WHEN WILL THEY EVER LEARN?

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HOW WE
LEARN, AND WHY WE DON'T

HOW WE
LEARN, AND WHY WE DON'T 04/09/2004 03:59 PM

When you spend a decade working in Knowledge Management, you can't help thinking a lot about how people learn. The book that first helped me understand the learning process was Nancy Dixon's The Organizational Learning Cycle. Nancy was writing about 'collective learning', a subject I was already skeptical about even then: I was, and remain convinced that learning is an intensely personal, individual experience, and that we all learn differently.

The graphic above is adapted from Nancy's book. It says that, in general, we learn as follows:

We take in information through our sensory receptors. Already there is a dreadfully low signal/noise ratio: If we aren't paying attention, if we're not good listeners, if our senses are dulled or distracted, a large part of the potential learning from the person or scene we're 'taking in' is already lost.
We next filter and 'process' this information through our personal mental models or 'frames'. This is a function of the neuron structures in our brains, which were to some extent set at birth, and to some extent were formed early in childhood as we first began to learn and to acquire language and other information processing tools to help us learn. Here are two quotes from yesterday's post on 'laws' that describe this 'internal knowledge management' process:

Frames trump facts. All of our concepts are organized into conceptual structures called "frames" (which may include images and metaphors) and all words are defined relative to those frames. Conventional frames are pretty much fixed in the neural structures of our brains. In order for a fact to be comprehended, it must fit the relevant frames. If the facts contradict the frames, the frames, being fixed in the brain, will be kept and the facts ignored. [George Lakoff]

Because people understand by finding in their memories the closest possible match to what they are hearing and use that match as the basis of comprehension, any new idea will be treated as a variant of something the listener has already thought of or heard. Agreement with a new idea means a listener has already had a similar thought and well appreciates that the speaker has recognized his idea. Disagreement means the opposite. Really new ideas are incomprehensible. The good news is that for some people, failure to comprehend is the beginning of understanding. For most, of course, it is the beginning of dismissal. [Roger Schank]

Next, we store the filtered, processed, regurgitated, parsed 'learnings' in our 'working memory', the brain's RAM, where they continue to be molded, considered, and amended until we have essentially 'decided what they mean'. Then it gets filed away in long-term memory, to be accessed and extracted if and when it is ever needed again. If it is not used for a considerable time, it is 'forgotten', making room in the memory for other, newer learnings that may be more useful.

You may think this description is unduly negative. I arrived at it, from reading at least a dozen books on the subject since I read Nancy's work, from interviewing co-workers after they attended presentations and seminars to de-brief with them what they said they had learned (try it -- you'll be astonished at the results), and from thinking about-- not how people learn -- but why people learn.

The purpose of learning is ultimately Darwinian -- we don't learn just for learning's sake, or because it is fun. We learn, and learn the way we do, because it helps us to survive. In most situations, the recall and application of past learnings is far too slow and unreliable to keep us alive in critical situations, so to survive we rely much more heavily on instinct. Instinctive 'knowledge' is hard-wired into us, as it has been for us and our primordial ancestors since life first made its appearance on Earth. Intellectual and moral learnings are a back-up system, for when we have the luxury of time and the opportunity to apply more complex situational knowledge to a survival problem (such as planning a date, keeping a job, or designing a hydrogen fuel cell).

Bernd Heinrich, in Mind of the Raven, probes the sharp, massive (relative to body size) brains of corvids, the brightest species of birds. He describes the raven's capacity for ruse (when hiding food so it won't be found by others) and sophisticated memory of place (for finding the food again). He also describes a simple IQ test for animals that most ravens pass with flying colours: A thick string is hung from a tree-branch, to which is attached a well-wrapped morsel of a favourite food. It cannot be reached from the branch or the ground, and cannot be extracted by grabbing it in flight. Ravens quickly appreciate that the answer is to sit on the branch and pull the string up, claw over claw, until the food can be reached and unwrapped. There is no trial and error involved. The abstract reasoning is well within the raven's considerable intellectual capabilities. Like us, they simply reorganize the accumulated learnings in their brains to fit the new problem's context.

Heinrich surmises that the raven's large and sophisticated brain evolved because it had to, to survive. Ravens do not possess the tools to kill their prey, so, like man, they began as carrion eaters. But then, they 'learned' to collaborate with wolves and other killers of large animals. Now they fly overhead and find the meal, and then buzz the wolves, flying circles between the wolves and the prey until the wolves, too, 'learn' what the ravens are 'saying', make the kill, and share the spoils with their avian scouts.

In Experiential Learning, David Kolb describes a four-phase learning 'cycle': Experiencing, Reflection/Observation, Conceptualization, and Experimentation/Application. If this is indeed how we learn, it is not surprising that 'on-the-job' learning trumps 'book' learning. If we learn by doing, it is hard to imagine a worse learning environment than the classroom or boardroom. And it also explains how stories, which are so engaging, so participatory, are such effective teaching tools: You are sharing your experience in the story, not merely your observations and conceptualizations. It also explains the popularity of Case Studies in the classroom and Best Practices in the workplace, though both of these are extremely poor substitutes for first-hand learning. Kolb describes four basic 'Learning Styles':

Diverging: most learning comes from experiencing and reflection
Assimilating: most learning comes from reflection and conceptualization
Converging: most learning comes from conceptualization and application
Accommodating: most learning comes from application and experiencing

His research suggests that women tend to prefer experiencing while men prefer conceptualization, but he hypothesizes this may be culturally learned behaviour rather than anything innate. There are of course many other models that parse learning styles differently, and different activities (note-taking, summary writing, reading vs. listening, graphics vs. text, oral recapitulation etc.) that enhance learning for each of us differently during each of the four phases of the learning cycle.

One of the things I have observed in watching people in social gatherings and in more formal meetings is that almost all multi-person social activities are essentially sequences of distinct two-party conversations. It is almost as if the signal/loss ratio is so poor in conversations, which are not really shared experiences but rather 'playbacks' of one individual's (the talker's) experiences and learnings for the supposed benefit of the other individual (the listener), that a simultaneous 'bandwidth' of two people is all we can manage. Perhaps the reason why we even tolerate these abstract social activities is that we hardly ever do anything together anymore. The job of the typical specialized 'knowledge worker' today (despite the prevalent and somewhat fraudulent hype about collaboration and work 'teams') is mostly individual, solitary activities and experiences. And social and family discourse often centres around the passive and individual watching of television or films or listening to music. We often don't even eat together anymore, the primeval, original social activity of all species.

All of this got me thinking about the constraints to learning, and why, in this 'information age', there seems to be less learning occurring going on rather than more. Here is my list of the top 10 constraints to learning in our modern culture:

We don't allow ourselves (and society doesn't allow us) enough time for wonder.
Our workplace activities and our home routines are often repetitious and stimulus-poor.
We don't do anything together anymore.
We get too much of our life experience second-hand (from books & movies, and online).
We suffer from imaginative poverty -- we won't let ourselves imagine, and now we've largely forgotten how to imagine.
Our lives are too organized and too scheduled to allow serendipitous experiences and hence serendipitous learning.
In this world full of terrible knowledge and awful realities, we are becoming afraid to learn. We cannot bear too much reality, too much bad news, and we don't want to accept the awful responsibility that knowing and learning brings with it.
Everything about the current Western educational system impedes and discourages learning.
The media have addicted themselves, and us, to facts rather than meaning.
We have 'desensitized' ourselves -- we process everything mainly with our left brain, so we no longer really see, really hear, really smell, really taste, really feel.

THINK
GLOBAL, ACT LOCAL: PETER SINGER'S
ONE
WORLD

THINK
GLOBAL, ACT LOCAL: PETER SINGER'S
ONE
WORLD 04/23/2004 09:24 AM

If you're a regular reader of this blog, you probably know that I'm opposed to unregulated 'free' trade, very worried about the extraterritoriality of the WTO, NAFTA, Davos and other corporatist captives, strongly opposed to domestic corporations 'offshoring' jobs, using influence with the Bush regime and other right-wing governments to circumvent social and environmental laws and responsibilities, and a great believer in taking the pledge to buy local, and in community self-sufficiency.

At the same time, I'm a strong supporter of the UN and other multi-lateral NGOs, and I believe that we each have a responsibility for the well-being of all the people and creatures of this world. Some readers have said this view is inconsistent, and I wasn't quite sure how to respond to such charges. Fortunately, Peter Singer, in his recent book on global ethics, One World: The Ethics of Globalization, has come to my rescue. Singer sees no inconsistency between strong local autonomy, community, and self-sufficient economies on the one hand, and global responsibility on the other. The book is based on the Dwight Terry lectures at Yale in 2000, but has been updated to incorporate reflection on the events of 9/11 and the appalling Bush social, environmental and economic record.

I'll have more to say next week about Bush's fraudulent and despicable Earth Day media blitz, and the major media's shameless lack of critical evaluation of the utter nonsense that his propaganda machine has been churning out this week on the environment -- newspeak of Orwellian proportions. The first part of Singer's book deals with environmental responsibility, and his prescription for increasing it -- immediate ratification of Kyoto by the US and other holdout countries, and introduction of an emissions trading mechanism to make the realization of Kyoto feasible (subject to the need for some oversight on the disposition of the proceeds of such trading when it involves autocratic governments).

