Decision, Execution, and Performance

Would That Decision-Making Trilemmas Were Three-headed Zoological Oddities.

BLOGadmin — Sun, 25 Apr 2010 01:12:44 +0000

Mr. Niall Ferguson (2010APR23 Wall Street Journal) sums up the U.S. post-crisis financial regulation as a “trilemma” that could optimize to any two of three, but not all three: (a) efficient capital markets; (b) no bailouts to big banks; or (c) a depression-free economy. ( Mr. Ferguson further warns against a delusional proposition that bigger government could give us all three.) Pick two, any two, but not all three.

Other than the interestingly complex content ( the continuing economic debate), we can learn from that exercise of attempting to identify the core factors of a situation. Project managers know the classical trilemma of budget, scope, and schedules. Or, as the sign says at many mechanics’: good, fast, or cheap: pick two, any two.

The past months have seen earthquakes and volcanic activity. It’s easy in our human conceit to forget that this ancient earth’s mantle is shifting ever so slowly but continuously, and with an occasional tectonic shudder. In a free market, we will see discontinuous corrections, and occasionally hidden faults may surface in a precipitous cataclysm. It was too naive to think that a few bailouts could have eliminated serious structural issues, including flaws we thought could be hidden such as economic disparities within a common currency. Consider Greece and its irresolute problem of being tied to the Euro, so far, sadly, the best Greek drachmas, uh, dramas invariably are tragedies. Or how a financial institution can be so complex and large that one part of the house touts risky instruments, and another bets against it with hedging derivatives.

Can free market enterprise regulate itself, whose fundamental premise is efficient profitability, as the incessant sea flows in and around to find advantageous crevices? No doubt better regulation is needed, and will come. But could we trust it to come from bigger government, especially one driven by polls and earmarks?

No easy solutions, and no doubt some critics might say Mr. Ferguson’s trilemma is simplistic. While initial analyses are nuanced in sixty-four shades of grey, they will be challenged as the process must ultimately reduce to three, then two, then a decision of one.

Mr. Niall Ferguson (2010APR23 Wall Street Journal) sums up the U.S. post-crisis financial regulation as a “trilemma” that could optimize to any two of three, but never all three: (a) efficient capital markets; (b) no bailouts to big banks; or (c) a depression-free economy. ( Mr. Ferguson further warns against a delusional proposition that bigger government could give us all three.) Pick two, any two, but not all three.

Other than the interestingly complex content ( the continuing economic debate), we can learn from that exercise of attempting to identify the core factors of a situation. Project managers know the classical trilemma of scope, schedules, and budget. Or, as the sign says at mechanic shop: good, fast, or cheap: pick two, any two.

A financial institution can be so complex and large that one part of the house touts risky instruments, and another bets against it with hedging derivatives.

There are parallel problems as well in how national economies are managed. Economic disparities within a common currency are fracturing the European union. Greece, as it turned out, was entirely too creative in disguising its liabilities. And as it scrambles to keep its economy together, it must do so without control over monetary policy. Unfortunately, sadly, the best Greek drachmas, uh, dramas invariably are still tragedies.

Or take current US foreign policy. As a culture, Americans often confuse rhetoric and realpolitik. We want our oil, but, in a lack of forthrightness about our petropolitical agenda, trip on our own preachy rhetoric. We want to curry favorable world opinion and world peace awards. We must appease the domestic distaste for prolonged wars, and therefore the strategically dubious pre-announcement of our exit from Afghanistan and Iraq. Yet again, those local heroes we exhorted to the fight will find themselves twisting in the post-US vacuum. Is it surprising that Afghanistan is now scrambling to realign with Iran?

No easy solutions. And no doubt some critics might say Mr. Ferguson’s trilemma is simplistic. But though initial analyses are nuanced in sixty-four shades of grey, the process must ultimately reduce to three, then two, then a decision of one. And let’s not feign surprise if Israel finally, preemptively confronts the Iranian nuclear program.

Change is Risk; Inventors are Individuals

BLOGadmin — Sat, 24 Apr 2010 15:36:04 +0000

The state of Ohio is struggling out of a rusty bucket. At one time, the Dayton-Cincinnati corridor was the world’s tool and die center. The pioneer in radio shows; the world’s most powerful AM radio. P&G fostered marketing research and still remains the world’s largest spender on advertising. A generation ago, Montgomery county had the largest number of patents in the country.

Today, Cincinnati, Ohio fetes Dr. Albert Sabin’s development of the polio vaccine. Among the area’s notable inventions is George Rieveschl’s enduring Benadryl.

Where will the new Sabins and Rieveschls come from?

