Great Moments in management consulting

I know I blow through a lot of pixels on this topic but I don't think most people who haven't navigated a large corporation realize just how much of a drain charlatans and trendsters put on American business. The best analogy I can come up with is with corruption. Like the brothers-in-law of some Third World cabinet official, these con artists use an association with power ("the CEO is following this very closely.") to ask for money, make demands and generally be a nuisance to the productive.

As with corruption, the damage done by charlatans can occasionally rise to the level of existential threat (Barry Ritholtz has some examples we've discussed previously). Most of the time, though, they are just an irritant, a drag on the people who are actually trying to satisfy customers and make money for stockholders.

To get a feeling for just how far back this goes, check out this exceptional piece from the New Yorker's Jill Lepore (from which I've quoted before and will, undoubtedly, quote again):

Taylor is the mortar, and the Gilbreths the bricks, of every American business school. But it was Brandeis who brought Taylor national and international acclaim. He could not, for all that, have saved the railroads a million dollars a day—the number was, as a canny reporter noted, the “merest moonshine”—because, despite the parade of experts and algorithms, the figure was based on little more than a ballpark estimate that the railroads were about five per cent inefficient. That’s the way Taylorism usually worked. How did Taylor arrive at forty-seven and a half tons for Bethlehem Steel? He chose twelve “large, powerful Hungarians,” observed them for an hour, and calculated that, at the rate they were working, they were loading twenty-four tons of pig iron per man per day. Then he handpicked ten men and dared them to load sixteen and a half tons as fast as they could. They managed to do it in fourteen minutes; this yields a rate of seventy-one tons per man per ten-hour day. Taylor inexplicably rounded up the number to seventy-five. To get to forty-seven and a half, he reduced seventy-five by about forty per cent, claiming that this represented a work-to-rest ratio of the “law of heavy laboring.” Workers who protested the new standards were fired. Only one—the best approximation of an actual Schmidt was a man named Henry Noll—loaded anything close to forty-seven and a half tons in a single day, a rate that was, in any case, not sustainable. After providing two years of consulting services, Taylor billed the company a hundred thousand dollars (which works out to something like two and a half million dollars today), and then he was fired.

Warren Buffet and “the institutional imperative.”

"Sometimes. it's a bad thing for a company not to be able to lose money."

For years, Joseph and I tried to give each other credit for that line until we finally realized it came from a mutual friend. Regardless of the source, it's an important concept. More often than you might think, companies will find themselves, at least for a while, with relatively idiot-proof business models (usually involving underserved markets or niches with IP walls or other high barriers to entry). This can be a problem, particularly if the models were stumbled on or the people who developed them have left the company (both of which also happen more often than you might think).

These companies are especially vulnerable to what Warren Buffett calls “the institutional imperative.” You should read the whole essay but I found this passage particularly sharp (via DeLong).

My most surprising discovery: the overwhelming importance in business of an unseen force that we might call “the institutional imperative.” In business school, I was given no hint of the imperative’s existence and I did not intuitively understand it when I entered the business world. I thought then that decent, intelligent, and experienced managers would automatically make rational business decisions. But I learned over time that isn’t so. Instead, rationality frequently wilts when the institutional imperative comes into play.

For example: (1) As if governed by Newton’s First Law of Motion, an institution will resist any change in its current direction; (2) Just as work expands to fill available time, corporate projects or acquisitions will materialize to soak up available funds; (3) Any business craving of the leader, however foolish, will be quickly supported by detailed rate-of-return and strategic studies prepared by his troops; and (4) The behavior of peer companies, whether they are expanding, acquiring, setting executive compensation or whatever, will be mindlessly imitated.

Institutional dynamics, not venality or stupidity, set businesses on these courses, which are too often misguided. After making some expensive mistakes because I ignored the power of the imperative, I have tried to organize and manage Berkshire in ways that minimize its influence. Furthermore, Charlie and I have attempted to concentrate our investments in companies that appear alert to the problem.

Autism and pesticides

Back when I was teaching in the Mississippi Delta, I would often see crop dusters during my morning 

drive. They would make slow, sweeping turns then dive down low for their passes then pull up just in time to clear the trees at the ends of the fields. I always enjoyed the show, but even at the time I wondered what those chemicals were doing to the people who lived next to those fields.

