Managing co-ops
So REI has a clever ad on the radio right now. It plays to the zeitgeist by mentioning that they’re a member co-op (not a greedy for-profit company). And then it ends with the bottom line: members get a refund at the end of the year.
There’s a line in the ad along the lines, “We maximize access to the outdoors, not profits.”
This got me thinking about implementing strategy in a co-op or nonprofit. I believe that one of the great advantages of for profit companies is the alignment that profit can give to the many people in a large and complex organization. It helps sort out competing priorities and focus cooperation around a shared goal.
As I have at least hinted in another post, I believe this is a partial fiction when it comes to companies. One of the reasons corporations as an institution have flourished is that they function as a commitment device. This has been called the sticky capital theory of the firm – investors put their money in because it’s hard to get it out, and this helps support the long-term implicit contracts to work with suppliers, employees and other investors. But nonetheless it’s true, most companies can use profit as a focusing device to keep everyone moving toward a common goal.
For nonprofit things are more complicated. There are usually a broader set of goals, and there is no easy device for deciding between them. So how do they handle this challenge?
Well, REI is pretty clearly a consumer company. And they’ve defined a nice high level mission (often a challenge for private companies that can forget people are motivated by much more than the bottom line).
This just left me wondering – are there different practices that are effective in translating mission into action at a nonprofit or co-op? Is there a set of implementation practices that work for co-ops that are different than at for profits? If co-ops like REI are creating some shared knowledge of these practices, I wonder if they are creating the knowledge infrastructure for nonprofit to play a much bigger role in our society? Or is there some other constraint that will keep them relegated to a small corner of the economy still?
Filed under: business, society | Leave a Comment
Tags: business, co-ops, governance, management, strategy
omg
My first IM from the eldest. Unfortunately for her, I was a way from my computer with the gmail up.
Filed under: Uncategorized | Leave a Comment
The early bird’s brother
So, the baby returned from the hospital with a routine of rising with a shriek between 5 and 6am, which is a bummer for all of us, but especially for his 6-year-old brother who shares the room.
Last night the 6yo, my easy-going, middle child, flipped out about the early morning reveille and refused to sleep in the same room as the pre-dawn crier. After a few major temper trantrums, I still wouldn’t budge on letting him sleep in our bed. So this was the compromise: the bathtub.
I’d hoped the discomfort would drive him back to his own room. But Erin reports he came down for breakfast with a big smile and declared he “slept great!”
Filed under: personal | Leave a Comment
Tags: kids
A dollar saved…
Today’s value of a dollar invested in the U.S. S&P 500 index for each year*. Anyone else wishing they’d spent more and saved less?
* As of Feb 23rd or the nearest calendar business day. Based on a Bloomberg quote for S&P 500 about 3:30 est.
Filed under: business, personal | Leave a Comment
Tags: market, S&P, savings
charlie’s pizza tips
I was in a classic mood last night for movie night: two pepperoni, mushroom and onion pizzas to accompany our Escape to Witch Mountain. New technique of the night: I usually brush the dough with olive oil & garlic. Last night I mixed the oil with 2 tbs. butter. Mmmm, savory.
Filed under: personal | Leave a Comment
Tags: cooking, pizza
So, the Politico has applied its power news formula to the role of business leaders in the Obama administration. As in, they have no role.
First, lets set the record straight for the boys over at the Politico. Black holes attract. If Obama’s cabinet was a black hole for CEO’s, then it would be sucking them out of the business world. That doesn’t appear to be a problem. And I’m not clear on whether it would be a net loss or gain for the business world if it was.
The story actually does a reasonably good job of diagnosing the root of the problem as the waning respect the nation has for CEO’s. The automakers looked like a parade of clowns when they visited Congress to lobby for financial aid, and Henry Paulson did little to burnish the image of bankers as he lurched from one ineffective policy to another with the financial bailout.
I think the nation will get by OK without the advice of CEO’s for awhile. The skills of business don’t match neatly with those of government. CEO’s tend to attribute their successes to their own leadership, but the wins may be as much a result of the organization or even the institution of shareholder-controlled organizations. Most business leaders do a really poor job of navigating the competing stakeholders in the political process. Nothing sums this up so well as the Eisenhower quote at the end of the Politico article, criticizing his Secretary of Defense, Engine Charlie:
Damn it, how in the hell did a man as shallow as Charlie Wilson ever get to be head of General Motors?
