Tag Archives: kevin burke

Why do companies hire consultants?

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On the face of things, it doesn’t make much sense to hire someone to tell you how to do your job. Ostensibly, the CEO of a company knows more about the business than any outside person. Plus, to the average person it may seem like consultants just offer tired advice (“Work more as a team! Find synergies!”)

However, it’s becoming clear that despite what economists say, firms aren’t really that efficient. Lots of times, managers may be unaware of strategies that would save them money, or boost profits, or they may be unaware that they are unaware. For example, Reenen and van Bloom went to India and offered strategy tips to a sample of textile manufacturers. The firms that implemented the strategies boosted profits by 15%. Why didn’t they implement that stuff earlier? The primary reason they cited was they just didn’t know about the management tools. This is one example of how consultants can be useful. It’s their job to keep abreast of the newest and best practices in management, strategy, and human resources and then impart that information to clients.

To that end, consulting firms do a significant amount of research, and knowledge sharing. Individuals within a consulting firm have access to wide databases and the accumulated knowledge of their peers, which means that there are probably increasing returns to scale among consulting firms. They also publish lots of research, to convince clients that they’re smart and can help out the firm.

There’s another reason firms hire consultants, however; to tell them things that they already know. Consulting firms can reliably signal authority and intelligence; bosses may hire consultants to confirm that they’re correct. To cite one recent example, the US Postal Service hired two consulting firms so that they could go to Congress and implement a restructuring plan. Another example is the firm that has to cut ten percent of staff. Maybe the manager knows which 10% he’d like to cut, but he would also like to maintain a good reputation as someone who is not ruthless, or cruel. So he could hire a consultant to tell him what he already knows, e.g. whom to fire and whom to keep on.

In sum, consultants facilitate knowledge transfer, but there’s also a signaling answer – that firms, or bosses, hire consultants to give credibility to a specific decision or strategy.

What’s the downside to hiring a consulting firm?

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For one, consultants are expensive. Consultants might be able to help you a lot and they might be able to help you a little, and you probably won’t be able to trust the consulting firm to give you an honest answer. You might want to hire a consultant to help you figure out whether hiring a consultant is a positive-NPV idea.

Second, you’re hiring someone to give you advice, which means you might not have the strongest grasp on the issue for which you hired the consultant. If that’s the case, you might over-weight the advice the consultant gives you (say, one possible decision of several) or be unable to replicate the thought process behind the strategy later. Furthermore, if you want to seek more advice later you’ll have to pay for it.

Third, it’s possible that the consultant doesn’t understand your situation and/or gives you bad advice. They might know that they don’t know very much and conceal that information from you, or they may be unaware of the depths of their unaware-ness and thus unknowingly give you bad advice. Fortunately, I don’t think this is a very big issue. Consultants have reputations, and clients can communicate: if you give bad advice too often your clients will talk and you may find yourself out of business.

Fourth, the nature of the advice-giving game is to be vague and give shaman-like answers. If your answers and predictions are specific and wrong, you can lose credibility; just ask a fortune teller. Especially because a firm’s hiring you to give them advice in an area about which the firm doesn’t have much knowledge, they’ll believe most of the things that you say to them. This may lead a firm to believe that consultants are telling them useful things, when in fact the firm is not giving very profitable, or actionable, advice. You’re hiring the firm to give you profitable advice but it may not be in their incentive to do so, if they can get away with delivering shaman-like answers.

Fifth, there’s a selection bias at play. Despite the problems listed above, it’s likely that consultants provide firms with value in excess of the costs of hiring them. Smart firms realize this, and want to hire consultants. But because they’re smart firms, they’re probably ahead of the curve and consultants can only provide them with limited amounts of profitable advice. The firms that need consultants the most are unlikely to hire them.

Should you invest in the world’s poor, Iraq, or in your heating closet? Three new consulting reports

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Most consulting companies have newsletters; the goal of these newsletters is to convince you to try and hire the company. Many newsletter articles focus on investigating new markets. From a business point of view, this makes sense, because the consulting firm is positioning itself as an expert on the new market, firms will have a learning curve any time they enter a new market, so it’s natural for a firm to want to hire some help. Here are three recent examples of consulting firms telling you where you should invest:

The world’s poor
(Source:McKinsey & Financial Access Institute: Half the world’s poor are unbanked)
The report notes that tons of the world’s poor don’t have access to formal credit, and that the regulatory climate for microfinance firms is mixed. This is part of the “double goal” of providing social services to the poor.