From Reuters:

NEW YORK (Reuters Health) - In a new study from California, children with an autism spectrum disorder were more likely to have mothers who lived close to fields treated with certain pesticides during pregnancy.

Proximity to agricultural pesticides in pregnancy was also linked to other types of developmental delay among children.

“Ours is the third study to specifically link autism spectrum disorders to pesticide exposure, whereas more papers have demonstrated links with developmental delay,” said lead author Janie F. Shelton, from the University of California, Davis.

There needs to be more research before scientists can say that pesticides cause autism, she told Reuters Health in an email. But pesticides all affect signaling between cells in the nervous system, she added, so a direct link is plausible.

Warning: our IP thread is about to include some very geeky strands

The impetus is this lawsuit by the children of Jack Kirby who are trying to get a share of some of the revenue generated by the characters he helped create or created outright for Marvel/Disney (two companies that both built their early business models on public domain and, in some cases, not-so-public but poorly guarded intellectual properties). It's another telling if depressing story of just how far the regulatory capture of copyrights has gone.

To kick off the strand, those of you reading this in NYC might want to check out this new play about Kirby. The New York Times is impressed:

Crystal Skillman and Fred Van Lente, the husband-and-wife playwrights behind “King Kirby,” know the score. She wrote the smart Off Off Broadway shows “Cut” and the fangirl-friendly “Geek”; he was a co-author of the graphic novel “Cowboys & Aliens,” later adapted for a Hollywood sci-fi western. With this supple, informative and poignant portrait, they offer penetrating insight into the tirelessly prolific Kirby (1917-94), whose brawny and dynamic yet nuanced style dominated comics for more than 40 years. Their play (Kirby was known as the king) documents a creator who attained immortality even as his life ended amid a morass of corporate exploitation.
...
At a lean hour and a half, this production hits nary a speed bump, thanks to its fluid script and the director John Hurley’s assured pacing. Janie Bullard’s sound design and Olivia Harris’s set and lighting are unobtrusively effective, while Holly Rihn’s costumes nicely evoke changing times. The cast is uniformly on target, with Steven Rattazzi’s Kirby a sympathetic blend of street smarts, boyish creativity and a hard-working, over-trusting disposition.

"We somehow took the education system that produced the individuals who put a man on the moon with technology less powerful than the phone in my pocket and characterized that education system as a failure using the word 'accountability.'"

I recently had a post on New Math up at the Monkey Cage. One of the comments was simply a link to a Youtube video. I watched with some trepidation (it was, after all, a TED talk), but, though I didn't agree with all the points, a lot of them were quite valid and all were stated with considerable eloquence.

Toxic culture of education: Joshua Katz at TEDxUniversityofAkron

New slogan: "Don't be evil... That's what we have subsidiaries for"

Between abuse of monopoly/monopsony* power, media consolidation and beating up on the little guy, there's a lot of evil to go around here.

From NPR's All Things Considered:

Stuart Johnson, president of the Canadian Independent Music Association, says YouTube has put the independents on notice.

"What we're seeing is YouTube dictating terms to the independent music community with the proviso that if those terms are not agreed to or met, then the repertoire of that label will be removed from YouTube," Johnson says.

Johnson says YouTube has already negotiated with the three major labels: Universal, Sony and Warner. Neither the site nor the labels will reveal the specifics of the deal, but Rich Bengloff of A2IM — the American trade group for independent labels — says YouTube paid more to the majors than it wants to pay independents, despite the fact that independents account for more than a third of music revenues.

...
James McQuivey is an analyst at Forrester Research. He says there are parallels between this fight and the current dispute between Amazon and the publisher Hachette over the cost of print and eBooks. Amazon is delaying delivery of some Hachette titles and has eliminated pre-orders for others. [a pretty appalling story in its own right -- MP] McQuivey says it signals a shift in the Internet economy, which is now centered on the small number of players that get the most eyeballs.

"Digital aggregation creates power, and now these companies — after years of talking about a big, open Internet future — are finally starting to show when it comes to be tough in negotiations," McQuivey says. "They're willing to use their access point as a source of power."

Representatives at YouTube would not talk to NPR for this report, but McQuivey says it's clear that its planned subscription service will somehow incorporate music video and audio streaming. Since the site is a place where fans are already able to hear and watch videos for free, it may be hard to get them to pay. Meanwhile, McQuivey says YouTube, while profitable, has never made the kind of money its owner, Google, would like to see.

