January 16, 2015 Show Notes: Interview with Dr. Jules Goddard

Ed and I were honored to interview Dr. Jules Goddard, author of Uncommon Sense, Common Nonsense: Why some organisations consistently outperform others (co-authored with Tony Eccles).

Jules Goddard

Biography

Dr. Goddard earned his MA at Oxford, an MBA from Wharton, and his PhD from London Business School. He’s a Guest Lecturer at INSEA and formerly Gresham Professor of Commerce and Mercers School Memorial Professor at The City University. He is currently Research Associate of the Management Lab (MLab) at London Business School. He’s a teacher, writer and consultant in the areas of business creativity, strategic thinking, leadership and corporate transformation. Lead designer and director of senior-level, high-profile development programmes for many companies, including BP, ICL-Fujitsu, Rolls-Royce, Orange, Prudential, Ericsson, BG Group, Rio Tinto, Mars, Smith and Nephew, SCA, Danone, and Volvo. Over the last 10 years, he has worked with a third of the FTSE 100 companies.

Specialist advisor on strategic issues facing professional services firms, including Freshfields Bruckhaus Deringer, Smith System Engineering, Conran Design Group, Braxton, Banque Paribas, Lazard Brothers, PricewaterhouseCoopers, J Walter Thompson, Benfield, Deloittes, SHL, and Credit Suisse.

Recent publications include articles on futuristic models of management (Sloan Management Review), the economic crisis (Business Strategy Review), cost strategy (Business Strategy Review), a new definition of accountability (Interconnections), as well as a monograph on employee engagement, social media and management innovation (CSC Leading Edge).

My book on organisational strategy, co-authored with Tony Eccles and entitled Uncommon Sense and Common Nonsense, was published by Profile in 2012. He is married, with 4 children, lives in London and Provence.

The Best Business Book Ron Read in 2014 (and Ed’s read in 2015)

Uncommon Sense Book

His book is the best business book I read in 2014, and Ed says the same so far in 2015! There are so many quotable and profound insights in this work it’s hard to do it justice in a short review.

We highly recommend you read this work, especially if you’ve enjoyed some of the topics we’ve discussed on The Soul of Enterprise. Our thinking seems to be very much aligned with Dr. Goddard’s views on business.

He’s working on a new book on behavioral economics and we will definitely have Dr. Goddard back on the show!

Here are some of our favorite points from the book, sorted by topic.

Purpose of book?

We believe that most enterprises today are insufficiently entrepreneurial.

The great virtues of markets is that they disproportionately reward firms that have the creativity to see the world differently from their rivals.

The book’s thesis is that: market-based competition is a discovery process; that asymmetric knowledge is the object of the search; the business strategist is the intrepid explorer; the effective organisation spurs such exploration.

THE PRINCIPAL ARGUMENT of this book is that profit is a return on knowledge and that therefore decision-making in business should be modelled on problem-solving in science, which is the most reliable and productive form of knowledge acquisition so far invented.

In place of dogmatism, science injects a healthy dose of critical inquiry.

Scientists do not argue from facts to theories, except by showing that some of these facts falsify or refute some of these theories. Facts are used by scientists not as the source for their ideas but as the test of their ideas.

Uncommon Sense, Common Nonsense Defined

The basic law of wealth creation: principle of asymmetric knowledge – that is, any situation when somebody in a market knows something that nobody else in the market knows, and then has the courage to act on that knowledge.

We call this type of knowledge “uncommon sense.

When the same sources of error unite all the competitors in a given space, they become what we call “common nonsense.” Most management theories are little more than sophistry or folk wisdom.

Austrian Economics Influence?

The Austrian rather than the neoclassical tradition of microeconomic theory competition is modeled as a discovery process where the rewards flow to entrepreneurs possessing valuable new insights or unique data rather than as a state of equilibrium.

Strategy

Strategy is less about the application of theory than the activity of theorising.

Chess masters do not achieve their mastery through the application of “best practice.” They are their own masters.

Scientific discovery or a work of art, it is a unique, non-repeatable event. It resists generalisation or theoretical explanation.

Strategic solutions do not generalise. They are built on insights, not rules or principles.

Businesses decline as the production of new insights dries up. A theory of business therefore cannot be a substitute for insight.

Any theory that puts forward a winning recipe for commercial success is a fraud. There cannot be an algorithm for making scientific discoveries or creating artistic masterpieces.

Firms outperform their competitors by aiming to be different, not better

“Strategy is about setting yourself apart from the competition. It’s not a matter of being better at what you do – it’s a matter of being different at what you do.” ––Michael Porter

“You don’t want to be the best of the best. You want to be the only one who does what you do.” ––Jerry Garcia

Budgeting – the undisputed champion of managerial nonsense. Balanced scorecards—the bureaucrat’s revenge.

Markets are battles between belief systems.

Ideas vs. Execution?

Aiming to be “better at implementation” is no more a recipe for success than aiming to be better generally.

Efficiency vs. Effectiveness? The Effing Debate

Russell Ackoff, “The righter we do the wrong thing, the wronger we become. Therefore, when we correct a mistake doing the wrong thing we become wronger. It is better to do the right thing wrong than the wrong thing right.”

Our favorite insight in the book!

Strategy is the rare and precious skill of staying one step ahead of the need to be efficient.

The true test of the innovative capability of a firm is that it never needs to worry about, let alone wrestle with, the cost competitiveness of its business model. An example is Apple. Immunised it against ever having to resort to such mundane and demoralising activities as operational excellence or change management.

Over the life cycle of a business, efficiency is usually exchanged for effectiveness, as focus is sacrificed for scale.

The pharmaceutical industry, more than any other industry, perhaps, understands the importance of “inefficiency” to innovation.

Best Practices/Benchmarking

Losers look to competitive benchmarks rather than to their own imagination for their model of success

The concept of best practice is perhaps the single most value-destructive idea to have come out of business schools and management consultancies over the past 20 years. All they have achieved is to urge the laggards to catch up with the herd.

The lead indicators of strategic failure are typically three: the firm benchmarks its costs against competitors; managers are set targets to close the gap on the most efficient competitor; managers seek solutions among the latest management fashions, with the result that the half-life of each new panacea gets shorter and shorter. Toyota did not get to outperform General Motors by emulating GM practices.

Business is not about best practice. It is about unique practices.

The day that Google starts to take an interest in competency profiling or balanced scorecards or corporate social responsibility or some other form of management sophistry is the day to sell Google stock.

Accounting Profession

I argue that the accounting profession is suffering from what philosophers call a “Deteriorating paradigm”—that is, as accounting gets more complex as it explains less and less.

