How Starbucks is Learning

Starbucks uses the web to glean the input of customers. Anyone who knows me knows my general dislike for Starbucks. But they are getting this right by using technology as a way to connect to customers, and actively seeking opportunities to improve their performance. The next step for a principle-Powered organization is the use of similar technology internally to find core values violations in policy, procedures, culture, operations and management. But as a starting point, this is noteworthy.
There is more about it at this AP link:

FAA Acts as an Object Lesson in How NOT to be Powered by Principle

Read the whole sordid tale of the Southwest inspection lapse and you will discover a troubling reality within our national air traffic safety infrastructure. For whatever Southwest did or did not do, and however fair or unfair you believe the penalty to be, it pales into insignificance compared to what is now known about the FAA's lack of transparency and meticulousness.

According the the Wall Street Journal there has been a huge history of FAA leadership stifling subordinates' reports of problems. It was bad enough when the whistle-blowers at Enron were thwarted and shut up, but when we are dealing with a Federal agency charged with airplane safety it becomes more than just an economic issue.

One of the main tenets of being Principle-Powered is the quest for violations of values that can be discovered as a way to improve performance, ethics, operations and value production. To do that, there needs to be more than a mere openness for subordinates to report issues--there needs to be an active, cultural DEMAND for that input.

The fact that the middle managers within the FAA were told by their bosses "not to worry about it", or were simply poo-pooed (or completely lied to or ignored) points to a profound negligence in exercising the mission with which the agency is charged. This revelation of crone-ism and deliberate avoidance of issues makes me wonder what else they have suppressed and whether I should worry about it next time I fly. While flying still remains the statistically safest form of transportation, it wouldn't take an awful lot of crashes to reverse that statistic. Also, the fear that these revelations have catalyzed in the flying public certainly isn't helping our stagnant economy.

Maybe Congress ought to conduct hearings about this instead of wasting our national time and budget on dealing with baseball players and steroids. Your thoughts?

March 29th, 2008 Aflac Compensation Vote

Aflac Compensation Vote
Aflac, the insurance company with the spokesduck, is putting its executive compensation plan before stockholders for their approval. While the vote is non-binding, they have taken the perspective that it is morally binding. Aflac consistently out-performs the market (by a lot), and the leaders could certainly justify outrageous packages -- but they have chosen instead to remain transparent and accountable.


This is a real example of Principle-Power in action. The principle in greatest prominence here? "Build better value for our shareholders". More public companies should consider having this as a core value and addressing it similarly.


In a cultural shift, CEO Dan Amos appeared on the NBC Today Show, perhaps the most un-business-oriented television show on the air, proving the uniqueness of this move. He went on the record saying that if the shareholders objected to the compensation committee's recommendation then Aflac would reexamine and change its practices. Talk about putting your money where your mouth is!


Below is an excerpt from Aflac's website. Read the corporate announcement by clicking here.



Our Philosophy
Mission
To combineinnovative strategic marketing with quality products and services atcompetitive prices to provide the best insurance value for consumers.
Guiding Principles

* Offer quality products and services at competitive prices and use new technology to better serve our policyholders.
* Build better value for our shareholders.
* Supply quality service for our agents.
* Provide an enriching and rewarding workplace for our employees.

March 15th, 2008 Fuel prices and Plane Fares

Fuel prices and Plane Fares
If you've purchased a plane ticket lately you may have noticed the same inconsistency that I did. Why is it that the cheapest tickets are those that take the most circuitous route, thereby using the greatest amount of fuel? Understandably, one pays for convenience, and non-stop flights are more convenient. But still, there is a gross disconnect between the airlines' lament over fuel prices, and their using them to justify increased fares, and their irresponsible wastage when creating crazily roundabout routes.

Case and point: On a recent trip to London I saved $800 US (at least) by purchasing a ticket that required three stops. But consider that the total distance from start to London was 5000 if flown directly. Instead, I flew 1200 miles west, and then 6200 miles east, adding 2400 miles (at least) to the trip. if amortized across the many people who also purchased this "cut-rate" ticket, the amount of wasted fuel numbers in the hundreds of thousands of liters.

How can this pricing structure be justified (or this route--EVER)?

Jan. 27th, 2008 Shallow Diversity Training Fails

It took a study to figure out that superficial training fails to change attitudes and culture?? Diversity training works in a context of strategic alignment and Principle-Power. But most training (like most core values) is shallow--intended to cover up a problem rather than transform a condition.

