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Five Fundamental Beliefs for Business Success

November 7, 2019 by Matt Perman

In his excellent book A Business and its Beliefs: The Ideas That Helped Build IBM, Thomas Watson Jr. (the second chief executive of IBM) gives us five great lessons on business success.

From the time of our divisional reorganization we have found that an ingrained understanding of the beliefs of IBM, far more than technical skill, has made it possible for our people to make the company successful.
In looking back on the history of a company, one can’t help but reflect on what the organization has learned from its years in business. In thinking specifically of the period since the war when IBM faced the twin challenges of great technological change and growth, I would say that we’ve come out with five key lessons. They may not be applicable to all companies. All I can do is attest to the great value these five lessons had for us.
There is simply no substitute for good human relations and for the high moral they bring. It takes good people to do the jobs necessary to reach your profit goals. But good people alone are not enough. No matter how good your people may be, if they don’t really like the business, if they don’t feel totally involved in it, or if they don’t think they’re being treated fairly — it’s awfully hard to get a business off the ground. Good human relations are easy to talk about. The real lesson, I think, is that you must work at them all the time and make sure your managers are working with you.
There are two things that an organization must increase far out of proportion to its growth rate if that organization is to overcome the problems of change. The first of these is communication, upward and downward. The second is education and retraining.
Complacency is the most natural and insidious disease of large corporations. It can be overcome if management will set the right tone and pace and it its lines of communication are in working order.
Everyone — particularly in a company such as IBM — must place company interest above that of a division or department. In an interdependent organization, a community of effort is imperative. Cooperation must outrank self-interest, and an understanding of the company’s particular approach to things is more important than technical ability.
And the final and most important lesson: Beliefs must always come before policies, practices, and goals. The latter must always be altered if they are seen to violate fundamental beliefs. The only sacred cow in an organization should be its basic philosophy of doing business.
The British economist Walter Bagehot once wrote: “Strong beliefs win strong men and then make them stronger.” To this I would add, “And as men become stronger, so do the organizations to which they belong.”

Why AI Will Not Rule the Future

October 26, 2019 by Matt Perman

I read an article the other week where the author argued that within about 50 years, we will have a robot artificial intelligence for president. This is simply an extreme form of an increasingly common way of thinking. It goes like this:

These types of decisions will eventually be made much better by an AI than by humans, because AI is developing at such a fast rate that just about every task that requires human intuition and intelligence will be solvable by AI….
So if you have AI that is better at say economic planning than any human, which would you sooner have in charge of your country’s economy, a human or a superior AI?

Aside from the fact that in a free democracy it is emphatically not the task of the president to plan the economy (thus we see one additional reason we should not trust these folks that say AI can do everything better — often, they don’t even understand basic principles of freedom, economics, and philosophy), there are at least three major flaws with this line of thinking. There are more, but I’ll keep this post at three.

1. Not All Problems Have One Best Answer

First, this is classic “one best way” thinking. In some decisions, there is only one best way. But that is only one kind of decision. In many cases, there are multiple good paths to the destination (and multiple choices among a destination). These are called design problems (as opposed to engineering problems). In design problems, there is more than one legitimate path. It is up to us to use our judgment and intuition and preferences to determine which path we want to create.

The notion that AI will take over all jobs (including that of president) because of its superiority is assuming this “one best way thinking.” It is assuming that for almost every decision, there is one optimal approach, and since computers have such immense processing power, they will soon have the capacity to always be able to figure that out better.

But what if there is not just one best course for many decisions? This brings us into the realm of art, emotion, beauty, and freedom — some of the greatest things about work and the world. If there is not just one best decision to make in most cases, then there will always be a definitive place for human beings, no matter how powerful computers become. It is not about what is the one “best” way to do something; it is about “What do we want to do? What seems great and most interesting, and reflects our values and style in the best way? What do we care most about? What do we believe?”

2. Human Participation is Part of the End Goal

Which leads to the second point: this thinking that if AI is more efficient and smarter that it should therefore do everything fails to understand one of God’s ultimate purposes in creation — namely, human participation. Consider: God himself is smarter than any human or any computer that ever will or could be. Yet he does not make all decisions for us. He doesn’t say “just sit back and watch — I can do this better.” Instead, he gives us a role — that is part of his very purpose in creation (Genesis 1:28).

