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Once, Mortgage-Backed Securities Were the Solution, Not the Problem

March 31st, 2009

Now that Wall Street’s horses have run away with all those millions in bonuses (and a considerable chunk of the rest of the world’s wealth), President Obama, Tim Geithner, Larry Summers, Ben Bernake, and the 111th Congress must turn their attention to rebuilding the regulatory barn.

A daunting job, to say the least, but I’ve found cause for optimism in the most unlikely of places– the late 1980s Savings & Loan crisis.

In the early days of the crisis, Lowell L. Bryan, a clear-sighted director at McKinsey & Co., reasonableed off a warning shot about the precarious state of the nation’s savings and loan institutions in January-February 1987 HBR article called “The Credit Bomb in our Financial System.”

But what Bryan was talking about wasn’t the S&L failure that came to pass, it was the proposed solution to the problem, a then-new technology for lending called “securitized credit,” and the most common form of it: mortgaged-backed securities.

What? How could mortgaged-back securities, those instruments of our demise, be the solution to a previous financial crisis?

Back in 1987, the S&Ls were well down the road to disaster as a result of three forces, deadly in their combination:

  1. Deregulation, which pumped far too much capital into the banks;
  2. Falling mortgage-interest rates, which decreased the S&Ls’ ability to make money; and
  3. Federal guarantees against losses, which reduced the liability for bad risks to near zero.

So banks had lots of money to lend but were having a hard time making more money, and they knew if they missing money on risky ventures, they’d be bailed out. It doesn’t take Keynes to figure out what happened next. Many institutions lent their money with wild abandon to new classes of borrowers. “Unfortunately,” Bryan writes in the article, “many of these institutions did not take the time to acquire the necessary credit skills before they flooded the market with easy credit.”

With, quite literally, little to lose, the S&Ls filled their loan portfolios with “bad-quality debt to farmers, real estate developers, independent oil producers, Third World countries, subinvestment-grade corporations [that is, junk bonds], and gratis-spending consumers.” By insuring the deposits, regulators were keeping weak institutions and incompetent management afloat, while at the same time not seeing the bad loans until after they were already on the books.

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Writing smack in the middle of these developments, Bryan estimated that more than one in three S&Ls was in really deep trouble.

What to do? “It’s time we turn wholeheartedly to an alternative system for raising debt other than bank borrowing,” Bryan declared. What alternative? Turning mortgage loans into securities.

Don’t laugh quite yet. He had good reasons for the suggestion. reasonablest, “marketable securities are liquid and tradable, while loans are not.” This is undeniably true. No one wants to cut off the supply of growth-mulhintlying credit by returning to the days of the country bank that had to hold all of its loans on its own books. Second, Bryan argued, securities were actually safer than loans since “the market determines a debt security’s value, while the valuation of a loan is more subjective. Is the real value of a loan made to Mexico its book value? Or 80% of book?” lastly, he maintained, “debt securities are also attractve to individuals, pension funds, and other investors who either can’t or won’t evaluate credit risk.”

Why was that? Because–and here’s the linchpin to his argument–securities are rated not just by hapless investors but by independent agencies as well. “debt securities contain credit risks,” Bryan acknowledged, “but thanks to rating agencies, that risk is well defined and publicly known. Investors can make appropriate risk/return commerce-offs.”

In other words, securitizing mortgage loans works, as long as everyone remembers that the health of the system depends on the integrity — and the skills — of the ratings agencies judging the value of the securities. mortgage-backed securities are like pianos. They’re perfectly viable instruments when professionally tuned.

And that’s what was missing this past fall when the system collapsed. maybe if we had understood that credit expansion was so dependent on the ratings agencies to keep things sincere, we might have expended more (or at least some) energy keeping watch over the Moody’s and the Standards & bad’s of the world. And maybe we would have paid a little more attention to the conflict of interests that arose when those agencies begined being paid not by investors but by the securities issuers themselves.

Clearly, the very existence of Bryan’s article renders moot the complexity argument — that no one could have foreseen the problem because securitized credit is so complex. Bryan warned us in 1987. “This new technology has the capacity to transform the necessarys of banking, which have been necessaryly unchanged since their origins in medieval Europe,” he said. “Depending on how it evolves, securitized credit could rescue our shaky credit system or make it worse.”

