The end of the year and the end of this decade provide me with an excellent opportunity to offer heartfelt wishes to customers, partners, suppliers and friends along with sincere thanks for all the people who've trusted BusinessQuests over and over again this year as in all previous ones. I am particularly grateful to the people and companies who've given me opportunities to explore new spaces and to further expand my professional horizons.
This is not only a good panel discussion, but also one that has some good news. The time might be close when people can resume investing. Perhaps it's also time for Europe to realize that our economic situation is way better than the US for a number of reasons starting with the fact that we are nowhere near the level of debt that prevails in the US be it government or private debt. It's just so sad we don't have anyone to carry the torch of recovery on the political front. As someone told me recently, a recession can be a self-fulfilling prophecy whereas business & economic progress does not happen by mere wishful thinking.
Great piece by Stanley Bing. If we step back it's quite sad and probably yet another indication of the need for some radical changes in the financial system with a view to restoring the logical order of things, which is that finance should serve the economy, not lead it.
For the past fifteen years I've been in contact with friends and B-school alumni working for finance departments in quoted companies who had a mission every end of quarter: make sure their company's figures reached or exceeded the expectations of analysts working for major investment banks and brokers... So at least once a quarter their mission had nothing to do with their company's core business and everything to do with window dressing, to call thing the way they are. And of course poor implementation of standing legislation as well as bringing poor new legislative measures into force (read Sarbanes-Oxley) did nothing to improve things... which is why I wanted to share this video.
Last Thursday BusinessQuests helped organize a conference on the financial situation. We had Prof. Bruno Colmant, who also happens to be the CEO of Euronext, and Prof. Philippe Defeyt on the panel and they presented a number of interesting developments to explain the causes and the dynamics of the current situation. Aside from the content, which is very much within my field of attention, the event has been a great opportunity for me to test the adoption of online tools by a predominantly tech-conservative audience. Results of my tests in a future post. This one is about the content of the conference.
Here are a few of their most noteworthy points:
Overall good stuff and an interesting evening although I doubt anyone got out of the room with clear answers. One of the reasons why we put totether a participative site on Ning to give attendees an opportunity to continue the discussion and access photos, video and notes from the event. I am curious to see whether people will start conversations and see the opportunity to take an active part in this crucial public debate...
For me this has been a great way to test how a more conservative audience of late adopters of technology reacts to the usage of tools like Amiando (excellent stuff) for setting-up the conference or Ning after the conference. Furthermore, we ran a survey on SurveyMonkey about the economic situation, its causes according to the audience and the assessment of the quality of information people got from the media and from banks. A vast majority of the people (we polled about 30% of the attendees) were really unhappy with the way banks handled the matters pertaining to the crisis. I'll publish some of the conclusions later this week.
Below is a mind map hosted at WiseMapping, but it's in French, the language of the conference.
Over the past few weeks I've been doing some research work around the financial system because I have an idea that I might pursue as an entrepreneurial venture aimed at making a difference in the following areas:
I still need to do some work, but the thing is taking a nice shape, especially after a sudden satori I had over the weekend... It now seems so obvious I am in bewildered wonder at the idea that something so evident that was right before my eyes could have escaped my attention even as I was working on stumbling blocks that it helps remove! Anyway, more in a future post. For now, I'd be grateful if you could help me by voting on a question I have: how would you go about salvaging the financial system? To answer on LinkedIn, please click here.
Late January at Digital Life Design in Munich, there was an interesting panel with Nasim Taleb (always insightful and full of common sense | his site) and Nobel laureate Daniel Kahneman (always fascinating pioneer of psychology applied to finance and the economy | his Nobel profile ). Taleb has a realistic approach by saying that what he basically want is not to improve forecasts but rather to review the way the world is working in order to make it resistant to forecastign errors. Like Roubini he advocates the nationalization of banks. I suspect he means the "utility" part, not the "casino" part of the banking system (for a view of utility vs casino listen to the podcast at the end of this post). Kahneman shows how human psychology is a key driving force for understanding organizations, companies, the economy and markets because, as he very correctly points out, these entities do not exist in any other way than through human behavior.