The second part of the book deals with the global economy, and Singer adroitly tears apart the Economist's (and other neocons') naive assertion that economic globalization somehow benefits both rich and poor countries. He then goes on to prescribe a substantial reform of the WTO and the GATT, which could actually lead to more equitable distribution of wealth and more efficient production of economic goods, while safeguarding human rights, labour and the environment. Unfortunately, the multi-national corporations and corporatists who hold sway in the WTO would never tolerate Singer's prescription, since it would entirely divert the benefits of economic globalization from their pockets to those of the world's poor.

The third part of the book deals with international law, and Singer lashes out at Bush for his unconscionable refusal to ratify the International Court of Justice, and for the UN's continued hesitancy to accept a duty (not a right) to intervene in situations of genocide and other humanitarian crises, even within a single nation. Singer is sanguine about the limitations and dangers of 'global government', but supports strengthening the UN to enable it to act as a 'protector of last resort', and including in its mandate the responsibility to supervise elections in all member nations.

The fourth and final part goes back to ethical principles and proposes that countries must, in this world where national boundaries no longer have any logistic meaning, set aside national interest and embrace, once and for all, global interest, impartially. That does not mean cultural homogenization, but imposes a responsibility for the reduction of inequality, both of economic resources and personal rights and freedoms.

Always the pragmatist, Singer concludes by worrying out loud about how the responsibility for a global ethic could be managed:

It is widely believed that a world government would be, at best, an unchecked bureaucratic behemoth that would make the bureaucracy of the EU look lean and efficient. At worst, it would become a global tyranny, unchecked and unchallengeable. These thoughts have to be taken seriously. How to prevent global bodies becoming either dangerous tyrannies or self-aggrandizing bureaucracies, and instead make them effective and responsive to the people whose lives they affect? It is a challenge that should not be beyond the best minds in the fields of political science and public administration.

I'd like to believe that this was possible, because if it isn't, we're in serious trouble. We cannot expect national governments to set aside parochial interests, especially when this entails accepting a responsibility that would, for the richer nations, inevitably lead to a drastic redistribution of wealth to poorer nations and hence a sudden and sharp reduction in, at least, economic living standards (if not necessarily well-being). But as John Ralston Saul has so eloquently argued, larger organizations and institutions, whether public or private, are almost always, and inherently, less efficient, less agile, more resistant to change, more hierarchic, and less transparent than smaller organizations. So the challenge is to achieve the best of both worlds, having organizations of global scope and authority and responsibility, but broken up into sufficiently small, autonomous and dynamic units that they are sensitive, resilient, responsible and responsive to the people and communities they serve. We can only hope that "the best minds in the fields of political science and public administration", wherever they are, are up to the task.

RADICAL
SIMPLICITY: A SECOND LOOK, AND LESSONS
LEARNED

RADICAL
SIMPLICITY: A SECOND LOOK, AND LESSONS
LEARNED 01/07/2004 01:32 PM

I've now finished Jim Merkel's book Radical Simplicity, which I described in an earlier post. Some of Merkel's ideas for living simpler were incorporated in my personal How to Save the World scorecard. I was mindful of the comments of several readers who complained that such books are only useful for salving the guilt of rich people who have lived extravagant lifestyles, and offer nothing to 'average' people who live a frugal existence struggling just to make ends meet. I'll leave it up to readers to consider what I've learned from this book, and decide whether these lessons have any applicability to them:

Our ecological footprint (EF) is modestly higher than the North American average. This is due primarily to the fact we live in a larger-than-average house (the average North American home size is 1700 s.f., up from about 1300 s.f. a generation ago), and, as Canadians, we use a lot more BTUs for heating than the average North American.

We actually buy less 'stuff' than the average North American, by a considerable margin. This is because we tend to save until we can afford better, more expensive, more durable products, so we 'turn over' what we own only half as often as the average North American, who disposes of clothing on average every 4 years, computers and small appliances every 3 years, major appliances every 8 years, and furniture every 10 years. This is a staggering amount of waste, and shows the false economy that our consumer culture and the Wal-Mart Dilemma push many people into.
Thanks to our progressive community, that recycles paper, plastic, glass, cardboard, aluminum, and organics ('green box' program), we produce much less unrecycled garbage than the average North American (who adds 3/4 of a ton per year into landfills). I am aghast at the lack of progress in both municipal and business recycling in many parts of the continent.
As Merkel's book progresses, it moves from very simple, logical, sensible steps that can lower your EF, to steps that only a die-hard and exceptionally devoted environmentalist would take. I'm not interested in growing most of my own food, living in a 100 s.f./person home and making my own clothes -- that's way beyond responsible living, even beyond austerity. Even I'm not that idealistic. After going through the workbook sections, I've concluded that our EF is less than I thought it would be, and a reasonable 'zero sacrifice' target for reducing our EF is more than I thought it would be. So while at first blush I'd pledged to reduce our EF by 80%, I'm lowering that pledge to 50%. That's still a worthwhile, and not terribly difficult, goal, which will reduce our EF to about 60% of the North American average. But it still leaves our EF at three times the current global sustainable per-capita level. In other words, if everyone in the world lived at our proposed lower EF level, it would take three Earths, and zero population growth starting immediately, to sustain us all, and that would leave no room for all the rest of the life species in the world. Merkel, like McKibben, urges us to pursue an average one-child family strategy to reduce and sustain human population at a billion people, which would allow us all to live at my target EF level (i.e. very comfortably) and still allow half the planet to be left in natural state for other life species.
The methods I propose to use to halve our EF are not rocket science:

Make our home much more energy efficient. Either build a new, exceptionally energy- and space-efficient home on a lot that would be left 90% in its natural state. Or alternatively, as some readers have suggested, do a radical energy retrofit and functional redesign of our existing home, and close off or lease out half of it. Our existing lot is only 50% in natural state, so much of our lawn would have to be returned to forest.
Change jobs to substantially home-based businesses, and sell one of our two cars -- an end to wage slavery.
Learn to cook (though probably not as well as my wife) so we can become more vegetarian, and eat less processed and packaged foods.
Learn to be more self-sufficient and self-efficient (fixing things instead of tossing them out).

Not only would these changes halve our EF, they would have a comparable impact on our utilities, maintenance, household, transportation, and other costs, allowing us to retire in seven years (if we want to) instead of the projected twenty.
The book also talks a lot about overcoming fears -- of striking out on your own, of being viewed as 'weird', of wilderness, of doing without the possessions that sometimes come to own us, of not having 'enough'. This is important because Radical Simplicity is about culture change, and while I'm convinced our lower-EF end-state will be idyllic, it's the journey, the 'letting go' that's difficult, and ultimately, in some ways, a leap of faith.

I still recommend the book, but you'll need to look past some of the more over-the-top rhetoric and the more extreme and impractical reductions in EF, and adapt the ideas to your own circumstances and standards.

Postscript December 29 -- please read Kevin Cameron's comments in the thread to this post. He addresses, much better than either I or Merkel have, the issues that make many people skeptical about the concept and practicality of Radical Simplicity. Kevin also makes some important points that Merkel and I both missed.

CANADA HEADS
INTO POLITICAL CHAOS

CANADA HEADS
INTO POLITICAL CHAOS 06/13/2004 10:15 AM

Two weeks ago I reported on the upcoming June 28 Canadian election, and predicted that there would be a Liberal minority government, with the NDP holding the balance of power. Since then, groupthink has taken hold, and the anger that many Canadians feel about the incompetence of the federal Liberals to detect either wasteful spending or the 'sponsorship' fraud by some government workers, plus the anger of many Ontarians about the new Provincial Liberal government's reneging on promises to avoid tax increases, has led another 8% of Canadians to vow not to re-elect them. This 8% swing has been predominantly older men in Ontario, who seem unwilling to believe that the Conservatives are as right-wing as Liberal Prime Minister Martin has portrayed them, and younger people, whose support for the Green Party has significantly increased.

The province-by-province projections now stand as follows -- 155 of the 308 seats are needed for a majority:

	Liberal	Conservative	NDP	Green	Bloc Québecois
West - 95 seats	27 (28%)	55 (40%)	13 (22%)	0 (10%)
Ontario - 106	48 (35%)	51 (38%)	7 (21%)	0 (6%)
Québec - 75	15 (30%)	0 (10%)	0 (8%)	0 (2%)	60 (50%)
Atlantic - 32	17 (36%)	11 (32%)	4 (26%)	0 (6%)
Total - 308 seats	107 (32%)	117 (33%)	24 (18%)	0 (6%)	60 (11%)

Next week we'll hear the all-important leader debates, but they are likely to change nothing. The Conservatives are muzzling their own right-wing extremists, who are virulently anti-abortion, gay-hating, anti-gun control, anti-immigation, pro closer ties with the US, anti-Kyoto accord, and militaristic (Stephen Harper, the new Conservative leader and former head of a Western separatist party, wanted Canada in the Iraq war). The Conservative strategists are determined to portray Harper as a moderate, despite the fact that he is on record as having taken right-wing positions on many social, economic and environmental position. If this sounds a lot like Dubya, and the spin doctor white-washing of his extremism reminds you of 'compassionate conservatism' in 2000, it should, because the tactics are the same -- say anything to get elected, and then trot out the real agenda of the people who paid for the campaign.

