artdiamondblog.com – Page 509 – Art Diamond's web log

Arnold on Ben Nelson’s Cornhusker Kickback: “He Got the Corn; We Got the Husk”

(p. A16) Senator Ben Nelson, Democrat of Nebraska, has been under fire in recent days for winning some plum provisions for his home state in exchange for voting for his party’s big health care legislation.
. . .
In perhaps the most pointed criticism yet, Gov. Arnold Schwarzenegger of California, in his State of the State address on Wednesday, said: “California’s Congressional delegation should either vote against this bill that is a disaster for California or get in there and fight for the same sweetheart deal Senator Nelson of Nebraska got for the Cornhusker State. He got the corn; we got the husk.”

For the full story, see:
DAVID M. HERSZENHORN. “Prescriptions; Making Sense of the Health Care Debate; Spreading the Golden Corn.” The New York Times (Fri., January 8, 2010): A16.
(Note: the online version of the story had the very different title: “Prescriptions; Making Sense of the Health Care Debate; Nelson to Fight for All States” and had the date January 7, 2010.”)
(Note: ellipsis added.)

Doubts on Sainthood for U.N.’s Global Warming Nobel Prize Winning Pachauri

“Rajendra K. Pachauri, right, the United Nations climate panel’s leader, at a Nobel Peace Prize ceremony with Al Gore in 2007.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A1) Just over two years ago, Rajendra K. Pachauri seemed destined for a scientist’s version of sainthood: A vegetarian economist-engineer who leads the United Nations’ climate change panel, he accepted the 2007 Nobel Peace Prize on behalf of the panel, sharing the honor with former Vice President Al Gore.

Critics, writing in Britain’s Sunday Telegraph and elsewhere, have accused Dr. Pachauri of profiting from his work as an adviser to businesses, including Deutsche Bank and Pegasus Capital Advisors, a New York investment firm — a claim he denies.
They have also unearthed and publicized problems with the intergovernmental panel’s landmark 2007 report on climate change, which concluded that the planet was warming and that humans were likely to blame.
The report, they contend, misrepresents the state of scientific knowledge about diverse topics — including the rate of melting of Himalayan glaciers and the rise in severe storms — in a way that exaggerates the evidence for climate change.
But Dr. Pachauri and the Intergovernmental Panel on Climate Change are now under intense scrutiny, facing accusations of scientific sloppiness and potential financial conflicts of interest from climate skeptics, right-leaning politicians and even some mainstream scientists. Senator John Barrasso, a Wyoming Republican, called for Dr. Pachauri’s resignation last week.
Critics, writing in Britain’s Sunday Telegraph and elsewhere, have accused Dr. Pachauri of profiting from his work as an adviser to businesses, including Deutsche Bank and Pegasus Capital Advisors, a New York investment firm — a claim he denies.
They have also unearthed and publicized problems with the intergovernmental panel’s landmark 2007 report on climate change, which concluded that the planet was warming and that humans were likely to blame.
The report, they contend, misrepresents the state of scientific knowledge about diverse topics — including the rate of melting of Himalayan glaciers and the rise in severe storms — in a way that exaggerates the evidence for climate change.

For the full story, see:
ELISABETH ROSENTHAL. “U.N. Climate Panel and Its Chief Face a Siege on Their Credibility.” The New York Times (Tues., February 9, 2010): A1 & A9.
(Note: ellipses added.)
(Note: The online version of the article is dated February 8, 2010, and has the title “Skeptics Find Fault With U.N. Climate Panel.”)

Many of McDonald’s Best New Products, Started With Franchise Operators

(p. 163) Some of my detractors, and I’ve acquired a few over the years, say that my penchant for experimenting with new menu items is a foolish indulgence. They contend that it stems from my never having outgrown my drummer’s desire to have something new to sell. “McDonald’s is in the hamburger business,” they say. “How can Kroc even consider serving chicken?” Or, “Why change a winning combination?”