Quality of the report: There are many poor people without access to formal financial services – are you surprised? What is perhaps surprising is that the poor are already sophisticated borrowers and lenders. As Daryl Collins et al.’s new book, Portfolios of the Poor, explains, most poor people have uneven incomes, but need to be ready for emergencies, save for big expenditures (weddings, school fees), so they turn to credit and savings out of necessity. Most lending is done with a neighbor or a savings club (a neighborhood group) although microfinance is becoming more prevalent.

Business Opportunity: Storing cash with neighbors is risky and not useful over long periods of time (5-10 years) for instruments like term life insurance. There’s an opportunity for microfinance firms to start profitable, and helpful, businesses if they can provide a reliable service, flexible repayment schedules and logistical support to get to poor neighborhoods.

At the same time, the poor are poor, and while there’s a huge volume of people demanding financial services, and the potential to charge high interest rates, the margins per customer served are small. Furthermore there’s bound to be excessive rent-seeking from people and firms who aren’t worried too much about profits.

Iraq
(Source: McKinsey Quarterly, interview with Paul Brinkley of the Department of Defense)
Paul is charged with managing and growing business in Iraq. I like Brinkley because he’s a realist, and willing to embrace things that have worked in Iraq, instead of staying beholden to an ideology. For example, state controlled enterprise has worked better in the short term than free market “shock therapy.” Paul says:

“I honestly believe Iraq is one of the last great “ground floors” we will ever have in the world. China in the late 1980s and early 1990s was a ground floor—if you got in at that time, you did very well. India followed. Iraq today is a ground floor. It doesn’t have the population of China or India, but it has a huge amount of mineral wealth, oil wealth, and agricultural wealth. Geographically, it is positioned to become one of the most prosperous countries in the world. And I don’t think that ground floor is going to stay open for too much longer. I think we have a few more months, and then the acceleration of investment in Iraq will take place. I expect that to happen during 2010.”

Quality of the report: It’s clear that Brinkley has his head screwed on straight but it’s difficult to evaluate the opportunity, because I know zero about the current state of Iraq. How has Vietnam done after the war? Afghanistan? Former British colonies have done remarkably well, but that was a completely different situation than we are in today. Many countries that are rich in resources use them to become rich and don’t invest in other parts of their economy (Venezuela, Uganda, Iran). Dubai has tried but that’s still being worked out.

Cutting energy costs.
Boston Consulting Group and MIT Sloan,
The Business of Sustainability. Industry leaders are going green, and by going green I mean reducing their energy use, not engaging in wasteful signaling. However, the managers that do look into the issue are often surprised by the large amount of possible savings.

Quality of the report: As a survey of people actually involved in the industry, I’m likely to trust the included findings.

Business opportunity: This one’s actually pretty strong. Because the IPCC’s estimates of oil reserves are too high world oil supply may start to decrease sooner than most people estimate, and world demand for energy will only increase, potentially leading to higher prices (certainly high demand for energy-reducing devices).

There’s lots of politics surrounding the issue and many managers don’t think there’s much profit there. Because of the politics, it’s difficult for managers to evaluate the actual opportunity; if managers aren’t strong believers in global warming then they won’t be stirred by the global warming argument. However the stronger argument is that firms can save a ton of money by going green.

Words like “sustainability” are not helping. “Sustainability” implies lots of beliefs about global warming and a rather strict interpretation about how much energy you should be using. They discourage managers from approaching the issue as they would any other relevant cost-saving opportunity.

Is it true that to do the best work, you need to hire the best people?

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I’ve read a few posts by prominent Silicon Valley people that say this.

Here’s a quote about hiring from Slava Akhmechet at RethinkDB:

I look to Bell Labs for inspiration. At its peak, the folks at Bell Labs developed radio astronomy, the transistor, the laser, information theory, the C programming language, and the UNIX operating system. These are the kinds of people you should be trying to hire. Think Dennis Ritchie before he developed the C language. Think Claude Shannon before he invented information theory. When in doubt, ask yourself: “would this person have been good enough to be hired for a junior position at Bell Labs during its peak?” If the answer isn’t a resounding yes, it’s a No Hire.

