Piling on President Obama

Economy.

RecessionWhen President Barack H. Obama first took office in January 2009, the financial markets were poised for a monumental collapse. The first to go – and indeed the federal government let them go- was Lehman Brothers, at the time the 4th largest investment bank in the United States. Two years earlier price-earnings (PE) ratios for the overall stock market were 25 times, compared to an historical average of about 16 times. By March 2009, that same PE would sink to 13 times, about half the value of the stock market was wiped out and within a few more months unemployment would rocket to 10%. This was not the internet bubble that popped in 2000, this was far more pervasive, before it would be over the world’s financial markets, especially liquidity, willingness to borrow and regulatory scrutiny, would mark one of the most painful economic periods since the Great Depression.

During World War II, the French were famous for blaming all sorts of inefficiencies and shortages on the war with the all-purpose excuse “C’est la guerre.” Obama’s version of that is “C’est le Bush Administration. He became President, not King, so his ability to either bring good or harm to the problems he faced in 2009 were limited to a) Ability to formulate effective, affordable, durable policy that hopefully could be implemented and impacting quickly, and b) Ability to cobble and compromise in a bi-partisan nature with Congress, while ensuring whatever plans got developed they could stand up to Judicial scrutiny. He tackled the first with fervor, but the second requirement was left undone and only became worse. Rather than building consensus, President Obama chose the unfortunate posture of scolding. He scolded the banks. He scolded Congress. He scolded businesses and others saw all of his scolding as pontificating and alienating.

Unemployment TrendIn 2009 the national debt stood at approximately $12 trillion, representing 83% of GDP. But 2012 the national debt would become approximately 100% of GDP and remain there to the present day, a staggering $18 trillion in national debt. Most of the increase was attributable to the recession and the decrease in income tax receipts, however, in 2012 Obama agree to almost $1 trillion in defense spending. Rather than cutting back on spending both the Federal Reserve (Fed) and the Federal Government ratcheted up financial stimulus to hopefully stave off a worsening economic recession. Somewhat like pushing on a string liquidity remained intransigent, creating an unwillingness of banks to lend without the most pristine of credit history and collateral.

As long as unemployment remained high and manufacturing capacity utilization remained low, there was no inflation impact to flooding the money supply, a point where economists – throughout the years – disagreed sharply. Now that unemployment is closer to historical averages and manufacturing capacity utilization likewise, continued government and Fed tinkering will likely and finally create inflation. Indeed the 30-year Bull Run on long-term bonds appears potentially catastrophic once interest rates are finally left alone to float with the market. This sets up a conundrum from a policy standpoint, that is, how to unwind the combination of trillions in assets on the government balance sheet and also allow interest rates to rise without a new albeit somewhat different economic collapse.

Health Care.

ACAThe Affordable Care Act (ACA) of 2010 has enabled 11.7 million Americans to obtain medical insurance, three-quarters of them on the federal exchange, which finally seems to be working reasonably well. The Congressional Budget Office forecasts that by 2022 fully 33 million will be insured via the ACA process. On the face of it a good thing since prior to insurance these people would avoid going to the doctor until so sick they would show up at the emergency rooms of hospitals. Unable to pay such an expensive bill, the bad debt would find its way into the overall costs for everyone who was buying health insurance.

For those signing up on the federal exchange, healthcare.gov, some 87 percent received federal subsidies to help them afford the monthly premiums. The subsidies totaled $263 a month, on average, leaving consumers to pay $101. These subsidies are at the heart of the next battle for the administration. The Supreme Court is currently deciding whether those signing up on the federal exchange are eligible for subsidies.

Insurance companies can no longer discriminate on the basis of “pre-existing conditions.” In addition, insurers must spend 80-85% of every dollar they receive on medical care (instead of advertising, administration, etc.). The law is expected to spend a bit over $1 trillion in the next 10 years. The law’s spending cuts — many of which fall on Medicare — and tax increases — are expected to either save or raise a bit more than that, which is why the Congressional Budget Office estimates that it will slightly reduce the deficit.

War.

WarThe wars begun in 2001 have been tremendously painful for millions of people in Afghanistan, Iraq, and Pakistan, and the United States, and economically costly as well. Each additional month and year of war adds to that toll. According to the Watson Institute for International Studies, some of that toll can be summarized as follows:

  • 350,000 people have died due to direct war violence, and many more indirectly in addition to indirect deaths from the wars, including those related to malnutrition, damaged health infrastructure, and environmental degradation
  • New disability claims continue to pour into the VA, with 970,000 disability claims registered as of March 31, 2014. Many deaths and injuries among US contractors have not been identified.
  • 7 million people have been displaced indefinitely
  • Erosions in civil liberties at home and human rights violations abroad have accompanied the wars.
  • The human and economic costs of these wars will continue for decades, some costs not peaking until mid-century.
  • The US federal price tag for the Iraq war — including an estimate for veterans’ medical and disability costs into the future — is about $2.2 trillion dollars. The cost for both Iraq and Afghanistan/Pakistan is going to be close to $4.4 trillion, not including future interest costs on borrowing for the wars.
  • While it was promised that the US invasions would bring democracy to Afghanistan and Iraq, both continue to rank extremely low in global rankings of political freedom, with warlords continuing to hold power in Afghanistan with US support, and Iraqi communities more segregated today than before by gender and ethnicity as a result of the war.

direct-deaths-multiPresident Obama has not only ended these two wars, though some say too quickly, but has steadfastly refused to take America headlong into new wars. This has led some to conclude that the U.S. is no longer viewed as a leader and a superpower. Yet it has also had the effect of getting other countries to begin to step up with their resources rather than always expecting the United States to save the day. For far too long, most countries have enjoyed national savings resulting from an artificial underinvestment in military capability. The unvarnished truth is that if China decided to take Taiwan tomorrow the United States would not go to war with China. This new reality changes nations’ policies toward armament as well as treaties and economic ties, rather than expecting the United States to protect them as was the case with Kuwait and Desert Shield.

Religion and Terrorism

ISISTerrorism has been around a very long time. As a little boy watching the 1972 Olympics I was shocked to see the terrorist attack on athletes from Israel. Terror can be organized abroad, it can also be localized; it can be large and well-funded groups and also lone wolf attacks almost no one can anticipate. Generally, though not always, terrorists claim their motivation is religious, that is, God has determined that they must kill in order to bring about change that God desires. This can result in generalizations from the terrorists to larger religions, turning neighbor against neighbor in fear and outrage. When the Japanese struck Pearl Harbor, setting off U.S. involvement in World War II, we set up “internment camps” for the Japanese Americans, primarily arising from this type of fear.