[Don't you just love the phrase "would like to see"?]

Not to put too fine of a point on it, but this is why we don't like to see high concentrations of money and power combined with and almost complete lack of competition. Google effectively holds monopoly and or monopsony power in a number of markets. It even has a ruling from a federal judge saying that Google has a first amendment right to use that power to destroy other companies.

This kind of power is always worrisome, but combined with a willingness to bully small players in the pursuit of rent seeking, it makes you wonder if we shouldn't consider dusting off the concept of anti-trust.

P.S. I spotted this relevant Business Week article just before I was about to post this.


* Unrelated to this story but the spellchecker on Blogger sucks.

Framing of discussions is key

I think that there are good reasons that this is not the debate we are having:

But thus far to an amazing extent we haven't been having that debate. Instead we've been having a debate over whether Obamacare works, over death panels, over enrollment numbers, over income verification procedures, and over the minutia of premiums and payments. It's time to put that debate behind us. It's clear — as it always should have been — that if you offer people large subsidies to go buy health insurance, lots of people will happily take the money and go buy some health insurance.

It's time to start debating the real issue: should we do that, or is it more important to keep taxes on high-earners low than to give low-earners comprehensive health insurance?

There are extremely good reasons that people attacking programs like the Affordable Care Act or public school funding focus on efficiency or effectiveness and not on first principles.  Because the argument that money should be used to improve health care for 50% of the population is extremely hard to refute in a world where effective tax rates can be extremely low (see the carried interest exemption). 

Instead, the line of attack seems to be that these are poor uses of cash -- that the programs so funded will be filled with rent-seeking, waste, and so forth.  That makes the idea of rich people simply keeping their money seem like a pretty decent idea, as nobody wants to contribute to bloated and inefficient systems. 

So I am skeptical that we'll be able to reframe the argument this way.  It's rather like Singapore -- people focus on the pieces that are the most useful for their argument. 

Eli Broad's mixed messages*

A bit more context for understanding the complexities of the West Coast chapter of the education reform movement and the question of the relationship between philanthropy and influence.

David Sirota recently posted some interesting thoughts on the latter:

Later in his discussion, [Al] Gore said that “democracy has been hacked” by moneyed interests. Then, in response to a question about tech billionaires spending big on allegedly philanthropic enterprises, he said: “That’s a good thing, as long as the rest of us don’t ever fall prey to the illusion that charity is going to do the job of what democracy needs to do.”

Those latter comments come only a few weeks after Facebook’s Mark Zuckerberg announced a $120 million donation to San Francisco-area schools. That donation came only a few years after California considered a ballot measure to increase funding for its schools. Zuckerberg was notably absent from the campaign to pass the measure.

That detail is germane to Gore’s point about charity and democracy. Indeed, there seems to be a trend of billionaires and tech firms making private donations to public institutions ostensibly with the goal of improving public services. Yet, many of these billionaires are absent from efforts to raise public resources for those same institutions. Zuckerberg is only one example.

For instance, hedge funders make big donations to charter schools. Yet, the hedge fund industry lobbies against higher taxes that would generate new revenue for education.

Likewise, there are the Koch Brothers, who simultaneously finance the nationwide anti-tax movement while making huge donations to public institutions.

Meanwhile, Microsoft boasts about making donations to schools, while the company has opposed proposals to increase taxes to fund those schools.

To understand the conflict between democracy and this kind of philanthropy, remember that private donations typically come with conditions about how the money must be allocated. In education, those conditions can be about anything from curriculum to testing standards to school structure. No matter what the conditions are, though, they effectively circumvent the democratic process and dictate policy to public institutions. While those institutions can reject a private donor's money, they are often desperate for resources.

In this, we see a vicious cycle that undermines democratic control. Big money interests use anti-democratic campaign finance laws to fund anti-tax policies that deprive public institutions of resources. Those policies make public institutions desperate for private resources. When philanthropists offer those resources, they often make the money contingent on public officials relinquishing democratic control and acceding to ideological demands.

Disruption theory is usually the defense of all this—the hypothesis being that billionaire cash is the only way to force public institutions to do what they supposedly need to do. But whether or not you believe that theory, Gore is correct: It isn't democratic. In fact, it is quite the opposite.

