Category: Business

This category holds articles pertaining to business. They are: Evolution of Management, Modern Decision Making, Business Basics, Investing 101, Using Email, Multi-level Marketing, Investing 102, How Women Changed the Business World, How a Bank Works, the TSX 25, Emotional Quality, Intangibles, Home Budgeting, Matrix Management, Managing Salespeople, Bonds, Used Cars, the Triple Crown, Investing Principles, An Idea Company, and Alpha and Long Tail.

It’s best to read them from bottom to top.

Emotional Quality

Purchasing decisions used to come down to three things: quality, price, and service. These factors made up what we used to call value. So if you needed a new washing machine, you’d consider the quality, price, and service of multiple offerings and then choose a winner. This system worked great. Granted, not all products have a service component. For example, when buying a new car, you think heavily about how you’ll get it fixed but something like toothpaste doesn’t require repair (unless you consider the store’s return policy).

Right after WWI, our criterion changed. We split quality into two when business discovered that people not only look at what a product does, they consider how it makes them feel. This new factor was dubbed emotional quality. So now we have four:

Tangible quality
Emotional quality
Price
Service

Bernays

Emotions are powerful drivers linked to our subconscious. And it’s because of our subconscious mind that we don’t always act rationally, especially when buying. Freud was the first to suggest such a thing and his nephew, Edmund Bernays, took it to market.

Bernays worked with the US government during WWI developing propaganda to support the war effort. Afterwards, he created the idea of using psychoanalysis in advertising. Previously, products were advertised based solely on what they did. Bernays taught business to talk about how they make you feel.

Costing emotional quality

Our spin today is to mix tangible quality with emotional quality in order to justify a higher price. For example, if you need a new t-shirt, you can buy one from Walmart for $5 or go into Hugo Boss and pay 82. In either case, you’ll be getting something to cover your body but with Boss, it’ll be a higher quality garment since it’s constructed of better material and takes more time to make.

So how much are you paying for tangible quality vs. emotional? To figure this out we need to consider cost. In the Walmart example, the cost must be below $5 so let’s pick 4. And the cost of the Hugo Boss must be higher, so let’s triple it to $12. Then we’ll add a hefty markup of 300% to arrive at a more than reasonable price of $36 for the higher “tangible” quality product. The rest of Hugo’s price is just emotional ($46).

Walmart

Mfg cost = $4, retail price = $5, markup = 25%

Hugo Boss

Mfg cost = $12, tangible price = $36, markup = 300%, emotional premium = $46 ($82 – $36).

In the end, you can buy something cheap or get a high-quality item that comes with an emotional premium. (In actuality, Walmart’s product probably costs around $2 and Hugo’s less than 5. We exaggerated the numbers to prove a point. And yes, Hugo pays a fortune to create their fancy image but image isn’t tangible, it’s emotional.)

Summary

I once met a guy at a car wash. He was the worker who gave out change and kept the place running. He was also an immigrant. We got to talking about prices and he said he got his rubber boots from a second hand store for 50 cents. He then added that he liked Second Hand Store A better than Second Hand Store B because of selection. I said, “that’s a pretty good price for boots.”

A common question is whether life is fair? And in some cases, it is. If you can live without labels, you don’t have to pay a fortune for most goods. Especially with fashion but the same applies to the Honda Civic, regular shampoo, phones without call waiting, and groceries items like eggs, rice, and beans. Business always provides an inexpensive way out, if you’ll choose to be practical. Think about this the next time you shop.

Note: For more information on Edmund Bernays and the beginning of marketing based on subconscious emotions, check out the BBC documentary, The Century of the Self, available on YouTube.

TSX 25

Ask any financial adviser and they’ll say a big part of their job is “talking people off the ledge.” Soothing investor nerves is the psychological contribution they make for all those fees. But why do we freak-out so often? Is it because we’re not always organized in our financial thoughts and at peace with our plan? If so, let’s get organized.

Money can only be placed into four groups: cash, GICs, bonds, and stocks. The most confusing of these is stocks.