Although Obama has presided over the killing thousands of terrorists, most notably Osama bin Laden, many in the United States demand that he take a more definitive and strong stance against Islam, claiming jihadist ideology is an inherent doctrine in the Koran, Islam’s holy book. The President has resisted, seeking to differentiate peaceful Muslims from the perverted ideological claims made by groups such as ISIS. The extreme reaction to the President’s view has been to accuse him of “hating America,” “sympathizing with Muslim terrorists,” and perhaps even being a closet Muslim himself. Some in Congress have even gone on record making these sorts of accusations. The combination of Obama’s resistance to new wars in far-flung places, along with his desire to allow Muslim’s in the U.S. and the world to freely practice their religion unfettered, has had the effect of creating a divisive nation at home, with very strong opinions on both sides of the issue.

Summary.

Report CardWhile this summary assessment is concerned with President Obama, much could be written about the inability of the Congress to be effective and productive as well. That is a subject for another paper. Overall the President has done poorly in terms of building consensus, coalitions, compromise and goodwill among federal government and the general population. In terms of the economy, it appears the Keynesians were right about the so-called “liquidity trap.” As Germany demands austerity (in Greece for example), Europe remains mired in recession even though the example of stimulus in the United States appears to have cut our economic suffering short and shallow. How to unwind the tinkering that has been done will be a daunting challenge; indeed as interest rates finally rise we should expect economic repercussions from asset devaluation (long-term bonds) to high interest payment on our burgeoning national debt, severely impacting the productive use of government income tax receipts.

The ACA had a difficult start and will almost certainly require modifications. Getting millions insured has been accomplished, likely a good thing in the long run. But the jury remains out in terms of overall long-term impact on health care costs and freedom each person had to choose their health care providers. Several more years will be needed before any conclusions regarding efficacy can be written with reliable facts and figures.

The cessation of the wars and the resistance to enter new wars has certainly saved lives, disabilities and dollars. The somewhat new policy has also had the effect of getting other countries to step up their resource commitments toward defending their own interests, certainly an important step in the right direction. But increased investment on weaponry all around the world can also mean another inevitable result: we can expect more wars.

Every president has had a mixed record of accomplishments and failures. No president is ever able to take full credit for great accomplishments, nor should he take full blame for failures. Far too many variables outside his control impact what happens to the United States and the rest of the world. Given all of what President Barack Obama has managed to do, however, it would be unfair to grade him as severely as many are prone to do today. To say he hates the country, supports terrorists, is a racist and a socialist is to overstate the true picture. To say he worked hard and made some progress while doing a poor job at building consensus is a more even-handed approach in terms of grading his performance. The world is a dangerous and violent place, how we navigate the future will require consensus but it will also require tolerance and compassion, of which we seem to have less and less of lately. compassionRodd signature

The REAL reason Sony canceled the release of the movie “The Interview”

The REAL reason Sony canceled the release of the movie “The Interview”

1When Sony’s decision was aired throughout the media yesterday most people thought it was a result of a fear of fomenting terrorist acts. Japan, as well as South Korea and other regional nations well know that the capability of North Korea carrying out terrorist acts on U.S. soil is remote. The regime can make a lot of noise and boastful claims but since 1953 has this country ever been responsible for terrorism in other parts of the world? They are an insular, backward, starving country that will someday see regime change without a shot being fired. South Korea well knows that the threat posed consists mostly of empty rhetoric, oft-repeated claims of setting nations on fire or worse. It never happens. It never will. They are over 60 years past battle-hardened testing, and although hacking might be a hobby for some there, war is not going to be there strong point.

2So just why then did Sony pull this film – a move that will likely cost them at least $90 million in an unfavorable impact to their bottom line? The reason is a bit more subtle. In the past 10 years Japanese companies have been battered by lawsuits originating in the United States. Take a look at a few of the lawsuits that have originated in the United States that were aimed at Japanese companies:

  1. Norman v. Honda

The parents of Karen Norman sued Honda when their daughter died from not being able to escape from her Civic after backing into Galveston Bay. At first, the case sounds somewhat legitimate, until you learn the rest of the facts. For example, the Normans sued Honda because their daughter was unable to hit the emergency release button on the seatbelt. However, she failed to hit the button most likely because she had a blood-alcohol level of 0.17 and shouldn’t have been driving in the first place. The incident happened at 2 a.m. with passenger Josel Woods in the passenger seat. Woods was able to swim to safety. Here’s the kicker: the jury actually awarded the parents with just 25% of the damages considered contributorily negligent. Thus, the Normans basically sued and won against Honda in spite of their daughter’s obvious irresponsibility for driving under the influence. (See more at: http://www.businessinsurance.org/10-ridiculously-frivolous-lawsuits-against-big-businesses/#sthash.f0tZxVuk.dpuf).

  1. The feds reached a $1.2 billion settlement with Toyota Motor Corp. after a four-year criminal probe into the giant Japanese automaker’s handling of a spate of sudden accelerations in its vehicles. The investigation focused on whether Toyota was honest in reporting problems related to the unintended-acceleration troubles, which led to multiple accidents and fatalities. Toyota faces hundreds of lawsuits over the acceleration problems, which gained public attention after the deaths of a California highway patrolman and his family that were reportedly caused by the unintended acceleration of his Lexus, which is made by Toyota.

Starting in 2009, Toyota issued recalls for more than 10 million vehicles for various problems, including faulty brakes, gas pedals and floor mats. From 2010 through 2012, Toyota paid fines totaling more than $66 million for delays in reporting unintended-acceleration problems.

The National Highway Traffic Safety Administration never found defects in electronics or software in Toyota cars, which had been targeted as a possible cause by many, including some experts.

  1. Takata Prepares To Take $440 Million Hit From Airbag Recall

Reuters reported that Takata airbags, which found their way into 4 million Hondas, Toyotas, BMWs and other cars worldwide, will likely result in a major loss for the company going forward. This one is just the latest.

3There are many more examples of U.S. based lawsuits against Japanese companies that in spite of flimsy, scant and even highly questionable evidence, have resulted in monumental judgments the Japanese companies have had to pay in order to continue to do business in the United States. Japan is a country lacking natural resources, unlike North America, Africa, China and South America. They must export in order to survive. So pay they will.

If “The Interview” was released into U.S. theaters on Christmas Day, and so much as an unrelated incident of harm occurred to any movie-goer, Sony would be sued and sued for a lot of money. The plaintiffs would likely prevail given the fact that Sony had duly been provided ample warning that such a terrible outcome could be expected.

4The U.S. is a litigious society. If you are scalded by hot coffee you purchased from McDonald’s you can make a lot of money by suing. In fact, Americans spend more on civil litigation than any other industrialized country, according to a study in the Economic Journal – and twice as much on litigation as on new automobiles.

