When Does “No” Mean “No”?

Note: This article was published in The Globe and Mail on March 3, 2015. The version below includes additional hyperlink references not published in the original.

gam-masthead

On big resource projects, when does ‘no’ mean ‘no’?

By Joel Gehman and Michael Lounsbury
March 3, 2015

A recent column lamented that getting to “yes” on energy projects in Canada has never been tougher: Fossil-fuel developments, pipelines, mines, dams, transmission lines, and even wind turbines “are frequently contested, delayed or blocked.” But do such outcomes mean there is a problem? And if so, what kind of problem is it?

The argument – ‘Getting to Yes’ – assumes that “yes” is somehow on the side of angels. But a critical element of any great strategy is saying “no.” It’s Strategy 101. No organization – whether a corporation, a nation-state or a non-profit – can say “yes” to everything. Choices must be made. In his classic article “What Is Strategy?,” Harvard professor Michael Porter put it bluntly: “The essence of strategy is choosing what not to do.”

Clearly then, “no” is often the better strategic choice. And yet, organizations often fall into a “yes” trap. This is because, once set in motion, strategies are hard to reverse. There are sunk costs, learning effects, organizational inertia and network externalities, among other issues. And so, an organization can easily escalate its commitment to a losing course of action. But in real-time, as these strategic decisions are unfolding, the folly is often hard to stop.

One famous example is New York’s Shoreham Nuclear Plant. First proposed in April, 1966, the plant was expected to cost $75-million and come online by 1973. The plant was eventually completed in October, 1985, only to be decommissioned in March, 1989, having never sold any electricity. By that point total costs had ballooned to $5.5-billion. Predictably, the plant’s owner, Long Island Lighting Company, was unable to survive as an independent company. All because it refused to take “no” for an answer.

On the heels of President Obama’s recent veto, some advocates of the Keystone XL pipeline have proudly proclaimed they won’t take “no” for an answer. Perhaps their persistence in the face of “no” will prove prescient. Or perhaps Keystone XL is another Shoreham Nuclear Plant in the making. Only time will tell. But all of this suggests that perhaps Canada doesn’t have a “yes” problem; perhaps Canada has a “no” problem.

Entrepreneurs in Silicon Valley have a saying: “If you’re going to fail, fail fast.” By comparison, getting to “no” on Canadian energy projects has been taking longer and longer. That prompts some interesting questions. Why has Canada been taking so long to get to “no”? How can we get to “no” faster? Why do so many organizations keep chasing “yes” in the face of “no”? And, perhaps most importantly, what are the costs to Canada of not taking “no” for an answer?

Joel Gehman (@joelgehman) is assistant professor of strategic management and organization and Southam faculty fellow at the Alberta School of Business. Michael Lounsbury is associate dean of research, professor of strategic management and organization and Thornton A. Graham chair at the Alberta School of Business.

US Energy Flow

While I’m on the subject of flow charts, I thought this visual from the Lawrence Livermore National Laboratory brings into relief the changes we are facing in terms of energy supply.

First, there is the sheer inefficiency of the overall system — of 105,000 petajoules (PJ) of energy consumed, some 57,943 PJ are wasted. Second, despite all the debate about nuclear, wind and solar, together they amount for very little of our energy supply. It is a world of coal, natural gas and oil. According to the analysis:

The national energy balance sheet reveals a number of pertinent facts. First, coal-fired power plants generate almost half of our electricity and are responsible for nearly 2 billion metric tons of greenhouse gas emissions per year—equivalent to the emissions of the entire transportation industry. Greenhouse gas emissions from coal, and to a lesser extent natural gas and oil, explain why the electric power industry is the single largest contributor to U.S. greenhouse gas emissions. Second, although there has been explosive growth in solar, wind and biomass power in recent years, renewable generation still provides a small amount of our generating capacity. Third, the current electricity system, from generation to end-user, wastes vast sums of energy; for example, a light bulb receives less than half of the energy contained in a piece of coal. Finally, the U.S. transportation sector is almost wholly reliant on oil, more than half of which is imported.

United State Energy Flow (Petajoules, 2007)
United State Energy Flow (Petajoules, 2007)

Visualizing the Budget

Yesterday’s New York Times featured a nice visualization of President Obama’s proposed 2011 budget.