It seems Dr. Goddard agrees, quoting James Noble of the FCA:

“Over the past decade the [accounting] profession has completely lost any sense of what accounts are for. …Accounts do not reflect reality. They reflect an extremely complex set of standards comprehensible to a tiny minority of professionals, if that. They are full of weird conventions such as goodwill write-offs, share options accounting and revenue recognition that I defy anyone to call reality…If accounts reflect reality and accounting standards are just fine, how is it that every bank in the UK has in effect become bankrupt when every single one received a clean audit opinion, including a going concern test [within a year of going broke]?” James Noble FCA

Small Visions

ASK CEOS TO NOMINATE the business leaders they have most admired, Richard Branson, Warren Buffett, Bill Gates, Steve Jobs and Alan Lafley. They’ll point to their bravery, decisiveness, boldness of their vision, contrarian beliefs, the originality of their strategies, the courage of their convictions, their self-confidence and willpower.

Now inquire into what strategies and policies they themselves are advocating in their own businesses, the answers that you get are depressingly familiar: cost reduction, 360-degree feedback, outsourcing, downsizing, margin improvement, shared services, process re-engineering and change programmes. Actions of most executives fall far short of their aspirations and ideals.

Simplicity is always the result of design

“There seem to be many people making things more complex but very few people trying to make them simpler.” Edward de Bono

Perhaps we should be as worried by complexity as we are about cost. TSM (total simplicity management).

“Black Belts” in simplification.

Many people in an organisation have a vested interest in making things complicated and keeping them that way. No one cuts costs by eliminating their own job.

Partnerships: Lessons from the Army

A little over a year ago, I read a fantastic book by Thomas Ricks title The Generals:  American Military Command from World War II to Today.  It is a fantastic book on leadership, vision, character, failings, and resurrection.  For over a decade, I have been part of a chorus of colleagues wailing against the Partnership Model for CPA and other professional knowledge firms (PKFs).

 

As an outside observer of local, regional, national, and global firms, I have first hand witnessed the daily dysfunction that the Partnership Model creates and the carnage it leaves behind.   Partnerships as they are formed are more about protecting their firm’s bounty rather than increasing it.  Partnerships are more frequently about inequality among a band of supposed equals as it about collectively working together for the benefit of the firm.  Partners within partnerships are more frequently rewarded for individual actions rather than firm driven results.  Partners in partnerships more frequently sacrifice others before they sacrifice themselves.  Partnerships destroy more value frequently than they create even when their measured numbers increase, the toxins of the partnership permeate thorough the firm and its human capital.

Compare Partnerships with the Army.  Both have an overall mission/vision.  Both have groups of individuals, each with a personal vested interest in the success of the organization.  Both have to learn how to nurture a process for finding, recruiting, and retaining talent.  Both have specialists.  Both have career paths.  Both have roles that focus inwardly on producing results while others have roles of interfacing outside the organization.  The list of similarities could continue.  Ultimately a Partnership shares a lot with the Army.  Except in one major distinction.  Leadership.

The Army treats ultimate leadership differently.  Yes, the Army promotes within their groups and specialties. The Army rewards for time served and skills learned, just like Partnerships.  Except for the last major promotion, the processes are similar.  It is the last step that separates the Army from the Partnership and it is this last step that truly matters.  The Army transforms a soldier during the promotion to General.  Generals leave the insignia of their specialty behind.  They become Generalists.  Generals aren’t merely superior rank, they are to be the superior leaders of the entire organization and not just their current assignment to a Company, Brigade, Division, or Outpost.  As Ricks writes (p. 35 of 1407 on my iPad (how does one site a page when we can change the font?):

As brigadier generals, the newly promoted officers are instructed in a special course – they no longer represent a part of the Army, but now are the stewards of the entire service.  As members of the Army’s select few, they are expected to control and coordinate different branches, such as artillery, cavalry, and engineers – that is, to become generalists.

Compare the above to Partnerships.  Partnerships promote within their current groups.  They do not promote leaders for the benefit of the firm. They promote within their departments, or offices, and silos.  This is a mistake.  It leads to the continuation of the status quo. It leads the the hoarding that stops cross selling.  It leads to the world of Me instead of We.  It leads to choosing to benefit internally rather than externally.  We promote and reward the specialists at the time and leadership position that requires a generalists.

Substitute Rick’s terms of artillery, cavalry, and engineers for tax, audit, and consulting.  Partners in firms should be leaders of and for the benefit of the firm and not just their department.  They should be able to lead across the platforms and not merely within their chosen field.  Managing Partners should have demonstrated true multidisciplinary leadership by having lead in all departments and divisions with only one goal:  enhancing and protecting the firm.  This is why MPs should never have customer responsibilities.  the firm is the customer.  Partners should have leadership responsibilities first, including vision, nurturing, coaching.  Let the senior managers (think Colonels , Lt. Colonels, and Majors) provide the services, direct customer leadership, and technical review.  That is their speciality.  Partners should be their visionary leader with their hearts and minds on the organization and its components and not about the working papers that are collecting dust on their floor or credenza.

The Partnership Model is broken.  It regularly destroys value and interferes with the firm’s future.  When reality finally sits in and the firm  tires of listening to the mundane voices of the common consultancies, look to the Army for wisdom.  Promote leaders with vision and make the generalists and have them direct across the organization.  In this way, the firm flourishes, egos diminish, and the customer is truly served.

 

 

 

 

Book Review: Heads in Beds: a Reckless Memoir of Hotels, Hustles, and So-Called Hospitality

I must admit I have been derelict in my responsibilities of sharing with our Community the wonderful learning I encounter when reading books that I find by merely browsing virtual and real bookstores. Although the recommended reads from our entire Book Club have nearly always lead to pleasant page turns – once in a great while I stumble upon an outlier and Heads in Beds: A Reckless Memoir of Hotels, Hustles, and So-Called Hospitality, by Jacob Tomsky is a 5-Star – belly busting – journey through the eyes of a front desk agent of 4 and 5 star properties. Tomsky writes about lodging like Greg Kyte writes about accounting. For the insiders and experienced travelers you’ll find the humor both funny and sick and you’ll never leave your toothbrush unlocked again nor will you ever turn down the opportunity to have a bellman schlep your bags to your room while you hand over your 1s, 5s, and 10s for the privilege.

Tomsky is a pseudonym as he is writing about real life and real people. He attempts to opaque the hotels where he has worked (albeit not overly opaque – just enough to keep the predator lawyers from preventing its publication). This is simply a joy to read. As a frequent guest, and one with my own set of horror stories and comic relief realities, I appreciated the frankness of Tomsky’s writing.

Tomsky begins in New Orleans after concluding that his recent Philosophy degree doesn’t provide easy career entry and figuring that any job was better than starvation, he begins working as a valet at a restaurant where he begins learning the hustles and ropes of true customer service. He also learns how detrimental negative leadership is (besides being a fun and enjoyable read about hotels, guests, and life and times a professional front desk agent – this book has some great lessons about the value of excellent leadership (aka the Ritz Carlton way) and the cancers created by toxic turds that focus on abuse of power and profits above customers and people).