So just why did Sony pull their upcoming film “The Interview?” Had they not, they anticipated far greater than $90 million worth of settlements from lawsuits blaming them for anything even remotely connected to someone getting hurt in a U.S. movie theater while watching this particular movie. The decision was based upon a cost-benefit model, and the business decision was probably a good one.

Is Education to Blame for the STEM Skills Gap?

1Up until about 2014 virtually all of the research related to STEM skills shortages (especially) in technology companies was done quantitatively, with the instrument of choice the survey method and the respondents that were selected employers, businesses, technology firms. The research was conducted by government organizations, business associations and all of the large consulting firms. Pick any one of these studies and you will find consistent agreement in the methodology (quantitative), the instrument (survey) and the respondents chosen (employers). Some of the studies were conducted by Accenture (2012), Boston Consulting Group (2013), Congressional Budget Office (2011), Deloitte (2011), Manpower (2012), McKinsey (2012), President’s Council of Advisors on Science and Technology (2012), Price Waterhouse Coopers (2012), and the US Chamber of Commerce (2006). The conclusions were all the same, that is, that the education system was failing to provide STEM-qualified job applicants to industries that needed these skills in order to grow and innovate.

2Along with the survey conclusions, all of which contained high Cronbach’s (alpha) that measure internal consistency, recommendations for how to retool the education system to better inculcate STEM skills in students desiring to enter the workforce were suggested, explained and elaborated upon. Quantitative methods such as these are universally considered scientific; indeed evidence-based, positivist methodologies are only re-examined to the extent that the samples taken were (preferably) random, and sufficiently large enough to yield confidence to at least two standard deviations each side of the mean (95%). The researchers dutifully reported their survey results, along with every confirming statistic to support the validity of their conclusions. Consulting houses piled on to mimic their competitor studies and they all came to the same conclusions. Therein lies the rub.

3The bias lies not in the survey purpose, sample size, or design. The flaw is in the respondents chosen. Although it may seem intuitive to select employers as the respondents – after all, who better to judge the STEM skills it takes to be successful on the job? The qualitative studies that followed these methods have debunked, demystified and completely derailed the validity of the quantitative survey conclusions. Research question: What if employers had an incentive to blame education and the root cause of the problem was actually in the domain and under the control of the employers themselves? How would a researcher conduct a study to determine whether validity exists for such a theory and hypothesis?

4Dr. Peter Cappelli (2014) wrote his dissertation based upon all of these studies, plus a lot of tangential (tertiary) research, mixed in with data from government (Department of Labor for example), education, and industry. Rather than cross-sectional and quantitative, Dr. Cappelli approached the business problem with an historical lens to see how technology companies went from no STEM skills gap to an alleged STEM skills gap over a period of time (longitudinal). Qualitative researchers are criticized for lacking an evidence-based approach. Lacking experimental methodologies, randomized samples well-controlled and quantitative metrics, it is difficult for the interpretative researcher to garner the respect of colleagues in the peer-review process. Research methods have not matured yet to the point of comparability regarding credibility (internal validity), evidence, transferability (external validity), confirmability (objectivity) and reliability (dependability). Yet qualitative research methodologies in the interpretivist tradition, provide far more latitude when many nuanced exogenous variables, changing over the course of time, can bring a “best” persuasive description and explanation for what is going on with the business problem at hand based upon thorough exploratory research.

5The skills gaps surveys utilized skill classifications. Dr. Cappelli, in his research approach asked questions, developed strong inductive and logical support through case examples to answer these questions, then bundled the entire package to illustrate and portray an entirely different set of dynamics that accounted for the alleged STEM skills gaps. Coincident and following his initial research, others (Charette, 2013) have approached the problem with similar tools and questions, the outcome of which has buttressed Dr. Cappelli’s seminal work, laid the ground for new theory, and consequently and likely qualifies Dr. Cappelli’s work as seminal in nature. In simple terms Dr. Cappelli searched the literature and found that problems largely caused by employers themselves were at the root of the STEM skills gap.

Case after case, data upon data, and analysis over time yielded the following results, all well supported by the careful sifting and interpretation of the evidence:

  1. Employers are unwilling to pay market-clearing wages for STEM skilled workers.
  2. Employers have largely abandoned their internal company training programs that were aimed at preparing new recruits for success on the job.
  3. Employers have increased their hurdle rates in terms of inflated educational and experience requirements for jobs that used to be performed by less educated, less skilled workers.
  4. Employers have a vested interest, an incentive to continue their practices above and to push the responsibility and problem solving unto the educational system. For example, these employer claims have the effect of cajoling the government toward a policy of increasing the number of H1-B visas granted so lower compensated STEM skilled recruit can be found in other countries.

References

Accenture. 2012. “Solving the Skills Paradox: Seven Ways to Solve Your Critical Skills Gap.”

http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Solving-the-

Skills-Paradox.pdf.

Boston Consulting Group. 2013. “The U.S. Skills Gap: Could it Threaten the U.S.

Manufacturing Renaissance?” https://www.bcgperspectives.com/content/articles/lean_manufacturing_us_skills_gap_co uld_threaten_manufacturing_renaissance/.

Cappelli, Peter. 1995. “Rethinking the ‘Skills Gap’.” California Management Review 37(4): 108- 124.
Cappelli, Peter. 1999. The New Deal at Work: Managing the Market-Driven Workplace. Boston: Harvard Business School Press.

Cappelli, Peter. 2003 “Will There Really Be a Labor Shortage?.”Organizational Dynamic 32(3): 221-233.

Cappelli, Peter. 2012. That Pesky Skill Shortage in Manufacturing. HR Executive. http://www.hreonline.com/HRE/view/story.jhtml?id=534354686.

Cappelli, P. (2014, August). Skill Gaps, Skill Shortages and Skill Mismatches: Evidence for the US. Retrieved from http://www.nber.org/papers/w20382

CBO. 2011. “CBO’s Labor Force Projections Through 2021.” Congressional Budget Office.

http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/120xx/doc12052/03-22- laborforceprojections.pdf.
CVTS 2013. Continuing Vocational Training Statistics. Brussels: European Commission. Http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Continuing_vocational_tr aining_statistics

Charette, R. N. (2013). The STEM crisis is a myth. IEEE Spectrum. Retrieved from http://www.k12accountability.org/resources/STEM-Education/The_STEM_Crisis_Is_a_Myth.pdf

Deloitte. 2011. “Boiling Point? The Skills Gap in U.S. Manufacturing.” Manufacturing Institute. http://www.themanufacturinginstitute.org/~/media/A07730B2A798437D98501E798C2E 13AA.ashx.