Joel Spolsky also stresses the importance of hiring good people. Similarly, HR consultants often stress the importance of hiring only the best. As the Boston Consulting Group puts it, A players hire other A players, B players hire C players and C players hire F’s. Are they right to focus so much attention on hiring only outstanding people?

It’s clear that if you are trying to sort through an applicant pool, you need to get the best possible sense of what an applicant will look like once they’re hired. It’s not good to make mistakes in your interviews, or fail to interview candidates thoroughly enough. Two, it’s possible that people will be biased toward hiring too low quality employees, and emphasizing hiring good people will help HR raise hiring standards.

It’s also true that in a startup, any one individual has a much greater effect on the final shape of the company than at Wells Fargo. So startups and small firms might be right to exercise lots of caution in hiring. Furthermore, the best programmers can be five times as productive as average programmers.

But as Bob Sutton and Jeffrey Pfeffer point out, it’s a myth that the best companies are best because they have the best people. Usually the best companies have great systems that bring out the best in people.

Take a look at urban poor schools that dramatically outperform their peers and even richer schools, like the KIPP schools, or Jaime Escalante’s calculus program, which brought a bunch of kids from inner city LA through Calc BC and sent many onto the nation’s most prestigious colleges. Where so many others have seen kids who were unwilling to learn, they have succeeded and turned ordinary street kids into superstars. Escalante and KIPP don’t have the luxury of hiring the best people, like Philips Exeter, Wharton, or RethinkDB. Instead they built a great system that brings out the best in their students, which is far more impressive than doing great things with people who are already great.

Another example is Toyota, which has such a great production system that the upper management’s role is largely to simply support the system. Sutton and Pfeffer write, “One study showed that Toyota was the only major automobile company where a change in CEO had no effect on performance. The system is so robust that changing CEOs at Toyota is a lot like changing lightbulbs; there is little noticeable effect between the old one and the new one.

The supply of talented people isn’t fixed. Furthermore, our ability to measure talent is limited at best; people have off days, or bloom late, like Kurt Warner, for example.

Furthermore, if you’re a firm that can’t afford to hire the top 10%, implying to your staff that their ability level is fixed would be disastrous. As Columbia University researcher Carol Dweck has shown, mindset is extremely important; people who believe intelligence is fixed become worried about hiding their true level of cleverness, where those who believe it’s malleable work on their skills and continuously improve. If your staff became too enamored of the first mindset, they wouldn’t be doing their best work.

In summary, bad systems are more damaging than bad people, and good systems can turn average workers into stars. Like anything else, hiring workers has tradeoffs; with the best staff come long periods of unfilled positions, increased search costs, and high salary, etc. The importance of hiring “only the best” is probably overstated; clearly hiring good staff is important but it may not be crucial.

Why consulting?

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We’re making discoveries and innovating at a pace that’s faster than ever, thanks to population growth, world markets, and the Internet. Information transfers slowly; despite what economists say, firms aren’t efficient and lots of times they can do things better. Consultants have expertise about how to improve management and become more efficient, and when this knowledge is shared/diffused to companies, everyone is better off.

Why should I read this blog?

You’d like to know more about what consultants do than you can get from reading a Dilbert comic. Maybe you’re a college student wanting to learn more about consulting or an executive considering a career change. I’m going to provide information about the consulting profession, and interviews with current consultants. I’ll also blog about what consultants are currently doing and speculate about what they’ll announce they’re doing in the future. I might also post about good management practices and business economics, which are part of an information set that makes consultants useful.

Why me?

I find myself saying to most employers, “I’ve got a lot of knowledge about what works and what doesn’t, and I’m really smart and can help you out, but I don’t have much output,” which is sort of like what consulting firms would say if they didn’t have good reputations. Two of the things I’m best at are blogging and reading; I can get a better idea about what consulting firms do, demonstrate my skills to them and practice subject-specific blogging.

