Where will all the new money come from?
Image via Wikipedia
Today’s brief analysis of US Treasury Yield curves and the Debt profiles of both the USA and Italy highlights the enduring question in the title of this post.
The first graphic highlights one important issue. We chose 2 August 2011 versus 17 February 2012 as key dates to compare the US Treasury Yield curve. If we cast our minds back to 2 August 2012 two key facts emerge:
- This was the D-Day of the US Debt Ceiling vote
- The US still had a Triple A credit rating
The key take-away from the Yield Curve comparison is that even with a ratings downgrade, the US is actually able to borrow new capital at a lower rate of interest 6 months on.
However, to pour a bit of realism into the analysis, we highlight two interesting Debt profile graphics below.
The first one is the USA Treasury Maturity curve (admittedly 6 months out of date), highlighting when the current debt will need to be redeemed or rolled over. The second is the Italian Bond Maturity curve. You will notice just how similar the USA and Italy Debt Maturity profiles are.
From this comparison, the critical question currently for us is:
Where will all the new money come from to roll over the debt maturing during the next 3 – 12 months? QE is one option, but investors still need to be convinced that their capital is safe and relatively risk-free. It is the Risk-free equation (or investor risk appetites) that needs to be explored in more detail.
theMarketSoul ©2012
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- Not Making Sense Of The Economy (lezgetreal.com)
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- Bond Report: Treasurys stay down after 10-year auction (marketwatch.com)
- Bill Gross Exposes “The New Paranormal” In Which “The Financial Markets And Global Economies Are At Great Risk” (zerohedge.com)
- Are western central banks having an existential crisis? (ftalphaville.ft.com)
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Collaborative nano and micro business ventures
“Don’t waste a good crisis” – not entirely sure who first uttered these immortal words, although a Google search on initial analysis seems to attribute it (or some very similar words) to Rahm Emmanuel, the current Chief of Staff of the White House, part of the Barack Obama administration. The actual phrase might be attributed to an economist called Paul Romer.
However, irrespective of who uttered the words initially, it is true that borne out of crisis the spirit of innovation always seem to rise like a new Phoenix bringing both hope and opportunity with it.
That is the great gift that the ‘study of scarcity’ that is economics provides us with.
We have the chance to think creatively about new platforms of collaboration and how Charles Handy‘s ‘Shamrock Organisation’ will eventually play out.
At the moment we are conducting a research study into how nano and micro businesses might find new routes to market and sustain themselves during these strained economic times as part of the extension of the outsource provider to the Shamrock Organisation. We will be trying to uncover some of the factors that lead to collaboration and other forms of formal and informal business structures that promote and underpin this form of collaboration.
Please watch this space for updates in the very near future.
theMarketSoul ©2010
Random Collisions of Chance
Chance and spontaneity are two interesting phenomenon required for innovation and creativity.
We were reminded of this in an interview recorded of a LinkedIn executive recently*. He stated that chance encounters are “where we make some of our most significant connections“, be it your life partner, business associates, etc. and that speeding up those chance encounters was one of the fundamental principles and aims of social networking.
That idea struck a chord with us. Like our free market principle of ‘Spontaneous Order’, random collisions and network creation, leading to opportunity exploitation and ultimately wealth and welfare maximisation is intuitively an attractive proposition.
So, we have the mechanisms in place, with online tools and social networking sites, but how much of this activity is outward focussed revenue and income generating? What is meant by this is that the revenues are not focussed on increasing advertising and network operator revenues, but individual participant to participant’s opportunity flows.
And beyond building an online presence with followers and individuals being influencers and thought or trend leaders in their domains, how many of us focus on being revenue leaders and wealth and welfare ‘maximisers’ in this space?
Do you have personal metrics of success, which help inform and modify and moderate your personal behaviours to ensure that you maximise your ‘Return on Ether-time’? [ROET]
Maybe it is well worth a thought because in the neo-classical world of market participation, if you aren’t in the market and making a living (or a half descent living) from it, you might get marginalised and lose out on the wave that hit us when Web 2.0 arrived.
* We are searching for a link / reference to this interview. Once we have found it, we will update this post
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Risk-Based Change Management
Introduction
Cost cutting has been a priority in the private sector, ever since the financial credit quake started in 2008, yet the words currently are ‘austerity measures’ and budget cuts in the public sector.
Most of the cost cutting in organisations has been along the tactical and operational lines and we believe that in the ‘age of austerity’ we are within, revisiting cost cutting from a more strategic perspective would add significant value to both the private and public sector organisation alike.
Budgeting (Photo credit: RambergMediaImages)
A Zero Based Approach
Within most organisations budgeting and budget setting is an incremental affair. It is very much focused on a business as usual mentality and the status quo is rarely questioned or scrutinised with any level of depth and rigour, as long as the financial plan delivers the numbers senior managers anticipate and the investor community expects.
Yet this is exactly the kind of ‘tyranny of the status quo’ that has destroyed a significant proportion of value in organisations over the past two years.
A zero based approach addresses some of the short comings associated with incremental budgeting and financial planning. It is by no means a perfect replacement for incremental budgeting, it cannot address all the strategic issues and it is fraught with its own pitfalls, yet we assert that a focus on some recent lessons learnt in organisations that have implemented cost cutting via a zero based approach can add value to our clients budgeting and financial planning systems.
Zero-based budgeting can be summarised as the process of preparing financial plans from a change perspective, normally building the financial plan from scratch (the zero base), viewing the process as if the organisation has not delivered the particular service of product in focus before.
Some of the lessons learnt are briefly listed below:
- Many versus few – Instructions and the interpretation thereof by individual users
Journal of Human Capital (Photo credit: Wikipedia)
- Focus on the Full Time Equivalents (FTEs) and people cost early in the process
- Check Payroll Data integrity
- Understand thoroughly the organisational restructuring issues (get Human Resources understanding the financial budgeting language early in the process)
- Ensure a distinction between building a Business Case versus Budgeting
- Confidentiality (how, who, what and staff and managerial morale implications)
- Education process and ensuring skills, knowledge and information convergence to ensure the budget is delivered as a value added ‘conversation’
- Appreciation of management style versus timetable for budget delivery
- Over communicate (more information is better than more or inadequate assumptions)
- Concentrate on the budget story (strategy and changes) and ‘hang’ the budget numbers on the end of the storyline (Making the budgeting process less ‘threatening’ to budget owners)
These lessons can be separated into two distinctive themes, namely the Human Capital dimension and the Systems issues.
