The Hidden Cost of Control

One of the things that managers and executives often forget is the very high cost of putting in controls to run the business.  I am not here to say that a company should not have any controls.  There are obvious places that rules and process should be put in place to make sure the desired outcome is achieved.  But I see the same pattern happening over and over again for companies as they reach a certain size.

When companies are just starting out, there is usually little to no controls in place.  Developers have access to production machines, employees can buy anything they want, assets might be listed in someone's notebook.  But as companies get bigger and bigger, and more employees are hired, something inevitably happens.  Someone screws up.

This is actually caused by several problems.  But top on that list is the fact that companies lower their hiring standards.  Nobody likes to admit that it happens but it does.  If everyone could be trusted to do the right thing and know what the right outcomes were, there would be very little need for controls.  But as it is, companies feel compelled to add headcount the bigger they get.   When it is discovered that finding really talented, dedicated, and smart people is difficult companies compromise.  They instead turn to the misguided notion that process can replace people.

The thinking goes that if you just put enough rules in place, any idiot can follow the rules and achieve the right outcome.  Problem is that the same people who believe this do exactly that, they hire idiots.  This of course perpetuates the cycle.  Since idiots are hired, they need more rules put in place for them.  Now you may be thinking, what's the big deal?  So a few less than talented people are working at a company.  No big deal right?

Well I have yet to see a company segment out their rules by the capable and the idiots.  The same rules apply to everyone.  This creates a reversion toward the mean.  The idiots are able to do a little bit more when they are told exactly what to do.  Of course the superstars on the team also have to follow the same rules.  Rather than being able to use their judgment according to the situations, they get bogged down in formal process and rules which were never meant for them.

Management and executives always say the same thing, "We will keep the process down to a minimum".  My favorite is, "The process is simple.  You just need to ask and I will approve right away."  The problem of course is that management is very busy.  If all decisions have to be made by a single individual, and that individual is never around, decisions don't get made.  This slows people down by a lot more than you would expect.

But there is more.  Not only does it slow down things as they are happening, it actually prevents things from happening in the first place.  I have seen this behavior with my own eyes.  Rather than have to fight through the process, smart people will just not bother.  They do not want to waste their time hunting people down and getting a dozen people to sign off of every little change.  They just will clam up and never make any suggestions, waiting for someone to tell them exactly what to do.  In this day and age, where innovation is king and speed is of tantamount important, this can be a slow and agonizing death.  I have a great example of this.  I have been in situations where every little computer request needed to be scrutinized.  I had an engineer whose computer was painfully slow.  Now realize, a computer is an engineer's main tool.  If it slows down by 1/2 you literally have an employee who is 1/2 as productive.  Rather than ask for a new computer, the engineer just suffered.  When his computer slowed down, he would just sit and stare at the screen.  How ridiculous is that?

Of course, this problem is not readily apparent, so management often does not notice how their own participation can slow so much down.  In my next post, I'll describe what should be done to fix this problem.

How People Keep Themselves Poor

It is often amazing to me how people treat money.  What I am about to tell you is a true story about somebody I know.

Someone I peripherally know got married.  She had not known the gentleman too long but it was young love and she did not know any better.  They decided to have a "traditional" wedding.  That of course means "expensive".  All told, the wedding cost over $70,000.  But here is the kicker.  The family did not pay for the wedding.  Instead, the bride put it all on her credit card.

This is not someone who comes from a very rich family.   $70,000 is probably two years of salary to this person.  But you only get married once right?  But wait, it gets worse.  The marriage lasted all of three months.  I will not get into the reasons why but the couple had differences that they were not prepared to deal with.  But think about this for a second.  Two years of salary are now down the drain.  In reality it is closer to three years when you factor in taxes.  All this for a marriage that lasted 1/10 the time it will take to pay off the expenses.  Let's compare this to my wedding.   I spent a total of $7000.  I make much more than the person I am talking about and have much more money in the bank.  I did not have to save for my wedding nor did I have to scrape to get the money together.  I just had it.  My wedding had no material impact on my financial situation and never will.  Despite the lack of impact it had on my finances, I can honestly say I had a perfect wedding.

This incident will impact this girl for the rest of her life.  She is going to spend the next several years attempting to pay this debt off and it will drag like a weight behind her no matter what she does.  So what is the lesson here?  The problem goes well beyond the mere fact that she spent way more on her wedding than she could reasonably afford.  It is about how people view money in relation to their life.

