How should a business be measured?

For a long time, the answer has been “more.” Ever since Frederick W. Taylor did time studies of steelworkers with a stopwatch in 1900, the measurement of business activity – called “Greater Taylorism” by Walter Keichel in his business history “The Lords of Strategy” - has grown ever more central to management. One result of this drive to quantify and analyze has been that senior executives often create numerous profit centers, or isolated groupings of both revenues and expenses nested within large businesses.

The two benefits are obvious. First, profit centers allow these executives to make better decisions. In organizations whose various revenue and cost accounts are not linked, poor economic performance can be hidden by positive results elsewhere, and decision-making is clouded. Second, profit centers help make accountability clear. By giving managers direct profit and loss responsibility, companies can incentivize activity that measurably contributes to the bottom line.

So in most large companies, different business divisions and geographic regions are organized as distinct profit centers. Increasingly, product lines, key customer accounts, or brands are treated as mini-businesses as well, like at P&G, where global brand managers have P&L responsibility. For that matter, why not functions too? Some organizations are establishing transfer prices for supplies and services between business departments (such as manufacturing and sales), and then measuring, and rewarding based on, the income of each.

There’s just one problem. We optimize what we measure. And the entire logic of profit centers rests on the assumption that maximizing the pieces will maximize the whole.

Unfortunately, this shortcut often isn’t true. Exceptional, sustainable results derive from great strategy, and great strategy isn’t additive – it relies on the way individual pieces fit together in a system, so that the whole is greater than the sum of the parts.

Decision scientists know this – in their models, it’s the difference between finding the local optima (the best result within each “neighborhood”) and the “global optimum” of the whole system. For that matter, football coaches know it too; no professional coach would argue that the best way to win a championship is to focus on maximizing each individual player’s performance statistics.

Yet this is exactly how many businesses are run. Rather than sacrificing certain parts for the good of the whole, companies essentially force each division to stand on its own. This approach undermines strategic “fit,” which, as Michael Porter put it, “requires the integration of decisions and actions across many independent subunits.”

For a coherent strategy to work, then, the organization executing it must be measured as a whole, rather than as parts. In other words, if a company is to have a single strategy, it must be driven by a single P&L.

This may sound like an extreme position. Yet some of the world’s most successful companies operate this way. Apple famously has only one P&L, for which its CFO, Peter Oppenheimer, has direct responsibility. And while each of its major hardware product lines is priced to make a significant profit, it bundles in all its key software upgrades, products, services, and platforms for free. CEO Tim Cook explains the logic:

“We manage the company at the top and just have one P&L, and don’t worry about the iCloud team making money and the Siri team making money. We want to have a great customer experience, and we think measuring all these things at that level would never achieve such a thing.”

It’s Apple’s single-company mindset that lets it give away industry-leading software and cannibalize its own products, which in turn has led to its unprecedented success. But that’s not to say a single P&L is always the right answer. Instead, a company should have as many P&Ls as it does distinct strategies. P&G’s Gillette shaving brand has a very different strategy from its Bounty paper towel brand, and Gillette has a different strategy in India than in North America. But although Gillette sells its razors and blade cartridges separately, these products fall under a single strategy. P&G’s profit centers reflect these boundaries.

Of course, companies should still measure a division, product, or function’s profitability (to the extent it can be done accurately) – that’s just good management. But this shouldn’t be the primary basis upon which managers are held accountable for their decisions, or they won’t enact a strategy that looks beyond their narrow interests. Amazon wouldn’t be able to underprice and over-market the Kindle to achieve their larger strategic objective of selling content if the Kindle product manager’s main objective was to maximize hardware profits. Nor would “free” look like such a great price point for Google’s Android unit.

So measure carefully – because if you reward each area of your business for acting in its own best interest, you just might get what you wish for.

So what is culture? Does culture matter? If so, how much time should you spend on it?