Why does he do this? Because his goal is to have a people like Christ. Which means a people who are wise and capable of making their own decisions and playing a part in charting their course in life and human society. God cares about the development of the individual. He’s not just after “the right” decisions (though sometimes, of course, there is a right decision and it does matter). He is after mature individuals who are capable of working with him and playing a part in shaping their own destiny. If we have computers end up doing everything because they can “do it better,” then we are missing one of the key purposes of life altogether: namely, that we play a part in things, rather than outsource our decision making.

A world where humans have a part in shaping their work, their lives, and society is better than a world where all of those decisions are made for us, because part of the end goal itself is our act of making those decisions. In other words, the act of decision-making is meaningful in itself, and not merely an ends to a destination that could be arrived at by another means.

In contrast, a society where AI makes all the decisions is a society where humans have, by definition, become slaves. We would no longer be a free people, but rather a people ruled by another entity — justified, as it always has been, on the notion that this other entity can “do it better,” all the while failing to realize that doing it yourself, even with mistakes, ought to be an essential part of what we mean by “better” in the first place.

3. The Logic of AI Supremacy Leads to Nihilism

Also consider: if we were to follow the logic all the way that computers should always take over a task they are better at (to do this we have to forget point one, of course, but bear with me), then what’s left for people to do? Just watch. Don’t be a painter–computers can do it better. Just go to the museum and look at the paintings robots created. Don’t direct a movie–robots can do it better. Just go watch the movies that robots create. Don’t be a teacher — just let a computer adopt Wikipedia into its memory and teach students for you. Oh, wait, don’t be a student either — computers can do that better also.

This notion misses the fact that creating things is itself part of the fun. The point is not to create perfect movies, or perfect art, or perfect classes, or perfect investment decisions. The point is to have a part to play in the running of the world and doing of these things, which is the real ultimate purpose for how God glorifies himself in the world. If all that was for us to do was watch and follow in a society led by computers, with computers doing all of the work, we would become diminished, atrophied human beings. With that being the case, could we really say that the computers that are running everything really are making the best decisions? Perhaps they forgot to make a decision about the most important question of all: who makes the decisions.

Even more, if all that were left to us to do is just watch, why not outsource that as well? Can’t AI do that better, also? The notion that “AI does it better, so it should do it” ends up undermining all of human life. In other words, it ends up in pure nihilism.

*Note: Some readers might wonder how I can say that God has given us a part to play in shaping our destiny, when I believe in the absolute sovereignty of God over all things. The answer is the historic Christian doctrine of compatibilism: God does indeed determine all things, and at the same time humans make real decisions and are responsible for their actions. And in making our decisions, we don’t try to find out what God decreed, but use our judgment in alignment with Scripture. God does not whisper the answer to us, but expects us to use wisdom.

**A funny side note: As additional proof of the inflated evaluation of AI we sometimes have, autocorrect changed “compatibilism” in the above paragraph to “compatibility” without my permission. Come on, autocorrect. There is no such theological doctrine called “compatibility.” We’ve had enough of this vandalization that you bring to our sentences, in the name of knowing the English language better than real people do.

What is the Purpose of a Corporation?

September 4, 2019 by Matt Perman

From Harvard Business Review on August 23:

On Monday, 181 CEOs — from top companies including Apple, Walmart, JPMorgan Chase, and Johnson & Johnson — acknowledged that firms do not exist only to serve shareholders. In a statement issued by the Business Roundtable, a corporate lobby group, they affirmed a commitment to “all of our stakeholders.” Those include customers, employees, suppliers, communities, and — last but still very much not least — shareholders.
It’s a welcome shift. In 1970 the economist Milton Friedman made the case in the New York Times that management’s sole obligation ought to be maximizing value for shareholders. Over the past few decades, that view became commonplace in many boardrooms and business schools and on Wall Street. But there have been dissenters, especially in recent years.
In a 2017 HBR article, Joseph Bower and Lynn Paine of Harvard Business School argue that the shareholder-centric view “is flawed in its assumptions, confused as a matter of law, and damaging in practice.” They write that “a better model would recognize the critical role of shareholders but also take seriously the idea that corporations are independent entities serving multiple purposes and endowed by law with the potential to endure over time.”

To which I say: It’s about time.