But it's even more frightening than that. Small-c conservatives make up only 30% of Canadians, and the capital-c Conservatives are already above that point, with some of their voters coming from angry liberals. But if the figures above don't change, the Conservatives will get 38% of the seats with 33% of the vote. And the Bloc Québecois, the Québec separatist party that runs candidates only in that province, will get 19% of the seats with only 11% of the vote. Add them together and you get a distortion almost identical to what happened in the US in 2000, where Dubya 'won' with only 46% of the popular vote. If the Conservatives and Bloc combine their seats in a strange-bedfellows anti-federalist coalition, they'll have 57% of the seats with only 44% of the votes, while liberal-centrist parties will have only 43% of the seats, even though they will have received 56% of the votes. There is no other coalition that would have enough seats to form a government.

Problem is, this coalition won't hold for more than a few months. The Bloc is a left-wing, Francophone party, liberal on all social, economic and environmental issues. The Conservatives have diametrically-opposed views on every issue but one: their dislike of federalism. The cost of Bloc support would be to grant Québec limited sovereignty, kind of 'independence light'. The very idea of this is repugnant to core Western Conservatives. And the Bloc has already said that it would not support any Conservative government that tried to recriminalize abortion, and has made it clear that it would not tolerate abandoning Canada's support for the Kyoto Accord, or anti-gay laws, both of which are bedrock principles of the Western Conservatives. And Ontario Conservatives would quickly cross the floor to the Liberals to save their political skin if the Bush-style right-wing social agenda of the Western Conservatives was trotted out.

The role of the media in the final two weeks of the campaign will be interesting. Conservative media are likely to present Harper as the 'heir-apparent', the surprise winner and a fresh new face for Canada. Liberal media will be torn over whether to simply relate the campaign stories as they are spun out by the parties, or to go behind the scenes and surface what Harper has said, in writing, in past, on many issues he is now trying to paint himself as moderate on. The current Liberal campaign has attempted to do just that, but it has backfired, being portrayed as negative 'US-style' electioneering, sour grapes or desperation politics, so the liberal media could be subject to similar admonishments if they get proccupied with the 'secret agenda' of the Conservatives. But media being what they are, expect Harper, the new frontrunner, to face increasing heat over unanswered questions from his decidedly non-moderate past. Not to mention some of his decidedly wacko neophyte candidates.

So what do I think will happen? The Conservatives will win a small plurality, and have to either form a coalition with, or try to manage with the tacit support of, the Bloc Québecois. Paul Martin will resign right after the election, and the Liberals will choose a new leader not tainted by the recent scandals. The Conservatives will start to self-destruct right after the election, with hard-line right-wingers expelled or resigning, and moderates crossing the floor to the Liberals, especially after it selects a new leader. The new government will last 3-6 months, accomplish nothing, and fall when the Bloc Québecois withdraws its support. Then we'll have another election, and perhaps even a third, until the 70% of Canadians with moderate-to-liberal social and political views get a government they can live with.

Ontario and Québec have 60% of Canada's population, and no party has ever successfully governed the country without healthy support from both provinces. Stephen Harper is on record as opposing bilingualism, although he is now waffling on what his precise position on this is, which makes him unelectable in Québec. And his previously stated positions on many other issues will, if they become widely known, make him unelectable anywhere. It's going to be messy, and stay that way for quite awhile. And if the Martin Liberals hadn't been so politically stupid, it could all have been avoided.

Cartoon by Tom Cheney -- buy his stuff at Cartoon Bank.

THE STOCK
MARKET AS PONZI SCHEME

THE STOCK
MARKET AS PONZI SCHEME 05/07/2004 01:32 PM

(Warning: some financial math ahead.)

s&p 500

A Ponzi scheme, named after its early 20th century inventor Carlo Ponzi, is a form of pyramid scheme. Basically it involves selling a nearly worthless security to a small group of investors, with the promise of great returns if they promote the security to more investors, and so on, ideally, forever. Like any pyramid scheme or chain letter, of course, it eventually collapses when it runs out of suckers. The first ones in get rich, and the last ones in (much greater in number) get shafted.

As we all know, the stock market is focused on the short term, and fluctuates wildly in response to a single quarter's earnings, external economic events, even rumour. If you look at it holistically and long-term, however, it has all the markings of a century-long Ponzi scheme, the most lucrative, and potentially most devastating, in history.

Let's take a look at the US S&P 500 as a surrogate for the entire stock market, the entire market for equity securities of listed public corporations. The index goes back to 1917, but was revamped in the 1940s and recalibrated so that the index for the average of 1941-43 was 10. It slowly rose to 100 over the next 50 years, and then to 1000 over the next 12 years.

This broad index earned, in 2003, about $55 per average share of the component securities, using GAAP (generally accepted accounting principles). So at its current level of about 1100, it has a P/E (price-to-earnings) ratio of about 20. That means investors are willing to pay $1100 now for a share that will theoretically 'pay back' $55 next year, and hopefully successively more in future years, to justify the 'present value' of $1100. To think of ir another way, it's like a bank charging you $55 this year, $65, say, next year, and so on for at least 50 years, as 'interest' on a loan of $1100. The 5% interest in the first year isn't very attractive for such a risky 'loan', but since future 'interest' will be dependent on (hopefully rising) earnings, there is the prospect of a very lucrative return eventually.

So the S&P 500, like all equities, is said to 'discount expected future cash flows'. A general rule of thumb says that the P/E ratio approximates the annual expected growth in earnings, so that means the investor in the market is expecting earnings to grow by close to 20% each year, essentially forever. How is that possible? Well, it isn't. Earnings grow because (a) prices increase, (b) costs decrease, and/or (c) volume increases. In a 'free' market economy, prices are determined (theoretically, now) by competition -- new competitors will enter the market, and/or existing competitors will adjust their prices, to the point that their return on invested capital is just high enough to justify the investment risk. That level, in a low-inflation economy where the alternative 'risk-free' investment in GICs and bonds is only 2%, is roughly a modest 7%, with the extra 5% compensating the investor for the risk implicit in equities. And, in the long run, volume can't increase -- there's only so much market for anything, and once it's saturated, earnings should therefore level off at a flat rate.

Let's suppose we've more or less reached that state now. Let's also set aside the fact that the $55 earned last year by the average share is likely considerably inflated -- there are undoubtedly some more undetected Enron-type exaggerations out there in some of these 500 companies, and GAAP allows capitalization of stock options and other near-fraudulent practices that significantly overstate 'true' earnings. Is the $55 a fair return on investment in these companies? To answer that question we need to calculate what the investment is. According to the S&P, this $55 represents a 17% return on investment. In other words, the net assets or 'book' value of the average share is $55/17% or about $325. We already indicated that a reasonable return, given the risk, was 7%, which on $325 would be about $22 per share.

Why are stocks earnings $55 per share when in a 'free' market they should only be earning $22? To answer this we need to look at the three components that make up ROI (or more correctly, return on equity -- ROE). These three components are: Margin (profit/sales), Turnover (sales/assets), and Leverage (assets/equity). Leverage can be inflated by excessive borrowing, which companies can get away with in times of low interest, but which boomerang when interest rates spike. Leverage can also be inflated by stock buy-backs, where the company essentially uses excess cash flow to buy back its own stock and hence increase the value per share of the remaining stock -- but this is a form of cannibalization, and leads to the same imbalance between debt and equity. Neither is sustainable. Turnover can be increased by lowering inventories, factoring and off-balance-sheet financing, but ultimately tops out -- you need to have a certain amount of money tied up one way or another in assets to be able to run an effective business. So you're left with Margin, which ultimately is the only explanation for the enormous ROE of $55/share, when in a free competitive market someone should be willing to accept $22/share.

The truth is that the market, and big corporations, are far from efficient. Many industries are heavily subsidized by governments to the tune of billions of dollars in kickbacks -- er, I mean, support payments -- per year. Big corporations also work as oligopolies to prevent smaller companies from entering their markets and charging more reasonable prices for their products. We, the consumers, are in fact paying $55 for goods and services that could be sold for $22 and would still provide the corporations with a very reasonable return. If and when government subsidies end, oligopolies are broken up, and the market for goods and services truly becomes free and open, the S&P 500 should then generate $22/share each year, a 7% ROE, still an attractive return in a low-inflation economy.

So we have a number of factors at work, conspiring to drive up stock prices in the unsustainable illusion that double-digit growth can and will continue forever, or at least until we're dead and it isn't our problem anymore. We have big corporations earning exorbitant returns, two and one half times a reasonable level given the risk, paid for by the taxpayer and consumer (the same people who then take what's left of their meagre paychecks and invest it, with insane trust in the brokers' unsustainable recommendations, in the stock market). And we have a P/E ratio that is already assuming that these wildly inflated, taxpayer subsidized, price-gouging levels of profit will continue to rise even further, at close to 20% per year, forever. Voilà, Ponzi scheme, par excellence.

Let's do the math. Take the $22 per share that big corporations should be earning per share in a properly regulated and open market. Acknowledge that the assumption that these earnings are going to grow in the future, when markets are saturated, consumers, corporations and governments are already buckling under grotesque and unprecedented debt loads and cannot afford to buy or pay more than they already are. Discount that annual stream of $22 of earnings for 50 years at a reasonable 7% discount rate. Know what you get for the fair value of the S&P 500 with these calculations? About 300. That is what, when you strip out the growth hype, the subsidies, the price-gouging, and the unsupportable P/E valuation, the S&P 500 should be trading at. Not 1100.

