File this under funny…

The Economist ran a brilliant (the sad but true kind of brilliant) article last week about the increasing meaninglessness of job titles (see Too Many Chiefs). Their take-away: “Inflation in job titles is approaching Weimar levels.”

Kim Jong Il, the North Korean dictator, is not normally a trendsetter. But in one area he is clearly leading the pack: job-title inflation. Mr Kim has 1,200 official titles, including, roughly translated, guardian deity of the planet, ever-victorious general, lodestar of the 21st century, supreme commander at the forefront of the struggle against imperialism and the United States, eternal bosom of hot love and greatest man who ever lived.

When it comes to job titles, we live in an age of rampant inflation. Everybody you come across seems to be a chief or president of some variety. Title inflation is producing its own vocabulary: “uptitling” and “title-fluffing”. It is also producing technological aids. One website provides a simple formula: just take your job title, mix in a few grand words, such as “global”, “interface” and “customer”, and hey presto.

The rot starts at the top. Not that long ago companies had just two or three “chief” whatnots. Now they have dozens, collectively called the “c-suite”. A few have more than one chief executive officer; CB Richard Ellis, a property-services firm, has four. A growing number have chiefs for almost everything from knowledge to diversity. Southwest Airlines has a chief Twitter officer. Coca-Cola and Marriott have chief blogging officers. Kodak has one of those too, along with a chief listening officer.

…The number of members of LinkedIn, a professional network, with the title vice-president grew 426% faster than the membership of the site as a whole in 2005-09. The inflation rate for presidents was 312% and for chiefs a mere 275%.

Although I believe that title inflation is a real phenomenon, I’m not sure that citing the growth in vice-president, president, and chief titles listed on LinkedIn over the period 2005-2009 is the cleanest evidence of such (however clever). It could just as easily indicate that senior officers who were reticent to join LinkedIn in the early going finally recognized its value and joined en masse later in the game.

But back to the article:

What is going on here? The most immediate explanation is the economic downturn: bosses are doling out ever fancier titles as a substitute for pay raises and bonuses.

Not sure that’s quite the right explanation. Although the downturn has probably fed title inflation, I doubt bosses have been systematically doling out fancier titles in lieu of pay. They haven’t had to. After all, who’s going to leave the firm in this market??

Rather, my hunch is that it has just as much to do with displaced workers being forced into becoming chief of their very own micro (single person) enterprise. That, and an increasing trend toward independent contracting (explanations that are not mutually exclusive).

I would have been more willing to buy the “bosses are doling out ever fancier titles” to try to manipulate an employee’s sense of worth within the organization. After all, title inflation is not a new phenomenon. It’s an increasing trend that predates the financial crisis, and even the dotcom era.

One of the oldest jokes floating around the financial industry for as long as I can remember is that “Everyone’s a VP at a bank.” And part of the fun during the high-tech/dotcom era was watching the titans of this new industry eschew traditional titles while, at the same time, mocking convention. So I found myself disagreeing with the author’s assertion that:

The American technology sector has been a champion of title inflation. It has created all sorts of newfangled jobs that have to be given names, and it is also full of linguistically challenged geeks who have a taste for “humorous” titles. Steve Jobs calls himself “chief know it all”. Jerry Yang and David Filo, the founders of Yahoo!, call themselves “chief Yahoos”. Thousands of IT types dub themselves things like (chief) scrum master, guru, evangelist or, a particular favourite at the moment, ninja.

Rather than engaging in title inflation, if anything, by adopting quirky titles, I think the chieftains of tech are really just calling “Bullshit” on the whole title inflation charade.

But my nitpicking aside, I encourage you to take a read of the whole article. Hysterical!

So after Fox 5 shifted the originally planned segment from Monday to Tuesday and changed the time from 7:15am to 8:15am, they finally ran their story on the New York MTA. See the embedded video below.

If the video doesn’t work for you, feel free to visit Fox’s website (see Where the MTA Spends Money). In a story accompanying the video, Fox writes:

With an $800 million budget shortfall that has resulted in service cuts and the looming possibility of fare hikes, the MTA should look to cutting employee costs, Robert Salomon, a professor at the NYU Stern School of Business told Good Day NY on Tuesday.