We've already discussed how Bill Gates sped up the adoption of Common Core (and arguably circumvented much of the vetting and quality control of the slower process). What we haven't mentioned and what Sirota surprisingly omits is the role of billionaire Eli Broad, founder of the Broad Superintendents Academy and unquestionably one of the most influential figures in the education reform movement.

Broad was recently involved in a recent minor scandal that is remarkably relevant to Sirota's argument.

A state investigation into a network of nonprofit groups that funneled $11 million into initiative campaigns in California last year has revealed the identities of dozens of previously hidden donors to the various organizations.

Those contributors include owners of the Gap Inc., for which California First Lady Anne Gust Brown was once a top executive, investor Charles Schwab and Los Angeles philanthropist Eli Broad. The groups they donated to gave money to other organizations, which gave to the campaigns.

One of the campaigns was an effort to derail a 2012 tax measure pushed by Gov. Jerry Brown -- which Broad had said he supported. The other supported a separate initiative that would have limited the power of labor unions to raise political cash.

The Fisher family, which owns the Gap, gave more than $9 million to Americans for Job Security, a Virginia-based group which eventually sent millions to an Arizona-based non-profit that ultimately wound up in a California campaign committee. Gust Brown formerly was the company’s chief administrative officer.

San Francisco investor Schwab gave more than $6.2 million to the same group. Broad gave $1 million despite his stated support for higher taxes on the wealthy.

If you're interested in a highly critical but well-researched view of the Broad Academy, check out The Broad Report, a blog that consists almost entirely of excerpts of newspaper and magazine stories about graduates of the Academy, pretty much all negative but presented with a minimum of editorializing. The selection is certainly biased but the stories are allowed to speak for themselves. If you're in a hurry, check out the Parents' Guide, a lengthy but pithy post that lays out the blogger's concerns about Academy's influence, supported with an extensive set of links to supporting articles.


* Assuming we define political contributions as a form of free speech.

Brad DeLong has an interesting approach to the cost of college problem

I don't remember a time when there were more things I wanted to write about. Professor DeLong just added another one to the pile. 

MAKING SENSE OF THE COLLEGE EDUCATION DEBATE: ANDREW KELLY SAYS SMART THINGS: OVER AT EQUITABLE GROWTH: TUESDAY FOCUS FOR JUNE 17, 2014

From an individual point of view, the questions are:
1. Could you finish a two-year program that opens doors in three years or less?

2. Could you finish a four-year program in five years or less?

If the answers are "yes", go for it. If the answers are "no", don't. And if you go for it, make sure you do finish: otherwise you will be behind the eight-ball in what looks to be for the foreseeable future a much worse job market, especially for the young, relative to our reasonable expectations than America has ever seen before. 

For public policymakers, the questions are more complicated and subtle. There are six groups: 

1. Those who would finish college whether or not college were made more affordable, who will be windfall gainers from policies to make college more affordable.

2. Those who would not attempt college unless college were made more affordable, but who would complete it if it were--these are the people at whom the policy is directed.

3. Those who would not attempt college unless college were made more affordable, but who would attempt it if it were but would fail to complete it--these are the losers from the policy.

4. Those who would attempt college but not finish it anyway--these are small gainers because more-affordable college reduces their student loan debt.

5. The taxpayers who pay for government policies to make college more affordable.

6. The academic administrators, faculty, entrepreneurs, and businesses who skim off their share from policies that make college more affordable.

We want policies to make college more affordable that maximize the number of and the value for people in group (2), and we are happy at the reduced debt burden on those in group (4).

We are really unhappy if such policies lead to an increase in the number of those in group (3), and we are also unhappy at the existence of groups (1) and (6), for the redistribution of the money of group (5) to them is a societal bad.

How large are the money flows between these six groups, and how large are groups (2) and (3), and how much extra education do groups (2) and (3) get?

Those are the questions that discussions of education policy should focus on. Yet when I look at the literature, those are not questions the answers to which I find readily.

The LA Times' Steve Lopez on the defenestration of Stuart Magruder

I've never seen a project hit FUBAR as quickly or as completely as John Deasy's iPad initiative has. Almost invariably, when you see something crash and burn this badly, you'll find with a little digging that:

There were people in the organization who anticipated the problems;

They were repeatedly told to shut up.