Businesses may suffer for the lack of influence in DC, but the composition of Obama’s cabinet is more a symptom than a cause of this power shift. The one business person whose skills I think we’ll miss in this administration is Nancy Killefer, whose experience was closely tied to government since she runs McKinsey’s government practice and built her reputation at OMB under Clinton.
Filed under: business, policy | Leave a Comment
Tags: business, government, leadership
I find this bit interesting from the LA Times interview with Jack Dorsey, Twitter founder:
Back in the day we thought, well, if we get to this many users or this level of relevancy in the mainstream, we’re going to have to add a bunch of features, and make this or that group of people happy… but that really hasn’t come to pass… And that’s the trick. The concept is so simple and so open-ended that people can make of it whatever they wish. They seek value and they add value. I’ve always said that Twitter is whatever you make of it.
This makes twitter sound like the social network version of a stupid network. The central pipe is dumb and the value is added at the edges. It allows Twitter to evolve through social change among users rather than through changes to the service itself. Sounds a lot like David Isen’s rationale for moving intelligence to the edge of an electronic communication network: the internet evolves in a more interesting fashion because the net is stupid and the intelligence is based on value-added at the edges.
Update: Evolution at the edges: over 2,000 apps have been built to work with twitter’s API, send messages. Summize developed search, now acquired and integrated at search.twitter.com. More from Evan Williams at TED.
Filed under: business, society | Leave a Comment
Tags: evolution, social network, stupid network
Is growth relevant?
With profits plunging and businesses facing difficult choices to survive a global depression, business academics are turning their discussion to a vital issue: the tradeoffs between growth and profits.
OK, that’s too snide. I actually believe growth is a very important issue for the field of strategy, and I agree with Kim Warren that firms value growth much more than strategy scholars – and that’s a problem for researchers not for firms. It’s just funny that Kim is touting growth as a topic that would improve the relevance of strategy research. This hardly seems like a time when growth is the most relevant issue for managers.
So, growth’s not the top issue on companies’ plates right now. But it is an important theoretical issue for the field.
I’ve been thinking about this lately because of a project with Rajshree Agarwal and Pao-Lien Chen on growth among U.S. cellular firms. There’s an IO tradition of studying growth as an indicator of organizational capabilities and industrial evolution. But growth has fallen out of favor as an approved strategic goal for firms.
This probably dates back to the learning curve work out of the Boston Consulting Group in the 1950’s, since it encouraged firms to race for market share to beat competitors down the cost curve in production. Economists and strategists since then have tended to treat growth as something that firms tend to pursue at the expense of profits.
But it’s true, as Warren points out in an email discussion of his post, that shareholders and managers still tend to value growth quite highly. The question is, are practitioners economically naive or is the field of strategy missing something important? I believe the beginning of an answer actually lies in the stakeholder musings of Luigi Zingales in this essay on the need for new foundations for the theory of corporate finance.
Zingales argues that because implicit contracts are so important for firms, we cannot treat shareholders as the only residual claimants on firms. Employees, suppliers, even communities may have implicit expectations that they will receive some portion of the future rents of the firm. If this is true, then a useful theory of the firm must say something about how the rents are divided between different stakeholders, a topic on which our current theories are silent.
From this perspective, growth is valuable because it allows firms to satisfy the implicit contracts between the firm and various stakeholders more easily. When growth breaks down, stakeholders will tend to compete for rents 1) because there is less to go around and 2) because this appears to be an endgame situation in which the implicit contracts between the firm and stakeholders will need to be renegotiated. Thus growth is inherantly valuable to firms because it greases the implicit contracts between firms and stakeholders.
So the field has ignored growth for decades because of a simplistic economic model of the firm. And if we begin to explore the fundamental reasons for growth in firms, we may well open up the need for a real stakeholder model of the firm as a nexus of implicit contracts. I think theoretical development in this vein, which Joe Mahoney at Illinois has been promoting, will take us to some very interesting places.
In particular, it might help us begin to understand how firms navigate crisis periods like the current business shock. We might learn about the sorts of implicit, or relational, contracts between firms and employees in good times that allow firms to layoff employees while maintaining the commitment of their remaining workforce. Or we might learn how firms can approach layoffs in ways that maintain their existing relational contracts. Now that would be relevant.
Filed under: academia, business | Leave a Comment
Tags: growth, residual claimants, stakeholders, strategy, theory of the firm
