Thursday, December 5, 2013

Republicans are Increasingly Becoming the Party of Bad Business

The New York Times today had an article on how many big businesses are planning for future carbon pricing and are even embracing this change. As they say this represents "a striking departure from conservative orthodoxy and a reflection of growing divisions between the Republican Party and its business supporters."

I believe this trend represents a deeper, partially generational, shift in business culture. The old culture, which remains the culture of many in senior management, was the highly individualistic, greedy, heroic type of businessperson featured in films such as Wall Street or as the hero of Ayn Rand novels. Modern business culture, by contrast, is highly collectivist in nature, group projects, participatory management, and systems thinking are modern best practices. In an article by Deming, for instance, he claimed that over 90% of faults are caused by the system and are management's responsibility.

However, while America's best performing companies embrace these new concepts, and have profits to show for it, old styles of thinking are far more common. Surveys indicate that the vast majority of businesses are badly managed, only the largest international firms are majority well managed. Surveys of investment decisions indicate that around 30% use gut feeling for investment decisions and another large proportion use primitive methods like pay back periods.

These types of attitudes match up perfectly with a lot of what I hear from the right. On a number of issues, like climate change referenced in the NY Times article, we hear of skepticism of modern science which matches well with the skepticism we see in many (mostly smaller) businesses of modern statistical methods and the focus on process. The right wing is constantly talking about individual initiative and attributing success or failure to individual traits, this is also perfectly congruent with the divide in best business practices between the modern systems approach and the old methods which relied strongly on individual performance reviews and attributing success/failure to individual traits while ignoring process.

 In short, the ideological right increasingly looks like the terrible business manager who never wrapped his head around the modern focus on the customer, emphasis on value creation, statistical methods,** or systems focus. Instead, they want to somehow bring back the days when business was done with a handshake, personal relations mattered more than credentials,*** and hard work**** led to profit.  They see this as how the competitive, free market is supposed to work. They haven't come to terms with the fact that the reason they are struggling is that today they face real competition and are feeling the true sting of the free market, the old system they thrived in was one of privilege and security.

This results in the stereotypical right winger being rather like a bad manager. They have no idea how to build a system that adds value, all they know how to do is to try to cut wages, bid low, or pressure suppliers to drive down costs. The idea of value chain focus, participatory management, flat organizations, and a systems focus is anathema to how they run business and how they see government. They just don't get it. Furthermore, these people are angry and frustrated. They are the small and mid sized businesses that used to be sheltered from competition with the big guys. Now the big players are moving into even the smallest towns bringing these folks directly into competition with the market forces they pay lip service to buy never felt until now.

The rift between these small and medium business owners and large corporations is becoming increasingly stark. To succeed against international competition big business long ago adopted more inclusive and collectivist methods. This is leading to a growing cultural rift between the traditional supporters of the Republican Party and the new business elite who thinks very differently. It will be interesting to see how it plays out, but it is shocking to me how different the values and teachings of business school diverge from current right wing ideology.*****

*This is not to say that these characteristics are common in American businesses. One of my professors has said that we will spend most of our careers trying to share common sense and banging our heads on our desks about the stupidity of our superiors. He also believes that jobs will come back and the economy will take off when my generation takes over. I think there is something to this, we grew up in an interconnected world are are far more comfortable with systems thinking than those in the generation before us, having worked with many small businesses the contrast between those run by a 30 something and those run by someone older are striking (though probably not an entirely fair comparison since it takes some doing to have a company by the time you're 30 but it's not nearly as difficult when you're middle aged and have had time to build assets).

** Something that drives me nuts is people thinking they are being data driven when they obviously have no idea how to interpret the data their getting. Modern business software packages and tracking generates huge amounts of very useful statistical data. However, if you don't understand causal reasoning this information is worse then useless. In my last couple of jobs it was really obvious that management had no idea how to figure out what a correlation really meant or how to combine qualitative with quantitative data to wrap their head around what was going on. I've also run into situations where management used quantitative data to dismiss the qualitative information they were getting from personnel, which is either stupid or crazy.

*** Not that it is really just credentials. I have heard this used to dismiss MBAs and others that want to rely on actual math. These folks have positions and wealth they earned in an easier time and feel threatened by these new processes, they remain in business as a result of the privilege established by familiarity and by their personal relations.

**** In my experience a lot of older business people are great at what they do but what they do isn't business. They value their independence but they lack the skill sets to manage or run a business in this more competitive age. Nowadays hard work doesn't even get you in the game, it is the process and management that are necessary to being successful.

***** There are a lot of wealthy individuals who made their money decades ago, as well as industries like finance (and others) which rely on rent seeking more than on value creation, that have not adopted these newer ideas. But younger generations are being trained differently and competitive forces mean that very different people and organizations are rising to the top today.


  1. The NYT is behind the times. I was hearing stuff like this regularly in 2006.

  2. ... and by "this" I mean active planning for carbon pricing by utilities and energy companies.

    1. Doesn't surprise me, any forward looking business should realize this is going to happen. And any multinational will have to be doing this for European operations anyway.

      Really, I was just looking for a convenient hook to hang this on since it is something that I've been wanting to write since I realized that the supposedly business friendly Republicans don't sound anything like modern business best practices. They sound more like a small town Chamber of Commerce bitching about how they can't compete with big well run business and moaning about how no one wants to do business with a handshake anymore.

  3. Hi Tzi,

    Indeed, it makes one feel cautiously optimistic for the future. It seems that even governments (I work for a provincial government) are more in tune with the current trends, although I have to qualify that, because it is only when it suits them. I am trying to add the income as one of the main reporting categories for the health outcomes of the province and man, that is a task for Sisyphus. The main goal is to do a cost/benefit analysis for the province to see what would be the impact on the healthcare utilization if the people in the lowest income decile are getting more financial support. There was a 5 years experiment in Manitoba in the seventies where a whole 10,000 people town was subjected to increased federal support (if below the LICO treshold) and we could use the parameters from them as a benchmark. My bet is that even if such an exercise shows multimillion dollars benefit, the ideology will trump facts, but it will be on paper and people will start asking more questions...