The US calls on Egypt’s government to immediately lift emergency laws, after a day of renewed protests in Cairo and other cities.
You’ll find one of the best illustrations of 21st-century business innovation inside not a Silicon Valley corporate campus but rather a Ritz-Carlton hotel, where a guest might return to her room to discover a spread of champagne and cake requisitioned by an employee who discovered it was the guest’s birthday.
If this notion of what I call “human innovation” doesn’t quite compute, it is because our traditional thinking on innovation is ripe for a breakthrough.
The prevailing approach to innovation, which countries and businesses need now more than ever, neglects a rich vein of untapped potential. We are focusing almost exclusively on the innovations themselves — the outcome of the creative process — while neglecting the human element in the equation. What would happen if rather than focusing on only one variable (the outcome) in the innovation equation, we addressed the human variable that we have always kept constant?
The answer is that we would cultivate the conditions necessary for our people to unleash behavioral breakthroughs needed to derive sustainable competitive advantage in the Era of Behavior. I coined the term “Era of Behavior” to describe a period of time in which organizations will thrive because of how they interact with stakeholders — rather than solely on the quality, speed and volume of their products and services.
A Good Example
The Ritz-Carlton Hotel Co. exemplifies an organization in which innovations in human behavior deliver sustainable competitive advantage. The company “entrusts” staffers to spend up to $2,000 on guests per incident without approval from their general managers. The incident may involve the resolution of a problem or simply an opportunity to please a customer — such as making a guest feel special on her birthday.
By empowering employees to develop their own customer relationship breakthroughs, the Ritz-Carlton has earned two Malcolm Baldrige National Quality Awards and demonstrated how the killer app of trust fuels the sustainable competitive advantage of behavioral innovation.
Ritz-Carlton’s leadership team fosters an organizational culture in which employees are free to invest their time and creativity, and the company’s money, to enhance the customer experience. That, in turn, increases customer loyalty and boosts profits. The employees are not spending the money on more luxurious linen, better equipped hotel gyms or quicker room service; instead, they are using their creativity and the company’s funds to devise new and better ways to relate to their guests.
This trust helps sustain the Ritz-Carlton’s long-term success. If the company required three approvals and signature whenever a staffer wanted to spend money to please a customer, the best innovative ideas would never see the light of day.
The Ritz-Carlton’s leaders have realized that a traditional approach to innovation, while still absolutely necessary, no longer suffices. Other companies in the hospitality industry can go toe-to-toe with the Ritz-Carlton when it comes to luxuriously appointed hotel rooms and lightning-quick room service. No one can match the company’s unique behavior, however.
Need for a New Paradigm
The challenges we confront today have made our organizations and institutions hungry for an unusual approach to innovation. We need innovation to address our potentially crippling national debt. We need innovation to help us move beyond the cantankerous political stalemate among federal legislators. We need innovation in health care, education and infrastructure. Our companies need innovation to spur growth in a volatile economy whose expansion remains hindered by lingering fear from the credit crisis. Our companies also need innovation to unearth new forms of competitive differentiation in the face of intensifying global competition.
In this environment, we can no longer afford to treat innovation as we did in the 20th century. We need a new paradigm for business innovation, an approach similar to the new one emerging in scientific discovery. Microsoft Vice-President Tony Hey recently described how the field of scientific exploration is entering a new paradigm: mining and manipulating massive amounts of data from multiple disciplines in a highly collaborative way, with key contributions from “citizen-scientists.”
Thanks to the world’s growing reliance on digital technology and our newfound global connectivity, everyone armed with an Internet connection or a cell phone can contribute to research efforts in astronomy, biology, immunology and many other scientific fields. Backyard astronomers contribute data that help renowned astronomers chart new planets and other discoveries. Citizens with Internet connections lend their desktops each night to grid-computing projects that churn through billions of computations in the search for new drugs that can treat cancer or Alzheimer’s.
The Natural Resource Within
In the business realm, our companies need to embrace a similar paradigm by fostering the conditions necessary to “innovate in humanity,” unleashing employees to come up with new ways to interact, collaborate, network and behave.
The Ritz-Carlton’s approach shows that innovating in humanity builds brands and delivers competitive advantage. That’s good news for companies and countries, because behavior represents a unique and unlimited natural resource within our organizations; no competitor can reverse-engineer the game-changing behavioral innovations that its people produce.
In an Era of Behavior, the organizations and institutions whose leaders extend the trust necessary for their people to innovate within will achieve the most sustainable success and significance.
* This story appeared in, and was written for, Bloomberg Businessweek.
On Tuesday evening in Boynton Beach, Fla., underwater homeowners are gathering for happy hour at Ralph and Rosie’s Restaurant, an independently owned bar and eatery involved in a dispute with the local town and being put up for auction at the end of the month. Ralph and Rosie will offer the homeowners free appetizers and soft drinks. In Portland, Ore., the meeting’s at the Hopworks Urban Brewery, where they’ll be joined by a staffer for Sen. Jeff Merkley (D). Denver homeowners will gather at the Village Inn on Colorado Avenue.
