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Friday, January 28, 2011

Birmingham Business Journal and 2011 Forecast

The Birmingham Business Journal and several key corporate sponsors played host to the Economic Forecast update this week held at the Harbert Center. Noted speakers included Dr. Sam Addy of the Center for Business and Economic Research at the University of Alabama, Dr. Andrea Rauterkus, Assistant Professor of Finance at UAB, Dr. Chris Westley, Associate Professor at Jacksonville, and Tom Nelson, economic analyst for Vulcan Materials. Scholarly leaders they are, and let me share with you some of their insight for what 2011 holds for us.


Firstly, while optimistic, the group remains cautious and warned to take improvements in the market in the proper context. The recession was in fact a long time coming, and due to our behaviors. The slow structural change has been frustrating, and corrections have been slowing due to incessant government interventions. There was a collective agreement that the corrections need to occur to right the wrongs of the past and move us toward sustainable growth.

Since the recession, saving has increased and borrowers are starting to behave. (I am talking individual here, certainly not US Government.) This is the true heart of wealth creation and it is really just that simple. It does take the hard work of self discipline and the high need for self control and delayed gratification. Unfortunately, these are not common terms at the average American dinner table. The Business Cycle is built from the simple notion that sustainable growth is born in a person who saves so that they can invest in a company. That company then builds more stuff that we can buy. Buy more of our stuff, and they can hire more people.

Wealth has become valued more realistically of late, and we are moving into a new normal. The GDP is expected to grow at about 3.5% and employment at only 1.4% or 2 million jobs nationally. The public sector is starting to realize that it needs to contribute, and not just consume to get us back on track. This is a key realization as policy makers search for what is optimal and sustainable to address what we see as a decline of the middle class. The need to address and support small business was a message laced through all four presenters’ comments. Dr. Addy was keen to remind the audience that all large companies were indeed at once a small business. He gave the challenge to the audience to look at the system which creates the dynamic that allows the growth of small business.

So which sector will lead us into this growth? According to the group certainly healthcare will continue to grow both locally and nationally, and it will add jobs. Education will continue to be challenged by the limits of state financial revenues, and interestingly manufacturing will grow about 5%, but not add any measurable amount of jobs. Manufacturing is learning to do its work better, and as the daily reports of downsizing show, they are doing it with fewer workers.

The banking sector will continue to compete for a smaller group of potential borrowers, and market indicators are pointing to a continued rise in interest rates. Many countries are attempting growth by currency devaluation, and they all agreed that this will prolong any recovery in the market place. On a more local level, all discussed the need for a community bank that takes on a personal banker role to small business. This will open the door to loans based on tangible business models, not just credit models, and a keep a needed check on the veracity of loan access and payback.

What about the debt? According to the US Debt Clock (www.usdebtclock.org) we are 14 Trillion in debt with 1 Trillion owed to China. We owe Japan nearly that same amount, and the United Kingdom half a Trillion. This is clearly a very big number, and the debt clock is pretty scary let me tell you. I am really a bit sorry that I found it, and it is truly mesmerizing to sit and watch these astronomical numbers click away glibly before your very eyes. It is truly stunning to see in real time our debt, and how it breaks down to a per tax payer burden of about $45,000. By the way, only 1 in 3 pay taxes, and you can see that on the debt clock too. Next time you hear someone talking about “spreading the responsibility” or “everyone doing their fair share” to support this bail out or that bail out, remember that fine point.

All in all, better to know the facts as you make decisions going forward. Yes, 2010 was a disappointing year, but the trough occurred in June of 2009 actually. Our pick up will sputter, and our speakers maintained that the outlook should improve by the second half of this year. So hang in and hang on as we are not out of the woods just yet.