Let’s start with the second question first. The primary thing that any technology startup must do is build a product that’s at least 10 times better at doing something than the current prevailing way of doing that thing. Two or three times better will not be good enough to get people to switch to the new thing fast enough or in large enough volume to matter. The second thing that any technology startup must do is to take the market. If it’s possible to do something 10x better, it’s also possible that you won’t be the only company to figure that out. Therefore, you must take the market before somebody else does. Very few products are 10x better than the competition, so unseating the new incumbent is much more difficult than unseating the old one.

If you fail to do both of those things, your culture won’t matter one bit. The world is full of bankrupt companies with world-class cultures. Culture does not make a company.

So, why bother with culture at all? Three reasons:

1. It matters to the extent that it can help you achieve the above goals.
2. As your company grows, culture can help you preserve your key values, make your company a better place to work and help it perform better in the future.
3. Perhaps most importantly, after you and your people go through the inhuman amount of work that it will take to build a successful company, it will be an epic tragedy if your company culture is such that even you don’t want to work there.

Creating A Company Culture
In this post, when I refer to company culture, I am not referring to other important activities like company values and employee satisfaction. Specifically, I am writing about designing a way of working that will:

• Distinguish you from competitors
• Ensure that critical operating values persist such as delighting customers or making beautiful products
• Help you identify employees that fit with your mission

Culture means lots of other things in other contexts, but the above will be plenty to discuss here.

When you start implementing your culture, keep in mind that most of what will be retrospectively referred to as your company’s culture will not be designed in, but will evolve over time based on the behavior of you and your early employees. As a result, you will want to focus on a small number of cultural design points that will influence a large number of behaviors over a long period of time.

In Jim Collins’ massively successful book Built to Last, he wrote that one of the things that long lasting companies he studied have in common is a “cult-like culture.” I found this description to be confusing because it seems to imply that as long as your culture is weird enough and you are rabid enough about it, you will succeed on the cultural front. That’s related to the truth, but not actually true. In reality, Collins was right that a properly designed culture often ends up looking cult-like in retrospect, but that’s not the initial design principle. You needn’t think hard about how you can make your company seem bizarre to outsiders. However, you do need to think about how you can be provocative enough to change what people do every day.

Ideally, a cultural design point will be trivial to implement, but will have far-reaching behavioral consequences. Key to this kind of mechanism is shock value. If you put something into your culture that is so disturbing that it always creates a conversation, it will change behavior. As we learned in The Godfather, ask a Hollywood mogul to give someone a job and he might not respond. Put a horse’s head in his bed and unemployment will drop by one. Shock is a great mechanism for behavioral change.

If you come to my brainstorming meeting and say nothing, it would have been better if you hadn’t come at all.

If you go to work and do what you’re told, you’re not being negative, certainly, but the lack of initiative you demonstrate (which, alas, you were trained not to demonstrate) costs us all, because you’re using a slot that could have been filled by someone who would have added more value.

It’s tempting to sit quietly, take notes and comply, rationalizing that at least you’re not doing anything negative. But the opportunity cost your newly lean, highly leveraged organization faces is significant.

Not adding value is the same as taking it away.

By: Julian Baggini
Aeon Magazine, January 9, 2013 

You’ve just had dinner at one of the best restaurants in the country, the kind of place where the chef talks about his passion for perfection, obsession with detail and demand for the best, freshest ingredients. You know that there is probably one cook in the kitchen for every couple in the dining room. So you might feel surprised — even cheated — to discover that the coffee you are now enjoying was made by the waiter popping a capsule into a machine and pressing a button.

This is not a fanciful scenario. In the UK, more than 15 Michelin-starred restaurants use Nespresso, the market-leading capsule system, to make their coffee — including Heston Blumenthal’s Fat Duck in Berkshire, and The Ledbury in London. In France, Nespresso supplies more than 100 Michelin restaurants, including the legendary L’Arpège in Paris. Even in Italy, where the first espresso machine was patented in 1884, more than 20 Michelin restaurants use the new capsule system, and many others around the world use it or its rivals developed by Illy, Kimbo, Lavazza and Segafredo. Push-button espresso began as a domestic product, a way to simulate espresso at home without the mess and fuss. But in recent years it has rapidly, if quietly, started to take over the restaurant world.

