (factory workers to phone operators to engineers to accountants) that will be encountered in a typical business. As one CEO that he interviewed put it, “most kids don’t know how to have a conversation with a plumber. They just think of him as someone who shows up to fix the pipes, not as a fellow human being.”

He believes that this gap can be reduced through experiential learning and formal, frequent peer feedback.

He also suggested that we watch the commencement address given by J.K. Rowling to the Harvard business school graduates in 2008. The previous year they had hosted Bill Gates for the commencement address, and when the class of 2008 heard that they were getting an author of children’s books, they were vocally unhappy about the selection. Expectations were low on the day of commencement, but J.K. gave “the most impressive commencement speech ever”. This to him was another example of the Being skill; the ability to synthesize, motivate, and lead, and the kind of skill he would like to see become a routine part of business curricula worldwide.

JK’s commencement address can be viewed in three parts on the links below. The amazing thing she talked to the Harvard MBAs about was failure and imagination, something they probably had never experienced in their life.

JK Rowling Commencement address to Harvard, June 2008
JK Rowling Part 1
JK Rowling Part 2
JK Rowling Part 3

Dinner in the Sukkah

Tonight some of us took a brief break from case studies to walk with some of our Jewish friends to a sukkah.  What is a sukkah?  It is a temporary tent that Jewish people construct during the annual festival of Sukkot – the festival of Tabernacles or more literally “tents.”  The Jews celebrate Sukkot by eating together in temporary tents to remind them of their time in exodus from Egypt and their total reliance on God during those times.

 

In the sukkah we met with two Rabbi who explained the Jewish traditions surrounding Sukkot, their thoughts on water and wine, and even some interesting talk about the mezuzah.  The mezuzah is an ornate case containing a tiny scroll with the shema scripture (Hear O Israel, the Lord is our God, the Lord is One, blessed be the name of His glorious kingdom forever and ever.  And you shall love the Lord your God with all your heart and with all your soul and with all your might.  And these words that I command you today shall be in your heart.  And you shall teach them diligently to your children, and you shall speak of them, when you sit at home, and when you walk along the way, and when you lie down and when you rise up.  And you shall bind them as a sign on your hand, and they shall be for frontlets between your eyes.  And you shall write them on the doorposts of your house and on your gates. -Dueteronomy 6:4-9)  As instructed, Jews normally affix this scripture to their doorposts.  I had not seen one on the tent, and asked the Rabbi if I had missed it.  He explained further the tradition behind the mezuzah and the rabbinical tradition that temporary shelters do not need the mezuzah.

 

The Jews welcomed about 30 of us, representing many faiths (Christians, Hindus, Muslims, even Jews) into their dwelling, and we shared thoughts and food together.

Bob McDonald, CEO of P&G

Tonight our guest lecturer was Bob McDonald, CEO of Protor & Gamble, speaking on "Values-Based Leadership."  He suggests that leaders should talk to their employees about their core beliefs. Here are his:

1) Everyone wants to succeed – the leader’s job is to help people succeed.
2) Success is contagious – the leader’s job is to catch people succeeding. One success will always lead to another.
3) Put the right people on the right jobs. People like doing what they are good at.  They are good at doing what they like.  Matching these can lead to better success.
4) Character is the most important trait of a leader. Character means:
- putting the organization’s needs above your own needs;
- taking personal responsibility for failures, giving credit to others for successes.
- Living by your word and actions.
5) Choose the “Harder Right” and not the “Easier Wrong”.  This was a slogan from his time at West Point.

6) Ineffective strategy, systems and culture are greater barriers to success than people. Before you blame people, check the systems / culture / strategy the organization supplies to them. It is the leader’s job to improve those.
7) There will be people who will not make it through the journey. It is the leader’s job to help them find another job. As a leader, you need to get to know the person as a person, not just as an employee.
8) Organizations must renew themselves. Growth requires change, and change requires renewal. A leader should supply training and development opportunities for his people to grow.
9) Recruiting is a key priority. Promoting at P&G is done from within the company and performance based.
10) A leader is measured by his / her organization’s performance when he or she is absent or gone. A leader should build the capabilities for the organization. “We want leaders who build watches, not those who tell the time”.

Typical day

Someone asked me to describe a typical day here. I'd say yesterday was a good example.

After morning exercise at your discretion and breakfast in the cafeteria, we start classes at 8 am. Classes are taught in the "case study" method.. We discuss the business case interactively in class for an hour or so. The cases are usually designed to be gray, not black and white, so there is lots of discussion on both sides of the issue, for example deciding on the appropriate balance of debt and equity in a firm, or how to lead a turnaround, or whether to buy a company or not. The professor moderates the discussion but does not provide an answer. In the last half-hour of the 90 minute class we are usually provided the "answer" (what the company actually did). And then we debate that. The last 10 minutes are lead by the professor in a more typical lecture-style, talking about the relevant theories, pros and cons behind the choices that could have been made.

We then take a half-hour break, and have another 90 minute class, take a lunch hour back in the cafeteria, then another 90 minute class after lunch. In the late afternoon there is sometimes a guest speaker, usually a CEO and Harvard alumnus, speaking and taking questions on their business strategy. Then we get a couple of hours on our own to brief the cases studies for the following day (usually 3 cases with 15 pages plus supplementary exhibits. Financial reports, org charts, market studies, etc).

We then have dinner as a group in the cafeteria and regroup after dinner in our "living group" for two hours or more to discuss the next day's cases.

We retire to our bedrooms, do a little reading or email, and repeat the cycle the next day.

Power for Africa

It’s not every day you get to design an electric supply system from scratch.  I am working with one of my colleagues from Nigeria to put together a model for development of the electric power supply system in his country.  Despite sitting on large deposits of coal, oil, and gas, there is virtually no central station power in the country, and what little there is operates literally only 20% of the time, so it is almost worthless.  The country is running on distributed generation (diesel gensets ) with costs so high that manufacturing is not cost effective, causing high imports and a lack of local jobs.  This project will create jobs and electricity.  (They are not worried about their carbon footprint just yet.)  I am also suggesting a cooperative business model J (couldn’t resist).