Several years ago, a British company licensed a pediatric dialysis technology that was just gathering dust at Cincinnati Children’s Medical Center. Its technical significance: tighter control of physical and chemical fluctuations in the newborn’s smaller blood supply.

Here’s the irony. As Children’s took the plaudits, the laid off inventor remained jobless. No judgment intended: the dissolution of the development program was a larger business redirection.

It would be an interesting case study to examine how the region lost its chance at information technology. After all, Dayton’s NCR pioneered business machines, microfiche and carbonless paper. The city saw the earliest developments of the bar code. It is the site for the Air Force’s technology center, WPAFB. The corridor to Columbus had information pioneers Compuserve and the OCLC.

Development strategist Michael Porter stresses we don’t legislate innovative venturing: rather, cities can only put clustering factors in place, to grow or draw innovators.

Inventors are individuals; ventures are risks.

Today, Cincinnati, Ohio fetes Dr. Albert Sabin’s development of the polio vaccine. Among the area’s notable inventions is George Rieveschl’s enduring Benadryl.

Where will the new Sabins and Rieveschls come from?

Several years ago, a British company licensed a pediatric dialysis technology that was just gathering dust at Cincinnati Children’s hospital. Its technical significance: tighter control of physical and chemical fluctuations in the newborn’s smaller blood supply.

Here’s the irony. As Children’s took the plaudits, the laid off inventor remained jobless. No judgment intended: the dissolution of the development program was a larger business redirection.

Boss Kettering of Dayton

It would be an interesting case study to examine how Ohio lost its chance at information technology. Zoom in on how NCR (Dayton, OH) pioneered business machines, microfiche and carbonless paper. It championed the unix platform; it pioneered in bank atm technologies. Dayton also saw the earliest developments of the bar code. It is the site for the Air Force’s technology center, WPAFB. The corridor to Columbus had information pioneers Compuserve and the OCLC. A generation ago, Montgomery county had the largest number of patents in the country.

Michael Porter’s development strategy theories would not imply that we could legislate innovative venturing: rather, cities can only put clustering factors in place, to grow or draw innovators.

Inventors are individuals; ventures are risks.

Goals, failures, success

BLOGadmin — Fri, 26 Mar 2010 01:14:33 +0000

Not surprising, but a good reinforcement of principles – goal setting, benchmarking, feedback loops, and your resilience index.

On the side – It also refers to a principle put forth by behaviorist Kahneman in his nobel winning work ( yes, unlike US Presidents, he had to deliver something first) on decision making, that even just a significant risk of a negative consequence will weigh heavier than a sure reward – i.e., humans are inclined to be risk averse. Or, as sales seminars point out, people are apt to make real shifts only if uncomfortable with their current position; conversely, if it’s a significant decisional shift, you’re not going to be successful by making the other person simply comfortable with you or the product: and they note the features and benefits only after the shift, to justify the purchase – to themselves or to the wife. ; ).

http://lifehacker.com/5500692/boost-your-self-control-with-a-mental-budget

It’s easy to set goals, but the chasm between saying you’re going to do something and exercising the willpower and self control required to actually follow through can be enormous. Psychology Today recommends setting a mental budget to improve your self control.

The basic requirements for setting a mental budget, as laid out in the blog post, are four-fold (and in this instance are written with food/diet goals in mind):

1. You need a point of reference for setting your mental budget. In the case of diet, for example, you need to know what sort of consumption is normal.

2. You need to be able to track your goal (e.g., you need to be able to see how many calories a food items contains).

3. It may not sound all that fun, but your mental budget will be most successful if you’re thinking about the negative aspects of failing your goal rather than the positive (e.g., you’ll be more successful with your diet if you think about the fat content of candy bars than the deliciousness).

4. Last, you need to remember that your budget isn’t guaranteed, and you have to make your budget realistic if you’re going to stick to it.

As noted, the Psychology Today post focuses mostly on food and diet, but the concepts laid out for setting a mental budget seem like they could apply to goal setting across the board. Want to dive deeper into self control? Check out the willpower techniques you can learn from the marshmallow test.

Here’s a Lifehacker post about a model for willpower through setting mental budgets (from Psychology Today‘s Krishnamurthy and Procopec). Not altogether new, but a good reinforcement of classic principles – goal setting, benchmarking, feedback loops, and your resilience index.

“It’s easy to set goals, but the chasm between saying you’re going to do something and exercising the willpower and self control required to actually follow through can be enormous. Psychology Today recommends setting a mental budget to improve your self control.

