Immigration Reform — Where Are the Business Leaders?

April 16, 2010

Solving our immigration problem feels like a classic public sector challenge – the issues at stake are things like border enforcement and protecting vulnerable populations (lower-skilled native workers, illegal migrants).  This is a job for pundits and policymakers.  Capitalists have companies to build.

It’s critical that business leaders jump into this fight.  The reform process has big implications for American competitiveness, and the public debate is filled with basic misinformation.  In many cases, the data to inform a more honest debate is locked up in the experience of companies and managers on the front lines of rebuilding our economy.

One place where we need a reality check is on the merits of expanding our guest worker programs. Our economy needs temporary workers to grow and compete, and many migrants are eager to work on temporary contracts. But both the right and the left are united against these programs, claiming that it’s impossible to control or protect the workers we let in temporarily.  My colleague and co-conspirator, Edward Schumacher-Matos, challenges these assumptions in his column on immigration for the Washington Post.

A real guest worker program is a good idea that’s been executed badly.  As Schumacher-Matos suggests, we can fix the execution problems. Designed well, these programs can strengthen our economy while helping migrants escape poverty without sacrificing their safety and dignity along the way.  All without picking a high-profile political fight over who is worthy of citizenship.

Critics claim that these programs are impossible to enforce, at least without turning into Singapore, but other liberal democracies are now experimenting with creative solutions that don’t rely on draconian enforcement measures. As Eleanor Brown, (George Washington University), has documented, Canada is quietly innovating with norms-based compliance strategies that rely on community pressure and a truly bilateral partnership with sending countries.  The results are an unambiguous improvement in compliance rates.

Scholars studying the features of good program design emphasize longer and more flexible contracts for migrants, options for re-entry that don’t create incentives to disappear, and visas that aren’t exclusively tied to one employer. Programs built on these principles can be consistent with our values as a nation.  It’s our obligation to protect anyone working within our borders from abuse, but that doesn’t have to mean unrestricted access to all the privileges of citizenship.  We have to weigh the moral tradeoff of denying guest workers some rights against giving our neighbors the only chance they may have to work for a living wage.  Poverty is its own crime against humanity.

But policymakers need political cover in order to take up this issue. Business leaders need to help them make the case to the American public for why programs like these — and immigration, in general — are good for the growth and prosperity of the country.  Bob Hildreth, a successful financial services entrepreneur and founder of the Foundation for an Open America, is one of the few private sector voices fighting for a more informed discussion about the true economics of  immigration.  He is now funding academic research at Harvard’s Center for International Development on the economic upside of immigration, and he’s working to promote these benefits himself by championing immigrant education and legal protections in the U.S.

We hope that more business builders follow Bob’s lead.


What’s a Good Business Book?

March 28, 2010

In response to our post on Youngme Moon’s Different, one of our readers asked, “what criteria do you use in determining the quality of a good business book?”  It’s a great question, and the answer is probably far more subjective than we want it to be. I’m personally looking for the mix of inspiration and instruction, solidly in that order.  I want to be challenged to be a better manager/leader/person, and then I want some directional clues as to how I might pull it off or at least what success might look like.  And I want the messy, human version of it.  I want the backstory and the stumbling, the scenes of people taking their swing and sometimes missing because that’s how my life feels to me.  Those details normalize the improvement process.

Based on that criteria, here are ten more “business” books (very broadly defined) that moved me recently, in no particular order:

  1. Absolutely American — a Rolling Stone writer spends four years following cadets at West Point as they learn how to lead, and drinks the Kool-Aid by the end.  Speaks to the power of commitment and meaning in an organization.
  2. The Essential Drucker — a ‘best of’ volume from the “man who invented management.”  There is magic on every page, sentences like, “there is surely nothing quite so useless as doing with great efficiency what should not be done at all.”
  3. The Power of Full Engagement — lessons from training high-performance athletes on managing energy, not time.  Explores how change occurs at the personal level.  Good enough for Oprah.
  4. It’s Hard to Make a Difference When You Can’t Find Your Keys — the title inspires me on good days, mocks me on bad ones.  The book lays out a very actionable framework for creating order out of chaos.
  5. Difficult Conversations:  How to Discuss What Matters Most — my favorite message here is to do it, to really have those hard conversations, a useful reminder for someone like me who grew up in a WASPy, midwestern culture that’s not so sure that’s a good idea.
  6. The Prophet — quick, accessible wisdom from Kahlil Gibran, the brilliant Lebanese philosopher.  I’m reminded daily that business is actually quite personal, and the quest to be a better human being touches all aspects of life, including work.  Among the best guides I’ve found.
  7. Speak Like Churchill, Stand Like Lincoln — a less-than-gentle reminder that communication is an essential leadership act. Some of the advice is silly, like put headlines on the bottom of all your slides in very large caps, but the basic message stands. You’ll be a better speaker by the end.
  8. Leadership and Self-Deception — not easy to consume, but the only book I’ve found that goes after the personal and organizational costs of lying to yourself, a very common human behavior.  The cover calls it the “word-of-mouth phenomenon that is changing lives and transforming organizations,” and I don’t think that’s an understatement.
  9. John Adams — I’m a shameless Adams fan, so take this with a grain of salt, but the story offers up an alternative portrait of effective leadership.  Adams was the anti-Washington, abrasive and emotional and aesthetically displeasing.  Hated by many of his contemporaries, Adams did as much if not more to create and sustain the unlikely American experiment.
  10. Start-Up Nation:  The Story of Israel’s Economic Miracle — aside from telling the incredible story of Israeli entrepreneurship, the book reveals why culture is such a critical input into ambition and innovation.  The message is relevant for anyone who wants to learn how to grow countries, companies or leaders.

Retention is Not the Same Thing as Satisfaction

March 21, 2010

Last year I posted about the research Dennis Campbell and I did in financial services where we found the surprising result that self-service can increase costs (the article was just published in Management Science.)  Dennis and I have been working with Ryan Buell, a fantastic doctoral student at HBS, on additional research about self-service.  This new research shows, unsurprisingly, that online customers have higher retention than customers who are exclusively offline.  The goal was to determine whether the increased retention is due to greater satisfaction (customers love being in control and using all those convenient online tools) or greater inertia (it’s too painful to re-enter all those billpay addresses).

The winner? Greater inertia — the aggravation of switching  is just too high for online customers.  Even more troubling, it turns out that online customers are less satisfied than offline customers.  So even though online customers stick around longer, they’re not at all happy about it.  Why is this a problem?  Because these customers are a ticking time bomb for banks.  Once a competitor figures out how to reduce the pain of jumping ship, they’ll be first to exit.

It’s tempting in any competitive environment to conclude that “loyal” customers must be satisfied ones.  But we’ve found that even when customers keep giving you their money, they still might be miserable.  All those familiar faces may not be placing a particularly high value on your products and services — rather, they may simply be placing a higher value on the time and energy it would take to leave you.  My advice is to start scanning the horizon for competitors who can give your customers a better experience without exacting a high price for the privilege.  Or better yet, play it safe and become that competitor yourself.


Fewer, Better People

March 15, 2010

The first time I heard the concept of “fewer, better people” was in an executive education session taught by my colleague and mentor Earl Sasser several years ago.  I have been captivated by the idea ever since, the idea of building an organization that cultivates and rewards excellence in its employees — and makes it sustainable by minimizing the size of the team.  I have rarely seen the fewer/better HR strategy in practice, however.  In a recent NYT interview, Kip Tindall, CEO of the Container Store described his version of it:

…one great person could easily be as productive as three good people. One great is equal to three good. If you really believe that, a lot of things happen. We try to pay 50 to 100 percent above industry average. That’s good for the employee, and that’s good for the customer, but it’s good for the company, too, because you get three times the productivity at only two times the labor cost.

A significant obstacle to enacting this strategy is that you need a great deal of confidence in your ability to tell the difference between good and great employees. And then you need the discipline to say no to the good ones, which can be particularly difficult in a growth context.  But the merely good can destroy a culture of great.  Finally, you need to design an environment where great people can work effectively.

None of these steps is easy.  Take the average fast food restaurant as an example. Now try to redesign the restaurant to require a third of the people, each making twice the current wage.  The current selection and training processes would have to be scratched.  Jobs and incentives would have to be thoughtfully reconsidered.  Where to begin?  Start with this workforce in mind, and pull out a clean sheet of paper. How could their work be done differently?

The answers aren’t obvious, but what’s the potential payoff?  Employees, customers and owners who all love interacting with your business.


The Best Business Book I’ve Ever Read

March 9, 2010

I’ve recently finished a book written by my colleague Youngme Moon.  I’m about as biased an observer as there can be when it comes to Youngme, but I don’t want that to get in the way of my recommendation.  Youngme’s book Different is easily the best business book I’ve ever read.  It made me smarter, more observant and more insightful.  If you’re thinking about how to differentiate a business in an increasingly competitive landscape, here is your handbook — no, here is your inspiration. For a taste, take a look at this introduction to Different on YouTube.