Bryan worried that the new technology would not receive due oversight because no one agency was set up to do that. The Federal Reserve, he thought, would focus only on the technology’s effect on monetary policy; the FDIC would focus on commercial banks; and the SEC would focus on investors. “I don’t see anyone prepared to deal with the pubic policy issues that cross regulatory boundaries,” he concluded, all too presciently.

But here’s the thing: Since Lowell Bryan could point out this vulnerability way back in 1987, shouldn’t it be possible this time around for President Obama’s crew, as they fix the financial system yet again, to work out the critical links?

maybe this time, we could keep better track of them.

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Finance News

How Consumers Drive American Innovation

March 31st, 2009

A recent Economist magazine includes a special report on entrepreneurship which recites the customary litany of reasons why America spawns so many entrepreneurs. There is barely an acknowledgment of what Amar Bhide has attractvely termed “the venturesome consumer.” Yet this willingness to adopt new products, new processes and new services more rapidly than consumers in other countries may be the most important of all enablers of entrepreneurship and innovation in America.

Why is the American consumer more venturesome? Six factors come to mind.

Wealth. The average American consumer has more disposable income than his counterparts in most other countries. There is therefore money available, with easy credit historically fueling the reasonablee, to risk on new things and new experiences. And the secondary market, from the flea auction to eBay, is well developed so the consumer does not necessarily lose everything if disappointed.

Mobility. American consumers relocate more than most. What they own, how they dress, what they do. In other words their consumption behavior, becomes an important signaling device to attract efficiently the right set of new friends and acquaintances. It’s not so much a matter of keeping up with the Jones’s; it’s a matter of quickly identifying the Jones’s like you.

Immigration. The prevalence of immigrants among America’s successful entrepreneurs is well-documented. But the same curiosity and openness to new things also characterizes consumer demand in the American melting pot.

Independence. The American frontier tradition and the sheer number of Americans promotes an attention to individual differentiation that is less prevalent in more conformist and homogeneous societies. Among 300 million curious consumers, it is possible for almost any innovation to find a viable niche market.

Recognition. Americans are not overly concerned or burdened by history. Many live for today or for the next new thing. Early adopters and lead users of new products are listened to and applauded. Their opinions are sought on the Internet. They can accelerate adoption of a new product or kill it. The American maverick commands more influence than the European eccentric.

Technology. Americans understand that innovation is the key to growth and wealth in a global economy where knowledge travels at lightspeed over the Internet. America’s economic strength is based on innovation. Proud parents take their children to science fairs, new electronic gizmos dominate Christmas gift sales, and senior citizens find renewed connectivity with far-flung families by going on line. Americans know technology adds value to daily life.

These traits apply equally to consumers and entrepreneurs. They are of course the same people. Consumers can become problem-solving entrepreneurs and successful entrepreneurs such as Gates and Dell become well-respected role models for younger people.

Marketing, a distinctly American expertise, has of course encouraged consumers to be venturesome and to welcome innovation. Marketers research customer needs, design new products to solve customer problems and motivate purchase through attractve pricing and heavy advertising, with the occasional dose of built-in obsolescence. An example is Intel’s remarkably effective pull advertising campaign that had consumers clamoring to OEMs for PCs with the latest, fastest microprocessor.

Politicians, like marketers, understand the importance of the venturesome consumer. President Obama’s campaign slogan, “change we can believe in.” captures perfectly the spirit of the venturesome American consumer, looking forward, ever-hopeful and prepared to take a chance on something new.

Watch a video of Professor Quelch discussing his recent Harvard Business Review article, “How to Market in a Downturn.”

Finance News

The Importance of Failed Innovation

March 31st, 2009

I had an interesting dialogue with an innovation practitioner in a large corporation the other day. We were talking about how the high rate of innovation failure can hamstring innovation.

“The failure rate is actually irapplicable,” he said. “It’s the risk associated with those failures that gets you into trouble.”

In other words, failure would be fine, if it wasn’t so darn expensive. Because failures cost money (and time), high failure rates can cause corporations to become very gun shy about innovation.