Canadian stocks

Canadian stocks come in limited flavours and though we have a TSX 300, you only need to know about 25. The primary sectors are: financials, utilities, resources, and telecommunications.

Financials means banks and insurance companies. Here are the ones to watch:

Toronto Dominion (TD)
Bank of Montreal (BMO)
Royal (RY)

Manulife (MFC)
Sun Life (SL)

Utilities primarily means pipelines and power companies.

Enbridge (ENB)
TC Energy (TRP)
Pembina (PPL)

Fortis (FTS)
Capital Power (CPX)

Resources in Canada means oil companies and mining.

Suncor (SU)
Canadian Natural Resources (CNQ)
Cenovus Energy (CVE)
Imperial Oil (IMO)

Teck Resources (TCK.B)

And our big telecoms are:

Bell (BCE)
Rogers (RCI.B)
Telus (T)

Good companies in other industries are:

Canadian National Railway (CNR)
Canadian Pacific Railway (CP)
Magna (MG)

Empire (Sobeys) (EMP.A)
Loblaws (L)
Canadian Tire (CTC.A)
Nutrien (NTR)

Honourable mention goes to Arc Energy, Encana, and Emera. This list gives you a good cross-section of the Canadian economy. So if Canada does well, you do well. And there’s no reason to believe that Canada won’t do well.

If I had a million dollars

The next question is: how should I invest my dough? Here’s what I’d do with a million dollars.

Cash – 10%
GICs & Bonds – 30%
TSX 25 – 60%

You always need cash in the event something goes on sale (i.e., a market correction).

Bonds and GICs give you stability. GICs need to be CDIC insured and laddered over 2-5 years. Bonds should also be laddered and only honoured by quality companies. Note: bonds must pay a premium to compensate for their risk over a GIC (I’d say minimum 1-2%).

When it comes to stocks, own the TSX 25. If you’re just starting out, buy them in order, one industry at a time. For example, if you have only $10K, buy the TD Bank (or your bank). With your next $10K, buy Enbridge, and so on until you own them all.

With only a million dollars there’s no need to go international and involve currency risk. We have plenty of good companies here at home. But if you have an international flair, look to the US and Asia.

Young people

Jordan has a good paying job but nothing for savings. He wants to start investing but doesn’t know where to begin. Here’s what I’d suggest.

The first $10K should go into a 5-year, CDIC insured GIC. The next $10K should go into a high-quality corporate bond. The next $10K into the TD Bank, and the next into Enbridge. Along the way, he’ll accumulate some cash. After stage one, his portfolio should look something like this:

$ 5K Cash
$10K GICs
$10K Bonds
$10K TD Bank
$10K Enbridge

Summary

Being organized relieves the stress of investing. You needn’t experience emotional pain for financial gain. Substitute companies into this list as desired but remember that owning and watching 300 stocks is unmanageable. It’s best to keep things simple. (Besides, getting rich shouldn’t be that complicated.)

How a Bank Works

Ever wonder how a bank works? And why there’s so much money in money?

I once toured London, England, and when the guide announced we were going through the financial district, I thought how much money can be in banking? Boy, was I wrong.

Marginal reserve banking system

Banks get most of their reserves by selling GICs. Reserves also come from personal savings and the money we sometimes keep in our chequing accounts. They then lend out a regulated multiple of these reserves to cash-strapped customers and charge interest.

For example, let’s say a bank has $10 million in reserves and the regulated multiple is 10, they can lend out $100 million. Do a little math and you’ll find that using 3% as both the rate of interest paid and the rate of interest charged on loans, banks generate $3 million in revenue for only $300K in cost. Sure, they have to pay marketing and admin expenses, but that’s a whopping gross margin.

Let’s do the math again, 3% on $10 million in reserves equals $300K product cost. And 3% on $100 million in commercial or retail loans equals $3 million in revenue. What other industry enjoys a 90% gross margin?

The government regulated multiple is very important because the higher it is, the greater the leverage. Before the crash of 2008, the US multiple was upwards of 35. This makes the potential revenue yield $10.5 million for $300K in cost. That’s an extra $7.5 million for the same reserves.