“I think that’s the elephant in the room,” said Salomon.  “A full sixty cents on every dollar goes to employee costs”

From salaries, to health benefits and pensions, a significant amount of money is spent on employees.

MTA officials have said there are consolidating functions to reduce unnecessary spending, but at the end of the day, Salomon says it’s up to elected officials to force changes on the agency.

“It’s up to legislators to say enough is enough,” added Salomon.

Unfortunately I didn’t get to touch upon all the points that I came prepared to discuss, but I guess that’s what happens in a short segment.

I came armed with data. For example, not only do employee costs account for some 60% of the overall MTA budget, but its employment cost structure compares unfavorably with other large municipal transportation authorities (e.g., Boston, DC, and Chicago) and even a privately-operated transit company (e.g., Keolis). Believe it or not, the MTA spends in excess of $100,000 per employee in pay, benefits, and pensions ($7.2 Billion annually). It doesn’t even collect enough in revenue ($6 Billion in fares, tolls, etc.) to cover its employee costs.

That said, it was not my intent to bash unions on the show. I certainly hope it did not come across that way.

I am not anti-union by policy; however, the fact is that in the midst of the worst recession since the Great Depression, MTA employees are not sharing in the pain. In fact, in December 2009 the MTA was forced to grant a three year pay increase of 11% to the employees represented by the Transit Workers Union (TWU). This leaves commuters and taxpayers to shoulder the burden not only for the previously anticipated MTA budget shortfall caused by the financial crisis, but also the added shortfall caused by the mandated TWU pay increase.

This begs the question: How much more in taxes, service cuts, and fare hikes (which have significantly outstripped inflation over the years) can the commuter/taxpayer absorb???

And the worst of it is that absent the involvement of legislators, nothing can be done about the contracts that bind the MTA to overly-generous pay packages. This is why I said that simply streamlining existing operations and shedding administrative employees is not enough. It’s up to our elected officials to intervene, more equitably divide the pain among the parties involved, and say “Enough is enough!”

Given that the unions hold incredible sway with our public representatives, I am not holding my breath…

I will be appearing on Fox 5′s Good Day New York tomorrow morning (Tuesday) for a segment on the (mis)management of the New York MTA at 7:15am (changed to 8:15am). They want to discuss not just the financial trouble the MTA currently finds itself in, but also the organizational constraints that the MTA faces in trying to run as a leaner, more efficient organization.

The thing that strikes me about the MTA is how much of the organizational budget is dedicated – in some way, shape, or form – to employee costs. Nearly 60% of the total budget is comprised of payroll, overtime, benefits, and pensions. Wow!

The MTA does not compare favorably with its peers in this respect. And given the current structure of its contracts, I’m not sure there’s much the MTA can actually do about it in the near term.

Feel free to tune in if you’re interested in this topic, …and I’ll post a clip after the segment airs.

Don’t know how many of you caught the recent news, but a new Nano (Tata’s ultra-cheap car) spontaneously burst into flames last week soon after its owner drove it off the lot (see Car Fire Raises Safety Concerns for details and a FIERY photo).

When it was launched less than a year ago, the $2,500 Tata Nano was promoted as a safe, ultra-cheap car for poor Indians, an alternative to the motorbikes that zoom precariously around the country.

New questions about the safety of the pint-sized auto are being raised, however, after one of them burst into flames Sunday as it was being driven home from the showroom.

I have no doubt that Tata is trying its level best to develop a car that’s at once affordable and reliable. However, in light of this incident, I can’t help but be reminded of the folly that was the Yugo. The Yugo debuted in the U.S. in the 1980′s with great fanfare, only to disappoint in just about every imaginable way. In fact, a recent book details its ignominious history and goes so far as to label it the worst car in history (see Yugo: The Rise and Fall of the Worst Car in History).