You might not care much about fine dining or coffee. But you probably do value the skills of the artisan and might well believe that food is one of the ever-dwindling number of domains where individual human flair and creativity cannot be bettered by the mass-produced and mechanised. If so, you should care about the challenge to your assumptions that the rise of capsule coffee represents.

That concern lead me to a private dining room at the two Michelin-starred Latymer restaurant, part of the Pennyhill Park country house hotel in Surrey. With me were a coffee shop owner, two coffee obsessives, and a coffee-drinking friend. We were going to blind-taste three coffees: Nespresso capsule coffee, which is served in the restaurant; the traditional espresso that the hotel provides for room service; and a third unmarked coffee I had brought with me to be made the same way, just to see if the whole thing was nonsense and coffee is coffee is coffee. It was the artisan versus the machine, and given how top chefs had already voted with their contracts, the odds were against the result I instinctively preferred.

Ever since Alan Turing first suggested that we might be able to build a computer with an intelligence that could not be distinguished from a human’s, people have been trying to carve out a domain of activity that must be forever distinctly human. Chess grandmasters were once held up as exemplars of exactly what computers could not do. But after IBM’s Deep Blue computer defeated the world chess champion Garry Kasparov in 1997, this was quietly forgotten, and we looked instead to creativity, believing it absurd to think that a computer program could surpassHamlet or Beethoven’s late string quartets.

With the benefit of hindsight, it now seems obvious that chess is just the kind of thing that computers could do well. The advent of capsule systems heralds pretty much the same realisation for espresso coffee. Coffee-making lends itself to automation, since all the key variables are strictly controllable. Technically, it’s relatively easy to get hold of the best coffee beans, roast them at the right temperature for the right time, grind them to the right fineness, and then vacuum-seal the right quantity for one shot. From that point on, the coffee will not degrade, effectively being as fresh once the machine pierces the capsule as it was when it went in. Then it’s a matter of hiring leading coffee experts, throwing millions of pounds of R&D at a crack team of engineers, and building a machine that will force the right amount of water through the coffee at the right temperature and pressure.

In theory, that is bound to result in a better brew than the traditional process, which, for all its romance, is full of opportunities for degradation and mishap. A bag of beans, once opened, will start to lose its flavour very rapidly once it is ground. Calibrating temperature and pressure is also difficult and subject to human error. While the capsule always contains exactly the same amount of coffee, the amount the traditional barista places in the portafiltro, and the degree to which is it compacted with the tamper, will always differ slightly. Most cafés do not get every step right, and they only get away with it because most people drown their espressos in steamed milk.

That’s all very well, but surely coffee is the exception, not the rule, to the artisanal qualities of food and drink? That could be a complacent thought, and ironically, the people whose work most suggests it is are currently at the vanguard of artisan cooking: the molecular gastronomers. Donning both lab coat and chef’s hat, these pioneers are exploring how the science of cooking and sensory perception can tell us the best ways to cook and prepare foods. At the moment, this approach requires enormous amounts of time and kit, and you can enjoy the results only at restaurants such as the Fat Duck, where they come at vast expense (£195 per head without service or wine).

But the logical consequence of molecular gastronomy is haute-mechanisation. If the best way to cook meat, for example, really is to vacuum-seal it with some herbs and spices and cook in water at 55 °C (131 °F) for 48 hours, then as soon as a suitable, cheap sous-vide cooker is available, there is no reason why a novice chef in a local pub, or anyone else for that matter, couldn’t collect it from the butcher and do as good a job as anyone else.

