The Ascent of Money

From Main Street to Wall Street, the ongoing financial crisis has changed the very nature of society and enterprise. The PBS production, The Ascent of Money with Niall Ferguson, can now be viewed online. The four-hour documentary seeks to trace the evolution of money and its impact on society throughout history. I commend the film to my readers.

The Ascent of Money on PBS

Business Intelligence and Spreadsheet Redux

A recent survey released by Nigel Pendse and the Business Application Research Center (2009, “BI Survey 8,” BARC) seems to confirm that business intelligence (BI) is less the domain of information technology (IT) than it is of "disenfranchised" spreadsheet-users. Stephen Swoyer of The Data Warehouse Institute (2009, “Report Debunks BI Myth”) offered this commentary on the BARC survey results:

Business intelligence vendors like to talk up a 20/80 split -- i.e., in any given organization, only 20 percent of users are actually consuming BI technologies; the remaining 80 percent are disenfranchised. According to "BI Survey 8," however, most shops clock in at far below the 20 percent rate. In any given BI-using organization…, just over 8 percent of employees are actually using BI tools. Even in industries that have aggressively adopted BI tools (e.g., wholesale, banking, and retail), usage barely exceeds 11 percent.

James Standon of nModal Solutions (2009, “Business Intelligence Adoption Low and Falling”) concludes that analysts tend to choose BI tools that are best able to get the job done, and more often than not, that tool is the electronic spreadsheet:

Big business intelligence seems to think that BI for the masses is a tool problem - something in how their portal works, or how many rows of data per second their appliance can process. Sure, if the tools are hard to use or learn, it's a factor, but I think more often than not business intelligence isn't used because it's not providing what is required… Often, people use Excel [Microsoft] because last week they didn't know exactly what they needed, and it is a tool that lets them build it themselves this week when the boss wants the answer and there is a decision to make. With all its flaws, it's still the most adopted business intelligence tool in the world.

Sharing vs Collaborating Organizations

Recently, I came across a dichotomy in terminology that was not simply instructive, but explanatory. The terms to be compared were “sharing” and “collaborating.” According to the Free Dictionary, sharing means “to participate in, use, enjoy, or experience jointly or in turns,” while collaborating means “to work with another or others on a joint project.” The implied word analogies are instructive, as sharing is to participate, use, enjoy, and experience, as collaborating is to work, produce, achieve, and attain.


So, what is my point? What I am trying to say is that sharing is not the same as collaborating, especially when it comes to work. Too often, co-workers are willing to share data and information, but their motivation in sharing is merely to participate, use, enjoy, and otherwise experience an outcome devoid of personal responsibility. Conversely, co-workers who collaborate in a joint effort are working to achieve some ends to which each collaborator extends some degree of personal responsibility.

With these distinctions in mind, how would you describe your organization of interest? Is it a sharing organization or a collaborating organization? Is the purpose of the organization lost in confounding experiences and participation, or is the purpose of your organization found in joint work endeavoring to achieve a common purpose or cause?

In my past writings, I have argued that the future of enterprise depends upon its capacity to be inclusive, transparent, and inventive. But, to achieve these ends, the enterprise must first transcend the passive sharing inclinations of its members to become instead a vibrant collaborating organization where work is defined by its combined efforts to achieve common goals. While it may be fun to share, collaboration is what advances enterprise to a higher cause.

The Future of Enterprise

The political changes that are sweeping our nation are also affecting the future of enterprise. And while the “old guard” of society seems to be desperately seeking evidence of a return to common ideals and shared experiences, what is instead emerging are demands for change that seem to be grounded in a diffusion of concepts and cultures, but which appear nonetheless to be adaptively converging into a tidal wave that is enveloping enterprise and governments alike. The integrating vectors of this new wave of constituent thinking are calling on the future of enterprise to be inclusive, transparent, and inventive:

Be inclusive. Pluralism requires that every stakeholder be a supportive party to the solution. The days of elitism (where a few decide what is best for everyone) and populism (where a simple and often slim majority imposes its will on the remainder) are waning in favor of a new yearning for super-majorities of hyperactive constituents.

Be transparent. Stakeholder confidence in enterprise management regimes can only “reset” if the financial state of the firm is reported in real-time, and the underlying assumptions of financial projections are fully disclosed. Indeed, all future paths for enterprise management (including governance) should be paved in disclosure.

Be inventive. Effective enterprise will require new concepts and technologies that transcend monopolization and commoditization in order to achieve more authentic and genuine forms of competitive advantage that respect the community, environment, and security challenges of our time. Moreover, while past solutions have most often focused on ways to mitigate risk, the time has arrived for inventive thinking that actually reduces the risks our society fears most, both natural and manmade.

As a businessperson, I have begun looking for new projects that are “real,” by which I mean projects that require inclusive teamwork, non-proprietary transparency, and an inventive spirit that seeks to address business problems in ways never before considered. The future of enterprise is upon us – and it is real.