Manpower 2012. The Talent Shortage Survey. http://www.manpowergroup.us/campaigns/talent- shortage-2012/pdf/2012_Talent_Shortage_Survey_Results_US_FINALFINAL.pdf

McKinsey. 2012. “The World at Work: Jobs, Pay and Skills for 3.5 Billion People.” McKinsey Global Institute.

http://www.mckinsey.com/insights/employment_and_growth/the_world_at_work.

President’s Council of Advisors on Science and Technology. 2012.

http://www.whitehouse.gov/sites/default/files/microsites/ostp/pcast-engage-to-excel-final_2-25-12.pdf.

PWC. 2012. “Facing the Talent Challenge: Global CEO Survey.”

http://www.pwc.com/gx/en/ceosurvey/2012/key-findings/hr-talent-strategies.jhtml.

U.S. Chamber of Commerce. 2006. “The State of American Business 2006.” Washington D.C.

Innovation and the History of Data Storage

Difficult to predict...

Difficult to predict…

The history of technological breakthroughs enabling the storage of data has had a run approaching one hundred years. Throughout this time, ever new technology was considered entirely new and unique, disruptive, and breakthrough. One could argue that people working in the data storage industry, from scientists to manufacturing operators to sales and marketing have become accustomed to only one constant: Whatever is the latest and greatest storage technology will not last longer than a few more years. The art within the science of data storage technology breakthroughs is which “horse” to bet on, since a plethora of new ideas in research and development are continuing.

Here are just a few of the developments in data storage since the 1920’s according to Zetta.net (2014):

  • Invention of the magnetic tape drive in 1928
  • Magnetic drum in 1932
  • Electrostatic cathode ray tubes and delay line memory in the 1940’s
  • Hard disk drive (HDD) in 1956
  • DRAM in 1966
  • Floppy drives in the 1970’s
  • CD, CD ROM, DAT and DDS in the 1980’s
  • Flash memory in the 1990’s
  • HD-DVD, Blue ray, Flash cards and holographic in the 2000’s
  • Cloud (today)

One thing data storage has always had were almost insurmountable challenges in terms of barriers to entry: Huge scientific leaps were required, huge amounts of capital were also needed – a semiconductor fab today will run upwards of US$5 billion, with plenty of issues getting from the drawing board to mass production. Certainly not for the faint of heart, but exciting nevertheless.

Where do we go from here? What comes next after the cloud? Most people don’t understand how to describe the “cloud” or even what it is. Basically the cloud’s tangible properties are server farms, data centers in far-flung places that very few people even knew existed. When you save your tax return or your Capella University assignments to the cloud, you are entrusting the storage and protection of your information to a massive array of networked server hard drives, tape back up, flash and software. The good news is that most of this information is in turn backed up, or mirrored, in another similar facility but at an entirely different geography, perhaps on the other side of the planet. The bad news is that if hackers do manage to get into your tax returns, well your problems have just begun.

According to Chen (2013) “The increasing adoption of cloud services is demanding the deployment of more data centers. Data centers typically house a huge amount of storage and computing resources, in turn dictating better networking technologies to connect the large number of computing and storage nodes. Data center networking (DCN) is an emerging field to study networking challenges in data centers.”

So what to expect over the next several years? While speeds and feeds and capacities continue to grow in flash memory and hard drive products, a lot of investment is going into data warehousing, data processing, data mining, network efficiency, fast internet connections and global capability to send and receive information from any place on the planet.

So is that it then? Not at all! In background are holographic storage and who knows? This 3D storage technique could be the next big thing. And in the world of flash? According to Villa (2010) ““Phase-change memory (PCM) technology is the only one of the proposed alternative technologies that is demonstrating the capability to enter in the broad NVM market and to become main-stream in the next decade.” Phase-change memory, Memristors and similar technologies are expected to replace flash entirely. And DRAM, flash and the controller technology necessary to run them together is now packaged into a single multi-chip which in turn is soldered to the motherboard.

What can keep up? One thing is certain though. Technology companies tend to trade at high stock price-earnings ratios. This is because some of them will break out and rocket to the moon. Most of the others will simply whither away, unable to keep up. And it is this phenomena that accounts for the very high volatility in stock price earnings ratios of the tech stocks traded on the NASDAQ exchange. No one is 100% which horse to bet on.

References

Bez, R., Camerlenghi, E., Modelli, A., & Visconti, A. (2003). Introduction to flash memory. Proceedings of the IEEE, 91(4), 489-502.

Villa, C., Mills, D., Barkley, G., Giduturi, H., Schippers, S., & Vimercati, D. (2010). ISSCC 2010/SESSION 14/NON-VOLATILE MEMORY/14.8.

Zetta, Inc. (2014). Retrieved from http://www.zetta.net/history-of-computer-storage

 

 

 

 

 

Chen, M., Jin, H., Wen, Y., & Leung, V. C. (2013). Enabling technologies for future data center networking: a primer. Network, IEEE, 27(4).

Who is harmed most by Federal Fiscal Policy? Minimum wage earners? Or retirees?

In the 1970’s monetary expansion led to an inflation rate that averaged over 7% while retired folks only earned less than 4% in interest on their passbook savings accounts.

Annual inflation

Policy Institute analysis of Census Bureau data. INTEREST RATES 1952 – 2009

 

 

Savings rates

The majority of retirees receive income from (1) monthly Social Security payments, (2) income from savings and investments, and (3) some must also take a part-time job just to make ends meet. For retirees over 65 years of age, these three sources provided an average income of $31,742 in 2012, according to a recent AARP Public Policy Institute analysis of Census Bureau data. For comparative purposes the poverty level for 2012 was about $23,800, thus retiree average income was less than $8000 per year above the poverty line.

Over the past five years the U.S. inflation rate has been averaging about 2% per year, while passbook savings accounts have been paying no more than 1.5% per year, generally less for short-term CD’s, money market, and checking and savings account interest rates.

Whether the government runs fiscal policy to generate high inflation or whether it runs fiscal policy to keep interest rates low, those unfavorably impacted most are the retired people making only a little more than the level we use to define poverty. The after-tax and after-inflation savings rates of the 1970’s, as well as the recent five years has been negative. Effectively the retired are losing money on their savings rather than making money.

When I was working my way through college I dropped off newspaper bundles to paperboys, delivered chicken and pizza, worked nights in a factory, and earned a little more as a teaching assistant. I still ended up having to supplement the costs of college tuition, books and living with student loans.

I never thought about demanding a “living wage” for any of these unskilled jobs, yet this is the battle cry among fast food, retail and other unskilled labor jobs today. How is it we should provide unskilled workers a living wage? There is a move afoot to increase the minimum wage, in some places 50-100% from the current federal rate of $7.25. States demand minimum hourly wages be paid starting at the federal minimum of $7.25 and in many instances even higher. The highest proposed state minimum wage I have read about recently is in Seattle, proposed at $15.00 achieved over a 7-year period. This will have the effect of increasing costs in already highly competitive industries such as fast food, retail, service and other unskilled labor. The higher labor costs would be passed along to the consumer or the businesses would cease to generate cash and profits and ultimately cease to exist.