Risk

Okay, okay, so what’s the catch? If customers don’t pay back their loans, the bank incurs a $100 million loss when they have only $10 million in reserves—so they go broke. That’s why banks try to minimize their risk. They only want to lend to people and organizations that’ll pay the money back. And they reinforce this principle by taking legal rights (security) over the assets they finance.

Let’s look at two examples: cars and homes.

Car loans

What do you think happens if you miss a couple payments on your car loan? A truck comes out and hauls away your wheels. Then the bank sells it and puts the proceeds towards the balance of the loan. That’s why banks force you to sign a chattel, giving them the legal right to do this. It’s also why they force you into giving a lump sum deposit (or at least, the first and last month’s payments) up front. This way your loan balance will always be less, or close to, the wholesale value of the car. So if they get stuck with it, they don’t lose.

A vehicle is a security backed loan because there’s something to seize. It’s also preferred because repossessed vehicles are easy to sell. Furniture is another story. Furniture is harder to get rid of and harder to repossess. So banks view these type of loans as riskier. That’s why they charge a higher interest rate for them.

Home mortgages

Now let’s flip to houses. They’re also a security backed loan since the bank can foreclose. That’s when they take your house and sell it, again using the proceeds to pay off the loan. But homes are different because their prices are volatile—they swing both up and down.

Upward swings aren’t a concern because the value of the security is now greater than the loan. It’s downward swings that bother the bank. A large decrease in market value can cause homeowners to “hand back the keys” and walk away from their obligation. And if the home is worth less than the loan, the bank can’t recoup all their investment, so they lose money.

Remember, you can’t go to jail for not paying back a loan. The bank took the risk and charged you a fee. So if the housing market crashes, it’s not your fault. Yes, they can force you into bankruptcy, but that’s not a crime.

Because of this possible downside, banks have additional provisions for mortgages. In Canada, we have CMHC. If you don’t have 20% to put down, CMHC mortgage insurance guarantees this portion of the loan so banks only have to finance 80%. This then gives banks better security since their risk is no more than $80K on a $100K asset.

Fees

Money lending today only equates to half of all bank revenue, the rest comes from fees. And not just the mafia surcharges they hit you with every time you use an ATM, banks are now in the insurance and brokerage businesses.

Entering these markets has not only fueled additional growth for the industry, it’s stabilized the system further to where Canadian banks are seen as relatively safe investments. And that’s why banks stocks are attractive to any investor. (As long as there are no more housing bubbles and everyone pays back their loans.)

How Women Changed the Business World

Before women entered the workforce, men had designed a system that was both useful and efficient (at least, for them). But now that women are on the job, things have changed.

In the olden days, only men were involved in the business process, meaning only men would hold the positions of buyer, seller, and provider. So whenever a home needed something new, like curtains for the bedroom, the husband would phone the supplier, a male salesperson would take the order, and Bobby in the warehouse would ship it.

And if the curtains showed up blue, after they had been ordered white, the husband would console his wife with sayings like, “Ah, don’t worry honey. Who’s going to notice? It’s just me and you.” And they’d accept the order.

Then women got involved.

Today, the wife orders the curtains from a female sales rep, and if they’re not the right colour, she calls to complain. Then the female sales rep says, “Of course you don’t want blue curtains when you ordered them white. They won’t match.” And she goes down to see Bobby.

After calling Bobby an idiot, she explains to him the situation. And after understanding that the only problem was that he shipped blue curtains when the customer wanted white, Bobby goes, “So?”

Then the female sales rep, Sarah—with an “h”, introduces him to the new warehouse manager, Jenifer—with only one “n”, who promptly instructs him to ship the correct ones.

And this new system is making things less efficient because now we have to ship everything twice (sometimes even three times).

Investing 102

Now that you understand the basic types of investments (from Investing 101), it’s time to explain stocks and the external factors affecting them.

There are three criteria used to evaluate any individual stock (earnings, dividends, and growth) and three factors that affect the market overall (GDP, money supply, and interest rates).