Themes to be aware of
As far as the Human Capital dimension is concerned the major lesson is to ensure that both the budget holders and prepares are fully cognisant and understand the language of both budgeting and what the inherent risks and concerns around a zero-based approach is.
Key issues and risk are around work stream teams from different disciplines (HR, Finance, Operations, IT and marketing) not always having a common language and frame of references for similar linguistic terms and phrases. Ensure that potential for misunderstanding the objectives and delivery mechanisms are addressed early in the Zero Based Budgeting approach.
Foster a culture of empathy within the management ranks and never underestimate the emotional impact that getting rid of people can have on both the managers having to make the tough calls and both the staff being called upon to leave and the staff morale of the people earmarked to remain behind and deliver the business as usual processes.
As far as the Systems issues are concerned, ensure that enough time and preparation goes into the planning and delivery of the Zero Based Budgeting mechanisms and tools, as you will be running a process that has not been utilised and thoroughly tried and tested under operational conditions before. There are risks in the following areas to be aware of:
- Data integrity
- Spreadsheet modelling and calculation errors
- Documentation and the support services (handling budget holder queries and concerns)
- Skills and knowledge of the budget holders and preparers might be limited
A diagram showing the flow of knowledge in the Financial Planning Profession (Photo credit: Wikipedia)
Conclusion
As was suggested in the Lessons Learnt listing above, over communicate with managers, budget holders and preparers and staff. Ensuring that adequate information is made available in comprehensible and non-technical language is the key to success. Too often we have seen ‘lazy’ and shortcut assumptions being made, when a little bit of extra effort, ‘digging’ and asking the right people with the operational knowledge the right questions would ensure a more robust and rigorous budget.
Finally, ensure that both the process and outcomes are well documented and articulated as they serve as your shield and defence when the reality does not turn out as the best laid financial plan might have anticipated.
We view Zero Based Budgeting as a risk-based change management tool that assists and informs the senior managers in any organisation of the opportunities and risks inherent in designing and building innovative change processes to help add value to the organisation’s overall performance.
At theMarketSoul ©1999 – 2011 we have practitioners available who can assist you on a consultancy basis to operationalise the full 360 degree Financial Management practices most organisations require in order to ensure that they remain competitive, profitable and continue to create value.
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Continuing conversations in Friction Costs: Increased Friction Costs II
A few weeks ago we published what seems like our most popular blog article to date, namely Increased Friction Costs.
As it has been our most read article, we thought we might continue to build on the theme of Economic Friction Cost.
Image via Wikipedia
Williamson (1993) published some work on Transaction Cost Economics (TCE) in a book entitled The Economic Institutions of Capitalism’. TCE is an equilibrium theory and looked more closely at the firm level or micro-level analysis and at behavioural aspects of ‘rational choices’. Up until that point most economists had only considered production cost as part of profit maximisation assumptions, and not at transaction costs within the firm.
Transaction Cost Economics focuses predominantly on the governance of ongoing contractual relations (Williamson, 2007).
Image via Wikipedia
But what exactly, in practical terms are Friction Costs?
As stated in our previous article there is a large element of hidden costs implicit in Friction Costs. Friction Costs can be highlighted by analysing the end to end or life cycle costs of any product or service. A general rule of thumb that is applied to life-cycle costing is to take the visible ‘advertised’ cost and double it up. That exercise generally gets you very close to the full life-cycle cost of any product of service. This rule of thumb works with large capital projects, as well as estimating the full employment costs of hiring people.
But friction costs go further than this. You might call it the fourth dimension of costs as it incorporates time value and opportunity cost elements.
Time value has two specific meanings for us here:
- Time value due to down time, loss of productivity, etc. This is more accurately referred to a value of time
- Time value in terms of the diminishing purchasing power of money, due to factors like inflation and opportunity costs when money is not put to beneficial uses. This is the general use of the term Time Value of Money and ustilises Present Value techniques via a discount rate to work out the equivalent value of money in today’s purchasing power terms, whether we look into the past or into the future.
Thus, the two areas we have to focus on during the expansion of the Friction Cost exploration in the next article will be time value and opportunity cost elements, as part of our enquiry into delving into a better understanding of Friction Costs.
theMarketSoul ©2010
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Risk Management Ideas
Risk has as one of its essential elements TRUST as a foundation.
Trust on the other hand has many other factors that interplay and interact on it.
Markets are created when there are needs that are not immediately met from you local environment and therefore scarcity exists. Market participants step in to fill this ‘needs’ void.
Image via Wikipedia
As for any subset of Risk, either Operational, Market, Liquidity, Interest, etc. a big part of the assessment process it not just about looking inward and assessing the risk profiles, risk attitudes, risk systems, etc., but an important part of the process is stepping into the realm of uncertainty and looking outwards and the wider market context we find ourselves in.
Being too prescriptive about the individual risk profiles and control systems will only stifle innovation and growth. Some say we need a very healthy dose of growth right now, whereas others are content with the new world order of the ‘anti growth economic’ bias (our description of austerity) we have already entered in the Western Hemisphere.
Our positive risk management framework, also known as Value Oriented Risk Management encapsulates both risk and uncertainty management and combines it with the best offerings of Value Based Management. (For more information or to contact us, please click on the Contact us link or read the article entitled “The Intersection – Where Risk, Value & Reward“ link by clicking on the embedded link.
Our Value Oriented Risk Management is the positive Risk Management focus, acting as an enabler ensuring that you unlock value in your organisation a midst the regulatory compliance constraints added to your management agenda.
TheMarketSoul ©2010
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An Aggregated Challenge
Conspiracy theories!
Today we express an opinion on the phenomenon of ‘governmental’ economic landscape shaping.
Interference whether actively pursued or via involuntary actions promotes our heightened sense of concern by the effects that the aggregation of supply and therefore the encouragement, either directly or indirectly of oligopolistic and monopolistic market structures, is having on the global competitive landscape.
It has occurred in the financial services sector and it happening in the oil industry too.
Image via Wikipedia
Even though the barriers to entry are relatively high, having fewer competitors on the scene cannot be a good thing.
The trends we are spotting in the competitive landscape are as follows:
Imperfect competitive firms (many market participants with differentiated products & services) are being deluged with over burdensome bureaucratic regulatory requirements, shifting some of these additional transaction costs onto the ultimate (final) consumers, whilst in strategically important industrial complexes, such as energy supply, the aggregation effect is indirectly encouraged to ensure that national strategic and security interests are promoted.
