Friday, January 28, 2011

Sustainable Money - Tara Siegel Bernard on Why Budgets Don't Work -

Sustainable Money - Tara Siegel Bernard on Why Budgets Don't Work -


Why a Budget Is Like a Diet — Ineffective

Heads of State

What would you do if your wallet became harder to open as your spending approached or exceeded your budget? Would you think twice about where your money was going?

A product designer at M.I.T. who created a working prototype for such a wallet seems to think so, and he may be on to something. Part of the reason so many people spend too much, or fail to stick to self-imposed budgets, is because parting with our money has become an abstraction in our increasingly cashless society. Credit cards provide immediate gratification, but no immediate consequences. Plucking actual dollars from your pile of cash, research suggests, is more painful, and leads you to spend less.

There’s another factor that prevents people from being model financial citizens (besides, of course, uncontrollable circumstances like joblessness). As a species, humans are notoriously poor at following through with their plans. Sticking to a budget — a dirty word even among many financial planners, who prefer the more euphemistic “spending plan” — feels too much like dieting. And we often fail at both for the same reasons: too much focus on the restrictions, not enough on fun. So it’s not surprising when people end up bingeing later, more than making up for dollars not spent or calories not consumed.

On, the popular money-tracking Web site, top goals among the nearly half a million users who set them include paying off debt, creating an emergency fund and saving for retirement. All virtuous goals, to be sure.

The battle, say money and psychology experts, is finding ways to close the gap between good intentions and human nature. So at a time when every dollar counts, how can you accomplish what you’re not necessarily wired to do?

It may be a while before that smart wallet hits the shelves (a hinge in the middle of the wallet, wired to your bank account balance via a Bluetooth connection to your cellphone, makes it harder to open as you reach a spending limit). The main inventor, John Kestner,said he’s working on bringing its retail price down to $60, to “avoid obvious irony.”

But there are plenty of mental tricks and strategies that can make your budgeting more sustainable now. In fact, the best strategy is not to think about it as budgeting at all. Instead, set up broad goals and automate all savings and other priorities where you can.

“Self-control is wonderful, but it’s just not sufficient,” said Meir Statman, a finance professor at Santa Clara University who focuses on behavioral finance and is the author of “What Investors Really Want.”

Start by becoming more conscious of your spending, whether you jot it down in a notepad, on a spreadsheet, or on Web sites like Then, give your spending plan a sense of purpose; budgets with a goal, whether it’s a European vacation or buying a home, tend to be the most successful.

“For there to be sustainable change, there needs to be some sort of positive motivation,” said Amanda Clayman, a financial therapist in New York. People tend to set unrealistic goals that don’t factor in their lifestyle, she said. “Ultimately, what we want our money to be is an energy source,” Ms. Clayman said. “It should help us get somewhere or do something.”

One strategy to keep spending in check is to employ what’s known as mental accounting — dividing your money into separate mental accounts that you treat differently.

“From a psychological standpoint, there is merit to having a separate account for entirely discretionary or luxury spending,” said Steve Levinson, a psychologist and co-author of “Following Through: A Revolutionary New Model for Finishing Whatever You Start.” Spending $100 out of $300 earmarked for fun will feel more meaningful than pulling out $100 from your entire $3,000 monthly budget.

The easiest way to set up a system, experts suggest, is to put your income into separate accounts or subaccounts, including one that distinguishes spending money from money needed for recurring household expenses. And think about working backward, as a way to keep things simple: instead of setting up an overly detailed budget, first decide how much you want to save for retirement and other goals, then work with what’s left over. If you want to cut spending, attack a few big categories where you can make the biggest difference.

Life has a natural way of derailing even the best-laid plans, so experts recommend building a cushion, or a slush fund of sorts. “It’s the one-time expenses that kill a budget,” said Rick Kahler, a financial planner in Rapid City, S.D. “The average person needs to be saving for car repairs every month, they need to be saving for their trips, for Christmas, for medical expenses.”

Just don’t rely on doing it yourself. Arrange to have the money withdrawn from your paycheck. “We need to exploit automaticity,” said Professor David Laibson, a behavioral economist at Harvard. He points to the success of automatic enrollment of new employees into retirement savings plans, like 401(k)’s. “We need to build in more of these commitment mechanisms, so we can live up to our intentions.”

