JimPinto.com - Connections for Growth & Success™
No. 272: 24 September 2009

Keeping an eye on technology futures.
Business commentary - no hidden agendas.
New attitudes, no platitudes.

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The Future of Capitalism

We've been discussing the ailments and aberrations of the current form of Capitalism - the rise and fall of giants, grossly unfair CEO compensation, changing global scenarios.

Please don't mistake my motives - I'm a passionate Capitalist, pointing out new economic realities that are bringing change. Capitalism's capacity to evolve, its incredible versatility, has proven to be the single most important source of its robustness and success. In fact, capitalism thrives, not because it is permanent, but because it changes.

Let's revue how the current, century-old form of Capitalism came about, and what will emerge from its decline.

First there was "proprietary" capitalism - capital ownership and control in the hands of one owner (the proprietor) or a small group.

As businesses got larger, ownership was dispersed to larger groups of stockholders (typically not directly involved), with control in the hands of professional managers. This became current-day "managerial" capitalism, which was invented more than a century ago and is now in decline. Let's understand why.

When mass consumption was on the rise, the answer was mass production at ever lower cost, demanding huge capital investments. Corporations began to be organized around management hierarchy, with a tight inward focus on the increasingly complex investments in production and distribution.

When ownership became widely dispersed, a board of directors replaced the major proprietor, supposedly to control the company. The board appointed a chief executive, which required employment contracts, performance bonuses and golden-handshakes upon termination. The simplistic idea that higher pay buys better managers caused a major blind-spot for managerial capitalism.

This blind-spot is compounded by the involvement of the CEO with selection of new board members. A strong-willed CEO tends to dominate a weak board, and can pad the board with buddies who excuse and prolong bad performance. The shareholders lose control. They become increasingly remote and frustrated as performance declines.

Fortune, Forbes and Business Week regularly track the highest paid CEOs against corporate performance, clearly identifying the failures. But it's too late - they are contractually bound, and upon termination can walk away with cool millions. Enron, Tyco and several other recent major corporate collapses are examples of abuse and the increasing failures of managerial capitalism.

But today, global markets have stopped being production-limited - they are now consumption limited. Large corporations have remained distant and indifferent to the true nature of these changes. Their narcissistic inward focus has insulated many top managers in large corporations from their stakeholders - shareholders, employees, customers and suppliers. The self-interested and primarily "macho", male-dominated culture of managerial capitalism has become a liability.

People's desires, needs and wants have radically changed. Large organizations are no longer trusted. On every level there is a divisive "us vs. them" mentality. The chasm that now separates large organizations and their stakeholders is marked by frustration, mistrust, disappointment, and sometimes even rage.

After decades of being forced to put up with the consequences of corporate indifference or inability to change, individuals and consumers are striking out on their own to blaze new trails in a new approach to business. This is pointing toward the next leap forward in wealth creation - the rise of collaborative small businesses that make their entrepreneur-owners and employees rich.

As markets and technologies undergo drastic and even cataclysmic changes, so too will the current model of capitalism. The failures are intrinsic and deep-rooted in large companies, and giving birth to a new era of wealth creation.

Watch how good people, the best employees and managers are leaving large companies in droves. They form their own collaborative businesses, tuned to the fast-changing needs of global markets. And they make their stakeholders rich.

This is "distributed capitalism".

Click Why Corporations Are Failing - The Next Episode Of Capitalism

Click Bigger is not better - Profit is a myth

Click Book - The Support Economy: The Next Episode of Capitalism

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Water crisis looms

In the US, we worry about running out of oil. But we should be worrying about another limited natural resource: water. A water crisis is threatening many parts of the country. Water has become so contentious nationwide that more than 30 states are fighting with their neighbors over it; some up to the supreme court level.

Droughts make matters worse. But the real problem isn't shrinking water levels - it's population growth. Over the next four decades, America will have 120 million more people, the equivalent of one new person every 11 seconds. More people will put a huge strain on our water resources.