Funny old thing, economic theory then…
theMarketSoul ©2010
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The Hungry Spirit
Today’s post is a very short and concise post, yet these are some inspirational quotes and extracts from two chapter’s of Charles Handy’s 1997 book entitled: “The Hungry Spirit“:
A Life of our own
Capitalism, efficiency and markets have their flaws, but also their uses. They are neither the complete answer to our dilemmas nor the only cause of the. They provide some of the context of our lives but not the purpose. For that we need a philosophy not an economic system.
A better capitalism
Left to themselves, things do not necessarily work out for the best. Laissez faire is value free. No one is responsible for anyone else. That is improper selfishness and can self-destruct. We need something better. Capitalism as an idea includes social capital as well as economic capitalism. One without the other will not work for long.
theMarketSoul © 2010
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Capricious Markets
The market is capricious. We are paraphrasing a line from one of Bernard Cornwell’s series of historic novels on 9th century England, where he referred to the ‘old gods’ (pagan gods) of the Danes and Vikings as capricious.
So if the impulsive nature of markets is to be appreciated for what they are, then why are we trying so hard to manage risk completely out of existence?
We will focus on two specific factors today in what we refer to as the ‘dumbing down of risk’.
A strict or narrow definition (old financial language) of risk is possibly that it is a quantifiable number with a probability ranking and we can therefore attach a statistical inference to the occurrence of the risk event.
Yet in The Health & Safety Executives language a risk and “Risk management involves you, the employer, looking at the risks that arise in the workplace and then putting sensible health and safety measures in place to control them”. So in the common language in the work place the HSE has managed to destroy the proper use of the work risk and risk management with this dumbed-down version.
In our mind, if the risk cannot be quantified and expresses on a scale of probabilities, then it is not a risk, but an uncertainty. And we can manage both risks and uncertainties, but the emphasis is different.
Maybe any situation or health and safety ‘risk’ can eventually be codified on a risk probability matrix, but the cost involved in getting to this situation is prohibitive, so we shall stick to our guns and call a health and safety issue a ‘Health & Safety Uncertainty’.
Image via Wikipedia
Let’s recap briefly the difference between what risk is (supposed to be) and what uncertainty is:
Risk in investment and market participation is the likelihood of a quantifiable measurable outcome either occurring or not occurring.
Frank Knight In his seminal work Risk, Uncertainty, and Profit, Frank Knight (1921) established the distinction between risk and uncertainty.
| “ | … Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated. The term “risk,” as loosely used in everyday speech and in economic discussion, really covers two things which, functionally at least, in their causal relations to the phenomena of economic organization, are categorically different. … The essential fact is that “risk” means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomenon depending on which of the two is really present and operating. … It will appear that a measurable uncertainty, or “risk” proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all. We … accordingly restrict the term “uncertainty” to cases of the non-quantitive type.” |
Too summarise therefore, risk should be a measurable and quantifiable occurrence, whereas uncertainty is what the HSE addresses, but misinforms as risk, namely the likelihood of something occurring, but that likelihood is not quantifiable.
So where does this detour into the use of language leave us as far as the Capricious Market is concerned?
We suppose that because market participants are both humans and mechanical systems (eg. ETS – Electronic Trading Systems), one of these participant groups, namely the humans have a level of sophistication and complexity (irrationality) that leaves the best construed risk models in tatters, once the uncertainty element of human emotion and the perception factor unleashed.
Therefore, to construct models of rational behaviours, the outcome and predictability of non-human mechanical systems (in other words more models) should be able to predict the behaviours of other models. But to extend this to human actors clearly moves us more firmly into the domain of uncertainty and not risk.
Therefore, we conclude that the markets will always be capricious as long as irrational beings are willing and able participants. Until this ceases to be, let us ensure that we get the use of our risks sorted out from our uncertainties.
theMarketSoul ©2010
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The Morass of Mediocrity
We link today’s article to one of our main themes on our home page, namely the ‘Battle against the Status Quo’, or as per the title of this posting, ‘The Morass of Mediocrity’.
Image via Wikipedia
The underlying intent and theme is that of competition and competitive behaviours and the difference between rules based and principles based standards.
It is our opinion that a rules based culture encourages more insular and introspective behaviours, where the rush is for the middle ground of mediocrity, rather than as the opposite principles based culture would be the encouragement for the search for innovation and competitiveness at the margins and extremes of the ‘functional envelope’. By this we mean the parameters and frameworks set-out in the principles based environment, to ensure that a well-defined playing field (not necessarily level), is established and market participants understand their boundaries and culture norms they have to adhere by as part of the participation process.
Yet, apparently, a more principles based regulatory framework is exactly what is being blamed for the Credit Quake of 2008 – 2010.
And if we analyse the circumstances that led to the regulatory failure and debt driven imbalance we currently experience, we would discover that it is because we operate in a hybrid world with symbiotic elements in the relationships between the private, public and third sectors.
Some of these factors include, but are not limited to:
- Market structure – free market versus socialist structures
- Regulatory framework – the disjointed regulatory frameworks and mixed agendas and the sense of urgency in the global regulatory framework
- Cultural setting – Anglo-Saxon, European, Middle Eastern, Far East, etc.
- Reliance on macro-economic tools including monetary and fiscal policies
- Skewed nature of national performance measurement
- Balance between equilibrium and disequilibrium clearance mechanisms in the economy
- Erosion of moral hazard and other distorting signals
Régulation de la machine à vapeur Merlin (Photo credit: zigazou76)
However, as a mainly libertarian focussed publication, it would be remiss of us not to endorse the principles of minimal interference (small government in other words), yet we also realise that this has to be tempered with personal responsibility. However, because the symbiotic (hybrid) relationships have become so skewed and dysfunctional over the last few decades, was it any surprise that the uncertainty this created led to opportunist behaviours? Because a ‘moral compass’ is a very relative term, is it no surprise that depending on your own individual position and point of view, that the direction it indicates will be different from others?
The G20 are meeting again this weekend and the global regulatory framework will again be in more detailed focus, yet other priorities are again distracting the main thrust and issues on the agenda.
Therefore to conclude this brief interlude into the ‘morass of mediocrity’, the real question is:
If we all run and work hard for the centre ground, who will remain at the margins, pushing the envelope and ensuring that we break the tyranny of the status quo by exploring new unchartered territories and responsible risk taking behaviours?
theMarketSoul ©2010
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Commentary on newly proposed UK Financial Regulation
The news headline: Osborne gives Bank of England top regulatory role
Our response:
Firstly, we are relieved to see no sweeping statements such as abolishing ‘boom and bust’, which by inference must mean that the ‘normal’ business cycles will from now on resume business as usual, albeit with slightly more volatile amplitudes?
