Taking Risks

In the throes of this current recession (or jobless recovery, if you like) the operative work is risk. In the case of the sub-prime meltdown excessive risk was the culprit that contributed heavily to the current crisis. Yet, it is the risk takers that make our economy go. This past Friday, our Executive MBA class had the pleasure of hearing Adam Bold, CEO of The Mutual Fund Store, tell his story.

You see Bold traded in a secure job in the financial field to try out his idea of starting a mutual fund business that served customers other investment firms mostly ignored. And in 13 years he has built a successful company of about 350 employees. His story was inspiring to our students because he talked about personal risk and the burden of leadership. The consequence of his "risky" move has been to provide a significant number of quality jobs in this area, St. Louis, and beyond. Furthermore, he is building a business that he hopes will live beyond him -- something very difficult for many entrepreneurs to do.

The name fits Mr. Bold well. I wish him well -- and am glad for the risk-takers.

Medical Tourism

My colleague Dr. Martin Stack teaches among other things international business and has particular expertise in how healthcare is reaching into international markets in ways that might be surprising. Yesterday he taught on this very subject to our Executive Fellows class and coincidentally the WSJ had a front page feature (The Henry Ford of Heart Surgery) on a surgeon, trained in London, who has taken his practice back to India and has built a practice serving hundreds of people who otherwise couldn't afford heart surgeries.

This video does a good job of explaining how it works.

What interests me is how this happened as it seems like another example of business entrepreneurship. Dr. Shetty saw a gaping need in India (and other developing countries) of people needing surgeries but not affording it under normal business models. So he changed the business model to adopt the same "innovations" that Henry Ford did over a hundred years ago. He created a large hospital (and is looking to expand) employing over 40 surgeons allowing them to create scale efficiencies on the various high tech equipment needed. Size also allowed the hospital to negotiate great deals on supplies and equipment -- right now they do 12% of the cardiac surgeries in all of India. As Dr. Shetty says, "What health care needs is process innovation, not product innovation."

The pricing is strategic as well. Poor nationals who are in the State insurance system are charged only $1,200 for a heart procedure -- less that the $1,500 needed to break even. Since these are 30% of their patients; they make it up on the rest where they charge $2,400.

Quality seems to be quite good -- in part because the surgeons are well trained (usually in the U.S. or Europe) and very experienced as they do many more surgeries in a week than those in the States. A good test of quality is that now more Americans looking to save money are travelling to Bangalore to get bypass surgery. So now this business model could disrupt health care in developed countries.

Wine Tasting

Among the many things that confuse me are pizza menus (too many choices) and wine lists (arcane literature). Last week I decided instead of buying one bottle of wine I would buy two so I could compare and learn what was good. Anyway, many wine drinkers have favorite brands of wine; wine connoisseurs have real expensive favorite wines. Yet, an article today (WSJ, "A hint of hype, A taste of illusion") casts doubt on the idea that wine tastes can be objectively discerned -- some wines brag of having 8 different flavors. In fact, it is very difficult for even experts to evaluate wine tastes or accurately discern flavors.

The wine industry has its own rating system for the taste of wines. In addition, high stakes taste testing contests are held frequently with some wineries spending over $1 million dollars trying to win or "medal" in at least one of these. The problem is that there is a lot of evidence that wine testing suffers from poor reliability; for example, a medal winning wine is as likely to be a bad loser in another contest, even one with the same expert taste testers! Empirical tests where the taste tester does not know the actual wine brand confirm their is little objective basis for wine tastes.

A few decades ago, Pepsi took on Coca Cola by sponsoring a number of taste tests that showed consumers preferred Pepsi over Coke. Well, in the 1980s Coca Cola got spooked and started believing the taste tests and decided to change their formula in order to compete with Pepsi, coming up with New Coke. Well, its loyal drinkers reacted swiftly -- it was unAmerican to do that. It didn't take long for Coca Cola executives to reverse course and bring back the old drink (Coke Classic).

You see it was not about the taste; Coke learned quickly they were selling an experience. Taste is a subjective thing. The consumer brings all kinds or perceptions and attitudes to the tasting. Changing the formula was changing the experience -- the consumers determine the taste.

So back to wine . . . since my wife and I are amateur wine drinkers and I struggle deciding among the MANY choices on the shelf, I simply have to convince myself that that $5.99 bottle of Beringer Merlot or White Zinfidel is simply exquisite. And I would be right . . . as long a my wife agrees, that is.