Video and comments below.
Kahneman shares fascinating insights taken from experiement in
psychology showing how ill prepared we are by education to deal with
the unexpected and with uncharted territories.If you're interested in Kahneman's work, reading the Tsversky-Kahneman paper of 1974 on Judgment under Uncertainty.
In
that paper the authors discuss in a remarkable and most interesting
manner the importance of prejudice, pre-conceived truths, integration
of past-patterns and beliefs affect human judgment and decision making
regarding uncertain events. It's a most recommended read for anyone
active in a highly unstable environment although like all good
scientific papers it does not provide ready-made recipes: you'll have
to do your own introspection and adapt what you learn to your own
situation. In this discussion Kahneman makes a strong point showing how the mismatch between the time-scale of the individual and the time-scale of society is a key factor to take into account if there's any serious intent to reform the financial system. He also makes a great point about the fact that the situation we have now did not happen simply because of incompetent, arrogant, self-serving, greeding and dishonest financiers (and not all financiers are such animals; I have the privilege of knowing more than a few very decent and brilliant finance professionals who will be part of the solution). Kahneman rightly suggests that every participant in the economy has a share of responsibility because each one of them accepted the system, indulged into the benefits he or she could extract from the system regardless of the relevance or economic sense of gaining those benefits.
Taleb develops his views of the roots of the crisis, blasting the CFA and business schools for teaching portfolio theory in the process, what should be done now and why it's important to get down to what the exact situation is no matter how bleak so as to be able to resume work from a known starting point instead of being in a constant slump. Nasim Taleb has been focusing on how "ideas" and beliefs actually fool us. I'm currently reading Fooled by Randomness, which I recommend. Listening to Taleb in this video and reading his materials you will see why a deterministic approach to economics, finance and business management is simply an illusion, an abstract construct of the mind. The world is chaotic and the order we're trying to build in it is emergent as opposed to pre-determined. Taleb speaks of a complex world and highlights inconsistencies of economic agents who insure their cars but don't insure multi-million dollar portfolios because that would harm returns.
His take is that the current financial crisis is largely due to the underestimation of extremely rare events by financial experts and the quants who built sophisticated financial models for funds. That's one part of the problem, the other being that:
Below is a podcast of a recent program of the BBC in which you can listen to former President Clinton's economic adviser discussing the current economic situation and sharing a way of looking at the financial system as being a "utility attached to a casino", the utility being the payments system and the lending system for individuals and companies. The utility is too serious a part of finance to be left in the hands of bankers. Taleb is 1000% correct when he says that the "utility" part should be controlled by government and the hedge funds should be left alone to do what they want and never be bailed out by government.
Senior executives are supposed to be dealing with strategic matters most of the time or at least supposed to be exerting major influence on a company's long term. Yet their compensations are structured to reward short term thinking and short term action. In particular bonuses and stock option schemes tend to be attributed and vest much earlier than the time horizon when the results of the execs' work become apparent. How can there be more consistency without additional legislation, regulations and authorities of control? We know none of the really works.
That's a worthy cause. Copyright extension is perfectly useless for people who create new stuff and only a means to securing the dominance of organizations that are increasingly made irrelevant by the radical changes in the media distribution landscape. We don't need our legislators spending time, energy and money on building perpetual streams of income for antiquated forms of content usage. Perhaps they'd be much better inspired to consider enforcing Creative Commons as the official copyright management system.
Watch this and sign the petition on the site of Sound Copyright.
A few short months ago there were worries about marketing budgets being cut but most professionals were sounding reassuring in saying that the bulk of marketing budgets would be transferred to online and interactive initiatives. The theory went that brands would want to keep taking initiatives and would continue the same intensity of communication by shifting their marketing dollars to more affordable channels like the Internet.
Even then this thesis did not seem to hold against careful analysis and discussions with senior decision makers even back then. Recent news seem to confirm the pain to come for agencies and marketing professionals, irrespective of the nature of their business, with an exception that is not what most people seemed to think, but makes economic sense.