Eventually the Ponzi scheme will collapse. There may yet be time to con yet more foolish investors into believing that it will rise from 1100 to 1500 to 2000 or 5000 or higher, and if investors can be duped into believing that's what shares are worth, that's what they'll trade at. This scheme has been running for a century, and made many people millionnaires. But eventually we, or our children or grandchildren, will realize that the S&P 500 should be at 300, and since stocks always trade at what people think they're worth, that's where the S&P 500 will end up. The millions left holding the bag will lose most of their life savings, their pensions, everything.

(Oh, and if you change the assumptions about inflation and interest rates, the above valuation doesn't change. Future values and discount rates both go up proportionally, so the inflation-adjusted present value stays the same.)

Even the brokers can see the writing on the wall. They will now try to convince you that by wise investing you can 'outperform the market' by buying low and selling high, even if the market is ultimately doomed to do no better than go sideways. This is another great variant on a Ponzi scheme. It's the stuff that has hooked the new breed of gambling addicts called 'day traders'. For every investor whose holdings 'outperform the market' there will be, of course, at least one loser. But the magic of Ponzi is that it's always the other guy, the next guy, the not smart enough guy, who will get burned. You'd be better to play slot machines or buy lottery tickets -- at least the potential payout isn't overstated by 250%.

In addition to the perpetual-growth Ponzi scheme, and the 'outperform the market' con, brokers also make scads of money from IPOs -- initial public offerings. As James Surowiecki has elegantly pointed out, the IPO is a scam by which an aptly-named 'syndicate' of investment firms ('underwriters') buy a mass of shares from the company 'going public', at about half the price per share they know they can flog them to gullible investors, many of whom rely on these very brokers for investment advice. They then dump their shares on these investors, knowing that the price will promptly drop back close to the IPO price. The underwriting brokers get rich, and the unsuspecting customers get burned.

That's the reason Surowiecki and others, most recently Lawrence Fisher in yesterday's excellent analysis over at our mother ship Salon.com, have urged Google, potentially the most lucrative IPO of all time, to screw the brokers and either sell all the shares directly to the public by auction, or, even better, not to go public at all, and save the delirious investors the grief they will suffer when they find out Google has no direct line to God, and hence isn't worth a million dollars a share.

Eventually we, or our descendents, will learn (or have no choice but) to 'just say no' to dysfunctional stock markets and all the evils they breed. Until then, we'll continue to be addicted to short-term thinking, the illusion of perpetual growth, paying too much for everything we buy, subsidizing public companies with our taxpayer dollars, downsizing and outsourcing and offshoring as 'productivity enhancement', and putting up with the atrocious greed, corruption and devastation of insatiable global corporations that pull the strings of politicians like puppeteers, all in the name of 'maximizing shareholder value'. It's addictive gambling with a staggering cost, it's insane, and it's fraud.

A
PRESCRIPTION FOR 'WORK EFFECTIVENESS
IMPROVEMENT'

A
PRESCRIPTION FOR 'WORK EFFECTIVENESS
IMPROVEMENT' 06/14/2004 02:39 PM

Graham Westwood of ProCarta gave me a copy of Bill Jensen's Simplicity, a book that claims most business problems are a result of unnecessarily complex decision-making processes. I recently wrote that if Knowledge Management were relabeled Work Effectiveness Improvement, both the requirements of the job and the customers' expectations would be much clearer, and we might finally get the job done. Jensen's book offers a prescription for WEI.

Jensen's thesis is that poor decision-making is the root cause of business error and ineffectiveness, and his diagnosis of the four causes for it is shown at right. Most employees, he says, want to do good work, but are impeded by these four causes, which produce unnecessary complexity in each of our jobs. I concur with this diagnosis, though I'm not sure large organization have either the capacity or the will to fix these four problems.

At the individual and team level, Jensen suggests* five behaviour or learning changes that could alleviate these problems:

Better time management - We need to learn to prioritize and provide better context of why tasks are important, clarify and simplify goals, improve our personal work organization skills, provide better definition of expected outcomes and of 'success', develop and provide better, simpler tools and resources to get the job done, and eliminate unnecessary tasks and bureaucracy.
Improvisational project stewardship - We must learn to focus people's attention on what's really important, communicate priorities and success measures, and learn from failures. Today's organization is more like a jazz combo than an army, and needs a very different kind of team facilitation and 'leadership'.
Quality conversations - We must learn to communicate a vision that co-workers can understand in concrete terms, and can buy into, to selectively tell people precisely what to do (but only when it's needed, and when you know), and to communicate the measurements of success and the resources available to help.
Effective listening - We need to learn, in the mass of messages, to filter out what's irrelevant, unimportant, and unactionable, and to focus on messages that clarify expectations and identify unmet needs and critical problems that we can personally help solve. That entails knowing when to intervene, and when not to, and learning how to say 'no' gracefully.
Engaging people - We need to learn to use stories and other techniques to clarify what is important, what needs to be done, and the consequences of success and failure.

Both as an individual 'knowledge worker' and as a team/project member, then, we can be more effective if we learn, and practice, managing our own time and helping others manage theirs (by eliminating unnecessary tasks and simplifying others), more effectively; selectively intervene in work processes and project activities only when we can add real value or eliminate obstacles; communicate what's really important to bring clarity; listen to identify and resolve critical needs and problems; and filter out messages and information that burdens rather than alleviating work effectiveness.

These are useful suggestions for improving work effectiveness and hence decision-making in organizations, but none of them is new. Those that would take up WEI (or KM) as a career need to understand why these techniques have not worked in the past, before they attempt to implement them in their organizations. In many companies, both employees and managers raise their eyebrows at 'soft skills' courses like time management, effective communication and story-telling. We know how to do that, they will say, the problem is more systemic, more entrenched than merely teaching common-sense skills can hope to solve.

These critics are half-right. Many problems in business are structural, strategic, or systemic, and raising people's hopes by suggesting that these basic work management techniques are suddenly going to work bottom-up when they didn't work before, will merely create disappointment. Excessive size and hierarchy, poor managers, and inappropriate success measures (that reward executives more for cutting staff than for making staff more effective, for example) are at the heart of much work ineffectiveness, and need very different solutions.

But these critics are also half-wrong. Each of us today is increasingly in charge of our own careers, our own jobs, and hence our own work effectiveness. The five skills listed above are critical skills for every entrepreneur and every front-line worker, and we should each ensure we have these 'core competencies'. If the big, cumbersome organizations we work for do not allow these skills proper exercise, then the answer is either to leave them or reform them, not to revel in our ineffectiveness and just blame management (even when they are to blame).

The remainder of Jensen's book prescribes some higher-level organizational 'disciplines' that can enable improvements in work effectiveness:

Better understanding of what different stakeholders need, and why
Building trust, through openness, fairness, respect, attention, consistency, and clarity
Designing the content of databases for effective (re-)use
Designing project tools to focus on, and inform, the critical decisions and choices that must be made, and to surface potential landmines and potential innovations
Designing tools to make it easier to connect with the right people and find the right information
Making the objective of all infrastructure to make workers' jobs simpler

I am less excited about these latter ideas, because as desirable as they are, I just don't see them happening in most organizations. Enlightened businesses already have a culture that embraces these concepts, but the vast majority of unenlightened businesses simply lack the adaptability needed to embrace them, so I think they're just so much wishful thinking. Despite the claims of the zealots of acquisition, growth, integration, globalization and 'economies of scale', I am increasingly convinced that large organizations are inherently incapable of being efficient, responsible, agile, or places where effective work can occur. They need more radical surgery than Jensen's treatment.

Nevertheless, this book provides some of the much-needed definition for WEI, which I believe will be the next wave of organizational change, and will accomplish much of what reengineering and knowledge management failed to do. The #1 purpose of management must become empowering people to know and do what's important to achieve the organization's goals, and enabling them to stop doing the other stuff that, today, takes up most of their time.

* Jensen uses different words for these, and for many of the key ideas in this book. As much as I liked his messages, I found sometimes his choice of labels for his key concepts confusing.

THE MOST
IMPORTANT IDEAS OF 2003 - PART ONE

THE MOST
IMPORTANT IDEAS OF 2003 - PART ONE
01/07/2004 01:07 PM

This is the first of five articles in a series that will be published intermittently this month. This article summarizes what I believe were the most important ideas of 2003 in the world of blogs and blogging. The other articles in the series will propose the most important ideas of the year in:

business,
politics & economics,
arts & science, and
the environment.