Even at El Bulli in Spain, voted the world’s best restaurant for a record five years before it closed in July 2011, this basic principle was evident. Head chef Ferran Adrià and his core team were not actually the ones preparing the food on the night. Their main role was to develop dishes, in a form of gastronomic R&D, during the six months of each year that El Bulli was closed. The restaurant kitchen itself was really just a very fancy production line. ‘You have to function like perfect machines,’ Adrià was shown telling the kitchen staff in the documentary El Bulli: Cooking in Progress (2011). If that’s true, then in the long run, why not simply use perfect machines in restaurant kitchens, just as computerisation and mechanisation took human beings off the production floors of car plants?

Mechanised production can be wonderfully democratising, turning all sorts of things that were luxury, bespoke items into things everyone could afford, like the car, central heating, and computers. In the gastronomic utopia of the future, no one need be condemned to thin, dishwater coffee, or pies with pastry like wet cardboard.

For most epicures, it is almost an article of faith that this will never happen, because food needs to be cooked with love, flair and passion. While this might conceivably be true at the very peak of culinary art, in most cases mechanisation is competing not against the artisanal best but against the human mean. So, even if the very best coffee is still made the traditional way by a skilled, human barista, all Nespresso need do is produce better coffee than the majority of baristas, whom most coffee fanatics describe as incompetent anyway.

The claim that handcrafted is better does not stand up a priori. It needs to be put the test. And for coffee, that’s exactly what I did.

The tasting was designed to be as blind as possible, with each taster trying each coffee in a different order, so as to counter any advantage or disadvantage that coming first or last might give. The coffees were brought in by a waiter, not by the experienced barista Bruno Asselin, who is also the manager of the Latymer restaurant at the hotel. He had thoroughly cleaned the traditional espresso machine, opened a fresh bag of beans, and ground them just before the tasting.

We tasted the three coffees in silence, scoring them on a scale from zero to seven points, and jotting down personal tasting notes. My scores were not used in the final reckoning because, in making sure that Bruno had understood the system, I had seen which coffee corresponded to each number. Then we totted up the scores.

In distant last place came the ground coffee I had brought, a very good quality, single-estate bean, but not roasted for espresso and ground four days earlier, a little too coarsely for Bruno’s machine. The traditional house espresso scored 18 points, and was the favourite of one taster. But the clear winner with 22 points was the Nespresso, which both scored most consistently and was the favourite of two of the four tasters. Of course, these were just four people’s opinions. But their consensus fits the judgment of top chefs and Nespresso’s own extensive testing, which must have been conclusive enough for them to have the confidence to agree to my challenge in the first place.

Does this herald the death of artisan coffee, except in those exclusive enclaves where the very best, most obsessive practitioners ply their trade? And is the writing on the wall for other areas of human excellence where we cling to the idea that artisanal is best? A lifeline might seem to be provided by the detailed reviews of the coffees we tasted. The key descriptors for Nespresso were ‘smooth’ and ‘easy to drink’. And from the point of view of restaurateurs who use it, the key word is ‘consistency’. It was far from bland, but it was not challenging or distinctive either. It’s a coffee everyone can really like but few will love: the highest common denominator, if you like. The second-place coffee had more bite, and was the favourite of myself and the 10-cup-a-day connoisseur, but scored a pathetic two points from one person on the panel who took against it.

That taster was actually a bit of a coffee nerd and he made the acute observation that what Nespresso had really done was to look at the coffee-making process and systematically remove all that is problematic in it. The result is something flawless, but that is a particular and limited form of excellence or perfection. Perhaps there are peaks above perfection that can be achieved only by accepting a certain amount of imperfection. A perfect bottle of cola will not be as good as an average meal at El Bulli, even if they screw up one of the 40 courses.

Yet even subtle variations might themselves be perfectible. One day it might be possible to produce mechanically the coffee that is just right for you, even perhaps for you just now rather than yesterday.

The only way truly to defend the artisans against all that technology might put up against them is to give up the entire premise of my blind tasting, that is, the idea that it does not matter how the coffee came to be, all that counts is its final taste.