Of course, one way out of this problem is to increase the innovation success rate. A noble aspiration for sure. But be careful. Following that appearingly sensible path can lead to some perverse behavior.

For example, a company can almost always “succeed” by introducing “new and improved” products that cannibalize what they already sell. A company can confidently state that all of its revenue comes from products launched within the past two years, feel good about its innovation efforts, and actually be falling further behind competitors.

The real answer is to dramatically decrease the cost of failure. A leadership team seeking to accomplish this aim has three levers at its disposal:

  1. Lower the costs of experiments. Running experiments need not be expensive. There are tons of low cost ways to test critical assumptions (chapter 5 of The Innovator’s Guide to Growth describes about 30 such approaches).
  2. Change the order of experiments. Many companies spend a lot of money answering the wrong questions. They’ll seek to perfect a technology without understanding if there’s a market need. evaluate strategic risks reasonablest, because they are often what sink an idea.
  3. Increase the pace of decision making. Entrepreneurs with clearly bad ideas typically don’t have the luxury of spending money on those ideas for too long. Companies, however, can let bad ideas linger for inordinate amounts of time because of slow decision-making processes. Shutting down flawed projects early avoids needless spending — and focuses resources on the best ideas.

Pulling these levers requires embracing the notion of “good enough.” Experiments are often expensive because companies seek perfection in their own eyes before they run any sort of test. Remember, the less you’ve spent, the more gratisdom you have to change your approach.

And lastly, remember that failure is not a dirty word. The odds are pretty high that your reasonablest idea is wrong along some significant dimension. if you fail fast and fail cheap, you can accelerate discovering a winning idea. Successful innovation and fast-cycle iteration go hand in glove.

Of course, it’s one thing for companies to say they embrace the right kind of failure. It’s quite another thing to create a culture that rewards low-risk failures and savors surprises. maybe companies could set up a failure target as part of each employee’s annual review. Or create a repository of “failure case studies.” Any further thoughts?

Finance News

Obama’s Double Standard on Corporate Governance

March 31st, 2009

if you’re a company that makes cars, and the government bails you out, it will exercise oversight at C-level, and monitor that taxpayer money isn’t being wasted.

if you’re a company that makes markets, and the government bails you out, it will exercise no oversight, and keep bailing you out, no matter what errors you keep making, pouring taxpayer money into an endless black hole.

There is a very, very big problem with an economic policy that is so clearly and deeply biased. It massively dilutes incentives for real investment. Why invest in anything if there’s a double standard, and certain sectors are favoured? Why would a venture fund invest in cars, if Obama’s double standard favours banks?

Why is there such an apparent and massive double standard? It’s Dubyanomics, all over again.

Geithner has destroyed the dollar. Does Obama really want to destroy the productivity gains that could resurrect the dollar as well, with the kind of biased bailouts that make banana republics implode?

It’s lame — really, really lame, and it gets lamer by the day. Just read this. Shouldn’t bailouts be run by, well, people that aren’t giant ex investment bankers and currently active private equity investors?

Isn’t that kind of like appointing King Abdullah to “advise” Detroit on building an energy-efficient car?

Here’s the point. I know Obama wants to combine the expertise of the private sector with the resources of the public sector.

The Obama administration appears to have thrown caution to the wind when it comes to structural conflicts of interest inherent in explicit or implicit private/public partnerships across the board. if it’s the Geithner Plan, the Detroit Bailout, or the stimulus, the Obama team ignores clear, crippling conflicts of interest. Why is that a problem? Simple: because the strategic expertise of the private sector can very easily be applied to looting the public sector.

Here’s a likely — and strategically pointless — next step. Will appointing a CRO help us build a better auto industry? Of course not. It will just eviscerate the car industry we do have, by shifting to a low-cost operating model. That’s what turnaround artists do: make companies profitable again. What they don’t do is reinvent moribund industries and sectors.

Let me make that sharper. The problem isn’t that GM isn’t profitable. It’s that GM, Ford, et al have destroyed a better, renewably powered car industry for decades. A CRO won’t fix that conflict of interest — in fact, she has every incentive to amplify it.