If Tata plans to sell the Nano in developed markets (it has stated that it will), it best make sure that it overcome the quality issues that currently dog it – not only the perceptions, but now, the reality. In fact, after digging a bit deeper into the Nano, I discovered that this was not the first problem of its kind. There have been four similar occurrences. That may not sound like many, but when you’ve only sold 30,000 units, it is more than a minor issue.

Let’s not also forget that Tata is the owner of Jaguar and Rover (see Buyer’s Remorse). Although I am not privy to financial performance data for Jaguar or Rover, my understanding is that the two brands have been underperforming (see Jaguar/Rover Revisited or Indian Firms’ Foreign Purchases). Of additional concern for Tata is that the fallout from Nano spillover to consumer perceptions of Jaguar and Rover.

Add that to Tata’s growing list of headaches…

A friend and colleague from Oxford (Mike Barnett, Director of the Saïd Business School Center for Corporate Reputation) sent me a brief Op Ed he penned about the challenges Toyota faces in preserving its reputation for quality (see Toyota Can Still Save Reputation). Mike writes:

A good reputation is a dangerous thing.  If no one thinks highly of you, and you do something bad, it makes little difference. You have nothing to lose: but if you are standing high on a pedestal and you do something bad, causing you to wobble and waver, you have a long way to fall.

Toyota was high on a pedestal, reputed for its superior quality, and then life-threatening defects captured media attention.  How far will Toyota fall?  It depends upon how quickly Toyota can capture the conversation.

To stop its descent and recover its reputation, Toyota must give people something positive to talk about.  Errors are inevitable, especially in something as complex as automobiles; recalls are a regular feature.  It is the hesitance and delay in initiating a recall, not the recall itself, which has made this into a bigger reputation destroyer than it might have been otherwise.

Toyota has an opportunity to show that, even though it may sometimes mess up, it will always make good.  This will turn the conversation to, “Hey, even when Toyota hits a bump, it is always looking out for the customers’ welfare”, and away from “Toyota screwed up and won’t admit it, so I can’t trust them”.   Do this, and the public is quick to forgive, or at least forget.  Where Toyota does not want to get bogged down is in publicly battling over fault with its sticky pedal supplier.  Avoid the Ford-Firestone trap, as the conversation will continue to drag on in the negative.

Interesting. And some wise advice.

Toyota is taking some well-deserved heat for its delay in issuing a recall in the face of evidence that problems existed with its accelerators. In fact, Toyota long maintained that there was nothing wrong with its accelerators. At first it cited driver error, until the evidence suggested that there could not possibly be so many horrible drivers. Then they shifted the blame to faulty floor mats. Strike two.

At this point, Toyota would be wise to issue (and reiterate) mea culpas. Toyota cannot apologize too much. It should then, as Mike Barnett suggests, handle the situation in an honest and transparent way – keeping the public apprised on an almost daily basis. And once it identifies the defect, claiming that a solution has been found is not enough. The problem (and its solution) must be described in detail, and in a way that customers can understand. They need to detail what happened, and why. They then need to describe how their fix remedies the problem in a non-technical way.

Halting production until they find a solution is certainly a good (however costly) first step; but along the way, Toyota ultimately needs to redeem itself in the eyes of the consumer. It is important for Toyota to understand that how it bounces back is not simply a function of how quickly it can find a fix, but also in how quickly it can win back the public trust.

There was a fascinating read in the New York Times last week about Microsoft’s lack of innovativeness (see Microsoft’s Creative Destruction, ht Sean). Interestingly, Dick Brass, the author of the piece, and a former Microsoft employee, does not attribute Microsoft’s technological tribulations to a lack of talent on staff or a dearth of ideas. Although there have been some high-profile exits, he argues that the pool of talent at Microsoft is on par with that of the broader tech community, and that there have been some ground-breaking technologies developed within Microsoft. The problem is that many of the innovations never see the light of day. This is because, according to Brass, Microsoft has a corporate culture that breeds internal turf battles that quash innovation.