I also want to practice blogging about one specific area for a long period of time; forcing myself to focus on one area. There aren’t very many consulting blogs, so I figured this would be good.

Hernando De Soto’s The Mystery of Capital

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The holy grail of development is a resource that explains why the West has grown so far ahead of the rest of the world in terms of income per worker and productivity. Hernando De Soto makes a good case in The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else that property rights are one of the main reasons why the West has gone so far ahead of other countries. Every neighborhood in the world has property rights, in the sense that if I build a shack or house, the neighbors agree that it’s mine and that the space is mine. But only in the West are the property rights likely to be registered with the government, and the owner of the property able to use his land or house as collateral to secure credit from banks or strangers (people who are not family or friends, in other words).

To start a legal business, or establish a formal claim to property, is an onerous process in most Third World economies. For example, in India, “about 90 percent of land titles are unclear as to who actually owns the land…[this] causes competition among real estate developers to be over finding and acquiring land with clear titles rather than over construction productivity,” according to William Lewis. Apart from explaining, for example, the number of megastores and car dealerships I’ve seen in low-traffic locales, this can explain why it’s so hard to get growth; there are a number of problems that arise when your property is on land that you don’t own. You can’t get credit, because it’s hard to use land as collateral when you don’t own it (and the bank probably can’t sell it either). When you might not be able to sell your property for very much, and the government could kick you out at any point, then you don’t have a huge incentive to make lasting improvements, either.

The poor around the world own a surprising amount of capital; according to one estimate, the world’s poor collectively own $9 trillion in assets, between the land they own, the improvements they’ve made on the land and their savings. The problem is that in the absence of a formal system of property rights that’s consistent across the country, they’re unable to leverage that capital in a meaningful way.

Most attempts to establish systems of property rights have failed, because of fears from entrenched parties (lawyers, the rich, special interests) about change. In Peru, De Soto’s country of specialty, the government’s tried to provide property rights to the poor on multiple occasions, and failed to help the poor in any meaningful way; sometimes the problem was in implementation and sometimes the rich hired lawyers to subvert the system and claim land that wasn’t theirs. Governments have spent billions on GPS and mapping technology, without making it any easier for the poor to own the land on which they sit; America managed to integrate property by 1900 without any of that technology.

Businesses and squatters face tradeoffs; De Soto argues that many of them would like to become legal, but the costs of doing so in some countries are so high (sometimes requiring 200 steps and as many as 15 years) that most small businesses have no choice but to operate outside the law. In Peru De Soto set up a simple alternate registration system for businesses, and generated $1.2 billion in revenue for the government, by making it easier to become legal (and enjoy all of the protections of a working legal system).

Capitalism, to many of the entrepreneurial poor around the world, is a series of stupefying laws, and necessary innovations to create agreements in the absence of any recognition or protection from the government. In the absence of a functional legal system, the poor in every part of the world have their own arrangements for assigning property. De Soto gives the example of walking through a field in Indonesia, where he could tell who owned the land because a different dog would bark at him when he crossed an invisible property line. The key for governments is to transform those extralegal agreements into formal agreements that foster trust and capital generation among the poor.

Seva Mandir project description

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This is one of a few projects I am working on at the moment.

Connecting Rural Teenagers with High-Paying Jobs

Kevin Burke, Seva Mandir

The problem

The first step on the economic ladder for most citizens is a job requiring skills slightly more advanced than day labor. For rural villagers, the economic and personal returns on these jobs are quite high; workers may be able to get a high-paying job without having to migrate to Gujarat, for example. Seva Mandir, in partnership with Ajeevika Bureau, offers trainings in areas like plumbing, electrician, auto repair, stitching etc. but take-up for these courses is low.

The goal

The goal is to investigate the reasons why take-up is low, and after a field survey has been completed, to propose solutions or possible training modules to increase take-up among rural teenagers.

Implementation

A)   Get information from Abhay (Seva Mandir employee), members of Ajeevika Bureau (training organization) to estimate the education level, amount of training, job opportunities and pay schedule for various possible jobs like plumbing, auto repair, etc. Research Government of India statistics on the average salary for a worker with no primary education, a worker with primary, secondary, and a high school degree.