A recent survey carried out by the ANA (see clipping at the end of this post) shows a bleak outlook for big classes of marketing spending and therefore for agencies and professionals offering services in those fields. I think this is particularly relevant for the European market because it’s only a matter of time before we see a similar contraction in Europe and because, with just a few exceptions, European decision makers tend to be even more reluctant to any spending in hard times (it’s a sort of all-or-nothing approach to marketing budgets). More specifically here are a few points worth considering:
The main implications of the way things pan out are:
It does seem that the crazivity of the past couple of years is going to be out of question for some time…
What’s crazivity? It’s initiatives that are primarily crazy and yet presented as creative: in this business the crazier something is the more creative it’s called even though it’s not always so and that often comes at the expense of relevance of an initiative with respect to the brand’s goals.
Marketers are cutting costs, putting pressure on agencies to do more with less, and reducing budgets much more than they were six months ago
37% of respondents today plan to reduce budgets by more than 20%, up substantially from the 21% in the first survey.
- Departmental travel and expense restrictions (87% vs. 63% in the previous survey)
- Reducing advertising campaign media budgets (77% vs. 69%)
- Reducing advertising campaign production budgets (72% vs. 63%)
- Challenging agencies to reduce internal expenses and/or identify cost reductions (68% vs. 63%)
- Eliminating or delaying new projects (58% vs. 61%)
“In the current economic environment, there’s a need for brand building that’s right for the times - that acknowledges consumers’ financial circumstances
For some marketers, that will mean skewing their media mix toward promotional spending and direct marketing. For others it will mean framing a new, relevant and timely brand message.
 |
Here's an interesting take on the Geithner plan for shoring up the banks' financial situation. The article makes a compelling argument as to why the plan is not really a great deal for would-be investors and definitely a loosing proposition for taxpayers. So is the Treasury's plan destined to fail? Are the core causes of this mess addressed?
With my training in business management and finance I can see the validity of the issue raised here. In fact, I'd be in greater agreement with Nouriel Roubini's recent position that the banking system should be nationalized; with the understanding of course that only the payments and credit system for businesses and individuals would come under the government's fold.
All this makes me realize how wise the Belgian legislation is when it mandates that each company's and citizen's debt be centralized and monitored so as to remain within reasonable limits with respect to that entity's revenues. At the end of the day we should not forget that this whole mess comes because of:
These issues will not be addressed by the Treasury’s plan, but I hope we get down to tackling them rather sooner than later because doing more of the same will produce more of the kind of mess we’re seeing these days.
The Treasury Secretary announced his strategy for a better banking bailout. But subsidizing the purchase of bank assets and forcing mortgage writedowns is the wrong way to go.
The real problem in the housing market is the rampant job loss. Most Americans whose homes are worth less than their mortgages keep paying. The Boston Fed found that during the crushing downturn in Boston in the early 1990s, only 6% of the underwater homeowners defaulted.
Hence, the right plan should focus on crafting a break for people who've just lost their jobs, not the 85%-plus of Americans who keep paying even with negative equity.
The best formula for stemming foreclosures is a highly targeted plan to aid people who have lost their jobs. For this group, the moral hazard issue is less pronounced, since it's unlikely that Americans would risk unemployment to get a break on their mortgages.
 |
How could one disagree with the opinion expressed by President Obama regarding the bonuses some Wall Street bankers have decided to pay themselves? We’re really witnessing recklessness of untold and unprecedented proportions. Those bankers’ behaviro testifies to the fact that there is a complete disconnect between modern finance and the field reality of what we call the "real" economy. But of course when things are getting tough for their girlfriends, wives and mistresses who need to change lifestyle (see the DABA Girls blog to get a feel for the utter disconnect of this crowd from real life), these guys feel the pressure to do something, no? Sadly enough a limited number of people damage the reputation of an entire profession. Most of my contacts in the world of finance are just very fine persons, working hard and decently to fulfill their mission and serve real companies with real customers and real services and real employees and real profits and real problems. They’re part of economic life, whereas the people President Obama is targeting are causing economic death and loss of confidence. If we are serious about solving the current crisis, both they and the pervert system they’ve created must be taken out of the system.
