The Will to Lead

In his final book, “The Will to Lead”, Marvin Bower starts with saying that
“I now believe that when true leaders and leadership teams are stationed strategically throughout a company, and hierarchy has been eliminated, people will be freed up to work together more effectively, efficiently, and creatively. They will exercise more initiative and get more ideas, and they will be far more likely to want to work together in harmony with one another and with optimism and enthusiasm, and to like their work. “

In his book, Marvin first describes attributes of leaders (not commander), describes four main responsibilities of leaders, and then writes about various related topics.

Regarding qualities and attributes of leading, he mentions many aspects. Those could be summarized into two categories.

Integrity. Trustworthiness is integrity in action. The way to integrity is simple - always tell the truth. If you always tell the truth, you won’t have to remember what you said. Treat people fairly. No arrogance, haughtiness and egotism. No hypocritical humbleness. No calculation. Just behave unassuming.

Sensitivity to people and situations. Listening is one of the most valuable and one of the least understood. Most captains of industry listen only sometimes, and they remain ordinary leaders. Remember that feeling of being heard is quite important. Any leader with an open mind makes better judgments, learns more of what he or she needs to know, and establishes more positive relations with subordinates and constituents. The guidance to be open-minded is never to say “no” immediately, but instead say “I’ll get back to you”.


Marvin also mentions four fundamental responsibilities of company leaders. As one who is leading an organization, I deeply agree with what he says.

1. Treating constituents with respect
Leaders throughout the company have the responsibility for treating all constituents as unique and valued individuals. That means they must assume the best about people rather than the worst, and act in the belief that most people who are treated fairly and considerately will perform whatever work they are doing more effectively and efficiently. In fact, a leadership culture creates the right environment for people to enjoy their work.

2. Developing constituents self-confidence and self-esteem
Every leader should recognize the importance of building self-confidence and self-esteem in his or her constituents and making them feel good about themselves. A constituent cannot be effective if he or she lacks self-confidence. Leaders let constituents feel that our lives have meaning and that what we do for a living is regarded by others as worthwhile. In other words, true leaders let people to like their work and to adjust to the new workplace. When you conduct “command management”, people would never feel self-confidence.

3. Developing Constituents
Every leader is supposed to develop his people. All leaders are responsible to their companies and to their people for developing the potential of their constituents and for bringing along new generations of leaders from these constituents. Let constituents grow. Bring them in on decisions. Delegate. Feed them responsibility. Stretch them. And change their assignments periodically. When I read this, I remember what Konosuke Matsushita, the revered founder of Panasonic said: “We produces people. We also produces electric devices.”

4. Making constituents stakeholders
All leaders must give their constituents the feeling that they have a real stake in the company’s present performance and future success. The stake should be real.

Marvin Bower

Actually, I didn't know much about Marvin Bower, a legendary figure of McKinsey. Having read the book "McKinsey's Marvin Bower", I now think that all those who work for professional firms can learn a lot from him.

Marvin joined McKinsey in 1933, and in 1947 he and three partners bought exclusive and full rights to the name McKinsey & Co. from McKinsey & Kearney. (After selling the rights, McKinsey & Kearney became A. T. Kearney) The purpose of this buyout was to focus on management consulting business, which he believes is incompatible with accounting service business which was conducted by McKinsey & Kearney. Marvin thought that there is a potential conflict of interests if one firm conducts both of those businesses. While other management consulting firms went public, McKinsey didn't, because if McKinsey becomes a listed company, the firm should work for the shareholders interests, not those of clients.

Until stepping down as managing director of the firm in 1967 and formally retiring in 1992, he brought about significant influence on the business society. Client members of Marvin's teams were 20 times more likely to rise to a senior management level (president or CEO) than were their peers. During Marvin's 17 years as manning director of McKinsey, more than 50 of the consultants evolved into CEOs of leading global companies. Even in Japan, there are many McK alumni who assume the role of senior executive of big companies.

Those accomplishments are done by Marvin's professionalism and leadership.

His professionalism was intensive. The following remark well shows his professionalism:

"We are what we speak - it defines us - it is our image. We don't have customers, we have clients. We don't serve within an industry, we are a profession We are not a company, we are not a business. We are a firm. We don't have employees, we have firm members and colleagues who have individual dignity. We don't have business plans, we have aspirations. We don't have rules, we have values. We are management consultants only. We are not managers, promoters, or constructors." (P30)

Through his action, he emphasized and taught his peers what professionalism is.

He didn't like people saying "Well, I did this job for General Motors.", because he thought it diminished the quality of the professional relationship.