Finding Innovation in the Flattened Organization - Chris Ernst - The Conversation - Harvard Business Review, By Chris Ernst

Finding Innovation in the Flattened Organization - Chris Ernst - The Conversation - Harvard Business Review

Finding Innovation in the Flattened Organization

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I always thought that senior executives led most effectively by managing vertically. That is, they spent the majority of their time working upward with their Board of Directors and downward with direct reports. But then the world, in Thomas Friedman's words, "flattened out." Markets became more interconnected, global competition grew, demographics shifted and communication tools improved. Boundaries that impeded good results in the old world posed even bigger problems in a world complicated by differences in culture, geography, function, and varied stakeholder concerns. Like you, I witnessed these changes with eyes wide open, but also wondered if the tight grip on leading vertically — via the traditional tools of hierarchy, power, and authority — would still be the chosen path for senior executives.

Other researchers and I asked that very question, and many others, of senior executives in major global companies — and we got a big surprise. Of the five major boundaries we identified through our research — vertical, horizontal, demographic, geographic, and stakeholder — these executives, by an astounding 71 percent, ranked horizontal boundaries as their biggest challenge for leading in a flat world. And, even more surprising, they relegated the importance of managing vertical boundaries to dead last at a mere 7 percent. Turf battles, the intransigence of silos, navigating the organizational matrix, front and back office barriers — in other words, working across barriers of function and expertise rather than above or below them — were the issues keeping them up at night most. During a merger, in coordinating disparate functions, in integrating a foreign division, a conversation across the fence was more effective than a "do it or else" series of commands to subordinates. "Silo busting" had become crucial for success.

What was going on here? We asked another question that provides an important clue: "What were the top ten trends that will impact organizational strategy over the next five years?" By a whopping 92 percent, senior executives said it was the drive for innovation. The link here is clear — integrating expertise and experience across functions is a powerful route to innovation.

Leading across functions, however, is hard work. Consider the experience of a top executive of a government R&D agency: "My organization consists of 8 functional units and 7 laboratories, in which more and more of our problems require interdisciplinary solutions. Unfortunately, each lab has its own management culture, and this causes real challenges in partnering. I have a mandate to attack this challenge." For this executive, spanning boundaries can create breakthrough ideas. Successful innovation demands effective collaboration and intense interaction between the organization and its stakeholders, and across internal boundaries of level, function, demography, and location. Such interactions can be a catalyst for leveraging different knowledge bases, beyond what any one leader, group, or organization can achieve alone.

While 86 percent of the senior executives in our research said that it is extremely important that they collaborate across boundaries, only 7 percent said that they did it effectively. So, the next time you experience a corporate merger, an alliance with a foreign company, or any other situation in which you need to develop relationships across functions, units, and disciplines while counteracting conflicting loyalties, try these tips.

  • Invite leaders from other units to your team meetings so they can discuss how each unit can help the other to solve pressing organizational problems.
  • Set up some comfortable chairs and a whiteboard in the connector wing between two departments to encourage informal, collaborative conversations across functions.
  • Following an organizational merger, get people from the same functions in the two organizations together. Have them craft a compelling mission about a new business opportunity that everyone can rally behind.
  • When divisions are in conflict over an issue, help them articulate the source of their differences and then explore ways to creatively reconcile them for the overall good of the organization.
  • Host "alternative future" conversations. Invite anyone in the organization to attend; provide no agenda other than to imagine the ideal, transformed organization 5 years from now. The more boundary spanning leaders it has, the stronger it will be.

Chris Ernst is a senior faculty member in the Center for Creative Leadership's Organizational Leadership Practice and co-author of the new book Boundary Spanning Leadership: Six Practices for Solving Problems, Driving Innovation, and Transforming Organizations

Thursday, January 27, 2011

Umair Haque on the Tech Industry’s “thin Value Problem” -

Umair Haque on the Tech Industry’s “thin Value Problem” -

Umair Haque on the Tech Industry’s “thin Value Problem”

Umair Haque thinks that Silicon Valley in a competency trap. “The things that made it successful yesterday are exactly the things that prevent it from becoming successful tomorrow”.

