The Art of Business Value

art-of-biz-valueA review of The Art of Business Value by Mark Schwartz

Business value, the north star of Agile, Lean and DevOps champions, is often more difficult to determine than one would imagine. This book takes the reader on a journey to discover that value while along the way, creating helpful mental models, challenging preconceived notions and proposing some creative ways to transform an organization.

The author does a great treatment of ROI (Return on Investment – does anyone ever really measure that?), NPV (Net Present Value), MVA (Market Value Added) and SVA (Shareholder Value Added). I especially enjoyed the humorous practical example that revealed a surprising truth that acquiring an MBA can easily have a negative NPV (in other words, a bad investment!) So save your money and pay attention to the author’s “four-paragraph MBA” (p. 20) that unpacks the main two principles learned in an MBA: 1) There is time value of money and 2) A business venture needs a sustainable competitive advantage.

Legacy IT architecture and bureaucracy are often considered negatives and obstacles to progressive competitive relevance but the author brings a refreshing perspective on the “value” of that complex hairball of legacy and rules and the right way to polish and transform them.

On Agile…

“The purpose of an Agile team is to self-organize and meet the underlying business need in the best way possible, often by cutting through the bureaucracy.” (p 55)

On DevOps…

“The DevOps model…looks to break down the silos that have resulted from technical specialization over the last few decades. But the DevOps spirit goes further looking to eliminate the conflicting incentives of organizational silos and the inhumane behaviors that can result from those conflicting incentives.” (p 48)

On Bureaucracy…

“Bureaucracy delivers business value. Just sometimes not enough.” (p 59)
…”developers are bureaucrats by nature. We have a tendency to solve problems by creating standard processes rather than by relying on human judgment.” (p 54)
“The pipeline is an automated bureaucracy: it applies its rules in a rigorous, unemotional way, sine ira et studio. That does not mean that the software development process is unemotional; it means that the tools are unemotional and the passion is brought to the process by the people.” (p 105)

And on Business Value…

“Business value is a hypothesis held by the organization’s leadership as to what will best accomplish the organization’s ultimate goals or desired outcomes.” (p 90)

I highly recommend this book to IT leaders, digital executives, strategic managers, and anyone seeking to make their organization more agile, effective, relevant, competitive and humane.

China, Inc.

With more than a hundred cities with over a million people (compared to 9 in America), China’s potent workforce is poised to send shock waves of change throughout the global economy.  In his book, China, Inc.: How the Rise of the Next Superpower Affects America and the World, Ted C. Fishman provides details about this growing superpower and the historical narrative that has launched China into the forefront as a global economic powerhouse. 

The people of China are strong, highly motivated and extremely agile.  This work ethic coupled with an entrepreneurial rise is creating an emerging market of consumers as well as producers.  If the seeds of liberty, determinism and success continue to grow, China could easily become the largest economic superpower on the planet.  While this economic capitalism seems to run against the rules of communism, the Chinese have adopted a brand of socialism that, in their own words, contains “Chinese characteristics.”  This phrase has become the permissive clause within the Chinese government and the society in general.

As Ted Fishman points out in this book, China is acquiring the most advanced technologies on the planet.  These gains are not coming by way of vast research and development budgets, innovative scientist or even the brute force of hard work.  No, these advances are being imported as companies all over the world are relocating their manufacturing floors to China soil.  By doing so, these companies are able to reduce their production expenses and pass this on to the consumer at a lower cost, often called “The China Price”.  However, as these firms make agreements with local private or state run industries, the technology involved in the product, the manufacturing, or the quality processes are being distributed and copied by other Chinese companies.  Naturally, these companies have lower overhead than their foreign benefactor and are therefore able to produce the same product and quality at an even greater reduced price.  Companies like General Motors or Boeing will find their latest model on China’s roads or airways at a lower cost and with a different brand name.

The concept of intellectual property has driven the success of western capitalism and produced innovative phenomenon and economic success.  While not completely ignored by the Chinese government, it is clear that there is very little interest or ability to police such rights within China.  As an example, Microsoft has found that in China, 9 out of 10 copies of their software products are installed illegally.  Pirated software, music and movies are available often within hours of being released.  While the government does make some attempts at controlling this underground industry, the truth is that the Chinese have very little moral or ethical motivation to maintain boundaries to protect copyrights, patents or other intellectual property rights.  This seems to be a product of the environment and historical mindset devoid of familiar western political and Judeo-Christian values.  Unfortunately, this manifests itself in the form of innovative and creative anemia.  Students, scientist or even entrepreneurs are not compelled to invent new products, concepts or procedures since whatever they create would be copied and produced without providing them any credit or profit.  If there is no benefit in expending mental or physical energies, why do it?  I believe that unless this changes, this will eventually be a glass ceiling for the Chinese economy.

Can we have open trade with China and therefore increase our global competitive advantage?   If the playing field was level, I believe that the world would benefit by open trade with all countries.  However, the field is not level.  The workforce in China is willing to work in conditions that are centuries old, dangerous, and unhealthy.  Their factories are not subject to regulation that helps protect the customer, employee or environment. It is clear that these operations cannot continue and will in fact be required to address conditions and behavior that destroys people and the planet, similar to what occurred during the American industrial revolution.  Unfortunately, until this occurs, industrialized countries that have already addressed this stewardship will find competition with China to be an extreme challenge.