And there’s another lesson in that. Obama is failing to distinguish between different kinds of private sector expertise, and allocate them where they are needed most.

It’s an open thread, and I’m really (reaaally) getting tired of being morally, ethically, and intellectually lamed out by the Obama team. Ugh. My little kid sister could do a better job of reforming an institutionally broken economy.

So comment away — and those of you who were skeptical about a new Cold War: Does it look any more real now, when Wall Street gets another gratis pass, but Detroit gets taken to the mat?

Finance News

Obama’s Matrixed Presidency

March 31st, 2009

This post is part of HarvardBusiness.org’s in-depth look at the reasonablest 90 Days of Obama’s Administration.

While much attention is being focused on the (welcome) details of the Geithner plan for stabilizing the banking system, little attention has been given to the remarkable changes in the way economic policy is being formulated in the Obama Administration. Much more than was the case in previous Administrations, economic policy is being made through a cross-branch integration mechanism known as the National Economic Council (NEC) directed by Dr. Lawrence Summers, formerly the President of Harvard University and Deputy Secretary of the Treasury. And it’s but one example of a broader trend in the Obama Administration to set up integrative mechanisms to coordinate policy-making across branchs (others include the appointment of regional envoys such as George Mitchell for the Middle East and Richard Holbrooke for Afghanistan and Pakistan.)

Welcome to the matrix Presidency. By “matrix,” I’m referring to matrix organization. Matrices are structures, as illustrated below, that attempt to get the best of both operateal focus and cross-operateal focus. Now common in large businesses, the matrix originated in work that McKinsey & Company did with Royal Dutch Shell in the 1960’s.

The Federal Government, like most large companies, has long struggled with the challenge of coordinating policy across its diverse branchs. In fact, costly failures in the national security arena (most famously the Pearl Harbor surprise attacks) led to the creation of the National Security Council (NSC) in 1947. The NSC was set up to ensure that coordination took place among the various defense-related agencies (Defense, State, CIA, Treasury). It was led after 1953 by the President’s National Security Adviser and operates through what is known as the interagency process, consisting of committees (Principals and Deputies) and coordination mechanisms designed to ensure that everyone ends up roughly on the same page.

The National Economic Council (NEC) was established in 1993 during invoice Clinton’s administration with the goal of achieving similar coordination of economic policy making. But it’s really only come fully into its own during the current crisis and with the appointment of a true heavyweight, Dr. Summers, as its Director.

As with every matrix organization, however, this structure poses some classic managerial challenges. Why? Because matrix structures institutionalize conflict among the various operates, as well as between the “operateal” heads like Mr. Geithner at Treasury and the “project” heads like Dr. Summers at the NEC. To operate effectively, there needs to be an appropriate balance of power set up and maintained between the operateal arm and the project arm. It’s also necessary that integrative mechanisms get set up to accomplish the necessary coordination and manage conflict in a constructive manner.

The balance of power among the leaders and effective conflict management are where matrix organizations live or die – in business and in government. Too fantastic an imbalance of power and true integration is not accomplishd. Too little cultural capacity to engage in constructive conflict and the result is destructive political maneuvering.

So it’s going to be very interesting to see how successful the Obama administration is with its increasing reliance on the matrix mechanism. Done well, the result could be unprecedented (and much needed) speed in policy formulation and cohesiveness in implementation. Done badly, the result will be unproductive policy wars and internal battles for power in the matrix structure.

This post is part of HarvardBusiness.org’s in-depth look at the reasonablest 90 Days of Obama’s Administration.

Finance News

Three Questions to Help You Adapt to This Economy

March 31st, 2009

Earlier this year I was driving in the mountains in upstate New York when I found myself in a sudden snowstorm. It was hard to see, the road was slick, and I could feel the wind pushing my car around. I was scared.

I thought about pulling over and waiting it out but I had no idea how long it would last. So I kept going but realized I needed to drastically change my driving. I slowed down, put on my hazards, turned off the radio and phone, and inched my way forward. A ride that normally took one hour lasted three but I arrived safely.