Surely we appreciate the handmade in part because it is handmade. An object or a meal has different meaning and significance if we know it to be the product of a human being working skilfully with tools rather than a machine stamping out another clone. Even if in some ways a mass-produced object is superior in its physical properties, we have good reasons for preferring a less perfect, handcrafted one.

Corporations know this, which is why they will often use bogus personalisation to make their products seem more appealing, like putting a picture of a farmer on the label, or giving the product the name of a person or place. But do we have good reasons for this preference, or is it just romantic nonsense? I think we do. We live in a world of humans, other animals and things, and the quality of life depends on the qualities of the relationships between them. Mass production, like factory farming, weakens, if not destroys, these relationships. This creates a kind of alienation, where we feel no genuine, human contact with those who supply us with what we need.

We are not simply hedonic machines who thrive if supplied with things that tick certain boxes for sensory pleasure, aesthetic merit, and so on. We are knowing as well as sensing creatures, and knowing where things come from, and how their makers are treated, does and should affect how we feel about them. Chocolate made from cocoa beans grown by people in near slave conditions should taste more bitter than a fairly traded bar, even if it does not in a blind tasting. Blindness, far from making tests fair, actually robs us of knowledge of what is most important, while perpetuating the illusion that all that really matters is how it feels or seems at the moment of consumption.

This might seem a simple, even platitudinous point. But it has profound political implications. For if it is true, then the whole way in which efficiency is usually measured is fundamentally flawed. Take agriculture. Proponents of organics and other non-intensive, less petrochemically dependent forms of farming are often drawn into the game of defending their approach only by measurable, objective results. So the battle becomes a statistical debate over yield, water usage, carbon footprint, soil erosion, and so forth. The trouble is that the kind of human-scale farming that people like does not always win when judged by these metrics.

Of course, we need to think about yield, efficiency and environmental impact. But we also need to think about what kind of world we want to live in. And if we do, most of us would say that we would prefer food chains that preserve human links between consumer, farmer, land, and animals, in a landscape that combines functionality and beauty as much as is possible. We prefer to buy coffee traded between small groups of individuals rather than beans of the same quality, grown to the same environmental standards, but channelled through large multinationals with an exclusive right to supply the machine you buy from them. That is not to say we must shun technology, never use polytunnels, or insist that all chickens come from a nearby country lane. But it does mean it is legitimate to prefer forms of trade and artisan production that maintain links between individuals, communities, land, and animals.

It is not that handmade is always best, of course. Much technology is itself a testimony to human creativity and ingenuity. Apple has got very rich through supplying technology that is beautifully designed by humans who are as gifted as the best artisans. There is plenty that we should happily allow to be mechanised, for the obvious benefits that brings. But there is plenty else we will continue to prefer to be handmade, because what matters is not just the result, but the process by which you get there. Humans are imperfect, and so a world of perfection that denies the human element can never be truly perfect after all.

Garry Gutting’s review of “How Much is Enough?: Money and the Good Life”

Under capitalism, businesses sell us goods and service that are essential for living well, and most of us get the money to buy these things by working for businesses or, less often, profiting from investments in them. We need capitalism because no other economic system can produce sufficient goods to meet our essential material needs such as food, shelter, clothes, and medical care. But these goods are not enough. A good life mainly depends on intangibles such as love, friendship, beauty, and virtue—things capitalism cannot produce and money cannot buy. Given a sufficient minimum of material goods, the good life does not depend on the world of commerce.

Nonetheless, for most of us, work takes up the bulk of our time and energy, leaving comparatively little for living a good life. Some see their work itself as a pursuit of beauty, truth, or virtue. But most find what they do valuable primarily as a means of earning money to buy material necessities. And capitalist society itself insists that a good life requires much more than a minimum of material goods. A truly good life, it urges, requires fine food, a large and well-furnished home, stylish clothing, and a steady diet of diverting and enriching experiences derived from sports, culture, and travel—all of which are expensive.