After a short yet honest effort as the restaurant valet, Tomsky learns of a new 5 star hotel being renovated and about to be opened (pre-Katrina) in the heart of New Orleans and is hired as a valet. Here he learns about the value of Total Quality Service (TQS). At the new hotel, the entire pre-opening team is paid for two weeks, just for training in the hotel’s way of service. They have a pre-opening party and clearly the opening management team is dedicated to serving their customers beyond their expectations. When one of the valet’s inquires how that might happen, the instructor quips back and suggests he thinks about something that would be desired, appreciated, and yet unexpressed by the guest. The valet retorts, maybe a guest that arrives with a dirty car he would like his car washed and detailed and the instructor replies that is exactly the kind of service said was desirable. When the valet asked a follow-up by asking if he was “to drive the car over to his home in the 9th Ward, and wash/detail it there and drive it back”? the manager said, not only “Yes, but I’ll pay you extra for the service realizing you will have lost some tips while you were away”. Think about that – how are your team members thinking of providing service and would you back it up with your wallet?

Soon, our author is recognized as better than valet material and is offered a spot at the front desk as part of the “front of house”. Here he learns about systems and processes. Realizes why a bellman never retires (can’t handle the pay cut) – how to summon a bellman by yelling “front” and handing the keys to the bellman making the guest have to negotiate them back or be obliged to be served. He learns to remember names, preferences, and handle any sort of challenge. He works for caring leaders and management that actually support their entire team.

Tomsky reminds us that once a hotel opens it never closes and reminds the reader that you will generally never find a lock on the front doors of a luxury hotel. They can fail to be in business, but while in business they do not close. Tomsky notes that “hotels are methadone clinics for the travel addicted” – safe refuges from the insanity of being away from home.

Early on in his career as he was studying the hotel management program he noted that “….{it is} (A) strange thing to see a hotel translated into a program, every room and floor represented, every guest assigned a profile, rate, and requests. A portion of the work involved learning the room codes: NT = no tub. NC = no closet. SB = small bathroom. And here is a great one: Ne = near elevator. Or another guest favorite: NV = no view.” This level of understanding of the hotel’s capacity lead me to think about PKFs and how could we create such codes for our services, our team, and our customers. One I thought of was NF = No Future.

While learning how to balance 10 requests for 8 rooms with a view, Tomsky notes that “services is not about being up-front and honest. Service is about minimizing negatives and creating the illusion of perfection.” I must admit part of this perspective scares me but it certainly contains some wisdom.

My first indication this was a book Greg Kyte would appreciate is when learning that it is perfectly acceptable by the front desk to wipe out that in-room movie off your bill (along with mini-bar charges {I must admit that this doesn’t sit well with me but I appreciate the authority the front desk has for taking care of business and seeing that happy customers return}). As he is describing that he doesn’t really need the full story of the accidental movie click – he begins mid-sentence with a guest calling the front desk “Yeah , I’m in room 1205. I accidentally ordered a movie. Can you take it off my bill? “Certainly, sir”. Over to the movie console to cancel Asian Secretaries Rike it Rough (italics in original), two minutes and seven seconds into playback. I guess the opening credits were sufficient” (that last phrase is just so GK)

After a significant stint at the font desk and clearly demonstrating that his philosophy degree has provided a leg up on the others, Tomsky is offered his first opportunity into management where he is offered the assistant housekeeping manager position. This is clearly not for the faint of heart. He writes about the humorous and sad of housekeeping. The amount of work and coordination it takes to provide turn-down servicing while the guests are away, maintaining a clear hallway, and providing extra-ordinary service like it is just an everyday occurrence.

One thing the author is adamant about is that housekeepers do not steal. They are the first blamed when careless guests (frequently too drunk to remember being to frisky when they swept that diamond earring out of their ears playing some form of cat and mouse game awake the next morning and begin looking for their missing items. And you know what. I believe him. From his time in housekeeping it is clear that there is way more to what he refers to as the “heart of the house” then meets the eye of the common guest.

While standing hip deep in dirty sheet and towels in the bowels of the hotel, it hits him that it is time to leave and start a new journey. He leaves New Orleans for Europe where he spends his savings drinking and staring at the stars before he returns to the States and lands in New York City. Initially he applies for any job but one in the only industry he knows. And ultimately he applies at a 4 star NYC hotel as he is about to be evicted from his boarding house and again enters the life and times of a professional front desk agent. Here he is tested by the doorman for honesty, hustled by bellman, and begins again providing extraordinary service to commoners and celebrities alike. He learns the hustle of New York where he frequently explains that a $20 or $50 bill cleanly wrapped around your credit card as you check in will get you that ultimate upgrade if possible and will certainly provide ample dividends as a guest who understands the process.

When the venerable historic hotel is sold to a group of private equity trolls, life begins to unravel as the new owners short-change themselves as they chase a current dollar while the front desk is protecting the valuable thousands generated from loyal customers. Management is switched out. Massive controls from clamping down on complimentary items, goody bags, and common sense solutions all the way to switching out the knowledgeable security team, lead by retired NYC police officers that could direct any guest to their destination to an outsourced service that worked for $8/hour less but had no institutional knowledge. They just were currently cheaper. But at what cost.

There are too many great lines for this posting – however here is the ultimate recommendation. I thoroughly enjoyed this read. It took me three days to read and I haven’t laughed so deeply while reading a business book since the Clinton Administration. This is simply enjoyable. Pick it up. Learn some lessons in service and leadership. And whenever possible swap your firm or leadership for the hotel team or management and leverage the lessons that are so wonderfully illuminated throughout.

For Good and Evil

This is the single best book ever written on the history of taxation.

Here’s my recent book review from the Minnesota Society of CPAs publication, Footnote.

Also, you can watch a one hour interivew with the author, Charles Adams, from 1993.

If you have any interest in taxation and how it alters history, you find Adams fascinating.

Book Review: The White Man’s Burden

Anyone who shares the goal, emblazoned on the wall in the lobby of the World Bank—OUR DREAM IS A WORLD FREE OF POVERTY—needs to read this sobering book by former World Bank Senior Research Economist, William Easterly. Named after Rudyard Kipling’s 1899 poem, Easterly provides an assessment of foreign aid’s successes—and more frequently—its disasters.

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Despite spending $2.3 trillion (yes, trillion), nearly three billion people live on less than two dollars day; eight hundred and forty million people in the world don’t have enough to eat; and ten million children die every year from easily preventable diseases; the West still can’t get twelve-cent medicines to children to prevent one-half of all malaria deaths.

Contrast this situation to millions of children receiving Harry Potter novels the day they are released. What’s the difference? The former is based on top-down planning, while the latter is not.

The right plan is to have no plan. The central conclusion of the book is eloquently summarized by Friedrich Hayek, in The Fatal Conceit: The Errors of Socialism:

The curious task of economics is to demonstrate to men
How little they really know
About what they imagine they can design

There’s not one person in the world who knows how to make a pencil, yet any of us can get a pencil relatively easily, without a White House pencil czar, despite the fact that it takes, literally, thousands of people millions of interactions to make one (as Milton Friedman brilliantly explains in this short video).