The statement regarding more tools is interesting, because as far as we are aware there are two, maybe three specific tools available in the toolbox at the moment. Fiscal policy and monetary policy and the third one possibly being risk management. Therefore, as with the debate currently evolving between Efficient Market Hypothesis and the behaviourally focussed irrationality school of (economic) thought, that there is no unifying theory yet offered to explain market events, we are still searching for the ‘unifying toolbox’ or rather the Swiss army knife of financial stability and regulation?
Image via Wikipedia
So we can read into the statement that we will add more tools, rather than take tools out of the box never to be returned, such as the retention of Sterling and thus monetary policy.
Therefore, the one important tool at the moment that requires sharpening is the regulatory framework and structures that support both regulation, monitoring, enforcement and dare we say it ‘rehabilitation’, because just like of criminal justice system, even though we have both the laws and enforcement framework, we will always have the offenders and ultimately it is the ‘how to rehabilitate and re-integrate’ them issue that we have to deal with. If moral hazard has now been replaced by having to swallow ‘TARP’-entine (poetic licence evoked) and senior investment grade civil servants (RBS and the half of Lloyds they own), then the compensation schemes being touted and created via banking levies, is the wrong approach and signal to send to the market participants.
The G20 seems to be driving the urgency of the regulatory reform agenda, timeframe and tripartite of Financial Regulatory Standards, capital adequacy and strengthening Corporate Governance regimes as outlined by the Bank for International Settlements. However, some framework agreements have been in place for some time, such as the Norwalk Agreement between the IASB & FASB. Thus, it is not a case of the lack of effort and focus, but rather a lack of urgency and clear objectives in creating a global regulatory and governance framework.
As the BP debacle has illustrated, it does take some time to formulate a coherent response and action plan and if the Global Regulatory Framework is not given sufficient debate, design and implementation time (due to political expediencies), all we will do is sow the seeds of the next crisis, which, as stated before is definitely on the billing in a country near you very soon.
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The Cost of a ‘Licence to Operate’
Reputation Risk and damage mitigation must be some of the watch words and the top priorities at BP at the moment. So how are they faring in the management this agenda item?
What ‘price’ or cost must we attach to a ‘licence to operate’?
Image via Wikipedia
It is interesting to observe behaviours of Chief Executives under the probing scrutiny of a congressional committee’s line of questioning and investigation.
Are we busy reshaping the competitive landscape and entrenching further oligopolistic market skewing structures? And this running in parallel with Financial Regulatory reforms encouraging more of an ‘imperfect competitive’ and fragmented (read more costly) landscape.
It is interesting how the issues and debates are being shaped by political expediency, rather than the true and honest ‘economic landscape re-alignment’ agenda we all deserve. And yet again timetables are being set to accommodate political schedules, rather than the issues and factors that we really need to address in order to encourage enlightened and informed re-balancing and redress within the economic frameworks we operate under. So the people who ultimately ‘pay the bill’ are having the fundamental issues clouded and waters muddied, with needless ill-informed debates and noise around reforms that are ill-conceived and containing basic design flaws.
We felt that there was hope back in late January 2010, when the Volcker Rule [video reference]was first muted, but as is now apparent, the agenda has been filled with noisy distractions and unfortunate detours that will ultimately deliver half-baked reforms and regulations that will sow the seeds of the next cyclical bubble of euphoria and the subsequent eye watering ‘pop’ once we come down with the inevitable painful bump. Timing is of the essence, yet the timeframes are uncertain and so they shall remain.
Image via Wikipedia
The next few days and weeks will be crucial ones that will reveal what exactly the true (life-cycle) cost of a ‘Licence to Operate’ is and what price we have to attach to monitoring and managing a global reputation risk framework and infrastructure.
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Sustainability I
The focus on sustainability and sustainable practices is a self defeating objective. Sustainability means that business leaders take their eye off the equity holder’s value creation ideal, as it flies in the face of self-interest as promoted by Adam Smith some 234 years ago (The Wealth of Nations , 1776).
Image via Wikipedia
Self-interest and the pursuit therefore is being clouded by a multitude of other non value adding factors that is diluting the message and contributing to more uncertainty and risk and therefore capital flight and volatility in the financial and capital markets as we have experienced over the last 2 years.
This process and Zeitgeist will not disappear or be properly understood, unless we develop a deeper understanding and familiarity with uncertainty as a driver of the innovative spirit of human endeavour.
Risk management per se is not the answer and panacea it is held out to be, and if it promotes a more risk-averse society, then we are heading for the middle ground of mediocrity, tyranny and decline in social values and structures that have taken many hundreds of years to create.
Being part of the system with a myopic view, rather than standing outside the system with a holistic and reflective frame of mind is causing more damage than good.
Yet how are we to live and deal with the cognitive dissonance that these two views by the very nature induce?
Let’s open up to good honest debate, search and reflection, rather than to dogma and a narrow focus on defending vested interests and old world models.
We are in the midst of a major cultural, economic and world order paradigm shift and the outcome is uncertain, potentially destabilising, but we must embrace this exploration of uncertainty and chaos the will inevitably ensue.
theMarketSoul ©2010
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Short-sighted: Actor behaviour in the market for competitiveness
Competition is a good thing. Of that we are sure.
It is one of the key ingredients of a dynamic market process, yet is competition and the potential negative consequences of short-sightedness a means or an end in itself?
Today we argue that the unfettered aspiration of competing for competition’s sake and the shedding of what is seen as non-core processes and competencies in organisation, will eventually lead to sub-optimal performance and is an unsustainable practice.
In the unrelenting search for shareholder value creation, which is the fiduciary and main responsibility of the board of any shareholder / equity owned organisation, we believe that sub-optimal decisions are being taken, both because of target operating model enhancements and short-term return of investment (ROI)
One of the underlying objectives of International Harmonisation of Financial Regulatory Standards (as currently promoted by the IASB & FASB) is the desire for greater transparency and ultimately more regular and frequent reporting cycles. The view is that the greater the frequency in reporting, the less information asymmetry will be in the market, thereby eliminating insider trading and other undesirable ‘sharp’ market practices that regulatory bodies such as the SEC, London Stock Exchange, NYSE, NASDAQ, DAX, etc., are trying to stamp out.
