This is a late edition because several of these links are neat things from yesterday. I guess I’d rather be a day late than have you miss some of these stories.

First, a belated happy birthday to one of the major influences in MBM: Ludwig von Mises. The Mises Institute celebrated by reposting some articles outlining Mises’s contributions to economics and free market thought.

Yesterday was Coffee Day (as far as I am concerned, every day is coffee day). Here’s an article celebrating by looking at how/if coffee is related to productivity.

This article responds to research released this summer that shows up to half of people want to quit their jobs. It’s titled “Half of Your Team is About to Quit… 12 Things to Do About It.”

Again, I was a bit late in finding this story: “Vivid Stories Change Donor Behavior.” After hearing Andy discuss the Success Case Method yesterday, I remembered I’d read something about stories and went back to this blog. Do you see the Human Action Model at work in this article?

Have a safe and happy weekend!

Everyone is talking about Moneyball.  I haven’t read the book or watched the movie, but I will.  In this post over at HBR, Tammy Johns (SVP at Manpower) draws a connection between building a strong business group and Billy Beane’s team-building strategy.  I’m not going to say too much until I see/watch Moneyball, but this whole idea got me thinking.  As I understand it, most MLB coaches had an idea (dare I say, a mental model) about how team’s ought to be build.  Beane challenged that notion and had great success.

So, what mental models about talent dominate–perhaps to our detriment–current thinking on building talented teams?  I get the feeling that most organizations evaluate their talent development capabilities based on how well they attract and retain the talent they think they need.  That’s good, but is it good enough?  In the extreme, we might be really good at attracting and retaining talent that is far from the talent we actually need.

Thoughts?

“At the most fundamental level, MBM is a philosophy and methodology to encourage innovations that create value for both a company and society” (The Science of Success, p. 166)

This is what draws me to MBM.  Sure, I love the fact that it is grounded in philosophical principles that I hold.  But at the end of the day, it is the increased innovation that results from applying MBM that makes me continually interested in learning and applying more.

Since learning about about MBM, I’ve thought a lot about the apparent tensions between the challenge process on one hand, and the need to counter the unknowability of the future by letting employees be creative and take risks.  Fortunately, I no longer see this as a tension.

Taking creative risks in the absence of feedback and knowledge can be dangerous.  However, allowing harsh feedback to unwarrantedly kill early-stage project may be just as (if not more) dangerous.  We want to make the best decisions possible with the knowledge we can get at a given time.  Inviting challenge–while maintaining a strong bias toward innovation–can help us drive creative destruction and avoid driving off a cliff.

This quote from The Science of Success shows one of the dangers of detailed rules:

When detailed rules or instructions are necessary, they must be judged against those general rules already established through a process of discovery as best enabling a society or organization to prosper (from page 78).

So it’s not a question of how to get rid of or prevent detailed rules. Instead, the question becomes WHEN should we have detailed rules and how detailed should they be. It’s a trade-off.

For instance, my colleague Al sent along a link to a story highlighting the proposed increase to 140,000 different medical codes insurers may be mandated to use. I’m no medical expert but 140,000 sounds a bit detailed. According to the article,

The WHO, for instance, didn’t see the need for 72 codes about injuries tied to birds. But American doctors whose patients run afoul of a duck (see codes), macaw (see codes), parrot (see codes), goose (see codes), turkey (see codes) or chicken (see codes) will be able to select from nine codes for each animal, notes George Alex, an official at the Advisory Board Co., a health-care research firm.

There are 312 animal codes in all, he says, compared to nine in the international version. There are separate codes for “bitten by turtle” and “struck by turtle.” (See codes.)

Using this example of medical codes, let’s talk about the trade-offs of detailed rules versus guiding principles. What are the pros of having such a detailed system of rules for outlining medical conditions? What are the cons of having such a detailed rules for outlining medical conditions? What might we learn from this case to apply more generally to when it’s worth the trade-offs to have detailed rules?

In honor of the Economic Freedom of World Report release earlier this week, today’s links are all about economic freedom. (Here’s a reminder for those of you who want a refresher on economic freedom.)

The Mercatus Center has a video showing how economic freedom has changed in the US since 1970. Scroll to the bottom of this article to see the quick clip.

Learn Liberty has a video clip of one of the authors of the Economic Freedom of the World Report explaining more about economic freedom.