The fear is that as populations grow and development spreads, vicious battles will erupt between water-rich and water-poor states and countries, particularly in major river basins where upstream populations control the flow of downstream water.

In the US, we've traditionally engineered our way out of water shortages by diverting more from rivers, building dams or drilling groundwater wells. But many rivers, including the Colorado and the Rio Grande, already dry up each year. The dam-building era from the 1930s to the 1960s tamed so many rivers that only 60 in the country remain free-flowing. Meanwhile, we're pumping so much water from wells that the levels in aquifers are plummeting. We're running out of technological fixes.

Viable solutions include desalination of ocean water, reuse of municipal waste and aggressive conservation strategies. But none of these is a cure-all. Desalination is expensive, burns energy and generates waste. Reclaiming water has a major "yuck" factor, but it's also quite expensive, requiring a set of pipes that is completely separate from the drinking-water system. Conservation does work, but it's not enough.

If the current rates of growth in supply and demand continue, then water will become a very scarce resource. When I was in India recently, there were BIG strikes between neighboring states over new laws that changed water rights. As water becomes more and more scarce in populated areas, conflicts will inevitably be the appropriate response to water shortages.

Are we heading for an era in which rivers and lakes and aquifers become national security assets that are fought over? With water availability shrinking across the Middle East, Asia and sub-Saharan Africa, violent conflict between states is increasingly likely. Major government agencies, including the CIA, have already raised the specter of future "water wars".

As the world's population grows, competition for food, water and energy will increase, brewing a "perfect storm". But, that's another story which we'll save for another eNews.

Click Our Water Supply, Down the Drain

Click Water wars on the horizon

Click Water and Conflict

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Global Outsourcing Revisited

Outsourcing is typically a short-term expedient. In the current recessionary business environment, global outsourcing has a negative connotation - it means firing American workers and shipping jobs to less-developed countries where wages are low and labor laws are lax. Would globalization work without cheap, exploited labor plus enforcement of US-equivalent regulations? Probably not. A more enlightened, strategic view is starting to emerge.

Outsourcing does not guarantee cost savings. Typically, it is a short-term expedient and most of the benefits accrue outside of the company. Here are some common global outsourcing problems:

  • Cost Expectations: Wage comparisons do NOT equate to cost savings.
  • Transfer costs: It takes time and effort to transfer knowledge.
  • Security: High risks of information technology security breaks.
  • Knowledge and Intellectual Property: Loss business process secrets.
  • Product Safety: Regulations are far less than US or Europe.
  • Corporate Culture Change: Major miscommunications caused.
The attitude among US employees to outsourcing is understandably defensive and critical. With US unemployment rising above 10% and estimates of real unemployment climbing to more than 15%, the idea of cutting American jobs and shipping them abroad is offensive to many. The mooted "savings" incurred simply isn't enough to warrant the human cost.

A more enlightened, strategic view of global sourcing is starting to emerge as managers get a better fix on its downsides as well as potential. The new buzzword is "transformational outsourcing". Many are discovering that outsourcing is really about corporate growth - making better use of skilled US staff, typically locally outsourced; not just cheap wages abroad.

The cost savings from global outsourcing are small compared to the enormous gains in efficiency, productivity, quality and revenues that can be achieved by fully leveraging local talent.

Click Automation World (Sept. 2009) - Global Outsourcing Revisited

Click Offshore Outsourcing: What's Working, What's Not

Click Top 10 Risks of Offshore Outsourcing

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Do's and Don'ts of Downsizing for Employers

In this recessionary business environment, many employers are being forced to lay off employees to reduce costs. Done poorly, this can bring devastating long-term results. Here's my own considered advice.

Downsizing is a serious commitment with long-term consequences. Take a serious look at alternatives: Early-retirement incentive plans, voluntary exit incentives, work-sharing, cut backs on the use of overtime or temporary staff, company-wide pay cuts, short-weeks, reductions in benefits and entitlements, hiring freeze, reducing head-count through attrition, retaining and moving staff between areas. Involve ALL employees in the review of all the alternatives. Everybody should understand the objectives and feel part of the process.