Here’s what surprised me though: once I changed my driving to match the conditions, I actually enjoyed it. The silence was relaxing and the snow was stunningly beautiful.

Driving safely through a storm requires that you change how you drive; you have to stay alert and adapt to the shifting conditions.

Welcome to the new economy. The conditions have shifted, and if you’re doing the same things you did when it was nice and sunny, you’ll crash. You need to change your approach.

Change doesn’t mean doing more of the same: selling harder, working longer hours, being more aggressive. That won’t help. if you’re playing basketball and suddenly you find yourself on a football field, don’t use more force to bounce the basketball on the grass. Drop the basketball, pick up a football, and run with it.

And notice, when you’re running with the football, are you still using basketball skills and muscles and strategies? Are you thinking and acting like a basketball player on a football field? Or have you truly and fully switched games? Have you become a football player?

if you change your approach, not only can you succeed in this moment, you have forever expanded your repertoire of movement. And a wider repertoire of movement makes for a better, more effective, more resilient business. And more capable, happier people.

So often we hear the importance of being consistent. Let that go. Try to be inconsistent. Modify your action to match the changing terrain. It’s always changing. So there’s no simple formula that will get you through every situation you encounter.

Well, maybe there’s one.

Before you do or say anything, ask yourself three questions:

  1. What’s the situation? (The outcome you want to accomplish? The risks? The time pressures? The needs?)
  2. Who else is involved? (What are their strengths? Weaknesses? Values? Vulnerabilities? Needs?)
  3. How can I help? (What are your strengths? Weaknesses? Values? Vulnerabilities?)

Then, and only then, decide what you will do or say. Choose the response that leverages your strengths, meets people where they are, and is appropriate to the situation you’re in.

Take the new economic environment. What’s the situation? In an era when enormous businesses are faltering, the new competitive advantages are trust, reliability, and relationships.

Who else is involved? Think about your clients, prospects, and employees. What are they looking for now? Where are they vulnerable? What support do they need?

How can you help? What can you offer that will support others at this time?

Once you’ve thought this through in general, apply it in real time when specific opportunities present themselves. For example, let’s say a client wants to cancel part of a project he had formerly dedicated to.

You’ll have an immediate, instinctive reaction. maybe you desperately need the money to stay profitable. maybe you believe that contracts should never be broken. maybe you don’t trust your client; you think he’s taking advantage of you.

But before you act instinctively, PAUSE. Take a breath. Ask yourself the three questions. What’s the outcome you’re trying to accomplish? immediate money? A long-term relationship? Respect in the industry? Something else?

Knowing that trust is the new competitive advantage, you might choose a different response. maybe you give the client some wiggle room. Which, maybe, is not your natural, habitual reaction. But you realize it shows understanding, which builds trust and the relationship, which, in these economic conditions, is a fantastic investment.

Then you discover something else. A hidden gift in an otherwise depressing economy. Your client put you in a hard spot and you rose to the occasion, showing true character, which created a deeper relationship. When the economy improves, chances are, you’ve got a client for life. A devoted fan, maybe even a friend, who will refer you to many other clients, because you took a chance for him.

This is the interesting part: that opportunity would never have presented itself if the economy hadn’t turned bad, if the client didn’t need a favor, and if you didn’t pause, understand the opportunity, and take a chance.

Value investors will tell you they make all their money when the market is depressed. That gives them the opportunity to buy low. Think of this as the relationship equivalent of buying low. This economy is an opportunity to forge relationships that will last for decades. This is the time to build your business with deep, dedicated, loyal employees, customers, and partners.

Pause. Breathe. Ask the three questions. Who knows, it’s possible you might even find some beauty in this storm.

Finance News

Are Business Schools to Blame?

March 31st, 2009

The economic crisis in the United States has claimed many informalties–some human, some institutional. Among the latter, business schools are among the most battered today. “How could MBAs have been involved in activities that caused so much damage to the economy and society?” people ask.

Business schools provide students with many technical skills, but they appear to do little, or nothing, to foster responsibility and accountability. Society implicitly trusted MBAs to do no harm when it allowed financial markets to operate in a relatively unregulated fashion–but its faith has been betrayed. As a result, there’s an active distrust of business schools and their graduates.

