December 2010

If the White House was a business, should you invest in it? This is not such a stupid question. Politicians want your vote, so it obviously has utility, and for the individual it also can involve the investment of considerable emotional capital.

After two years, a Democratic White House that claimed it would be more “business like” should be subjected to review. Is it? Like any business it can be analyzed along the seven key critical business components – management, structure, objectives, product/service acceptability, information systems, risk management and the cost base. These make up the classic components of a business plan review. 

Management

Analyzing the business starts with the management team. One is looking for a combination of elements – the quality of leadership, diverse and appropriate skills throughout the team, decision making focused on the needs of the entire stakeholder base (stakeholders are defined as all those involved with the organization, both internally and externally with the electorate in this case a vital component), critical success factors, and finally succession planning – the training and development of the new management generation. 

The Obama leadership has been dissected by any number of commentators, including the latest Woodward narrative. They consistently show an individual shorn of all moral or ideological compass. His narrowly based management team has a track record of acting (mainly) for themselves and interest groups located within the Beltway or the slightly more distant Wall Street and demonstrate alarming ignorance of the true state of the world. With an increasing turnover rate there is an impression of planning for the day (and perhaps at the latest tomorrow). 

The lack of focus is the most worrying element, with incredible amounts of time expended for little tangible results. Instead of attempting to achieve world leading levels of achievement in a small number of areas, the White House team seems determined to meddle in as many things as possible, with underwhelming results. There is an old military adage which states that no state should fight a war on two fronts unless overwhelmingly necessary, which applies with equal force to all enterprises. The White House, not content with two continuing wars of dubious necessity, seems determined to expand its war mongering into Pakistan, Somalia, Yemen and possibly Iran, North Korea as well fringe elements demanding intervention in Sudan, or even bizarrely Mexico. The emphasis on force to solve external (as well as internal) problems. The concept of: “For a man with a hammer, every problem is a nail” is in the long term self defeating.

The image that springs to mind is that of the confirmed gambler facing foreclosure in Las Vegas selling the family car and boat for one last fling on the tables that may yet yield success. 

In conclusion, does the management team give you confidence? No. If one was marking it as a proposed business plan it would get at most an “E”.

Structure

An organization structure needs clear lines of authority and responsibility, to ensure the maximum amount of autonomy for each operating unit, and that it is as flat as possible both to reduce cost, and to speed response to the operating environment. Occam's Razor should always be the rule in not creating unnecessary complications.

Governments are notoriously bad at continuously reviewing structures to improve operational efficiency, but tend to add more supervisory tiers, and increase the numbers of “special units” to supposedly provide focus on particular problems (and which in reality nearly always become part of the problem and not the solution). 

Without a detailed breakdown of the balance between management and workforce that is found in a business plan one can only comment on small insights into current US government administration structures. One such example is the Pentagon which reveals that there are approximately 1000 generals and admirals (roughly the same number as the likely active Al-Quaida membership). On the basis of the classic Rule of Eight (a minimum of eight subordinates per supervisor – ideally 12), a back of the envelope assessment suggests that the US military only need less than 100 of this rank for effective operational control. Too many chiefs always means conflict and excessive internal politics as those with little to do concentrate on extending their power. There appears ample additional evidence that this super-abundance of supervisors extends elsewhere in the administration.

Though the Obama White House inherited much of this mess from the previous administration, it is clear that they have done nothing to simplify or correct the previous excesses, but seem keen to add to them. One might with kindness grade this as “D”.

Objectives

This sense of short-termism apparent in White House management attitudes is further emphasized in the absence of clear objectives. In a well structured enterprise, management work from a small set of short, medium and long term goals (the so called “balanced scorecard”). Though it is a truth universally acknowledged that politicians only operate for political advantage this normally means that there is at least some semblance of support for your voter base. One would have therefore expected a detailed program to support the poor (now at least one in seven of the US population), reduce the widening gap between rich and poor (already the worst in the developed world with the top 1% of the population owning 25% of wealth), some form of effective electoral reform including party funding, some attempt to improve the education system, changes to food and drug administration (with the US having the highest level of diabetes in the developed world), improvements to the health system, practical measures to control the worst excesses of housing finance and drive out improvements to the creaking infrastructure. 

Health care and food safety are the only two items that have received some attention. The health care legislation (already under attack by many States and employers) seems to show that the complex but superficial changes are more in line with the interests of the health care industry than those of the electorate. It is an example of: “You don't solve a problem unless you solve it right”. Similarly, the changes to food administration have been supported by the food industry – hardly an indication that the legislation serves the interests of the consumer, rather than raising barriers to entry in the sector.

One is left with the impression that the White House has positioned itself as “Republican Lite”. 

There should also be evidence that the organization is aligning its objectives sensibly with changes in the environment. Typical examples of what are often called “market drivers” for the White House would be the rise of China and Latin America, global warming and the need for energy consumption reduction, an aging population, global competitiveness and its impact on skills/ research and development requirements, the increasing dominance of the corpocracy and its impact on choice and civil liberties, growing urbanization and the need for investment in mass transit, and global government debt levels. Can one see any significant attempt to deal with these and other critical elements, apart from rhetoric? If they exist, they are certainly not evident to the outside world. Both the management of strategy and the creation of objectives could at best receive a “D”.