Weigh the potential costs of downsizing. It can often be an expensive decision when you start calculating consulting and attorney's fees, unemployment claims, severance pay or possible litigation. Beyond raw costs, layoffs affects morale among the remaining employees, which affects continuing performance.

Determine the types of work that can be eliminated, the functions, the people. Review documented performance, and move good people to replace poor performers. Forget narrow job-functions - good people like the challenge of change.

Focus on key people - the positions and talent that must remain. What does the organization need for the future? What areas will be most profitable? Who are the emerging leaders? What type of talent will help get the company through the rough times, and back to growth and profit?

Once it has been decided that a layoff is imperative, establish communication strategies - for those being laid off and those that remain. Include outside stakeholders: customers, suppliers, shareholders, local community. Before and during a RIF, transparency becomes more important than ever.

It's important for managers to develop an open dialog with their teams, and answer any questions as honestly as possible. Each person should get a private meeting with a manager to hear the news.

The separation package should include a mix of benefits and severance to support people while they look for a new job. Try to provide assistance to help those affected find work. When possible, offer career transition support and access to Employee Assistance Programs (EAP). Provide a financial safety net and outplacement services. This also sends a message to current employees that the organization takes care of its people, even in the most challenging times.

In the last issue of eNews (15 Sept, 2009) we discussed Do's and Don'ts for employees. I received many requests from employers, large and small, to do a similar check-list from the employer perspective. Here is my focus list:

  • DO over-communicate, making sure that everyone has been involved in the decision-making process.
  • DO have the CEO (and/or senior managers) make the announcement.
  • DO ensure that layoff procedures make sense, are non-discriminatory.
  • DO make sure the cuts are deep enough to benefit the company. The only thing worse than a RIF is a second RIF.
  • DO show each exiting employee R-E-S-P-E-C-T.

  • DON'T let news of the layoff "leak" out via email, or hearsay.
  • DON'T get HR "temps" to do the dirty work. Respected managers must be directly involved and VERY accessible.
  • DON'T make the mistake of thinking that work is eliminated with people. Those in the trenches know different.
  • DON'T allow senior managers to spend on unnecessary projects like office renovations or bonuses.
  • DON'T get stuck in reduction mode. Regroup, refocus, and invest in your remaining employees.
Downsizing should be treated as a temporary move to help the company during lean times. Move with renewed effort towards future success.

Click Making small-scale layoffs effective

Click Tips for employers considering downsizing during tough economic times

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The multi-purpose gadget in my pocket

Here's a personal quiz: What gadget do I carry in my pocket that does any and all of the following?
  • Browse the web - Google Search, Youtube videos
  • Read and send email
  • Provide Google Maps, with directions
  • Listen to MP3 music
  • Watch movies and videos
  • Play Blackjack, Solitaire, Sudoku, Poker
  • Listen to news on ABC and NPR
  • Read CNN, TIME Magazine
  • Display up to date stock-market summaries
  • Shop on Amazon.com
  • Read Kindle books and magazines
  • Take photos and videos with a 3.1 megapixel camera
  • Play musical instruments - Piano, trumpet, saxophone, ukulele
  • Read Word, Powerpoint, Excel and pdf files
  • Show photos from my Hawaii and Greece holiday trips
  • Update and display Outlook contacts and Calendar
  • Record my voice-memos
  • Display time, with an alarm clock and stop-watch
  • Provide local weather reports
  • Accurate compass and direction finder
  • Cool calculator
  • World Atlas with facts & figures
  • Track daily exercise with a Pedometer
  • Receive and make phone calls and text-messages
Yes, you guessed right - after resisting the urge for too long, Jimmy the Geek finally broke down and got an iPhone. I've gotta tell you, I've had it for about a month now and I'm enjoying it.

As an electronic instrument geek, I enjoy the look and feel. The intuitive touch navigation is delightful; I've yet to read the 215-page manual which I downloaded from Apple's website. When problems occur (usually my own) I simply do a Google-search, and read several blogs and helpful solutions.