Supt. John Deasy and the Board of Education have been salivating over the chance to get their hands on some of that money to buy a digital tablet for every student, teacher and administrator. Last year, they began purchasing tablets for classrooms, and now they would like to tap about $1 billion in bond money to finish the job.

But there have been questions about the legality and efficacy of using the bond money for portable tablets with an estimated three-year life span in a district with an estimated $50 billion or so in needed repairs and upgrades. And even more questions about whether the district has a well-considered plan, or a get-out-of-the-way compulsion to plow ahead as quickly as possible, with Deasy leading the charge.

Nobody expressed more concerns than Magruder, an architect who was appointed to the oversight committee two years ago. He thought the district's legal justification for buying tablets was flimsy, and that was just part of his objection.

"My primary concern was that there clearly was no strong pedagogical idea behind this program, and they were literally throwing all this technology and money at teachers and students, expecting great things to happen with no proper preparation," Magruder said.

There's not enough space here to itemize all the issues raised at various times by Magruder and other committee members, along with members of the media.

But to name several:

Why iPads versus other, possibly less expensive tablets or laptops?

Why did the need for detached keyboards, at a cost of millions, seem to be such an afterthought?

Why did the district buy software sight unseen and only partially developed?

Why had there been so little teacher training and preparation?

Why so little consideration of who would be responsible for lost and damaged tablets?

And how useful could the tablets be if, by one legal interpretation, students wouldn't be allowed to take them home each night?

"I'm invested in this," said Magruder, who has two kids in L.A. Unified and got a first-hand look at the problems when his daughter's school was included in an early phase of the iPad rollout.

Magruder didn't find the programming engaging, compelling or linked to a larger curriculum strategy in a way that had been explained to teachers, parents or students.

"Technology doesn't solve problems unless humans and teachers use it well," said Magruder, who noted that the software company did manage to neatly promote itself to students with a logo on its programs.

"Not an 'M' for math or an 'E' for English, but a big 'P' for Pearson," he said.

Scott Folsom, another member of the oversight committee, and Tom Rubin, the committee's consultant, both told me they thought Magruder and others consistently raised important questions in a fair, thoughtful and constructive way, forcing the district to slow down and rethink some of its plans.

But that was Magruder's downfall. In raising inconvenient truths, he exposed and embarrassed district officials. Three weeks ago, the petulant school board threw a little tantrum and refused to reappoint him to the committee, a move that's being challenged by Magruder, the oversight committee and the architect association that nominated him to the board.

The rise and fall of "innovator"

In a positive review of Jill Lepore's recent article on the myth and reality of creative destruction, Paul Krugman wonders if Lepore underestimates just how long 'innovation' has been a buzzword.

Lepore tells us that innovation became a popular buzzword in the 1990s. I guess I thought it came much earlier — I wrote about product-cycle models of trade back in the 1970s, and even then I was formalizing a much older literature.

That sort of question is why god invented Google so I decided to check out what the n-gram viewer had to say. Based on a search of the books in Google's digital collection, it appears that both 'innovation' and 'innovator' took off in the early Forties and continued shooting up through the Post-War era. Nothing surprising there. The Forties, Fifties and Sixties were a period of rapid economic and technological growth and the topics of progress and innovation were very much on people's minds.




What seems strange though is the decline of 'innovator' starting around 1970. My first thought was Apollo but the peak here appears to be 1971 rather than 1972. 'Innovation' also flatlined briefly in the mid-70s but it quickly picked back up. I have a feeling I'm missing something obvious here but I'm not familiar enough with the data to know where to dig.

Putting aside the question of why Cantor lost

What I want to know is how something like this happens.

An internal poll by House Majority Leader Eric Cantor's (R-VA) re-election campaign had him with a 34-point lead over primary opponent economics professor David Brat.

The poll, conducted by John McLaughlin of McLaughlin & Associates between May 27 and May 28 found Cantor with 62 percent to Brat with 28 percent, according to The Washington Post on Friday.

Cantor lost to Brat on Tuesday. With 90 percent of precincts reporting Brat defeated Cantor 55.4 percent to 44.6 percent. It was perhaps the biggest upset of any primary contest in the 2014 election cycle.