AS they marvel at Apple’s new iPad tablet computer, the technorati seem to be focusing on where this leaves Amazon’s popular e-book business. But the much more important question is why Microsoft, America’s most famous and prosperous technology company, no longer brings us the future, whether it’s tablet computers like the iPad, e-books like Amazon’s Kindle, smartphones like the BlackBerry and iPhone, search engines like Google, digital music systems like iPod and iTunes or popular Web services like Facebook and Twitter.

It [Microsoft] employs thousands of the smartest, most capable engineers in the world…And yet it is failing, even as it reports record earnings.

Microsoft has become a clumsy, uncompetitive innovator. Its products are lampooned, often unfairly but sometimes with good reason.

What happened? Unlike other companies, Microsoft never developed a true system for innovation. Some of my former colleagues argue that it actually developed a system to thwart innovation.

Full disclosure: I have never worked for Microsoft, so I cannot verify whether Dick’s story is reflective of Microsoft’s reality. However, this outcome is not uncommon to large, bureaucratic organizations, …especially monopolists.

Anyhow, I’ve provided the teaser. I encourage you to read the article in its entirety. Fascinating stuff!!

The New York Times ran a feature article on Sunday about China’s dominance of the alternative/clean energy space (see China Leading the Race to Make Clean Energy). Although the author points to some interesting stylized facts, not one suggests cause for concern.

China vaulted past competitors in Denmark, Germany, Spain and the United States last year to become the world’s largest maker of wind turbines, and is poised to expand even further this year.

MY COMMENT: So what? Does this make them the technological leaders in that space? No! Why? Because most of the technological advances in alternative energy (the knowledge creation portion of the value chain) are a product of the West – Europe and the U.S., …and to a lesser extent Japan and Korea.

China has also leapfrogged the West in the last two years to emerge as the world’s largest manufacturer of solar panels.

MY COMMENT: Again, why is this a bad thing? See above.

President Obama, in his State of the Union speech last week, sounded an alarm that the United States was falling behind other countries, especially China, on energy. “I do not accept a future where the jobs and industries of tomorrow take root beyond our borders — and I know you don’t either,” he told Congress.

These efforts to dominate renewable energy technologies raise the prospect that the West may someday trade its dependence on oil from the Mideast for a reliance on solar panels, wind turbines and other gear manufactured in China.

MY COMMENT: Nonsense. To the extent that China is reliant on the knowledge/technology developed in the West to manufacture equipment, it’s good for both sides. Western alternative energy firms have a market in which to sell their valuable knowledge and Chinese producers have a market to sell the output from the factories that use those productive knowledge inputs. This is how international trade works. In fact, without demand from the Chinese market, development costs for firms in the West would be much, much higher. This allows our alternative energy firms not only to prosper, but to create jobs in the nascent sector.

So although the title of the Times article is appropriate – China certainly is “making” more clean energy in the manufacturing sense, the West is specializing in the higher value-added, higher margin, higher growth activities (see Globalization Discontents and Globalization Revisited). I don’t know about you, but I’ll take the latter.

From the humor category, BNET recently published its list of Business Blunders of 2009. Some were amusing. For example:

Mistake #3: The “Smart Choice” food label

In August, 14 of the country’s largest food companies — including PepsiCo, Kellogg’s, Kraft, and General Mills — join forces to launch a multimillion-dollar food-labeling program, dubbed “Smart Choices,” to guide consumers in selecting nutritious foods amid the nation’s obesity epidemic. Soon, however, the program’s green checkmark logo is seen popping up on jars of fat-laden mayonnaise and boxes of Froot Loops cereal, a product that lists sugar as its top ingredient. In October, after the FDA announces plans to crack down on misleading labeling, the program is voluntarily halted.

Mistsake #5: IBM offers foreign assignments to its laid off employees

IBM lays off thousands of North American workers, and then gives them the opportunity to apply for similar jobs in countries such as Brazil, India, Nigeria, and Slovenia — if they’re “willing to work on local terms and conditions.” Big Blue magnanimously offers to help with moving costs and provide visa assistance.