Spreadsheets Are Back

A recent poll of over one thousand LinkedIn members returned some interesting insights into spreadsheet usage patterns in companies. Respondents were posed with the following statement, and were then asked to provide a single response as follows:

I use spreadsheets _____ in my work.
· Never
· Rarely
· Monthly
· Weekly
· Daily

The results found that 80% of respondents use spreadsheets on a daily basis, while another 11% use spreadsheets weekly. In all, over 90% of respondents are apparently using spreadsheets at least weekly in their jobs.

The other interesting finding was that spreadsheet ubiquity was at its greatest in enterprise and large firms where a full 85% of resondents reported using spreadsheets on a daily basis, while another 10% reporting weekly usage.

One respondent left a comment claiming to have selected "daily" only because "constantly" and "hourly" were not offered as options. Still another respondent voiced surprise that "daily" users were less than 95%. One apparent critic of spreadsheets commented that the poll was "a waste of time."

Results were generally even across age groups. However, males reported somewhat higher daily spreadsheet usage than females. The survey was open to all LinkedIn users between April 24 and May 19, 2009. There were 1,094 voluntary participants in the survey.

More

Challenging Commoditization and Monopolization

I recently responded to an article by Max J Pucher entitled, “The End of Capitalism," and I wanted to share that response here in order to introduce my views about how economic reform must subordinate to political reform in order to resolve our society’s economic woes:

I have to agree that “capitalism” is not what I see operating the new economy. In fact, governments long ago rallied in support of two opposing themes that are rank with proximity to the economic crisis. These two contradictory themes are monopolization and commoditization. Everyone knows what a monopoly is, and it is evident that enterprise-scale monopolies such as government and healthcare are thriving in the new economy. The second theme of the new economy has been the rampage of commoditization through major industries, whereby goods and services become undifferentiated resulting in loss of pricing flexibility. Lower prices is good news for consumers, but often results in lower wages for workers. Two industries that have been ravaged by commoditization are financial services and automobile production. That these industries would become the leading scapegoats of the expanding economic crisis is of little surprise.

The global economic system has become a corrupt choice of supporting either “big government” or “big business,” making the real losers the people and society. This polarization of the political economy is untenable. Society’s only hope is that the electorate reframe the debate from “economic” to “political” reform, whereby we the people accept that elitism (which advocates extreme commoditization of industries) and populism (with its relentless and expanding commitment to government sponsored monopolies, including national security and healthcare) should now yield to pluralism, and devote instead the energies and resources of government toward the broader needs of a more active and relevant citizenry, albeit at the expense of “enterprise” scale designs. Indeed, it may be time to relook the notions of republicanism and federalism as the political systems upon which to ground capitalist society. We, the people, have much work ahead of us in order to reinvent our world into pluralism in our time. Let’s hope it’s not too late.

Limited Purpose Banking

Prof Laurence Kotlikoff and Dr John Goodman make an interesting case for so-called, "limited purpose banking," the essence of which is that "banks would let people gamble, but they would not themselves gamble." Their modest proposal has intriguing potential. Check it out...

Back to Basics

Analytical Forecasters Needed

The ability to forecast results is now the top concern of US, Asian, and European chief financial officers according to a recent survey of nearly 1,300 senior finance executives by CFO Europe, Tilburg University, and Duke University (CFO, April 2009). That finance chiefs now rank their ability to forecast effectively as their top internal concern is instructive for the future of enterprise management. Other issues, such as working capital management, maintaining morale, and counterparty risk, stood behind forecasting as the top concern. As the global economic crisis continues its onslaught across the enterprise landscape, there appears to be a crying need for experts (and expert systems) in analytical forecasting around the world.

Risk Management in Demand

As the global financial disaster continues unabated, research is beginning to percolate findings about some of the causes of the storm, as well as the precautionary measures that might avert future crises of this nature. In a recent survey of over 500 key financial executives conducted by MPI Europe (April 2009), several important views prevailed. One of the survey's strongest findings was the perceived need to develop a “risk management culture” in today’s financial institutions, including bolstering the relative power of risk management functions vis-à-vis its trading counterparts. Now, as good as that sounds, I am skeptical as to whether our financial services industry has it within itself to embed a new risk-aware culture without demonstrable intermediate measures to lead the way (after all, our world is inspired by capitalism). The good news is that several other findings were more specific and actionable. Over 75 percent of the respondents saw a shortage of sufficiently and appropriately trained personnel as having a “high impact” on creating the crisis. Additionally, a significant majority of respondents wanted to see an improvement in their “risk management applications,” to include a shift from predominantly quantitative measures toward qualitative methodologies (e.g., internal controls). Both of these latter measures are fully actionable through increased investment in risk management technologies and training. Moreover, implementing stronger spreadsheet control regimes, coupled with stricter guidelines for spreadsheet checking and auditing, are another immediate requirement. Finally, I would argue that by funding and initiating improved risk management technologies and training, executives will be taking the first vital steps toward creating the risk management culture that they seek. The recognized need for effective risk management is gaining traction in today’s financial services industry. The real question remains whether the industry’s leaders will have the courage to recognize the deficiencies of their existing risk management structures, and respond by investing in the technologies and training that can address these shortcomings.

