A Framework for Total System Empowerment

By Barry Oshry

Each of us, regardless of our position in the organization, needs to:

see ourself as constantly shifting in and out of Top, Bottom, Middle, and Customer conditions, know that in each condition we have the system power potential for strengthening the system’s ability to survive and develop, to cope with the dangers in its environment and to prospect among its opportunities, recognize that when we’re in the Top condition, our system power potential is to function as Developers, in the Bottom condition as Fixers, in the Middle condition as Integrators, and in the Customer condition as Validators, and, in order to achieve the system power of these conditions, avoid the reflex responses: sucking up responsibility when we’re Top, holding higher-ups responsible when we’re Bottom, losing our connectivity when we’re Middle; and holding delivery systems responsible for delivery when we’re Customers.

These forms of system power enhance one another and together create Total System Power.

How Business Schools Lost Their Way

Fantastic article from Business Week.

By N. Craig Smith and Luk Van Wassenhove , On Tuesday January 12, 2010, 8:08 am EST

Business schools have been blamed for the economic crisis. Their MBA students are said to be responsible for wreaking the havoc in the financial markets we are all now suffering from and business schools are chastised for not training them better, not least in failing to instill a clear sense of right and wrong.

Are they to blame? To the extent that MBA graduates have been closely associated with many of the spectacular failures of financial institutions witnessed over the last 18 months, they may justifiably be criticized for the mispricing of risk in relation to specific financial products and an underestimation of systemic risk more generally. They may also be criticized for failing adequately to question the assumptions of the financial models being used and, with hindsight at least, for following the crowd and gambling that they could continue to dance, to borrow the unfortunate phrase of Citibank's (NYSE:C - News) Chuck Prince (not an MBA), when it was way past time to be off the dance floor.

In some cases, where perverse incentives of compensation systems were at work, the criticism also seems warranted that these individuals focused solely on serving their own self-interest and gave scant regard to their obligations to others, even shareholders. Much like a dodgy second-hand car salesman, it seems, they knowingly sold flawed products -- such as the mortgage-backed securities they knew would blow up because of unsound origination processes. Worryingly, these practices were evident in the financial institutions that have survived -- and some that have prospered -- in the crisis, as well as those that failed.

Indirect

It would be a mistake to say that business schools are directly to blame, even when their graduates were closely involved; there are more basic drivers. But business schools have played a role indirectly, due fundamentally to their adherence to and perpetuation of an ideology that has contributed significantly to the crisis, albeit unintentionally. That is the ideology of Shareholder Value Maximization (SVM). In most business schools, SVM is the leitmotif of finance teaching and implicit throughout the rest of the curriculum.

Ideologies often appear to be serving society as a whole while advancing the interests of particular sectors. So it is with SVM. The economic theory of the corporation holds that SVM results in the best social outcome: societal wealth maximization. But at the same time it serves the interests of shareholders and the managers who are its adherents and its beneficiaries, at least when their compensation is pegged to shareholder returns. This criticism of SVM is not to suggest shareholders are unimportant; they warrant a return on the capital they provide that reflects the financial risk incurred. However, this is not the same as maximizing shareholder value.

A theory advanced in business schools to justify SVM says shareholders are the "residual claimants." Shareholders, the theory goes, should be uppermost in the minds of management, because they receive their returns only after the claims of other stakeholders have been met. This is evident in companies meeting their contractual and legal obligations to stakeholders such as employees, but it is also evident in companies meeting noncontractual obligations determined by economic factors. For example, these might be obligations beyond legal or statutory requirements to a local community affected by a plant closure, where the company identifies that its reputation might be harmed and it might suffer an economic loss if the obligations are left unattended. As this example might suggest, however, not all ethical obligations would be reflected in a potential economic loss, even in the long term. Consider a management practice of engaging in bribery when one can get away with it. This might be consistent with shareholder value maximization, but not advancing societal welfare.

Faulty

The theory also relies on assumptions amply demonstrated as lacking in recent months. For example, it assumes effective government regulation to ensure everybody plays by the rules and to manage externalities (outcomes not readily susceptible to market sanctions, such as pollution). It also presumes effective corporate governance such that shareholders hold management to account. More technically, it relies on various economic assumptions, such as the efficient market hypothesis (that share prices reflect all relevant information on the stock).