Read on for an analysis take and a video embedded.
It’s quite clear that for this sort of things to be happening in broad daylight several conditions must be logically true:
Nouriel Roubini’s (RGE – Wikipedia – Page at NYU Stern) interview on Bloomberg is something you ought to listen carefully (podcast at the end of this post) if you’re a business founder, a manager or an asset owner. It’s not exactly the sort of content that will boost your morale, but I don’t believe the Coué method is the right way to go because it’s much more than a mere crisis of confidence. On the other hand neither denial, nor pessimism are going to take us anywhere.
Rather a pragmatic take on the situation is an essential first step if you’re serious about adapting and being in a position to fully benefit from an eventually recovering economy. This is only one of the reasons why it’s worth getting down to some of the implications of this analysis for business. Today helping business people deal with anxiety and make sense of this chaos is part of my work in different industries, from commodities to tech-innovative sectors, in different areas of Europe. So what does a pragmatic analysis of the situation mean for business? Read on and listen to the podcast.
Economics have seldom been as crucial to business as today. That’s a fact across the board, from young industries enjoying the fat marging allowed by rapid innovation to older highly commoditized sectors. So it only makes sense to be listening to scholars and thought leaders – at least those who have been issuing alerts for the past decade or so: Roubini, Stiglitz, Krugman, Taleb, Bernstein, Bookstaber, Tobin, Thoma…
Roubini’s assertions – well documented, no doubt – that the top US banks are probably insolvent and that China is probably in recession, not merely “just” growing slowly, are causes for concern. His analysis during the interview with Bloomberg suggests the following:
The picture Roubini paints is pretty grim and scary, but factually speaking he’s probably right and we need to acknowledge and take stock of the situation as it is right not, not by discovering ugly bits and nasty pieces of the big picture in a seemingly unending stream of randomly chosen snapshots. Nothing is more damaging to business confidence than the constantly disproval of previously accepted opinions as to the scope and depth of the crisis.
With most economies in a state of frozen shock, difficult access to cash and several assets fast becoming almost illiquid, the degree of anxiety is high in business, for owners, managers and employees alike. The principal cause is not the crisis itself, but the uncertainty about its real nature, its consequences and its true extent as well as the often unspoken lack of confidence that governments know how to solve this one.
So considering the work I do with customers in Europe, the most important implications for business are as follows:
Despite government’s efforts to pump cash into the economy, banks seem completely upset, fearful and paralyzed to the point of actually failing to making funds available even to established and fundamentally healthy businesses. So, if you’re managing an established business, perhaps a family owned business that cannot rely on access to global money markets, you need to consider the following:
For more recent going concerns, the issues highlighted above for older and more established companies
are valid and should be considered although one may assume that in many
cases younger going concerns have better patterns of adoption of new
tools and methods. In your case, you need to be concerned with your
customer portfolio because unlike older more established companies you
are likelier to be more exposed to commercial and customer credit risk.
One of my customers is in this situation and we know full well that it
is crucial to keep close contact with all key customers and to go the
extra mile to share a bit of the burden of going through this storm.
Something that’s been possible in this case was to agree on a
schedule for payments such that the immediate pressure on key
customers’ cash situation is reduced by 10% to 15% and those customers
commit to a longer term supplier relationship with my client. Factors to be considered with special care include
Enjoy Roubini’s interview and visit his RGE site.
