History of American Business Blog

DoD Procurement Esoterica

Now for something closer to my heart.  I recently heard a radio commentator summarize conservative attacks on health care as "Not a critique of whether the Government can provide effective health care but whether it can provide effective anything".  This has been a standard trope in several ways in the defense world I work in.  For example, outsourcing to contractors of many jobs previously held by civil servants.  The argument being that contractors provide the service more effectively and the evils of the civil service system keep poor workers from being removed.  Basically a critique that suggests private corporations are better suppliers of almost anything.  A couple of examples of interesting services done by contractors -

If you apply for a security clearance the investigator is a contractor. (I would have thought this wss a pretty important government service that should be held close?)

If you submit a proposal most, if not all, of the evaluation and processing work may be done by private contractors. (Again, wouldn't you think competition issues may suggest possible conflicts of interest?)

Large systems manufacturers also have groups that provide technical services in analytical organizations assigned to evaluate and budget for those system. (Can you say conflict of interest again?)

Recently the new administration issued new directives regarding this, and other bizarre practices resulting from the "The government can do nothing well" stream of "thought".

Attached are links to two articles that cover new changes that are either policy or legislatively moving forward.

http://www.fcw.com/Articles/2009/10/19/WEEK-DOD-authorization-acquisition-changes.aspx has several proposed changes.  An excerpt of interest -

Of particular concern is the relationship between agencies and contractors. Lawmakers say contractors are being allowed too far into the inner workings of agencies and coming too close to inherently governmental functions.  Of particular concern is the relationship between agencies and contractors. Lawmakers say contractors are being allowed too far into the inner workings of agencies and coming too close to inherently governmental functions.

Companies are selling services more than commodities, and the analytical and advisory services they sell put contractors next to agencies’ decision-makers, according to Congress.

As a result, lawmakers are mandating a review of those services. In particular, they want to know whether regulations and official guidance are keeping contractors in check.

They also want DOD’s annual budget justifications to include information on the types of services the department intends to outsource and how many contractor employees are needed to do the work. DOD officials will then need to justify why those services are necessary, according to the report.

Seems to make sense to me.  Shocking that it is even an issue!

The second article (http://www.ombwatch.org/node/10316) gives details on an interesting contracting form called "Cost Plus Award Fee".  Somewhat esoteric but here is the basic idea -

Used to outsource for products or services where the government cannot objectively measure contractor performance, award fee contracts are supposed to motivate a contractor to increase quality and control costs. If the contractor does not deliver, the government pays only the base fee and withholds any award fees that the two parties agreed upon during the negotiation of the contract. According to a series of GAO investigations, however, federal agencies have long supplied contractors with award fees for subpar work.

So we base fee on the quality of work, yet don't take into account the quality of the work?  Little accountability top to bottom.  And we wonder why we spend more than the rest of the world combined on defense??

The Tao of Steve

We could say that this blog is a combination of popular culture and business.  After this weeks discussion on marketing, sales and branding I thought about my time in marketing, business development and sales.  I've been part of two successful start ups in the defense technology services business and have also been a Sr. VP of Business Development for a huge defense firm.  The difference is amazing.

My company has a mantra that is borrowed from a movie called "The Tao of Steve".  For those who haven't seen this flick it is a low budget romantic comedy about a grungy, overweight loser who has amazing success with women.  He codified his approach as "The Tao of Steve", which consists of three rules.

1) Suppress your desire

2) Be excellent in her presence

3) Be unavailable

The second rule is the core of the BD approach I have always succeeded with.  Be excellent in their presence.  Simple, perhaps elitist, but effective.  Always exceeding not only expectations of customers but of everyone you engage.

This is compared with my gig in Big Defense.  What a disaster.  I summarize the approach as "We are at least as good and might be a little cheaper, but we'll claim to be exceedingly skilled and cost effective".  I never figured out how to sell that and resigned within a few months.  The marketing strategy simply consisted of identifying whatever big targets were somewhere in the vicinity of the expertise of the company and trying to win it.  BTW - This group, during the few years after I departed shrank about 10-15% per year, and wound up being absorbed into another unit after 3 or 4 years.

So what is the point?  Not sure.  I think the Tao of Steve can be applied in a business (not just as a business development strategy) by changing it just a bit

1) Don't go directly for the sale.  The point is to do good work.  If you do, good things happen.

2) Be excellent in everything, always.

3) Being unavailable is best translated as "make sure you get paid for the high quality service you are providing".  Too many service companies get into trouble by underbidding because they need the work, or are trying to justify a strategic win, etc.  It almost always is a bad choice.