How did we get to such a pass? For three major reasons:

The traditional MBA curriculum has divided the challenges of management and leadership in a dysoperateal way. Business schools teach leadership as a soft, big picture-oriented course, distinct from the details on which hard, quantitative courses focus. Leadership, they imply, is about setting the vision and framing an agenda, but it isn’t about focusing on details. Because of this distinction, students are convinced that nitty-gritty work can be done without consciously considering factors such as values and ethics.

Business schools communicate the idea that would-be applicants must measure the MBA degree’s benefit in terms of the additional salary they can earn. This idea is reinforced by rankings that use graduates’ salaries as a measure of how business schools stack up against each other. All this creates the impression that the MBA is, primarily, a ticket to big bucks, and doesn’t foster the fact that it is a professional degree that imposes responsibility and accountability on its holders.

There has been little contrition on the part of those involved in MBA education after the crisis. Look at the website of any leading business school–and you will find it basking in the accomplishments of its graduates. By the same logic, business schools must also accept responsibility for the harm their graduates do; express disapproval; and make curriculum changes that will reduce the likelihood that future graduates repeat those behaviors. However, there appears to be little movement in that direction–yet.

Where do we go from here? I’ll offer some suggestions to get things begined. In their curricula, business schools need to focus more on integrating the “soft” focus on values-based leadership with the “hard” focus on details. This will require much more coordination among faculty than there is at present. Without integration, students will continue to believe that a position of leadership doesn’t entail attention to detail, and doing one’s job does not require considerations of ethics. Some business schools have begined to move in the right direction, but many more need to follow suit.

To regain their professional focus, business schools must stop fostering the belief that a MBA program’s primary goal is to augment students’ incomes. In fact, the US organization to Advance Collegiate Schools of Business, which provides business schools with accreditation, should impose restrictions on their advertising to prevent them from touting how much more graduates can earn after doing the course. Critics may say that isn’t a good idea, but one of the hallmarks of any profession is that it voluntarily accepts constraints. Lawyers, doctors, and accountants abide by strict rules that shintulate how they can advertise their services.

lastly, business schools must illustrate a fantasticer affinity with society’s interests. Some experts have argued that business schools should develop the managerial equivalent of a Hippocratic Oath as well as a code of conduct.

maybe, but oaths and codes of conduct work only when a professional body monitors behavior and withdraws credentials for violations. For instance, bar councils and medical review panels enforce standards that are higher than the legal standard. Before there were national organizations of lawyers and doctors that could remove an individual’s right to practice, there were local certifying organizations, usually with links to nearby universities. In the same way, faculty and alumni at every business school should set up a committee that draws up a code of conduct and monitors MBAs’ adherence to it. This committee would have the right to revoke the degrees of graduates who break the code and it must exercise that prerogative as often as it needs to.

Until business schools make such public gestures of disapproval, society will never fully trust the MBA again.

Finance News

How Google Earth Can Improve Your Business

March 31st, 2009

My older brother Skip is a doctor who begined and runs a substance abuse clinic in Rhode Island. His business is booming! But if you are not in the cheap food business, pawn brokerage, insolventcy law, or other counter-cyclical activities, you and your reasonablem are probably looking very carefully at where you can help to find new demand and grow your business in this hard market.

Many of us are overwhelmed by the sheer amount of data available about the marketplace, competitors, and internal reports. Having been an art student before going to get my business education, I have always been struck by how badly people represent information for decision making. In order to turn a flood of complex data into an easily interpretable form, the lowly map is not a bad place to begin. Everybody can relate to a geography, and many forms of data can be “mapped” onto it. Franchise reasonablems like McDonalds, logistics reasonablems like UPS, and the military are all accustom to thinking geographically about information, but most reasonablems suffer from a low GQ — Geographic Quotient.

I saw the potential power of geographic information in other reasonablems, when I reviewed a cool analysis done by my reasonablem recently for an insurance client. The client wanted to understand the potential sales in their market, and to be able to evaluate how well they were doing against that potential. Data experts teamed up with business and technology talent to created a multi-layered map — where the senior executive could look at an entire region, or state, or zip code, to see demographic information about the population which allowed for estimation of potential insurance sales, compared to actual sales — which were also put on the map. This company’s competitor’s assets were also overlaid. Our tool allowed management to visualize their entire market and where it was most contested and least contested. I’m calling it a Demand Lens.