Earnings, dividends, and growth

Buying a stock typically depends upon:

Earnings per share (EPS)
Dividends (the portion of EPS paid out)
Prospects for growth

If you buy a stock for $50/share and the company earns $5.00/share, that’s 10% equity growth. If they keep $3.00 and pay out $2.00 in dividends, that’s even better because money is always better in your pocket. The question then becomes, can they continue to provide these returns? Or does the future hold even better figures—because they’re growing?

You look at how much the company is making, how much they’re paying out, and what their future holds. It’s always risky because nobody knows the future. Sales and earnings could fall because of competition, new regulations, loss of key management—a number of reasons. And the company could cut its dividend at any time. So holding any stock is risky even without considering external factors, but investors also look at GDP, the money supply, and interest rates because they affect every company’s potential for growth.

GDP

GDP is a general indicator of the world’s (or a specific country’s) growth. Think of it as a measure of adding all companies’ sales together. If the number goes higher, it means companies are growing.

GDP affects individual companies because we typically all grow together. So if Company A’s sales are growing, Company B’s probably are too since we’re all customers of each other. Or Company A’s employees go out and buy Company B’s products, and likewise.

If the world’s GDP (or my country’s GDP) is growing, that’s generally good for the stock market. If they’re both in doubt, than the potential for growth for most companies is compromised.

Money supply

The money supply is the amount of money out there pursuing goods (thereby causing GDP).

It includes employee wages, consumer cash, consumer assets (e.g., home values, investment portfolios), consumer debt (e.g., credit cards, home loans, car loans), corporate cash, corporate debt, government debt, family inheritances, and 75 other things.

The essence of the money supply is that when it’s increasing, it’s good for the market. When it’s decreasing, the effect is negative.

Interest rates

Interest bearing vehicles like bonds and GICs are competitive options to stocks. Their returns are lower but they come with less risk. For example, if GICs are paying 2-3%, and moderate-risk bonds are paying 4-5%, then investors should expect stock returns to be 6-7% (or greater) because of the additional risk. Make sense? I’m only going to invest in something riskier if I believe I can make a higher return.

As interest rates rise, all three of these values increase. GIC rates go higher, so bonds must pay better, and investors seek greater returns from their stocks. This pressure then drives the price of stocks down since you must now get a higher percentage yield out of the same return. For example, a $50 stock that earns $5/share, yields 10%. If interest rates rise to the point where stocks must yield 15%, the stock price will adjust downwards to $33 ($5 divided by 15%).

Predicting the future of interest rates is always tricky. Initially, they were set up to appropriately compensate lenders for risk, but then the government got involved through monetary policy (see Keynes). Regardless, the effect on stocks remains the same: as interest rates rise, stock prices go down, and as interest rates fall, stock prices go up.

Summary

In addition to evaluating individual stocks based on their own financial merit, investors also look at macroeconomic factors in determining their potential for growth.

The problem today is that all three macroeconomic factors are negative. The US’s GDP is growing but the world’s GDP is expected to fall. The money supply is expected to shrink because consumer and government debt (already at all-time highs) must now be paid back. And interest rates have nowhere to go but up.

Add to this the fact that many Canadian companies have been paying dividends in excess of earnings (essentially, eating their own flesh) to appease investors, and you have general market conditions screaming to fall. This doesn’t mean every stock will fall—but it sure makes investors nervous.

Multi-level Marketing

Back in the 1970s, multi-level marketing companies became popular because they employed a delivery system that compared favourably to the status quo. The traditional delivery system was as follows:

Manufacturer ==> Wholesaler ==> Retailer ==> Consumer (e.g., the public)

Not only were there many layers but each layer enjoyed generous markups. For example, if you made a product (say, shampoo) for the cost of $1, you’d typically sell it to a wholesaler for $1.60. That wholesaler would then mark it up another 25% and sell it to the retailer for $2.00. Then the retailer would double that cost and sell it to the consumer for $4.00.

Back then, the litmus test for bringing new products to market was whether they could sell for four times their manufactured cost. Granted, each layer had to pay sales staff and shipping charges, but there was good margin in the retail trade.