Haque just published a book called the “The New Capitalist Manifesto: Driving a Disruptively Better Business” in which he sets out his ideas on how capitalism, and companies, need to change in order to create true prosperity in the 21st century. I talked to him about the book and how it applies to the tech industry.

According to Haque, the tech industry has a “thin value problem”. He defines “thick value” as value which isauthentic, in that it is not created at someone else’s expense but creates value for others, meaningful in that it matters in human terms and sustainable by not being bubble-driven or built on the destruction of resources. Think Etsyrather than Gap or Innocent Drinks rather than Coca Cola.

Thin value transfers economic value from one party to another rather than genuinely creating it. If you sell a widget that costs $8 to a customer for $10, then you have made a profit of $2. But if the losses to others, like society or the environment, are worth more than $2, then you have failed to create any authentic value. Haque wants companies to have “a philosophy, a way to express how you will create value for people, as opposed to extract value from them” rather than just a strategy for grabbing market share.

Haque is convinced that companies can only succeed in the 21st century if they create thick value. “Yesterday’s institutions are not good enough. We have to innovate” he says. We don’t create new software on 1980s computers so why does every new startup still use business practices created for the industrial age? The book claims to be a sort of manual on how companies can innovate as institutions in order to create thick value. He also gives examples of companies already starting to do this including behemoths like Walmart, Nike, Apple and Google. Walmart, for example, has spent 5 years developing asustainability index which will be used by its 100,000 suppliers. The data will be stored in an open database available to other companies. Haque calls this a big institutional innovation.

The book argues that companies need to create value cycles where everything is re-used, rather traditional linear value chains which are destructive and wasteful. This can also lower business costs since by renewing resources you make them cheaper. Think of the way we replace our mobile phones every year or two using up limited supplies of rare metals in the process. Another aspect of the value cycle is only utilizing resources when customers request them, e.g. by making goods on demand like Threadless does as opposed to Gap selling off piles on unwanted clothes in the January sales.

Haque told me that tech companies are “doing very badly in terms of value cycles, doing very badly in terms of philosophies that create enduring value and shifting from goods to betters (products that make us lastingly better off). What is startling to me is that more tech companies don’t use technology for meaningful purposes.” According to him, many of Silicon’s Valley’s most talked-about companies like Groupon are “industrial age companies in disguise”. While it’s easy to see how a company like Groupon is successful in a recession, he contends that ultimately it gives people “the same old stuff cheaper” and that’s not good enough to be considered authentic value.

Another idea in the book is that of completing markets, rather than merely competing in existing ones, by serving needs which were never or barely met before. Haque gives the example of the Nintendo Wii which instantly made gaming attractive to girls and grandparents. In Haque’s opinion the venture capital industry focuses too much on competing in the same markets rather than completing markets. Often this doesn’t involve cutting edge technology, as was demonstrated by the Wii or Tata’s low cost car for emerging markets, the Nano.

I suggested to Haque that one reason that more tech companies don’t create thick value is that it’s much more difficult to measure than mere profit and loss. In the book, he says that a product is only really making a difference is it’s tangibly improving people’s physical, mental or social well-being or improving their lives economically in an enduring way. Haque thinks that part of the innovation required is to come up with ways of measuring whether you are making a difference. Social enterprise is already coming up with new metrics for this. India just announced a new green GDP measure while the UK is establishing a quality of life index.

I asked Haque what advice he would give to a tech entrepreneur who wants to make a difference. He says that entrepreneurs need to stop looking at themselves as technologists rather than institutional innovators. “Strive for a bigger purpose. Take on society’s big problems in the knowledge that is where the greatest returns are likely to be in the future. Have a global focus as opposed to US focus. Look at opportunities coming from the least fortunate people in the world.”

Maybe one problem with all of this is that the companies Haque holds up as succeeding in some aspects of his prescription, e.g. Apple for creating a new market via apps, fail badly in others. Look at the built-in obsolescence of Apple’s gadgets or the working conditions of the people who make all those iPhones. But maybe it’s better to be virtuous in one way rather than none at all.