Easterly draws a very useful distinction between Planners and Searchers:

Planners
Have good intentions
Raise expectations
Decide what to supply
Develop global blueprints
Know the answers
Believe outsiders impose solutions
Receive no feedback
Are not held accountable
Set priorities, deny trade-offs
Aid agencies

Searchers
Look for what works
Take responsibility
Ask, What’s in demand?
Deal with local conditions
Don’t have answers in advance
Believe only insiders have knowledge
Receive instantaneous feedback
Held accountable for results
Understand there are only trade-offs
NGOs and social entrepreneurs

Folks like Jeffrey Sachs, Bono, Bob Geldof and George W. Bush are Planners. Geldof told the New York Times, “Something must be one; anything must be done, whether it works or not.”

The World Bank (where Easterly worked for more than 16 years) and the IMF—the Sisters of Nineteenth Street—are also clearly in the Planners camp.

The Planner’s Paradox

No matter how much you may want it, it doesn’t make sense to have as your goal that your cow will win the Kentucky Derby. It’s much more useful to ask, “What useful things can a cow do?” Aid agencies are cows, not racehorses, according to Easterly.

He tells the story of his nine-year old daughter asking him, “Why do ambulances make so many accidents?” The presence of the IMF and World Bank is a consequence of poverty, not the cause.

Yet the problem is their very presence does cause further pile-ups due to rubbernecking bureaucratic planners, a phenomenon Easterly fails to explain fully, though he does equate aid to the “natural resource curse” (think oil-producing countries) with all of its concomitant negative effects on economic growth.

Another paradox is free markets—they work, but free market reforms do not (think Russia). Same with democracy; it works, but it cannot be imposed, since the majority may vote to abolish it.

It’s amusing that in Eastern Europe, after the fall of the USSR, the Big Six accounting firms were the chief recipients of foreign aid dollars, paid to draft new laws and create free markets, which had little effect on local customs. In fact, in 2003, KPMG’s Bearing Point received a contract from USAID to create a free market in Iraq.

Hiring accountants and consultants to create a free market is like appointing a eunuch to edit Playboy.

A free market is not created from a top-down plan; it doesn’t have goals, which is why we don’t need a White House book czar to ensure children get Harry Potter books. It’s also why we have no Jell-O shops in New York, but plenty of bagel shops.

Easterly does a masterful job of debunking the three legends of poverty with an overwhelming amount of empirical evidence:

Legend Part One: The poorest countries are stuck in a poverty trap from which they cannot emerge without an aid-financed big push.
Legend Part Two: Whenever poor countries have lousy growth, it is because of a poverty trap rather than bad government.
Legend Part Three: Foreign aid gives a big push to countries to achieve a takeoff into self-sustained growth.

Too Many Politicians

Easterly applies the principal-agent problem to that of foreign aid, explaining that it’s really the politicians who are the principals—not the poor—and the aid agencies are their agents. Thus, agencies are not held accountable by the very people they are trying to help.

There are far too many agencies who are each responsible for a plethora of objectives. When the objectives are not met, each agency can blame the others. If everyone is responsible, no one is.

It’s much easier to fart in a crowded elevator, since no one knows who’s to blame, than one where there are only two people.

He asks you to compare the cleanliness of your dining room with your attic. The poor are invisible, located in the rich world’s attic (especially the United Nations). Agencies only have to have visible plans and good intentions to delight the politicians, not produce actual results for the poor.

Easterly claims aid agencies have been bogged down the aid agencies in the equivalent of its Vietnam: AIDS. Despite a number of health triumphs—one area where the agencies have actually produced some good results—they have utterly failed on AIDS.

What’s the Answer?

Easterly concludes that aid will never be able to end poverty, only homegrown free markets can do that with any efficacy.

The solution: First, do no harm. In my mind, this means abolishing the World Bank, the IMF, and most other government-to-government aid agencies, as they have done demonstrably more harm than good.

But Easterly does believe that aid agencies can do some good, if they are held accountable for narrow results. Good luck with that. I don’t think it’s possible, otherwise it would have already happened.

No doubt some NGOs and social entrepreneurs are achieving positive results in some limited areas. He cites Global Giving as aid’s version of online dating, with some positive results accomplished.

The problem with these types of efforts is they detract from the real issue: we shouldn’t study poverty, for even if we knew the root causes, what would we do with that knowledge—create more of it?

We need to study how wealth is created. And it’s not created through aid agencies and NGOs giving away malaria nets and free medicines.

Rather, it’s created through a culture of exalting free minds in free markets, where entrepreneurship flourishes and continuously lifts people out of the perils of poverty. It is our only hope.

One optimistic note that Easterly cites is that the children coming of age today have only known markets, and will make them better due to digital technology. Time will tell, though I’m much less sanguine about this view.

But I remain a paranoid optimist, as long as we realize that the goal is to create wealth, the one and only antidote to creating a world free of poverty.

Book Review: How Will You Measure Your Life?

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Harvard professor Clayton Christensen is one of my favorite business thinkers, right up there with Peter Drucker, Henry Mintzberg, Gary Hamel, and a couple of others.

Unlike most business writers, Christensen understands the importance of theory. He writes:

MANY BUSINESS RESEARCHERS, consultants, and writers create and sell us static views—snapshots—of technologies, companies, and markets. [These] tell us little about how they got there. Nor do they tell us what is likely to happen in the future. My colleagues, my students, and I have eschewed the profession of photography. Instead we are making ‘movies’ of management.

This book applies the same concept of using theories to what’s important in your life. He begins by talking about knowing some of the leaders caught up in recent scandals, like Jeffrey Skilling from Enron, a Harvard graduate. The book sets out to help you answer three questions with respect to “How will you measure your life”:

  1. How can I be sure that I will be successful and happy in my career?
  2. How can I be sure my relationships with my spouse, my children, and my extended family and close friends become an enduring source of happiness?
  3. How can I be sure to live a life of integrity—and stay out of jail?

The last one about staying out of jail may seem unnecessary, but given the number of Harvard MBAs who have ran afoul of the law in recent times, perhaps not.

What’s interesting about this work is that it applies the same logic of using theories, which Christensen uses in his work with business leaders, to your personal life. It’s only theories that allow us to peer in the future, since conclusive data is only available about the past.

I Don’t Have an Opinion, the Theory Has an Opinion. When people ask me something, I now rarely answer directly. A good theory doesn’t change its mind: it doesn’t apply only to some companies or people, and not to others. It is a general statement of what causes what, and why. Good theory can help us categorize, explain, and, most important, predict.

You shouldn’t need Liz Taylor’s record on marriage to know what it takes for a good marriage. Theories help us explain what will happen before you experience it. He suggests you ask:

What are the most important assumptions that have to prove right for these projections to work—and how will we track them?

You’ll learn a lot of interesting things about business strategy, which surprised me at first given the subject of the book. Yet given his approach of using theories, it makes perfect sense.