Chaos Theory and Business Management

“Welcome to the Jungle” goes the beginning of a song that I’ll bet your kids know and you probably air guitar along with also.  Which brings us to Chaos Theory which, when applied to business and organizations, may help us see through the uncertainty of our times.  Chaos Theory is a scientific principle describing the unpredictability of systems.  Recognized in the 1980’s it has actually been around since the mid 1800’s.  The premise is that systems reside in chaos.  A System generates energy, but without predictability or direction.  This idea of chaos theory can be applied to everything from weather to water flow to the management of organizations.
Edward Lorenz of MIT is credited with discovering one of chaos theory's fundamental principles—the Butterfly Effect.  The Butterfly Effect is named for its assertion that a butterfly flapping its wings in Tokyo can impact weather patterns in Chicago.  More broadly applied, the Butterfly Effect means that what may appear to be insignificant changes to small parts of an organization can have exponentially larger effects when put into place.
In a business world where innovation, change, competitive advantage and the impact on strategy are discussed daily, why is this idea of chaos and embracing the uniqueness of “the New” so difficult?  I believe it is because we confuse order with control.  If your company is like most, it probably looks very different than it did even just 6 months ago.  How you now compete and survive in the jungle of business will be driven at a high level on how you let your company and team members self-organize, grow and evolve.  This type of management style is critical in today’s competitive environment where we sometimes need to break it to make it better.  
As long as the change occurs within the boundaries of your company’s overall vision and culture, you should strongly benefit from the resulting creativity and innovation.  Chaos theory shows the need for effective leadership, a guiding vision, strong values, organizational beliefs, and most importantly open communication. 
Have you ever worked for a group where you were told that you could not have a conversation with a higher up or express your ideas?  Knowing a bit about Chaos Theory and Management may be some good food for thought for you.  Chaos Theory is important here for business leaders because it is critical to embrace the idea, sometimes just for the sake of the idea.  We would be wise to remember that order is in fact not control, and pulling in fresh ideas is the life blood of innovation and change.
  Innovation and change are the pillars of developing a high-functioning team.  Members of effective teams frequently change and recreate the role that each team member plays depending on the needs.  While someone may not be the formal leader, an informal leader may emerge because they know just the right way to address the need of the group.  The most successful leaders understand that it is not the organization or the individual who is most important, but the relationship between the two.
Tom Peters, one of the most influential business writers of our time, asserts that we live in "a world turned upside down," and survival depends on embracing "revolution."  According to Peters, “We must learn to love change, as much as we have hated it in the past.” 

Saturday, January 8, 2011

Spin, Marketing and PR

“Don’t believe everything that you hear, and half of what you see,” goes the old saying which brings me to something of interest this week: Spin. PR. Marketing. Call it what you will, how we feel about certain things, and the items that we buy and sell, have a lot of thought and energy behind the creation of an image.


In his new book Deadly Spin, Wendell Potter writes about corporate spin-manship and industry. In his previous role as chief of public relations for CIGNA, Potter pulls from vast experience with corporate culture and the ability to make the sausage of information into the Andouille of desire. More importantly, the book gives thought to the ethical considerations of public relations and the need for a bit of soul-searching.

The spin or the ruse has a rich history. Think about the Trojan Horse and the spin that some smooth talking Greek Soldier created as he left the gift of a giant wooden horse at the sealed gates of Troy. Deadly Spin reviews the history of spin, which he traces back to the Potemkin Villages of Catherine the Great. According to myth and legend there were fake settlements erected at the direction of the Russian Minister Potyomkin to fool Empress Catherine II during her visit to Crimea in 1787. According to this story Potyomkin had fake villages constructed along the desolate banks of the river in order to impress the monarch and her travel party. Seeing the value of her new conquests, his standing was enhanced in the empress' eyes.

There are many examples of this type of spin or what is now called “Potemkin Villages” many times in history from the Theresienstadt Ghetto in Nazi Germany also called the “paradise ghetto”, to the work supported by New York Mayor Ed Koch in 1982. Koch had a team affix decals with plants and venetian blinds over the windows of abandoned buildings in the Bronx to hide the blight. The contemporary urban shopping center has been called a Potemkin Village Shopping center as it works to mimic the feel of a village as opposed to a mall atmosphere.

Modern PR was greatly influenced by Edward Bernays, author of the 1923 book Crystallizing Public Opinion, the first book entirely dedicated to PR. Among his clients were the cigarette companies for whom he orchestrated a campaign equating cigarettes with “thinness, grace, and beauty.” An insufficient number of women were smoking, so he began an early PR project to encourage women to smoke.

Just a little bit of research has led me to some of these ideas today, and to ask you to please do one thing: Think. Take the time to consider why something is being said, and what it means to the speaker. Follow the economic trail to discover true motivation. Even great philanthropy, or health care, or politics or buying a particular type of milk, has had great effort placed into creating how you feel about the purchase or the contribution or the vote. Caveat emptor or Let the Buyer Beware.