BLOGS & BLOGGING -- THE TEN MOST IMPORTANT IDEAS OF 2003
process

During the year, the blogosphere doubled in size, and began to mature into a true alternative medium for information and connection. My nominations for the most important ideas of the year* in blogs & blogging are:

The Internet is a World of Ends - Doc Searls and David Weinberger finally explained to bloggers and to e-business what the Internet is and how it works. As a result, bloggers (and blogging tool developers) now realize that there will never be 'standards' for blogs, blog censorship, clear rules on what is and isn't appropriate in citing others' work on your blog, standard blog taxonomy and categories, an official definition or list of blogs, unarguable or untamperable rankings of blog popularity, or controls of any kind. It's a jungle out here. There are no rules. The blogosphere, like the Internet, is owned by no one, open to everyone, and made better by each of us. A cornucopia of unrestricted and open innovation. Its value flowers at the ends, and, fellow bloggers, we are the ends.
Blog popularity is subject to Shirky's Power Law - "In systems where many people are free to choose between many options, a small subset of the whole will always get a disproportionate amount of traffic (or attention, or income), by the very act of choosing". It's the old 80/20 rule. The later you are starting to blog, the harder it becomes to find an audience. Not impossible, just harder. There are anomalies: new blogging communities and new 'hot topics' can allow savvy bloggers to quickly galvanize a readership. But if you want to be popular in the blogosphere, it's more important to be first than best.
Blogs have Tipping Points and manifest the Strength of Weak Ties - Ever noticed how hard it is to get your family and close friends ('strong ties') to read your blog? That's because they see no incremental value in doing so. But friends of friends, people two or three degrees removed from your network, do. Weak ties probably got you your job, found your life partner, provoked your most innovative ideas, and sourced most of your blog's readership. And you can exploit these weak ties to push a new idea, find new readers, perhaps even save the world. It's easy: Just Test the credibility of and degree of interest in what you're saying by sending messages to selected mavens (bloggers who incubate new ideas and stick with them until they catch), A-listers (bloggers who already have a huge audience), and connectors (bloggers, like me, who have an audience that crosses diverse communities of interest); focus on a few subjects and address them profoundly and creatively, instead of talking a bit about everything under the sun; and believe: persevere until your message finds its audience.
Blog functionality is a critical component of Social Networking, and Social Networking will transform blogging (and also transform the Internet, the media, the way we communicate, and even the evolution of business) - Social Networking Applications (recently voted Technology of the Year by Business 2.0 magazine) will go beyond just allowing you to publish what's on your mind and browse what's on other people's. They will allow you to map and manage your networks, the communities to which you belong, your strong and weak ties. They will evolve blogging from clumsy, mostly one-way communication to a rich, two-way seamless multi-media communications medium that will allow you to identify and connect simply and powerfully with people you want to know better (for personal, practical or business reasons). Build deep relationships. Collaborate on awesome projects. Find the next president.
Blogs could be the platform for a proxy for each of us as individuals, our electronic filing cabinet and electronic identity - A blog consists of information about you, and knowledge you've accumulated. What if you expanded it to be a repository for all the information about you and all the knowledge you've accumulated, your 'locked' filing cabinet. You control it, you decide what does and doesn't go into it, and who can have a temporary key to what parts of it. Then at work, it could be your proxy, the repository of knowledge that shows your value to your employer and the value you've added to the company. And it could be your resume. At home it could be your medical patient record. Your bookshelf catalogue and refrigerator/pantry inventory and recipe book. Your bio for the dating service. Imagine the applications that could be built on this knowledge. Your intellectual property, under your control. Amazing. Scary.
The abandonment of 80-90% of blogs is a positive phenomenon - Media who just don't 'get it' have pointed to the abandonment of most blogs as an indication they're too technologically complex, or have no broad appeal, no staying power. What this abandonment really represents is a large number of people deciding that writing really isn't that important to them. The focus should instead be on the 10-20% who are still blogging. That's millions, potentially hundreds of millions of people regularly honing their writing skills, getting valuable commentary from readers on their writing and their ideas. Instead of a wasteland of abandoned effort, the blogosphere (along with perhaps IM) could actually be the most important development in written language since the printing press. As newspaper readership plummets and the next generation opts for oral communications over written, the timing of this phenomenon could not be more significant.
Blogging is increasingly a platform for achieving mainstream recognition - Just as the main readers of most business websites are competitors, not customers, the mainstream media are perusing blogs for new ideas and trends. So far they haven't really caught on to how the blogosphere works, so the process is serendipitous, creating brief fame mainly for A-listers who provide alternative viewpoints to stories of the day where no mainstream media pundits are at hand. But the mainstream media and bloggers are both learning how to use each other. Some bloggers have launched books based on their blogs, and some blogging self-promoters now have columns or spots in regular media. Those who think there's no money and fame in blogging are too quick to judge blogs' importance in the information society.
The culture of blogging is evolving faster than the technology - The frustration of bloggers with the tools available to them is palpable. That's not the tool designers' fault: They operate on a shoestring and their 'customers' all want something different. They'll eventually build tools that are both simple and flexible, as both the technology, and the understanding of its use, mature. In the meantime, impatient bloggers are working around the impediments, learning about HTML and CSS themselves. This is World of Ends innovation at work, producing a proliferation of new blog 'products' and hybrids. Group blogs are one example of a blog phenomenon that will only last until more dynamic mechanisms for cross-posting and guest privileging are developed in next generation blogs. The key is to go with the flow. Be part of the evolution or be left behind.
Blogs, like diaries, are a substitute for intimacy - Bloggers (and perhaps all writers) are a million voices howling in the dark. There is an inherent loneliness in writing, and the blogosphere provides an opportunity to make new connections with little risk. You don't need to reveal your identity. You can throw ideas out there that you might not dare voice face-to-face, for fear of being laughed at, or carted away. You can reveal things to 'strangers' that you might not be willing to tell those close to you. You can think out loud. You can test the waters, safely. The only consequence is that when you meet a fellow blogger or reader face-to-face, or even voice-to-voice, it can be psychologically jarring. It's almost as if you've broken the rules.
RSS is blurring the distinction between blogs and other media - RSS, the ability to syndicate your posts and let people subscribe to them, transforms the metaphor of a blog from a diary to a publication. That crosses the main divide that separates it from mainstream media. Although the future of any medium is impossible to predict, I believe RSS has played a pivotal role in forestalling, and perhaps completely subverting, the plan of many of the major print media to start charging money for their on-line editions. I know for a fact that was in the cards as recently as a year ago.

What do you think? Have I missed some important ideas?

* Yes, I know some of these ideas are themselves not new this year. There is nothing new under the sun. But I would argue that the application and implications of these ideas were first manifest some time in 2003

AVOIDING THE
LANDMINES IN ENTREPRENEURIAL
BUSINESS

AVOIDING THE
LANDMINES IN ENTREPRENEURIAL
BUSINESS 05/04/2004 09:08 PM

Today, the average North American entrepreneurial business lasts just four years, the average sole proprietorship even less. Yet entrepreneurship is not rocket science; it's nothing more (or less) than making a living for yourself with your business partners, instead of depending on some indifferent corporation to provide you with a living wage. Running a business is certainly no more difficult than raising a family, or landing a job and building a career with a big company. The essentials of entrepreneurship could easily be taught in every school, and there'd still be plenty of time left for the rest of the school curriculum. But, perhaps because big corporations and the governments they control want the 'labour force' to be meek, subservient, fearful and insecure, most people have come to perceive entrepreneurship as a complex and difficult art, fraught with danger, unprofitable, emotionally scarring, and demanding of enormous courage and energy. "It's certainly not for everyone", I keep hearing.

Entrepreneurship requires self-knowledge of what you're happy doing, what you're especially good at, how much you're willing to put into your enterprise and what you expect to get out of it. Without this self-knowledge, you're likely to be as miserable in your own business as working for some unappreciative boss, and that unhappiness will bear directly on its success. Beyond that, all you need are common sense, self-confidence, and a modicum of four key, learnable skills:

creativity (the ability to discover and apply new ideas),
communication (written and oral),
information processing (the ability to distil, analyze and interpret it), and
interpersonal (listening, appreciation, connecting, persuading).

Then it's simply a matter of learning and following the process that every entrepreneur has learned by trial and error, to set up and operate your own business successfully, on your own terms, and actually have fun doing it.

One of the 15 steps in the process of establishing and running an enterprise is avoiding the landmines. In MBA school they now call this Risk Management. This article identifies ten of the major landmines for entrepreneurs, using some real-life examples. I don't believe any of the enterprises described below is still in business (though some of the entrepreneurs have moved on, learned their lesson, and succeeded in other businesses):