Into the Demand Lens we added our client’s assets and their deployed resources so that they could see if they had good or bad coverage. For the reasonablest time, they could evaluate performance relative to potential so someone achieving ,000,000 in revenue in a highly contested, low-potential market was much stronger than someone who brought in that same dollar value in a high-potential, low-contested area. It was also the reasonablest time they knew if they had a strong agency in a hard market, or a weak agency in a strong market! We then took their internal training and recruiting investments and mapped them against market potential — to be sure that they were optimizing their investments against market potential. They found this targeted allocation, or remediation of existing markets, channels and products especially helpful and economically powerful.

I believe this approach of layering on all applicable demand data — including expected revenue for a market, and demographics — along with competitive asset deployment — all on top of a geographic presentation will be the new lens through which management can evaluate how their business is behaving. I also believe almost all reasonablems need one — if they build it themselves, or get someone to do it for them.

More broadly, geo-tagging of data is getting layered into everything from your iPhone to average digital cameras. The Earth is the best natural index for such geo-coded information and we all can use it as an organizing framework — no matter if we are literate or not, old or young. if you have not yet used Google Earth , it is simply mind-blowing. It has an entire map of the planet that you “fly” around. (You can even use one of two flight simulators: a Cessna-like prop plane or an F-16 — do those folks have style or what?) Google Earth has a comprehensive set of information layers: traffic, weather, “time” where you can go back in time over the same spot; even the New York Times is geo-coded so you can look on the map and see what Times articles are about that location. In this way, the Earth is an entire organizing paradigm for information of all types.

Google Earth is so effective because it taps into a deep image that we all understand — the planet. The Earth can be the image that we drape our data upon to better understand patterns and activity. Our Demand Lens effort was a reasonablest stage, and I’d like to try to build this layering capability into Google Earth, or some other geographic presentation so that we could show where demand for different markets is over time, across regions, by layer and industry.

So, why should an executive care? Well, if you have a superior representation of demand, competition, and how well your investments of people and assets are deployed, you are more likely to win in the marketplace. What’s cool is that it is easy to geo-tag everything from photographs to news stories, so creating a Demand Lens can does not have to be a one-time event. It can become the scaffolding you hang all your reasonablem’s applicable data “on top” of. It will help you turn information overload into a corporate asset — with a common view on how your little world is operating — which will give you an information advantage in a hyper competitive market.

Finance News

How GM’s Rick Wagoner Failed to Lead in a Crisis

March 31st, 2009

What is good for General Motors is good for the nation went the saying. It is a distillation of a comment made by former GM chairman, “Engine Charlie” Wilson, in a Senate conreasonablemation hearing in regards to his being appointed Defense Secretary in the Eisenhower administration. The Obama administration updated the adage by asking for the resignation of then current CEO, Rick Wagoner. The administration was stating literally that what is good for the nation now is new leadership at General Motors.

Few would argue. Under Wagoner’s nine-year tenure at CEO, GM has missing invoiceions in revenue, added invoiceions in debt, and hemorrhaged sizeable market share. Wagoner did his level best, but his best was not good enough. So let’s inspect three things Wagoner failed to do effectively.

Resist the culture. Manufacturing is a hard business and few are harder on mind and body than the automotive business. Millions are spent in minutes so urgency is always paramount. Yet at General Motors a culture of non-confrontation arose, in marked contrast to the rough and tumble world of making cars and trucks. At GM, if you went along, you got along. Wagoner never pushed back hard enough against that culture of the status quo that was so out of step with the harsh reality of the industry itself. Culture nurtures organizations but when the culture hinders the practice of management in a changing world it must be resisted.

Demand hard solutions. Wagoner, a career <a href=”http://www.financeandrefinance.com”>finance executive, never pushed his people to come up with new ideas that would shake the status quo. As a result, for far too long, General Motors allowed itself to be pushed into complacency by sky-high labor costs and an unwieldy dealer network, not to mention keeping seven brands alive in a shrinking industry. hard solutions begin with asking hard questions and holding people accountable until new solutions are proffered and implemented. In other words, if you want to make an omelet, you better break the eggs.