Airline Fees: A Race to the Bottom

February 28, 2010

A recent NYT article touched on the issue of charging airline passengers fees for small components of the service experience.  How close are we to the world that a Southwest commercial famously parodied, where customers have to scrounge for quarters to open up the overhead bins?  Not far, it seems.  Airlines have an emotional hurdle to charging extra for carry-on bags, but virtually everything else is fair game.

The economics of this decision are understandable.  Airlines have been losing money on ticket prices, claiming that the prices the market will bear are not enough to cover their unyielding costs.  The revenue they get from fees drops almost directly to the bottom line.  Fees translate into “pure profit” because there is very little incremental cost in, say, sitting in an aisle seat.

But as airlines chase each other down the fees rabbit hole, customer goodwill is likely to follow.  Customers hate being nickled and dimed in-flight, particularly those who fly regularly.  So why do so many airlines think they’ll prevail by giving their best customers a reason to hate them?  It feels like an entire industry is throwing in the towel.

The game is over when service executives assume that customers don’t value the difference between good and bad service. When this happens, whole industries can get stuck in a competitive death spiral where they try to get a larger and larger piece of a fixed pie they share with their customers.  This is happening with airlines today, but it doesn’t have to be this way.  Competing on service can increase the size of the pie and make everyone better off (customers, employees and owners), even in low-margin businesses.

Why is it so difficult to make this leap?  Because differentiating, by definition, requires doing things differently.  Managers with things to lose (a career in a conservative culture) have powerful incentives to keep doing the same things only harder, to run faster than their competitors rather than create a whole new game.

Most airlines are not just running the same, tired race — they’re now asking their customers and employees to do the running for them.  That’s what the proliferation of fees represents.  Rather than delivering an exceptional experience or innovating on costs, airlines are designing elaborate schemes to charge customers extra without giving them anything in return.  And then they’re throwing their frontline employees out there to deal with customers’ angry response.  My advice is to reroute the creativity from fee schemes to service.  We’re getting close to the point where most airlines have nothing to lose from trying.


Toyota in Trouble (the quick and dirty version)

February 25, 2010

What happened at Toyota? Mr. Toyoda himself summed it up nicely, as the NYT recently reported.  In a nutshell, Toyota thrived when it focused on improvement. When that focus shifted to growth the company ran into serious trouble:

In his prepared testimony, released on Tuesday, Mr. Toyoda said he took personal responsibility for the situation. In the past, he said, the company’s priorities were safety and quality, and sales came last.

But as Toyota grew to become the world’s biggest carmaker, “these priorities became confused, and we were not able to stop, think and make improvements as much as possible,” Mr. Toyoda said.

Toyota earned its place as the most celebrated operations story of the past few decades because of its relentless commitment to surfacing problems.  The entire organization was focused on the same worthy goals of improving its cars and improving the way its cars were built.  This improvement philosophy reached beyond the factory floor and included strengthening relationships with suppliers and partners.  Toyota managers famously helped suppliers, for example, to lower their own costs by using principles of the Toyota Production System (TPS).  Growth followed naturally.

And then the company’s goal became selling more cars than anyone else, and the metric it glorified was sales growth.  This may seem like a small shift — from growth as an outcome of improvement to growth as a central goal — but the moral of the Toyota story is that this pivot can be devastating.  Improvement is a powerful, worthy mission for an organization’s stakeholders.  Growth can be (and usually is) associated with compromises, with winning the game at any cost.  Toyota paid a cultural price for this shift.  For example, instead of helping its suppliers reduce costs through operational improvement, Toyota began to mandate lower prices and left its suppliers to figure out the rest.  These choices created an environment where cutting corners both inside and outside the organization became likely.

I want the spotlight to linger on this story for a long time.  There are important lessons here beyond the fall of a once-mighty competitor.  The most important one may be that a company’s purpose matters, in ways that go beyond hard-to-measure outcomes like employee satisfaction and  customer loyalty.  Purpose infiltrates an entire organization, all the way down to the manufacturing of a faulty accelerator. My deep hope is that Toyota shows us both the cost of getting it wrong and the path back to getting it right.  Frankly, I’m optimistic.  The tradeoffs are now seared into the souls of every single manager at Toyota.  The company has a powerful incentive to return to its roots as a role model for improvement with growth as a manifestation.