One of the most intriguing discussions is the “full versus marginal thinking” that will help assure you live a life of integrity. He compares Netflix with Blockbuster.

Netflix didn’t have an existing profitable business model to compare to, it’s baseline was no profit. Blockbuster, on the other hand, based its decisions on marginal costs and revenues, which is dangerous because it

biases companies to leverage what they have put in place to succeed in the past, instead of guiding them to create the capabilities they’ll need in the future. If we knew the future would be exactly the same as the past, that approach would be fine. But if the future’s different and Blockbuster should have been thinking: If we didn’t have an existing business, how could we best build a new one? What would be the best way for us to serve our customers?

He then asks an interesting question:

Why is it that the big, established companies that have so much capital find these initiatives to be so costly? And why do the small entrants with much less capital find them to be straightforward?

The answer is when you’re new to the scene, the full cost is the marginal cost. This is the beauty of creative destruction, and it’s why economists don’t care if a business exists in the long run or not. Something will always come along that’s better.

So what’s this have to do with integrity?

The marginal cost of doing something ‘just this once’ always seems to be negligible, and hence it’s easier to hold to your principles 100 percent of the time than it is to hold to them 98 percent of the time. Decide what you stand for. And then stand for it all the time.

Good advice. Teaching ethics has convinced me of the wisdom of Oscar Wilde: “No man is rich enough to buy back his past.”

He ends on the importance of purpose, for which he recommends three parts:

  1. What do you want the enterprise to have become at the end of the path it is on?
  2. Commitment
  3. One or a few metrics that can measure progress

God, in contrast to us, does not need the tools of statisticians or accountants. [He has] no need to aggregate. His only measure of achievement is the individual.

Christensen, like Mitt Romney and Harry Reid, is a devout Mormon. He also discusses being diagnosed with follicular lymphoma, a cancer similar to that which had killed his father. It went into remission, then he suffered an ischemic stroke right after beginning this book. He’s learning to speak again, one word at a time. I wish him well, and pray he has a speedy recovery.

He’s certainly helped clarify my thinking, and this book, while not your typical self-help book, is quite useful (in fact, all of his books are). Rather than telling you what to do, he helps you construct a theory of cause and effect. It’s much more difficult than reading platitudes, but far more useful. Highly recommended.

Book Review: Negotiating with Backbone

Reed Holden is my mentor, so I’m extremely biased. Still, this is a great book, especially for any firm pricer who has to deal with procurement, which Reed writes is the new normal.

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The final frontier of good pricing is the customer negotiation, and Reed explores this with verve, and an enormous amount of tacit knowledge accumulated from years as a salesman and pricing expert.

He points out “that 80 percent of procurement managers give the other 20 percent a bad name.” I have to say, this has not been my experience with the procurement folks I’ve met, but that’s probably because I only deal in the professional sector, not with general procurement.

What makes this book so useful is Reed documents all of the games procurement plays—from delays, waiting for the end-of-period discounts, to using vendors as “Rabbits” simply to drive down the price of the preferred vendor. There’s many effective tactics offered to deal with each of these scenarios.

And this advice needs to be shouted from the rooftop:

Discounting is a fool’s response. Those who live and die by discounting don’t live very long. Trad[ing] margins for revenues, they undermine the success of their business, which needs profits more than revenue to survive.”

The most important strategy, though, is to know your value, and to be an equal with procurement, not a supplicant. Only equals can negotiate. If you don’t know your value, procurement will drag you to the one topic they know well: price. You must change the conversation to value.

I also love this advice:

Spending the time on the proposal is actually easier than going to the customer with the tough questions.

Here are some of the questions Reed insists you answer before submitting a proposal:

  • What is the process for evaluating vendors and proposals?
  • What are the names and positions of everyone in the process?
  • Who is the ultimate decision maker?
  • What is their timeframe for evaluating vendors and finalizing the deal?
  • How many other vendors are approved to supply the product or service?
  • What are their names?
  • Do any of those other vendors have existing relationships with the decision maker?
  • Which vendor is the preferred vendor?
  • What are your criteria for selection of vendors?
  • Are you interested in vendors that might be able to provide more value to your firm?
  • When and how do we get an opportunity to understand how we can add more value?
  • Are you satisfied with your current vendor?
  • If you have no prior relationship with the customer, why are they asking you to bid?
  • Do budget dollars exist for the requested products and services?
  • How much is the budget?
  • What is the process to get approval to use budget dollars?

If you don’t know the answers [to three or more of these], pack up your bags and look for another opportunity.

The book documents eight different scenarios you can find yourself in. You’ll learn excellent strategies for dealing with price buyers, value buyers, and relationship buyers. The tough buyer is the poker player, who are value or relationship buyers in drag.

Counter intuitively, price buyers may be the easiest to deal with, since at least they are upfront about their expectations of the lowest price. Reed cites research that only 30%-35% of buyers were real price buyers, and that’s in commodity markets. For professional firms, it’s much less, probably single digits.

Reed’s ten tactics for winning the procurement game are exactly right:

  1. Qualify, qualify, qualify
  2. Understand your foundation of value
  3. Develop give-get options [lower price, strip out value]
  4. Map the buying center
  5. Where appropriate, build trust
  6. Use the policy ploy
  7. Delay, delay, delay
  8. Redefine risk
  9. Dealing with reverse auctions
  10. Do your homework

Being a William F. Buckley fan, I appreciated the story of when he was hired to speak at the University of Texas in the mid-1960s, when he was just starting his career as a lecturer. The Daily Texan university newspaper criticized the amount young Buckley was being paid, which was a record amount.

At his talk, Buckley read the most accusatory part of the article aloud, and said to a thundering applause:

I never said I was worth it. I only said I wouldn’t do it for less.

My only quibble with this book—Reed and I have discussed this before—is his use of the poker analogy. He writes:

The way is to consider the negotiation with the economic buyer as a game of poker.

Wagering, like a customer negotiation, is a zero-sum game. That is, every dime that ends up in one pocket is taken out of another.

Remember, you’re in a zero-sum game. The goal of procurement is to grab as much of the pot as possible.

Yet enterprise is not a zero-sum game, otherwise their could be no growth or value created. In the long run, both parties to a transaction benefit, no matter what price is finally agreed upon.

The zero-sum mentality has many deleterious effects, and I believe this analogy needs to be buried. Linguistics matter—a lot.

We must change the conversation to value, something both sides want to maximize. It’s the one area where interests are aligned—the opposite of a zero-sum game.

That quibble aside, this is a fantastic book, and a must-read. Even if you don’t deal with procurement, you will learn strategies from one of the world’s foremost pricing experts.

It’s also an optimistic book, as Reed believes that high value products and services are not dead. With all the talk of the “new normal,” this is a refreshing and empowering message.