He sticked to dress code, saying

"If your job is to help a client have the courage to follow the trail indicated by facts, you need to do everything you can to minimize the distractions and deviations the client is likely to take. If you have revolutionary ideas, they are much more likely to be listened to if you do not have revolutionary dress - the CEOs must have confidence in us. … Basically, the dress code all has to do with what you want to do." (P71)

Marvin was also concerned with the appearance of written communications. McKinsey had formal reports, informal reports, memorandum reports, letters of proposal, memoranda of proposal, and so on, all of which had a full and logically sufficient set of rules. Everyone in the firm used the exactly same typeface.

Marvin Bower was not only the professional management consultant, but also the leader of the firm. Though his leadership, he made the world's best consultancy and let his clients make courageous decisions.

According to Marvin, there are six value-based leadership qualities:

1. Put the client's interest first and separate yourself from the job: Always take your job seriously, not yourself. Mavin never held back the truth from a client, as that would not have been client's best interest.

2. Be consistent yet open minded:eery one met the same Marvin Bower during his long life. Strict in principle and open-minded.

3. Center problem-solving on the facts and on the front line: Marvin always insisted on gathering essential facts.

4. View problems and Decisions in the context of the whole and in terms of the immediate actions to be taken: Marvin believed that isolated facts do not lead to solutions. Having imagination and context to see where the facts lead creates solutions and paths.

5. Inspire and require people to be the best: Marvin challenged his peers and require they to perform as best professionals. He didn't allow the associates to have lunch with friends in weekdays.

6. Communicate the values of the company over and over again to ensure that the firm will understand them, embrace them, and translate them into actions

The author, who worked together with Marvin, said his leadership is distilled six attributes:

1. Integrity/Trustworthiness

2. Fact-based visioning and a pragmatic "Monday Morning" path to turn vision into reality

3. Adherence to principles/values

4. Humility and unassuming respect for others

5. Strong Communications / personal persuasiveness

6. Personal involvement / demonstrated commitment

The final test of a leader is whether he can leave behind in other man the conviction and the will to carry on. Even in this sense, Marvin was the great leader. Founder tends to be stick to the position he established, but he stepped down as managing director of the firm, saying "If you are going to have a dynamic economy, don't let the elderly run the enterprises of the economy.". Even after he left, there were plenty of successors, and even now McKinsey is the factory of world's managers.

I truly appreciate his great life, inspiring me a lot and giving me the chance to think about my job as a professional.

Human Capital

It was Gary Becker who firstly formalized the concept of Human Capital in his book, "Human Capital - A Theoretical and Empirical Analysis with Special Reference to Education". He argued that human resources are a kind of capital, and on-the-job training, education, and the other similar activities are investments in human capital. Nowadays, many people understand the concept, but when the book is firstly published, the argument was epoch-making.

In the book, he analyzed human capital mainly by using demand-supply framework, a classical but still useful framework. Price of human capital, or one's income, is determined at the point where demand and supply curves intersect.

A supply curve of human capital is mainly determined by one's economic condition - for example, if one was raised in poor family, university education could be too costly to have. In this framework, equality of opportunities means is achieved by making supply curve identical. Practical policy would be to establish public schools, let the tuition be free, and so on.

In the framework, a demand curve is mainly determined by one's talent. Some people believe that one's income ought to be high or low based on his or her talent, the notion that Dr. Becker called "the elite approach". It may be difficult to separate demand and supply sides, because it seems that one's gift may be affected by her/his family condition (malnutrition, carelessness toward infants due to busyness, etc would severely affect one's future ability).

Professor Becker also estimated the impact of college education, by calculating annual return of it. According to him, average annual return on college education is ranged from 11% to 13%. The rangee varies based on one's social status: in United States, return on human capital investment was higher for whites and men but lower for non-whites and women, partly because, especially in those days, whites and men could promote more and enjoy more income, whereas non-whites and women could not.

This variation in return on higher education suggests that those who are excluded from opportunities would have less incentive to have higher education, because the return on investment is relatively low for those people. The variation may also explain why test scores or university entrance rates of some groups are lower than the others. For some people, getting higher score in schools may be less meaningful, because the benefit is smaller than the cost when one's inherited wealth is small: one in poor family may find it more attractive to spend his or her time for doing part-time job rather than studying.

Fuji Rock 2011

It was Naeba in Nigata prefecture, not Yamanashi or Nagano where mt. Fuji is located. That was the first thing I noticed when I attended Fuji Rock Festival first time in life, in the final summer while I'm 20s.

It was terrible environment and infrastructure, the second thing I noticed; from Echigo-yuzawa station, I waited for circa 1.5 hours to take a bus to get to Naeba. After the arrival, I waited in a long line to get my ticket exchanged to a wrist band, proof of buying a ticket. Massive rain was all over the mountains, culminating in the disastrous flood.