Los Angeles hasn’t figured it out, while Austin is meeting at Texican Restaurant. New Yorkers are getting together at a Starbucks in SoHo. [UPDATE: Los Angeles now has a location. Scroll down for details.]
The gatherings are being self-organized by homeowners looking to meet others who have tried to work out modifications with their bank for their underwater mortgage. Groups big and small have gotten involved: ForeclosureHamlet.org organized the Ralph and Rosie’s gathering, while the Service Employees International Union let a long list of their activists do the honors. Last week, HuffPost teamed up with MSNBC’s Dylan Ratigan for a series of stories on the housing crisis, which spawned the Meetups, broken down by city here. Scroll down to see a slideshow of the MSNBC series.
Nearly a quarter of all mortgages are underwater and banks are increasingly worried that homeowners will walk away — or, in the industry term, “strategically default.” HuffPost spoke with nearly 50 people with underwater loans to find out what the emotional and financial consequences of strategic default had been for those who’d beaten that path.
“There should be support groups for people who have to deal with these banks,” said Richmond Burton, 50, a soon-to-be-former resident of Long Island’s East Hampton. “It can drive you crazy. I’m very good at dealing with pressure, and they made it feel like you’re at their mercy.” Burton will be at the SoHo gathering.
The industry is placing increasing attention on strategic defaulting. On Tuesday, Equifax announced that it had developed a unique method to measure under what circumstances homeowners would stop making mortgage payments, yet continue to pay other bills. Equifax finds, perhaps not surprisingly, that people with more expensive underwater homes are more likely to strategically default.
HuffPost did a series of pieces in conjunction with Ratigan, perusable below.
If you’re interested in covering an event as a citizen journalist, want help getting one started, or have expertise to offer, email email@example.com.
Update: The L.A. gathering will be at the original farmers market. Writes one homeowner: “Let’s meet in the West Patio near EB’s Beer & Wine … where they have the stage. We can find a few tables once we find each other. I’ll have on a beige cap and jacket. (If you’re running late and don’t see us at the West Patio, look around the tables at the market for us, in case the West Patio didn’t have enough space.) See you soon! “
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As Egypt and the Middle East rise, Wall Street and congressional Republicans continue to ignore the financial reforms the world is demanding.
The dramatic rise in food prices is fueling a great deal of discontent in Tunisia, Egypt and elsewhere. It’s a deep undercurrent propelling many of the poor, who face prospects of starvation to resort to the streets and to violence. According to the United Nation’s Food Agency (Food and Agriculture Organization — FAO) world food prices are up for the 7th month in a row and are likely to surpass the record high reached in December 2010.
No end is in sight for this destabilizing battle with food price inflation in places like Egypt, where more than half of an average income goes for food. According to the State Department, more than 60 food riots occurred worldwide over the past two years.
In March 2008, a dramatic spike in food prices led thousands of people on the brink of starvation in Egypt to violently riot — sending a seismic shock wave through the Mubarak regime. After the Egyptian military was able to distribute enough wheat to dispel the rioting, efforts to stockpile wheat by the Mubarak government have failed, as food prices continue to hover at record highs.
The media is reporting many reasons for this problem ranging from soaring demand, cuts in food subsidies, droughts, and government mandates to use more grain-based biofuel. But, another significant factor is at play: unfettered speculation by investment banks. As noted in USA Today, in 2008, “the bulls may not be running on Wall Street, but they’re charging in the commodities pits.”
At issue are the still deregulated commodity markets ushered in by the Clinton administration and the U.S. Congress with the passage of the Commodity Futures Modernization Act of 2000. Before this law, the Commodity Futures Trading Commission (CFTC) served as a cop on the beat, enforcing rules that prevent the distortion or manipulation of prices beyond normal supply and demand. But Wall Street banks and companies such as ENRON and British Petroleum were determined to make a lot more money from speculation by exempting energy-derivative contracts and related swaps from government oversight.
For this reason, the 2000 law allows entities that have no stake in whether adequate amounts of food and fuel are available for ordinary people and commodity-dependent businesses to make huge sums of money by gambling with other people’s money.
Soon after passage of the 2000 law, “dark” unregulated futures trading markets emerged, most notably the Intercontinental Exchange (ICE) in London — created by Wall Street and European investment banks and several oil companies. A key practice involves “over the counter index trading” in which hundreds of billions of dollars of pension, sovereign wealth, and other institutional funds are used to flood “dark” commodity markets to buy and hold futures contracts without an expiration date or oversight. When it’s time to make money on a losing bet, these funds are withdrawn, causing commodity price crashes and economic instability.