Because of such profits, bursting entrepreneurs were dying to get in. They knew how to make products like soap, toothpaste, and shampoo—all they needed was a way to get them on the shelf. But getting shelf space for products from unknown manufacturers was virtually impossible (since large companies had it all sewn up) so entrepreneurs created an alternative.

What multi-level marketing initially did was take a product that cost $1 and sell it to consumers, through a dealer network, for $3.00. And this new method worked great because consumers got better pricing, new manufacturers got to sell wholesale, and people in the networking business earned cash—so everybody won. As a result, a new generation of home-based entrepreneurs was born.

But in the 1990s the traditional delivery model changed. Retailers like Walmart and Costco started buying directly from manufacturers, bypassing the wholesaler, and then reduced their markups. This resulted in lower retail prices—even better than those of MLMs.

Stripped of their price advantage, MLMs evolved into selling quality. Gone are the toothpaste, soaps, and shampoos that are cheaper. Today, the toothpaste is better for you and not available in any store. MLM products are now premium priced—and they have to be in order to support their existing model.

Granted these new prices come with claims of superior quality but much of it is emotional. And selling emotional quality is a different business since you need mass advertising to support the required perception. It’s hard to generate emotional value with just salespeople—especially when they’re inexperienced and only work part-time.

Multi-level marketing companies may have hit a wall. Their prices for ordinary products are too high and consumers will eventually figure it all out. Business models don’t work unless consumers somehow win. And sure, you can never underestimate the whims of people or the ambitions of an entrepreneur, but most of us will be buying our soap from Costco.

Then again, maybe their products are better.

Using Email

The resurgence of the written word is certainly here to stay. Email, texting, and the like, have replaced the telephone call in many instances. And though this change is mostly good, people need a lesson on when to talk and when to write.

Writing has become popular for three reasons: it improves quality, saves time, and is artistically rewarding. Modern technology didn’t create these reasons, it simply unleashed them. But, when used inappropriately, writing has its downsides. And people should understand these downsides before completely switching over.

Quality

People usually talk too soon—before they’re ready to say what they really want. Writing forces one to organize his or her thoughts and clearly communicate—which is great. There is no downside to quality.

Saves time

If you electronically give me your address, tell me when a meeting is, or provide four reasons why I should buy your product, it saves me the time of having to remember or make notes. And that’s nice. If you electronically send me a birthday invitation, in order to save you time, you’ve just told me I’m not worth much effort. And that’s bad.

Saving me time is nice. Saving you time is insincere.

You’re also saying that not much effort is being put towards this event. Making me wonder, why bother? In the olden days, formal written invitations meant something special, like a wedding. And people would formally reply. This style of writing was more effort than a phone call since it involved getting people’s addresses, making paper invitations, and buying postage. Today’s electronic invites don’t even ensure that you have my correct email address (it could be one that I no longer use).

This also applies in business. Companies that host customer events with a phone call get much higher turnout than those who just send email. Customers subconsciously say, “If I’m not worth the effort of personal contact, this event isn’t worth the effort of attending.”

We humans naturally measure the amount of effort extended towards us. People who exert effort are innately deemed to be more trustworthy (and a bunch of other good things). So, mass marketing your husband’s fiftieth birthday can be viewed as lame, but electronically following up with details is thoughtful.

Artistic

Many of us consider our writing abilities to rival those of Ernest Hemingway or Stephen King. And some of us think we’re just as funny as Dave Barry or Erma Bombeck. And this is all great—the artistic component of writing is both stimulating and rewarding. But it must be reserved for friends, it doesn’t belong in business.

The business world is a factual place where emails are used in court. You should never put anything cutesy in an email that could potentially be used in court. Business humour should always be verbal. And long-winded emails attempting to express emotion should be re-written after a human conversation.

Business emails are great for to-do lists, detailing next steps, and providing training-like information. They’re not for having discussions. If someone is trying to have a discussion with you via email, pick up the phone (and then maybe use email to confirm your understandings).