With that said, it was one of the most memorable events I had in 20s. The severe wether condition seems to strengthen the power of music. Anyone has experienced how the food is delicious when one is hungry. You can sense how beautiful and powerful the music is, when you're in a severe condition. Every stage was great, but if I were to pick up one, I would say that the live of Coldplay was the best (picture). It was not just the music but the mixture of all sorts of arts.

The live performance was great and everyone including me got excited, but during the live performance, I sensed as if I am a stranger in the crowd. As a person who has the experience in playing in front of people, I may have viewed them not only as the greatest artists in the world, but also as competitors or teachers. I was trying to learn from them something, while to some extent I was enjoying it. Would like to do the similar thing in the future.

Aftershock

The Great Depression and the Great Recession has one thing in common - income inequality. Robert Reich, a professor at UC Berkeley and the author of the book “Supercapitalism”, argues that the fundamental reason of the two financial catastrophes is income inequality in his recent book “Aftershock”.

When we see statistics, income inequality does seem to coincide with the period of financial crises and prosperities.

The period of two crises saw unusually high income held by the wealthiest people. Top 1% wealthy individuals held more than 20% of total income generated in the country. On the contrary, in the period of prosperity (from 1947 to 1975) top 1% people had just around 10% of total income. In that era, maximum tax rate never went below 50%, people shared the growth of the productivities of the country, and individuals were able to see American dreams more than they are today.

Pendulum swings back and forth. After the period of prosperity, average hourly compensation of American workers did not increased or even slightly decreased despite the increase of their productivities. Accordingly, income of top 1% wealthy individuals began to increase again since 1975.

Why does inequality lead to the economic crisis? The reasoning is as follows: when you are an average worker, you want your living standards to keep the pace with the growth of the country, but your salary doesn’t increase at the same speed of the economy’s growth. Then to keep the game going, you have to cut your savings or borrow money from banks, and these activities pile up the huge debt. However, the game does not go on forever, and someday it will crash, leaving massive non-performing loans. This time, the final trigger was the burst of mortgage bubble.

Income inequality also leads to less consumption growth. It is logically understandable. If the marginal change of your consumption propensity on income increase is negative (I believe it would be the case for most of us), income inequality leads to lower consumption as a whole. Lower consumption means higher savings. The excess liquidity of the financial institutions is said to be part of the reasons of the latest financial crisis.

Based on the observations, the author suggests several measures to remedy current problems of the country:

1) Tax reform: reverse income tax, carbon tax, and higher marginal tax rates on the wealthy

2) Reemployment system

3) School vouchers based on family income

4) College loans linked to subsequent earnings

5) Medicare for all citizens

6) Increase in public goods

7) Money out of politics (limiting lobbying activities)

Though the author’s emphasis on the importance of income equality is understandable, to achieve it is getting more difficult in these days. Globalization and technology advancement collectively drives inequality between and within countries. Limiting companies’ outsourcing makes no sense at all, as the companies would lose in competition if they don’t conduct cost-cut as others do. New Deal program worked 80 years ago, but now we need 21^st century-version of it.

Bowling Alone

Robert Putnam, a professor of public policy at the Harvard University John F. Kennedy School of Government, presented his idea on social capital in his great book, "Bowling Alone".

Enormous statistics suggest the decline of social capital in US. Political, civic and religious participation are declining straightly. People feel less connected to their coworkers, altruism and philanthropic activities are diminished, and more now feel that people cannot be trusted.

Using statistics of correlation of events, professor Putnam explains potential reasons of the decline. The author guesses that 10 percent of the total decline is attributable to the pressures of time and money; as the economy develops people became to be busier than before and using their time for social activities may be more costly. An additional 10 percent is attributable to the suburbanization, commuting, and urban sprawl; people use more time for their commute and live in area with more strangers, making the civic engagement more difficult. Perhaps 25 percent of the decline may be due to the effect of electronic entertainment, among which TV proliferation coincides with the decline in civic engagement activities. The remaining is explained by the change in generation, the author argues; social habits and values of older generations are influenced by the great mid-century global cataclysm such as World War II, but younger generations did not explain the cataclysm.

Social capital matters, because it lessens communication costs of groups. It makes collective problems (like tragedy of commons) easy, makes communities more efficient, and empowers individuals. The author made index of social capital and evaluated the level of social capital strength of each state, and examined the relationship between the level and performance of the states. The result was striking: States with higher social capital score showed higher school performance (potential reason is children's mental health), lower murder and other criminal rates, longevity, and high tolerance to minorities (this suggests that the social capital here is not "bonding social capital" which sometimes leads to anti-outsiders, but the "bridging social capital" which brings about harmonization among different social groups). Even from practical perspectives, we can justify the importance of social capital.