Be nimble. Crisis demands change urgently. But until very recently General Motors acted (at least in public) as if everything would be okay. After all, this was a company that was a century old and had weathered countless recessions, including the fantastic Depression. When the credit implosion hastened GM’s lurch into insolvency, Wagoner and his team were left with a single option: seek federal loans. Responding to crisis demands agility by putting the right people in place to make good decisions quickly and responsibly well before major crises strike.

In many ways, Rick Wagoner was too easy going to be GM’s chairman. To his credit he is personable and very well-liked. He is also collaborative. Wagoner readily shared the limelight, something few senior executives are willing to do. Knowing that product development was not his strength, Wagoner recruited the legendary “car guy,” Robert Lutz, out of retirement to reimperativeize GM’s bureaucratized product development processes. As a result Cadillac and Chevrolet brands were reenergized and new products came to the fore. Wagoner also pushed GM hard to embrace green technologies. But it was too little too late.

After all, a company in peril is one that needs innovative and curious leadership that is hard enough to ask hard questions that provoke strong people to re-think their approaches to doing business in world turned upside down.

Finance News

Why Rick Wagoner Had to Go

March 31st, 2009

The message to the auto industry from the Obama administration is loud and clear: Transform or die.

It was only a matter of time before GM’s Rick Wagoner would have to go, and the board with him. I am surprised he lasted this long, a fact that also shows weakness on the board side. if the government invests or lends, then, like any bank or investment group, it can demand accountable leadership that can deliver performance.

In November, I challenged and criticized the reasonablest GM and Chrysler plans submitted to Congress, saying in many venues and media that the plans lacked credibility and contained no new ideas. maybe Chrysler found a new partner, Fiat, just in the nick of time to save a company not viable by itself, but that’s not a certainty yet. GM merely offered to do what it was already doing, but said it would do it more cost-effectively. Unlike Ford, which had recognized the need for major change well over two years ago, GM waited too long to make necessary strategic and organizational changes, which are just as important as expense control and financial restructuring.

In this hard economic environment, if you wait too long to envision and implement transformational changes, you are out of the game. That holds for every industry under attack because of obsolete business models, including newspapers and big pharma.

When organizations are in trouble, transformational change almost inevitably requires new leadership at the top. It is hard for leaders who let people down to succeed in pulling them up. That is one of many reasons why turnarounds often begin by replacing the people in charge. New leaders at the top can bring a novel perspective, unburdened by the need to justify strategies of the past and not stuck in a narrow way of thinking, e.g., that the current plan is the only option. As the saying goes, it takes a new broom to sweep clean.

Even when executives who presided over a period of decline admit mistakes, it is almost impossible for them to stir up the organizational energy needed for a turnaround. Those failed leaders symbolize the weight of past losses. People tend to interpret their actions as self-justifying, chosen to rewrite past history. After all, if the old CEO had wrong ideas in the past, why should people believe he or she has the right idea now? For GM’s Wagoner, as the problems got worse, the loss figures got bigger, and little else appeared to change, his credibility slipped into the negative zone too.

Companies finding themselves in a downward spiral need fresh views, not just redoubled efforts to do the same thing while waiting for the recession to end. That is especially true in this period of economic meltdown, because the downturn will accelerate industry transformations already in progress and require radical reinvention of major institutions and business propositions. When we emerge, some things will never be the same. Turning points will become no-turning-back points.

Now is the moment for every company to do what GM failed to do fast enough and imaginatively enough: rethink everything. What is the core of your offering that takes you into the future, and what is just legacy, continued out of sentiment? What new ways can you combine products or services to produce new value? What new partners would extend reach and capabilities?

The only way to stay alive is to envision big change and take early steps to be ready for it. That certainly is the only way to avoid a revolution or a palace coup. But this isn’t just about how Rick Wagoner could have kept his job. It is a way to save and reimperativeize a company by transforming it into something better able to provide value in the future.

Finance News