Of course, it’s not difficult to demonstrate how much our menu has changed over the years, and nobody could argue wish the success of additions such as the Filet-O-Fish, the Big Mac, Hot Apple Pie, and Egg McMuffin. The most interesting thing to me about these items is that each evolved from an idea of one of our operators. So the company has benefited from the ingenuity of its small businessmen while they were being helped by the system’s image and our cooperative advertising muscle. This, to my way of thinking, is the perfect example of capitalism in action. Competition was the catalyst for each of the new items. Lou Groen came up with Filet-O-Fish to help him in his battle against the Big Boy chain in the Catholic parishes of Cincinnati. The Big Mac resulted from our need for a larger sandwich to compete against Burger King and a variety of specialty shop concoctions. The idea (p. 164) for Big Mac was originated by Jim Delligatti in Pittsburgh.
Harold Rosen, our operator in Enfield Connecticut, invented our special St. Patrick’s Day drink, The Shamrock Shake. “It takes a guy with a name like Rosen to think up an Irish drink,” Harold told me. He wasn’t kidding. “You may be right,” I said. “It takes a guy with a name like Kroc to come up with a Hawaiian sandwich . . . Hulaburger.” He didn’t say anything. He didn’t know whether I was kidding or not. Operators aren’t the only ones who come up with creative ideas for our menu. My old friend Dave Wallerstein, who was head of the Balaban & Katz movie chain and has a great flair for merchandising–he’s the man who put the original snack bars in Disneyland for Walt Disney–is an outside director of McDonald’s, and he’s the one who came up with the idea for our large size order of french fries. He said he loved the fries, but the small bag wasn’t enough and he didn’t want to buy two. So we kicked it around and he finally talked us into testing the larger size in a store near his home in Chicago. They have a window in that store that they now call “The Wallerstein Window,” because every time the manager or a crew person would look up, there would be Dave peering in to see how the large size fries were selling. He needn’t have worried. The large order took off like a rocket, and it’s now one of our best-selling items. Dave really puts his heart into his job as a director, now that he’s retired and has plenty of time. There’s nothing he likes more than traveling with me to check out stores.
Our Hot Apple Pie came after a long search for a McDonald’s kind of dessert. I felt we had to have a dessert to round out our menu. But finding a dessert item that would fit readily into our production system and gain wide acceptance was a problem. I thought I had the answer in a strawberry shortcake. But it sold well for only a short time and then slowed to nothing. I had high hopes for pound cake, too, but it lacked glamor. We needed something we could romance in advertising. I was ready to give up when Litton Cochran suggested we try fried pie, which he said is an old southern favorite. The rest, of course, is fast-food history. Hot Apple Pie, and later Hot Cherry Pie, has that special quality, that classiness in a finger food, that made it perfect for McDonald’s. The pies added significantly to our sales and (p. 165) revenues. They also created a whole new industry for producing the filled, frozen shells and supplying them to our stores.
During the Christmas holidays in 1972, I happened to be visiting in Santa Barbara, and I got a call from Herb Peterson, our operator there, who said he had something to show me. He wouldn’t give me a clue as to what it was. He didn’t want me to reject it out of hand, which I might have done, because it was a crazy idea–a breakfast sandwich. It consisted of an egg that had been formed in a Teflon circle, with the yolk broken, and was dressed with a slice of cheese and a slice of grilled Canadian bacon. This was served open-face on a toasted and buttered English muffin. I boggled a bit at the presentation. But then I tasted it, and I was sold. Wow! I wanted to put this item into all of our stores immediately. Realistically, of course, that was impossible. It took us nearly three years to get the egg sandwich fully integrated into our system. Fred Turner’s wife, Patty, came up with the name that helped make it an immediate hit–Egg McMuffin.

Source:
Kroc, Ray. Grinding It Out: The Making of McDonald’s. Chicago: Henry Regnary Company, 1977.
(Note: ellipsis and italics in original.)

Light in “Meet Me in St. Louis”

Source of photo: http://www.thejudyroom.com/louis/pictures/mmisldvd%23674.html

As Brad DeLong has noted, we take for granted the spectacular technological advances of the last 200, and especially, the last 100 years. One of the more notable of these, the spread of electricity that allowed electric illumination, occurred around the year 1900.
We forget how electric illumination made cities safer, and increased our freedom to choose the timing of work and leisure activities.
The awe inspired by electric lights also usually has been forgotten, but is occasionally recalled. One good source is a segment of a documentary produced by UNO television in 1998, to mark the centennial of Omaha’s long-forgotten Trans-Mississippi Exposition.
I recently ran across another in viewing the closing scenes of the Judy Garland classic “Meet Me in St. Louis.” In the final scene, the family finally makes it to the St. Louis Fair, and observes the display of electric lights.