Once the society looses social capital, it is not easy to rebuild it. Even though US in the last third of 19th century experienced a social capital crisis and succeeded in regaining it, we cannot apply the lessons of the past to the current problems. There is no panacea, and we need collective actions of different players: employer, urban and regional planners, politicians, religious leaders, journalists, and everyone.

The author identified the significant social change in US in this brilliant volume. The book is useful not just for understanding current status of the society, but for the way to conduct research of social capital in all other societies. Hope someone does the same analyses for east Asian countries.

Development as Freedom

When people hear the word “development”, 99% of them might think of something related to economic growth. That may, however, be too short sighted and perhaps missing the most important aspect of development. Take mortality rate for example. Mortality rate of black men in US is higher than that of Kerala, an Indian state. It may be dubious to see development only as the economic growth.

Amartya Sen, a Nobel Prize laureate, brought about broader view on development. He argues that the purpose of development is to achieve freedom. According to him, Poverty is a problem in that it deprives people of liberty.

Sen sets out his view on development in the book “Development as Freedom”. In this book, Sen said that freedom composes of five aspects:

• Political freedom: liberty of political participation. Rights of expression.
• Social opportunities: opportunities to receive basic education and health care. Social rights.
• Economic facilities: infrastructure, access to finance. Economic rights.
• Protective securities: unemployment insurance and the other safety nets.
• Transparency guarantees: openness to build the trust. Rights to know.

These ideas may have originated from Sen’s personal experience. He lived in an Indian village, which has experienced no famine even though the village was poor. There also was Indian belief that money is not everything – one cannot carry money into heaven. He also studied philosophy, especially libertarianism as the alternative to utilities theory, which has some limitations (the theory often assumes uniformity of personal tastes).

Sen argues that freedom is also the most effective way to achieve it. He strongly believes in the power of people to whom opportunities are given. He says:

“With adequate social opportunities, individuals can effectively shape their own destiny and help each other.”

Freedom empowers people to develop their capability and thus augments human capital. Their collective abilities and decision based on the free market economy would lead to faster growth.

Long before, most of the people thought that freedom such as freedom to have education is the “luxury” that only well-being countries can achieve. The view often justifies “development dictatorship”, the economic model in which an authoritarian government leads the economic growth whose process is sometimes fierce. Sen strongly challenges this view. He quotes some example that even in economically poor countries, prioritizing human development was possible. One example was Japan. In Japan, human development with higher education and well-made health care system came first, and the human capital made the economic growth faster.

His contribution to development studies is huge. The concept of human securities got the theoretical background thanks to Sen’s theory.

Economist this week

From The Economist Apr 23 2011 printed edition

http://www.economist.com/printedition/index.cfm?d=20110423

Libya - Qaddafi's forces intensified in their siege of Misrata, the city now in the rebel's hands. Western worlds and rebels seek for the more aircrafts from US, but President Obama does not make any decision now, partly because of stigma the country experienced in Afghanistan and Iraq, and partly because of the budget constraint. Some strongly argues that US should involve in the process more, given that the operation in Libya is different from Afghanistan and Iraq, that the operation is humanitarian as well as pragmatic. If I were Mr. Obama, what would I do?

http://www.economist.com/node/18586995/print

Chinese in Africa - China is Africa's biggest trading partner so far. Because of no antagonism due to colonial period and the commitment the workers made, Chinese have gained popularity in the countries. However, in these days, the trend is getting to be a bit different, as seen in the miners' case in south Zambia, where they protested against poor working condition. The Africans' recent criticism toward China may be based on disguised protectionism, or it may be due to the impression that Chinese are hoarding African cheap labor forces. Some politicians are gaining political power thanks to the anti-Chinese movements. What would be the lesson for China, and will Japan be able to replace the Chinese?

Japan - the quickest way for the Tohoku region's revival would be to turn the region into a special economic zone, a free trade area with lower tax rate and immigrant workers. The Economist says it's worth a try given Tohoku's devastation, but I'm not sure if that is the right way in terms of both legitimacy and correctness.http://www.economist.com/node/18586786/print

Stoics of the Japanese, called "Gaman", gained admiration from the world, but it is at the same time obstacles for the drastic changes.

Business - due to the decreasing job seats, internship is getting to be a critical first step into employment. It is unpaid labor, but appreciated for both; employers can measure the capability of applicants, and potential employees can see if the jobs would fit to them. However, recently some say that the unpaid labor is illegal in light of labor code. Should the companies pay for students who actually add almost no value to the firm?

Social science - Crowds are like molecules, but to model the crowd's behavior accurately, the modeling should count the human nature that people behaves different when they're in fully packed places. Dr Moussaid and Dr Sabatier invented a new model including that factor.