The longer-term knock-on effect is that lower income earners will no longer be able to afford the higher prices for the food, goods and services these industries offer today. Restaurants and clothing stores would become affordable primarily only to middle and upper class income earners.

Instead of demanding a “living wage” for workers in jobs that require only a basic initial training period, we would be far better off focusing government policy on the ever-increasing burden on the expanding group of retirees. As fewer and fewer workers are supporting more and more retirees, a function of the retiring baby boom generation, the overall problem is exacerbated. We can start by changing federal fiscal policy to prohibit the government from penalizing savers in order to achieve fiscal goals.

RODD MANN | CPA | MBA | APICS CPIM | SIX SIGMA HANDS-ON-CHAMPION | DOCTOR OF BUSINESS ADMINISTRATION (candidate)

Cyber Challenges – Focus on What Matters Most to the United States

The Internet has enabled a great many benefits, connecting people around the globe, along with the information people share with each other. But just as Albert Einstein discovered the means for splitting the atom, and never intended that this technological breakthrough would be used to eviscerate thousands with an atomic bomb, so too has evil intent emerged as a result of the enabling of the World Wide Web and connectivity.

An ever-expanding array of Internet-based applications has virtually replaced Encyclopedia Britannica, search engines such as Google have placed at our fingertips answers to virtually any question we may have, from the trivial to the scholarly. Yet alongside these virtuous educational tools of the past decade or so we’ve also witnessed a dark side to the Internet. [1]

●     in 2010, out of the million most popular (most trafficked) websites in the world, 42,337 were sex-related sites.

●     from July 2009 to July 2010, about 13% of Web searches were for erotic content.

Besides the preponderance of pornography, other activities of ill intent have cropped up including identity theft, industrial espionage, credit card fraud, phishing, child exploitation – criminal use of the Internet has flourished. The Internet has also been used to great effect by criminals to trade their cyber wares. Investigators have uncovered sophisticated black market operations such as DarkMarket and ShadowCrew who use the Internet to trade cloned credit card data and bank account details, hire botnets (infected networks of computers) and deliver hacking tutorials.[2]

Malicious viruses have made headlines over the past several years, but the economic hardship suffered by American businesses has been almost insignificant, making these attacks more annoying than truly disruptive and costly.[3] A virus in 2000 infected 1,000 computers at Ford Motor Company. Ford received 140,000 contaminated e-mail messages in three hours before it shut down its network. Email service was disrupted for almost a week within the company. Yet, Ford reported, “the rogue program appears to have caused only limited permanent damage.” None of its 114 factories stopped, according to the automaker.[4]

Increasingly sophisticated virus attacks on one or more computers have caused many problems for individuals, companies and public institutions. Stuxnet, Flame, Duqu, Red October, and Iran’s ongoing attacks against the US banking system have brought the phenomenon into the nightly news, but the pattern of attacks includes numerous older and less discussed programs such as Titan Rain, Ghostnet, and the attacks on Estonia and Georgia.[5]

Arguably the most successful known campaign against American oil and gas firms is one dubbed “Night Dragon” by McAfee, the cyber security firm that first disclosed its existence. According to McAfee, Night Dragon was a “coordinated, covert, and targeted” campaign by China-based hackers to obtain confidential data from five major Western energy companies, beginning around 2008 and extending into early 2011. Night Dragon was able to steal gigabytes of highly sensitive material, including proprietary information about oil and gas-field operations, financial transactions, and bid- ding data. It is difficult to tell if and how any of this information was used. One U.S. oil executive interviewed said he believed that on at least one occasion a rival national oil company appeared to know his firm’s bidding plans in advance of a lease auction, which resulted in his losing the bid. Security experts believe Night Dragon is only one of several similar attacks, of which oil and gas companies are either unaware or afraid to disclose publicly for fear of displeasing investors.[6]

On September 11, 2001, hijackers took control of several commercial airplanes, crashing them into the Twin Towers of the World Trade Center (WTC) in New York City, the Pentagon in Washington, DC, and a field in Somerset County, west of Pittsburgh, Pennsylvania. Almost 6,000 people in total were killed. Besides the human toll, the cost of rebuilding was estimated at over $100 billion (CNN Television News Report, October 5, 2001). Since this time the United States has reacted by defensively spending billions and billions more trying to ensure such a terrorist attack on our soil cannot be repeated.[7]

Is it possible that terrorists could develop a Cyber Terror program to attack our power grid, harm our drinking water, cripple our communication capability or neutralize our military? Of all the dark and sinister ways the bad guys have been using and abusing the Internet, combined with future potential doomsday scenarios, how do we determine those that matter the most in order to focus our resources and reduce the affect of real and present cyber dangers? Let’s start by debunking some of the unlikely candidates and myths that matter much less.

Within the United States there are tens of thousands of separate water systems, many operating with their own network infrastructure and software. To impact national water utilities would require a serial attack on each system, not easily undertaken. Physical assaults typically associated with extreme weather, have disabled some water utilities, but only for a matter of days and only to a very limited extent. System problems have not affected water availability to any significant extent.

Some have argued cyber-terrorists could attack and shut down our power grid. In fact the 3,000 or so utilities, public, private and co-operative are highly integrated and connected. But the various electrical power providers use mostly different software and MIS technologies to operate their controls for power generation and transmission. An attacker would have to settle for a few vulnerabilities identified in a minority of the thousands of providers and even then there is no evidence that disruption would be prolonged to any great extent.

Could a hacker get control of one of our commercial or military aircraft? Even though there is a lot of technology and hardware including microprocessors and communication equipment aboard today’s aircraft, the plane is still subject to the pilot’s control of it, so even this fear is unfounded. (One exception is recently Iran did manage to lock into the right frequency in order to land an unmanned US drone in their country).

Another thesis of fear promulgated is how China (for example) could disrupt our banking system (Iran seems lately to be working on this very thing, although thus far without too much damage to banks’ data and data security) and bring about economic collapse in the United States. Possible, but unlikely, and here is why: China holds US$1.3 in United States Treasury Bonds. If the yield on these bonds was impacted by adverse economic conditions in the United States, China’s own sovereign wealth would be severely and negatively impacted. Most large economies around the world are hurt economically whenever the US economy suffers.