Copycat businesses: Thirty years ago I did some financial consulting for a small start-up cruise ship operation. They acquired and completely renovated a ship, which was lovely, got the licenses, hired the appropriate staff, set up the business systems, and then waited for the customers to roll in. After all, the competing operations on the same run were all fully booked. But this operation was an unknown quantity, and before they realized that just being similar to a successful and busy business wasn't enough to succeed, they sailed off into the sunset, empty. Franchisees beware.
Over-estimating the market: Consultants love to sell you spreadsheets that will 'forecast' your income and cash flow. An inventor friend of mine used one of these to persuade himself to produce and sell a new organic nutritional supplement he had developed. His research showed that the annual sales of this type of product North America-wide was $X billion. The spreadsheet encouraged him to plug this number in, along with his estimate of what share of this market he could capture over three years. Needless to say, he never sold anywhere close to this amount of product, because that's not how you go about forecasting sales.
Being too far ahead of or behind the market: A client of mine bought the North American rights to a new technology that would extrude a rugged, colour-fast plastic that could be used in decking, fencing, and other outdoor applications. He spent a fortune setting up the manufacturing plant. Problem is, he did this in the 1980s, when plastics were distrusted as 'cheap', wood was cheap, and creosote in pressure-treated lumber was not yet known to be a carcinogen. Being 10-15 years ahead of the market cost him his life savings.
Biting off too much: A company that I was brought in to help liquidate had been doubling its sales and employee headcount every nine months. They were providing turnkey computer networking equipment and installations to mid-size companies, and had recently moved upscale to large corporations, school boards and government departments. As its receivables and inventories soared, it started paying more money for qualified talent, and its suppliers and bank both put it on short leash. Finally, despite record monthly sales, it simply ran out of cash. The owner turned down two very opportunistic 'investors', who wanted control of the business in return for working capital, and the bank pulled the plug.
Not listening to the customer, or offering a solution in search of a problem: A lot of entrepreneurs are inventors, scientists, artists, artisans, administrators, teachers or managers. Sales is not their forte, and they're more comfortable working with ideas, materials, plans or systems than with those pesky people called customers. If you're not at home spending a lot of face time with customers, better partner with someone who is. If you want to see what happens if you don't, just browse any of the free software sites on the Web and see how many downloads most of them have. Some of them are quite intriguing, but because they don't meet a customer need, they'll never be more than that. Great prescription for a hobby, deadly for a business.
Not consulting with or listening to the right advisors: A client of our firm in the early 1990s, a company which had been in the commercial printing business for 80 years, brought us in for some technology and corporate finance consulting. As we learned about the business it became obvious, first, that they could not afford the new equipment they proposed to buy, and secondly, that their profit margins were going through the floor. They had built their reputation on high quality printing work, but the market was no longer willing to pay for it. The new equipment would allow them to automate and eliminate some labour costs (and keep up with newer competitors with no sunk costs), but the cost of the new equipment would exceed the savings. We advised the company they needed to find some new markets, new higher-margin products, and new customers who would pay more for their quality work, or else drastically cut costs. They were convinced their customers would stay loyal, and the market for quality printing would rebound. They didn't, and the company shut its doors two years later.
Blowing the budget: As most women will tell you (but many men seem unable to fathom), budgeting is simply a matter of ensuring that the cash going out doesn't exceed the cash coming in. The problem is, every start up costs more -- sometimes two or three times more -- than initially expected. It takes enormous self-discipline, patience, pacing, and sometimes financial creativity, to mete out dollars at a rate that will ensure there is enough cash to launch the business under the worst case scenario. I know of a dozen businesses that closed before they opened because they failed to do so, and others that lost control of their business unwillingly because that was the price for a late cash infusion. 'Risk Capital' might be more accurately called 'Heartbreak Capital' -- it is obscenely expensive.
Groupthink: Back in the 1970s I was appointed Deputy Receiver for a computer and peripherals distributor. They had been put on 'close watch' by the bank, and I had to get authorization for, and sign, every cheque. While I was there I attended and took notes at management meetings. I was assailed at each meeting when I presented my factual reports on profit and cash flow. I was nicknamed The Undertaker for my 'relentless pessimism', and almost physically ejected when I questioned the validity of some unsupported fees that had been paid by the much-loved CFO, who was on leave of absence looking after a very sick relative. The six-man management team, intact since the start of the company and each heavily personally invested in the company, used to come out of their meetings with cheers and high fives, confident, contrary to all logic, that the company was poised for turnaround and sales 'in the pipeline' would soon bring a return to happy days. They would feed off each others' boundless optimism. They just needed to work harder. Happier days never came, and the CFO, it turns out, had defrauded the company to pay for his relative's substantial medical bills.
Litigation: A small biotech company whose CEO I met at a conference a few years ago was bemoaning the huge cost of registering and defending patents. He said they had been forced to sell off one promising product to a competitor in order to pay their legal bills to defend their other intellectual capital. That had slowed them down to the point they now feared that another competitor would beat them to market, rendering the results of the litigation largely moot. Big companies can afford armies of expensive lawyers. For small companies, significant litigation can spell disaster. The competitive advantage of the entrepreneur is agility -- when products get mired in legal wrangles, it may be better to cut bait and move on to other ventures than to fight adversaries with much deeper pockets in court.
Buying the MBA hype: Graduates of business school are taught how to be middle managers of large enterprises. Unfortunately, that knowledge often don't translate well to entrepreneurial businesses. A client of mine brought in a young, very successful MBA grad (he had his own daily spot on one of the local radio stations), who had, it appeared, no experience at all with entrepreneurial business. The company, which was modestly profitable, bought the young man's well-delivered 'grow or die' message and decided to 'go upscale'. They spent a small fortune on advertising, and set up a sales office and warehouse in another country. Unfortunately, the media in which the ads appeared were not the ones used by the company's customers, and there was not enough money to properly penetrate the foreign market. The expenses produced almost no growth and almost sank the company. They salvaged the situation, and their business, by finding an enterprising competitor in the foreign country who took over the hemorrhaging 'branch plant', and then striking a reciprocal marketing alliance with them.

Many entrepreneurs I know feel very lonely, exposed, and helpless. The big consulting firms aren't interested in them until they grow bigger or go public. The smaller firms are selling one or two specific products, and rarely have entrepreneurial skills to share. And these suppliers are expensive. The government is cheaper, but with a few notable exceptions they aren't very helpful either. As a result, many entrepreneurs have formed their own 'support groups', helping each other to avoid the landmines, and learning from each other's experiences and failures. Retired entrepreneurs are another good source of advice, and a quarterly business breakfast with a trusted entrepreneur or advisor with some experience in the trenches can be an excellent investment. These breakfasts don't need an agenda -- they're run as an informal 'interview', with the advisor asking pertinent, open-ended questions and listening and offering counsel and options and ideas. They are a critical element of what my new business, The Caring Enterprise Coach, offers.

Another technique entrepreneurs can employ to alert themselves to potential landmines is establishing an Advisory Board made up of people who have well-rounded business experience, knowledge of markets, and skills the entrepreneur and his partners lack. Such Advisory Boards are often reciprocal, offering mutual support and advice in lieu of fees. I am constantly surprised how few entrepreneurs use such 'support groups', relying instead on their own instincts, the counsel of inexperienced and costly 'professional advisors', and others (bankers, customers, franchisors, and various 'agencies') who have only a nominal, and purely financial, interest in the entrepreneur's success. Some 'support groups' and networks have been set up as money-making ventures, but these tend to be unwieldy and their members terribly needy -- ten people looking for advice and new customers for every one capable of offering useful information or counsel in return. It's best to create your own.

The problem, of course, is that most entrepreneurs are paradoxically too busy fighting fires and avoiding landmines, to be able to invest time finding and networking with support groups and other valuable advisors who can help them avoid the next round of fires and landmines. But, despite the failings of the first generation Social Networking tools, such tools hold enormous promise. Although Shoshana Zuboff coined the term The Support Economy to refer to federations of businesses working together to support their shared customers, the first true Support Economy may well be entrepreneurs supporting each other.

THE DEVIL'S
BARGAIN: CATASTROPHIC AGRICULTURE

THE DEVIL'S
BARGAIN: CATASTROPHIC AGRICULTURE 07/05/2004 04:02 PM

Figure 1

Richard Manning's book Against the Grain is a remarkable work -- succinct, well-researched, solution-oriented and mind-altering. It's an absolute must-read. Please don't settle for the synopsis below, and don't assume that because it's about the history and economy of agriculture it's a dull read. It's riveting. The issues that Manning describes in the book were first raised in his Harper's Magazine article last winter called The Oil We Eat. But the book goes much further.

In my earlier root-cause analysis of what 'caused' us to invent civilization, to abandon our joyful hunter-gatherer cultures, the cause-and-effect went like this:

Ice age OR Overhunting Scarcity of food. After millennia of easy hunting of big, slow game, man suddenly had to start really working for a living...
Scarcity of foodInvention of agriculture. ...So he invented agriculture; if there wasn't enough food, he's 'make' his own...
AgricultureCivilization. ...But agriculture required division of labour, instruction, hierarchies, and constant fighting with 'pests'...
CivilizationEnd of Virtuous Cycle (Fig. 1 above) and Start of Vicious Cycle (Fig. 2 below). ...And brought with it all kinds of unintended consequences.

But Manning has a more intriguing theory of the first two steps:

Fire, Floods & IceGrain monoculture. After natural catastrophes, hardy grains are often the first plants to reappear ...
Grain monocultureAgriculture. ...Man in areas victimized by these natural catastrophes merely 'discovered' this, and then by creating continuous 'catastrophes' (clearing land with fire, flooding land through irrigation) exploited nature's own regeneration mechanism, which we call 'agriculture'...

The third and fourth steps are the same under both theories. Manning therefore calls what we now practice 'catastrophic agriculture' to differentiate it from the simple tending of 'wild' plants and animals as a secondary source of food by hunter-gatherer cultures without interference with natural cycles. The irony, he says, is that it wasn't scarcity of food that compelled us to invent agriculture, but rather the discovery of over-abundance of food in areas of natural catastrophe that seduced us into it.
Fig. 2

Figure 2

The 'discovery' of grain monoculture in areas of recurring natural catastrophe (like floodplains) was only possible where man was already settled, which only occurred in areas where fish were plentiful, which is where all agricultural cultures began (the birthplaces of civilization) before they expanded and merged into the single civilization culture we know today. Sedentary life, and soft grain gruels, also allowed a higher birth rate, since babies no longer had to be carried for four years until they were weaned -- and the population explosion began. The ability to store food also allowed the provisioning of armies, and the need to keep people from going back to their instinctive hunter-gatherer ways and abandon the farms required the use of force, which required hierarchy and government. The provisioned armies conquered the remaining hunter-gatherers (most notably in Africa and the Americas) and made them slaves on the farms. To keep unnatural hierarchy¹ from crumbling, the governors bribed subordinates with extra resources, larger homes, and their own 'private' land, as long as the subordinates kept the slaves and peasants in line². Wealth, and its inevitable partner poverty, were born. Dependence on monoculture, which failed often, gave rise to the first famines. Average human heights plummeted due to disease and poor, unvaried diet, bone deformities from constant stooping became commonplace, and grain monoculture and crowded villages allowed previously rare diseases to flourish: anemia, arthritis, malaria, syphilis, and tuberculosis, and, finally, plague, all of them unknown before agriculture. And the high-carb diet of grain monoculture also brought with it other new and unnatural phenomena: tooth decay, obesity, diabetes, lactose tolerance, and alcoholism, which devastated many hunter-gatherer cultures when they were suddenly exposed to this deadly and seductive diet. So agriculture was irresistible to man, the ultimate devil's bargain.