Here’s a Forbes.com article with some charts and a video explaining more about this years’ Economic Freedom of the World Report.

I know there’s been lots of talk about the Economic Freedom of the World Report. Leave any related links you’ve found in the comments. Have a safe and happy weekend.

I’m working with a group today on the topic of measurement.  My thinking on the subject has changed pretty dramatically over the past few years.  For some reason, my natural approach to measuring in business or nonprofits was to be precise or not measure at all.  I’ve spent way too much time trying to design the perfect measures.

Our text for my discussion today is “How to Measure Anything” by Douglas W. Hubbard.  Hubbard calls measurement “a quantitatively expressed reduction of uncertainty based on one or more observations” (emphasis mine).  If this means what I think it means, it’s a pretty important idea.  Far from requiring us to design the perfect single measure for each program, project or activity, Hubbard encourages us to make use of whatever information improves our certainty. 

Imagine pure uncertainty.  You are running a donor event and you have no idea whether your attendance will be zero or the entire population of the world!  Of course, in reality, you bring enough information to the table naturally to know that this isn’t reality.  But what could you do to further reduce uncertainty beyond what you already know?

More importantly than the example above, where could reducing uncertainty help you improve your business?

As I posted earlier today, the newest numbers on economic freedom are out and the US has fallen from 6th to 10th this last year (and from 2nd in 2000).  

Why have we fallen?  What repercussions does this mean for you and me, and for our kids or grand kids?  What does a decline in economic freedom mean for the poorest in the US, and in the world?

If these are interesting questions to you, check out a new website that just launched yesterday from the Charles Koch Institute: economicfreedom.org.

Since the data is two years old (it takes a LOT of time to gather over 40 variables for more than 140 countries) this latest dip in the United States’ ranking reflects some of the big stimulus activities from 2008, but does not take into account more recent changes in terms of increased spending and increased regulation, both of which may decrease our score further.  The question is, by how much….

Economic, Economic Freedom Score, Frasier, freetheworld, United States

I’m very excited about the new data from the Economic Freedom of the World Report from the Frasier Institute (PDF).  This measures the amount of economic freedom in most countries (those that the data are available for), and strongly bolsters the “roots of prosperity” that MBM is based upon. 

Below is selected text from the executive summary.  Enjoy!  And try not to be too disheartened by the lapse the U.S. has experienced….

Economic freedom has suffered another setback

• The average economic freedom score rose from 5.53 (out of 10) in 1980 to 6.74 in 2007, but fell back to 6.67 in 2008, and to 6.64 in 2009, the most recent year for which data are available. (See chapter 1 for a discussion.)
• In this year’s index, Hong Kong retains the highest rating for economic freedom, 9.01 out of 10. The other nations among the top 10 are: Singapore (8.68); New Zealand (8.20); Switzerland (8.03); Australia (7.98); Canada (7.81); Chile (7.77); United Kingdom (7.71); Mauritius (7.67); and the United States (7.60).
• The rankings (and scores) of other large economies are Germany, 21 (7.45); Japan, 22 (7.44); France, 42 (7.16); Italy, 70 (6.81); Mexico, 75 (6.74); Russia, 81 (6.55); China, 92 (6.43); India, 94 (6.40); and Brazil, 102 (6.19).
• The bottom 10 nations are: Zimbabwe (4.08); Myanmar (4.16); Venezuela (4.28); Angola (4.76); Democratic Republic of Congo (4.84); Central African Republic (4.88); Guinea-Bissau (5.03); Republic of Congo (5.04); Burundi (5.12); and Chad (5.32).

The world’s largest economy, the United States, has suffered one of the largest declines in economic freedom over the last 10 years, pushing it into tenth place. Much of this decline is a result of higher government spending and borrowing and lower scores for the legal structure and property rights components…. [emphasis added.]

Nations that are economically free out-perform non-free nations in indicators of well-being

• Nations in the top quartile of economic freedom had an average per-capita GDP of $31,501 in 2009, compared to $4,545 for those nations in the bottom quartile, in constant 2005 international dollars (exhibit 1.9).
• Nations in the top quartile of economic freedom had an average growth in per-capita GDP between 1990 and 2009 of 3.07%, compared to 1.18% for those nations in the bottom quartile, in constant 2005 international dollars (exhibit 1.10).
• In the top quartile, the average income of the poorest 10% of the population was $8,735, compared to $1,061for those in the bottom quartile, in constant 2005 international dollars (exhibit 1.12). Interestingly, the average income of the poorest 10% in the top quartile is almost double the overall income per capita in the bottom quartile ($4,545, exhibit 1.9): the poorest people in the most economically free countries are nearly twice as rich as the average people in the least free countries.
• Life expectancy is 79.4 years in the top quartile compared to 60.7 years in the bottom quartile (exhibit 1.13).
• The $1.25-per-day poverty rate is 2.7% in the top quartile compared to 41.5% in the bottom quartile (exhibit 1.17).