Remember, emails are used in court. If you don’t want this discussion to be placed in front of a judge, talk about it. And if you think the judge would get confused by trying to decipher this string, clean it up with a conversation, and then, maybe, summarize in an email. Conversely, if you think a judge would benefit from knowing certain things, put them in writing (just like we used to–with real letters).

Investing 101

There are four categories of investments:

Income
Income and Growth
Growth
Aggressive

Income

Income investments pay you interest. They come in four types: savings accounts, government treasury bills, GICs, and bonds. Savings accounts pay low interest rates, but give you the flexibility to get at your cash. Treasury bills pay a decent return, but lock up your dough for short periods of time. GICs (Guaranteed Income Certificates) pay better than a T-bill, but lock up your money for longer periods.

T-bills are 100% guaranteed by the federal government (which equals zero risk—as long as the country remains stable). CDIC Insured GICs are also 100% backed by the feds, for up to $100K, for 5 years.

Bonds are loans to either governments or corporations, paid and guaranteed only by them. All bonds are rated for quality (the ability of the debtor to repay). High quality bonds are rated between A- and AAA+. Bonds rated below BBB (down to DDD-) are considered junk. The higher the risk, the greater the return should be.

Selling a bond is like selling real estate, the commission is bore by the seller. So the minute you buy one it’s instantly worth 1-2% less, because you have to pay a commission in order to sell it (and this is reflected on your statement). But if you hold bonds to maturity, no commission will ever be paid. As a result, short-term bonds are great since they can easily be held to maturity.

Bonds also fluctuate in inverse relation to interest rates. So if interest rates go up, bond values typically go down. Why? Because if GICs are paying 6%, who wants your 5% bond? Likewise, if GIC rates fall to 3%, everyone is now willing to pay a premium for your 5% bond. But again, this change in value is mitigated if you hold your bond to maturity.

Buying only high-quality, short term bonds avoids the inherent risk bonds have, since holding them to maturity means you’ll always get what you bargained for.

Income & Growth

Income and Growth are blue chip companies that are profitable and pay dividends (e.g., banks and utility companies). These stocks usually pay a 3-5% dividend.

Dividend income is preferable to interest income because it’s taxed at a lower rate. So, from a tax perspective, a 6% dividend is equal to getting 8% in interest.

There is some risk attached to these products since the stock price may decrease (which is the growth component), but they’re usually mature companies within mature industries—so they shouldn’t go broke.

Growth

Growth investments are non-dividend or lower-dividend paying stocks. They’re bought mostly for their share price potential. These companies haven’t yet reached their peak and are still growing. Under the right circumstance, they can deliver solid price appreciation but their stock price can decline just the same. As a result, they contain greater risk than income and growth stocks but they’re not as bad as those categorized as aggressive. Their primary risk lies in them having a bad year.

Aggressive

Aggressive stocks don’t pay a dividend. They only have the possibility of good stock price appreciation. Examples are gold mines or companies bolstering a new technology. Maybe they’re the next big thing, probably they’re not. So they can either boom or bust (and busting is the risk).

The goal of many “new product companies” is just to go public and make the founders rich. Many don’t stay the course and ever realize their potential. It takes more than a novel idea or something cutting edge to create a successful business. You need great management, awesome timing, and a little luck to pull it all off. So, this type of investment can almost be equated to buying lottery tickets. If they make it, they usually make it big. But it’s rare.

More conservative forms of aggressive investments are found in emerging markets (like India). They’re emerging (which offers great upside) but they’re also risky because third world governments are never quite stable (e.g., they can nationalize an industry on a whim).

Rule of thumb

The big myth is that young people should put their savings at risk when in fact everyone should be conscious of risk. And regardless of your tolerance, you should always have at least half of your investments in the categories of income, or income and growth. (This way, you won’t come ask me for money when you’re old.)

Business Basics

Understanding business can be confusing, especially for young people. There’s so much going on, how can anyone generalize? Easy, let’s start with basics. The outputs are only twofold: goods and services. Business is either selling something you can touch or providing a service. That’s why we have two types of companies, and some that are a mix.