For DeLong’s comment, peruse the early pages of his marvelous draft:
DeLong, J. Bradford. “Cornucopia: The Pace of Economic Growth in the Twentieth Century.” NBER Working Paper w7602, March 2000.

The UNO documentary had the unfortunate title “Westward the Empire: Omaha’s World Fair of 1898.”

Source of photo: http://www.thejudyroom.com/louis/pictures/judytomlarge.html

Thousands Waited Hours in Subzero Cold Trying to Enter Global Warming Conference (“This Is What UN Efficiency Looks Like”)

(p. A10) As dozens of developing countries threatened to walk out of the Copenhagen climate-change summit, thousands of NGOs, journalists, lawyers, activists were still trying to get in.

The thousands queued from the early morning into the afternoon on Monday to register for the summit but found themselves in a line that barely budged for most of the day. Only those who already had accreditation — obtained during the first week of the summit or over the weekend — were let in; the rest braved subzero temperatures for some glimpse of a breakthrough.
Would-be attendees chanted “Let us in!” to Danish policemen ringing the Bella Center.
United Nations officials announced at one point that the process of accreditation would stop at 6 p.m. today, prompting boos and catcalls and cries of “shame” from those in line. One sign declared: “This is what UN efficiency looks like.”

For the full story, see:
Guy Chazan. “Copenhagen Dispatches; Some Walk Out of Gathering, But Many More Want In.” The Wall Street Jounal (Tues., December 15, 2009): A10.
(Note: the online version of the commentary had the title “Thousands Line Up for Climate Conference” and the date December 14, 2009.)

Chamber’s Donohue Promotes Free Enterprise

Chamber of Commerce President Tom Donohoe. Source of caricature: online version of the WSJ article quoted and cited below.

(p. A13) The White House’s war on the Chamber has come just as the group is launching a new $100 million campaign promoting free enterprise.

“We want to encourage and promote and educate and get a bunch of enthusiasm behind . . . the free enterprise system with free capital markets and free trade and the ability to fail and fall right on your ass and get up and do it again!” he says.
The belief in that system, Mr. Donohue says, has been eroded by the recession and subsequent criticism of the free market. “The purpose of this is to get out of the doldrums! Quit sulking and worrying.” He hopes the campaign will remind Americans that “We created 20 million jobs in the ’90s, we can do it again. We don’t have to do it exactly like that–Adam Smith didn’t have a BlackBerry–but we ought to pay attention to what made it work.”

For the full interview, see:
KIMBERLEY A. STRASSEL. “OPINION: THE WEEKEND INTERVIEW with Tom Donohue; Business Fights Back; His organization under attack by the White House, the president of the Chamber of Commerce stands by his defense of free enterprise.” The Wall Street Journal (Sat., October 24, 2009): A13.
(Note: the online version of the article has the date October 23, 2009.)
(Note: ellipsis in original.)

Ray Kroc’s Account of How Filet-O-Fish Came to McDonald’s

One of the challenges of efficiently running a business is when to encourage experimentation and innovation among employees, and when to enforce standardization. Sam Walton seemed to have handled this well at Wal-Mart.
In the passage quoted below, Ray Kroc gives a glimpse of how he handled the issue at McDonald’s.

(p. 137) . . . , the quality of our french fries was a large part of McDonald’s success, and I certainly didn’t want to jeopardize our business with a frozen potato that was not up to our standard. So we made certain that the frozen product was thoroughly tested and that it met every condition of quality before we made it part of the system.

There was another product being tested at this time that would prove to have a tremendous effect on our business. This was the (p. 138) Filet-O-Fish sandwich. It had been born of desperation in the mind of Louis Groen in Cincinnati. He had that city as an exclusive territory as a result of some horse trading he’d done with Harry and me back in the days when we were using everything but butterfly nets to catch franchisees. Lou’s major competition was the Big Boy chain. They dominated the market. He managed to hold his own against them, however, on every day but Friday. Cincinnati has a large Catholic population and the Big Boys had a fish sandwich. So if you add those two together on a day the church had ordained should be meatless, you have to subtract most of the business from McDonald’s.

My reaction when Lou first broached the fish idea to me was, “Hell no! I don’t care if the Pope himself comes to Cincinnati. He can eat hamburgers like everybody else. We are not going to stink up our restaurants with any of your damned old fish!”