But if we extend this logic, or rather shorten the current reporting cycles from the regular quarterly updates to say monthly, weekly , daily or even hourly updates, the already short-sighted mentality will become even more sharply focussed. And this begs the question: “How will CEOs and other business leaders have to ‘defend’ their decisions on a minute by minute basis under this unrelenting 24 hour news and sensationalism culture”; thus leading to an even more intense short term focus on their part. Certainly, this must be the worst of all downward spirals and tyranny of information overload?
But, by logical extension, this is exactly where we are heading in a decade or two’s time.
So, if the focus is then on more short-term results and ‘core processes’ where does this leave the current wave of outsourcing, off-shoring or near-shoring of non-core processes?
We contend that the already well established trend of ‘letting go’ of all non-core processes and competencies has a negative effect on the longer-term sustainability of the organisation.
Succession planning could already be outsourced and thus not on the board’s agenda, as recruitment consultancies now fulfil the non-core ‘attraction of suitable candidates’ services, with the traditional Human Resources fulfilling a more Risk mitigation / management functions of ensuring compliance with Health & Safety Executive , employment law, equality laws, etc.
Another unintended consequence is the fact that because organisations more and more frequently utilise professional specialists to deliver projects and programmes, the esprit d corps is disappearing from organisational life. It is difficult for managers to gain this motivational force of esprit de corps when they are managing ‘virtual teams’ and a cadre of temporary service providers through dysfunctional processes of ‘on-boarding’, induction, project management, quality control, motivational traps, engagement, focus, etc.
Therefore, to conclude this opening article in a new series around the ‘new labour market models [1] [2] [3]’, currently being practiced in the western free market democracies, let us ask the key question that is one of the foundations of the factors of production in achieving economic advancement:
“How do we recognise, incubate, nurture, develop and sustain talent and talent management in our organisation, when this critical activity is handed over to outside consultants who have a different business model and agenda to our corporate ambitions?”
We know that there are some ‘labour supply aggregators’ or forward thinking recruitment consultancies that realise that their own models of engagement has to change, in order for them to move into the value creation and value addition space, but there are still far too many ‘factories’ with conveyor belt mentalities out there. Not to let the corporate ‘talent managers’ off the hook, because if you don’t have people and processes in place to manage the talent anymore, you only have yourself to blame when the ‘transparency machine’ of financial regulatory reform forces you down the channel of short-term decline…
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- TEDS Celebrates 20th Anniversary (prweb.com)
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Does Law inform or enforce culture?
If ‘the Law’ is the codification of cultural norms and practices, does the Law then not inform culture?
Policy, social malice and engineering of social outcomes bend these laws into legislative blunt instruments designed to enforce cultural behavioural changes on a grand scale, trouncing the common law of good judgment, neighbourly relations and common sense and thus freedom in their wake?
Within the above question and assertion lies the ‘malice of the free market’; where misguided and misinformed regulation channels behaviour and economic interactions in directions and with outcomes not anticipated or foreseen. Thus unleashing the ‘law of unintended consequences’.
Take as an example the economic condition referred to as Moral Hazard.
A definition is:
Moral Hazard occurs when a party insulated from risk may behave differently than it would behave if it were fully exposed to the risk.
Moral Hazard therefore flies in the face of the principles of personal responsibility and thus accountability for our actions to a wider stakeholder community.
Is Moral Hazard perhaps promoted and therefore amplified by the fact that business leaders are not more formally educated in their fiduciary responsibilities?
Is this a function of weak or inefficient corporate governance structures and frameworks, or merely an oversight that is readily addressed by ‘occupational licensure’ or the professionalization of directors by only allowing formally qualified persons to serve on certain corporate boards?
Would this formalisation process of understanding fiduciary responsibility hinder the spirit of free enterprise and risk-taking or enhance the governance and risk aptitudes in a controlled and more channelled and focussed practice? Would it have as a positive consequence an amplifier effect for raising the corporate governance and Enterprise-wide Risk Management practices?
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- Individually smart, collectively dumb! (business2buddha.wordpress.com)
- How Moral Hazard Learned to Stop Worrying and Hate Santorum (esquire.com)
- A Question is Bothering Me… (fsaraceno.wordpress.com)
The Markets do not need certainty
There has again been a short period of drift and volatility in ‘The Markets’ recently.
And yet again we have heard the old refrain:
“Markets hate uncertainty”.
This we assert is yet again a misused turn of phrase. It is not uncertainty that markets hate, because inherent within market processes and market operations is the principle of uncertainty. This is also known as - Information Asymmetry.
So, if it is not uncertainty that markets hate, then what is the missing ingredient that delivers these periods of volatility?
We believe what markets require above all else is:
Structure.
Yes, structure and clear operating parameters, in other words a framework within which to operate is the key.
Whether that structure and framework is delivered via regulatory mechanisms or liquidity or a political landscape that sets the parameters in terms of policy guidelines and fiscal and monetary controls, it does not matters.
Remove the nebulous shifting and drifting borders and put in place a framework that sets the framework and outline of the playing fields and markets respond positively to these signals.
Refrain from doing the work of ‘framework establishment processes’ and markets and their participants become ‘restless souls’ aimlessly drifting within the ‘nebulous fog’ of uncertainty, clearly waiting and anticipating the regularity that structure delivers to the ‘Market’
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- Market volatility rules as traders ponder (optionsanimal.com)
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- John Tropea: We have been badly in need of a framework that explains the certainty and uncertainty associated with outcomes (johntropea.tumblr.com)
The Value of the Synthesist (as opposed to the Analyst)
We had some very rewarding conversations recently with business partners and peers regarding the Value of Synthesis versus Analysis.
Synthesis we believe to be a ‘higher level’ skill and experience set than traditional analysis. Synthesis requires a natural ‘incubation period’. Very few people are natural ‘synthesists’. You grow and mature into a ‘natural Synthisist’.
Analysts can be taught. In fact a very lucrative business education industrial complex has been built on the back of ‘creating a production line of analysts’. We call them Business Schools churning out master’s level analysts with the three-letter MBA title behind their names.
Don’t get us wrong on this one. We are not criticising MBAs or the Business Schools that produce them. Far from it; because we believe that part of the ‘evolutionary process’ of ‘incubating a mature synthesist’ is having a deep and fundamental understanding of analysis and the factors that contribute to making a good analyst.
Two of the key words we used in the above paragraphs were:
- Incubate
- Mature
We pause to reflect on these two words, because they are part of a natural evolutionary cycle.
Synthesis is a development process. It doesn’t just occur overnight. The process takes many years, many forms, much frustration, heart-ache, high failure rates, desperation, etc. We hope you understand the philosophical underpinnings of the argument.