Business - Johnson & Johnson, the health-care giant, is to buy Synthes for $20 billion. J&J recently suffers from its bad performance. Recent years have knocked J&J off its pedestal as one of the most venerated companies. It recalled a painkiller, Motrin, but they announced the fact a month later, the fact that represents striking contrasts with what the firm did for Tylenol. The firm shows the dissonance on the takeover deals as well. J&J said to its investor that the firm would buy-back its shares and that no takeover will be made until it solves its internal problems.

Russia & US - the coalition is strengthened these days. Russia became conduit for US on its operation in Afghanistan. Russia was supportive on UN policy towards Iran. The reset of the relationship is not that easy and simple, ans US may need to seek for the better way to democratize Russia through its foreign policy.

Politics - Golden state is under discussion on its voting system. Direct voting system has its virtue, but it does not necessarily means to give the power to people. The direct voting system makes it difficult for minorities to represent their will. Also, the change in political system is tough to reverse; once decisions are made, change in the new system calls for another voting and thus is difficult.

Singapore - the country is transforming into Aisa's top financial center thanks to its ability to take advantage of global financial upheavals. The recent rise was due to the Hong Kong's handover; it accepted many assets newly booked in Singapore and used the opportunity for the growth of asset management business. The country is eager to build the infrastructure to be the finance center: well-thought regulation, lower tax rate, friendly policy toward foreigners, fast internet, etc, all of which are done by government, not out of the laissez-faire.

What makes the Singapore so successful: language, skilled workers, efficient regulation, lower tax rate (max 20%), access (nice airport location), friendly policy toward foreigners, internet system, and, above all, strong leadership to bring all of them about.

Innovator's Dilemma

There are two sort of innovation. One is based on sustaining technologies and another is on disruptive technologies. Sustaining-technology-based innovation just enhances the function of current products. Disruptive one, which is the main focus of the book “The Innovator’s Dilemma”, changes the landscape of the industries.

The principles of disruptive innovation show that when good companies fail, it often has been because their managers either ignored these principles or chose to fight them. Even successful companies with efficient and capable management team are toppled down with the disruptive innovation. See what happened in TV industry for example. Here is the dilemma: large companies, even with the great management team, cannot rationally follow the disruptive technologies, but those technologies are the critical factors in winning new era. The industry just opened by disruptive technologies is too small to enter for giants, too small to analyze properly, and too small to be accepted or highly evaluated by the large number of customers. However, if you are the managers of large companies, you should follow those technologies so that you would achieve sustainable growth in changing business scenes, even though you face difficulties in explaining to your shareholders on what you do with those disruptive innovations.

Dr. Clayton M. Christensen, author of this book, mentions several way for the successful companies manage disruptive technological changes:

1. They embedded projects to develop and commercialize disruptive technologies within an organization whose customers needed them. When managers aligned a disruptive innovation with the “right” customers, customer demand increased the probability that the innovation would get the resources it needed.

2. They placed projects to develop disruptive technologies in organizations small enough to get excited about small opportunities and small wins.

3. They planned to fail early and inexpensively in search for the market for a disruptive technology. They found that their markets generally coalesced through an iterative process of trial, learning, and trial again.

4. They utilized some of the resources of the mainstream organization to address the disruption, but they were careful not to leverage its processes and values. They created different ways of working within an organization whose values and cost structure were turned to the disruptive task at hand.

5. When commercializing disruptive technologies, they found or developed new markets that valued the attributes of the disruptive products, rather than search for a technological breakthrough so that the disruptive product could compete as a sustaining technology in mainstream markets.

It’s been more than 10 years since the book was issued, but the point that Dr. Christensen made is still valid or even getting more crucial than before. Entrepreneurship would be the key to success even in large organizations.

Positioning

The central point in advertisement / marketing is positioning. The purpose of position is to occupy a certain part of potential clients' mind.

Since Al Ries and Jack Trout argued importance of positioning in their book "Positioning", the importance is getting larger as our society sees deluge of information. Nowadays, consumers see too many advertisements. Their minds are like sponges fully soaked with water. It is not easy to add new water into it.

If you are an author, think about your clients’ bookshelf. They have a lot of books in their mind to fill the empty space. The author should think about what sort of book is missing in consumers’ bookshelf, or, in other words, what kind of book could be the one to be called “this is it!”.

How can we occupy consumer’s mind? The authors give us a simple answer: be the “First”. You know the highest mountain in Japan (Mt. Fuji), but less likely the second highest one. You may remember the most-selling book in the world (the Bible) but not the second. To occupy one’s mind, what you sell should be the first in something. If you think your product is not the first, maybe you will be able to find “first” in any particular fields, or sometimes you may be able to create the new field in which your product is the first.

The next point in positioning is naming. You should come up with the name that represents what it is. This is not the time when you can go with the name like Morgan Stanley, Harry Winston, etc. Look at the successful companies in this century: Google, Facebook, Twitter, Groupon, etc. They all represent what they are. By naming, tell your position in the market.