China would not continue to grow at its amazing rate without foreign appetite for its exports, especially American consumers.  To help with this, the Chinese government keeps its currency, the Yuan, pegged to the US dollar so that it continues to be at a lower price.  This means that Chinese consumers are dealt a currency that could otherwise buy more for them in the global market.  Fishman says, “…the people of China, who earn on average just one-fortieth what Americans do, are indirectly subsidizing the insatiable shopping of Americans, who acquire ever more goods at the same time that Chinese consumers are hampered from buying goods from abroad. / The obverse of this peculiar relationship is that China lends America all the money it needs to spend itself silly.” (p 264)

According to Fishman, China owned a $480 billion stake in the U.S. securities market in 2004 (of the $2.2 trillion owed to foreigners).  This was at a time when the American government’s debt was growing at a rate of $1.7 billion a day (reaching a total of $7.5 trillion).  American have used the record low interest rates to spend more rather than refinance and reduce debt burdens.  The US government was doing the same.  Fishman says,

Rather than use the period of low interest rates to pay off national debt and keep annual budgets in balance, as the Clinton administration did, the Bush administration set record budgets, slashed taxes, and ran up record budget deficits so big that paying off the national debt may never be possible.  The people of China are financing that profligacy. (p 265)

China has definitely entered the world stage as a economic powerhouse and will continue to be a major player in the global dynamics that politicians, businesses and workers will continue to face.

Google Preview of China, Inc.:,M1

NPR Interview with Ted Fishman:

Thou Shall Prosper

Rabbi Daniel Lapin does a great job providing a Torah based (Biblical) framework for how we should view money and the act of making money.  He debunks the idea that making money is somehow intrinsically immoral or unethical.  Instead, he shows how making money (and therefore business) is really all about relationships.  While there are obvious and sadly very visible abuses in business, Rabbi Lapin’s convincingly argues that this is the exception rather than the rule.  The fundamental element of business is about providing a mutually beneficial transaction.  You benefit by providing a service that is of benefit to someone else.

This quote from the book (p. 69) shows some of the perspective on business, relationships and wealth creation:

…The contemporary significance of this message is best revealed by analyzing what economic life might look like for the last person on earth.  Imagine some catastrophe that wipes out all human beings but one.  Surely the survivor is the wealthiest human ever to inhabit the planet.  The survivor owns not only Fort Knox but also all the gold beneath the offices of the Federal Reserve in New York City.  He has access to every safe deposit box and owns every office building in the heart of every city. He owns more airplanes and yachts than have ever been owned by anyone in all of human history.

You might peer into the daily life of this unprecedented tycoon.  What does he do once the sun goes down on his first day as ruler of the world?  Why, read by candlelight, of course, because lights no longer go on at the touch of a switch.  Nobody is left to operate the electricity utility.  At first he will eat fairly well, at least until the grocery stores (all of which now belong to him) run out of produce.  Sooner or later, even the canned foods will spoil.  At that point he had better hope that his first harvest ripens successfully before he starves to death.

He may desire to travel.  At first, he is free to choose any car on the road because they all belong to him.  However, sooner or later they will all have empty gas tanks and will become quite useless to him.  If he can catch a horse, he might be able to travel at a rate faster than he could walk, but that is his best hope.  On his own, he could not operate a refinery to produce the petroleum that would so ease his life.  It quickly becomes apparent that the “richest man in history” is enjoying a living standard slightly below that of a third world subsistence farmer.  In contrast, the more opportunities people have to interact and to convey information to one another, the more wealth is created for every participant.

Rabbi Lapin presents “Ten Commandments for Making Money” which are represented by the table of contents:

  1. Believe in the Dignity and Morality of Business
  2. Extend the Network of Your Connectedness to Many People
  3. Get to Know Yourself
  4. Do Not Pursue Perfection
  5. Lead Consistently and Constantly
  6. Constantly Change the Changeable, While Steadfastly Clinging to the Unchangeable
  7. Learn to Foretell the Future
  8. Know Your Money
  9. Act Rich: Give Away 10 Percent of Your After-Tax Income
  10. Never Retire

Rabbi Lapin’s book is a refreshing perspective on business and making money.   His principles are backed by Biblical examples and teachings that lead the reader to understand the win-win scenario of being in business with the right perspective.  The small business owner, the tech, the CEO, the clerk, the salesman and the line worker should all take satisfaction from their “business” of work and making money.  It is an honorable thing that connects us all, helps everyone involved (employee and employer, owner and client), builds relationships, increases overall “wealth” and prosperity, and provides opportunity for people to give and focus outside of themselves (charity, philanthropy). 

Naturally, while the love of money can cause all sorts of evil, the making of money is not evil.  Money represents work and creativity in an easily exchanged form.  Doing what we can to make money is a reflection of our God given creativity that allows us to provide benefit to ourselves and others.