Haque’s final word is that business as usual is not an option. “One choice you have is to refuel the engine. The other choice you have is to rebuild the engine. What the state of the global economy suggests is that refueling the engine is not working”.

Friday, January 14, 2011

Tree of Failure - David Brooks

Tree of Failure -

President Obama gave a wonderful speech in Tucson on Wednesday night. He didn’t try to explain the rampage that occurred there. Instead, he used the occasion as a national Sabbath — as a chance to step out of the torrent of events and reflect. He did it with an uplifting spirit. He not only expressed the country’s sense of loss but also celebrated the lives of the victims and the possibility for renewal.

Josh Haner/The New York Times

David Brooks

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Of course, even a great speech won’t usher in a period of civility. Speeches about civility will be taken to heart most by those people whose good character renders them unnecessary. Meanwhile, those who are inclined to intellectual thuggery and partisan one-sidedness will temporarily resolve to do better but then slip back to old habits the next time their pride feels threatened.

Civility is a tree with deep roots, and without the roots, it can’t last. So what are those roots? They are failure, sin, weakness and ignorance.

Every sensible person involved in politics and public life knows that their work is laced with failure. Every column, every speech, every piece of legislation and every executive decision has its own humiliating shortcomings. There are always arguments you should have made better, implications you should have anticipated, other points of view you should have taken on board.

Moreover, even if you are at your best, your efforts will still be laced with failure. The truth is fragmentary and it’s impossible to capture all of it. There are competing goods that can never be fully reconciled. The world is more complicated than any human intelligence can comprehend.

But every sensible person in public life also feels redeemed by others. You may write a mediocre column or make a mediocre speech or propose a mediocre piece of legislation, but others argue with you, correct you and introduce elements you never thought of. Each of these efforts may also be flawed, but together, if the system is working well, they move things gradually forward.

Each individual step may be imbalanced, but in succession they make the social organism better.

As a result, every sensible person feels a sense of gratitude for this process. We all get to live lives better than we deserve because our individual shortcomings are transmuted into communal improvement. We find meaning — and can only find meaning — in the role we play in that larger social enterprise.

So this is where civility comes from — from a sense of personal modesty and from the ensuing gratitude for the political process. Civility is the natural state for people who know how limited their own individual powers are and know, too, that they need the conversation. They are useless without the conversation.

The problem is that over the past 40 years or so we have gone from a culture that reminds people of their own limitations to a culture that encourages people to think highly of themselves. The nation’s founders had a modest but realistic opinion of themselves and of the voters. They erected all sorts of institutional and social restraints to protect Americans from themselves. They admired George Washington because of the way he kept himself in check.

But over the past few decades, people have lost a sense of their own sinfulness. Children are raised amid a chorus of applause. Politics has become less about institutional restraint and more about giving voters whatever they want at that second. Joe DiMaggio didn’t ostentatiously admire his own home runs, but now athletes routinely celebrate themselves as part of the self-branding process.

So, of course, you get narcissists who believe they or members of their party possess direct access to the truth. Of course you get people who prefer monologue to dialogue. Of course you get people who detest politics because it frustrates their ability to get 100 percent of what they want. Of course you get people who gravitate toward the like-minded and loathe their political opponents. They feel no need for balance and correction.

Beneath all the other things that have contributed to polarization and the loss of civility, the most important is this: The roots of modesty have been carved away.

President Obama’s speech in Tucson was a good step, but there will have to be a bipartisan project like comprehensive tax reform to get people conversing again. Most of all, there will have to be a return to modesty.

In a famous passage, Reinhold Niebuhr put it best: “Nothing that is worth doing can be achieved in our lifetime; therefore, we must be saved by hope. ... Nothing we do, however virtuous, can be accomplished alone; therefore, we are saved by love. No virtuous act is quite as virtuous from the standpoint of our friend or foe as it is from our standpoint. Therefore, we must be saved by the final form of love, which is forgiveness.”

Tuesday, January 11, 2011

Enough Is Enough - Tony Schwartz - Harvard Business Review

Enough Is Enough - Tony Schwartz - Harvard Business Review

Five years ago in The New York Times Magazine, the philosopher Peter Singer wrote the most important article I've ever read. It was called "What Should a Billionaire Give — and What Should You?"

