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Start: 21 April, 2020.
End: 23 April, 2020.
We are used to four letter words. They make long conversations short. They add colour to dull paragraphs. Four is two to the power of two. What about the third power? Eight letters words logically should hold even more potential.
Let us start with its most infamous variant: leverage. The word 'lever' is an important part of any mechanical system. In layman's term it is the element around which the rest of the system pivots, or depends upon, such as a beam. What works well in mechanics unfortunately does not in life. It is one validation why mechanization through artificial intelligence may end up being a dumber version of ourselves. A life that is 'levered' depends on a few elements to the extent that their absence cripples life. Our health, steady supply of income, relationships in which we vested much, and nowadays in the fear-of-missing-out era, our social profiles.
Conceptually it could not be simpler to understand leverage; perhaps the reason it is equally convenient to forget. Such as when we take on an EMI assuming the future will continue to look like the past; or when an industrialist engages in dreamy expansion with other people's money. In the world of finance it is called debt: a promise to pay someone in future. When you buy something with debt (or financial leverage), you are effectively borrowing from your own future self. You must draw down what you spend in future, so that you can mark-up what you spend today.
Opposite of debt is called credit, a favourite of our grand-parents, as in 'son, conserve your credit till the Day of Judgement.' They were telling us, if we bothered to listen, earn righteously, spend frugally, save intensely, and borrow never. When the Day of Judgement does arrive, dependent on largesse of others thou shall never be (debtor), but a magnanimous giver of wealth (creditor) thou shall certainly turn out to be.
Borrowing is one form of leverage (financial). The other is called operating leverage: ratio of costs which we must incur to maintain our lives or continue organisational operations to our total costs. Insurance, depreciation, amortisation, maintenance, high rentals are a few. For some individuals and organisations, expensive habits of the past also come to bite them. When you can do with a 10K phone, why spend a dime more?
By nature fixed costs are well, fixed or sticky or stubborn. They do not take kindly to change. Like debt, they are great to have on your side when your income and prosperity is in ascendance, but they hurt a lot when your income takes fancy to a downslide. Higher the operating leverage means lower the income available to service debts, spend on other equally important things and strengthen our savings.
Further complicating people's disregard for them is the fact that in the world of accounting, amortisation and depreciation are called non-cash charges. Appropriately enough there develops a tendency to not keep track of them, believing them to be a nuisance on your P&L. The grand-parents would have sent a stern reminder from the heavens up high: son, watch your depreciation for that is what will hurt first when the virus hits.
There is financial leverage and operational leverage. It is leverage that is seen and also directly and painfully felt. But there is a more insidious form of leverage when it comes to organisations and our lives. Let us call it the 'design leverage', consequences we must bear as a result of our own self-made designs. For example, human body is designed to be leveraged to an epidemic, and a few other like-minded things. Taking note of it earlier would have helped individuals and organisations not spend that money they did spend earlier. It would have also made individuals focus on immunity-preservation a-priori, and not post-facto.
The design leverage is particularly pernicious for organisations, for they are systems, on which several other individuals depend for survival. A family can cope with an epidemic inspite of its inveterate foolishness; organisations must pay heavily for their past sins. An organisational design is not created, it emerges as a consequence of a multitude of seemingly disparate decisions over a period of time.
Those decisions, knowingly or surreptitiously, have forced every organisation to acquire a certain form, shape, and structure to how they work. This structure is very very sticky: it may cohere in its culture, manifest in its reputation, squirrel away in its past success, throb in its relationships with external stakeholders, and diffuse itself across many more variables.
None of these variables can be changed directly, rather they build out of second and third order consequences of habitual decisions. Let us take the world of non-profits: those who had scaled without there being a reason to, are reliant on excessive foreign funding support, ignored duplication of resources across projects, took on work little to do with the original mandate, or preferred excessive idealism over the gravity of realism (and its siamese twin of excessive practicality over an occassional remembrance for whom do we all toil) will suffer extended periods of stress, and possibly some kind of permanent impairment.
Organisations that find themselves in this position have no one but themselves to blame. They are guilty of that old predilection of man-kind to do something because a) others are doing it; b) it provides a balm to one's ego, vanity, hubris, arrogance, greed and foolishness; or c) of pressure by an external force or authority of dubious moral and intellectual standing. What is the remedy? To do something because a) it makes sense in itself (meaning); and b) it aligns well with past and present (coherency); and c) it is the appropriate time to do it (sequencing); and d) it preserves or enhances one's independence (or reduces any and all kinds of leverage).
Any decision to stand test of time must tick all of these boxes. It may make a lot of sense to do something but in doing it if you are going to be beholden to someone, it may not be a great idea to compromise independence at the altar of meaning. This of course means that many a times the best course of action is non-action, or not disturbing the apple-cart while being hawk-eyed for that rabbit that might dash across the otherwise barren and uninteresting plains.
Take scale for example. When even that fleeting desire enters our tender hearts, all we are supposed to do is ask the question: why scale? If we are unable to find a one line answer to Satan's shrewd whisper, it means we are guilty of our species' old frailties. Au contraire, upon asking the question 'why not scale', we are unable to find a single reason, we must dutifully heed the organisation's plaintive call to scale. The process could not be simpler but much ink is wasted on producing justifications on such inanities. A good decision-making process ticking all the boxes is so natural, simple and self-evident that thinking about it, beyond a point, can be considered an unpardonable sin.