The basic requirements for setting a mental budget, as laid out in the blog post, are four-fold (and in this instance are written with food/diet goals in mind):

1. You need a point of reference for setting your mental budget. In the case of diet, for example, you need to know what sort of consumption is normal.

2. You need to be able to track your goal (e.g., you need to be able to see how many calories a food items contains).

3. It may not sound all that fun, but your mental budget will be most successful if you’re thinking about the negative aspects of failing your goal rather than the positive (e.g., you’ll be more successful with your diet if you think about the fat content of candy bars than the deliciousness).

4. Last, you need to remember that your budget isn’t guaranteed, and you have to make your budget realistic if you’re going to stick to it.

As noted, the Psychology Today post focuses mostly on food and diet, but the concepts laid out for setting a mental budget seem like they could apply to goal setting across the board.

And that ties back to decision making. Nobel winning behaviorist Kahneman (who, unlike US Presidents, had to deliver something first) gave us the insight that we’d give more weight to a negative consequence, than to a higher-probability reward – i.e., humans are inclined to be risk averse. It is not mere coincidence many sales gurus point out that people are apt to make real shifts only if uncomfortable with their current position; conversely, if it’s a significant decisional shift, you’re not going to be successful by making the other person simply comfortable with you or the product: people may take note of the features and benefits only after the shift, to reinforce the purchase – to themselves, or later to the wife.

; )

Project Management and the Myth of the Straight Line

BLOGadmin — Thu, 18 Mar 2010 15:53:33 +0000

Project Management and the Myth of the Straight Line.

A straight line is the shortest distance from A to B. On that premise, project management sets out to map all the steps and linkages along a timeline. But project management itself has become so involved there is an institute, the PMI, that dictates the certification of PM professionals.

Now consider that over 80% of the PMI curriculum is focused on the planning phase, with a mere one sentence referring to execution as a dispatching function. (See Koskela et al. The Underlying Theory of Project Management is Obsolete, PMI 2002 http://www.leanconstruction.org/pdf/ObsoleteTheory.pdf ) It is no surprise that last year saw a major overhaul within the PMI, self- confessedly to fix the increasing irrelevance of PM to day-to-day management.

Absolutely, the more complex the interdependencies and sequences in a situation, the more necessary it is to preplan.

However, as the project moves into implementation, PM’s very own complexity collapses unto itself. Why? Reality doesn’t follow plans, and very rarely straight lines. As the daily operations involve more and more external factors, delays, and uncertainty, it becomes harder to maintain the convenient tidiness of the GANTT chart. Ask a roomful of blackbelt six-sigmas how many are able to keep the GANTT operational through the end of the project.

The GANTT is invaluable as a planning reference point, but it isn’t going to be your daily management tool.

As decision-making moves upward in the organizational hierarchy, there’s less certainty due to increasing complexity. Consider that a study of chief executives attributed failure to failed execution, and not to lack of plans or resources ( http://www.welchco.com/02/14/01/60/99/06/2101.HTM ). We’ll come back to this point shortly.

The primary tool for PM has always been Microsoft Project, which has co-evolved with the PMI curriculum. Essentially, all events and resources are planned along a timeline: that in itself is faultless. But here lie the two main fallacies. One, the software understands “issues” narrowly as scheduling-related . Two: it does not have an inherent mechanism for feedback loops.

That the world, thanks to electronic media and global interconnectedness, is increasingly complex and fast-changing, is the executive’s new reality. It is less and less about engineered certainty, and more about shorter, faster OODA loops (http://en.wikipedia.org/wiki/OODA_Loop ). A project management tool must have a built-in mechanism for enabling real-time updates and redirections; Microsoft Project does not.

Ironically, the general manager for MS Project Chris Capossela has to go outside of its own tool to track issues (http://www.fastcompany.com/magazine/62/microsoft.html )

“ Expect the unexpected. In the course of its own work, Capossela’s team came upon the central truth of collaborative work: Most projects are derailed by unexpected problems that thwart what looked to be an on-time, on-budget operation.

As part of its own internal operations, the team often uses a homegrown database that it has dubbed Raid. Like the canned product of the same name, it is meant to help find and kill bugs — in the code — and keep them from multiplying.

When it came to working on its own project, the team appreciated the value of Raid. “Keeping our eye on those bugs — those issues — was just as important as getting something finished on time, if not more important,” says Todd Warren, who served as Project’s program manager before Capossela…” – Fara Warner in Fast Company.

Actually, there are other tools out there more suited to strategic implementation that also inherently allow tracking with updates and redirections. Microsoft has not been able to step back far enough for a larger context to rethink its own Project.