The drivers that help define and shape good synthesists are many fold, however, two of the more basic building blocks include:
- The Tyranny of the Status Quo
- The Language of the Artist
What do we mean by these two concepts?
The Tyranny of the Status Quo
Mediocrity, lack of risk taking and proper risk management, a ‘level playing field’, universal access, no economic ladder to climb and a social ideology that creates an amorphous mass of despair is what drives the tyranny of the status quo. It is the antithesis of Innovation and Creative Thought. It is the Socialist ideology that drags us all down to the lowest common denominator.
The Language of the Artists
We believe it was Peter Block who claimed in that business life has become ‘infected’ with the language of the Engineer and Scientist. We ‘Business Process Reengineer’ this and that; we ‘Reverse Engineer’ this or that process. We contain, seal and measures finite risks and processes, much like a scientist would work in a ‘Controlled Laboratory Environment’.
But what we really need is the language of the artist and philosopher. We require poetry, motion, flow and creativity in order to establish the correct environment for innovation to ‘spring forth’ naturally and spontaneously.
Even though you would think this to be a natural phenomenon, it is very difficult to achieve in the ‘controlled environment’ of Shareholder Value Creation, due to the narrow focus on hard facts and cool numbers, underpinned by the ‘negative risk management cycle’.
In an article we recently published in a boutique Risk Management Training and Consultancy’s Quarterly Risk Update, we referred to both the positive and negative risk management perspectives.
Negative risk management is “[the] approach in an organisation that is designed to prevent the downside consequences of a transaction, such as (1) mitigating a potential loss or (2) the cost of not complying with regulatory requirements”, whereas in positive risk management “the upside is managed in conjunction with a risk based approach to general management. This is the starting point of Enterprise Risk Management”.
Financial Controllers and CFOs have to ensure that shareholder value is continuously created and then as measured and reported within the framework of Internationally Accepted Financial Reporting Standards and the generally ‘rules based approach’ to compiling those Financial Reports.
This is not a simple task and should we ‘interfere’ here with the language of the artist and philosopher in this process, we are certainly dead set on the course that will lead to ‘confusion, value destruction and financial ruin’. But aren’t we there already?
Has the most recent ‘crisis of confidence’ in the financial system as practiced by the ‘Financial Engineers’ and ‘Quant-type’ mathematicians and scientists not just proved that the old paradigm does not create value, but is still subject to ‘deep-rooted and fundamental’ long-term business cycles?
And yet what do we do? We blame the ‘selfish and selfless’ market capitalists for the problem, rather than address the basic condition that drive the imbalance, namely the ‘imperfect market’ that we create with over burdensome regulation, control and ‘dare we mention the term again ‘financial and business process (re-)engineering’.
We continuously oscillate on the pendulum between the free and ‘planned or controlled’ market forces.
Until we recognise the fact that our policy interventions, ill conceived regulatory frameworks and processes and the financial reporting and ‘engineering’ standards help drive the market mechanism to points of ‘disequilibrium’ where the natural ‘clearing mechanism’ of matched supply and demand cannot function normally; then we will just have to accept the consequences of the natural ‘boom and bust’ economic cycles.
To have ever utter the immortal, nay, ‘notorious’ phrase “we have abolished boom and bust” was not just arrogant but utterly naive and demonstrated a lack of a basic understanding of market forces in the ‘planned and controlled’ market economy camp.
Therefore, to conclude this brief post on the Value of Synthesis, we challenge mature ‘incubated’ professionals to step up to the challenge of redefining the new economic landscape by utilising the language of the artist and philosopher and to practice just a little bit of ‘Loony Intelligence’ in the process.
For further information and more in-depth discussion on this subject, please contact us by clicking this link:
Where is our competitive advantage?
Competitive versus Comparative advantage.
What is the difference?
Comparative advantage is attributed to David Ricardo and is an economic law which states that a market actor (individual, firm, region or country) has the ability to produce goods and services at a lower opportunity cost than another actor or market participant. This is a relative term as even if a market participant has a higher opportunity cost than another participant, by concentrating its efforts in the area where it has the least opportunity cost disadvantage it can still compete and produce output that would benefit its wealth creation possibilities.
Competitive advantage on the other hand is the theory of concentrating one’s efforts on producing the highest quality goods and selling them at the highest possible price. It has a purely price maximising focus with the hope of resulting in wealth creation. Therefore, note the subtle difference in approach where comparative advantage tries to maximise wealth creation, competitive advantage has wealth creation as a by-product of focusing on maximising price.
One can argue that comparative advantage has value creation at its centre, whereas competitive advantage has a more short-term profit driver motive behind it. Competitive advantage is attributed to Michael Porter in the 1990’s whereas comparative advantage has its roots in early 19th Century economic philosophy.
Now that we have the definitions out of the why, we can focus on the question of competitive advantage in UK plc. We are specifically interested in this aspect as a short-term approach is potentially needed to drag us back to the growth path we abandoned a few decades ago. Yes, it is our contention that growth and wealth creation is linked to underlying fundamental economic output and not monetary economics and financial engineering driven.
For a clue we might look at some of the major ‘Industrial Complexes’ dominating economic activity in the UK at the moment.
The usual suspects tend to be the Military Industrial Complex, but there are others include the Financial, Prison, Sports or Healthcare Industrial Complexes.
The phrase ‘Industrial Complex’ refers to all the organizations involved in the construction, operation, and promotion of that specific industrial complex.
In the UK the NHS alone as part of the total Healthcare Industrial Complex current employees around 1.2 million people, excluding all the pharmaceutical and other medical devices and facilities construction services and accounts for over £108bn or around between 8 – 10% of annual GDP (Gross Domestic Product), up from 3.5% of GDP back in 1949, when the National Health Services started. Putting this in ‘constant prices’ terms the NHS in 2006/2007 accounted for 9.6 times more in expenditure as it did back in 1949. Up to 1999/2000 the NHS total healthcare cost had risen by 582% versus 1949, but between 1997/98 and 2007/08, real-terms expenditure rose by 82%.
The question we beg to ask is if the total NHS cost in 1997/1998 was below £53bn and in 2006/2007 it was £104.7bn, have we experienced a doubling in “Value For Money” over that 7 year period?
This question is off course open to debate and interpretation and more importantly political expediency.
However, we believe that there are many advantages to be gained from revitalising the Healthcare Industrial Complex, by applying innovation and an outward looking market driven focus and mentality to this important economic activity driver.
In future series of this introductory article we will explore some of the Innovations and opportunities the Healthcare Industrial Complex offers UK plc in driving both growth and wealth creation in Britain.
