June 22, 2009 | Refinancing


Archive for June 22nd, 2009

How Bad Is Your Company’s Consumer Debt Exposure?

June 22nd, 2009

As reported in the web-exclusive article “Consumer Credit: The Next Crisis,” American consumers are carrying a dangerous, unsustainable amount of debt. Over the next several months, many will default on their loans. The authors of the article, investment banker William Jarvis and Wharton School professor Ian MacMillan, warn we should brace ourselves for record numbers of personal bankruptcies.

Still more consumers will not file bankruptcy but will radically slow down on both borrowing and spending. That’s exactly what they should do for themselves. But the cumulative effect on the economy of all this deleveraging and defaulting is troubling.

The consumer credit crisis will endanger many businesses. Your company’s sales, gross margins, and bottom line are probably more exposed than you realize. (To make matters worse, you’ll probably never see the rates of growth you came to depend on before the current slowdown–because far too much of that growth was fueled by easy credit that never should have been granted.)

But how do you know how exposed to consumer leverage your business is? Jarvis and MacMillan have created an HBR Toolkit (downloadable PDF) to help you figure that out.  The article shows, step-by-step, how to calculate Consumer Leverage Exposure, or CLE, a metric they advocate for companies reporting on a regular basis. CLE helps you to quantify both the damage that increasing levels of
consumer default would wreak on your company and how much your company’s
own indebtedness plays into that exposure.

The Toolkit takes you through the calculations with a fictional company called JarMac, and includes a CLE calculator (downloadable spreadsheet) so that you can plug in your company’s numbers to see your exposure.

As the authors note, it’s too late to prevent the the credit crisis, “but thankfully, this corporation killer can be diagnosed,
analyzed, and managed.” The toolkit and calculator “can help you identify
the warning signs of consumer leverage exposure (CLE) and take action to
forestall much of the crippling impact it could have on your company.

“Managers that ignore the warning signs and leave their company
vulnerable will have only themselves to blame.”


Finance News

Great Communicators are Great Explainers

June 22nd, 2009

In the months since Barack Obama has taken office, a curious thing has occurred in his communication style. He has toned down the rhetoric and geared up the details. As Don Baer who once worked for President Bill Clinton put it, Obama is now “the Great Explainer.”

In doing so, Obama is following in the tradition of a previous president, Franklin Roosevelt. At his best, Roosevelt, either on radio or to the press, took on the role of a trusted friend explaining things in simple terms so that anyone could understand them. For example, Roosevelt compared the U.S. program of Lend Lease to Britain in 1941 to a neighbor lending a garden hose to a neighbor trying to put out a house fire.

Explanation is a key attribute of leadership communications. Leaders know to inject their communications with verve and enthusiasm as a means of persuasion, but they also need to include an explanation for the excitement. What does it mean and why are we doing it are critical questions that every leader must answer with straightforward explanations. Here are three ways to become an effective explainer.

Define what it is. The purpose of an explanation is to describe the issue, the initiative, or the problem. For example, if you are pushing for cost reductions, explain why they are necessary and what they will entail. Put the cost reductions into the context of business operations. Be certain to explicate the benefits.

Define what it isn’t. Here is where the leader moves into the “never assume mode.” Be clear to define the exclusions. For example, returning to our cost reduction issue, if you are asking for reductions in costs, not people, be explicit. Otherwise employees will assume they are being axed. Leave no room for assumptions. This is not simply true for potential layoffs but for any business issue.

Define what you want people to do. This becomes an opportunity to issue the call for action. Establishing expectations is critical. Cost reductions mean employees will have to do more with less; explain what that will entail in clear and precise terms. Leaders can also use the expectations step as a challenge for people to think and do differently. Your explanation then takes on broader significance.

Good explainers need to be careful, however, not to overdo the details. In a town hall meeting format, the leader sketches the facts and supports them with data points. Dwelling too long on a single point, or points, risks not simply boring the audience but confusing them. Save detailed explanations, which are necessary, for written documentation or team meetings. The latter presents an opportunity for the next level of leaders to translate the communications into action steps.

As such, detailed explanations work well in face-to-face situations, or in team meetings. They become opportunities to elaborate on possibilities. More important, they also allow individuals to offer their feedback, something that typically cannot occur in large-scale town hall events. The explanation becomes an invitation for discussion, and skillful leaders use it to communicate not simply facts, but also to engage support for their ideas.

One final point. Explanations may include aspirations. On March 31, 1945, Franklin Roosevelt gave a briefing to Congress on his meeting with Churchill and Stalin at Yalta in which the future of post-War Europe was discussed.

During the course of his presentation to Congress, as H.W. Brands writes in a brilliant new biography of Roosevelt, Traitor to His Class, the President, only weeks from death, mused momentarily to talk about the need for enduring peace. “Twenty-five years ago, American fighting men [in reference to World War I] looked to the world to finish the work of peace for which they fought and suffered. We failed them then. We cannot fail them again.”

FDR, like all good leaders, knew how to close a good explanation with an equally good challenge; it puts people on notice and gives them a reason for action.

Finance News

Learning from How Designers Think, and How Designers Do

June 22nd, 2009

When I was in business school, Stanford’s d.school was just a glimmer of a thing living in a trailer across campus, barely known to most of us business students. Five years later, there is much discussion in the business world about design’s evolution from producing of objects to producing a broad framework for ideas and solutions, including recent thought-provoking commentary from both Paola Antonelli and Bruce Nussbaum. Before coming to RISD, I loosely understood “design” and “design thinking” as a methodology focused on ethnographic research, rapid prototyping, and iterative process, already married closely to business innovation. To me, a designer’s tools felt like the combination of social science and business that had attracted me to product marketing: conducting user research, defining a product, testing it and revising. I remember going to a design strategy convention at IIT and being struck at how similar it felt to market research conventions.