B)   Conduct field surveys in 8 villages. The goal is to conduct 15 surveys per day, and 30 surveys per town. Visiting two towns per week will allow us to complete the survey portion of the study in 4 weeks.

C)   Analyze data

D)   Propose solutions/possible randomized experiment

Tentative Hypotheses

1)    Some workers do not sign up because have the required skills to even sign up for a 2 month training course. There is no quick fix for this problem.

2)    Workers are credit constrained; to sign up for trainings they would have to forgo two months worth of wages and possibly pay part of the cost of the training. Loans are one possible solution, although collecting the loans has been tough; there’s no easy source of collateral to secure the loan.

3)    Workers do not properly estimate the returns to education, or the possible salary in a city job. If their internal estimates of future pay are too low, then they would not sign up for training or education that has a high present cost. Fortunately, Trang Nguyen (2008) found a quick solution to this problem; hold a meeting and display the statistics about how much a 25-year old can make in various professions and with various education levels. She used a graphic with bags of rice; no primary education means avg. pay is 3 bags of rice, a primary education means 6, etc. After the intervention the local people estimated the return to education correctly and their test scores improved.

4)    The teenagers possess the skills but have difficulty applying for available jobs, or there are not jobs available.

5)    Workers are not aware of the Seva Mandir training programs.

We will test these hypotheses in the survey, and propose an appropriate course of action.

Fall 2009: Semester in Review

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Better late than never:

  • I started off the semester by ruthlessly pruning and declining activities. I stopped playing and refereeing intramural sports and I also stopped working out. This gave me lots of time every day; I went to the Athenaeum about twice a week, went to sports games, and read books for pleasure. Later in the semester, when I felt more comfortable, I added writing for the CMC Forum and coaching youth basketball.
  • I took a trip to Scotland for a week and still did well in every class. I overestimate the necessity of being on campus during the semester. I need to take more weekend and week-long trips. Especially because travel stimulates the brain; I was productive the whole time I was in Scotland and after I got back.
  • The decision I made that led to the most productivity was deciding to blog once a day for over a month. Blogging once a day got me in the habit of writing and thinking about things in terms of writing posts. I soon started submitting posts to CMC Forum, and landed a paid position. Within about four or five weeks I had more posts up than any other writer.
  • When I set my own hours for sleeping, I tend to sleep for at least nine hours, and/or take naps during the day. The optimal amount of sleep is between six and eight hours; not only am I awake for an extra hour but I don’t feel as tired during the day. When I am sleeping in a room by myself I sleep longer; when I’m sleeping in a room with other people I get closer to the optimal amount of sleep. For optimal productivity I should probably live with a room-mate.
  • In my long and illustrious academic career, the grade I’m most proud of is an A- in Algorithms this semester. That class was really hard, and I skipped most of the prerequisites, and I was the only CMC student in the class. Furthermore, the teacher held office hours right after class, instead of before it, so if the assignment was coming due and you had questions, you could be stuck. I solved this problem by working on the problem sets for two to three hours immediately after class finished. This way I could ask the teacher when I got stuck. I also learned how to use LaTeX, the formatting language.
  • I used a binder for each class to stay ruthlessly organized, with sections in each binder for Notes, Homework, Handouts, Tests/Quizzes and blank paper. I filed every sheet of paper that was handed out. This saved a lot of time when it was time for exams.
  • The best purchase I made this semester was a pair of plaid Chuck Taylors, which drew a bunch of compliments and which are probably now my favorite pair of shoes. I made a lot of non-purchases that were also good, see below.
  • I’m finding that it’s extremely difficult to deliver on everything I promise to do. Many people promise to do things because they want to signal reliability. The people they promise to may expect them to follow through, and then again they may not, because of the planning fallacy and because many people promise many things. I have cut down on the number of promises I make in the hopes of following through on all of them, signaling be damned (then again, writing this on my blog is also a form of signaling. My words are not reliable; hopefully my actions will soon begin speaking for themselves).
  • I started drinking coffee this semester. I only really noticed a difference in my energy level on two occasions. Maybe it prevented me from being sleepy but on most occasions it did not make me feel particularly energetic.
  • Probably my favorite two parts of my week were going to breakfasts with the same group of friends every day and going bowling on Wednesday nights. Scheduled activities with friends are excellent for my happiness. I should ensure that I have scheduled activities with friends wherever I am.
  • I took a tennis PE class. I’m much better at tennis. I also can bowl with spin now, and my scores are soon going to be higher than they were when I was bowling straight on.
  • I skipped only one class all semester. I missed three breakfasts. I completed every single homework assignment.
  • For the second semester in a row I did not buy any textbooks. I politely asked each teacher at the beginning of the semester to put the textbook on reserve at the library. Others I borrowed or checked out through Link+. When you are not sure how much you are actually going to use the book, don’t buy it.
  • My biggest enemy continues to be my own head, which tries to seize on any awkward moment, missed call, Internet criticism or forgotten invitation and construct an elaborate scenario, ignoring the vast majority of data points and focusing only on a few. Most nights are good and then some nights it’s hard to open the dorm room door and talk to anyone. This semester was probably my best yet in terms of mental health.
  • I wasn’t very successful in my goal of finishing every paper, and studying for every test, at least one day in advance. I did push out planning and work ahead of my usual schedule, which is do it all at the last minute. Next semester hopefully I will be able to move up deadlines. Betting people money, or putting money on the line is still the most successful policy for getting work done. If I could automate the process of making the bets, so that every time I have a paper or test, my friend knows that I have to finish a day early or pay up, I would probably be much more productive. I don’t stress much.
  • I had two large projects at the end of the semester that I did not manage very well. These projects were more or less the first time I had a month-long exercise that I had to complete myself. I am now aware that I need to work on time management for projects.
  • If you had to graph my effort for the semester it would look like this: A all the way through Monte Carlo/the day my controversial Forum article comes out, then about D from Monte Carlo until the Wednesday of Finals Week, then A+ for two straight days until I finished finals. This is good; I now know that I can work hard for exactly twelve weeks, which is up from previous semesters. With practice, in the future I will be able to push this number higher.
  • Cold calling is an excellent way to make sure students are prepared and following along. I have never prepared for a class more thoroughly than I prepared for Professor Meulbroek’s case studies, because if I got called on to begin the case, I needed to be prepared.
  • Teachers should be much tougher. For the second straight semester, I was positively surprised by the grades I received. I know people are drawn to teaching because they love students and watching kids learn, but students would be better off if they received a message that told them they weren’t working hard enough, than a message that says, “Your current work rate is acceptable.” I know that us students should be responsible for monitoring ourselves, but outside motivation never hurts.