After a month of handling, including playing games with several kids, it still has no scratches - I haven't bought a "skin" yet. Countless Youtube videos show how it survives scratches and drops on a concrete floor - yes, the glass breaks sometimes.

The keys to my enjoyment are the thousands of Apps that can be downloaded easily. Most of the items I listed are FREE downloads, though some cost $0.99 and a few $ 1.99. When you browse the Apps through a word-search, there are brief descriptions and screen shots, which makes getting the freebies addictive.

My iPhone provides hours of entertainment for me, as well as for my grandkid-babysitting - finger-drawing, tic-tac-toe, koi-ponds, puzzles. iBeer fills the screen with a choice of beers or mouthwash, and the burp (or gargling) when you finish causes loud laughter; the hilarity and screams increased till I finally took it away.

Hey, I suppose I'm selling iPhones now. Apple has sold over 30 million iPhones and iTouch (the version without a phone). There are now more than 25,000 applications available for download, including 6,000 games by 50,000 developers, with more than 1 billion downloads.

One wonders how this personal multi-purpose gadget trend will continue to develop. It's getting exciting for us consumers. Stay tuned.

Click Bigger than new iPhone - Apple’s most important product this year - software

Click Your iPhone gets better with every new App

Click iPhone Apps for everything

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Betty Hollander, [BRH@omega.com] reminds us that the recession still looks like a depression to many Americans:
    "Keep reminding your readers, while the administration is promoting 'everything is coming back to normal'. It isn't!

    "The auto dealerships that were closed aren't re-opening; the manufacturing tools that have been sold at auction, are not returning to the companies that sold them; the colleagues who were made redundant, are still redundant, and hurting badly.

    "I recently saw a report on the farm belt in California going dry. Farmers are on food lines. It's humiliating!

    "I feel as if I am literally living the depression years I had read about as a history student. Jim, keep reminding your readers."

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John Caccese [johncaccese@marcom-pr.net] provides some additional insights regarding the recent GE and FANUC divorce:

    "I'd like to clarify a couple of points on the GE-Fanuc break-up. Jack Welch's requirements for being a successful GE business during the 80s did indeed stipulate that the business needed to be #1 or #2 (or have strategies and a plan to get there), as you say.

    "What you didn't include in your discussion were two other requirements that probably impacted just as much or more on the decision to do the partnership. GE businesses had to be, or be on the road to becoming global, and they had to be profitable.

    "Other businesses within GE, including the plastics, power systems and aircraft engines business were globally by forming overseas partnerships and JVs. The GE-FANUC team-up was just one more deal and a rather small one at that, as the size of the businesses involved at the time was not very big at all, and the actual market growth was pretty small potatoes.

    "GE had famously missed on its early 80s forecast that the factory automation market would explode in the US. At the time the FANUC deal was made in the mid-80s, GE had a lot of experience doing similar kinds of deals. The GE-Fanuc deal helped GE's automation business grow, brought along some good technology (especially in the CNC business), helped the business to become global and helped the bottom line.

    "The deal also lasted more than 20 years. That's a pretty good track record for a business partnership, don't you think?"

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Rodger Lovrenich [rlovrenich@yahoo.com] expands the vocabulary of unemployment:

    "Of the terms you used to describe the end of employment, I would like to add the following for completeness. In no way am I making light of a sad situation.

    • Cutbacks
    • Downsized
    • Reduction-in-force (RIF)
    • Terminated
    • Laid off
    • Furloughed
    • Given the pink slip
    • Given walking papers
    • Sacked
    • Fired
    • Shown the door
    • Defrocked (for high management positions)

    And, my favorite from the UK, 'made redundant' which has a kind of 'useless' ring to it. It's the Brits flair for dry humor, I guess.

    "Snow so permeates the Eskimo's life that they have over 20 words for it. If the US vernacular follows the Eskimo pattern, we can expect more unemployment words added to our vocabulary in the near future."

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