Rockhurst Volleyball

This fall my seventh grader played on her school volleyball team. Having never played before she had a steep learning curve and I suggested we go see the Hawks play a home game. Of course life got busy and it wasn't until this morning that my daughter piped up about seeing a game . . . and by the way they were playing their last home game today.

Anyway, we went and had quite a treat. First, this was volleyball the way it is supposed to be played-- pass, set, and spike (and lots of blocks and digs). The games were highly competitive and the first game (Rockhurst won 31-29) was tremendous (click here for recap). Looking at the program, it looks like the team, even though they lost this match, could be quite good next year -- lots of sophomores and juniors on the team. My daughter was quite impressed -- she is already planning on attending more matches next year.

Anyway, I came away with two revelations (in addition to figuring out how the Libero position works). First Rockhurst is blessed with some really good coaches. I knew about my friend and colleague Tony Tocco who is the winningest collegiate soccer coach in the country. But I did not know about Tracy Rietzke, the Rockhurst volleyball coach. His record after 21 years is impressive and I suspect he is like Coach Tocco and many other Rockhurst coaches -- he just loves the game and the people he coaches. They practice excellence in virtual anonymity. We are lucky to have them.

Which leads me to the second revelation -- one I am a bit ashamed of. This was the first sporting event I attended (except in passing by). When entering the arena I did not even know how much it would cost for admission. Nearly 15 years at Rockhurst and I have been very busy working my discipline, teaching my classes, and serving my School in a variety of ways; I have had soccer, basketball, basebally, and volleyball players in my classes. It is easy to get busy with our lives, but it is nice to get surprised even if it happens in your own backyard.

I'll take the Job

I am trading my current position of university professor for an executive job for a large public company. The government paymaster has rendered a ruling to limit top executive pay to $500K -- a significant downgrade from the millions usually promised to these executives through pay packages negotiated with boards (who are supposed to speak for the stockholders).

You see I have a chance now, because all those experienced and qualified top executives are fleeing to greener pastures not hamstrung by the arbitrary hand of government. Why, it is naturally beneath them to work for so little. And they will leave a huge vacuum -- how can we find anyone as good?

The argument for $20 million salaries is that this is the only incentive that will drive top performance. Really? For us regular workers it has been shown time and time again that money is not an incentive to high performance (though it is often accepted to be true). Why should it be any different for top executives. As Wall Street Journal columnist Brett Arends asserts, where is all the great performance from these companies and their executive leaders? In the first place the executives being limited worked for companies in hock with the government anyway.

In fact, there is little evidence that stock options and other perks given to executives pay off for shareholders. Here is the conclusion from one study cited in Arends article: "CEOs' personal use of company aircraft is associated with severe and significant under-performance of their employers' stocks. Firms that permit personal aircraft use by the CEO under-perform market benchmarks by about 4 percent or 400 basis point per year, after controlling for a standard range of risk, size and other factors."

I will accept the airplane privileges and will accept a piddling salary of $500,000 for the chance to outperform the returns of most of these companies. The bar isn't all that high.

Chris Lowney

I was in San Diego at a national conference and had the pleasure of listening for the first time to author Chris Lowney. This former Jesuit Seminarian, successful financier at J.P. Morgan, and now author is a stellar spokesman for Jesuit values - and how to bring them into the business world.





Lowney was at Rockhurst this summer for the annual CBJE and, I am told, spoke even more eloquently on these Jesuit values. He is now an author and written 3 successful books, the first called Heroic Leadership speaks of the sustained 450+ achievement of the Jesuits.





In his speech yesterday, Lowney suggested that people (including business people) should give themselves the time to stop and consider these three questions:

1. Why are you grateful today?


2. What objective or personal issue do you want to focus on these days?


3. Reviewing the last few hours, what lesson can you take away to help you in the next few hours?

I think my Jesuit colleagues in the audience understood the message better than others, but it is a message worth repeating.

Leading like a Goose

I have the great pleasure of working Saturdays for our Executive MBA program -- okay it is not that great working on Saturday! Still, the students in the program are excellent and committed to learning business acumen and learning how to be better leaders. For the 2011 cohort, Father Curran introduced the students to notion of leadership. And he brought a prop -- the centerpiece on the game board pictured here.

Two interesting points about the Goose. First, it is a great leadership analog as the goose represents a leadership model not often followed. You see when geese fly -- their major work activity -- they do so in V formation AND they share the lead. Thus, the burden of leadership does not fall just on one goose (unlike say the head buffalo who determines whether the herd moves or does not). The formation (think system) also allows for maximum efficiency.

Second, this goose has a special Jesuit heritage as you might notice the collar. Thus, one more significant link of Rockhurst and leadership.