We all agree that there’s a limit beyond which more material goods would make little difference to the goodness of our lives. But almost all of us think we are considerably below that limit. In general, then, capitalism works against the good life from two directions. It requires us to engage in work that makes little contribution to our living well, beyond supplying our material necessities, and it urges us to believe, falsely, that a good life is mainly a matter of accumulating material possessions. The Skidelskys sum it up this way: “The irony is that…now that we have achieved abundance [in advanced capitalist countries], the habits bred into us by capitalism have left us incapable of enjoying it properly.”

Their view of capitalism is critical rather than revolutionary. They decry its tendency to sacrifice the human good to the goods of the market, but think we can curb this tendency and harness capitalism’s productive power for our pursuit of the good life. For them, the core problem with capitalism is “economic insatiability”—the intrinsic drive for increasing production (and therefore profits) without limit. The limitless demand for more can even lead, as we have recently seen, to economic catastrophe. More important, capitalism is morally deficient because its drivers are the vices of “greed and acquisitiveness,” which pile up “goods” that take us away from the good life.

The insatiability of capitalism exploits the corresponding insatiability of individual desires. No matter how much I possess, I find myself desiring more than I have. As I become rich enough to satisfy all my old desires, I develop new ones. Moreover, beyond a certain level of wealth, I begin to desire the best of everything, where the “best” (rare wines, exclusive resorts, the paintings of Old Masters) are in such limited supply that hardly anyone can afford them. And in addition to our spontaneous individual desires, we develop other desires simply because there are things others have that we don’t. Capitalism’s endless need to sell more and more is met by our need to buy more and more.

By MATTHEW B. CRAWFORD
NY Times, Published: May 21, 2009

A good job requires a field of action where you can put your best capacities to work and see an effect in the world. Academic credentials do not guarantee this.

Nor can big business or big government — those idols of the right and the left — reliably secure such work for us. Everyone is rightly concerned about economic growth on the one hand or unemployment and wages on the other, but the character of work doesn’t figure much in political debate. Labor unions address important concerns like workplace safety and family leave, and management looks for greater efficiency, but on the nature of the job itself, the dominant political and economic paradigms are mute. Yet work forms us, and deforms us, with broad public consequences.

The visceral experience of failure seems to have been edited out of the career trajectories ofgifted students. It stands to reason, then, that those who end up making big decisions that affect all of us don’t seem to have much sense of their own fallibility, and of how badly things can go wrong even with the best of intentions (like when I dropped that feeler gauge down into the Ninja). In the boardrooms of Wall Street and the corridors of Pennsylvania Avenue, I don’t think you’ll see a yellow sign that says “Think Safety!” as you do on job sites and in many repair shops, no doubt because those who sit on the swivel chairs tend to live remote from the consequences of the decisions they make. Why not encourage gifted students to learn a trade, if only in the summers, so that their fingers will be crushed once or twice before they go on to run the country?

There is good reason to suppose that responsibility has to be installed in the foundation of your mental equipment — at the level of perception and habit. There is an ethic of paying attention that develops in the trades through hard experience. It inflects your perception of the world and your habitual responses to it. This is due to the immediate feedback you get from material objects and to the fact that the work is typically situated in face-to-face interactions between tradesman and customer.

An economy that is more entrepreneurial, less managerial, would be less subject to the kind of distortions that occur when corporate managers’ compensation is tied to the short-term profit of distant shareholders. For most entrepreneurs, profit is at once a more capacious and a more concrete thing than this. It is a calculation in which the intrinsic satisfactions of work count — not least, the exercise of your own powers of reason.

Ultimately it is enlightened self-interest, then, not a harangue about humility or public-spiritedness, that will compel us to take a fresh look at the trades. The good life comes in a variety of forms. This variety has become difficult to see; our field of aspiration has narrowed into certain channels. But the current perplexity in the economy seems to be softening our gaze. Our peripheral vision is perhaps recovering, allowing us to consider the full range of lives worth choosing. For anyone who feels ill suited by disposition to spend his days sitting in an office, the question of what a good job looks like is now wide open.