The name should also be unique. If you come up with new product, you need to put the unique name. A good example I think is “MacBook air”. If the name was “MacBook thinner”, it would not be sold like MacBook air.

The theory of positioning can be applied to every field. Successful countries need positioning, and successful politicians as well. Just follow the principle: position yourself in the field where you can be the first, and tell the world where you are.

Aging & Skewed sex ratio

Aging society and the skewed sex ratio are the two main topics in population problem.

To the certain extent, aging of societies is inevitable, requiring changes social system and the way of doing business.

Ceteris paribus, in 2050 2.6 Americans need to support one pensioner, and the staggering figures for France, Germany, Italy and Japan will be 1.9, 1.6, 1.5 and 1.2, respectively. Most say that the best way to cope with the disequilibrium is to make the retirement age raised to 70. There are some virtues in raising of retirement ages: first, the old people will enjoy the increase in lifetime income; second, since the working force increases, the government will see the increase in tax revenue; third, the economy grows thanks to the more working force. To me, increase in the retirement age has additional rationale, given that originally retirement is to enjoy the last days of one’s lives. In the societies with longevity, the retirement age should be adjusted based on the life expectancy.

Users of TV viewer are aging more rapidly than the aging societies. In US, the median age of viewers is around 50. Those median people have their own and fixed tastes, and that is why TV programs mainly target at people with age ranged from 19 to 49 in their promotion. Trends are the same in newspaper readers. In US, 45% of newspaper’s readers are over 55, and in Japan the average is circa 50. Big chunk of their sales is coming from subscription of older people. Same are in the music industry. For many of the companies, the aging is realized as costs, but it potentially is opportunity. Some companies succeed in taking advantage of old people as work force. They have knowledge which would not be depreciated shortly, experience and network. If I were an entrepreneur, I will start my business with more than one elderly person. The faster switch across the industries is mainly due to progress of IT. Younger generation switched their source of information from paper-based ones to internet-based ones faster than the older generation. The transition is unavoidable, and the shakeout of the newspaper firms would be accelerated. In the case of newspaper, only those with strong contents (personally speaking, WSJ, FT and Economists are the ones) would survive.

Another serious issue is skewed sex ratio. In China and India, whose population accounts for about one third of the world population, there are more boys than girls, due to gendercide. Cause of the issue is regulation and economics. China’s notorious one-child policy, together with the weaker economic status and rising education costs, is leading to the tragedy. In China, the ratio of boys to girs is 123 to 100, and the figures for India is 1000 to 914. The skewed ratio would have repercussion effects: human trafficking and rapes will be increased as many men cannot find wives.

Risk of efficiency

Crisis often unveils unexpected connection of the system. Japan's earthquake buffeted the world's supply chain known for its efficiency characterized by the just-in-time delivery system.

Japanese makers have core technologies in many goods. Nihon seikojo dominates market of the pressure container for nuclear plants. Some chemical makers damaged in the earthquake provides special devices for computers and mobile phones. Now prices of those devices are soaring not only because of the lower mid-term supply but also because of its supply chain with low inventory.

The case could give us some insight on the importance of slack. Perfect systems work perfectly in normal days, but when the regime changes it gets significantly prone to the outside shocks. We'd better to hedge some risk, and as finance theory tells to us, the optimal hedge ratio lies between the both extremes.

Second momentum

Acid rain in Schwarzwald (black forests) was the first opportunity for the Greens to gain its popularity. Here they get next one.

Nuclear crisis in Japan brought about byproducts even in Europe politics. In the recent Germany state election in Baden-Württemberg, the state with four nuclear reactors, the Greens now gain the 24.2% of votes and taking control of the government.

Source: http://www.economist.com/node/18485945/print

Even though the contribution of the Greens is limited in changing energy policy (as nuclear reactors in Baden- Württemberg are under federal control), the votes reflect the change in the wind. Obviously the main reason of winning more seats would be nuclear disaster, but the next reason is said to be that the Greens succeeded in appealing to young generations with high education.

Maybe someone in Japan could establish the Greens at this moment.

Unknown unknown

Today life is divided into three parts. Eukaryotes is the most popular one, and then next Bacteria. The third one, tiny and not visible in naked eyes, is archaea which was recognized only in the 1970s. So the striking question is : wouldn’t there be the fourth? Dr Eisen found that both RecA (genes in DNA combination) and RpoB (genes in translating DNA) have one evolutionary branch that really was an unknown unknown. The fact suggests the existence of new life, but not sure under the current circumstances.