By doing so, man threw in his lot with a host of life forms that co-evolved with man and grain monoculture: this 'coalition' included the rat, insect pests, weeds and parasites as well as the aforementioned diseases and a handful of animals suited to domestication, all of which thrive with monoculture. In fact much of the 'conquering' of the hunter-gatherer world by 'civilized' man was really accomplished by our coalition partners: it was our diseases, to which hunter-gatherers had no exposure and hence no resistance, that killed most of them, not our weapons or their years of subsequent slave labour. The introduction of our domestic animals likewise altered the New World's terrain, since these animals had few natural predators and exploded in population, literally eating the natural flora to extinction. Like us, these domestic animals paid the price of civilization -- they are smaller, sicker and poorer than their wild counterparts, but the ultimate test of evolution is endurance, and our unholy coalition has passed that test with flying colours. Humans, members of the six domestic animal groups and the big five monoculture grains, and the rodents, insects, weeds and disease parasites that come with them have all flourished, at least in numbers, together, and together they now constitute a huge and growing proportion of Earth's biomass, while the millions of non-coalition creatures almost all face extinction.

Although our diseases did most of the dirty work, Manning argues that our civilization culture committed systematic genocide against every hunter-gatherer culture on the planet, from the Cro-Magnon man in Eastern Europe (whose language, intriguingly lives on only in the tiny Basque community whose culture is still under siege), to the First Nations of the Americas and Oceania. The result was what anthropologists have called "remarkable cultural homogeneity" and "pathological conventionality". Its sustained hallmark has been ever-increasing famines, the "very badge of civilization". The worst famine ever, and one of the most recent, in Mao's China, killed 80 million people. The second worst, in Russia, was also in the past century. Famine, a sudden and severe shortage of vital resources, breeds hunger, and that always breeds imperialism in turn. The alternative, common and legal in China for millennia until quite recently, is an invention called "Swapping Children / Making Food" -- in times of famine you exchange your children for your neighbour's, and then kill them and eat them and use their bones for fuel. Modern mythology would have us believe that famine is a political problem -- a consequence of bad distribution of food and bad government -- and while this is in part true, famine is ultimately an inevitable consequence of our fragile monoculture and massive overpopulation. This quote, describing one such famine in Ireland, where potato blight in one year eliminated 90% of the monoculture potato crop and hence 90% of the food, has given me nightmares:

In the first hovel, six famished and ghastly skeletons, to all appearances dead, were huddled in a corner on some filthy straw, their sole covering what seemed a ragged horsecloth, and their wretched legs hanging about, naked above the knees. I approached with horror, and found by a low moaning that they were alive, they were in fever -- four children, a woman, and what had once been a man. It is impossible to go through the details. Suffice it to say that, in a few minutes, I was surrounded by at least 200 of such phantoms, such frightful specters as no words can describe.

All of this because we threw ourselves out of the Garden of Eden, seduced by the lure of uniform plenty. Why and how did we get into this mess, and who is to blame? Manning recaps: "A population explosion generates the need to grow more food, but agriculture is the cause of that population explosion, and agriculture creates the need for government. The hierarchical, specialized societies that agriculture builds are wholly dependent on the smooth operation of their infrastructure, on transportation, on stability. Dams must be built, canals must flow, roads must be maintained and government must be established to order these tasks. Government leaders emerge from the social hierarchy that agriculture's wealth makes possible. Failures are human and inevitable. To hold agriculture blameless and government responsible for famine is like holding a lion blameless for a child's death on the grounds that it was the lion's teeth that did the damage. Poverty, government and famine are co-evolved species, every bit as integral to catastrophic agriculture as wheat, bluegrass, smallpox and rats."

Our solution, of course, was not to blame agriculture, but to try to make it more efficient. Although we now produce a massively excess amount of monoculture food, famines, starvation and poverty remain commonplace. So lately we developed the Green Revolution to increase efficiency of grain production, to increase yields and edible mass per acre and per plant. The theory was that these high-yield crops could be grown closer to the starving. But fifty years later this has not solved the problem, and it has in fact increased the fragility of the system. Plants are now patented, and GM now threatens existing plant species and diversity and their utter homogeneity exposes them to new vulnerabilities as nature evolves new pests and diseases to try to bring back into balance this massive, ecologically unsustainable and undifferentiated surplus. And these higher yields come with a huge price tag. Whereas a calorie of your home-grown carrots requires less than a calorie of non-photosynthetic energy to produce, a calorie of grain requires ten calories of energy to produce³, mostly in the form of Mideast-oil-based, highly processed nitrogen fertilizers poured onto severely and evermore soil- and nutrient-depleted land. Ironically, that fertilizer replaces animal manure, which is no longer economical to truck from the new concentration-camp factory farms (also developed to improve 'efficiency'). So most of the oil-based fertilizer runs off into the water supply, along with massive amounts of pesticides, herbicides, antibiotics and other by-products of 'efficient' agriculture and the mountains of shit from the factory farms, which no longer has commercial 'value'. And if the smell of that shit makes living in the area unbearable, that's fine, too, because Archer Daniels Midland and the other handful of companies that run this entire system can then buy up and concentrate the farms more cheaply. Besides, we don't want nosy 'eco-terrorists' and news media poking around and seeing what really goes on in those factory farms anyway. The cost of this is so phenomenally high that government subsidies now exceed the entire 'commercial value' of the food produced. It's a massive corporate welfare scheme originally designed to keep families on farms and now accruing primarily to the few corporations that control the industry. Taxpayers pay for these corporations to produce and process an absurd excess of bad food and to finance governments who pursue Middle Eastern wars to get the oil needed for fertilizer. And in return the taxpayers get cheap, tasteless, unhealthy, polluted food, monstrous animal cruelty, massive pollution of the air and water, heart disease, obesity, diabetes, tooth decay, alcoholism, ruined land, and unemployment. And still there is famine.

So what are we to do? Manning starts by pointing out what not to do -- try to get government to change the system. "The political system cannot be counted on to reform agriculture because the political system is a creation of agriculture, a co-evolved entity". Of course we should try to end agricultural subsidies, but Manning says we are unlikely to succeed. Vegetarianism can help, but not much: As long as the vegetables come from the same commodity system, they're still causing massive environmental and social damage and animal cruelty. And we couldn't go back to hunter-gatherer culture, at least not in our current numbers, even if we wanted to. But reducing human population is a necessary condition: "I do not take human population as a given; if we accept six billion as inevitable, we are doomed". Beyond that, Manning's solution is the same one that a rising chorus of radicals and revolutionaries is calling for: A walking away from this system and its products, and the creation of a new, healthy culture and economy. To Manning, focused on the food economy, this means:

Eating better: Selecting and eating a wide variety of exclusively organic, fresh, local, delicious, unpolluted, quality, unprocessed, non-factory foods.
Eating less: Since these good foods are unsubsidized and hence more expensive, eating less is economically advantageous, and, for most of us, it is also healthier.
Preparing and cooking your own: Not using processed or packaged foods even if they're organic and/or vegetarian.
Natural gardening: Personally producing your own food without use of any fertilizers, insecticides, herbicides or other unnatural products. Nothing more invasive than a fence to keep out the bunnies. On a larger scale this is called permaculture, and it's growing in popularity.
Supporting small, local farms: Going to farmers' markets, and challenging the vendors and operators to allow only local, unprocessed⁴, organic, small-farm products and free-range, grass-fed meats.

I am writing a book on Natural Enterprise, and its recipe is perfectly suited to small, local, responsible farms. I think we all know that such foods are better for us, and better for the environment and the society we live in. We need some pioneers to start, and teach others to start, Natural Enterprises that can break our deadly addiction to catastrophic agriculture. And the rest of us need, in more ways than one, to go back to the (natural) garden.

In nature there are pecking orders and specialized roles to organize and reduce conflict in communities, but no hierarchy that allows the alpha male, the 'queen' bee, or the bull moose to hog a disproportionate amount of the resources of the community.
Manning hypothesizes there is more reason to believe the Great Wall of China was built to keep the stooped slaves in the rice paddies in, than to keep the hunter-gatherer 'Mongol hordes' out.
A calorie of beef requires over 100 calories of energy to produce, despite the 'efficiencies' of factory farms.
Exception: labour-intensive processed foods are OK if they use only local and organic ingredients e.g. artisanal bakeries, microbreweries

A
PRESCRIPTION FOR BUSINESS INNOVATION -
PART ONE

A
PRESCRIPTION FOR BUSINESS INNOVATION -
PART ONE 04/13/2004 02:25 PM

Four years ago I wrote a well-received paper entitled A Prescription for Business Innovation: Creating Technologies that Solve Basic Human Needs. I've updated it, broken it into three manageable pieces, and present the first part below. The remaining parts will follow on successive Tuesdays.