Mistake #6: Unions firing their own employees

The powerful, 1.7-million-member Service Employees International Union announces a layoff involving 75 national field staffers and organizers. The union representing those employees, the Union of Union Representatives, quickly files a complaint with the National Labor Relations Board, accusing the SEIU of engaging in unfair practices such as unilaterally laying off UUR members without proper notice, outsourcing their jobs to non-union workers, and selecting workers for layoffs “because of their [UUR] membership and/or activities.”

Mistake #12: Now here’s an incentive

In July, jobless citizens seeking benefit information from the Web site of the Brazilian Labor Ministry must type in the passwords “shameless” and “bum” to access the relevant details. The ministry blames the prank on a private Internet security firm whose contract with the government had not been renewed.

Mistake #20: Now this is REO

After a couple hit by the Bernie Madoff ponzi scheme is forced to surrender its $12 million beachfront home in Malibu, Calif., to Wells Fargo, neighbors notice something odd: a large party being thrown in the presumably vacant house. After an investigation, Wells Fargo admits that the house was being used by an employee, identified by the Los Angeles Times as Cheronda Guyton, a senior vice president in charge of foreclosed commercial properties. The employee, who neighbors say had been spending weekends at the house with her family, is fired for violating bank rules against personal use of bank-owned property.

There are some other good ones in there. To see the full list, click through to Business Blunders of 2009. Some funny stuff!

On my way out of town for a much needed break. Here are a few things that caught my attention:

1. American Graduates Finding Jobs in China
2. Hints of a Rebound in Global Trade
3. Interest Fizzles in Cash for Clunkers
4. Volkswagen and Porsche Close In on Deal to Combine
5. The Pay at the Top (Compensation for 200 Chief Executives)
6. Life without Landlines
7. An Early Stab at Quantitative Easing
8. US Homeowners Cut Asking Prices
9. GM and Chrysler in Different Paths to Recovery
10. Asia’s Astonishing Rebound?
11. A Debate over Cause and Effect (kind of geeky, but how can I not include an article that mentions instrumental variables)

Happy Weekend!

Now that we are largely out of Q1 earnings season, it might be helpful to take stock of the health of the corporate sector. By many accounts, Q1 earnings were better than expected. The better-than-expected earnings has led some to suggest that economic recovery might be right around the corner – you know, “green shoots” and all (see First Quarter Shows Hint of Recovery). A deeper look at those earnings, however, reveals that they are not all that they are cracked up to be.

It is true that many firms reported earnings that were better than analyst expectations. However, this stylized fact is not necessarily indicative of a recovery in corporate earnings, for the following reasons:

1. Analyst expectations were unrealistically low. Many companies hedged when giving guidance, preparing analysts for the absolute worst. Some companies even refused to give guidance, leaving analysts to founder with their projections.
2. Earnings were down 30% or so from a year-ago level, and nearly 90% over the past two years (see S&P Earnings Decline). No sugar coating it. This was a horrible quarter.
3. Corporations were able to report better-than-expected earnings in large part because they engaged in greater-than-expected cost cutting (see Is Cost Cutting Throat Slitting, ht Anuja). Although cost cutting through layoffs and slashing expenditures can increase earnings in the near term, they can be deleterious in the long run. For example, reducing R&D budgets today can result in a compromised product pipeline down the road. Although cutting costs is the natural (and rational) response to economic malaise, the question remains whether companies cut costs by too much. And it’s not just the firm-specific consequences, cost cutting has systemic implications as well. Many analysts are overlooking the higher order effects of layoffs and capital expenditure reductions on the broader economy. This manifests as the dreaded negative feedback loop – fewer jobs leads to reduced consumer spending which then reduces demand for firms’ products resulting in decreased corporate profits leading to fewer jobs (wash, rinse, repeat).

The key then to the future of corporate profitability lies in whether you believe corporate earnings have bottomed out and will now begin to increase from a lower base, or whether you believe that there is still substantial downside risk that increasing unemployment and decreased consumer spending will continue to put a crimp in profitability. Given the nearly 40% rally in equity markets over the past several months, market participants clearly believe the former. I fear that the latter might be more representative.

All this makes me wonder whether the current rally has legs…