Like it or not, your life will involve, and often revolve, around money.   You need it to live and you need it to do most anything you want to do.  Since money is so involved with your entire life, the accumulation of wealth is something that has to be very carefully cultivated.  As this incident shows, one mistake can create havoc.  We live in a society where most people feel fine trading short-term wants over long-term needs.  This is what happened here.  I am sure the bride did not think about the long term ramifications of what she was doing.  She wanted to have the "perfect" wedding and was willing to trade away her future for it.  Of course, she probably did not consciously make this trade off and that is the problem.  The future seems so far away and unreal to some.  It is difficult to actually think about it and plan for it.  Because it is difficult, people choose not to deal with it.  Of course this is no excuse, life does not really accept excuses, and when reality hits them people often wonder how they got themselves in this mess without realizing they were the source of their own problem.  They just decided to defer the problem to their future self.

Low Interest Rates Does Not Equal Good Deals on Housing

I keep hearing real estate "experts" say that now is a great time to get into housing because of the low interest rates that are currently available.  Let's forget the fact that real estate experts always say it is a good time to buy housing.  They said it in 2000 at the beginning of the boom and said it again in 2007 at the peak of the housing bubble.

But let's look at the logic of this argument.  There is no doubt that interest rates are low right now.  This means that people can generally buy a more expensive house because their payments are going to be less per month as they pay less in interest.  So it sounds like a great deal doesn't it?  Get more housing at less money.

However, there is a slight problem with this.  It isn't just one person who has this opportunity for low interest rates, it is the whole country.  This creates competition for housing and drives up demand.  This is exactly what happened in the early part of the century.   Housing prices rose because people had access to cheap money.  As the money became more expensive, and the cost of housing reach unsustainable levels, the bubble burst and housing prices tumbled.

So think about the current situation.  Interest rates are once again insanely low.  They have absolutely no where to go but up from here.  We know that as mortgage rates go up, people can not afford as much home lessening competition.   There is no way that interest rates can go much more down from here so that means that they will go up.  Since we know that prices and rates are inversely related, this means that housing prices are definitely coming down.

Do you really want to own a depreciating assets?  Experts say if you have no plans on moving for several years than don't worry about it.  But who knows what your situation will be like in a few years.  In the long run, it is much cheaper to have a smaller principle payment and higher rates than the reverse as you can always refinance but you can't easily lower the principle amount on a loan.

So please, to all real estate professionals, quit trying to sell that low interest rates mean its a great time to buy.  It just doesn't add up.

Why Finishing College Might Actually Hurt Your Career

I was thinking about all the people who never finished college and went on to great careers.  Just look at this list off the top of my head

• Bill Gates


• Steve Jobs


• Michael Dell


• David Geffen


• Larry Ellison


• Mark Zuckerberg

The list could go on for quite a while. In thinking about this I actually think this is not entirely a coincidence.  On that list are some of the most powerful and influential people in our modern business world.

Now in any sort of argument like this it is important not to confuse cause and effect.  It could easily be argued that all these people would have been successful whether or not they completed college.  It is not the fact that they DID NOT complete college that they were successful.  It is merely the fact that successful people will be successful no matter what.

While I certainly believe that may be partly the reason, I'm not sure there is not some level of causation.

One of the things I have been thinking about lately is how our society is organized and how it has created certain outcomes.  One of the things that is readily apparent to me is that our society is not geared to produce creative thinkers.  Our education system is very rules based.  And rules are in direct opposition to creativity.  The more rules you put on someone the more you constrain and limit her creative side.

We have created millions of students who know how to follow the rules and conform.  We use standardized test to measure performance and emphasize rote memorization and regurgitation over creativity and original thinking.  Those who are able to excel at these things are the ones who do well in school but they are not necessarily the ones to change the world.  You cannot change the world if you are constrained to thinking like everybody else and by following the rules that others have laid out for you.

I am not trying to be negative about our education system.  I am someone who benefited greatly from the current system as my strengths lie in taking standardized test and in rote memorization.  I therefore excelled in school.  But I am also not (yet) lighting the world on fire like the list above.  We as a society have emphasized this type of learning and environment to produce exactly what we wanted; a group of workers who would excel at doing exactly what was asked of them.   This was exactly what was needed for the majority of jobs that we created during the twentieth century.  Factory workers need to follow instructions exactly.  So do accountants (the last thing we need is "creative accounting".

