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Dr. Rick Nason: Consumer Spending, Economic Performance and GDP Growth

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Dr. Rick Nason

Kevin Ebert MBA(FS) Class of 2014 sent in a question to Dr. Rick Nason:

“Major FI’s around the world currently see Canadian consumers being massively over-levered and the Toronto/Vancouver housing markets as ‘bubble-concerns’.  Viewed another way:  Consumer spending, via low interest rate credit, has been the ‘fuel’ for Canada’s economic performance and GDP growth.  What advice would you give MBAs currently leading Canadian-domiciled companies, looking to maximize growth & opportunity, while minimizing risk/exposure to these issues?” Kevin Ebert MBA(FS)

In the fifth installment of striving for success in 2019, Dr. Rick Nason discusses consumer spending, economic performance and GDP growth.

Dr. Rick Nason:

Consumer spending is the only engine behind GDP.  If consumers do not buy anything, then businesses don’t make things, which in turn means that businesses don’t buy anything, and so on into the box top of the classic box of Moirs chocolates[1].  So, we cannot put the blame on consumers.

Having said that, Canadian consumers are arguably over-leveraged.  However, we have also been, in my humble opinion, coasting on a variety of made-in-Canada factors for a very long period of time.  I won’t go into the specific factors that I believe we have been coasting under for fear of this being labeled a political blog.  I am sure that the reader can make their own list.

As Canadians we are incredibly lucky.  We have a relatively stable and responsible government (my comment in the previous paragraph notwithstanding), we have an embarrassment of natural resources, and we have, for the most part, a suitable climate.  What this has produced is a corporate culture that has become fat and lazy; despite our daily machinations about working such long and hard hours.  Of course, some of us (ahem ahem) have literally got fat and lazy, but we will leave my personal state of affairs out of this blog.

I believe that there are two short and simple responses to your question.  The first is to stop thinking that you are a Canadian company.  Yes, take the advantages that being Canadian provides you, but take those advantages and learn to play on the world stage.  Yes, that means that you need to leave behind some of the Canadian advantages, such as protectionism, behind.  But wake up, we are a big country with not many people.  As the rest of the world develops, it is learning to do more with less, and on a much larger scale of people, and yes, that includes a much larger base of consumer spending.  That means that the rest of the world is developing experience at scale.  We do not have the scale, and to get it you must go out and think and behave globally.

Leaving your familiar backyard is scary.  I remember leaving my neighbourhood when I was approximately 10 years old with a group of my friends to play a street hockey game against a neighbourhood on the other side of the town that none of us had ever been to.  It felt as if we were taking a trip to the moon.  It sounds silly, but I think that is what many Canadian companies still feel.  Admittedly, as Canadians we have one heck of a nice neighbourhood, but how are you to develop your street hockey skills unless you get out there and test your skills, and learn new skills from other neighbourhoods?  (Hope you appreciate my Canadian spelling of “neighbourhood” in this paragraph and the home-grown theme of street-hockey.)

The second, and related solution is to compete! compete! compete!  Except for hockey, and perhaps only women’s hockey at that, we have forgotten about how to compete.  (Okay – time to break the no politics rule.)  Take for instance interprovincial trade.  We don’t even want to compete interprovincially!  Historically, there were arguably some valid reasons to prevent too much competition.  Unfortunately, that is now being laughed at by the rest of the world (although one prominent figure with arguably worse hair than mine – although I have undisputedly the more natural complexion – is making a mockery of international trade and competition for the moment.)

Since you brought it up, Canadian financial institutions, in particular, have forgotten how to compete for the simple reason that they never needed to.  Retail Canadians, and corporate Canada for that matter, are notoriously sticky consumers of financial institutions.  We pick our financial institutions based on proximity, and the only time we change is when we change our neighbourhood – and even then, we keep our old accounts going.  Canadian financial institutions constitute a classic oligopoly.

I love Canada.  If you slit my wrists, instead of red and white blood cells you get Maple leaves, hockey pucks, and whatever crap the pulp mill in my neighbourhood was spitting out the day that I was born.  However, I got most of my post-secondary education south of the border, and spent most of my non-academic career south of the border.  The difference in the willingness to compete, in both academia, and in business continues to astonish and annoy me.  We are a wonderful and blessed country, but if you want GDP growth (we can argue whether that is a worthy goal or not), we gotta step outside the neighbourhood and compete.

[1] For those of a too tender age who did not get the reference, do an internet search for vintage Moirs Pot of Gold Chocolate box

Dr. Rick Nason: Removing Complacency within a Dynamic Global Business Environment

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Dr. Rick Nason Craig Macklin MBA(FS) Class of 2014 sent in a question to Dr. Rick Nason:

“I’ve taken a position of continually considering the changing global business environment as a way to remove complacency in my strategies when improving a company’s results…what are the 2-3 most important elements you see globally, that company leaders should pay attention to so that they can start getting comfortable being uncomfortable, especially in the face of the looming recession?” Craig Macklin MBA(FS)

In the fourth installment of striving for success in 2019, Dr. Rick Nason discusses the changing global business environment, getting comfortable being uncomfortable and removing complacency in strategic thinking.