This seems like an apprpriate article for MLK Day -- the revelation that tolerance of diversity stems from a context, NOT from learning catch-phrases and taboo vocabulary. Real organizational culture transformation goes from top to bottom and through every layer of an organization. It requires being Powered by Principle, and constant vigilance in the quest for violations that can be corrected.

Jan. 15th, 2008 Uh Oh-- Is Home Depot Telling the Whole Truth???

Well--I may have to eat my words on this one. I've heard clarification from a whole lot of Home Depot employees all over the country. Apparently, in stores that are doing less that are doing under $35m, the night crews are not being moved, they are effectively being phased out. IMAs (orderers are being eliminated) and offered other positions. But those new positions are often part-time, a significant sacrifice for long-term full-time employees.
The same kind of not-so-subtle tactic to force attrition is being used on night crew personnel in smaller stores. They are being offered insufficient hours to replace their income.
I'm waiting to hear what benefits they lose in that transition.
This is only a problem because of the smokescreen that yesterday's announcement. Layoffs are legitimate in hard times -- lying about them is not.

Jan. 15th, 2008 Home Depot Claims to Avoid Layoffs

"Home Depot Inc. plans to reassign overnight-shift employees to days at its lower volume stores, a change that puts more workers on the sales floor without raising costs."
Home Depot avoids layoffs and redeploys night workers instead. CEO Blake deserves real kudos for taking the Principle-Powered road to re-building the belabored company's famed customer service. This shows real strategic thought and creativity!

Jan. 10t, 2008 Sears Spyware

Check out this story. Sears installs spyware on your computer when you join its seemingly innocuous "community". That they do it is less problematic than the effort they expend in making sure NOT to tell you that's what they are going to do. One key characteristic of being Powered by Principle is transparency. If they gave consumers a real choice before beginning to spy on their web activity it would be fair play. This isn't. And it is unbecoming on Sears!

Dec. 27th, 2007 Buffett's Marmon Deal

Buffett's Marmon Deal
Demonstrating his customary Principle-Power, Warren Buffett has purchased an organization that is itself, Powered by Principle. For anyone who thinks that principles can not endure multinational diversification and demand for profit, one has only to explore the Marmon Group and its guiding principles--plus their stellar financials. I highly recommend looking at their site, and exploring some of their many holdings to see how the quest for long term viability through principled leadership produces extraordinary and sustained growth and earnings.


What this demonstrates is that through true alignment, from the top with the Board of Directors, throughout an entire organization (even if it is hundreds of unique companies), principles can thrive and dictate decision-making.

Dec. 18th, 2007 Federal Reserve Tries to Avert Future Sub-Primes Fiascos

Inevitably, when the government begins to try to fix something, it gets it not quite right. It's hard to tell what went awry here, since presumably, the Fed isn't subject to the political forces that dictate to Congress.
In the regulation put forth today, many aspects of lax and predatory lending are addressed. But the one that would have made the biggest difference is left out. Ultimately, the real sub-prime debacle hasn't hit yet but is imminent with rate increases. Instead of addressing that, the Fed addressed all of the problems that are the source of the spate of foreclosures already underway. Effectively, those would all have been averted by mortgage bankers simply following basic accounting principle, like verifying income and analyzing borrower's budgets before closing the deal. Since that is the obvious, easy stuff to solve, the Fed addressed that.
But the real problem is the bait and switch aspect of these loans. By offering low introductory rates, borrowers are lured by a false sense of affordability. What the lenders fail to do is walk the borrower through the "worst case scenario" possibility--what that payment will be should the rates adjust to their maximal level. That is anathema to all sales people, and borrowers who are in the sub-prime category are, by definition, not financially conservative or perhaps savvy.
The Fed paid lip service to this issue by attacking the advertisement of low introductory rates. But the problem resides in the guiding principles of the lender or lender's agent. Caring for a customer's eventual solvency is different from simply closing the deal. It requires adherence to a different set of values, one that treasures the delivery of truly sustainable loans over the immediacy of origination fees and mortgage commissions.

Dec 1, 2007 Verizon Wireless's Next Good Move

Verizon Wireless made a second announcement that it will begin development of a next generation network beyond its current technology, CDMA. The great think about this is the degree to which it is an acknowledgment on Verizon's part that we are in a global community and people are transient--so their technology needs to be flexible. CDMA sis incompatible with GSM, the prevailing worldwide standard. The next generation that Verizon is developing would correct that. This announcement, coupled to their announcement days earlier that they will allow any cell phone to be used on their network signals a massive advance beyond their competitors. While in the short-term the release of their customers from the need to by proprietary technology may be frightening, ultimately it is a principle-powered gift to consumers that will engender loyalty. The same can be said of creating a means for their network to be used by others and their own customers worldwide.