CMC Silicon Valley Trip: Friday

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Applied Materials

  • Everyone knows Moore’s Law, that semiprocessor power doubles every 18 months. I asked if there was a similar law for solar panel efficiency. George Davis said no, mainly because his product is dependent on outside conditions like the weather. Solar panels are more effective in California than in Germany.

KKR

  • Some speakers are very good and know how to be interesting. They will take whatever question you ask and run with it. With these speakers, you want to ask a general question and let them run with it. These types of speakers are also good at ignoring the question you asked and answering the question you probably should have asked, or the question they want to answer.
  • Other speakers will stick to generalities, like “We worked hard and we had a lot of success.” Faced with this type of speaker it’s best to get very specific about what you want to hear about. “Could you tell us about the single biggest mistake you’ve made during your time here?” George Roberts, while brilliant, falls into the second category of speaker.
  • The BusinessWeek article about their plan to emulate Berkshire Hathaway was based off of one comment they made; while it would be great to be Berkshire, that’s not really their plan.
  • KKR is going public because the only way to grow their business is through growing the amount of assets they control. They can get more money if they go public. They’ve tried to go public four different times but failed; if your idea makes sense, be persistent.
  • One of their biggest mistakes was not changing management quickly enough. It’s hard to fire someone.
  • I asked Mr. Roberts if it was true that he used to spend lots of time proposing acquisitions while he was in school. He said yes; he would look up companies in an industry magazine and then write proposals. If the company didn’t write him back, it only cost a postage stamp. That’s a great attitude. Now it’s even cheaper, because of email. While striking a deal or getting someone important to write back is low, the cost of sending email or a letter is lower.
  • Another student asked his opinion on the financial crisis. Roberts in turn asked the student what he thought. The student said he didn’t know, so Roberts asked him what his gut told him. I thought that was interesting, because a lot of times your gut reaction is misleading. Consider most people’s gut reaction to a minimum wage, to a bubble or to free trade.
  • Roberts told us to go work for a company that sells a product, so that we can learn how businesses work. You can’t really learn about that on Wall Street.
  • I asked Roberts how he negotiates. He said most of all people do business with people that they like and trust. And that you need to be able to listen to what other people want. Good advice, I guess.