Valuing Business Intelligence

I have a theory I am pondering based on my reading of the emerging business intelligence literature. My hypothesis is that the more efficient and simple the analytical framework between the data and the decision, the more valuable the intelligence becomes. Said another way, if intelligence is what connects data to decisions, then the value of the intelligence increases as the analytical framework that supports and generates the intelligence is simplified. A related research question would be whether decision-makers who do their own analytical work make better decisions than those who rely on intermediaries. If I ever test the theory, I suppose the results could have implications for existing and emerging enterprise resource and risk management regimes, as well as management science in general. If you are contemplating a future research topic, this might provide you with a starting point.

The Ten Commandments of Risk Analysis

The Ten Commandments of risk analysis according to Prof Granger Morgan and Prof Max Henrion (1990):

• Do your homework with literature, experts, and users
• Let the problem drive the analysis
• Make the analysis as simple as possible, but no simpler
• Identify all significant assumptions
• Be explicit about decision criteria and policy strategy
• Be explicit about uncertainties
• Perform systematic sensitivity and uncertainty analysis
• Iteratively refine the problem statement and analysis
• Document clearly and completely
• Expose to peer review

Elevating the Roles of Risk Analysts and Managers

The ongoing economic crisis has brought with it a heightened interest in risk analysis and management. Yet, something seems awry at the risk management desks of our nation’s largest banks and financial institutions. Goldman Sachs CEO, Lloyd C Blankfein was recently quoted as saying, “too many financial institutions and investors simply outsourced their risk management -- rather than undertake their own analysis, they relied on the rating agencies to do the essential work of risk analysis for them.” Mr Blankfein contended that banks and financial institutions must elevate the status of risk analysis in order to alleviate the “systemic lack of skepticism” that he alleged was precursor to the ongoing economic crisis. Mr Blankfein suggested that banks and financial institutions redefine the roles of risk managers, including giving them equal stature “with their counterparts in revenue producing divisions.” This redefinition of roles includes delegating greater responsibilities and authority onto risk managers, whereby “if there is a question about a mark or a disagreement about a risk limit, the risk manager's view should prevail” (WSJ, April 7, 2009). My personal interpretation of Mr Blankfein’s statements is that those trained and charged with risk analysis and management were apparently left standing outside the boardroom as our nation’s banking and financial “executives” undertook investment policy-making in isolation. Let us hope that the regulatory changes to come might at least mandate that risk managers and analysts get a seat at the table.

It's All About Skills...

I was recently asked the following question about higher business education: "Does an MBA breed authenticity and humility or arrogance in the name of leadership?" Well, if we can first transcend experience and degrees, and ask instead about skills (both hard and soft), then we begin to ask better questions, such as, "Who has the skills to get the job done?" Of course, skills can be acquired through both experience and higher education (or not). For this reason, I always ask management applicants about their skills, rather than their education or experience. "What skills do you bring to the table?" Responses such as, "I have years of experience," or "I have years of college," evade the question. My advice to everyone is make your experience and higher education translate into more and more skills, and do not assume that simply being "present" in experience or education is the same thing. As for where a person acquires their skills, who cares. If we can all focus on skills, rather than experience and education, then we can be best assured the right people are in leadership.

Working on Wall Street

In some ways, the financial services industry is overdue for a good house-cleaning. And no doubt, the culture of the money management business will change accordingly. Whereas excesses in staffing have been common at many financial services firms in recent years, the reality is that only those who produce value will have a place in the reworked financial services industry. Creating value in financial services is not easy. Which leads to one of my favorite interview questions for job applicants, "Explain how one creates value through finance..." Those who can respond effectively to that question have a future in financial services.

On Management "Style"

The matter of "baby-boomers" remaining in control of their destiny has significant implications for management, particularly since society has yet to send the "Bob Hope" generation packing. For example, the US Congress is still dominated by members born prior to World War II. For this reason, there may actually be a generation "skipping" tendency in favor of younger leaders from diverse backgrounds -- witness Barack Obama's rise to power. My sensing is that there is a large segment of our society that views "change" as the replacement of anyone born prior to 1955 with much younger leaders. The impact of these views on management selection could be significant in the coming years. The second issue confronting management is the continuing demise of elitism, the entrenchment of populism, and the rise of pluralism. The net result could be a generation of leaders who insist on securing more than a simple majority in support of their decisions, but rather require a plurality of support closer to two-thirds majority. Imagine if the US President vetoed legislation because it did not come with two-thirds support of Congress. If the same approach took hold in corporations, it would require boards to listen carefully to all of their stakeholders in depth. In summary, I believe that generational issues coupled with society's move toward pluralist thinking will require mangement to change its "style" of decision-making in the coming years -- probably for the best.