Dec 1, 2007 Verizon Wireless Thinks Clearly!

This week Verizon Wireless made two announcements that signal really well-aligned strategic thinking and longer vision than is normally associated with the mentality of publicly traded companies. They will begin opening their network for use by any telephone that a customer has . This allows for far greater hardware choice for consumers, and the potential for more innovation technologically. It's a brave and pioneering move in the US since all the other carriers are continuing to hamstring consumers by requiring purchase of their phones from the carrier. Only in the US is that done--the rest of the world can switch between networks or carriers by exchanging SIM cards. That gives them more hardware choice and more competition.

Along with the allowance of hardware on their network, they also plan to provide the source code for their network. That will create a forum for innovation beyond what the major electronics companies may be generating. New ideas can then be tried out and tested on the Verizon network, and the resulting innovations can be ready for market faster.

As a Verizon Wireless customer I'm delighted. If I was questioning my desire to remain with Verizon (for example, if I wanted to get an iPhone--which only work on At&T Cingular--a curious inversion of the US carrier lockout) those leanings are allayed.

Can technology security be enhanced through Principle Power?

In the Wall Street Journal Technology Blog, Ben Worthen suggests that workers who are sloppy with data and other technology security may not understand its worth. His analogy is great: If someone handed you a suitcase and told you it had $2million dollars in cash inside it--and asked you to guard it, you would do so with enormous vigilance. That's because you understand what $2m is worth.

Of course, if the same person asked you to guard a box of (say) comic books, you might exert less vigilance. If the box of comics were stolen, it might amaze you to learn it was worth more than $2m, as the contents were rare collectibles.

To quote Worthen
The perception problem: When workers lose a computer disk or a portable storage device such as a USB memory stick, they seem to look at the $20 it will cost to replace the device, not the value of the data inside it. (It’s like valuing that theoretical $10 million shipment by the cost of the briefcase and not by the cash inside.) “There’s a real disconnect between the perceived value and the real value of information,” says Larry Ponemon, chairman of the Ponemon Institute, a privacy think tank. “The rank and file employee still doesn’t seem to get it.”
You could say the same about myriad aspects of organizational reality--most obviously, strategy and core values. Employees fail to perform certain aspects of their jobs well because the don't understand the cost of those lapses. When the cashier at a retail outlet appears dead on her feet, and stares at you with listless eyes as she robotically says "have a nice day", she is only concerned with her next break. If asked about the consequences of that performance, she might expand her perspective to include your personal experience and even her own evaluation. But the more reaching problem of your dissatisfaction and how prolific you are likely to be in complaining to your sphere of influence--and the damage that can cause when multiplied by lots of robotic cashiers and complaining customers--that cost is beyond her understanding.
Alignment of core values an strategy has the same critical impact as securing data. Breaking the bond with a customer by delivering sup-par products or service does not differ from lapses in security that place personal information at risk. Any difference between the two is but a matter of degree, not essence.

Nov. 7, 2007 Mortgage Reform Act--Trying to Solve the World's Ills With Rules

To learn about this bill, The Mortgage Reform and Anti-Predatory Lending Act, read the Bloodhound Blog, or the House of Representative's Committee on Financial Services publication of the bill itself.

As usual, Congress has reacted to a problem by trying to solve retroactive bad behavior with new and complicated legislation. Whenever there is some systemic issue that no one can fix instantly, our leaders' reaction is to try to fix it with a new law. I guess the thinking is that if we circumscribe enough of what is "bad behavior" what will be left will be the right behavior. It's a persistent sociological fallacy that always fails. Our history is littered with failure of such laws to fundamentally change behavior.

Having said that, the industry surrounding the sub-prime mortgage fiasco ought to create structural parameters that would dissuade the kind of predatory selling that the mortgage industry succumbed to. Unfortunately for Congress, the culprits are spread across a huge field, ranging from individual mortgage brokers to banks that sell their paper (and with it their responsibility) to securitization as a means to finance lending, and finally, to the securities market itself which drives the whole complex mess.