Aside from the assumptions required in subscribing to the SVM model and the potential ethical issues left unaddressed, there are major practical considerations in the teaching and application of the SVM ideology. While professors might explain in detail how the underlying theory of SVM treats shareholders as residual claimants, what matters is the message students take away. That message is shareholder primacy -- that their purpose in business is to make decisions that put the interests of shareholders above all others.

When they go into their jobs -- in finance and elsewhere -- they find an environment that marches to the same tune and is incentivized to do so. The theory of SVM generally translates into practice through the mechanism of the share price. This flawed and often easily manipulated measure of long-term company value is then used as a basis for business decision-making. This has huge potential consequences for the individuals involved (rich bonuses they may not deserve) and their organizations (short-term decisions that harm long-term viability), as well as society.

Differences

If SVM is problematic from a developed world perspective, it can be disastrous from the perspective of the developing economies where global business and MBAs increasingly are to be found -- as well as most of the 1 billion people going hungry in the world. Many large companies today operate in countries with little or no government and a huge potential for corruption, and, given such technologies as the Internet and mobile phones, how they operate can be instantly broadcast worldwide. Today's global business environment is not the simple U.S.-centric world of free-market economist Milton Friedman. It is far more complicated.

What should business schools do? While late in the day, perhaps, Jack Welch was right when he described SVM as "a dumb idea." Business schools need to stop worshipping at the altar of SVM and teach it with greater intellectual honesty and with attention to its many deficiencies, both theoretical and practical. They also need to do a better job of developing its most plausible contending framework: stakeholder theory. This is a more complex but current and realistic view of management, one that recognizes that the task of managers is to serve multiple stakeholders -- giving shareholders their due, but not to the exclusion of others with legitimate claims.

Finally, business schools should give more attention to their input as well as output. With starting salaries for MBA graduates often well in excess of $100,000, business schools need to be careful not to attract narrow-minded, self-centered people who might see a way to get rich quickly by eagerly and unquestioningly embracing an ideology that serves that end. Business schools should look to attract and properly train people to be responsible leaders who are well-rounded and have the capable minds and the courage to ask the critical questions that went unasked for too long.

Class Action

UIS needs to add a program like this. If the university wants to become, in the words of Chancellor Richard D. Ringeisen, "one of the best small public liberal arts universities in the nation.", then UIS will have to lead with bold ideas that build skills that this generation needs to compete in the global economy.

There are plenty of small and medium-sized businesses in this region that could benefit from a program like this.



By SHELLY BANJO
With the U.S. economy softening early last year, the owners of Julian Krinsky Camps & Programs in King of Prussia, Pa., looked for advice on attracting more customers from abroad.

The company, which offers sports, fitness and educational programs, got help from three M.B.A. students. And even better: The advice was free.

"It was helpful to have students with a young, entrepreneurial spirit analyzing our business opportunities from their perspective," says Tina Krinsky, the company's chief executive. And, she adds, it was valuable to have a thoroughly researched plan with hard data to supplement the company's own ideas about expansion.

The Wharton students, whose research included interviews with parents, students, schools and guidance counselors, also offered marketing strategies specific to South Korea. For instance, they suggested the company market itself through hagwons, the after-school study programs that many South Korean students attend. Many hagwons help organize groups of students who would like to travel, and "as these organizations are highly respected by parents and offer convenient access to students, we found it most valuable" to approach them, says Ms. Krinsky. These and other contacts brought a "handful" of Korean students to Julian Krinsky programs last year, she says, and "we expect to see more applicants this year."

Small businesses throughout the country have discovered the benefits of student consulting programs at business schools or at small-business development centers. These programs can help small businesses identify new sources of funding, tap new markets, improve their marketing strategies and find other ways of doing business more efficiently and effectively, all at no cost or for a fraction of what a professional consultant would charge.

Businesses may have to compete for acceptance to some programs. And given the limitations of some students' experience and the time they can devote to any project, companies shouldn't expect too much. But these programs can provide crucial help in weathering the economic downturn or taking advantage of new business opportunities.