Padmasree Warrior, Cisco’s CTO, tweeted this very beautiful sentence quoting a poster she saw:
“Rosa sat so Martin could walk, Martin walked so Obama could run, Obama ran so our children can fly”
This evening I attended the meeting of Beta Group in Brussels. The event took place in one of the classrooms of the University of Brussels, home of my business school… It felt like a big return to the past since it’s been at least 14 years since I last visited that part of the world and in fact it hasn’t changed on bit… There were five presentations of startups that I found refreshing, not particularly because of the quality of the demos (sometimes too technical, low energy and not that assertive), but because I saw people creating fun stuff and prusuing visions and dreams of their own. Here’s a couple of companies I think are before good market opportunities:
During the event I heard someone ask the presenters of the last presenting startup (Seetiz) about Seetiz’s scalability. An interesting question, even though growth is not an objective per se. I think companies are better off making sure they’re great, solid, disciplined, high-quality and fun places to work before they attempt to grow. Growth is a by-product, a consequence of something fundamental: the enthusiastic urge to profitably serve customers in a consistent manner such that they become eager to stick with a company as a supplier. So, the list of this post is not meant to identify potential “high-growth” companies, but merely to say why these three stand out in my opinion.
Definitely refreshing to be spending some time with people who innovate by pursuing their own quests in the wonderful and often mesmerizing world of business.
Even the longest journey starts with the first step… As WideTag releases WideNoise I feel this is the best way to describe the event because WideTag’s stated destination is to be a leading player when the Internet of Things becomes reality.
As WideTag’s CTO often says, there is a still a hell of a lot of stuff missing from the real world for the Internet of Things to happen, but one ought to start with what we’ve got, include new stuff that is coming up and build whatever is missing.
WideNoise, designed by a beautiful team released yesterday as an iPhone application that allows you to socially share data about the noise level at a specific location, is very much the result of this very pragmatic approach: use an existing networked device that has at least one sensor embedded to offer a first application of a “spime”. What’s a spime? It’s a device capable of recording and transmitting location coordinates as well as information about its immediate surrounding, e.g. temperature, carbon dioxide concentration… Now, spimes are likely to play a prominent role in the Internet of Things. Although it’s quite geeky as a concept (if you’re interested read this), there are three reasons why it’s noteworthy:
In fact, Widenoise is also a bridge between the “pure vision” of the Internet of Things (where objects are supposed to exchange information and form self-configuring networks for relaying the data) and today’s reality of applied technology becoming increasingly “social” and hybrid in that it mixes hardware, software and people to create value for participants. So has WideTag managed to make noise social as a very nice post of this morning claims?
Almost a year and a half ago on I covered Nimbuzz on this blog because I felt they had a pretty cool and promising proposition. Since, their team has been able to progress even more and get to the point of receiving the prestigious Red Herring Global 100 award.
As always, I am thrilled to see entrepreneurial ventures find their way and reach new heights, so congrats to the team of Nimbuzz for beautifully pursuing an entrepreneurial quest that creates value.
These past few days I came across an article published by CNET News listing the seemingly unending announcements of layoffs of these past months. One of the questions that occurred to me was whether there is a correlation between the importance of a company's layoffs and its stock's price-to-earnings ratio (P/E). I chose to use the P/E ratio before the beginning of the crisis, because that's when future expectations of growth where factored into the price of a stock and hence the layoffs reflect the fact that these very expectations were disproved.
My take is that our economies have been running into trouble since the second half of 2007 and hence I used the P/E of 2007 for a subset of tech companies of the CNET list. The companies included in the data set are: Adobe, Alcatel-Lucent, AMD, AT&T, Autodesk, BMC Software, Borland Software, Cymer, Dell, Electronic Arts, EMC, Ericsson, Lenovo, Level 3 Communications, Lexmark, Logitech, Microsoft, Midway Games, Motorola, Netflix, Oracle, Plantronics, RealNetworks, Seagate, SGI, Sony, Sun Microsystems, Unisys, Viacom, WebMD, Western Digital, Yahoo
I got the P/E ratios from Prof. Damodaran's web page that I got from Prof. Farber's page of resources at Solvay Business School, my Alma Mater. So I'm once again grateful to professors & academia for sharing knowledge, the only way for knowledge to grow.