But Lou went to work on Fred Turner and Nick Karos. He convinced them that he was either going to have to sell fish or sell the store. So they went through a lot of research, and finally made a presentation that convinced me.

Al Bernardin, who was our food technologist at the time, worked with Lou on the type of fish to be used, halibut or cod, and they finally decided to go with the cod. I didn’t care for that; it brought back too many childhood memories of cod liver oil, so we investigated and found out it was perfectly legal to merchandise it as North Atlantic whitefish, which I like better. There were all kinds of fishhooks in developing this sandwich: how long to cook it, what type of breading to use, how thick it should be, what kind of tartar sauce to use, and so forth. One day I was down in our test kitchen and Al told me about a young crew member in Lou Groen’s store who had eaten a fish sandwich with a slice of cheese on it.
“Of course!” I exclaimed. “That’s exactly what this sandwich needs, a slice of cheese. No, make it half a slice.” So we tried it, and it was delicious. And that is how the slice of cheese got into the McDonald’s Filet-O-Fish.
We started selling it only on Fridays in limited areas, but we got so many requests for it that in 1965 we made it available in all our stores every day, advertising it as the “fish that catches people.” I (p. 139) told Fred Turner and Dick Boylan, both of whom happen to be Catholic, “You fellows just watch. Now that we’ve invested in all this equipment to handle fish, the Pope will change the rules.” A few years Later, damned if he didn’t. But it only made those big fish sales figures that much sweeter to read.

Source:
Kroc, Ray. Grinding It Out: The Making of McDonald’s. Chicago: Henry Regnary Company, 1977.

The “Bongo System” of Corruption in Gabon: More on Why Africa is Poor

“The image of Ali Bongo, the son of longtime ruler Omar Bongo, blanketed Libreville.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A5) The “Bongo system,” as people here refer to it — forsaking roads, schools and hospitals for the sake of Mr. Bongo’s 66 bank accounts, 183 cars, 39 luxury properties in France and grandiose government constructions in Libreville — is etched in the streets of this languid seaside capital, where he ruled for 41 years, and also in the minds of its inhabitants.
. . .
A Western family here spoke of embarrassment at visiting a government minister whose house is packed with the latest flat-screen televisions and other expensive electronic gadgets, and whose garage was full of luxury cars. The top aide to a leading opposition figure, discussing the “Bongo system,” said: “You had to bring a suitcase to the palace. Bongo didn’t write checks.” The president, he said, “calls everybody to the palace, and the money is handed out. That’s how the country was run.”
He spoke of a “sandwich system” of vote-buying employed by the ruling party in rural districts: notables are called together for a meeting, and at the end, when all are tired, a tray of “sandwiches” is passed around. Inside each “sandwich” is up to $600.
Looking around at an outdoor restaurant, he asked not to be named because he said: “It’s a police state. They mess up your life.”
. . .
On paper, the government’s budget allocations for health, education and transportation were impressive, “huge,” said the Western development official. “But in reality, it was actually about 20 percent of what was on paper,” the official said. “The rest was embezzled,” he added, asking to remain anonymous because identifying him would complicate his work in the country.
. . .
“It’s a tiny number that benefits from the country’s riches,” said a cigarette vendor, Price Nyamam, squatting on the pavement in the poor Rio district. He said he had degrees in economics and sociology. “You are obliged to do work that doesn’t correspond to your aspirations.”

For the full story, see:
ADAM NOSSITER. “Libreville Journal; Underneath Palatial Skin, Corruption Rules Gabon.” The New York Times (Tues., September 15, 2009): A5.
(Note: the online version of the article has the date September 14, 2009.)
(Note: ellipses added.)

“Foraging for food at the main dump.” Source of caption and photo: online version of the NYT article quoted and cited above.

Largest Decline in Private Sector Union Members in 25 Years

(p. A3) Organized labor lost 10% of its members in the private sector last year, the largest decline in more than 25 years. The drop is on par with the fall in total employment but threatens to significantly limit labor’s ability to influence elections and legislation.

On Friday, the Labor Department reported private-sector unions lost 834,000 members, bringing membership down to 7.2% of the private-sector work force, from 7.6% the year before. The broader drop in U.S. employment and a small gain by public-sector unions helped keep the total share of union membership flat at 12.3% in 2009. In the early 1980s, unions represented 20% of workers.