Types of companies

Product companies make and sell hard goods; service companies concentrate on the benefits of labour. Product companies are either involved in natural resources, manufacturing, or distribution. Service companies include law firms, dental clinics, and repair shops. And some do a little of both (like a car dealership).

Service companies deal direct with the end user, while product companies employ a delivery system where multiple companies touch the goods. The traditional flow for retail (e.g., food and clothing) is:

Manufacturer ==> Wholesaler ==> Retailer ==> Consumer (the public)

The delivery system to get products to a business or institution (e.g., schools and hospitals) is:

Manufacturer ==> Distributor ==> Business or Institution

Types of people

In terms of personnel, you’re either a product person, a marketer, or in administration.

Product people work closely with the goods or service. They include lawyers and factory workers, those who design things (like, engineers and architects), and everyone in shipping (warehouse staff, truck drivers). The marketing department holds people who generate potential customer interest and then interface with them. True marketers generate the interest (say, through advertising) and sleazy salespeople close the deal.

Administrators include accountants, secretaries, bankers, clerks, H/R folks, and anyone else who pushes a pencil. These folks never work directly with a product, service, or customer.

Globalization

When globalization moved repetitive manufacturing overseas, those jobs were lost. Jobs associated with the distribution and repair of those products remained at home, and so did the jobs pertaining to custom manufacturing. But the simpler employment of repetitively performing the same duty over and over, moved away.

Globalization also affected the service industry. For example, many computer programming and support positions moved to countries like India. The more difficult task of design (the architecture) stayed behind, but the programming and support components (the bricklaying) got moved.

We’ll talk more about globalization in a future article. For now, understand there are two kinds of companies and globalization affected both.

Breadth of skills

Many businesses (especially smaller ones) suffer from a lack of skills. They could be strong in product or service, but only marginal in the other two. For example, Marty was a great carpenter who opened his own shop, only to find he knew nothing about marketing or admin.

Larger companies also suffer from this condition. Their people are usually only able in one area. So if your president is an administrator, the company may be weak in product vision or sales.

And different types of people fit different kinds of positions. Those attracted to sales typically have strong people skills. They sense the ways of others and know how to effectively communicate. But salespeople are commonly light in terms of technical skills and admin. Product people are usually specialists. They love delving into details but aren’t necessarily good at interacting with others. And administrators are crazy in their own way. So it takes a variety of people with a variety of skills to run a business (and few of us cross over, which is a problem).

Summary

Young people entering commerce should always know who they’re talking to and what type of business they’re in. Then they should develop skills across departments because that’s mostly what’s lacking. Good luck.

Modern Decision Making

Historically, men have relied upon leaders to make decisions for them, even in the home. Women prefer to travel in packs, relying on consensus instead—everyone is heard and no one gets left out.

Just watch five women deciding on a restaurant. They’ll discuss it for 20 minutes, getting everything they know out, and then settle on someplace where everyone is happy. Men in this instance take less than five seconds. “Where do you want to go, Chuck?” “Well, I saw a steak house back there.” “Okay, okay, okay, okay.”

Men get frustrated by the female style, considering it inefficient. They think it takes way too long (though it usually does produce better results). Women feel the male style leads to control freaks—leaning too heavily on just one person’s preference or opinion. Today, the ladies have won out and the consensus model has become norm. But without a specified leader, balls tend to get dropped. So instead of replacing the old style, we should have morphed the two.

The best method for decision making still involves having a leader because consensus isn’t always right. Consensus doesn’t force the suffering and individual responsibility of true leadership. And it doesn’t force someone to see things through to the very end. Quality has always required great amounts of concentration but within a consensus model no one ever gets that committed. Granted the old leadership role had flaws, so let’s change it. Modern leaders should act more like facilitators, respecting the positions of consensus but continuing to add the components of suffering, personal responsibility, and nursing projects to the end.

What’s best for quality is that we forsake the issue of stepping on each other’s toes and allow one person to take charge. Not everyone can be respected all the time. Maybe we should take turns playing leader, or we could split projects into smaller sections led by pod captains. I don’t know, let’s vote on it.