The real problems tend to be the soft and fuzzy which are not apparent from the GANTT – and a lot of fuzzies are people-related issues. But that’s real life, and cannot be ignored just because they do not tidily lend themselves to simple timelines of events.

Strategic planning and execution must be even more quickly adaptive as the situation spirals out to include more external factors.

Years ago, Bossidy and Charan (http://www.amazon.com/Execution-Discipline-Getting-Things-Done/dp/0609610570 )reminded us to ask what really matters. The Pareto 80-20 applies to our world more than ever. Have your staff planners develop that complete GANTT mapping; but, very quickly, what are the top five or seven deliverables that really matter for this project? And for this fiscal year– what five or seven deliverables will define success?

In summary:

1. Project management ( as embodied by the PMI curriculum and its co-evolved tool MS Project) painted itself into a corner of impracticality by an emphasis on planning for and in itself.

2. It’s really less about planning to microscopic granularity, but about (a) the ability to identify what really matters.

3. …and (b) giving equal emphasis to information-and-correction loop mechanisms.

Scheduling is not the issue, as MS Project might want to define it: rather, those issues are more typically the end result of the fuzzies - typically things outside your scope, competency, or authority.

Come back to the more bearable lightness of commonsense.

Getting from A to B on a straight line. On that premise, project management sets out to map all the steps and linkages along a timeline. But project management itself has become so involved there’s a high priesthood of professionals certified by the PMI.

Consider that over 80% of the PMI curriculum is focused on the planning phase, with a mere one sentence referring to execution – and that, only as a dispatching function. (Koskela et al.: The Underlying Theory of Project Management is Obsolete, PMI 2002 ). It is no surprise that last year saw a major overhaul within the PMI, self- confessedly to fix a growing irrelevance to day-to-day managers.

Absolutely, the more complex the interdependencies and sequences in a situation, the more necessary it is to pre-plan.

However, as the project moves into implementation, PM’s very own complexity collapses unto itself. Why? Reality doesn’t follow our plans. As the daily operations involve more and more external factors, delays, and uncertainty, it becomes harder to maintain the convenient tidiness of the GANTT chart. Ask a roomful of blackbelt six-sigmas how many are able to keep the GANTT operational through the end of the project.

The GANTT is invaluable as a planning reference point, but it isn’t going to be your daily management tool.

As decision-making moves upward in the organizational hierarchy, there’s increasing complexity. Consider that a study of chief executives attributed failure to failed execution, and not to lack of plans or resources. We’ll come back to this point shortly.

The primary tool for PM has always been Microsoft Project®, which has co-evolved with the PMI curriculum. Essentially, all events and resources are planned along a timeline: that in itself is faultless. But here lie the two main fallacies. One, the software defines “issues” narrowly as scheduling-related . Two: it does not have an inherent mechanism for feedback loops.

That the world, thanks to electronic media and global interconnectedness, is increasingly complex and fast-changing, is the executive’s new reality. It is less and less about engineered certainty, and more about shorter, faster OODA loops . A project management tool must have a built-in mechanism for enabling real-time updates and redirections; Microsoft Project® does not.

Ironically, the MS Project® development team had to go outside of its own tool to track issues.

“ Expect the unexpected. In the course of its own work, Capossela’s team came upon the central truth of collaborative work: Most projects are derailed by unexpected problems that thwart what looked to be an on-time, on-budget operation.

Microsoft has not been able to step back far enough to rethink its own Project® in a larger context. Fortunately, there are other tools out there more suited to strategic implementation that also inherently allow tracking with updates and redirections.

Strategic planning and execution must be even more quickly adaptive as the situation spirals out to include more external factors.

Years ago, Bossidy and Charan reminded us to ask what really matters. Your world needs a ruthless Pareto 80-20 trimming more than ever. Your staff planners should develop comprehensive GANTT maps; but, very quickly, for this fiscal year, what five or seven deliverables will define your success?

In summary:

1. Project management ( as embodied by the PMI curriculum and its co-evolved tool MS Project®) painted itself into a corner of impracticality by overemphasizing planning in itself.

2. The day-to-day management reality is that it’s a process within a complex, and ever faster changing context.

3. Managers need tools with information-and-correction loops to track and drive what really matters.

Scheduling is not the issue, as MS Project® might want to define it: rather, scheduling issues are the end result of the fuzzies - typically things outside your scope, resources, authority and tidy timelines.

Leadership in Complex Fluxes

BLOGadmin — Thu, 25 Feb 2010 14:48:13 +0000

Being strategic is distinct from merely setting the goal: it’s about how we get to the goal. The increasing complexity of our environment (dispersion; interconnectedness; fluid environment that act and react continuously) requires a new sensibility of learning rather than statically knowing. Of constant reality checks: feedback loops: the jet fighter pilot OODA training.