Chair Rankings

It’s important to have good chairs. Without further ado:

1. KKR

2. Microsoft

3. Applied Materials

4. EMC

5. Meebo (excellent chairs, but lose points for only having six)

6. Atlassian

7. Google/Youtube

8. Lockheed Martin

9. EA

CMC Silicon Valley Trip: Wednesday. “Drive the boat, don’t let the boat drive you.”

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Lockheed Martin

  • Lockheed Martin’s only customer is the government, and they don’t have much competition, so I knew their facilities and company paraphernalia were going to be outdated and corny, but I didn’t expect them to be so outdated and corny. Walking into Lockheed Martin was like walking into a time machine. I doubt anyone at the company will ever check this blog, so I’ll say what I feel.
  • At the start of our visit we were ushered into a conference room, where a woman named Connie joked with us about acronyms. “What does POS mean?” she asked. The adults volunteered point-of-sale. “What else?” We all think it means “piece of shit,” but we weren’t about to say that. Connie says, “Parent over shouder! Right?” I thought this was funny, but we’d soon realize Connie had no idea of the other meaning of POS.
  • We then were played a series of Powerpoint slides with a voice-over. The voice over said things like, “At Lockheed we care about freedom, integrity, and ethics. We uphold the highest ethics and work to keep America free.” Clearly, Lockheed missed the presentation in third grade that explained you need to show that these things are true, instead of telling people about them. Hell, Soviet Russia wrote all sorts of beautiful things about the proletariat and the values of socialism, but when it comes down to it, Stalin killed over 30 million people through mismanagement. My point is that actions speak much, much louder than words. If you want to convince us you’re an ethical company tell us a story about some government official who wanted you to do something slightly unethical, and how LM refused to do it, or how LM debates the morality behind every new project it takes, or relate to your colleagues in a way that exudes trust and confidence. Don’t put that shit on a Powerpoint slide, because no one believes it.
  • Connie started talking about how she left the company but came back to it because of its superior ethics. I asked her to be more specific about the ethics involved at Lockheed Martin, because I was curious about the answer, considering that many people would consider it unethical to have an inherent interest in the growth of the defense industry, the placement of production facilities in many different politically states, and the production of weapons and systems that are used to kill innocent people. I’m not kidding, Connie was unable to produce an answer better than “The ethics here are good,” and this is the person you put in the front of the room to introduce the company to prospective hires? I just checked out their website, which is significantly better, but the whole thing reeked of a company that hasn’t faced much competitive pressure in some time.
  • We were taken on a tour of two separate facilities. The first was a giant room that tests optics for giant lenses like the kind that get put in telescopes like the Hubble. Pretty technologically impressive although I wondered about the cost and other things and the questions could not be answered, of course, because of confidentiality.
  • The second one was a facility that makes solar panels of the sort that get put on the wings of the Space Station and most satellites. I was amazed to learn that one panel, 15 feet x 5 feet, produces about 1000 watts, or slightly more than enough power for the average lightbulb. Power in space is at an extreme premium. Apparently you can’t just load the ship with lots of batteries, because they’re heavy and don’t last as long as the satellite’s expected life. The technology here was impressive as well.
  • Almost all of the CMC alums we’ve met so far have been white, and the vast majority have been men. The successful alums will mirror the composition of the school 20 to 30 years ago, which was overwhelmingly white and male. This doesn’t look so good today but I don’t know a good way around the problem. Hopefully people will understand that change is slow.
  • One CMC alum at LM spoke very slowly and idiosyncratically, which affected the way we thought about the things he was saying, and probably our initial opinion of his competence. I wonder why people like that do not hire speech coaches. Perhaps they are unaware of the problem, or the way they come off to others? Obtaining reliable feedback is difficult. He may be doing fine with his current speech patterns but he could be doing much better if he learned to speak in a natural way, pausing in appropriate places, putting the accents on the right words and raising and lowering his voice appropriately. Marshall McLuhan is still alive.
  • In the Q&A I tried to ask about the competition, to get the execs to speak about their business and the inherent inefficiencies, and Chris Jones asked about fixed-rate contracts vs. cost-plus contracts. The principal agent problem is alive and well in government contracting, and many rationalizations were floated, from providing a quality product for a high price to protecting America to being a ’boutique’ client, who charges high prices but delivers a quality product as well. Currently government officials cannot do fixed-price contracts because they make too many changes to the products they ask for. This is unfortunate.
  • I could never work for Lockheed Martin.