Book Review: Bourgeois Dignity

Warning: Similar to her first book in this series, The Bourgeois Virtues, Bourgeois Dignity is an extremely difficult—even painful at times—read. It’s dense; long (450 pages); packed with scholarly citations; it rambles, and wanders, sometimes aimlessly, with 41 pages of footnotes that take you even farther afield; it probably should have been cut in half by the editor; not to mention in places it will give you an incredible migraine.

It’s also brilliant. I loved it.

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But I dread trying to summarize the argument because it’s so complex and expansive in scope. For, as usual, McCloskey has looked at the hypothesis from every possible angle. This is the second book in a planned six-book series, which sets out to answer this question:

What caused the spectacular growth in the economy from the late 18th century to the present day, going from an income of approximately $1 to $3 per day to $137 today?

It’s even larger than that if you take into account the quality of goods and services available today versus then. One simple example is antibiotics. Simple infections that once killed incredibly wealthy people can now be cured with $5 and a trip to the drugstore.

Estimates put the growth in the quality of goods and services at a factor of 40 to 190—I believe even that is an understatement.

In 1875, the average family spent 74% of its income on food, clothing and shelter. In 1995 they spent 13%. This is one reason why my colleague Ed Kless says he’d rather be poor anywhere in the world today than in 1800.

This is an incredible accomplishment, and historians, economists, sociologists, poets, along with many others, have offered a plethora of explanations to explain it. McCloskey explores them all, but she reaches a totally different conclusion than most economists. In fact, the subtitle of the book is “Why economics can’t explain the modern world.”

McCloskey believes that economic change depends on what people believe—their talk, their ethics, and their ideas, especially as related to dignity and innovation. It’s what Alexis de Tocqueville called “habits of the mind.”

Yet “ideas about ideas are unscientific” and largely ignored by economists who naturally gravitate towards materialist explanations for growth and dynamism. McCloskey writes:

To be able to detect the dark matter we will need a new, more idea-oriented economics, which would admit for example that language shapes an economy.

Words Matter

One of our favorite lines discovered recently is Werner Erhard’s “All transformation is linguistic. If we want to change our culture, we need to change our conversation.”

McCloskey’s argument is this on steroids. In other words, our conversations about dignity and liberty changed, launching the Industrial Revolution. Here’s how McCloskey expresses this phenomena:

A big change in the common opinion about markets and innovation, I claim, caused the Industrial Revolution, and then the modern world. The change occurred during the seventeenth and eighteenth centuries in north-western Europe. More or less suddenly the Dutch and British and then the Americans and the French began talking about the middle class, high or low—the “bourgeoisie”—as though it were dignified and free. The result was modern economic growth.

That is, ideas, or “rhetoric,” enriched us. The cause, in other words, was language, that most human of our accomplishments.

McCloskey here is using the word rhetoric in its ancient sense, “the means of [unforced] persuasion,” which includes logic and metaphor, fact and story. She’s written many books on this topic, criticizing economists for not telling better stories, two of which I thoroughly enjoyed: The Rhetoric of Economics, and If You’re So Smart: The Narrative of Economic Expertise.

In the spirit of words being crucial, she’s attempting to rid the world of the dreaded “Capitalism,” preferring “Innovation” instead to explain the wonders of a free market.

Not the Cause

The heart of the book is a deep analysis of why all the traditional explanations of the Industrial Revolution fail to explain the caus. To contrast these viewpoints, consider the book by William J. Bernstein, The Birth of Plenty. This is a fairly representative example of how most commentators explain the origins of the Industrial Revolution, though McCloskey doesn’t cite this work.

Bernstein, like McCloskey, concludes it’s not geography, climate, exposure to microbiological agents (as Jared Diamond has argued in his books), but rather four factors:

  1. Property rights
  2. Scientific rationalism (positing and falsifying theories)
  3. Capital markets
  4. Improvements in transportation and communication

Which of the four was most important? All of them are like ingredients to a cake, all are equally important to produce a just dessert. It’s not physical objects (materialism) that matters, but rather institutions, according to Bernstein.

This sounds very plausible, but not to McCloskey, and she debunks every one of these factors. In chapter after chapter, she definitively falsifies the following list of reasons often cited as the cause of the Industrial Revolution:

  • The Weber Thesis—The Protestant (particularly Calvinism) ethic
  • Michael Porter’s thesis of competitive strategy of nations (this is deftly ripped apart by McCloskey, and R.I.P. as far as I’m concerned)
  • Rise of rationality
  • The exchange of ideas. Ideas having sex, in Matt Ridley’s apt phrase from The Rational Optimist. It helps, but it’s simply not large enough to have caused the Industrial Revolution
  • Education. In fact, too much education can impair growth. An interesting discussion is provided by McCloskey, and Thomas Sowell’s work as well
  • Thrift (savings accumulation)
  • Investment (capital accumulation)
  • Economies of scale
  • Division of labor
  • Greed
  • Expropriation or imperialism
  • Human capital. Not that this is unimportant, but McCloskey would argue (using our lingo) that social capital—specifically, our conversations and beliefs—are more important. I think Rabbi Lapin would call this “spiritual capital”
  • Transportation
  • Foreign trade. This simply reshuffles goods and services, it doesn’t discover or lead to innovation
  • Geography. Jared Diamond’s thesis is thoroughly shot down
  • Natural resources. McCloskey believes there’s no such thing as a natural resource, except the imagination of man
  • Unions
  • Eugenics
  • Institutions. No doubt important, but no way did they cause the spectacular growth, and mostly were formed afterwards
  • Property rights. Again, they are important, but they existed in all sorts of places prior to Great Britain (China, e.g.)
  • Science. This is more a result, not a cause

Thankfully, she also takes down the happiness literature that’s beginning to sprout up in economics, which is just so much hokum.

One discussion that runs through the narrative is the “California School”—why so many scholars (who tend to be disproportionately located in California universities) believe that numerous discoveries were originally from China, giving error to the idea of European exceptionalism.

McCloskey is more and more convinced of the findings of this school of thought, and so will you after reading about it.

Bowing to her colleagues, who love to express economics in mathematics, McCloskey offers this rather innovative “model” (not a theory) to explain the function for national product:

Q = I (D, B, R) • F (K, sL)

In which I is the Innovation function, depending on D, the dignity accorded innovators, and on B, the liBerty of innovators (the letter L is need for labor), and on R, the rent or profit to innovation.

The innovation function multiplies a conventional neoclassical production function, F, depending on ordinary physical capital and land, K, and on raw labor, L, multiplied by an education-and-skill coefficient, s.

It was anticipated by [Adam] Smith, whose Theory of Moral Sentiments (1759) treats the D variable of dignity, and whose Wealth of Nations (1776) treats the B variable of liberty (amongst a great deal also about F(.)).

And as example of how erudite this book is, where else could you read about Frédéric Bastiat’s idea of a “negative railroad.” Bastiat is on of my favorite economic thinkers because he takes arguments, especially those advocating protectionism, to their logical and absurd extreme.