Dr. Rick Nason:

Being comfortable with being uncomfortable is likely to be a phenomenon of the 20’s; the 2020’s that is.  The pace of globalization, the pace of AI and Big Data, and the pace of FinTech, HealthTech, RegTech, PersonTech, WhateverTech, combined with a demographic shift in the workforce that has not been experienced since the end of the Second World War will mean that the role and responsibilities of the manager are going to be altered like never before.

Trying to fight the onset of these forces facing the manager is a Sisyphean task.  I believe that we are already experiencing the less than optimal individual managerial actions of a cohort nearing retirement who are striving to make their methods that worked in the 1980’s and 90’s effective today.  This is for an age when the seemingly inexperienced millennium upstarts, with nothing more than gumption, upset another industry on an almost daily basis.  It is a phenomenon that I call the “constipated middle”.  That is, it is the group of relatively senior managers who are hanging on to a world that no longer exists in hopes that they can make it to retirement without being exposed.  By the way, the same effect is true for those who are relying on their credentials for success, regardless of age or experience.

If you have ever been in one of my classes, or heard one of my seminars, then you know that one of my favorite quotes comes from philosopher Eric Hoffer.  He stated, “In time of change, learners inherit the earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists”.  You need to select whether you will be learned, or a learner.  Unfortunately, and ironically, as academics, we focus on being learned, despite our proclamations that we are institutions of higher learning.  The evidence is clear; our focus on rubrics (please, shoot me now!), multiple choice tests, objectivity in marking, tests designed for computer marking, etc…  This is reinforced with our emphasis on credentials; gotta get more letters behind my name to be competitive (and so I can be picked by the HR computer filters for a promotion)!

The first rule of becoming comfortable with being uncomfortable is to be a learner.  Learn broadly. Learn creatively.  Learn diversely.  One of my favorite techniques when I am faced with a problem, is to go to the bookstore and buy the three magazines on topics or areas that I know nothing about and have zero previous interest in.  Going into places you have never gone before not only works for StarTrek fans, but also for your ability to learn, to be creative, and to develop your dots.  Managers would be much better off if they would only spend as much time and effort on their network of learning as they do on their professional networking and building their social media profile.

Being comfortable with being uncomfortable means you need to develop the skill of learning.  However, this is much more than knowing stuff.  Knowing stuff is a commodity; hey Alexa, what’s … ?  Knowing stuff is an almost valueless commodity today with not only the developments in AI, but also the ready access to AI.  The new learner doesn’t source knowledge but connects knowledge.  The manager who can connect the most dots, as well as the most diverse dots, is the manager with the competitive advantage.  The person who knows stuff is being replaced by a bot, or someone with a decent internet connection in an emerging economy who is willing to put in the effort to know more stuff, more efficiently, and to do it for less than you spend on coffee in a day.

What is left after AI takes away knowledge is empathy.  Rita McGrath, a Columbia University professor, wrote a short Harvard Business Review article titled “Management’s Three Eras: A Brief History”[1].  In this paradigm shifting article, she talks about how management was first about technology; how do manufacture a pin most efficiently.  Then came scientific management and Taylorism; how do we optimize the assembly line.  The third era, the era we are coming into, she labels the “era of empathy”, and I agree with her.  Empathy is nothing more than understanding people; and I stress that empathy is not sympathy or pity.  Empathy is understanding why people think and act as they do.  Empathy does not mean that you agree with them.

In a related, but tangential theme, Geoff Colvin’s book “Humans are Underrated”[2], states that many professionals mistakenly try to fight the onset of the bots by asking: “what is it that I can do that a computer, or a bot cannot do?”  Colvin’s answer is nothing!  He states that the better question to ask is: “what is it that I can do that people do not want or will not allow a computer, or a bot to do?”  I think he is on to something.  What is left after AI takes the basic knowledge component is relationships, and I don’t mean relationships of the swipe left or right variety.

I would be remiss, as well as hypocritical if I did not mention the importance of complexity.  I believe that all of the above is wrapped up in complexity.  The manager of the 20’s needs to understand and appreciate complexity.  That is a different set of skills, and a different set of attributes than we normally associate with management.  Our management paradigms, as well as our educational paradigms, both in business education, and general education, have almost completely ignored complexity.  I believe that complexity knowledge is the killer app for managers.  I have a recommended reading on complexity if anyone is interested.