EMC

  • EMC brought a bunch of employees from all different areas of the business in front of us to tell their story and answer questions. While it’s entertaining to hear about people’s life stories, they only had a short amount of time in front of us and I wish we could have made more of it. For example, one sales executive started talking about how he set the record in Nordstrom single-day shoe sales with more than $10K in sales in one day. That’s outstanding, and since we’ve figured out the most interesting conversation we can have, let’s discuss sales for the next 20 minutes; I don’t need to hear about three other companies that you went to where you also were outstanding at selling products. Unfortunately most of my colleagues disagreed with me.
  • It was nice to hear from a bunch of different employees about what they did at EMC and what their jobs entailed. However it’s difficult to get a sense of how someone is as a manager from listening to them speak. Some people are good at speaking and could be bad bosses. Others are probably not very good public speakers but know exactly how to motivate people. I’m not sure the halo effect applies here – if being good at speaking means you’re probably also an effective manager.
  • Marketing differed by the age of the company, throughout the week. The newest companies we went to were the most interested and the most effective at using Twitter and Facebook to put their message out. Other companies were not able to do this so much. This could also be because the old companies are generally bigger companies.
  • There’s no such thing as a common acquisition; each acquisition is unique and each company is unique.
  • Are Australians really cooler than the rest of us or is a selection bias at play? Maybe all of the boring, uncouth Australians don’t make it offshore.
  • Repeating Peter Diamandis’s theme from yesterday, one of the key ways to contribute as a young person is to be extraordinarily enthusiastic. You need to give people a reason to recommend you and being enthusiastic is the best way to do it. If you do every task assigned to you extremely well, and ask for more work and do that extremely well then you’re someone that people are going to recommend to future employers. At our young age, we don’t know much about anything. Enthusiasm is key.
  • Several people at EMC told us that we should engage in more informational interviews. Hardly anyone says no to an informational interview (if you frame it in terms of “I need your help”), and you get to advertise yourself for free, plus I really like talking to people about what they do and what types of problems they solve.
  • One executive told a story about an acquisition that was almost complete, until the EMC execs and the company’s execs had a party, and it went “like a junior high dance, with all the EMC people on one side and the other company’s people on the other.” This emphasizes the importance of being likable, and selling yourself to people. If you are likable, and you can make other people feel good when they’re around you, doors are going to open. If not, you might succeed by sheer force but the odds are strongly not in your favor.
  • More good advice was to be extremely flexible. Prove you can do the work they assign you to and then you’ll be given better work and more responsibility. The key is to get in the door.
  • EMC gets points for staying away from slides and telling stories. Most of the speakers were very good at telling stories. Almost all said “That’s a good question” after the question asker wrapped up. I don’t know if they practiced that sort of thing but it makes the question asker feel very good, and it’s a good habit to develop.
  • It’s important to develop mentors that are outside of your direct company line, so that you have someone to turn to when you have an ethical decision that does not have a vested interest in the answer.
  • EMC had high cubicles and corner offices. I understand the company’s big but I think the open office is a much better solution. Cubicles serve mostly to preserve and reaffirm the status of the cubicle dweller.
  • One person who came and spoke to us found every single job he’d been at because a friend recommended him to the boss. Nepotism is alive and well. Networking is an important skill; everyone needs to get people in their corner, who would be willing to go to war for them. This is much harder than getting good grades.