I know of a lot of mistakes in the design and analysis of polls (I've even made a few), but I can't recall any that produced results like this. I've seen numerous articles on what went wrong with Cantor's campaign. I want to know what was going on with his pollster.

Well, that didn't take long -- more on Vergara and the perils of legislating from the bench

As mentioned before, one of the problems with legislating from the bench is that it usually entails reasoning backward -- starting with a conclusion then coming up with arguments to justify it -- which leads to bad law. The precedents take on a life of their own. As Harvard's Noah Feldman wrote in Bloomberg View, "The court’s two-part reasoning was thin to the point of being emaciated," and that thin reasoning means that the ruling can be applied in ways that even many of its supporters are likely to object to.

You can certainly argue that California's system for assigning tenure and removing bad teachers is flawed (you'd be hard-pressed to find anyone on either side of the reform debate willing to defend it). Most of those cheering the decision seem to be taking an implicit ends-justify-the-means line -- the policy was bad and the decision made it go away, therefore it was a good decision -- but the sloppiness and the sparseness of the reasoning makes it applicable to a wide range of far more questionable cases.

If you were looking for a state at the other end of the tenure policy spectrum to California, you might pick Connecticut.

Danbury's Deputy Superintendent of Schools William Glass also said the California ruling won't have an effect on the educational community in Connecticut.

"We have a very effective process for dismissing a teacher with cause," Glass said.

"It takes time and we provide support for a teacher to see if they can improve. But if they can't, we are now down to a 10-month process for dismissal," he said, referring to the new reduction in due process.

Glass also said most teachers who are not a good fit will voluntarily resign.

No one wants an ineffective teacher because the principal, the school and the district all are held responsible for that teacher's ineffectiveness in teaching students, Glass said.

"Accountability has never been as clear as it is now," Glass said. "The days of hiding are gone. It's all very visible."

In California, tenure can be earned after only two years in front of a classroom. In Connecticut, it takes four years to earn employment protection.

Connecticut also recently added language to its tenure laws that allow ineffectiveness -- as determined by new teacher evaluation procedures -- to be a cause for dismissal.

Glass may have gotten one thing wrong. When he said the California ruling won't have an effect on Connecticut, he probably should have said 'shouldn't.'

[from the same article]

A California judge's ruling this week that teacher tenure laws deprive the state's children of their constitutional right to a quality education has some wondering if Connecticut could face a similar challenge.

"The Vergara case exposed the fact that children have unequal access to quality teachers in California. This problem exists in Connecticut as well," said Jennifer Alexander, chief executive officer of ConnCAN, an organization that supports school reform.

This is how bad law works

My ed reform ddulite study list

I'm working on a big thread on the the interlocking disasters of the LA school system. Part of that process is reading up and making a reference list. It greatly speeds things up when the actual writing begins and it reduces the chances of me getting my facts badly wrong.

In case anyone out there wants to play along, here are some of the sites I'm using to get a handle on the LAUSD iPad fiasco.

1. An LAUSD introduction to The Common Core Technology Project.

Troubling for its vagueness, motivational-speaker language and lack of insight into the way technology works. All problems that would get worse as things spiraled out of control.

[Though off-topic here, one of these days I'm going to have to come back to the connection between the influence of management consulting and the belief in the miraculous curative powers of standards like Common Core.]

2. The vision statement for the project

,,, because it tells us that the people behind the project are the kind of people who believe in writing vision statements.

3. An early warning about Superintendent Deasy's somewhat questionable relationship with Apple. Spelled out in more detail here.

4. Suppression of internal critics.

5. A piece on where the iPad funds were being diverted from.

6. A devastating comparison with another school district's successful iPad rollout.

7. An inside account of what went wrong from two LAUSD contractors.

8. The comically fast security breach,

9. Failure to anticipate even the most obvious complications.

10. Still more problems.

and a very nice wrap up by Michael Hiltzik.

I've been arguing for a while that ddulites and flaky management theories are doing great harm to our education system. Those arguments are about to get a bit more shrill.

Michael Hiltzik has perhaps the definitive summary so for of the California tenure ruling

Michael Hiltzik has perhaps the definitive summary so for of the California tenure ruling so far. If you're looking to get up to speed quickly, this is an excellent place to start.

If you have the stomach for it, also check out Hiltzik's account of LA's iPad fiasco.