Since beginning to work at an actual design school (RISD has had the word “Design” in its name since 1877), and since beginning to manage graphic designers day in and day out, my perspective has changed. I see now that my previous exposure to design had me jumping in on the tail end of design’s evolution, without knowing its true core. After a year here, I’m beginning to see the more foundational tools that designers employ to do their work — and I’m wondering what kind of applicability those have to business.

I see now that designers are people who can make information emotional and visceral, who can make a bigger impact by thoughtfully marrying form and content. They are “experience perfectionists,” the ones who always ask about the space a meeting will occur in so they can arrange the room and have music or images playing when people walk in. They are obsessed with materials; they can have a completely literate and thoughtful conversation about the width of a rubber band being used as a book binding, and how it will change the way the book is perceived.

In other words, to make their points they use a toolkit far more expansive than the typical tools of business, like spreadsheets discloseing the “bottom line” or well-reasoned emails. They solve problems with their hands and their hearts, not just a keyboard and reasoning.

Earlier this year I had the opportunity with John and Jessie, RISD’s provost, to organize a group of RISD professors, designers themselves, to create a day-long salon with one of RISD’s favorite collaborators, Target. Rather than structuring the agenda by asking just “What do we need to accomplish?” as I would have done, they begined by asking, “How do we want it to feel?” We designed the day not by lining up bullet points on a printed page, but by envisioning the day’s ebbs and flows, its moments of insight and hard work, its hands-on moments in the studio, reflective moments listening to live music, moments in hard-backed chairs and moments on soft sofas.

By the end of the event, the power of the designers’ expanded toolkit truly discloseed itself, and it was clear to me that we accomplished much more than we would have sitting in a convention room all day. Each time we’ve brought companies to RISD, I see their eyes opened to the full spectrum of what design can be. Business is already beginning to see the wisdom of using these design methodologies for building products and strategies.

What’s interesting to me is how — or whether — the other principles that design is built on intersect with business, too. How can business people use the emotion, the holistic perspective on presentation and experience, and the intense focus on making as well as reasoning? Can you get your CEO excited about the feng shui of a rubber band? Where might this way of thinking help you in your business?

Finance News

New Moon on Monday: Market Lunacy Update

June 22nd, 2009

There’s a new moon today, and I’m wondering what it will mean for the stock market. Believe it or not, past and current research suggests that returns may actually go up.

HBR is still receiving comments from readers about “Market Lunacy,” a brief article we published in November 2006 about Ilia Dichev and Troy Janes’s study of correlations between stock market activity and lunar cycles. In their review of 25 stock exchanges over the past three decades, they found that annualized mean daily returns for G-7 countries were higher in the days around new moons than in the days around full moons.


Source: Ilia D. Dichev and Troy D. Janes, “Lunar Cycle Effects in Stock Returns,” Journal of Private Equity (Fall 2003)

Although readers’ comments range in tone from “This is crazy talk” to “It’s true, and my own study confirms it,” the findings have struck a responsive chord. When I asked Dichev and Janes whether any new data were available, they referred me to some recent findings by an independent source: CXO Advisory Group, a website that provides research and analysis for investors and financial advisers.

CXO Advisory Group’s research focuses on U.S. stock market activity from January 1990 through October 2008, examining daily closing prices for the S&P 500 Index and the dates for new and full moons. Its results are in “rough agreement” with Dichev and Janes’s work; the study finds “intervals centered on new moons outperforming those centered on full moons.”

Let’s see what this interval brings.

Finance News

An update regarding the RSS feed (internetmonk.com)

June 22nd, 2009

The IM tech team informs me they may have squashed the bugs that recently cropped up with the RSS feed. Please clear your cache and relaunch your browsers. Thanks for your patience as we work to improve IM behind the scenes. If you continue to experience issues with the RSS feed not publishing complete articles, please do let me know.

Source : internetmonk.com (subscribe)

Explore : Browsers, Technology

Finance News

RSS for comments now available (John Nack on Adobe)

June 22nd, 2009

I’m experimenting with a new RSS feed that should enable you to follow comments on this blog via your news reader of choice. The feed appears to be rolling along, and I welcome feedback and advice. (And please tell me…

Source : John Nack on Adobe (subscribe)

Explore : Technology

Finance News

Advani tries to humour RSS (The Telegraph India)

June 22nd, 2009

New Delhi, June 21: BJP leader L.K. Advani today ruled out the possibility of redefining the relationship with the RSS and publicly endorsed the need for a younger leadership,

Source : The Telegraph India (subscribe)

Explore : Asia, India, Technology, World

Finance News

Defensive sectors shore up Asia markets

June 22nd, 2009

Asian stocks edged up, supported by buying of defensive sectors, while the US dollar rose on caution ahead of a Federal Reserve meeting this week when policymakers may extend programmes to keep borrowing costs low

Finance News

Wall Street posts losing week

June 22nd, 2009

US stocks were mixed but posted a losing week for only the third time since the lows of March as economic data and earnings reports suggested hopes that the recession will soon be over are premature

Finance News

Pranab Mukherjee defends despatch of Central forces to Lalgarh

June 22nd, 2009

New Delhi, June 22: Union Finance Minister Pranab Mukherjee on Monday defended his decision to despatch the Central forces to Lalgarh in West Bengal, signifying Centre’s commitment to provide security personnel to any state government which requests for them.

Finance News