These transactions don’t involve customary “bona fide” commodity traders, such as an airline company hedging on the price of jet fuel by purchasing futures contracts. As prominent hedge fund manager Michael McMasters noted before a U.S. Senate panel in 2008, this amounts to “a form of electronic hoarding and greatly increases the inflationary effect of the market. It literally means starvation for millions of the world’s poor.”
Some world leaders are willing to speak out against the pernicious role of “dark” commodity markets. Recently, French President Sarkozy warned of further unrest and even war at the Davos forum, unless commodity speculation is reined in — something that Wall Street and Republican lawmakers are bitterly fighting. The Dodd/Frank Financial Reform Law places some restrictions on this practice by the CFTC. In particular, the CFTC is beginning the process of weeding out “non bona fide” investment bank speculators.
True to form, House Republicans are demanding that the CFTC slam on the brakes. They’re planning hearings and legislation to hamstring these efforts.
The spontaneous mass uprising of ordinary people in Egypt and the Middle East against their authoritarian regimes has many root causes. One that deserves much greater attention is unfettered speculation by powerful private financial institutions that don’t care about world-wide starvation and its impacts. It’s distorting global food supplies.
By Lindsay Beyerstein, Media Consortium blogger
Sunday marked the 100th anniversary of the birth of B-movie actor-turned-conservative president, Ronald Wilson Reagan. On the eve of the centennial, economist Yves Smith talked Reaganomics on the Real News Network. Smith argues that Reagan’s real legacy is the deregulation of the U.S. economy that set the stage for the economic meltdown of the late 2000s:
But [with] financial services, you have companies that have state guarantees. That’s the bottom line with the banking system. Ever since the 1930s, we in advanced economies have made the decision we’re not going to let the banking system fail. So if you don’t regulate banks, you have set up the situation that we have now, which is that you have socialized losses and privatized gains. And what have we seen come out of that? Financial crises. When we had a heavily regulated financial system, we had nearly 40 years of hardly any financial crises. When we started deregulating the banks, you saw increasing in frequency and increasing in significance financial crises directly resulting from that.
Spot of Tea?
Ordinary Britons are rallying to the defense of the welfare state. Faced with the deepest public spending cuts in living memory, citizens are taking to the streets to force deadbeat companies to pay their taxes, Johann Hari reports in The Nation. Their federal government has pledged to slash £7 billion in public spending. Cuts to subsidized housing alone will force 200,000 people out of their homes.
A group of friends in a local pub were galvanized by the news that Vodafone, one of the UK’s leading mobile phone companies, owed an astonishing £6 billion in back taxes. Calling themselves UK Uncut, the friends staged a protest outside Vodafone headquarters in London. The meme went viral. In the following days, several Vodafone stores were temporarily paralyzed by peaceful sit-ins.
Hari argues that the success of UK Uncut can teach American progressives a lot about how to build a grassroots counterpart to the Tea Party.
Persistent vegetative states
Big or small, liberal or conservative, state governments are screwed. That’s the upshot of Paul Starr’s latest essay in The American Prospect. Unemployment remains at recession levels and there is little political will to raise taxes. States can’t deficit spend like the feds do. So, the only option is public service cuts, which means firing teachers, doctors, firefighters, and other public workers.
Starr argues that the economic stimulus was a good start, but one that didn’t go far enough. As part of the stimulus, the federal government picked up a larger share of the states’ Medicaid costs. This was a good thing, in Starr’s view, because the extra federal dollars saved jobs while providing health care for the poor. Starr argues that state budget woes during recessions are so predictable, and the consequences so dire, that the Medicaid subsidy should kick in automatically whenever unemployment rises past a predetermined threshold.
Anti-union bill dead in CO
A bill to end collective bargaining for public employees in Colorado died in committee this week, according to Joseph Boven of the Colorado Independent. The bill would have abolished an executive order signed by former Gov. Bill Ritter, which gave state employees the right to organize. If the bill had been enacted, this kind of organizing would become illegal. This bill, sponsored by Sen. Shawn Mitchell (R-Broomfield), was just one of many attempts by Republicans to scapegoat public sector unions for what Mitchell calls the “financial Armageddon” facing state governments.
Smurfs rob Moms
“Smurfing” is money laundering slang for recruiting a lot of low-level accomplices to move money in untraceably small increments. But the word may soon have a new derogatory connotation.
Kevin Drum of Mother Jones reports that a kids’ video game, Smurfs’ Village, is depleting parents’ bank accounts, one wagon of Smurfberries at a time. Capcom’s game offers kids the chance to build the village from scratch. Along the way, they can pay real money for in-game resources. One mother was shocked to receive a $1,400 bill from Apple because her daughter bought innumerable imaginary props, such as $19 “buckets of snowflakes,” and a $100 “wagon of Smufberries.” The purchases require a password, but critics say it’s too easy for clever kids to circumvent the security. As Drum says, if adults want to waste their real dollars on virtual Farmville paraphernalia, that’s fine, but such a racket has no place in kids’ games.
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