Product or service

Next the focus of the analysis shifts to a review of the product or service itself, with three components, awareness, trial and repeat purchase. One can make a rough analogy for the White House that policies take the place of products or services. 

No possible fault can be found with the level of awareness. The US administration, like any good proselytizing religion, has always taken the view that nothing in the world is too small for the American perspective (even Pakistani tax policy has recently been considered to be of importance). The proof of this incessant involvement is clear throughout the Wikileaks disclosures.

Trial and repeat purchase can only be realistically measured by international attitudes towards US policies. Following a brief public relations honeymoon period which could perhaps be best described as “New improved White House gives you deep cleaning power” these have shown an ever declining acceptance of US policy even amongst key allies. Another “D” would be perhaps again be generous.

Management information systems

There is a continuum for organizations from those that collect little information of the wrong type and analyze it badly to those that collect all the information available and cannot process any of it. With modern computer systems there is a tendency towards complete data collection, on the basis that “we might need it someday”. This is analogous to the households that fill their garage with junk and then are surprised that their car(s) left outside are either vandalized or stolen.

Best practice suggests a decentralized system collection, management and implementation system (in management jargon based around strategic business units and knowledge centers) that use key performance indicators, benchmarks (identifying and comparing best practice) and targets to focus operational units into building and maintaining operational advantage. 

The choice of key performance indicators influences the way in which the organization collects, disseminates and reviews information. These key performance indicators extend to the management of projects where typically measures of time, budget and performance (or specification) are chosen. This inclusion of project management ensures that the organization will use investment appraisal techniques to provide a rigorous assessment of cost/benefit with control of risk for major expenditure. What the analyst is looking for is a professional choice of key performance indicators, a comprehensive understanding of benchmarks and an objective review and monitoring system, which includes some form of effective budgeting and control system (there are various approaches and levels of control that are considered best practice). 

Finally, both internal and external communication should be as comprehensive, open and as accurate as possible to ensure that all are clear that policies rather than posturing is the emphasis of the organization. If there is a mismatch between reality (or the actualité) and that which is communicated there will be greater and greater distrust of all that is produced on any subject, however banal. This gap is often referred to as the BS index.

In an enormous government machine it is difficult to make sweeping generalizations, but it is possible in certain well documented areas such as the Afghan campaign to make assumptions that most of what one sees in this isolated example has broader applications. In this example (now entering its tenth year) there is no sense that the monitoring system has any key performance indicators, benchmarks or targets, and that rationales for the continued conflict are reviewed daily. Other windows into the administration (such as the Madoff and Stanford Ponzi schemes), reveal a similar dysfunctionality and make it clear that the White House does not “do” project management. 

The existence of massive growing databanks and the consequent failure to take any effective action is also evident. Homeland Security produces over 50,000 reports annually, it is claimed that over 1.7 billion e-mails and telephone calls are intercepted daily, that 20,000 individuals are added monthly to the travel Watchlist, and that there is now a wish to monitor all financial transactions.

The budgetary system continues to spin out of control. Representatives continually add large amounts of “pork” to each spending bill, without any attempt to fix total spending limits or to review financial rather than political returns on investment. It is an interesting example of hypocrisy that political representatives criticize Wall Street investment bankers for vast bonuses when both systems operate under a framework of similar moral hazard.

Lastly, the communication system needs a major overhaul. Secrecy has increased under the Obama administration with an attempt to kill (or at least imprison) the messenger. Whistleblowing trials have started to gain momentum and there is an overwhelming impression of “don't do as I do, do as I say”. The BS index, as one might expect is rising to ever greater heights.

An “F” perhaps?

Risk management

A review of risk management and how it both theoretically operates and is implemented in practice provides a magnificent window into the way in which an organization operates. Does it keep its promises even when faced with difficulties? How well does it respond to a crisis? 

The answer to both for the White House is damning. First is the long list of broken promises – Guantanamo, civil rights, military commissions and Iraq to name but a few. Second is the woeful response to a sudden major domestic crisis the Gulf oil disaster which seemed mainly focused on sandbagging BP (re-labeled as nasty foreign British Petroleum) for $20bn and blaming them for it all. In other words, don't fix the problem, fix the blame. A useful comparison can be made with the successful rescue of the miners in Chile.

One could argue that for the majority of Americans the jobs crisis though it has developed more slowly is much more catastrophic, and here again the reaction has been anemic when compared to that of the previous Great Recession and the public works program of FDR. The recently announced long term infrastructure program when put in context is just over two weeks defense expenditure.

What is most concerning in any analysis of risk management is the sight of organizations repeating the same mistakes time after time again. This is normally an illustration of the classic comment: “The intelligent accept, the stupid insist”. 