So while I think our education system is great at producing this type of worker, it is not so great at creating the Steve Jobs and Mark Zuckerbergs of the world.  As we move away from a world where the good middle-class jobs are no longer available in the factories of Detroit but only via the screens of Silicon Valley, can our education change with it or will we be doomed?

Too Many Lawyers?

I went back to my ten year college reunion this weekend.  Princeton has reunions every year.  The big reunions are every five years (the biggest being the 25th reunion) and as such, I decided to go down for the day since I was in New York City.  Quite a crowd turned out.  Despite it being her 25th, Michelle Obama was not one of them.   It was more enjoyable than I would have predicted.  Last time I went to reunions for my fifth, I did not have a particularly good time.  I decided to go for the entire three day event.  By the end of the second day I really was wondering what the heck I was doing there.  This time, I decided only to go for the day (and none of the nighttime activities) and it ended up being the perfect amount of time to see the campus and a few of my friends I wanted to catch up with.

One of the things that sticks out to me though was a fact that was given at the end of the P-rade.   As my classed marched down I heard two facts.  One was that my class, the class of 2000, was setting attendance records for the 1st, 5th, and 10th reunions (all reunions I attended).  But the more interesting fact was that the number one profession of my class was being a lawyer.  To be exact, it was stated that 14% of my class had become lawyers.

Now, I went to an Ivy league school and you would expect a large percentage of my class to be in high paying jobs.   Since law is a high paying job it does not surprise me that it is a profession many in my class pursued  What surprised me was that it was number one.  And as I thought about it I though what a sad commentary that actually is for our society.

Don't get me wrong.  I think lawyers are necessary in our society.  I also don't think all lawyers are scumbags like others might.  But for me, law is an ancillary profession.  It is best as a supporting function to the creation of value and wealth to our society.   It is in the same class of profession as accountants and clerical work.  These are jobs that are absolutely necessary but at the end of the day is overhead to the actual creation of wealth.   This is in contrast to things like medicine, manufacturing, or the creation of intellectual property that actually drive the economy and create value in our lives.

So what does it say that the brightest mind in the country if not the world are pursuing careers that are not creating wealth to our society?

I think it says a couple of things.  First, I think it says something about how the cost of obtaining a world-class education has skewed the choices we make.  Most of my class graduated with quite a bit of debt.  This problem is only getting worse has college becomes more and more expensive and having a college degree does not make you stand out anymore.  It used to be, for my parent's generation, that having a college degree was not the norm.  Now, all my friends have one and that in itself means you have to find other ways to differentiate.  Most people are finding it necessary to get a post-graduate degree to really make themselves stand out and earn the money needed to pay back these college loans. This is a true fact.  I am the ONLY one of my college friends that does not have a post-graduate degree.  Think about that for a second.  I'm the only one.  I have lots of friends from college and they all decided to pursue even more education.

The second problem I see is that we are emphasizing the wrong things. As a country, we have created a society where one of the best paying jobs is being a lawyer.  Now to be fair, this has been the case for quite a while.  But I would argue that before it was more a function about the scarcity of the education required to practice law than it was about the voracious appetite to produce lawyers.  But we are now pumping out lawyers at a very large rate.  There must be an overwhelming demand for lawyers in order to keep salaries as high as they are.    This is because we have created such a complex set of laws and a society that is so litigious that it is required for any large corporation to have an army of lawyers ready to protect and to sue.

So rather than create professionals ready to find the cure for cancer or to create the next great product we create an army of people ready to sue others.  How on earth can we change this dynamic?

Macbook Pro Review

I recently got a Macbook Pro for use at work.  I'm not sure when I became such an Apple user (I have an iPhone and an iPad) but I now have the trifecta of Apple products.  This marks my first OS X computer.  I've been a user of plenty of other operating systems such as OS/2, Solaris, Linux, and Windows.  I did use a Macintosh SE way back in the day.  But I have not used any modern Apple OS so I was interested how it would turn out.

To sum it up, I'm completely unimpressed.  I really went in with an open mind.  In fact, I really wanted to like it since I like my iPhone and everyone I know who uses Macs love it.  They love it so much they won't stop talking about it (which bugs me a little actually).  As someone who greatly values easy to use products and products which are designed with the customer in mind, I was hoping that this Apple product would really open my eyes to how computing should be done.  It hasn't.   Even more disappointing is that I have one of the nicer Macbook Pros.  I got the one with an Intel i7 processor, upgraded HD, and upgraded Video Card.  This thing should be rocking.

