What I Learned in Business School » BS

Level 5 Leadership

MBA — Thu, 02 Apr 2009 18:11:12 +0000

If you’re looking for Jim Collins’s article on which he based Good to Great, it’s right here. What struck me most while reading this is how rare true humility is in leaders—humility of the sort that might produce public statements like “We have no idea what we’re doing,” or “We’ll probably run this business into the ground”—and what an awful writer Jim Collins is. Business writing is often full of clichés, but his is especially bad in this regard.

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What I learned in school today

MBA — Tue, 31 Mar 2009 19:58:35 +0000

Seriously.

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When FedEx bet the house in Las Vegas

MBA — Thu, 26 Mar 2009 18:37:36 +0000

FedEx’s founding is well known in business school: Fred Smith wrote an undergraduate paper at Yale about the opportunity for a national overnight delivery service and received a C. He started the company, anyway, and it failed miserably before it became successful. In fact, even when it had its IPO, FedEx delivered a negative return to some of its earlier investors. What isn’t widely known is that the company was once in such trouble that its management team decided to take a trip to Vegas and bet its investors’ cash. Fortunately, for FedEx, they won. (A textbook used to contain this anecdote, which Fred Smith often told employees, but FedEx’s PR department seems to have erased it from the public record.)

Part of the problem with many term sheets is that they encourage failing companies to undertake negative NPV projects with high variance, or the possibility but not the likelihood of large returns. This tendency results from the liquidation preference in most term sheets that require investors to be repaid their investments before management can realize any value from its share of the company. If the company’s value has fallen below the level of those investments, the management team really has nothing to lose (except its investors’ cash). I can’t think of a better example to illustrate this tendency than FedEx’s side business at the roulette table in Vegas.

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The other case for bonuses at A.I.G.

MBA — Wed, 18 Mar 2009 02:34:11 +0000

In today’s New York Times, Andrew Ross Sorkin maintains that A.I.G. should pay out its $165 million in bonuses because its contracts obligate it to do so and because it needs to retain its executives to extract the company from the mess it’s in. Both of those reasons are stupid. First of all, the government has enforced the breaking of several mortgage contracts to stem the tide of foreclosures. Contracts are broken all the time in bankruptcy, and A.I.G., without taxpayer support, would have ended up where? Yes, that’s right: in bankruptcy. Extreme times call for extreme measures, and I think the unprecedented government equity stake in A.I.G. makes rescinding the bonuses possible without setting us down some slippery slope to the point at which all contracts are meaningless.

As for Sorkin’s point about retaining talent, haven’t these people already done enough damage? And aren’t financial professionals readily available right now? The argument seems less than sound to me.

But here’s the real case for paying out the bonuses: They’re really not that much. We’re talking about a bonus pool that is like one fifth of one percent of all the money that the government had put into A.I.G. It’s like the value of C.C. Sabathia’s contract. In other words, as symbolic as these bonuses might be, they really don’t make much of a difference. Now, what is a bigger problem and worth fighting over is the fact that A.I.G. is paying out 100% of its obligations to the banks with whom it holds contracts. We’re talking about tens of billions of dollars flowing from taxpayers through the government, through A.I.G., and on to the banks without anyone, as the MBAs say, taking a haircut. Even shaving off one percent here would save far more than the total bonus pool that everyone’s raising a fuss over. Now, haircuts, my friends, are valuable enough to raise hell over.

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The next MBA requirement

MBA — Sun, 08 Mar 2009 03:23:31 +0000

Some time ago, business schools started making business ethics a required class. It goes by different names at different schools—perhaps, yours calls it Leadership and Responsibility, or Professional Responsibility, or Professional Ethics. Several schools instituted this requirement after the Enron and Worldcom scandals at the beginning of this decade. I’m not going to analyze the effectiveness of these additions, but I would like you, dear reader, to remember the current state of the economy and the MBAs who are partly responsible for getting it there. It’s a bit late for them to start applying the concepts they learned in that ethics class, don’t you think?

Given the results, I would like to suggest that schools replace the ethics requirement with something that might actually help MBAs: a writing requirement. In no academic environment have I ever met people who are worse writers than MBA students. And I’m not talking about the Russian finance wizard who just scored high enough on his TOEFL to get admitted. I’m talking about homegrown, American, English-speaking near-illiterates. How is possible to reach 27, 28, 29 and not know what makes a complete sentence? Or the difference between affect and effect? Or to think that bullet points somehow make an essay? You think that writing in bullet points displays your great skill at bottom-lining issues? No, it displays the fact that you don’t know how to write a single sentence in this language. And your use of the phrase “bottom-line” as a verb—well, you’re going to lose some points for that too. Where the hell did this whole he/she thing come from? Have you ever seen the Wall Street Journal publish a story that contained “he/she”? No, you haven’t. (Have you ever seen this/that in any reputable source? Have you ever seen it in the New York Post? Again, the answer is No.) The Journal is all you read, so I’m really not sure where you’re getting it from. If anyone knows the answer to this, please tell me. The gender wars and political correctness are over, people, and, anyway, we’ve more or less settled on “they” as an acceptable, genderless, single, personal pronoun if you must go that route. So, to you administrators who set curriculums, I give you the following in the format your students understand:

Replace corporate ethics requirement with writing requirement
Ethics classes have failed
Writing classes produce clear and immediate results
You like being able to show results
If it’s good enough for the ethically high-minded medical schools, it should be good enough for you

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Shipping bricks

MBA — Sat, 07 Mar 2009 17:53:24 +0000

One of my friends asked me to recommend an external hard drive today, and it reminded me of a case I read about the hard drive manufacturer MiniScribe. It appears in Jim Collins’ book, Managing the Small to Mid-Sized Company, as case 17 about a company called R3. Collins changed the names of the company and the people involved, but his veil is thin.