As with archaea whose discovery changed scientist' CO2 forecast (since it generates methane), the new life would have significant impact in understanding the world. To me, the implication is not limited to biology : Distinguishing known unknown and unknown unknown is vital to think about all unknowns. The effect of Tsunami on the east part of Japan was known unknown since long before, and we could prepare for it by adjusting tolerance toward the potential risk. However we could not prepare for unknown unknown, which is totally out of the recognition of human being.

Lords under democracy

UK is to elect Viscount Hanworth as a new member of the House of Lords. By-election is held, but the election is perfunctory under UK’s election system. Before 2007, members of the House of Lords are appointed from itself, and finally in 2007 House of Commons passed a law to require election for the member of the House of Lords.

Seems that the election system is against the principle of democracy, but some admit that there are some values in the upper house. The House of Lords is said to be the best place to hear the great speech, as the members are composed of people with deep / broad knowledge and high profession. The latest member is an economics professor at Leicester University. Though they have no power in policy making, the members sometimes work as a consultative body.

Rumor and openness

After the rumor that radiation reaches to China and sold is good for the prevention of diseases caused by radiation, Chinese rushed into stores. On one day, in Zhejiang, the region where allegedly the origin of the solt-panic and 2,000km away from Fukushima nuclear plant, 4,000 tonnes of salt were sold.

This would be the striking example for the information as a panic preventing factor. In China people may think that the official statements are not trustable, and in fact internet access is limited in the country. That status would make people prone to the rumor.

What I experienced in Japan is that all rumors are vaporized by the scientific voices. You see a lot of rumors in Twitter, but in a few hours they are gone thanks to the remarks from the specialists & insiders. Wisdom of crowd workd and functioned as the information censor. Looks like the openness in information sharing would work as the stabilizer of public opnion formulation.

Third potential bail-out

Jose Socrates resigned as the prime minister of Portugal on Mar 24, 2011 after the parliament rejected the austerity plan that his government submitted mainly because the opposition party didn’t support the plan. He predicts that IMF/EU bail-out plan would be harsher than his government’s austerity measures which included 10% (at maximum) tax on pension.

The dismal states of Portugal’s economy would be even worse after the rejection. Ten year government bond’s yields are close to 8%, higher level compared with 10% of Ireland and 12% of Greece. The upcoming election will choose the new government, which would inevitably accept the third bail-out in Euro zone.

Opposition party’s myopic actions often take place. They oppose the incumbent’s plan for the sake of getting more sheets at the next election at the expense of national interest. True, the chances are that the opposition has any special plan to get out of the doomy states of its economy, though the probability of success looks very low from my perspective. This sort of myopic action should be punished in the long run, and I’m not sure why Social Democrats dare to do so.

Power shifts after Fukushima

Japan heavily relies on nuclear energy more than most of the others. One reason is its historical discussion on independence. Soon after losing WWII, its leaders thought that no independence can be made if it has no army and depends heavily on the outside energy resources. The discussion paved the way for the birth of "Self-defense" force and nuclear plants industry. Now the industry is feeling pinch.

Now more believe that nuclear energy is dangerous, accounts for small portion of world's electricity and expensive. Before Fukushima in 2011, you remember what happened at Three Mile Island in 1979 and at Chernobyl in 1986. Now that three have done so again, unti-nuclear movements would get momentum. In 2005 only quarter of Japanese felt nuclear plants are safe, and in 2010 more than 40% did, but no longer. To add to that, even now nuclear plants with average age of 27 account for only 14% of world's electricity. The construction is far expensive than the others.

So why do we keep to use nuclear plants? One reason is environment. There is a trade-off between reduction of nuclear plants and increase in carbon dioxide. If we go without nuclear energy, in the first year we would see the carbon dioxide increase which equals to what Germany and Japan emit a year. Although EU asked its members to conduct "stress-tests" on their reactors and the Japan case provoked arguments on nuclear energy in EU countries, the rapid shift in power is less likely to happen. France may see the disaster in Japan as an opportunity. It has AREVA, the world largest nuclear plant maker which covers most of the value chain of nuclear energy industry. You can see world's nuclear usage trend here: http://www.economist.com/blogs/dailychart/2011/03/global_nuclear_power

With that said, the world may turned into less nuclear one. In the new world, gas and renewable energy would be the new leaders. As with others, you need to think of energy portfolio given risks and return, i.e. the trade-offs between economics and potential damage on the environment and human beings. To judge and take the risk is what's Japanese can do better in many fields.

Main source:

http://www.economist.com/node/18441163

Who says the elephant can’t dance?

As an investment professional at a private equity firm, I often hear of the book. According to my friends who are close to him, Louis Gerstner, former chairman and current senior advisor of Caryle, knows every aspect of business.

The book “Who says the elephant can’t dance?” is about what Gerstner has done and learned in reviving IBM which was on the verge of extinction when he took the seat as a CEO of the computer giant.