“Economic Freedom” is measured by looking at issues such as personal choice, voluntary exchange, freedom to compete, and security of privately owned property.  The report from Frasier is a peer-reviewed academic writing that uses publicly available data from sources such as the World Bank, the IMF, the World Economic Forum and other institutions and publications.  More here at www.freetheworld.com.

economic freedom, Economic Freedom Score, Frasier, James Gwartney, Joshua Hall, Robert Lawson, United States

Elinor Ostrom won the 2009 Nobel Prize in economics for her work on how solutions to commons problems emerge through spontaneous order (that’s my characterization of her work anyway).  Here’s an article in which fellow Prize-winner Vernon Smith describes some of Ostrom’s ideas.

I’ve been teaching a lot on Decision Rights lately, and have been thinking about how Ostrom’s ideas can inform our thinking.  In a dynamic world, the things over which Decision Rights must be held are ever-changing.  The challenge, then, is for organizations to be adept at discovering those things and developing the Decision Rights arrangements that best help individuals create superior value with those resources.

In my view, the problem isn’t that common “propery” arises–from innovation or external changes–within an organization.  Problems occur when organizations struggle to move past that initial state of common property.   Ostrom teaches us that rules can emerge to overcome the problems of common property in society.  Do we see something similar in organizations?

Scott submitted an interesting article for us to discuss (see previous post here). The title of the article is “Jobs made Apple great by ignoring profit.”  Below are a few quotes to help focus analysis:

As paradoxical as it is that the pursuit of profit is what causes the long-term failure of companies, I believe that Apple’s lack of focus on profitability has actually made it one of the most successful companies in the history of capitalism.

Andy and David both left comments on last week’s post that questioned what exactly the authors mean by profit. This is a great place to start. From the tone of the article, references to Wall Street and the typical mental model most people have about profit, I suspect this author means accounting profit: Total Revenue – Total Costs =Profit. With the reference to Wall Street earlier in the article, it may be they are thinking of quarterly profits. David and Andy both suspected Apple’s focus was on value creation.

Apple’s focus is on making truly great products — products so great that its own employees want to use them. That philosophy has made Apple one of the most innovative companies in the world. Steve Jobs’ legacy isn’t the Mac. It’s not the iPhone. Or the iPad. His legacy is in the creation of Apple itself, reminding us that profit is not the ultimate goal, but rather a consequence of something greater.

This quote makes me think Apple was/is focused on value creation and their profit was/is an indicator of that value. The “something greater” might be value creation (I don’t think people on the outside can know for sure). For analysts who are focused on quarterly profit, it seems outrageous to release a product (iPad) that cuts into one of your most recognized businesses (laptops and computers). However, for a company focused on long run value creation, it seems much less worrisome.

As I read the article, I wondered what other aspects of the organization were in place to allow this attitude (which I believe is a focus on value creation) to emerge.  Clearly there were some values and beliefs in play supporting the strategy.  This quote hints that folks at Apple may have a point of view on creative destruction:

Despite being perceived as a premium, high-end player, Apple under Job’s leadership has not simply managed to avoid being disrupted by others, it has disrupted entire industries — many of them. Even more impressive, it’s disrupting itself.

It seems to me people working at Apple have a shared value around innovation and believe the cool-factor is important. If the company is solidly focused on value creation, then a clear understanding of their customers, when and how the value is created and other aspects of vision must be in place. Imagine having a company full of people who do not understand value creation AND are ignoring profit.

As David pointed out in his comment, maybe the authors are using a bit of exaggeration. At one point the author says Jobs was “eschewing” profit. Putting aside the specifics of Apple, let’s focus on some big picture ideas. With all these ideas about value creation versus profit, can any for-profit company truly ignore accounting profit? Does MBM suggest we ignore or eschew profit?

Apple, Creative Destruction, profit, Steve Jobs, Value Creation