Bread Winner
While programs differ in size and scope, typically teams consisting of two to 10 M.B.A. students or undergraduate business students take on semester-long consulting projects for small businesses, including nonprofits. Students' backgrounds vary, but some have years of business and entrepreneurship experience. In any case, they are advised by faculty members or outside professional consultants. Programs offered through small-business development centers, which are affiliated with the U.S. Small Business Administration, typically are free. Fees for programs offered directly by schools vary widely, from about $300 to $10,000 for 500 to 800 hours of consulting, for the most part, though charges can go as high as about $20,000.

The Community FoodBank of New Jersey got help from local students in planning a new line of business. Kathleen DiChiara is chief executive of the food bank, which takes in donated food and distributes it to nonprofit organizations, emergency food pantries and shelters. When she realized hundreds of donated bagels were going stale before they reached hungry patrons, she wanted to find a solution.

Officials of the food bank came up with the idea of using the donated bagels to create a bread-based product they could sell for a profit in bakeries and grocery stores. That not only would prevent waste but also generate income to support increased demand for the food bank's services, and create jobs in the community. But officials quickly realized they didn't have the business knowledge to bring the idea to life.

In September 2007, Ms. DiChiara turned to the MBA Team Consulting Program at Rutgers Business School-Newark and New Brunswick, in New Jersey. The program serves between 40 and 50 businesses a year. Teams of six to 10 students spend about 14 weeks with each business. Fees range from $10,000 to $20,000 per project, depending on the business's revenue.

A semester later, the food bank (which paid $5,000, before the program raised its prices) received a business plan to turn the donated bagels into bagel chips and distribute them across New Jersey. The students researched the costs of new equipment, packaging and labor. They conducted taste tests and surveyed consumers to find out how much they would pay for a bag of bagel chips knowing the profits would go to charity. They researched the competition, outlined production logistics and recommended a marketing campaign.

The chips aren't on retail shelves yet, but the food bank conducted three sales tests last summer at local farmers' markets, selling out 300 of the $4 bags each time, Ms. DiChiara says. Using projections from the Rutgers study, the food bank hopes to make $100,000 a year in profit through bagel-chip sales.

Pickiness and Eagerness
To be sure, acceptance to these programs can be competitive. The schools, after all, are looking for situations where their students can learn the most. Generally, that means universities are looking for small businesses that have been operating for at least three years and may have "plateaued, so a strategic business plan becomes a growth plan," says Paul Belliveau, director of the Rutgers program.

Schools prefer local businesses, to facilitate face-to-face meetings with students, but will sometimes consult for out-of-town projects. Some may also favor businesses that could offer employment opportunities for students after they graduate. And programs often require frequent interaction with the companies' senior management and access to the firm's financial information, both of which may make some potential clients uncomfortable.

Paul Kedrosky, a senior fellow at the Ewing Marion Kauffman Foundation, a nonprofit based in Kansas City, Mo., that fosters entrepreneurship, says the student programs are cheap and effective -- if properly managed by the client. He says business owners should keep in mind that students are "often tail-waggingly agreeable to do all sorts of stuff that they often have no business doing."

Mr. Kedrosky suggests asking students to stick to tactical, manageable tasks such as conducting surveys and product research, where the business owner can set clear deadlines and expectations. Students generally have only a semester to complete tasks, he notes, and may not have deep knowledge of a client's particular industry. So while a "strategic analysis of your industry is sexy and fun, they might not have the chops to do it," he says.

Small businesses can also take advantage of other, noncompetitive but less-personalized programs at many small-business development centers. The SBA offers free or low-cost consulting sessions on a variety of broad topics such as cash-flow analysis and accounting. A list of development centers and their contact information and Web sites can be found on the SBA's site, sba.gov. In the "Services" menu, click on "Counseling & Assistance."

—Ms. Banjo is a reporter for Dow Jones Newswires in Jersey City, N.J.
Write to Shelly Banjo at shelly.banjo@wsj.com

Goodbye SAAB

This was a great car company with a long and regal history that was destroyed by GM. It's like GM has an inverse Midas touch and everything they acquire turns to scrap.

Great example of poor service

I think customer service is dead. Lot of companies talk a big line but fail because they are not really taking great service seriously. Here is an example from SPSS:

Thank you for using our Internet site to submit your question. We hope that this provides you with a convenient method of communicating with us. Our goal is to respond to you within five business days.

Way to go! Set your goals high! The next five business days??

J.M. Smucker Profit Nearly Triples on Folgers Addition

Sweet products brew up fresh dollars!