This may not work for all companies or even for large companies that have a hard time distinguishing themselves from anyone else, but it sure works in the world I've lived in for 20 years.

Another mantra is our core mission statement - Have fun, Do good work, Make good money.  Simple, and to the point!

OK, Economists, Have at it!!

So perhaps this is going back to an old theme, but yet more evidence that the US economy is pretty broken.  

http://finance.yahoo.com/banking-budgeting/article/107980/countries-with-the-biggest-gaps-between-rich-and-poor

The US ranks third in terms of most unequal distribution of wealth, based on Gini index.  This again indicates that the rich get richer, the poor get poorer.  Combine this with the recent news that wages are at their lowest level in 18 years, and that pretty much everyone in the country is trying to figure out how to actually generate jobs in an economy that has no significant industry (outside of some small specialty pockets) and we have a mess on our hands.  The destruction of the American middle class has long term economic impacts that may be irrecoverable.

I heard a discussion of a Value Added Tax recently.  VATs are used throughout Europe.  What is interesting is that they are a way of imposing a tariff without calling it such.  Idea is that we have a tax on all end use items.  Items for export are not taxed.  So anything sold in the country automatically has a significant subsidy, in the case of Europe 15%.  This provides a mechanism for protectionism that we do not currently use.

Similarly the idea of a nationalized health care system, which distributes the cost of health care across all persons and not simply focused on those who actually have jobs, is an economic advantage to industry that we again have failed to take advantage of.

The concept of absolute free trade is really interesting, and makes for a wonderful philosophy, but it implies that all economic activity moves to the places that are most efficient, i.e., least expensive.  This ignores any kind of domestic interest (nationalism?).  It suggests that if people want to work they should move to where the jobs are, i.e., China, Singapore, etc.  Which is, of course, silly.

So the challenge becomes, how do we defeat the "free trade" trope?  And it is simply a literary device, since there is only theory, and no empirical reasoning, behind it.  

So as we see the different legislation moving forward, slowly, I wonder whether we will ever reject the silliness that laissez faire economics, backed by simple and easy to sell, but ultimately destructive economic religion, will be rejected and we may actually THINK about economics rather than develop a theory then religiously apply it?

“And now for something completely different…”

Being a used and rare book dealer and collector I have a rule that when I go to a used book shop I like I will ALWAYS buy at least one book.  Although this weekends visit wasn’t to a used book shop, I did visit a decent enough new book shop, independently owned and operated (a true rarity these days), so I still apply my rule.  Friday evening I bought a trade-paper copy of Larry McMurtry’s autobiographical work “Books”, his story of his time as a used book dealer (something he did long before he became an accomplished author (Lonesome Dove being his most famous work).  His shop, Booked Up, was in Georgetown for 32 years, being moved to his hometown of Archer, Texas in 1998.

From an historical point of view this is an interesting book (I am about 75% finished with it as of this writing).  McMurtry gives some interesting insights into some DC personalities, as well as a lot of interesting literary references, etc.  For example, in Chapter 54 he recounts dealing with Alice Roosevelt Longworth, daughter of TR, and Joanna Sturm, her granddaughter. 

“One day Joanna Sturm walked into the bookshop and asked if we’d like to buy any more of Granny’s books.  Of course we would, we said.  It seems – I have no idea if this is true – that Joanna wanted to buy a BMW motorcycle, cost about $7,500. We happily gave her that amount and I spent a happy day rummaging under stairwells and in closets, until I had a carful more of Mrs. Longworth’s books.”

So other than an odd reference to selling books what does this have to do with business and / or economics?  McMurtry talks about his planned move to Archer in the mid-90s.  “Our need for enough stock to fill a book town coincided with the beginnings of a downturn in the fortunes of American booksellers generally.”  This points to an interesting shift in the business of books, used and rare books in this case but the book business in general, that has been taking place over the past 15 years or so.  Perhaps no business has been so radically impacted by the rise of the internet as the used book business.  

For those of us who are avid book people (I am betting I am not the only book person in our little history class) it is obvious that the used book store is almost extinct.  20 years ago there were maybe 20 used book shops in Georgetown alone.  Now I am aware of perhaps 2, those being open irregular hours at best.  Northern Virginia, once home to several decent used shops, now has, to my knowledge, one in McLean, run by a retired CIA person who seems more interested in having something interesting to do in his retirement than really making a living at it.