In 1845 he wrote a petition of the candle makers against the unfair competition (think “dumping”) of the light of the sun, arguing that the law should require curtains to be drawn during the day.

He also argued that if exports would good and imports bad (think our completely meaningless “balance of trade” deficit, which describes accounting, not economics), then countries should sink their ships at sea, creating exports with no imports. Brilliant!

He was probably among the best thinkers to explain that job creation is not the purpose of an economy. In another spoof, he argued that the King should cut off everyone’s right arm, since then it would take twice as long to accomplish any task, create all sorts of jobs, and wealth.

Well, the “negative railroad” is just as funny, and only politicians would be dumb enough to fall for it (think “Wright Amendments” for flying out of Texas). Here’s how McCloskey explains it:

A railroad was proposed in the early 1840s from Paris to Madrid. The city of Bordeaux, at a third of the distance, demanded that the railroad break there, on the argument that the break would “create jobs” for porters and hotels and cabs [big cities like Paris, London and Chicago have always had the trains go into them and end].

Bastiat noted that according to such “job-creating” logic every town along the route should see its opportunity and take it. Every few kilometers, at every country village, the railroad on the way to Madrid would end at a Gare du Nord to be resumed as a Gare du Sud, after job-creating expenditure for freight and travelers en route.

All the national income of France and Spain would come to be “generated” by the Paris-to Madrid railroad, at the cost of all other forms of production and consumption. Jobs would be “created.” It would be a negative railroad, a triumph of protectionism and industrial planning achieved through what economists would later call “rent seeking” by the politicians of Bordeaux or Ablon-sur-Seine.

Think Obama’s “investment” in Solyndra to “create” green jobs.

In the final chapter, she summarizes the “Bourgeois Deal”:

Give a woman some rice, and you save her for a day. Give a man some seed and you save him for a year. That’s the plan of investment in capital, tried for decades in foreign aid, without much success.

But give a man and a woman the liberty to innovate, and persuade them to admire enterprise and to cultivate the bourgeois virtues, and you save them both for a long life of wide scope, and for successively wider lives for their children and their grandchildren, too. That’s the Bourgeois Deal, which paid off in the Age of Innovation.

Does the idea of conversation, words, and talk, changing the course of civilization sound too simplistic? Think about this: Why have out-of-wedlock births skyrocketed in the past 50 years?

Even during the worst years of slavery, the black family was largely intact. And, as Charles Murray documents in Coming Apart, out-of-wedlock births are increasing dramatically among the white population.

Why? What changed? Was it our conversation about this issue? Removing the stigma and shame associated with “bastard” children?

If not, what? Even Murray doesn’t completely blame the welfare state, concluding it exacerbated and enabled, not caused.

I find McCloskey’s work compelling, and it certainly has changed my worldview on the causes of the Industrial Revolution. It truly gives weight to the saying “all transformation is linguistic.”

If you’d like to follow this line of thought, you can visit her site here.

The planned six-book series is as follows:

  1. The Bourgeois Virtues
  2. Bourgeois Dignity
  3. Bourgeois Revaluation, how innovation became virtuous 1600-1845, where she will attempt to measure dignity, and even liberty
  4. Bourgeois Rhetoric
  5. Bourgeois Enemies, mostly intellectuals (no surprise there, see Thomas Sowell’s Intellectuals and Society)
  6. Bourgeois Times, present day views on topics such as globalization, environmentalism, etc.

I look forward to each of these works, even though I know I will be in for a McCloskey headache.

Book Review: The King of Madison Avenue

Kenneth Roman joined Ogilvy & Mather in 1963, stayed for 26 years, and was the third successor to David Ogilvy. He wrote this book to assess David Ogilvy’s legacy. It’s a very balanced look at Ogilvy’s entire life, and his major contributions.

David Ogilvy was born June 23, 1911 (same year as Ronald Reagan), the fourth of five children, in Surrey, southwest of London. He described himself as a Scot. He dropped out of Oxford, spent 1.5 years as a chef in Paris, sold expensive stoves in Scotland, and in 1935 started at Mather & Crowther, the agency run by his brother in London.

He arrived in the USA in 1938, where he went to work for Gallup, and in 1942 he worked for British Intelligence as part of the War effort. In 1946, inspired by the lifestyle of the Amish, he bought a farm in Lancaster, PA, which he sold two years later as farming was “tedious.” He opened Ogilvy & Mather in 1948.

He didn’t believe in growth for the sake of growth; he turned down 20 accounts in 1955 alone, including the Edsel, and Charles Revlon (whom he believed to be a real SOB). He decided he had to like the customer personally before accepting them. Although he was a lifelong smoker, he refused to work on cigarette accounts once the health issues became known. He turned down Xerox, which he regretted deeply, since a competitor got rich off the stock.

He didn’t like speculative work, saying, “We don’t make love until we’re married.” Warren Buffet was an early investor, and Ogilvy used to introduce him as the man who made more money from O&M then he did.

He was mentored by three friends that were also building professional service firms: Marvin Bower of McKinsey; Leonard Spacek, Arthur Anderson; and Gus Levy of Goldman Sachs. These friendships inspired Ogilvy to create a strong culture based on beliefs and principles, which he wrote extensively about, some of which is quoted in this book. It’s as relevant today as when he wrote it. Three that I particularly liked were:

He placed Russian matryoshka dolls at the board of director meetings, with a piece of paper in the tiniest doll: “If you hire people who are smaller than you are, we shall become a company of dwarfs. If you hire people who are bigger than you are, we shall become a company of giants.”

“You cannot bore people into buying.”

“The consumer is not a moron. She if your wife. Don’t insult her intelligence.”

He took on the Shell account on a fee basis, rather than commission. JWT begged him not to do it, as it would ruin the industry. By 1970 Ogilvy claimed that one-half of customers were charged fees, not commissions. In his book, Ogilvy on Advertising, he claims credit for bringing the billable hour to agencies. A huge mistake!

He purchased a chateau in France, and retired there in 1973. He died in 1999, age 88.

So what’s Ogilvy’s legacy? The French magazine Expression named 30 men who contributed most to the Industrial Revolution (Edison, Einstein, Keynes, Lenin, Marx): Ogilvy was number seven. He was labeled “the Pope of modern advertising,” which he loved, even though he was a fervent atheist who had a fascination for the Catholic church. He was never knighted (like Martin Sorrell), but was named Commander of the British Empire.

He ranks #4, behind Bill Bernbach, who Roman says had a greater influence on modern advertising, along with more disciples; then Marion Harper and Leo Burnett. Ogilvy’s greatest contributions:

  • Big Ideas
  • The concept of brands and brand image
  • Direct marketing
  • Intelligence of the consumer
  • Payment by fees
  • He detested billboards

All told, this is very well-written book about a fascinating life. Worthwhile read.
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Book Review: The Wiki Man

Regular followers of VeraSage will already know we are huge fans of Rory Sutherland, Vice-Chairman, Ogilvy Group, in the UK, where he’s been working since 1988.