I love Milton Friedman, but he got this one wrong. The purpose of a corporation is not simply to make a profit but to make the world better. The best businesses have always understood this and seen their own companies in this way. Jim Collins’ excellent chapter “More than Profits” in his classic Built to Last, for example, brings together dozens of incredible quotes on this. For example:

We’ve also remained clear that profit — as important as it is — is not why the Hewlett-Packard Company exists; it exists for more fundamental reasons. — John Young, Former CEO, Hewlett-Packard
We are in the business of preserving and improving human life. All of our actions must be measured by our success in achieving the goal. — Merck & Company, Internal Management Guide, 1989
We try to remember that medicine is for the patient. We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been. — George Merck, President and Chairman, Merck & Company, 1925 – 1957
We are workers in industry who are genuinely inspired by the ideals of advancement of medical science, and of service to humanity. — George Merck II (once again, because it’s so good)
Sony has a principle of respecting and encouraging one’s ability…and always tries to bring out the best in a person. This is the vital force of Sony. — Akio Morita, Co-founder, Sony
I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a company’s existence, we have to go deeper and find the real reasons for our being. … Our main task is to design, develop, and manufacture the infest electronic [equipment] for the advancement of science and the welfare of humanity. — David Packard, co-founder, Hewlett-Packard
Service to customers comes first … service to employees and management second, and … service to stockholders last. — Robert W. Johnson, Co-founder, Johnson & Johnson
Man’s objective should be opportunity for greater accomplishment and greater service. The greatest pleasure life has to offer is satisfaction that flows from…participating in a difficult and constructive undertaking. — Bill Allen, Former CEO, Boeing, 1945 – 1968
Putting profits after people and products was magical at Ford. — Don Petersen, Former CEO, Ford

Collins also shows that the companies in his study who saw their purpose as more than making money actually made more money than their competitors who didn’t.

This is in line with the biblical purpose of business, where every sector of society exists for the service of people.

However, if business exists to bring good into the world, then how does it differ from the non-profit sector?

The answer is that “more than profit” does not mean “other than profit.” The mandate of business is to bring good into the world in a way that is profitable for the long-term . So profit is essential to the nature of business. It is simply not the only, or even most ultimate, purpose.

In the Christian view, a corporation exists to do good for the world in a profitable way. In so doing, it must give appropriate attention to the needs and interests of all stakeholders, not just the shareholders.

For more on this, see also the excellent book A Sense of Mission, which brings together additional academic research showing that companies who have a purpose beyond making money perform better. [I can no longer find it at Amazon, but here is a short summary.]

Business is Art

March 8, 2016 by James Kinnard

This is a great perspective from Work the System by Sam Carpenter:

Who says art must include a canvas, sculpture, or musical instrument? Art is creativity, and is there a better example of a creative endeavor than the machinations of building a successful business? Indeed, business is art in its purest form! The painter and the musician shouldn’t scoff at the entrepreneur or corporate chief who must take hard, cold life – sights, sounds, events, things, people – and stir them into an efficient enough mixture to produce a successful business. Business is art. It’s a heroic undertaking, and with it lies two superb by-products: tangible value to others–employees and customers–and personal income for the creator.

Rescuing Ambition in the Workplace

January 13, 2016 by James Kinnard

I think you’ll benefit from this excellent series of articles from Dave Harvey, author if Rescuing Ambition (also highly recommended!).

This is how Dave introduces his series on ambition in the workplace:

A few years ago I wrote the book Rescuing Ambition and called for a rescue. I wanted to snatch ambition from the heap of failed motivations and put it to work for the glory of God. I wanted Christians to realize that to understand our ambition, we must understand that we are on a quest for glory. And where we find glory determines the success of our quest. Since I wrote that book, many suggested that I address God’s design for ambition in the workplace and in one’s daily calling.

Here are the links to Dave’s multi-part series, “Rescuing Ambition in the Workplace”: Part 1 , Part 2, Part 3, Part 4.

Bill Gates, Mark Zuckerberg, and You [Guest Post]

January 13, 2016 by whatsbestnext

This is a guest post by Alex Chediak, author of Thriving at College and now most recently, Beating the College Debt Trap.

Bill Gates and Mark Zuckerberg did it right. They left college when they got what they came for. They knew what they wanted. They knew who they were. They came, got after it, and got out. They didn’t earn degrees, but they got something better: an education. And the skills to keep learning for a lifetime.

Most of us don’t share their entrepreneurial brilliance. We’ve needed both an education and a degree to get our start. And the same will be true for our kids. The gap in earnings between those with only a high school diploma and those with a college degree—associate’s, bachelor’s, or beyond—continues to rise.

But too many of our kids are going to college not knowing who they are or what they want. As a result, too many leave without a degree or even much of an education. So what should we do about it?

1. Accept that we must change before they can change. We wouldn’t have the highest college dropout rate in the industrial world if we did more to prepare our children. It’s our job to help them develop the character and maturity they’ll need to be successful. Setting priorities, tracking deadlines, delaying gratification, and developing a work ethic are as important as test scores and GPAs.