Turnaround manager is the hard job. With the (often) limited resources, you have to make some measurable results. You work under high pressure of shareholders who relentlessly asks the performance improvements. People naturally don’t like alien who seems to be eager to cut costs. Even if the achievement that turnaround managers make in raising the sun again is great, the contribution tends to be undervalued. The fact that Gerstner kept the firm alive under the circumstances should be success, but some who don’t pay attention to the macro environment denounce him by pointing out that the revenue growth under Gerstner is the lowest. The same story can be seen in Japan.


There are three points I learned the most from the book.

The first is about the organization as a complex organic system. Many say IBM should undergo divestiture, but Gerstner didn’t. I think it is not only because IBM as a total has the huge scale and thus the unique competitive advantage, but also because he knew the organization is complex system and splitting the company could bring about unexpected negative impacts.

Second is about the corporate culture. If you want to make the excellent company with sustainable growth, you have to embed the management system in your company’s culture. He says:

“I came to see, in my time at IBM, that culture isn’t just one aspect of the
game – it is the game. In the end, an organization is nothing more than the
collective capacity of its people to create value.
Vision, strategy,　marketing, financial management – any management system, in fact – can set you　on the right path and can carry you for a while. But no enterprise – whether in　business, government, education, health care, or any area of human endeavor –　will succeed over the long haul if those elements aren’t part of its DNA.”

Third, the most crucial to me, is that there is no silver bullet in corporate turnaround management. Gerstner says “I’ve never been certain that I can abstract from my experience a handful of lessons that others can apply to their own situation”. Great company with well-specified business field is superb at execution driven by leaders all over the firm. The point is how you can make that company.

Unique strategy tends to be risky. Therefore, people fight with the same weapon and look at the same KSF unique to the industry. Thus execution matters. To be excellent at competition, you have to make the company superb at every aspect.

“So, execution is really the critical part of a successful starategy.　Getting it done, getting it done right, getting it done better than the next　person is far more important than dreaming up new visions of the future.　

…

Execution is the tough, difficult, daily grind of making sure the machine　moves forward meter by meter, kilometer by kilometer, milestone by milestone.　Accountability must be demanded, and when it is not met, changes must be made quickly. Managers must be asked to report on their performance and explain their successes and failures. Most important, no credit can be given for predicting rain – only for building arks.”

Great companies have world-class process and leaders in every position to undergo the execution. Turnaround managers design the process and let the people accountable for the result and be the leaders at achieving the change.

Reasons of the revolution

What drove the revolution in Egypt and Tunisia? Here are the four factors which may collectively constitute the reason of the movement:

1. Poverty and inequality

No one can be the patriot if she is hungry. In many revoluions, there has been the anger on their living standards, which let people to fight for the better life. In Egypt, 40% of the population is living a day with under 2 dollars. However, although the gini coefficient of Islamic countries looks high, the overall level is lower than some countries which have lower risk of the upheaval (see the map). The inequality and poverty cannot be solely the reason of the revolution.

Source: Economist & UN

2. Lack of democratic process

If you have the proper voting process you can choose the better government through election. But if that is not the case, people have to rely on the violent movement. Still, there are many other countries which don’t have democracy.

3. Illegitimacy of the government

Some people say the revolution is nothing but the anti-American movement. In fact, the potential targets of the next revolution are said to be Yemen and Sudan; Yemen has pro-US government and Southern Sudan’s pro-American rebels just won the independence.

With that said, to treat the movements just as the anti-US movement seems to be too simple. I think, more essentially, the revolution was the action against the illegitimate government. The intervention by US and the other countries would have brought about the issue of legitimacy.

Still, we cannot let the legitimacy alone be the reason of the revolution. There are many other countries which have issues in due process in establishing their government.

4. Proliferation of internet

Some point out the impact of information brought about by wikileaks. Actually the start of Tunisian revolution was wikileaks. Today’s rebels are utilizing SNS which has accelerated speed of people’s action. The rebels mobilize their movement through twitter, Facebook, and the other SNS.

Internet could be the reason of the revolution, but it also cannot fully explain the situation. As some newspapers broadcast, Tunisian knew the corruption of president’s family long before the wikileaks. Also, there are other countries which seem to be suppressed by government and have more access to internet (see the table). The question “why Tunisia, why Egypt?” remains.

Source:

Main table: Economist

Additional column: http://www.internetworldstats.com/stats.htm

Leadership

All the above explain occurrence of the revolution to the certain extent. The poverty, social inequality, lack of democratic process, illegitimacy of the government and proliferation of internet could collectively increase the probability of the revolution. Personally speaking, however, the occurrence and the success of the revolution are ultimately determined by those who lead the rebels. As with new enterprises, what determines the success is the leaders.