The law, like all such laws, creates as many problems as it solves. The onus of determining whether a particular loan is appropriate is shifted --but it's not clear exactly who it is shifted to. This is pretty muddy. If a broker sells the mortgage, but the paper is written by a bank, who holds the responsibility? And if a borrower, for whatever reason, defaults on his loan, who's to say whether that is due to the inappropriateness of the loan or the borrower's irresponsibility or an unavoidable change in circumstances? Stuart Saft of The Wall Street Journal correctly points out that this law opens to door to lawsuits preceding or following every foreclosure. Will each and every attempt by a bank to foreclose now require a test for liability litigation? And if the criteria for lending become so restrictive asto leave every mortgageopen to litigation upon default (or even, just when the borrower finds it hard to pay) who would lend anyway?

Another peculiarity of the bill, and one that seems a bit far-reaching given the stated purpose of the law, is that it extends protection to renters in foreclosable properties. Imagine you are a lender holding the paper on a rental property. If the mortgage goes into default but the property is let, the foreclosure proceedings are trumped by the renter's tenancy. This is a potentially mischievous means for defaulting borrowers to cover themselves, but also, even in the most ordinary of circumstances, a potential minefield for lenders. It foretells lots of restrictive lending in which borrowers sign away their rights to rent out their property, not to mention their rights to litigate under the act itself (think about the work-arounds that vendors have found to lock in buyers from exercising their 3 day right of rescission).

There is lots more to uncover in this bill regarding its unintended consequences. But the deeper point from the perspective of the PxP approach is that it is wrongheaded. Core values can't be legislated through rules, because, as we've seen in this exploration, rules engender loopholes to those who aim to violate them. Better yet would be the self-policing of the industry by each component piece. The mortgage industry ought to have a strict code of core values that attaches to licensure. That code ought to imbue brokers with concern for repayment--instead of just the incentive of commissions to get people into loans, even if the first period of interest adjustment is sure to be bank-breaking for the borrower.

The HR Bill does address one issue that needs tackling, albeit in some clearer way.Securitization allows for a great distance between the borrower and those who ultimately hold the paper. There needs to be some way to maintain responsibility throughout the process so that banks, even though they sell off the paper, are still accountable for the fiduciary strength of their lending. Likewise with mortgage brokers and with investment backs that generate and sell securities. And finally, are those who purchase mortgage securitiezs to be held responsible for the quality of the risk assessment in the mortgages that make up their investment instrument? That's a very long arm of responsibility indeed. How would investors assess that? It would require a great deal more documentation and disclosure on the quality of the loans and the criteria used in making them. But that exploration may be best left to another blogger on another day!

Nov. 8, 2007 Oprah Could Have Averted Scandal

One of the biggest laments of those following the Oprah School scandal is that Oprah should have opened a school here, in the US, where she could watch things. That is ridiculous as a solution. If having to be present was a prerequisite for being able to have one's business (or organization) be Powered by Principle, or even just ethical, than multi-nationals would all be dismal failures in every way. But that isn't the case. The problem isn't that Oprah wasn't there. The problem was that there was way too little alignment between the principles underlying the school (Oprah's personal values may, in fact, have been all there was) and the actual, moment-by-moment operation of the school.

There are lots of aspects to this problem. The first, and most important, is that Oprah's personal values, while laudable, are probably not sufficient to act as a core values list for the institution. The school needs its own set of core values, both those that are fundamental to anything Oprah cares about, and those which were essential for the particular mission to get accomplished. While I don't know for sure, I suspect that there was not work like that done, since Oprah is so powerful, and her "brand" would have been seen as a clear enough statement of principles.

Along with a complete and relevant set of principles, the school needed top to bottom alignment with those values--not just cheer-leading and self-congratulations. Those values should have been completely woven throughout the hiring, training, compensation, teaching approach methods, performance reviews and evensome feedback mechanism that might have given early warning of the abusive behavior. These structural elements are always vital, but they become even more crucial when the founder and "heart of the enterprise" is remotely located. Counting on the sentimentality and inspiration that the school's creation generated is a naive move. But one can understand how Oprah chose to do it that way. She runs a very successful enterprise here, in the US. Of course, she is here, evangelizing, modeling, correcting and managing all the time. Plus, she probably has lots of appropriate structure in Harpo Productions--structure that encourages the right choices and level of excellence she demands.

The key for the school is not just replacing the people--even if the new batch has no one of abusive tendencies. Corruption and the gravitation toward mediocrity areintegraltendencies in most organizations and in many people. They get corrected through structure, reinforcement, self-criticism, improvement and the understanding that being Powered by Principle is always just a moment away from the next violation. Having that humility and vigilance on the ground, in Africa, is what was and is needed.