2. Help them discover the intersection between their interests and their talents. Most students change majors at least once. That’s not always a bad thing, but it usually adds time and expense to their degree. And it’s often avoidable if they had only received more coaching. So be observant, hold brainstorming sessions (with a large college catalog open, if necessary), and encourage early signs of promise.

3. Encourage them to really try things. Bill Gates said of his teenage computer addiction, “It was hard to tear myself away from a machine at which I could so unambiguously demonstrate success.” Math club and the yearbook committee can be helpful, but professional opportunities are even better. It could be shadowing an engineer at a tech firm, starting a small business, volunteering in a research lab, or filming an amateur movie. Career research is good, but career experience is better. Talents are revealed in the crucible of experience.

4. Treat teens like young adults, not children. As they’re growing up, give them more freedom but expect more responsibility in return. Shift into more of a coaching than a controlling role. When it comes time to decide upon a college, share ownership of the decision and the expense. Students who have skin in the game tend to appreciate it more, attend class more often, and outperform those who (in theory) have more study time.

If we’re intentional in our parenting years, our kids, like Gates and Zuckerberg, can get a first-rate education. They don’t have to be Ivy League dropouts (or graduates), but they do need to know how they’re wired and how higher education fits with who they are and where they’re going. That will give them the focus to get in, get after it, and get out.

Alex Chediak (@chediak) is a professor of engineering and physics at California Baptist University and the author of Beating the College Debt Trap, Preparing Your Teens for College, and Thriving at College. Learn more about Alex’s work at his website.

Don’t Divide Your Christian Principles from Your Practical Decision Making

July 21, 2015 by Matt Perman

This is well said by Phillip Johnson, in his foreword to Nancy Pearcey’s Total Truth:

Every one of us has a worldview, and our worldview governs our thinking even when — or especially when — we are unaware of it.
Thus, it is not uncommon to find well-meaning evildoers, as it were, who are quite sincerely convinced that they are Christians, and attend church faithfully, and may even hold a position of leadership, but who have absorbed a worldview that makes it easy for them to ignore their Christian principles when it comes time to do the practical business of daily living.
Their sincerely held Christian principles are in one category for them, and practical decision making is in another. Such persons can believe that Jesus is coming again to judge the world and yet live as if the standards of this world are the only thing that needs to be taken into account.

That’s a very profound statement. It is worth re-reading and reflecting on.

I remember experiencing this dichotomy in my own life. My senior year in college, I had an internship as a claims adjuster at a large insurance company. One of the things we were taught was that the popular dictum “the customer is always right” would bankrupt the company.

The reason is that customers often had an inadequate conception of their insurance policies, thinking that certain things would be covered when they are in fact not. If we granted the wishes of the customer in each of those cases, we would be paying far beyond what the policies were designed to cover, which would indeed spell disaster for the company.

In this case, of course, the reasoning is correct. The policy rates were set on the basis of the limitations on the policy spelled out in the contract, and to go against those would be to over extend the capacity of the company to pay the claims. I don’t think there is anything unbiblical about sticking to agreed upon characteristics of the insurance policy, especially since the customers are able to read and agree to the policy with full knowledge and consent when they sign on.

The problem, though, was that this could easily have an unwelcome side effect. Even though the company did not advocate doing so, nonetheless this reality could easily create an adversarial mindset toward the customers of the insurance company. You could go in expecting them to disagree, and your mission was to make sure not to give in. Your task could easily become not seeking to maximally serve the customer within the constraints imposed by the policy, but standing your ground against the customer. And justifying that by saying “this is what the policy states. You just have to deal with it.”

That would be an example of following the standards the world often follows — and thinking you are justified in doing so because, of course, you really can’t pay out for things the policy does not cover. Right?

The problem here is not with upholding the policy. The biblical answer here would not be to go against the agreed upon characteristics of the insurance policies. The problem is with what is being left out — namely, humanity.

The biblical answer here was not to go against the policies, but to remember compassion and understanding. As claims adjusters we might not be able to give the customers what they really wanted in certain cases, but we could always accompany that with saying “I understand this is frustrating. I am sorry about this. And perhaps the conception of this policy is not as helpful as it should be, and we will need to look into that. But this is the policy that was agreed on, and this is what we have to stick to.”

That is a very different approach than just giving people the cold hard facts and saying “deal with it.” It seems so obvious. This is a way of treating the customer with dignity and respect, even when they are not “right” and cannot have their way.