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The “Harsh” Market
It is true. This is not a playground, kinder-garden experience…
As we don’t live a purely Command and Control or 100% Free Market environment we have to constantly adjust our actions and interactions with the market around us based on factors such as:
Geography
Jurisdiction and cultural norms
Experiences
Sophistication levels
Access points
Openness
Image via Wikipedia
There are many other factors to add to the list above, but we are referring to the behavioural aspects inherent in any market interaction.
One of the greatest challenges facing the political class in the UK at the moment is the Truth or Dare conundrum.
We are specifically referring to the urgent need to cut public sector spending, yet the painful reality that it is:
a) Very difficult and not politically expedient to admit the ‘Truth as seen by any politician’ (see the ‘Forces of Hell’reference uttered by Alistair Darling on trying to speak the truth
b) People cost money (and a lot of money)
c) Efficiency savings are akin to an admission of guilt and proof of mismanagement
Most public sector jobs are not subject to ‘market-forces’ at the best of times, therefore the automatic adjustment mechanism and signal that ‘price’ sends is not a factor in the equation.
What do we mean by this?
In a free market driven environment, price is the single most important signal and measure against which both suppliers and ‘demanders’ (consumers) measure value. In the absence of all other qualitative factors, price has a very important role to play in ‘clearing the mismatch between supply and demand.
So when we experience either a supply or demand shock, as the Credit Quake of 2008 – 2009 has proved; we need to face harsh realities and make serious behavioural changes.
We are still not able to face up to the difficult ‘adjustment phase’ that both ‘deleveraging’ and the new economic reality, post-election 2010 has in store for UK plc.
Many a household across the length and breadth of the UK (and beyond) has had to come to terms with the stark realities of the ‘market mechanism’ and adjusted their behaviours and ‘prices’ to move towards a new economic equilibrium, yet the public sector has not had to face this tough reality.
Maybe because the Public Sector in Britain now accounts for between 52.1% – 53.4% (depending on which economic Think Tank’s research you believe), the crowding out of the private sector and ‘loss of touch’ with the economic reality of market mechanisms has been softened.
However, irrespective of who governs Britain and runs UK plc after the ‘expected’ elections in May 2010, the winner will have to make a few very hard choices:
- How to reduce the dependency on and of the Public Sector and bring the percentage that the Public Sector ‘consumes’ of GDP to below 40%
- How to ‘financially engineer’ the public debt and bank guarantees the current administration dished out in 2008 – 2009 (Anywhere between £200 – £350 Billion)
- Run the country along more traditional market disciplines,
Therefore managing the country along market principles as opposed to a ‘socially engineered’ artificial egalitarian level playing field.
The ‘ladder’ exists for a reason in the true market environment, to help set aspiration and make the system work in order to ensure progress, growth (over the long-term) and advancement.
This all favours innovation as a driver for feeding the need for progress, growth and advancement.
In our next article we will continue our theme of Innovation, with part 6 of the series.
Let’s keep on ‘following the money’ on this occasion
Image via Wikipedia
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theMarketSoul ©1999 – 2010 Ventures an opinion on the ‘Economics of Taxation’
[All names and references to places in this post has been changed, so as to protect the innocent bystanders]
Cracking down on ‘Tax Havens’ became a stated objective of the G20 last year during one of the meetings held during 2009.
Image via Wikipedia
Lets us keep the argument very simple and divide the world into two colours namely magnolia and chocolate brown (close enough approximation of two other colours normally used in arguments), or rather more accurately the regulated world and the unregulated world.
If it is regulated, it moves slowly, is a target and gets nailed very quickly. The credit quake of 2008-2009 resulted in the implosion of this world, which today moves even slower, with a catastrophic collapse in taxable revenue and actual tax take an unfortunate consequence.
So, as our hypothetical magnolia world has ceased up almost completely, the G20 thought it right and proper to start targeting the chocolate brown world. This is the ‘dynamic underground’ of slush funds, oiling the cogs of industry, money laundering, crime, drugs, terrorism and anything that moves outside of the regulated world arena. Apparently this world is alive and well, with cash sloshing around the system that unfortunately does not hit the regulated world’s sides and filters, and is therefore not siphoned off as ‘direct’ tax flows and revenues. If your jurisdiction has indirect taxes, then this cash does get siphoned off, as goods and services are also consumed by the chocolate brown world.
Now if you view these two worlds as two balls or circles, the magnolia one is shrinking and the chocolate brown one is growing in size. So the question really becomes this: Which one do you attack? How do you appease the populist vote? For one of the choices is: “Tax ‘em to death”, because you are already taxing ‘em pretty harshly! (Those living in the magnolia space). Alternatively, you grab the populist media’s h(d)eadlines and attack Tax Havens with the natural association of the chocolate brown world with ‘dirty’ cash. This way you score two potential hits:
(1) Populism on your home turf and
(2) capital flight from tax havens.
This is a great tactic if you believe that the ‘Economics of Taxation’ mean that you either tax the flows of money or the stock of money (capital and other ‘fixed’ forms of property). Flows of money include indirect taxes and maybe this scare-mongering’ tactic does encourage capital movements between jurisdictions, however, as a general approach and tactic to attack Tax Havens, I believe this is doomed to fail.
Image via Wikipedia
Tax jurisdictions, fiscal policy and ‘one-upmanship’ is a national and international ‘sport’. Therefore, we can’t have the big boys and girls getting upset at the little boys and girls, just for trying to scrape together a few crumbs off the BIG table, in order to survive, can we? A sense of fairness and a measured and proportionate response is definitely called for in this so-called ‘war on tax havens’. Or am I wrong on this call?
theMarketSoul ©2010
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- Dewar on taxes (macleans.ca)
The trouble with Innovation – Part 4
Risk! This will be the main theme of this part of the series we are investigating. As highlighted in part 3 Risk Management and Sustainability are key factors to consider in unleashing Innovation and creativity in the organisation’s life cycle.
However, in the word life-cycle we already have a clue as to the inevitability of decline and ultimately the death of the enterprise, per se.
In the current climate, Risk Management has a pure Compliance and Regulatory connotation.
We assert that there are two sides to the Risk Management coin:
A Negative and Positive approach to Risk Management. In the negative worldview, risk is associated with mitigating and loss prevention strategies, namely compliance and regulatory requirements in addition to downside risk alleviation.
A Positive Risk Management framework would look to the up side and Value Creation potential of enterprise governance frameworks.