For the full story, see:
KRIS MAHER. “Union Membership Declines by 10%.” The Wall Street Journal (Sat., January 23, 2010): A3.
(Note: the online version of the article has the slightly different title “Union Membership Drops 10%.”)

Business Decisions Often Need to Be Made Before You Have Much Data

Rita Gunther McGrath is a member of the faculty of the Columbia Business School. Source of photo: online version of the WSJ article quoted and cited below.

(p. R2) BUSINESS INSIGHT: You and Prof. Ian C. MacMillan of the Wharton School of the University of Pennsylvania wrote a book called “Discovery-Driven Growth.” What is discovery-driven growth?

DR. MCGRATH: Discovery-driven growth is a way of planning to grow that doesn’t require a lot of analytical information at the outset. It recognizes that many of the data that you need to make decisions don’t exist at the time that you have to make the decisions. It’s a plan to learn.
I think we all live with a conceptual overhang from an industrial era when things were more predictable. You had big production runs. At least if you were an American company, you had a lot of markets with very little competition, and what competition there was was more or less predictable. In many businesses you could use the past as an adequate guide to what the future held for you.
In more and more industries, those conditions no longer apply. You’re seeing temporary advantages, very rapid swings in who’s on top competitively, new technologies that make older ones irrelevant at an ever-faster clip–the usual litany of things people moan about today. But I think one of the things that has not yet quite been fully recognized is that these have an impact on our management processes–or should.

For the full interview, see:
Martha E. Mangelsdorf. “Executive Briefing; Learning From Corporate Flops; When starting new ventures, companies should revisit their assumptions early and often.” The Wall Street Jounal (Mon., OCTOBER 26, 2009): R2.
(Note: italics in original.)

Source of book image: http://events.roundtable.com/iguru/DiscoveryDrivenGrowth.gif.

Entrepreneurial Judgment Can Be Right Even When It Is Hard to Articulate

Entrepreneurs may develop a good sense of people, even though they cannot articulate their judgment. Yet their firms, and our economy, might be more efficient and productive if they were allowed to follow their judgments, rather than follow Human Resource Department credentialism and paper trails.
The entrepreneurs might make mistakes, but in an open economy they would pay a price for their mistakes in profits foregone, and hence would have an incentive to correct the mistakes. And there would be plenty of alternative jobs for anyone mistakenly fired.

(p. 91) I’ve been wrong in my judgments about men, I suppose, but not very often. Bob Frost, one of our key executives on the West Coast, will remember the time he and I were checking out stores, and I got a very unfavorable impression of one of his young managers. As we drove away from the store I said to Bob, “I think you’d better fire that man.”
“Oh, Ray, come on!” he exclaimed. “Give the kid a break. He’s young, he has a good attitude, and I think he will come along.”

“You could be right, Bob,” I said, “but I don’t think so. He has no potential.”
Later in the day, as we were driving back to Los Angeles, that conversation was still bugging me. Finally I turned to Bob and yelled, “Listen goddammit I want you to fire that man!”
One thing that makes Bob Frost a good executive is that he has the courage of his convictions. He also sticks up for his people. He’s a retired Navy man, and he knows how to keep his head under fire. He simply pursed his lips and nodded solemnly and said, “If you are ordering me to do it, Ray, I will. But I would like to give him another six months and see how he works out.”
I agreed, reluctantly. What happened after that was the kind of (p. 92) personnel hocus-pocus that government is famous for but should never be permitted in business, least of all in McDonald’s. The man hung on. He was on the verge of being fired several times in the following years, but he was transferred or got a new supervisor each time. He was a decent guy, so each new boss would struggle to reform him. Many years later he was fired. The assessment of the executive who finally swung the ax was that “this man has no potential.”
Bob Frost now admits he was wrong. I had the guy pegged accurately from the outset. But that’s not the point. Our expenditure of time and effort on that fellow was wasted and, worst of all, he spent several years of his life in what turned out to be a blind alley. It would have been far better for his career if he’d been severed early and forced to find work more suited to his talents. It was an unfortunate episode for both parties, but it serves to show that an astute judgment can seem arbitrary to everyone but the man who makes it.

Source:
Kroc, Ray. Grinding It Out: The Making of McDonald’s. Chicago: Henry Regnary Company, 1977.