Even though such visualizations have become somewhat common, seeing it reminded me of my days at Creative Labs, circa 1996-1998. It was there that my manager first introduced me to Edward Tufte’s work on data visualization, and to Marimekko Charts.

The Mekko Chart has long been used by strategy consultants. It allows data to be depicted along two dimensions simultaneously. For example, market segments are often arrayed along the x-axis, with the width of each column corresponding to the dollar size of a segment. Within each segment/column the market share of individual brands is then displayed with respect to the y-axis. These days companies such as Mekko Graphics and think-cell offer add-ons which make it easy to generate Mekko charts in PowerPoint, or with a bit of effort you can do it yourself. An example of a Mekko Chart is below. (Curiously, as of today there is no entry in Wikipedia related to Marimekko Charts.)

A Marimekko chart. Source: Mekko Graphics

An example of a Marimekko chart. Source: Mekko Graphics

Although Mekko charts are an elegant solution for depicting a handful of market segments and competitors, their usability starts to breakdown when faced with significantly more data, such as the S&P 500. And visualizing the stock market was precisely the problem Martin Wattenberg had in mind when he created the technique that ended up being used in yesterday’s New York Times budget visualization.

Starting with Shneiderman’s treemap technique (which is essentially what drives a Mekko chart) Wattenberg developed an algorithm that 1) employs both vertical and horizontal partitions at each level of hierarchy, resulting in a series of more readable rectangles, and 2) groups these rectangles based on their similarity to one another, enhancing the reader’s ability to make sense of any resulting patterns across rectangles. (For more details see his 1999 paper on Visualizing the Stock Market.)

The result was the 1998 introduction of the SmartMoney Map of the Market as a way of visualizing the S&P 500 at a glance. (Note: Wattenberg credits Marc Frons and Joon Yu as collaborators, and indicates “that several others, including Jarke van Wijk, independently invented similar algorithms around the same time.”)

SmartMoney Map of the Market

Back to the budget itself, a couple things standout. First, there is the total: $3.69 trillion. Second, for all the fighting about healthcare, what’s astounding are the four bigger budgetary items that we’re not talking about: #1) national defense, #2) social security, #3) medicare, and #4) income security. These 4 items account for $2.53 trillion of the budget. Worse, if you toggle the “hide mandatory spending” button, what becomes apparent is just how few options there are for cutting the budget. Whereas virtually all of the national defense budget is discretionary, less than a quarter of the income security budget, and virtually none of the social security and medicare budgets are discretionary. In short, healthcare spending is neither the of our budget woes, nor can it possibly be the cure. We could eliminate healthcare entirely, or double our spending on healthcare, and the consequences overall would be modest, if not meaningless. To reduce the healthcare debate to a debate over economics is just that, reductionist. The recourse to economics has to be understood as essentially a smokescreen, evidence of an unwillingness to seriously engage with the issue.

Furthermore, the real problems with the budget are clearly related to national defense and social security. These two programs account for 40% of spending. And these are two programs that no one in Washington — Democrat or Republican — seems to be talking about fixing. So while I agree that we need healthcare reform, even more urgently needed are national defense reform and social security reform. For starters, the budget suggests America can no longer afford to be warmakers and peacekeepers for the world. We need to let the world fight its own battles and make its own peace. I suspect most of the world would be happy with that outcome too. Likewise, it appears that the 20th century concept of retirement and the government’s role in it needs to be entirely reworked for the 21st century. Hitting 65 years of age can no longer been seen as the magical age at which bliss and nirvana are yours by birthright. When exactly did retirement at 65 become part of the American dream, as if it were a Constitutional right? Perhaps linking the retirement age with life expectancy is a first step towards reforming social security.

The third thing that stands out is one thing we are not spending money on. The total energy budget is only $10 billion, or approximately 0.2% of the total budget. Now granted these figures do not include the Department of Energy’s $17.7 billion budget, which is grouped together with the national defense budget. But even adding in the DOE brings total federal spending on energy to just 0.7% of the total budget. Considering the well-known linkage between energy and GDP combined with the growing likelihood of a carbon constrained economy, and it seems clear that energy is vital to any U.S. recovery.