Ultimately being comfortable with being uncomfortable is being comfortable with being a human being, rather than some stereotype that the media and business schools give us of the business leader.  Being comfortable with being uncomfortable requires humility, self-esteem, and a thrill and lust for the challenge.  That’s what makes being a manager fun!

[1] McGarth, Rita, “Management’s Three Eras: A Brief History”, Harvard Business Review, July 30, 2014, https://hbr.org/2014/07/managements-three-eras-a-brief-history

[2] Colvin, Geoff, “Humans are Underrated: What High Achievers Know That Brilliant Machines Never Will”, Portfolio, 2016

 

Dr. Rick Nason: Transparency, Risk & Social Media

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Dr. Rick Nason

 

Nancy Fijan MBA(FS) Class of 2013 sent in a question to Dr. Rick Nason:  We all have pressure and noise in our lives, and in business, sometimes it manifests itself in rash decision making by executives. And for publicly traded companies, this can be costly – for example, the recent $40 million SEC settlement that Elon Musk paid for his tweet about going private. In addition to this $20 million civil penalty and $20 million fine imposed on Tesla, he had to give up his role as chairman of the board for at least three years. Is this a lesson about the risk of being too transparent? Or is the complexity of business running up against outdated regulations created before the social media age?

In the third installment of striving for success in 2019, Dr. Rick Nason discusses transparency, and how risk is ever-evolving in the age of social media.

Dr. Rick Nason:

Elon Musk had sanctions imposed upon him by regulators after tweeting some of his thoughts on the prospects for his company Tesla.  The question is:  Is this a lesson about the risk of being too transparent? Or is the complexity of business running up against outdated regulations created before the social media age?

I am going to slightly (hopefully only slightly) reframe this question to “is regulation adequately adopting to changes in complexity and transparency brought about by social media?”  The answer is “NO!” in my opinion.

Regulation is in place in large part to manage downside risk.  For those who have taken a class from me or read any of my books, knows that I believe that risk is the “possibility that bad or good things may happen.” Thus, simply managing downside risk is about as intelligent and practical as chewing your food with only your upper teeth. From the outset, regulation is missing half of the equation. Sometimes half of the equation is all the equation – again, see example of eating with only your top teeth.

Social media is changing business is many ways; some obvious, and some less obvious.  The less obvious way is that social media is increasing complexity.  Social media is creating the data for artificial intelligence to diminish the human value of complicated thinking and analysis by doing it quicker and more accurately. (This would be a great discussion for a future blog – so stay tuned).

Regulators, in large part, miss both of these important consequences of social media and thus appear as out of touch as characters from Downton Abby showing up to the latest university Cuban spring break beach party. Regulations operate on the assumption that the world is complicated; that the world works by a command and control mechanism.  The reality is that increasingly business and governmental affairs are complex.  (Editor’s Note: We highly recommend Dr. Nason’s book, It’s Not Complicated: The Art and Science of Complexity in Business, which discusses the difference between complicated and complex systems.)

Social media increases the connectedness of individuals and groups.  Furthermore, developing technologies are focused on expanding the momentum of that connectedness.  This, in turn, leads to increased speed and magnitude of adaptiveness.  Both effects increase complexity.

Complex systems cannot be solved; they at best can be managed.  Regulation is set up with the implicit assumption that it will solve or prevent problems.  Orgel’s Law, which argues that evolution is smarter than you are, is a fundamental consequence of complexity and its resultant emergence that illustrates the folly of much regulation.

This is not to say that regulation is worthless or not required.  Unfortunately, the nature of humanity and markets is that we need regulation for the collective good.  However, prescriptive regulation is only effective for complicated systems.  Too much regulation is based on “letter of the law”, while “spirit of the law” is a much sounder principle, especially so in the presence of complexity.  Regulation based on spirit of the law, which also applies context specific judgment, helps in the implementation of “manage; not solve”.

Regrettably, the legal system, particularly in the United States, will prevent this from being the mode of operation for at least as long as I am taking up space and oxygen on this planet. So, the answer of whether regulation is keeping up with the increasing complexity caused by social media is an emphatic “No!”.

Before concluding however, I would like to point out that it is incumbent upon each of us to also realize and react appropriately to the increasing complexity in society.  Ironically, the increasing complexity is escalating the expectations that we, individually and collectively, seem to have of government; and by extension, regulation.  As we have higher expectations for governmental solutions, we need to appreciate the paradox that complexity in society is diminishing the ability of government, and regulators, to “command and control”.

Trying to control a complex system with complicated thinking leads to many unintended consequences.  One of the unintended consequences is frustration.  I believe in part this mismatch between complicated thinking / complex reality, and ineffective governmental and regulatory control is leading to increasing voter frustration which manifests itself as increased partisan politics, and potentially a more fractured society.  Social media brings us together, but the complexity is entails may be also ripping us apart.