In case of decision to scale (not just simply grow or expand) when can such good fortune arise? When the design of the organisation is un-levered; not like a delicately put together swiss-clock that requires many parts to work in perfect harmony. A levered organisational design and scale are not going to make for a good marriage. An un-levered design, by definition, has what is called scalability embedded in its DNA. Scalability demands understanding of arithmetic and not more: if it takes 100 units of something to produce 150 units of something else, then it should take less than 200 units to produce more than 300 units.
As humans, we are wired to believe that proportionality is a law of nature; for good reasons as it really is so. It leads us to be convinced that the ratio of 150/100 will always hold: if the numerator becomes 300 then denominator will become not more than 200. But in practice, the numerator always increases at a slower pace than the denominator. Think of successful cases of mergers & acquisitions and the fees investment banks have made from it. That false belief in proportionality has worked wonders for profitability, and by consequence, scalability, of investment banks. Not so much for their merging and acquiring clients.
Proportionality is one of the key building blocks in aesthetics, so much so that even when it is violated by a maestro, that violation itself has reason and deliberation behind it and ends up producing an aesthetic effect (think Picasso). But in life and business, proportionality simply does not hold. We age faster as our age progresses, force of our anxieties jumps for each marginal increment in our responsibilities, the more an organisation grows the less nimble it becomes. In the realm of the man-made world, beauty implies proportionality and truth demands seeing it does not exist. It is only that rare thing that is both beautiful and true, such as the idea of God, or every creation of nature, apart from, of course, humans.
Speaking of developmental models, there are those rare gems that have scalability. Such as ones, like the Indian freedom struggle, which rely on building of agency of individuals. Agency building, like Facebook, is self-generative. If I become more self-aware and responsible, through my actions, I will soon start influencing you. Similarly are models that rely on possession of deep knowledge of something, so that as I keep adding to that knowledge it radiates outwards and casts a wide net of influence on the many. Because these are rare, it is foolhardy to spend a life time searching for them, or spend a life-time claiming that all have to be like them. They will come to you if they are meant to. It is not worth a respectable man's time to dig for gold; it suits him to buy an ounce of well-purified one from a refiner, if and when available.
Since we all must at all times be part of systems that are levered-up in a variety of ways, what is the way out? Through another forgotten eight letter word called solvency. An ideal solvent dissolves all that enters it; it is all encompassing, magnanimous, unperturbed, an absorber of all that is good and evil. A life and organisational operation is solvent if it can withstand the worst of crisis, keep commitments it has made to oneself, to others and to God, intact, and hopefully, be in a position to go beyond one's remit to help others too. Keeping ample cushion of cash (liquidity) is an important part of solvency, but solvency goes much beyond that. It is one of those qualities which is easy to intuit and difficult to theorize about.
How can an organisation strive for it? If something is difficult to theorize, it means it is best acquired through indirect means. A few guidelines may help:
1. Anchor the root of all work in a single and extremely powerful philosophical and moral frame. Carried to its utmost logical extremity, it converges perfectly onto the notion of God, an idea so powerful, simple, clear, and distinct that it is easy to but not follow it. For mere mortals running organisations, partaking even a miniscule fraction of this perfection will work wonders for their earthly endeavours.
2. Develop a deep sense of self-worth so that that frame is adhered to. A deep sense of self-worth is a consequence of finding continuous and unfailing validation in your chosen frame. Validation is a consequence of action, action is a consequence of conviction and conviction is a consequence of listening and listening is a consequence of humility. Humility is a consequence of a life badly lived and realising that the life was badly lived.
3. Help others in your organisation develop this too, it is what creates a self-regenerative and impregnable culture, one not shaken by the occassional tumults of foolish lock-downs.
4. Small, and whole, without exception, is both beautiful and sufficient. When you can be happy with little of something, why want more of it? When you can synthesize the whole, why stop at analyzing its parts? When you can write a paragraph, why cheapen the conversation with bullet-points?
5. What applies to size, also applies to pay: do not draw from your master's purse more than what is strictly necessary. Let the master's kitty grow for a rainy day. For a rainy day is sure to come, sooner than you might think.
6. Remind yourself why all of this matters: so that you conserve your credit. To be a creditor when others are desperate to become debtors is the hall-mark of a life lived with character. For think twice before joining the crowd, ever, or very soon, you will be the crowd.
Here then is a mantra that Gods themselves have approved and inscribed into the deepest corners of our mind called wisdom: Less of Leverage means More of Solvency means More of Immunity means Less of Fragility. A lovely quarter of eight-letter notes (well we cheated, the last one, also the most special, is distinguished by 9 of 'em). The trick is not to forget something simply because it is simple.
Our fear of a virus is not the fault of the virus: it is a result of our highly leveraged lives. If you get that, the epidemic has served its purpose. If not, one more might be needed. Gods are quietly observing if the student has learnt its lesson. Else they are quite happy to engage in an encore.
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