Of all of the possible challenges we face with Cyber Crimes, most can be managed, and the costs of the negative impacts are far outweighed by the many benefits our interconnected information superhighway provide to people around the world. But there remains one rather significant issue that we must address with a variety of ways and means, utilizing every possible tool at our disposal. This is the problem of Cyber Espionage. The legacy of the United States is its inventiveness, its innovation, and technological breakthroughs — the “knowledge” that has been created — especially in the past 50-100 years. All of this is protected by a variety of legal sanctions whether trademarks, patents, copyrights, with a huge accretive economic impact in the form of royalties and licensing fees.

If a rogue country is sanctioning cyber espionage in order to glean technology, learn trade secrets, understand and reverse engineer drugs, electronics, or radar-evading aircraft, that country gets an unfair leapfrog jump without having had to pay for it.[8] We measure the costs of Cyber Espionage in terms of direct costs (lost sales and market share), indirect costs (increased competition and related disadvantages caused by competitors learning trade secrets) plus defensive costs (increasing the robustness of the firm’s firewalls and security to prevent a future breach).

It has been estimated that Cyber Espionage costs the United States at least $100 billion per year. But that is only the direct and measurable costs.[9] The indirect and defensive costs are certainly much larger. Companies invest heavily in Internet safeguards such as firewalls and other security systems to prevent an unwanted breach of their company network. Yet, smart hackers continue to upgrade their capability and find ways to circumvent increasingly robust computer systems. This in turn leads to more company investment to continuously improve upon and strengthen and protect the company data.

Knowledge management focuses on capturing and sharing knowledge. Because of this, KM researchers tend to focus on issues related to knowledge capture, storage, and sharing. However, because knowledge is valuable, it is a target needing to be protected. KM researchers and practitioners need to think security and explore how important security skills are to KM practitioners and researchers. Increasingly new KM job postings are showing up and MIS departments are investing in and making knowledge security a corporate priority.[10]

The indirect costs are far greater however. Within the United States companies spend a total of almost half a trillion dollars each year on research and development. This is the investment that leads to new breakthrough technologies, novel, less expensive, and qualitatively superior products, and drugs and medical equipment to treat or even cure various diseases. If a rogue country such as China can glean this technology for themselves and for free, they have an immediate an unfair advantage, gaining knowhow they spent almost nothing to acquire, utilizing this free knowhow as a platform to move their own technology further along.[11]

Recently President Obama has spoken out to directly implicate China conducting Cyber Espionage, going so far as to name the location in Shanghai allegedly housing the prolific hackers: the computer security firm Mandiant, that identified P.L.A. Unit 61398 near Shanghai has been named as the likely source of many of the biggest thefts of data from American companies and some government institutions. [12]

China’s extensive cyber research activities and allegations over cyber espionage have put the United States on high alert.

XI’AN, CHINA—The leaflet posted in the school of information engineering here at Xi’an Jiaotong University was brief but enticing, offering computer-savvy graduates a hefty stipend and the chance to serve their motherland. “I was curious,” says Liu, who asked that only his surname be used in this article. It was the spring of 2007, and Liu, then 24 years old, was wrapping up a master’s degree in computer algorithms. Encouraged by his supervisor, Liu called the number on the leaflet; that summer, he joined an elite corps of the People’s Liberation Army (PLA) that writes code designed to cripple command-and-control systems of enemy naval vessels.

PLA writings call the electromagnetic spectrum “the fifth domain of battle space,” putting cyberspace on an equal footing with ground, air, sea, and space. Cyber conflicts “threaten national security and the very existence of the state,” two scholars with the Academy of Military Sciences wrote in China Youth Daily in 2011. State media regularly tout PLA activities in cyber defense, a catchall term encompassing everything from surveillance and espionage to weapons such as electromagnetic pulse generators that disable computer networks and malware designed to take down power grids or contaminate water supplies. Augmenting PLA efforts is a legion of civilian researchers and hackers whose efforts ostensibly are directed at repelling electronic intruders. In 2011, more than 8.5 million computers in China “were attacked by rogue programs every day,” a 48% increase over the previous year, says Li Yuxiao, a cyber law expert at Beijing University of Posts and Telecommunications.[13]

“Only three months ago, we would have violated U.S. secrecy laws by sharing what we write here—even though, as a former director of national intelligence, secretary of homeland security, and deputy secretary of defense, we have long known it to be true,” write Mike McConnell, Michael Chertoff and William Lynn.[14] “The Chinese government has a national policy of economic espionage in cyberspace. In fact, the Chinese are the world’s most active and persistent practitioners of cyber espionage today.”

“Evidence of China’s economically devastating theft of proprietary technologies and other intellectual property from U.S. companies is growing. Only in October 2011 were details declassified in a report to Congress by the Office of the National Counterintelligence Executive. Each of us has been speaking publicly for years about the ability of cyber terrorists to cripple our critical infrastructure, including financial networks and the power grid. Now this report finally reveals what we couldn’t say before: The threat of economic cyber espionage looms even more ominously.”

What will be needed to combat this seemingly intractable problem? A multi-pronged solution has recently been proposed, providing complete coverage of how to ensure the protection of company proprietary information and assets, including how to develop an effective corporate counterespionage program. Written by a former veteran of the Office of Naval Intelligence, the program provides guidelines to determine the current threat level to an organization’s proprietary assets as well as the physical security countermeasures, policy, and procedures that must be in place to establish an effective counterespionage program. This comprehensive approach is what is called for, a systems approach, multi-faceted to address protecting sensitive data and trade secrets in a corporate security setting, organizations that have proprietary information and assets to protect, businesses that have operations or partner with companies overseas such as China, organizations that work with the federal government on classified projects, security and counterespionage professionals, and university degree programs in Homeland Security and intelligence. [15]

We need to move beyond simply calculating explicit direct costs of Cyber Crime, as mentioned earlier, approximately $100 billion in the US annually and $400 billion worldwide.[16] This is only a relatively small part of the cost involved. A broader more complex solution must be aggressively undertaken to protect our national interests and the knowledge and knowhow our country’s organizations have spent so much time and capital developing. The sense of urgency cannot be overstated and besides the prophylactic systems-approach aimed at reducing the problem, a head-on confrontation demanding rogue states halt their state-sanctioned hacking immediately, must be met with very serious consequences if compliance is not forthcoming.

 

 

 

 

[1] Ogas, O., & Gaddam, S. (2011). A Billion Wicked Thoughts: What the Internet Tells Us About Sexual Relationships. Penguin.

[2] Home Affairs Committee, & Great Britain. Parliament. House of Commons. (2013). E-Crime: Fifth Report of Session 2013-14 [electronic Resource]: Report, Together with Formal Minutes, Oral and Written Evidence.

[3] Axelrod, R., & Iliev, R. (2014). Timing of cyber conflict. Proceedings of the National Academy of Sciences, 111(4), 1298-1303.