Practical, effective leadership triangulates amongst goal, resources, and stakeholders (which includes self): and it means continuously navigating, adjusting – not only internally within that triangle, but most especially within the external context.

Fog of war. Dealing with that takes more than having an internal compass which can be tricked into relativism. Find your true north: have an absolute reference point. Very quickly: in a strict hierarchy (no “jeez-that’s-tough” ties, no “Charley Brown” draws: it’s a totem pole), name your top three values, from the top. Keep it simple, keep it clear, keep it always.

Author Faber talks about a simple rule he had as a Delta force commander: the mission, the men, and me: in that order.

Analysis, political correctness, economics: they’re all about the complex 64 steps of grey. But decisions are black and white. It’s nice to afford many choices. To soft-focus, to appease. But in the end, it’s still about that one choice you have to make.

Being strategic is distinct from merely setting the goal: it’s about how we get to the goal. But the increasing complexity of our environment (dispersion; interconnectedness; fluid environments that act and react continuously) – it requires a new sensibility of learning rather than statically knowing. Of constant reality checks: feedback loops: the jet fighter pilot OODA training.
Practical, effective leadership triangulates amongst goal, resources, and stakeholders (which includes self): and it means continuously navigating, adjusting – not only internally within that triangle, but most especially within the external context.

Author Faber talks about a simple rule he had as a Delta force commander: the mission, the men, and me: in that order.

Analysis, political correctness, economics: they’re all about the complex 64 steps of grey. But decisions are black and white. It’s nice to afford many choices. To soft-focus, to appease. Or govern for the polls. But in the end, it’s still about that one choice you have to make.

Global complexity, electronic immediacy, and systemic risk.

BLOGadmin — Tue, 15 Dec 2009 20:39:36 +0000

Massive government response has stanched the economic crisis from a pandemic meltdown. So far. New regulatory mechanisms are emerging, and some key indices ( unemployment, market confidence, wholesale inventories, emergence from TARP) point to a healing.

Many changes yet to emerge are structural. For example, half the jobs lost in the US are not expected to reappear. Lower cost manufacturing will continue to migrate out of the developed countries. . Futurists predict the US’ relative advantages will tend towards service, health and information. China and Israel are gearing up to lead in marketable developments in alternative energy. Meantime, in the US each opening is being chased by six jobseekers; small businesses, which traditionally have created new jobs, are still wary of the future.

In financial regulation, the complex meltdown has forced the issue among governments to cooperate to some degree on global monetary coordination and regulation. But what about the diverse fiscal spending policies, even among the EU, and ultimately intractable issues of regional protectionism (all politics, after all, are local)?

How should financial entities be regulated? Does one focus on regulating the systems, or the component players? Can they be regulated? ( One even hears of debates about regulating “systemic risk” – when the very definition of that phrase implies a complexity beyond regulation.)

Here’s quick “impressionistic” grab of key clues. The world is characterized by a combination of (a) enormous complexities (governments, markets, institutions, cultures, politics) on the one hand, (b) where “high frequency” financial transactions and communications privately happen in millionths of a second, (c) in elusively ever creative new venues such as the private “dark pools”. Containing these electronically enabled transactions would be like trying to muzzle the internet.

How complex? Try these other clues:

• The WSJ reports that the U.S. and U.K. support to banks in the current crisis equates to nearly three-quarters of those countries’ annual economic output.

• The world’s 10 largest banks account for about 70% of global banking assets, compared with 59% just three years ago (Capital IQ and the Bank for International Settlements). The US administration may want to deconstruct the enormous institutions that are “too big to fail”, but it’s unlikely that the US regulators would/could order these institutions to reduce their scale or to open its many layers of subsidiaries and affiliations to scrutiny – much less, regulation.

• Bigness is a complicated debate unto itself ( see in Too Big To Fail http://knowledge.wharton.upenn.edu/articlepdf/2352.pdf?CFID=11773080&CFTOKEN=61980107&jsessionid=a83067815a9924854822555d2b4955597b25 ) and Wharton’s Richard Herring says it’s not so much firms being too big but that they are too complex and too opaque. He notes that the 16 largest financial institutions control 2.5 times as many subsidiaries as the 16 largest non-financial firms – one such financial firm controlling 2,435 subsidiaries, half of them chartered in other countries. The article also points out that the complexity makes it difficult for anyone — including regulators and the companies’ own managers and directors — to fully understand all the risks the firms are taking, or how those risks might interact with ones other companies are taking.