We’ve been showing his Zeitgeist talk all over the USA, Australia, and Canada. It is simply one of the most profound talks we’ve seen in at least a decade.

Rory was the president of IPA in the UK, where he made it his platform to spread behavioral economics into advertising agencies.

He is a devotee of Austrian economics; Ludwig von Mises is his hero.

Rory has published an eBook, The Wiki Man, I believe only available on Amazon Kindle.

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It’s not really a book. It’s a long interview, then a collection of articles he’s written over the years. But what a short and sweet read it is.

It’s difficult to write a review of his book, since, like his Zeitgeist talk, he moves a mile a minute, tossing out an incredible range of erudite thoughts, topics, and funny lines.

The best I can do is to arrange some of his more cogent thoughts into categories.

On Economics

How did Rory get so deep into economics?

I got interested in economics just because I was ill for a few days and ended up reading a few books—one very good one by Steven Landsburg called Armchair Economist. It’s a really, really good read.

I also credit Landsburg for providing me with an incredible education in price theory, and this book is on my Top 100 Best Business Books of all time.

He goes on to discuss the concept of “Satisfice,” from the economist Herbert Simon.

“Satisfice” is the combination of suffice and satisfy.

I don’t think you can really understand brands without understanding satisficing.

[It’s] killer blow for market research—when you are put in a group of people and you’re researched, you behave like a maximiser because we want to be seen as one. Everybody says they obviously want to find the best television they can within their price bracket.

Most people, in most fields of consumption, NOT maximisers at all.

The vast bulk of the money in any market at any time is in the hands of satisficers. Self-image being a more stubborn force than self-interest.

Before the iPod most important thing with any sound system was of course sound quality. Then the iPod, and sound quality isn’t all that great.

[But it] satisfices, that’s the point.

On Behavioral Economics

It’s not mass hysteria that really frightens me, it’s mass rationality. Spend just as much time working on how you can reduce consumer transaction costs as you do trying to reduce manufacturing costs.

Maybe you only need the hard sell because your product isn’t easy to buy. All airport car parks should have a number of parking spaces, which are three times more expensive than any others.

We do not stand a chance of selling them—or of seeing them happen. And the reason for this is simple: these are all behaviour changing ideas, not attitude shifting ideas. And the job of an agency is now just to do the attitude stuff…

[It’s a] dangerous assumption that behavioral change is the product of attitudinal change: in reality it happens more often the other way.

On Advertising Agency Value

…agencies have so overplayed the “brand” justification for their activities that they have sometimes disqualified themselves from adding value to clients anywhere else.

[The] job of anyone in marketing is to turn human understanding into business advantage or social advantage, okay? That’s the only job.

I think there are really only two types of people in advertising agencies. Good people and crap people. It’s more important to have good people than to obsess about what they. Incidentally our business of charging by the hour makes it difficult to hire except by specialism, which is a problem.

As one creative (Chris Wilkins?) remarked to a planner: “You and I both drink from the same well of inspiration. The difference is that you get to piss in it first.”

Incidentally, one way to get your own bloody clients to do it is to get their competitors to do it; they’re bloody lazy most of these organisations, and they only actually do anything when their competitor does it.

How true is this last line!

On Brands

[The] best way to build a brand is to set out to build a brand. I really don’t believe this. I think if you set out to build a great business, you’ll stand a fair chance of building a great brand. I am not equally confident that someone aspiring to build a great brand will build a great business.

Great brands are often built obliquely, a by-product of something (ideals, vision, focus) and not a product of anything.

Andy Warhol’s beautiful insightful comment: “What I like about Coke is that the President of the United States can’t get a better Coke than the bum on the street.” Do you think the Prime Minister drinks the same wine as the local wino?

Great brands are like great pubs. One of the requirements is that they cross a demographic divide. Who is the typical Google user?

Ordinary people do not demand rigorous sequential logic from their friends; do they want it from their brands?

I suggest it is by far the more valuable economic role that brands play: not to be a promise of ultimate superiority but a cast iron assurance of pretty dependable non-shitness.

Jack Welch said, “Shareholder value is an outcome—it’s not a strategy.” Maybe greed isn’t bad for business. It’s certainly bad for brands.

On Advertising

We too often forget the power of advertising to alienate. Our first reaction is often to find a reason to reject it.

To decide that young people are the only audience which matters, we lose the largest and richest swathe of the population. Remove anything that enabled a recipient to go: “obviously not for me.”

On Wine

Wine does defy logic in one sense—in nearly everything else we buy we value consistency. If one in three bottles of whisky we bought, or one in three pints of beer we bought in the pub were total shit, we would never go to that pub again, and yet one in three glasses of wine we try are just rubbish, and yet we persist in trying to drink wine, and I genuinely don’t quite know why it is.

On Second Homes

[A] second home is not a necessary investment. [Who] really wants these encumbrances now they are no longer rising in value? Do you want to spend your precious fortnight’ holiday practising the Italian for “My septic tank appears to have exploded.”

On Efficiency vs. Effectiveness

Rory has the same disdain for the mindless pursuit of efficiency at the expense of effectiveness that we do.

The most dangerous technology is the spreadsheet. Metrics or values invariably override any conflicting human judgment.

“The Arithmocracy,” a powerful left-brained administrative caste which attaches importance only to things which can be expressed in numerical terms or on a chart. Holocaust and the Soviet famine were both the product of meticulous government officials in dutiful pursuit of numerical targets.

We have an economic system that is much better at delivering efficiency than it is at inspiring affection.

We have probably spent quite long enough trying to make this industry leaner and more efficient. We should try to make it jammier instead.

How, in their endless, dogged pursuit of a false efficiency, organisations can be rendered slightly useless. And stupid. (Remember that the word “dogged” is derived from the word “dog” meaning “energetic and stupid”).

[A] belief in false efficiency is very simple; it comes from the belief that improvement comes from the elimination of apparent waste. [The] problem with this approach. It fails to pay any tribute to luck.

If you look at all the really important breakthroughs made in any field, what you will find is that the unplanned, unintended or fortuitous connection plays just as great a role as the planned, the processed and the organised.

A Perfect Mess details how a messy desk and the accidental juxtaposition of two apparently unrelated papers led to a Nobel prize.

Are we trying too hard to mimic our clients obsession with efficiency (not effectiveness, which is something different) when we should be making the case for chance? Is payment by the hour making us too focused? Too dogged when we should be “catted”?

Henry Ford’s reaction to a consultant who questioned why he paid $50,000 a year to someone who spent most of his time with his feet on his desk. “Because a few years ago that man came up with something that saved me $2,000,000,” he replied. “And when he had that idea his feet were exactly where they are now.”

Be sure to watch Rory’s Zeitgeist talk, and read this book. As he says, it’s a great book for the loo.

Follow him on Twitter @rorysutherland, where his bio reads: “Fat bloke at Ogilvy, IPA; The Wiki Man.