Similar stories are true throughout the country.  Even classic shops, such as Heritage in Hollywood, are now closed.  (As an aside, there are 3 decent used book shops in the downtown mall of Charlottesville, a truly rare concentration these days).  This has been a result of several factors, increased gentrification of areas that would support such shops resulting in vastly increased rents being one.  But the more important factor has been the rise of e-commerce.  I know I purchased my books for this class from Amazon, which recently purchased the largest on-line used book site (www.abe.com, Advanced Book Exchange from Vancouver, BC).  Listing on ABE is almost trivial and requires only a handful of items to make it worthwhile.  

The other role the internet has played is the availability of research resources.  Previous, it was the knowledge of the book dealer that was a jealously guarded resource.  Being able to spot the rare first-edition of some obscure book, priced at $2 on a shelf of random fiction.  Now it is trivial to research most books by a simple search or two on the web (again, ABE is the market maker for used book prices).  There are even scanners available for cell phones that read a barcode then immediately quote a sale price for the book (go to a library sale anytime and you will see folks useing such tools to decide what books to buy at $5 a bag). This method leaves anything without a barcode available to the people who really know what they are doing, hence the ability to spot a rare 1920s childrens book (worth more than 20 bags of picked over barcoded moderns).

So in many ways the elimination of information as an advantage, and the resulting ability for books to be sold without any real overhead (my sister lists and sells our current inventory of 9,000 books from her small home in Grand Rapids, Michigan) has transformed the market in used and rare books.

Of course there are still a handful of high end dealers who don’t have sales persons. They have client managers, who buy for those with more money than time or possibly good sense (Bowman’s in Philadelphia is the outfit I am most familiar with, and who, over the years, I have conducted not a small amount of business with). But the decent shop in the somewhat sketchy neighborhood with the strange little guy hiding behind the desk, buried behind books that have no obvious price or even purpose is near extinct, and that is a tragedy, in my mind.  My solution is to make sure I visit such shops as still exist and make sure I spend at least a few dollars on every visit!

Economics Bestsellers

As a person who occasionally buys books from Amazon, and sometimes economics books, I get emails from Amazon listing certain books they would like me to buy.  It is interesting the titles on the list of supposedly “Best Selling Titles in Economics”.  Here is the list of the titles suggested to me:

 

1) In Fed We Trust: Ben Bernanke's War on the Great Panic by David Wessel

2) Shop Class as Soulcraft: An Inquiry Into the Value of Work by Matthew B. Crawford

3) A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers by Lawrence McDonald

4) Freakonomics: A Rogue Economist Explores the Hidden Side of Everything (P.S.) by Steven D. Levitt

5) Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof

6) Socialnomics: How social media transforms the way we live and do business by Eric Qualman

7) Nickel and Dimed: On (Not) Getting By in America by Barbara Ehrenreich

8) The Road to Serfdom: Text and Documents--The Definitive Edition (The Collected Works of F. A. Hayek) by F. A. Hayek

 

1 & 3 look for retrospective coherence in the recent financial crisis.

2 actually looks somewhat interesting (I’ll need to read the detailed reviews, etc.

4 is 4.  I tried to read it a while back and never was able tog et anywhere with it.

5 also looks pretty interesting (other than the main title) in that it attempts to show how psychology, something economists dread, may impact economic systems.

6 and 7 look like standard pop-volumes that seek to capitalize on the current events, etc.

 

And 8 is interesting.  Hayek, founding light of the Austrian school.  I summarize the Austrian school as “Economics is so complicated doing nothing is the best thing to do.”  Of course the counter argument, “Economics is really complicated so doing something that appears stupid may not be since nobody can understand the consequences of any actions anyway so let’s try something.”  Dave Snowden http://www.cognitive-edge.com/ has argued for many years that the way to behave on the complex space is similar to the way the military operates when they lack knowledge.  If we have some reasonable understanding of a system we use a Sense – Act – Evaluate strategy.  But in the complex space we should Probe – Sense – Evaluate (a slight change to the words Dave uses).  This obviously argues against a do-nothing strategy and suggests that maybe Roosevelt was correct in the way he conducted his economic program during the Great Depression.

 

So should we follow an academic school based in fear of consequences and also based on economic theology (yup, as compared with philosophy) of the Invisible Hand (BTW – I love Chandler’s Visible Hand idea, sort of blasts things out from under the laissez faire folks out there) or should we conduct ourselves in a far more pragmatic manner, seeking to find mechanisms that have some hope of modifying a broken system?