• Who knows the true extent of money expansion ? With the many layers of financial instruments and derivative values that there are, the US Fed really only accounts for less than a third of the creation of its money.

• The institutions will likely agree to conduct derivatives transactions in a more open and transparent exchange mechanism. But who can claim to keep up with the increasingly esoteric creation of derivatives upon derivatives, or the many transactions among the many players? (http://www.georgewashington2.blogspot.com/2009/11/fed-talking-about-reducing-leverage-is.html)

• In the jousting between free market and regulatory mechanisms, there will always be new instruments and new venues. Private groups in a free market trade within private “dark pools” (http://www.marketwatch.com/story/the-secret-stock-market-upstart-systems-rewrite-rules-of-trading?siteid=yhoof).

Mr. Paul Samuelson, that dean of quantitative economics, has just passed away. But I recall how an economics professor with a straight face would intone “… all things being equal…” and list the simplifying assumptions underlying his explanatory equation, that in the end hardly yielded a readily specific solution. Even thirty years ago, the enormity of the complex of factors made it a big jump from explanatory equations to practicable policy.

Oh, there will always be the survivors, those with access and moxie and resources, and the luck to be in the right place at the right time, and the instinct know when to move on. But this genie, the complexity and the scale of interactions in an electronically enabled global economy, is beyond putting back into the box. Not the old box anyway.

Massive government responses seem to have stanched the economic crisis from a pandemic meltdown. New regulatory mechanisms are emerging, and some key indices ( unemployment, market confidence, wholesale inventories, banks emerging from bailouts) point to a healing.

Many changes are structural and have yet to fully emerge. For example, half the jobs lost in the US are not expected to reappear. Lower cost manufacturing will continue to migrate out of the developed countries. Futurists predict the US’ relative advantages will tend towards service, health, and information technologies. China and Israel are gearing up for marketable developments in alternative energy. Meantime, in the US each opening is being chased by six jobseekers; small businesses, which traditionally have created new jobs, are still wary of the future.

The complex meltdown has governments exploring more concerted global monetary coordination and regulation. But what about the diverse fiscal spending policies, even among the EU, and ultimately intractable issues of regional protectionism (all politics, after all, are local)? What to make of US national debt levels at 60-70% of its GDP; or that in ten years debt interest service will exceed all spending on defense, education and transportation (See WSJ)?

And how should financial entities be regulated? Does one focus on regulating the systems, or the component players? Can they be regulated? ( One even hears of debates about regulating “systemic risk” – when the very definition of that phrase implies a complexity beyond regulation.)

Here’s a quick grab of key clues. The world is characterized by a combination of (a) enormous complexities (governments, markets, institutions, cultures, politics) on the one hand, (b) where “high frequency” financial transactions and communications privately happen in millionths of a second, (c) in elusively ever creative new venues such as the private “dark pools”. Containing these electronically enabled transactions would be like trying to muzzle the internet.

How complex? Consider these:

The WSJ reports that the U.S. and U.K. support to banks in the current crisis equates to nearly three-quarters of those countries’ annual economic output.
The world’s 10 largest banks account for about 70% of global banking assets, compared with 59% just three years ago (Capital IQ and the Bank for International Settlements). The US administration may want to deconstruct the enormous institutions that are “too big to fail”, but it’s unlikely that the US regulators would/could order these institutions to reduce their scale or to open its many layers of subsidiaries and affiliations to scrutiny – much less, regulation.
Bigness is a complicated debate unto itself ( see in Too Big To Fail ) and Wharton’s Richard Herring says it’s not so much firms being too big but that they are too complex and too opaque. He notes that the 16 largest financial institutions control 2.5 times as many subsidiaries as the 16 largest non-financial firms – one such financial firm controlling 2,435 subsidiaries, half of them chartered in other countries. The article also points out that the complexity makes it difficult for anyone — including regulators and the companies’ own managers and directors — to fully understand all the risks the firms are taking, or how those risks might interact with ones other companies are taking.
Who knows the true extent of money expansion ? With the many layers of financial instruments and derivative values that there are, the US Fed really only accounts for less than a third of the creation of its money.
The institutions are agreeing to conduct derivatives transactions in a more open and transparent exchange mechanism. But who can claim to keep up with the increasingly esoteric creation of derivatives upon derivatives, or the many transactions among the many players? ( Check out this good brief on this.)
In the jousting between the free market and regulatory mechanisms, there will always be new instruments and new venues – private groups in a free market trade within private “dark pools”.