The overall philosophy and practical application of the model is embodied in a sound risk management framework underpin by the convergence of Internal Auditing and Financial Controls and the Value drivers inherent in the Value Based Management approach, namely
(1) Creating Value
(2) Managing Value
(3) Measuring the Value created
The focus in measuring and managing for value and thus superior organisational performance is encapsulated in performance and investment drivers such as:
- Sales Growth
- Operating Margin
- Cash Tax rates
- Fixed Capital Investment
- Working Capital Investment
- Cost of Capital
- The Planning Period
Creating Value
The departure point in creating value ultimately has to have Innovation as one of the factor inputs required to create Economic Value in any organisation. This in combination with other economic factor inputs such as capital, land and labour are the foundation building blocks of any organisational sustainable growth approach.
Therefore, combining resource inputs such as capital and labour with innovation, in the right mix and during the right time frame are the sustained growth drivers in any organisation.
In the next article in this series we will address the next step in the Value Based Management framework, namely ‘Managing Value’ and the further step of ‘Measuring the Value created’.
theMarketSoul ©2010
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The trouble with Innovation – Part 3
In this part of our discussion regarding Innovation, we want to turn the focus to the UK market place and some unsung heroes, some tirelessly working in the trenches, others ‘fishing in the ocean of opportunity’ at the moment, not being ‘on assignment’.
We are referring to Independent Consultants and Senior Interim Managers. How exactly they fit into the innovation debate will hopefully become clearer very soon.
And the main issues and theme we need to explore is that of Trust.
Part of the challenge most Independent Consultants and Interim Managers find themselves facing is the fact that engaging assignments and workflows don’t always flow or fit together. The challenge is that when on assignment, they are not feeding or seeding the pipeline enough for when the current assignment ends and when the assignment has ended, their next role or project might be weeks of months away from coming to fruition.
There is in effect no clear matching of supply and demand in the market place, as most assignments and engagements are won on relationships and not pure experience, skills and competencies.
That is particularly true if you ‘swim down the narrow channel’, by this we mean only follow one strategy in procuring your next assignment; which generally means you speak mostly to Executive Search or other Recruitment Consultancies.
It is in this area that we feel very little positive innovation and engagement has occurred over the last few years.
Now we acknowledge that the internet has potentially speeded up and shortened the entire recruitment cycle significantly, however, is this innovation or just advancement?
Our assertion is that the internet was pure advancement, not innovation in this sector.
It is furthermore our belief that most searches and matches occur on a pure issue of timing and serendipity alone. There is no effective clearing house to match skills to needs in a way that clears the market effectively and efficiently. For this we evidence a report commission by ExecutivesOnline in September 2009 (see ExecutivesOnline Interim Management Trend Update) in which it was found that 48% of Interim Managers where ‘Not on Assignment’ as of September 2009, the euphemistic phrase for being out of work. If there were such a ‘clearing house’ the unemployment rate amongst Interim Managers and Independent Consultants would have been markedly lower, but probably higher than the national Unemployment rate, due to a variety of other socio-economic factors, including luxury factors such as choice, to mention but one.
Sustainability and risk management and more specifically innovation in these two critical business management areas are what we desperately lack at this key juncture in our economic cycle. We will address these two themes in further in future articles.
To conclude our assertions made in part 3 of our exploration on the trouble with innovation is that now there should be an opportunity created to more effectively match supply and demand in the labour market. However, there is a fundamental disconnect between public sector and private sector and permanent and temporary work. This statement is a blatant generalisation, however public sector and permanent employment does not conform to pure market driven principles, where tenure is protected, to some extent, from external market forces. On the contrary many an independent consultant has had to contend with the shock of a new equilibrium and have realised that to ‘stay in the game’ they have had to adjust their prices downward, sliding back down the supply curve, in order to try and find the intersection with the demand curve. An oversupply of consulting and interim management talent has ensured that the market clearing price for services have been adjusted markedly lower, than was the case before the credit quake of 2008 – 2009.
So what we are looking for is innovative new business models that will ensure the exploration of a new and sustained equilibrium and market for talent and talent matching in the future.
theMarketSoul ©2010
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The Trouble with Innovation – Part 2
theMarketSoul decided to talk to some delegates and attendees at CeBIT 2010 with respect to the problem and challenges faced by Europe in particular, regarding Innovation.
The statements made in the previous blog post did not go down well with the mixed German, Belgium and Italian (see The Trouble with Innovation – Part 1).
To recap briefly we stated that Europe did nor posses two critical factors to cradle and encourage innovation, one being a common language and two a raw capitalist model that pursued profit above all else.
With the pure profit motive there is a problem in any case and we will address this in later discussions, suffice to say we will make a distinction between profit motive and creating value. From an economic perspective we believe strongly in the superior notion of ‘Creating Value’ over the pure profit motive and the current credit quake (Comments from a lay-economist on the credit quake 2008) has created the opportunity for us to reflect and re-evaluate our current economic models.
However, to return to our Innovation discussion the defence the Europeans put up against our controversial statements were this:
Agree with the language issue, through heavy accents, disagreed partly with the profit issues, however we had not discussed anything regarding Protectionism.
True, we hold our hands up to this accusation.
Image via Wikipedia
So to throw or lob stones back across the Atlantic pond to our US cousins; the States very, very fiercely protects its own market and interests. Intellectual Property and property rights are very well developed and ingrained in the psyche of the American nation. But the logical question to our European colleagues are this: So why do the Americans protect their IP and Innovation so well, but we tend to give it away, losing out to both the Americans and Chinese in the process?
For this we weren’t presented with a coherent argument yet, so it is a theme we shall explore further other the next few days, whilst attending the CebIt 2010 trade exhibition.
Europe does have the framework and platform in place in order to coherently create and then enforce property and Intellectual property rights, however, integrating culture and therefore nation state laws into a single European framework is not any easy endeavour and should not be attempted without a clear focussed vision. Therefore, we treat all the issues with kid gloves and the Lisbon Treaty and ratification processes most countries adopted does bear serious questioning and potential legal challenge. We are not aware of any serious tests in this arena, but acknowledge our ignorance and would appreciate further clarification, should we have the wrong end of the argument in our grasp.
Image via Wikipedia
Therefore in conclusion of this post, we have invited two questions to be clarified:
- How can Europe better protect its Intellectual Property and Innovation from leaving the Greater Continental Europe?
- Are there any legal obstacles in the European integration project that hinders Innovation protection and enforcement of IP and other property rights?
We look forward to finding out the answers over the course of the next few days, whilst on our Continental European jaunt.
theMarketSoul ©2010
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