MiniScribe was founded in the late 1980 and went public a few years later. It grew rapidly and then crashed before being rescued by the San Francisco investment bank Hambrecht & Quist, which installed Q.T. Wiles as the company’s CEO. The company recovered briefly, but Wiles continued setting ambitious goals for earnings growth, which the company met with the help of some accounting fraud. The most outlandish fraud involved hiring overnight workers to prepare packages filled with bricks, which conveniently weighted about the same as MiniScribe’s hard drives. The day workers would arrive and find the new shipments prepared to go out and book the orders. After booking the sales and shipping the orders, MiniScribe would later recall the “hard drives” with serial numbers matching the brick shipments. The practice came to be known as “shipping bricks.” See this Wall Street Journal article for further reading on the scam.

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McKinsey and the problem of relationships

MBA — Wed, 25 Feb 2009 00:58:02 +0000

McKinsey receives praise for many different practices, but none have been mentioned as frequently, by professors and students during my first year of business school, as the way in which it handles its clients. I’m not talking about how it chooses its clients, but how it maintains relationships with them. If you’re a McKinsey client and you want a point of contact at the firm, forget it. Your point of contact is the Firm (capitalization McKinsey’s), not the partner who brought in your business, not your engagement manager. Now, the first problem here is that McKinsey refers to itself pretentiously, arrogantly, and moronically as the Firm in its communications, but I digress.

Back to the point, you may think, Well, that’s interesting. But everyone who mentions this aspect of its business universally praises the practice because it prevents consultants from leaving McKinsey and taking clients with them. This issue exists in several businesses: the lawyer who leaves the large firm to start her own boutique, the editor who brings her writers with her to a new publishing house, the agent who takes his star client out of his firm.

And so that McKinsey considers this a problem it has solved seems to me a bit troubling. After all, aren’t people and relationships the core of all business? In every company I’ve worked for, it’s been people I’ve worked with—co-workers, clients, writers—who made the experiences worth my while. Perhaps, instead of eliminating personal relationships with clients, you should value them and the people who create and maintain them accordingly. Then you would reduce the risk of losing your clients, but—oh! wait!—that wouldn’t maximize profitability, would it? Take your eyes off the margins and you lose, boys.

I don’t have a problem with the whole notion of making personal sacrifice for the good of the company, team, country, et cetera, but there’s something utterly dehumanizing about removing the importance of personal relationships and individual value from doing business. Is this any shock, though, in a society that prizes conformity and a firm that has a strong up or out policy and hires the smartest, most insecure graduates for a relatively low hourly fee of around $14? Perhaps, it’s good for business and I’m proving myself an idiot, and maybe it’s good for business but it’s not good and my choosing good over good for business (or even recognizing the distinction) is what makes me an idiot. And while I might not be able to take my clients with me when I leave my next company, at least I’ll be able to take my idiocy.

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The business school thesis

MBA — Fri, 20 Feb 2009 17:13:05 +0000

A statement one of my professors made in class this week pretty much sums up the core of business school and, perhaps, why I’m entirely unfit for it: “I don’t have a problem, nor should you, in profiting from the death and misery of others.” Adorno would have had fun in business school; he would have thought its entire purpose is to teach schadenfreude.

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Does Twitter need a value proposition? Um, no. They seem to be doing fine, thanks.

MBA — Fri, 13 Feb 2009 04:40:00 +0000

One of my professors seized on the start-up’s inability to articulate a clear value proposition to its users. I don’t believe that it matters, but apparently he did because I’m now going to fail the class. Twitter isn’t so much a service with a specific value proposition as it is a platform for all sorts of services. It is a way to search what people are saying right now. It is a way to communicate and converse with a group of people using your phone. It is way for companies to share information with their employees easily in real time. Yes, it’s a microblogging service too.

I’m not a particularly huge fan of Twitter and don’t derive much value from it, but I think I’m on the wrong side of the fence on this issue. But at least I’m closer to the fence than my professor. “Value proposition” and similar terms are the exact thing that made me cringe when I considered going to business school. Now that I’m in business school, they make me want to vomit. They’re often irrelevant in the way that businesses conceive of products to reach potential audiences, especially in the world of web 2.0 with modular applications and platforms. Quite simply, if users find something valuable, they’ll pay for it with time or money, if not both. Will people pay for Twitter? We’ll see. Whether its owners can articulate the reason is beside the point.

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Unions are meant to be busted (by managers with baseball bats)

MBA — Fri, 13 Feb 2009 00:31:00 +0000

Really, that’s what my professor told the class: you go after them with baseball bats. Beforehand, however, you must become allies with the local police, who will then guard your home from retaliation.

Other methods for busting the union involve inciting a strike and then hiring enough scabs to have the union decertified, bankrupting one of your subsidiaries–which allows a judge to void your collective bargaining agreement–or, finally, going offshore.

In preparation for a strike, it’s important to be near rails, where you can transport goods during a trucker’s strike. Another transportation method is to use non-unionized, private trucking companies. They are very expensive, and your striking union workers will likely slash their tires. However, the private truckers often carry guns.

That’s all from one class.

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