Introduction: Why I'm Here

My modest objective in this presentation is first, to tell you some new, interesting and useful things about innovation, and, second, to persuade you that innovation is the most important determinant of every business' success, and perhaps even the quality of our lives. I want to convince you that in your business, whether it employs one person or one million, innovation is probably the solution to whatever is currently keeping you awake at night -- whether that be sales growth, cost control, customer satisfaction, employee retention, or maximizing shareholder value.

And if you, like me, spend some of your sleepless hours worrying about things more altruistic than your personal and business success, I want to convince you that innovation is probably also the solution to most of the problems that have befallen our suffering planet, in part because past innovations have created many of these problems.

And finally, if I'm successful in this evangelical task, I want you to leave today not only with renewed hope about the future of your company and our world, but with some new tools to make innovation happen in your business.

I would like to ask you to listen to these ideas with an open mind, suspend briefly your disbelief, and give this your full attention. If this was that easy to explain, someone much smarter than I would have done it years ago.

One: Learning from our past: How Need Drives Innovation

The advent of a new millennium has recently given many business, political and economic thinkers pause to consider what will be, as most put it, the 'Next Big Thing':

A New Economy Forum sponsored by Credit Suisse First Boston attempted to develop a 'synthesis' of leading thinkers' innovation models that might answer that question.
Forward-thinking publications like Fast Company and Wired have presented alternative visions of the future from some extraordinary minds in many different disciplines.
And conferences of world political, social and business leaders like the Davos World Economic Forum try to grapple with the bigger questions of how the holders of power can make the world a better place, while helping out their particular stakeholders in the process.

The catch-phrases of these business-driven thought leadership events are not new: competitive advantage, sustainable development, the connected knowledge economy, globalization, convergence, digitization, moving at the speed of thought. What is new is that there are now three divergent models being used to predict our future, fighting for audience attention (the names assigned to them are mine):

Acceleration Model: The future will be a continuation of the recent past, only much faster
Chaos Model: The future will be utterly unlike the past, driven by radically new and discontinuous events
Evolutionary Model: The future will be, like the past, a continuous series of mostly predictable changes

From the perspective of business innovation this matters because almost everyone agrees that the successful businesses of the future will be complex, adaptive, agile, proactive, and creative -- they will not wait for market demands to change them, but will instead continuously reinvent their companies, anticipate future demands, and make strategic, risky, value-creating investments and decisions, what John Kotter calls Leading Change. In order to do this -- to make intelligent decisions and investments before demand is articulated, to view risk-taking and the creation of future options for action as essential, not foolhardy -- requires at least some consensus about 'where the future is headed'. Selecting one of the above three theories about the future is an important start in doing so.

Technophiles who favour the Acceleration Model tend to be infatuated with artifacts of the last thirty years: more digital, faster, smaller, lighter. Advocates of the Chaos Model, on the other hand, believe there are no rules for our brave new world of the 21st century. Their advice for business and other leaders is to be opportunistic and think short-term.

I lean towards the Evolutionary Model. I believe that using an understanding of the past, with the right perspective, can help businesses anticipate the future with exceptional clarity and probability of success. There are two reasons I hold this belief, and they form the basis for much of the rest of this presentation:

Technology is Not Evil: Technology was, is, and always will be, about improving the quality of human life (though it has had some disastrous, unintended consequences), and
People Change Reluctantly: People change much more slowly than technology, and ultimately won't accept, adopt, or pay for any technology that they aren't yet ready for, or which doesn't fill a real human need.

The report of the 1999 Credit Suisse First Boston New Economy Forum draws together some very powerful innovation models, into a single synthesized model that can be used to explain how technologies have impacted society and civilization since it began about thirty millennia ago:

Fig 1a

Figure One: How Fundamental Needs spawn Innovations & Technologies
(Adapted from Credit Suisse First Boston New Economy Forum 1999 Synthesis)

According to this model, innovations like crop cultivation, the printing press, and the harnessing of solar energy, have always arisen in response to an urgent human need -- overcoming the sudden food scarcity after the Ice Age, bringing literacy to the masses, and solving the energy crisis respectively in these three examples. Technologies are applications of these innovations. The intriguing organic-looking ovals for each technology are also from the Credit Suisse Synthesis, which proposes are technologies are best developed using the following process:

Fig.2a

Figure Two: Development Process for Technologies
(from Credit Suisse First Boston New Economy Forum 1999 Synthesis)

Let's now take a look at this synthesis model in more detail, to test whether it represents the way in which historical innovations have occurred, and then what this might tell us about innovations of the future.

Two: Man's Earliest Innovations: A Brief History of Technology

The first humans to walk on our planet, according to most anthropologists, were not the mighty hunters most of us might picture. In fact we were particularly disadvantaged, lacking both keen senses and a hide adapted to changing climates and weather. As a result, early humans were scavengers, ignominiously surviving off the leftovers of creatures with better innate hunting 'equipment'. In the first scene of 2001: A Space Odyssey, Kubrick & Clarke hypothesize that a carrion bone was the first human tool. Marshall McLuhan explained in his book Understanding Media that this early human was using the bone, this very first tool or technology, as an extension of his hand, giving it strength, reach and durability his hand alone did not have. McLuhan argued that all technologies are extensions of the human body and the human senses, and it is these technologies that have allowed the poor, badly-pelted, sensory-deprived human species to buck Darwin's odds and survive.

So picture our poor shivering proto-human looking among the bones of a wolf's recent meal for new tools beside the greasy bone, and thinking, in true McLuhanesque and 20th century economics terms: 'If the bone as an extension of my hand helps me to compensate for my competitive disadvantage in the hunter-gatherer marketplace, why can I not use other tools similarly? Then, lacking the appropriate scientific training but still intoxicated over his first innovation, he or she comes across a dead wolf and considers the following applications of this technological insight:

If I put the wolf's head on my head, will I gain the wolf's acute senses, wiles and powers? (Not that different from the thinking applied many centuries later by the Ford Motor Company in the naming of cars and design of hood ornaments after various fierce animals)
If I eat the dead wolf, will I gain the wolf's acute senses, wiles and powers? (Many cultures still eat powdered horn and animal genitalia based on this 'logic')
If I strap a live wolf to myself, will the wolf and I become one creature, with both the wolf's senses, wiles and powers and my brilliant and innovative mind?

Of course, the correct answer is (c), which, except for the use of a leash or harness instead of a tight strap, remains one of the most important technologies in our short human history: animal domestication. Interestingly, the development of a non-choking animal harness, and a stirrup for riding larger animals, took centuries, according to a review in the Economist of the last millennium's greatest inventions. What's more, it occurred first in China, possibly enabling their civilization to develop much more quickly than Western civilization, until, for reasons only hinted at in the Economist , China suddenly stopped developing new technologies in the 15th century.

Without animal domestication and crop cultivation, we as a species might well not have survived to come up with newer and more sophisticated innovations like the wheel, paper and the computer.

Three: Six Principles about the Innovation Process

The first humans used precisely the process shown in Figure Two to develop and 'commercialize' the technology applications of the innovations of animal domestication and crop cultivation. It is the same commercialization process taught in business schools today. However, the success of the process is only as good as the idea, the innovation, that lies at its front end. Business schools are actually very good at explaining the recipe, but they, and most educational and business institutions, are absolutely terrible at teaching people how to find the essential new ingredients -- the 'grey matter' at the left side of Figure Two, the ideas & innovations that make the recipe work. The problem isn't a scarcity of good ideas either -- it is the lack of rigour and investment in infrastructure to surface, capture,

WHEN WILL THEY EVER LEARN?

WHEN WILL THEY EVER LEARN?

This is a GrokNews Entry: (what is grok?)

WHEN WILL THEY EVER LEARN?

HOW WE LEARN, AND WHY WE DON'T

THINK GLOBAL, ACT LOCAL: PETER SINGER'S ONE WORLD

RADICAL SIMPLICITY: A SECOND LOOK, AND LESSONS LEARNED

CANADA HEADS INTO POLITICAL CHAOS

THE STOCK MARKET AS PONZI SCHEME

A PRESCRIPTION FOR 'WORK EFFECTIVENESS IMPROVEMENT'

THE MOST IMPORTANT IDEAS OF 2003 - PART ONE

AVOIDING THE LANDMINES IN ENTREPRENEURIAL BUSINESS

THE DEVIL'S BARGAIN: CATASTROPHIC AGRICULTURE

A PRESCRIPTION FOR BUSINESS INNOVATION - PART ONE

WHEN WILL
THEY EVER LEARN?

HOW WE
LEARN, AND WHY WE DON'T

THINK
GLOBAL, ACT LOCAL: PETER SINGER'S
ONE
WORLD

RADICAL
SIMPLICITY: A SECOND LOOK, AND LESSONS
LEARNED

CANADA HEADS
INTO POLITICAL CHAOS

THE STOCK
MARKET AS PONZI SCHEME

A
PRESCRIPTION FOR 'WORK EFFECTIVENESS
IMPROVEMENT'

THE MOST
IMPORTANT IDEAS OF 2003 - PART ONE

AVOIDING THE
LANDMINES IN ENTREPRENEURIAL
BUSINESS

THE DEVIL'S
BARGAIN: CATASTROPHIC AGRICULTURE

A
PRESCRIPTION FOR BUSINESS INNOVATION -
PART ONE