[4] Lewis, J., & Baker, S. (2013). The Economic Impact of Cybercrime and Cyber Espionage.

[5] Sliva, A. (2013, August). A Policy Analysis Framework for Cybersecurity Operations. In Social Science, Computer Science, and Cybersecurity Workshop Summary Report (p. 26).

[6] Clayton, B., & Segal, A. (2013). Addressing Cyber Threats to Oil and Gas Suppliers.

[7] McGavran, W. (2009). Intended consequences: regulating cyber attacks. Tul. J. Tech. & Intell. Prop., 12, 259.

[8] Nakashima, E. (2013). US Target of Massive Cyber-Espionage Campaign. Washington Post.

[9] Benny, D. J. (2013). Industrial Espionage: Developing a Counterespionage Program.

[10] Jennex, M., & Durcikova, A. (2014, January). Integrating IS Security with Knowledge Management: Are We Doing Enough to Thwart the Persistent Threat?. In System Sciences (HICSS), 2014 47th Hawaii International Conference on (pp. 3452-3459). IEEE.

[11] Polatin-Reuben, D., Craig, R., Spyridopoulos, T., & Tryfonas, T. (2013, October). A System Dynamics Model of Cyber Conflict. In Systems, Man, and Cybernetics (SMC), 2013 IEEE International Conference on (pp. 303-308). IEEE.

[12] Sanger, D. E. (2013). U.S. Blames China’s Military Directly for Cyberattacks. The New York Times.

[13] Stone, R. (2013). A Call to Cyber Arms. Science, 339(6123), 1026-1027.

[14] McConnell, M., Chertoff, M., & Lynn, W. (2012). China’s Cyber Thievery Is National Policy—And Must Be Challenged. The Wall Street Journal.

[15] Benny, D. J. (2013). Industrial Espionage: Developing a Counterespionage Program.

[16] Anderson, R., Barton, C., Böhme, R., Clayton, R., van Eeten, M. J., Levi, M., … & Savage, S. (2013). Measuring the cost of cybercrime. The Economics of Information Security and Privacy, 265-300.

Rodd Mann, Doctor of Education candidate (Ed.D.) at Concordia University 

Financial METRICS

Five Metrics Every Finance Dashboard Must Include

By Rodd Mann, Adjunct Professor and doctoral candidate, Concordia University, Irvine, CA

Image 29 May 2014

Businesses need to set strategic goals and objectives that form the basis for every aspect of performance that is measured within the organization—most critically, the key ratios and metrics controllers use in finance. A lot of businesses set so many metrics that the most important ones are lost in the mix, but in reality, only five metrics are critical for controllers to include in an effective dashboard for finance.

These metrics are as follows:

#1: Sales. When measuring sales, controllers should keep in mind that all measurements need to be looked at in qualified, not absolute, terms. For example, what is the cumulative annual growth rate (CAGR)? If the market on average is growing at a rate of 20 percent and a company’s sales are growing at only 10 percent, then that company is losing market share.

Controllers need to look at sales in terms of time, trend, and industry. It is impossible to determine a trend without looking at data over at least a three-year period of time. Also it is critical to look at sales data against what is happening in the industry as a whole in order to determine whether this key metric is strengthening or weakening.

#2: Manufacturing costs. These can be expressed as a percentage of revenue, or subtracted from revenue to get the gross profit margin. Manufacturing costs include materials costs along with labor and overhead needed to build the product.

Material costs can comprise up to 90 percent of the total cost of a product. It is vital for controllers to get a handle on these supplier-related costs, as well as their internal labor and manufacturing overhead (utilities, equipment depreciation and supervisory salaries to name a few). It is also important to analyze each of these cost categories separately, looking carefully at variances between the standard or target costs compared to the actual manufacturing costs.

#3. Operating expenses. Controllers that are not manufacturing companies need to take a close look at their operating expenses. They can look at these as a percentage of revenue and also relative to their competitors’ expenditures. Operating expenses include human resources, finance, security, MIS, advertising and marketing, general administrative expenses, as well as salaries of executives.

#4: Profitability. Profitability can be measured in three different ways: as a percentage of revenue, as a percentage of total equity, or if you are a manufacturer, as profitability divided by assets in place. For example, if the company has made a huge investment in machinery and equipment, are those assets generating sufficient profitability?

When calculating profitability, the denominator could be revenue, equity, or assets; this all depends on your perspective. For instance, the COO or general manager would probably track profitability as a percentage of sales. If a manufacturing company has invested heavily in a semiconductor fabrication facility, perhaps upwards of $3 to $5 billion, that company would need to measure the profit-generating capability of those assets in place.

#5: Cash flow. A business can be very profitable and perhaps also growing quickly— yet, somewhat surprisingly, it can run out of cash. Sadly, this has happened to many profitable, fast-growing companies that didn’t see how much cash it takes to increase inventory and accounts receivables.

Why? Businesses can run negative cash flow if they are spending a lot on property and equipment, or have too much revenue tied up in their receivables and inventory, so these are areas that need to be tracked closely. Other areas affecting cash flow that need to be tracked would include total compensation and other people-related costs such as travel.

In addition to tracking these five dashboard items on a predetermined basis, typically monthly, controllers can take the following steps to contribute greater value to their organizations:

  • Help to make sure everyone within the organization is clear about, and on board with, the business’s strategic objectives by translating the goals of the management team into clear, concrete, metrics.(Also make sure the ERP is set up to support measurement and reporting those metrics.)
  • Communicate clearly up and down the management chain how everyone is doing against those performance metrics—for example, by sharing results when the monthly financial statements come out. Controllers can get creative with their dashboard—for example, using a red, green, and yellow light coding system to show areas where metrics are tracking well, where there is trouble, and where remedial action needs to be taken.
  • Focus on finding ways to make employees and suppliers happy (and customer satisfaction and loyalty will naturally follow). For example, work to ensure that employee benefit packages are fair and suppliers are paid in a consistently timely manner.
  • Help design incentive and compensation systems that are set up around performance metrics and goals. This will help ensure that people have the focus and motivation to engage in the right behaviors that will yield the right business results.

While it’s true that controllers have a fiduciary duty to follow U.S. GAAP and close the books in a timely fashion, the modern role of a controller is developing into a person who adds value to the business by helping to establish a sound dashboard and use that dashboard to demonstrate what is and is not working. Controllers need to become an integral part of the business, helping in decision-making about everything from whether to outsource and where to build a new plant to what investments to make. This means being able to pull together a lot of the data that is available now and then converting that data into knowledge and information that will help the business fulfill its current objectives as well as establish effective new goals for the future.