Yet, that that is the type of thing you don’t always see. Perhaps some people think that showing understanding opens them to liability or risk. To acknowledge the person’s frustration, they think, is perhaps to acknowledge that the policy is indeed bad, thus opening them to a lawsuit.

But fear of risk is never a good reason to fail to take the actions that are necessary for affirming a person’s dignity. People’s concerns need to be validated. Even if the company is technically “right,” as was the case most of the time in these situations, it is never right to toss that out as a cold hard fact that a person just has to “deal with.”

This is just one small example of how Christian principles can be set aside in the name of seemingly doing “the right thing” according to a certain (even legitimate) set of standards, and how a Christian view can come in and provide what is missing so that people are always treated the way they ought to be treated.

There are lots of other examples that are more extreme and more significant. Regardless of the situation you are in, always remember to ask not only “what are the typical practices for handling this situation in my industry” but also “what does God have to say about this type of thing, and how does that apply to me as well?”

Is Excessive CEO Pay a Problem?

July 20, 2015 by Matt Perman

I am a capitalist and I believe in the free market. Government interference almost always makes things worse, not better. Then, when the government “solution” causes those worse problems, people forget that government caused those problems in the first place. And so another government “solution” is called for, and so the cycle continues.

So one might expect me to say that high CEO pay should not be considered a problem.

But that is not what I think. My thinking is in line with Peter Drucker’s thinking, well summarized by William Cohen in The Practical Drucker: Applying the Wisdom of the World’s Greatest Management Thinker:

Drucker defended perceived high executive salaries in his earlier writings. He knew how hard executives had to work to reach the pinnacle of their careers.
However, skyrocketing executive salaries caused him to drastically alter his opinion. He said executive salaries at the top had clearly become excessive and that the ratios of compensation — top managers in relation to lowest paid workers — were the highest in the world. Moreover this income difference wasn’t slight — it differed by magnitudes.
Drucker felt that this was morally wrong, and that we as a nation would end up paying a tremendous price for this. Indeed, in 2001, the ratio of average US CEO compensation to average pay of a non management employee hit a high of 525 to 1. At that point, Drucker recommended a ratio of no more than 20 to 1.
Interestingly, Drucker drew a parallel between high executive salaries and the demands of unions for more and more benefits without increases in productivity. He predicted we would pay a terrible price for these examples of gluttony from both management and labor. “It is never pleasant to watch hogs gorge,” he said. In fact, we have been paying this price for several years.

I agree that in general, CEO pay is too high in proportion to the pay of the non managerial worker. I believe this causes all sorts of problems. While I believe that companies ought to have the freedom to pay their executives what they choose, as it is their money, that does not mean that all of their decisions are by definition morally good or beneficial.

So what is the solution? Well, we know what it is not. It is not government interference, such as in the form of wage controls. That will simply cause even more — and likely worse — problems (see first paragraph). A company owns its money, and has a right to do with it what it chooses. For the government to come in and force certain wage restrictions or other such things is simply a disguised form of stealing. It is for the government to force itself into participating in the management of the company, which it does not have a right to do.

So what, then, is the solution? The solution has to come from the market it self; from people. From persuasion, not force (read, laws).

And that is one of the beautiful things about the free market. The market does have imperfections. But, just as with the scientific method, by being left free those imperfections often become self-correcting as we begin to see the damage they are creating.

The imperfections of the market can often be overcome by ordinary people making good decisions and using influence to change culture. And so even when the market is imperfect, it must be left free to correct itself. (Cases of ethical violations of course excepted.)

And that, I believe, is the solution here. But at some point, this specific issue of extreme executive pay needs to become a bigger issue. It’s not a crusade I’m interested in taking up. But it is something worth thinking reflectively and intelligently about — from a free market (rather than command and control) perspective.

Beliefs Before Policies!

July 14, 2015 by Matt Perman

Thomas Watson, Jr., the second president of IBM and 16th US ambassador to the Soviet Union:

I firmly believe that any organization, in order to survive and achieve success, must have a sound set of beliefs on which it premises all its policies and actions. Next, I believe that the most important single factor in corporate success is faithful adherence to those beliefs….Beliefs must always come before policies, practices, and goals. The latter must always be altered if they are seen to violate fundmantal beliefs.

Note that: if your policies are inconsistent with your beliefs, you change your policies — not your beliefs. So many companies do the opposite, saying they value people all the while enforcing policies that communicate anything but that.

Of course, the way you know whether a company (or person) really believes something is by what they do.

So what are companies that institute person-depleting policies really saying?