We have been subject to the spectacle of the White House behaving like an ineffectual teacher with the school bully in the Near East. No less than three times (by mid October 2010) has the Obama White House said to the Israeli administration: “Please, even pretty please won't you halt the settlement construction on the West Bank?” The response of the school bully, played by Bibi Netanyahu has been: “Shan't. You can't make me.” Surely any effective administration would have learnt from the first run in (many would claim before the first run in) that this approach was doomed to failure. But to repeat it again and again? Even worse is the policy being pursued in early November 2010 which is to offer the school bully an enormous supply of sweets on the off-hand chance that he won't be so beastly.

Certainly an “F” here.

Cost base

Finally one looks at the cost base. Well run companies have a cost base which is controlled and rigorously reviewed for possible operational improvements. The White House? Ah well, uhm, er, no…

Though Eisenhower famously commented on the military industrial complex others have risen since his era, and all are out of control. The military remains a star performer. Stiglitz has commented on the horrific and continually rising long term cost of the various wars ($5 trillion at current estimates). The Pentagon's plans for new weapon systems (and doubtless new wars) extends into the 2030's and 2040's. New overseas bases spring up apparently daily, without any attempt at closure or rationalization (the refusal to close one of the over 30 bases in Okinawa bringing down a recent Japanese government). Not content with just military bases, the construction of vast pleasure domes (aka embassies) in Iraq, Afghanistan and Pakistan add greatly to both capital and current expenditures.

A relatively small, (vast to anyone but the US government) but nevertheless historic expenditure that predates the military industrial complex has been continuing agricultural subsidies. Though the economically active population working on the land has fallen from around 25% in the 1930's to around 2% post 2010, substantial sums (in excess of $20 billion per annum) still provide support for a smaller and smaller number of large combines. It is argued that these continuing subsidies distort the farming community (enabling the large combines to buy up smaller farms leading to ever greater agricultural concentration), cause major anomalies within certain key commodities (support for bio-ethanol causing a significant spike in maize prices) and mean that third world agriculture is penalized when excess US production is dumped onto the world market. 

Many commentators including Krugman have identified the health care industry as another growing burden on the US citizen, accounting for a significantly higher percentage of GDP than all other members of the OECD . Lobbying by the industry seems to have successfully transformed health insurance reform into another money making machine for the corpocracy.

Let us not forget then the judicial industrial complex. Winston Churchill, in his attempts to reform the prison system is famously quoted as saying that: “You can measure the civilization of society by the way it treats its prisoners”. The US continues to imprison more and more of its citizens (most of them poor and non-white of course) in appalling conditions at vast and growing cost, spawning an ever bigger prison and criminal justice system which demands ever greater resources, so that more and more people can be put in prison, and so on. Recent estimates put the annual cost of the “war on drugs”, a major component of this policy, at over $50 billion per year – $45 billion domestically and over $5 billion in international intervention, much of which leads to further foreign country destabilization. 

A recent development has been the proposal to build an “immigrant proof” fence along the US – Mexico border with likely capital costs exceeding $5 billion and annual maintenance costs running at around $0.5 billion. Mexicans with low technology wire cutters have, according to the US audit department, already caused over 3000 breaks in the parts of the fence so far constructed, each of which costs over $1300 to mend. When finished it is likely to be a monument to the quote: “Show me a 20 foot wall, and I'll show you a 21 foot ladder”.

Innovative lobbyists and executives in the private sector have managed to add two new major burdens to the cost base in the Bush and Obama years. The Washington Post analysis of the vast security complex involving over 1200 government agencies and just under 2000 private contractors is one of these brilliant developments, costing around $80 billion per year on current estimates. One minor addition to this ever increasing cost center has been the deployment of pornographic scanners throughout the US airport network. Personnel employed by the notorious TSA, responsible for this innovation, now top 66,000 with a budget that has risen from $0.7 bn in 2001 to a forecast $8 bn in 2010.

The other is Wall Street that obviously felt left out from all this government largesse and demanded (and got) pots and pots of bailout money, which was directed at the big institutions while small regional banks continue to crumble. Risk free finance for big institutions means big profits, and more consolidation, less lending for the little people and the small business sector. 

The reality appears to be that the White House is unable to control major budgetary components and that inevitably eventual disaster is looming. This is a clear example of what has become known as Steins Law or: “What can't go on, won't go on”. For the analyst this is worse than all that has preceded – if possible we would give it a “G”.

Buy or sell?

In conclusion, if we were asked for our advice we would say the following. The Emperor has fewer and fewer clothes. If the White House was a company, we Can't Recommend A Purchase (which has the useful mnemonic CRAP). If the White House was a commodity, we would go short and long on China. It is not surprising that currency traders are following this advice.

The other serious problem for the voter is whether the alternative business investment is any better.

Alan West worked for multinationals in Europe, the Middle East and Far East. He has written widely on business and management with books including A Business Plan, Handbook of Retailing, Innovation Strategy, Spreadsheet Marketing and Managing Distribution and Change. He now works with a range of companies in analyzing business plans and identifying operational performance improvements, and in training. He can be contacted at scotney14@yahoo.com