While it’s true that controllers have a fiduciary duty to follow U.S. GAAP and close the books in a timely fashion, the modern role of a controller is developing into a person who adds value to the business by helping to establish a sound dashboard and use that dashboard to demonstrate what is and is not working. Controllers need to become an integral part of the business, helping in decision-making about everything from whether to outsource and where to build a new plant to what investments to make. This means being able to pull together a lot of the data that is available now and then converting that data into knowledge and information that will help the business fulfill its current objectives as well as establish effective new goals for the future.

Editor’s Note: Rodd Mann has many years of experience as a controller, most recently at Kingston Technology. He will be speaking at the IOFM Controller’s Conference and Expo, September 14-16, 2014 in Chicago.

r_mann



Asian American leaders in US businesses

Across America you will find Asian Americans underrepresented in leadership positions. While Asian Americans account for 5% of the US population, only 1/3rd of one percent are corporate officers today. Less than one percent of the corporate boards have Asian Americans as directors, and about 2% of all college presidents are Asian Americans.

The cultural lessons young Asian Americans learned growing up were piety, respect for authority, humility, hard work, harmony, and a willingness to delay gratification, that is, the habit of sacrificing for the future.

So why is it that these seemingly admirable traits don’t translate into newly minted successful leaders, especially in the larger companies in the United States? I submit that the typical American company did embrace such values in the past, but that things have changed. What has changed, unfortunately, has gone in the wrong direction. Chief Executive Officers today must meet current-quarter sales and earnings expectations or their days may be numbered. This focus oftentimes comes at the expense of smart, long-term investments that would in the short run create poor financial results.

In addition, the intense pressure to create instant success has led to the downfall of many CEO’s. Whether accused of insider trading, bribing foreign officials, cooking the books, or selling products known to be dangerously faulty as the recent news about General Motors indicates, character, ethics and honesty are being sacrificed at the altar of financial success.

In Silicon Valley, young, talented and bright engineers and financial analysts are leaving technology companies every two years on average. Their loyalties are no longer to the company but to themselves. Just as soon as they determine a better opportunity has presented itself elsewhere they submit their two-week notice and are gone.

A group called the “Leadership Education for Asian Pacific’s” teaches members how to retain their culture while learning to speak up at meetings, advertise their accomplishments and all of what is deemed today to be requirements for leadership positions. The neutral expression acceptable at home must be replaced with a continuous smile, however disingenuous.

Yet while Asian Americans try to understand and implement all of the strategies necessary to become leaders in large US companies, within Asian American companies we find highly successful business models built around Asian American culture. If the owners and more than half of the employees are of Asian American descent, the business is run consistent with the culture and is run successfully.   Good examples include Kingston Technology, Newegg, Wintec, Vizio and more.

Is it possible that the large US companies could benefit by adopting some of the leadership traits of the Asian American companies? Can we ever return to good long-term business decisions, emphasis on character and ethics, organizational harmony and attracting and retaining talent for the long-term? For the Asian American seeking a leadership role that won’t require him or her to compromise their deeply held cultural beliefs, perhaps consider joining the firms where the culture is already in place.

Servant Leadership

Last week we discussed “Collaborative Management,” an emerging philosophy that describes various management techniques utilized to promote a sense of oneness and teamwork within a business. This style combines strengths across team members in order to offset the weaknesses. It operates to improve efficiencies within all company operations, resulting in positive impacts to employee morale, companies’ supplier partnerships; and this in turn creates a favorable opinion of the company by customers and other stakeholders.

Today we will take up “Servant Leadership,” which together with “Collaborative Management,” forms a sturdy and enduring foundation upon which to build your successful business.

The term is taken from a 1970 essay entitled “The Servant as Leader,” written by Robert K. Greenleaf. Those who have studied this leadership style agree the following are central tenets to the management technique:

  1. Listening to others to learn from them, genuinely seeking as many good ideas as possible from every employee with a viewpoint.
  2. Understanding these viewpoints and the feelings of others, and responding accordingly, politely, with due respect and consideration; appreciating each person for their unique emotional and spiritual well being. If you lack faith, others will be unfaithful to you.
  3. A keen self-awareness of the leader’s own weaknesses, not just strengths, along with the ability to keep his or her own feelings in check.
  4. Honesty, high integrity and character, a good steward of the company’s assets, someone who earns high trust.
  5. Ability to persuade as he or she works toward a consensus solution for any given problem.
  6. Visionary that can discern and forecast trends in order to course correct the ship with plenty of lead-time to make long-term strategic and structural changes and adjustments.

The traditional leadership styles going back to the advent of the Industrial Era, focused on traits, behavioral styles, situational and functional, leaving no room for “Servant Leadership,” although the “Participative Leadership” style is not entirely dissimilar to “Servant Leadership. The evolved American company is generally autocratic, and hierarchical. These companies attempt to clearly structure and define tasks, keeping employees that are able to produce according to measured expectations of management. To an employee this seems to objectify him or her, as no different than a machine, just another asset that once depleted needs replacing. These employees quickly adjust their loyalties to themselves and are continuously looking for new jobs that appear to offer more in terms of compensation and environment.

The servant leaders, on the other hand, carefully select people and attempt to keep them. They do so by addressing aspects of humanity that results in appreciation from the workforce. If something needs to be changed, management makes every sincere attempt to see how (not if) the change can be implemented. Along these lines the servant leader builds lasting, loyal partner relationships with their suppliers. The net result is that the company ends up with loyal employees and suppliers who are all in this for the long haul. Consequently, subject matter expertise gets honed over the many years and the loyalty for the two groups ensure customers get looked after in the manner you hope. Hiring costs, training, turnover, customer dissatisfaction all decline. Innovative and creative ideas, productive and fulfilled employees, all advance.

But you cannot simply decide to ‘become’ a servant leader. It must first be in your heart to do so. You must genuinely enjoy the company and diversity of people; and you need a heart to serve, not to be held in high esteem and the enjoyment of exercising your power. How can you tell if a leader is a servant leader? Examine the results – Are those being served growing instead of bitter and discontented? Are they making the contributions you know they can make, and getting better at doing so over the years? Are they truly autonomous, or are they trying to feign autonomy because their boss demands autonomy? And do they grow into servant leaders themselves?

In summary, if you truly believe you have the personality and the heart to be a servant leader, a vision for the business, and a love of people to help you to get there, by all means this is your leadership style and model. You will be encouraging, supporting and enabling your team members to reach their highest capabilities and potential. You will be delegating responsibility, engaging in participative decision-making.

“Jesus called them together and said, ‘You know that those who are regarded as rulers of the Gentiles lord it over them, and their high officials exercise authority over them. Not so with you. Instead, whoever wants to become great among you must be your servant. And whoever wants to be first must be servant of all. For even the Son of Man did not come to be served, but to serve, and to give His life as a ransom for many.’” Mark 10:42-45

Image