Now one thing I will say is that I feel I might feel differently if I had not used Windows 7.  Compared to Windows XP, the Windows version most people are familiar with, I think OS X blows that out of the water.  If OS X was like this 5 years ago when XP was really your only choice than I can understand the love.  Even compared to Vista it is superior although I never hated Vista as much as others.  But compared to Windows 7 I'm just not sure the Apple "simplicity" edge is really there anymore.  Here is how it breaks down for me.

Stability - This is the one thing I was really interested in seeing.  Apple users swear that Macs never crash and make fun of Windows users who experience the Blue Screen of Death.  Well I am pretty sure all those people need to shut up.  Since the launch of Windows 7 I rarely, if ever see the BSOD.  It may have happened over the last year but I honestly don't remember having any issues since Windows 7 went RTM and I'm a pretty heavy computer user so you would think I would run into it.  Within the first two days of having my Macbook Pro the thing crashed three times.  A week later, I had it freeze three times in a row on me in one hour.  This is not an exaggeration.  I called over the Mac lovers in my group to show them because they didn't believe me.  I let the computer sit for 30 minutes untouched and it sat their frozen.  The mouse would move but otherwise nothing was responding.  The only solution was a hard reboot.  Just yesterday, after giving a presentation, I unplugged the Mac from the projector and then the screen went dark and stayed dark.  Completely unresponsive.  At least with the BSOD, you know something is wrong.  My Mac just decides to die on you with no indication that there is actually anything wrong.

Business Software -  If you work in an office that is on Exchange and uses Outlook, forget the Mac.  I'm an Outlook power user.  As someone in management, my day consists of checking e-mail and going to meetings.  All things that  I depend very heavily on Outlook for.  There is no real substitute on the Mac.  Entourage,  the Mac Office equivalent of Outlook is a complete joke.  I could write a whole post on why it is inadequate but it would probably just upset me.  If you use the other Office products like Excel, Word, and Powerpoint don't fool yourself into thinking that Office on the Mac is like Office on Windows.  Yes Microsoft makes both products but that doesn't mean they are the same product.  They really aren't.

 Lack of Software in General - There are some basic things I need to be able to do on my computer and there are programs I have found on Windows to do them.  Similar products aren't available on the Mac.  It took me a while to find DB client program which would connect to all the various Database servers I needed to connect to.   I had several free versions to choose from on Windows but could only find one which I had to pay money for on the Mac.  The same can be said for photo editing.  Maybe I'm biased because I like Rick's Paint.net program but it really upset me that I found it difficult to edit simple pictures.  Those who like iPhoto are crazy.  More on that later.

"Simplicity" - The mac is supposed to be easy to use right? I wanted to edit a picture and then save it.  I opened the photo in iPhoto and tried to save it.  Was unsuccessful. Could not for the life of me figure out why the original photo, which I wanted to save over, had not changed.  I called over 4 engineers to my desk to figure this out.  3 of them are Mac users.  None of them could figure it out either.  How on earth is that simple?  Also, why is it that most of the useful commands take pressing 3 keys to do.  Ever try to take a screenshot on a Mac.  I have to hit three keys.  That is if I can remember which three.  One button on a PC.  And I don't care what anyone says.  A mouse with only one button is not easier to use.

Hot Hot Hot -  This is the hottest running laptop I have ever had.  Seriously, if it were sitting on lap during any serious computation, it would burn me.

The Little Things -Here are a bunch of other things that just annoy me

•  No easy way to lock the screen.


• Plugged in a Flash drive.  Didn't recognize it and didn't tell me it even attempted.


• I really like the Windows 7 feature of dragging windows to various locations to change size and shape.  No such thing in the Mac.


• Windows are very easily lost behind one another.


• Closing a window doesn't actually close the program.


• Force quit is not as effective as good ol' ctrl-alt-delete.

While the overall tone of the tone of this post may seem negative I'm not actually that down on the computer.  It is certainly nice but it isn't the life changing thing I was expecting.  It's like that over-hyped movie everyone talks about.  Ever notice how the movies everybody raves about are never as good as you thought.  I think the same thing happened here.  I like the computer, it is a solid performer, but I was just expecting a little more.

Back After Some Maintenance

Sorry for the VERY long break.  Part of it was me being busy but a lot of it was the fact that my hosting company decided to stop supporting my blog and I had to scramble to figure out what I was going to do.  I didn't really want to update the blog while the situation was not settled so I avoided making any posts or responding to any comments.  I moved over the comments that got lost in the migration to the best of my ability.  This site still has some issues after the move but I will try to address this over the next few weeks.