Paul Samuelson, dean of quantitative economics, has just passed away. But I recall how an economics professor with a straight face would intone “… all things being equal…” and list the simplifying assumptions underlying his explanatory equation that in the end hardly yielded a clear solution. Even thirty years ago, the enormity of the complex of factors made it a big jump from explanatory equations to practicable policy.

Oh, man is resilient, and there will always be the survivors: those with access and moxie and resources; the luck to be in the right place at the right time; and the instinct to know when to move on. But the complexity and the scale of interactions in an electronically enabled global economy, is a djinii beyond putting back into the box. Not the old box anyway.

Meantime, check out this interesting demonstration of how certain universalities still bind us humans together. Enjoy!

World Science Festival 2009: Bobby McFerrin Demonstrates the Power of the Pentatonic Scale from World Science Festival on Vimeo.

The Savvy Entrepreneur’s BackPocket MBA, Part 1

BLOGadmin — Fri, 20 Nov 2009 20:39:34 +0000

Dashboard ‹ Decision, Execution, and Performance — WordPress

In this series we set out to present models and ideas learned over the years at the cost of quite a bit of matriculation and some teeth.

Let’s take Finance, particularly negotiating for funding.

Sitting down with an investment banker is hardly the time to fumble with complicated notes and financial textbooks. When I walk in to a negotiation, here is a list of the elements of the deal for which I must have clear positions and fallbacks. Likewise, I will have worked through the other side’s scenarios, as well as their likely waterboarding arguments ( e.g., “It’s only sweat equity’s all you got….”).

As the positions shift and preferences ebb and rise during negotiations, there’ll be fancy acronyms and instruments, and it will be key to hang on to eight fundamental pillars. An old mentor also once said not to forget to throw in some sleeves on the vest – in the areas you can afford to be negotiable. I’ll assume you’ve read up on the basics, and the comments below will tend to be to the counterintuitive.

Principal: likely, for the entrepreneur, a number to keep firm. In fact, ask for twice what you think you’ll need; the venture capitalist will guess that the optimistic nature of an entrepreneur tends to underestimate the need, and the amount is always bigger from your starving perspective than it is to the big financier. Furthermore, the banker is in for a penny, and in for a pound: he’ll rather that you are adequately funded than be nickel and dimed to distraction.
Interest: See if you can massage this to match your schedule of returns: you’ll likely give a higher return for a longer-deferred interest service. On the other hand, do you have someone on the team wearing the financial hat ( role play!), who’ll temper your temptation to quickly agree to a future higher rate, as starved as you might be for cash relief?
Term: Again, VC’s will tend to think that an entrepreneur always underestimates how much and how long it takes. Set yourself up for stellar performance: give yourself twice the time you’ll think it will take to get to safe haven.
Risk: One of the first things they’ll slap you with to soften you up. Be proactive: identify the likely risks, and how you might mitigate them. But this is an area of ranging opinions; use third-party sources to support your opinion. Some more subtle aspects of this would be in. e.g., preferred instruments having prior claims to returns.
Security: Hopefully, your capitalist is more enlightened than to narrowly look for brick and mortar collateral ( and even that is suspect in current markets). The more technology-based your product, the more you’ll have to persuade on abstract or intangible economic value. Patents are nice on the corporate cv, but no guaranty of value; still, it is a better offering than one’s firstborn.
Liquidity: We’re talking about the instrument you are offering, as well as the underlying collateral to secure the instrument.
Control: They’ll likely be more reluctant than the current Federal administration to get involved directly in your operations, but this might involve aspects such as managerial and board composition, and even the controlling shares of a narrow group.
Ownership: Tightly entwined with Control, but a separate consideration. For example, the issue of voting and non-voting share classes.

I have found it easier to remember these in this sequence, but you may want to mix it up to make up your own mnemonic. And be careful out there.

Project Management Tools: The Subtle Flaws

BLOGadmin — Sat, 31 Oct 2009 04:24:34 +0000

MS Project, curiously, assumes a world of infinite resources. MS Project also has a flawed basic assumption that is based on its preoccupation with scheduling. This notably leads to its narrow definition of “issues” as scheduling problems. Counterpoint: most of the intractable problems result from people and external variables, and there may be a resulting scheduling problem, indeed.

The basic MS Project software does not have an inherent provision for posting updates, and thus makes it tough to redirect tasks. Referring to the main wikipedia entry for project management, time is only one dimension: the other two are scope and resources.