What I remember best is the haunting hypothetical question Singer posed: If you were to pass a shallow pond in which a child was drowning, would you feel compelled to save the child, even if it meant getting your clothes wet or being late to wherever you were headed? Plainly the answer is yes.

Singer then made this argument: If we feel an obligation to save a child when the cost to ourselves is minimal inconvenience, we ought to feel the same obligation to save a child who is dying ten miles, a thousand miles, or 5000 miles from our home.

I was reminded of this scenario on vacation last week when I visited a harbor filled with megayachts — at least one of them 300 feet long. Subsequently, I learned that the boat cost $200 million to build, $5 million a year to maintain and that its owner spends less than 10 days a year on board.

I felt slightly sickened.

In the days since, I've been thinking about how little real value that yacht provides, even to its owner, and how much impact the $200 million in construction costs, and the $5 million a year in upkeep, could have on the lives of tens of thousands of needy people.

As Singer points out in his article, sixteen thousand children around the world die every day from diseases related to hunger. Ten million people a year die from poverty related causes. More than a billion of our fellow human beings subsist on the equivalent of less than $1 a day.

The widening gap between the haves and the have-nots in today's world is breathtaking.
Some 400 people on the Forbes list of richest Americans have a net worth in excess of $1 billion. At least seven hedge fund managers earned more than $1 billion just in 2009. Unfathomably, and unfairly, they paid less than half the marginal income tax rate on their earnings that most of the rest of us do, for no rational or justifiable reason.

Spare me the argument that if they earned it, they have every right to keep it.

They didn't earn it themselves, no matter what their initial circumstances. They earned it with the help and support of many people along the way, including the kindness of strangers. In many cases, they earned it on the backs of others who barely earned anything,or they simply inherited it. Either way, their extraordinary good fortune was hardly just a function of their intrinsic skill or talent or their hard work.

As Singer quoted Warren Buffett, the most successful investor of our time: "If you stick me down in the middle of Bangladesh or Peru, you'll find out how much this talent is going to produce in the wrong kind of soil."

At The Energy Project, we spend a lot of time talking with leaders about the energy they stand to derive from defining missions larger than themselves — ones that serve a greater good. And we talk, too, about how energizing it is for people to work for such a leader.

In 2000, the United Nations Millennium Summit set a series of ambitious development goals for 2015, among them reducing by half the number of people living in extreme poverty, suffering from hunger and lacking access to clean drinking water. Five years later, a task force led by economist Jeffrey Sachs estimated that the cost of meeting these goals would be an additional $121 billion in 2006, rising to $189 billion in 2015.

Buffett, to his credit, has pledged to give away more than 99 percent of his huge fortune. He and Bill Gates have also recruited nearly 60 other billionaires to give away at least half of their fortunes.

That's a very positive start, but why should this practice be limited to billionaires?

Singer used 2004 tax figures to compute that if the top .01 percent of taxpayers in the United States — approximately 14,000 people at the time — were to give away one third of their pre-tax income, that would generate more than $60 billion each year.

Even then, these 14,000 people would retain an average of $10 million a year in income. Can any reasonable case be made that any of them would be less comfortable, happy or economically secure with that sum?

If, in addition, the top 0.1 per cent of taxpayers in the United States — another 130,000 people — were to give away 25 percent of their pre-tax income every year, that would generate another $65 billion.

Add to that the remaining 1 percent or so of taxpayers, and ask them to contribute 15 percent of their income — or even 10 per cent. That's another million people or so, and the total yield would be between $50 and $75 billion.

That's a total of at least $175 billion a year — enough to meet the UN goals and save millions of lives.

We can justify, rationalize, and pontificate about individual freedom all we want, but in the process we're sticking our heads in the sand. Millions of people are suffering and dying unnecessarily every day. We have the collective means to do something about it with minimal personal sacrifice.

Enough is enough. It's time to step up.

On average, Americans who earn $25,000 a year or less contribute 4.2 percent of their income to charitable causes. Those with incomes above $100,000 contribute just 2.7 percent. My New Year's resolution is to contribute at least 10 per cent of my income every year going forward. What are you willing to do?