While this is by no means enough to draw conclusions and the analysis is only very rough relying on many opinions, the indication is that the higher a company's P/E is in good times, the likelier it is to lay-off personnel when the economy sours . To illustrate this result, I used IBM's Many Eyes visualization resources, which I find prety cool, so thanks Big Blue for making great tools available freely to those who seek, for those who are on their quest, sometimes a business quest :) Here's the link to the chart. I'm also including a screenshot of ManyEyes below because the link doesn't always work properly:
I also used data visualisation software Tableau to verify the correlation: quite a powerful product. Below is the analysis of the model produced by Tableau:
And the Tableau visualization is below:
The name Madoff is now indelibly associated to the largest financial
scam of history. Nevertheless, it's interesting to see what types of
investments had Madoff's favors and that's what a columnist of the FT
did. Fairly interesting piece although I'm not certain you should immediately try to replicate Madoff's approach because this stuff smells like insider trading. Yet another indication of the degree of corruption that plagued parts of the financial system that is collapsing before our eyes and inflicting damage on many people who neither benefited, not supported it.
It looks like Mr Madoff (or whoever chose the stocks in his fund) liked to get involved in various special arbitrage situations. Some of these still exist and make for interesting stock picks.
Mr Madoff played a lot of special-purpose acquisition company arbitrage: SPACs trading below cash.
Hicks has $540m in cash and a market capitalisation of $480m. Trading below cash makes this a very safe play.
Anheuser-Busch, which has since been acquired. When Mr Madoff bought the stock he had a potential 40 per cent annualised return implicit in it because of the arbitrage going on with Anheuser-Busch being acquired by InBev. The deal closed in November so Mr Madoff made his money.
Mr Madoff also liked “closed end fund arbitrage”: buying closed end funds trading at significant discounts to their net asset value
Finally, Mr Madoff was a big believer in financial media. One of his new positions in the third quarter of 2008 was a little stock called thestreet.com, founded by CNBC’s Jim Cramer.
 |
As we're trying to salvage more of the financial system than we really should, especially with taxpayers' money, it's worth getting back to understandable economics and to a financial system that is the tool, the slave, not the master of the "real" economy. By the way, isn't the term "real economy" ironically pointing to the fact that the rest of it wasn't that real? The way the economy is being financed needs to be completely reviewed and the responsibility lies with each one of us. This is not about "bad guys" in the financial world who got rich at the expense of the rest of us: almost everybody was happy getting credit beyond reasonable levels, almost everybody voted for the system through their patterns of consumption and investment. We've been living in a world where the poorer economies were in essence financing the richer ones which indulged in levels of consumption that were disproportionate relative to their actual creation of value, especially long term value. Time to listen a bit more to experts like Joseph Stiglitz, who was recently interviewed on French TV. As usual an uncompromising analysis of the situation (voice-over in French covers his voice at times):
Over the past year or so, I came across a number of young and less young entrepreneurs who seemed completely infatuated with the concepts revolving around or arguing for a "software as a service" (SaaS) model, as though SaaS would solve all of their business challenges in a miraculous way.
So you thought all you had to do was offer software online and that's an easy way to remove all friction, increase your profitability by having customers do all or part of the work and never have to go visit users? Many people I meet seem to be under the charm of the SaaS fad. Many see it as an enabler for them to be a viable business. While there are merits to SaaS, its benefits are exagerated and in some cases the invocation of SaaS comes at the expense of rigorous business design.
So here's my take:
SaaS is all fine and good. Permanent beta is great. The network becoming the computer is brilliant. All the new stuff going on in the field of computing services is just very exciting. However none of it is panacea and it is by no means a license not to design, structure and manage your business in a careful and diligent manner. There's no free lunch.
As an aside, this latest wave makes me feel the passage of time given
that this is my first direct personal experience of an old concept
making a comeback under a different name: a few years ago the fad was
called Service Bureau, ASP (for application service provider), grid
computing and Software On-Demand (with Salesforce, Google Apps, Amazon
and and IBM leading the way). Interestingly, the big guys are still
around with relevant offerings irrespective of the way they're
presented (ASP, On-Demand, SaaS or the next fashionable acronym).