A more subtle but common flaw in the injudicious use of a tool like this, proceeds from a premise that the more comprehensive and highly detailed the initial plan, the better the plan. The more experienced project manager would quickly realize this can lead to enormously complex plans that are impractical to maintain throughout the actual project. There is value to such microanalysis such as in complex interdependencies. In most real life situations, the manager might do well to question the level of detail when perhaps it is best to keep to the deliverables and not micromanage the detailed tasks. Indeed, this is one reason project management has become a separate specialist staffing, away from line managers. Embracing chaos and more realistically managing the planning process’ scope and resource and, yes, scheduling, might be a lesson for project managers themselves.

Different management situations may call for looking at other tools as a complement to MS Project. Here are archetypical examples: “Basecamp” would be adequate for teams emphasizing collaborative delivery of creative materials. “ManagePro” is better suited for strategic alignment of lower level projects, as well as being adaptive to inevitable changes and setbacks in the execution. “MindManager” is, on the surface, a right-brained tool for diagramming relationships that are not necessarily drawn on a single line (i.e., chronologic as GANTT charts are), although the tool now has a project management module as well. Wiki pages are used by agile planners who prefer the widely open collaborative nature of the tool. The shopper would do best to step back and size up their application, and not narrowly bound the solution to one tool.

Social Media, and Your Scared New World

BLOGadmin — Wed, 23 Sep 2009 15:34:14 +0000

Still keeping social network tools at arm’s length? If you’re like me, you’ve joined Twitter, but are leery of the potential identity and security issues that careless Twittering might create. Avaya maven Christian von Reventlow gave us a heads-up on Erik Qualman’s new book on “socialnomics”, whose stats should create a knot in your stomach:

GenY will outnumber boomers by 2010; 96% of them have joined social networks.
If Facebook were a country, it would be third largest in population, after China, India and the US.
YouTube is the second largest search engine in the world, with over 100 million videos.
Some studies have shown Wikipedia’s 13 million articles are more accurate than the Encyclopedia Britannica, and only 22% of those articles are in English!
Kindle-based sales are now approaching a third of Amazon’s sales.
Daily, 1.5 million pieces of content are shared on FaceBook.
(Success is in understanding) it’s now about a people-driven economy.
Successful social media players are the companies that act more like party planners and content providers, than advertisers.
It will be less of people searching for product, and more of product finding people.

Sssh. I know – I hear the footsteps, too.

Socialnomics: Summary

Strategic Context: Perfect Answers, Wrong Questions

BLOGadmin — Wed, 16 Sep 2009 16:18:20 +0000

The previous blog featured a graphic that maps Stanford’s elements of strategic execution. It is extremely useful for locating the You-Are-Here spot . Importantly it is a good reminder for checking He-Is-There – an often forgotten half in communications.

When goals seem divergent, look to the next higher level.

Perhaps it’s a difference in culture. A managing director of a maquilladora on the Mexican border saved significantly on cash bonuses that didn’t seem to make enough impact on employees; she instituted instead a much less expensive but more meaningful monthly company barbecue-and-beer: a gesture of camaraderie that seemed to resonate with the village culture of the workers.

Perhaps it’s values. Take a boss who is perplexed by a highly paid employee’s unwillingness to stay till 8:00p as the boss does; this expectation is amazingly common, especially of younger hires. Well, to begin with, the employee likely does not draw the pay and equity that the boss does. Or simply, the employee sees the job not as an end unto itself, but only as a means to support the family. Visualize values as concentric rings : what is at your center? What’s theirs?

Take a look at this illustration of conflicting hierarchies of values. Which one approximates yours?

Obvious and commonsensical – yet we see it played out every day.

When faced with a situation that doesn’t slide smoothly into your thinking, pause, step back, especially if there is an emotional factor at either end. Emotions aren’t aberrations, they are a reality: for good reason, the word derives from the Latin word movere- as in motivation, driving force.

Being strategic starts with a consciousness of a larger context. You may have the right answers, but the questions may have changed.

Next blog: keeping perspective in the midst of chaos. Values as concentric hierarchies, and a practical guide to difficult negotiations.

Stanford’s elements of strategic execution were mapped in the previous blog . It is extremely useful for locating the “You-Are-Here” spot . Importantly, it is a good reminder for checking “And-He-Is-There” – an often forgotten half in communications.

When goals seem divergent, look to the next higher level.

Take a look at these illustrations of conflicting hierarchies of values. Which one approximates yours?

Senior managers and owners tend to have a blindspot that keeps them from realizing that the regular employee has far less stakes in the job than they do. Obvious and commonsensical – yet we see it played out every day.

Being strategic starts with a consciousness of a larger context. You may have the right answers, but the questions may have changed.

Next blog: keeping perspective in the midst of chaos. Surprising new findings contradict the sacrosanct Maslow hierarchy of values. Negotiation strategies.