We have been having several conversations with colleagues and practitioners in both the Enterprise Strategy and Architecture space around both Cloud Computing and the Integrated Service IT delivery space.
Our brief conclusion is that Organisational Structure is everything.
We believe that you cannot effectively move IT Service delivery into the ‘Cloud’ and / or integrate some of the hybrid Cloud solutions and other architecture requirements, without fundamentally adjusting / realigning your organisational structure to fit the new model or modus operandi.
Therefore, the first item on the IT Change Management agenda should be a fundamental rethink and adjustment of Structure.
What usually happens is that once IT Services gets delivered into divisionalised organisations, the service quality and cost gets fragmented and ‘scope drag’ and loss of focus and control occurs.
This makes us conclude that maybe the same approach utilised in Natural Gas extraction, namely ‘Fraking’ should be utilised in IT Service delivery, in the absence of Organisational Structure change:
Go in deep and then cut across the silos in order to get to the core solution (service) delivery, because in the absence of structural service alignment, the only other option is to be as scientific and innovative as you possibly can.
It strikes us that managing IT Service delivery maturity is a bit like the ‘Clouds’ before the major storm.
Everyone is rushing around battening down the hatches, because the frameworks and tools are so rigid and require protecting; rather than having ‘modular’ solutions available that are both flexible enough to withstand the battering of the storm; yet can be re-instated very quickly and efficiently, should the storm have managed to ‘flatten’ the landscape.
We will begin to explore some of the Cloud Computing economic and philosophical issues in a series of new articles to follow.
As if last week’s (week ending 23 September 2011) turbulence on the world’s stock markets wasn’t enough of an emotional rollercoaster for millions of mark participant’s, we will offer only one bit of reflection this morning on the market conditions.
Remember, the markets live, breath and die by the age old human conditions (seven deadly sins) of:
- Greed / Avarice (Avaritia)
- Envy (invidia)
- Gluttony (gula)
- Sloth (acedia)
- Wrath (ira)
- Pride (superbia)
- Lust (luxuria
Therefore, the markets are Harsh, as we have written about before, however markets are still the most open, free and fair way to allocate resources, as we are reaching out to establish with our ‘The Market eQuation’, investigation.
All this activity we hope and trust will lead to a new understanding of the market which we will call:
Unbounded Market Rationality
Originally published 4 October 2009:
Information Asymmetry is what drives the market. We alluded to this in an earlier blog posting (see Market Responsibility, Saturday, 18 October 2008). Yet we still hear the socialist agenda mention regularly that if it wasn’t for the recent government interventions to ‘save the market’, the market would have collapsed. We are sorry, but we just don’t buy this. Yes it is true that individual institutions in the market would have failed, but as a mechanism, the market would have wobbled and other participants would have picked up the distressed bits and pieces and carried on.
True, there was a crisis of liquidity in the system, with severe knock on effects, but as a mechanism for allocating resources, effort and reward, we still believe the market would have survived, with or without the ‘nuclear’ option intervention we saw. The moral of this tale is that unfortunately the socialist elite now believe and make the rest of the market believe that they hold the moral high ground and can dictate the agenda for the next several years. Oh well and so the pendulum swings…
Which was entirely a side track to the real intention behind this posting.
‘The Ice Age is Cometh’ was an article headline in the Radio Times edition of 16 – 22 November 1974. A friend of ours came out with the rank smelling edition of the Radio Times of late 1974, that he discovered stuffed in the chimney breast of his new home. Stuffed in that chimney-breast to obviously keep the cold draughts out, as according to the subtitle the next 1,000 years could be very, very cold, with an advance of the polar ice caps and glaciers. Did we blink or something? We will challenge the BBC to dig out the programme aired in the week of 16 – 22 November 1974 on BBC 2, so that we can be reminded how quickly the agenda and the focus can shift, if we take our eye off the ball and let information asymmetry spin the agenda out of our control.
And we suppose we cannot deny the evidence currently in front of our eyes. Polar ice caps are retreating, which is true if you focus purely on an evidence based approach to trying to understand the wider system. But do make your observations and emotive arguments from within the system, or do you need to step outside that system in order to be more objective. And what about intuition? On a purely intuitive level we believe the earth of GAIA is a self correcting system but we do not have enough evidence to conclusively prove this assertion.
So, in the meantime, we swing one generation to the next, waiting for the ‘Information Assymetrists’ (yes our new made up word de jour) to set the agenda and the morals of the market.
As a soul in this market arena we just keep on being amazed, day in and day out. Please just give us the ability to take the long view…
Forget about recapitalising the French Banks, saving Greece, (or the Euro)….
Continuing our conversation on Innovation
Yes, we admit it! The headline statement above is all about grabbing your attention. We are not advocating any disorderly default crises.
What we believe is that the ‘agricultural’ economic base and the semi-integration of Europe, via market and monetary union, without going the full circle of political and fiscal union as well, has at this point failed.
Not that a major concerted (and concentrated) effort to ensure it does not fail will end in failure itself. But has anyone really asked the question: At what financial cost?
If an US Treasury Secretary, Timothy Greitner, has to take the unprecedented step of flying across the Atlantic to come and join a European Union Finance Ministers meeting, then something big must be on the cards!
Is he going to come and tell Germany and France in person to just let Greece go?
“Good timing? To win it You gotta be in it. Just never be late To quit or cut bait.
This might just as well be the message for Europe: How not to get Poor. The key words are “Never be late to quit or cut bait”.
What we believe is happening behind the scenes is the planning for an orderly default mechanism and Euro ‘disbanding’.
The more Angela Merckel’s resolve hardens around saving the Euro, the less we believe Europeans themselves are warming to this concept.
So what about Innovation then?
We started this article with the intention of continuing our conversation on Innovation.
So, what we mean by Recapitalising Europe actually is related to addressing the culture of decay that has enveloped Europeover the last few decades. If Europe is referred to as the ‘Sick Man’, then there must be something behind that statement.
And we believe that it is the general lack of support for invigorating Europe that is a key driver.
What do you mean, we hear you ask?
In the quest to unite Europe, we have built a framework of a European parliament, a Council of Europe, a judicial system, etc.
With these institutions have come regulation, rules and edicts. Sometimes messy, sometimes helpful. But at this juncture, we are so overrun by nonsensical regulation that the will and spirit to be creative and innovative has drained away from the general citizenry.
This is a very, very sad state of affairs. The young European citizens have lost their ‘psychological contract’ with the wider Europe and European integration goal. High rates of youth unemployment across Europe is breeding a generation of disengaged European citizens and ultimately is an opportunity and efficiency waste in the medium term.
This is a key question we are going to ask of our network and as part of our general ‘outreach series’ and report back on our progress towards establishing an Innovation Framework for Recapitalising Europe.
Please ‘tune-in’ again soon for a status and progress up date.
- German Chancellor Angela Merkel backs moves to recapitalise eurozone banks (telegraph.co.uk)
- More and Confused Europe? – Part 3 – It is Uncertain… (themarketsoul.com)
- £250,000 get-out-of-the-euro prize (independent.co.uk)
- Europe: The land of promise (tradingfloor.com)
Below is an extract from a posting we made back in 2008. Maybe still relevant today:
In this new, new world of work
What titles are there yet to lurk?
The new MD
He or she or it could be:
Not your average reflector!
The IM is the person
Where intuition is the key
Or are they the Ideas Merchants
or just another fee?
IT stands for Interesting Thing
Technology drives the process
And we are told that knowledge
Must definitely be better than porridge!
The SD drives the sales
Or Sets Deception
Yet revenue collection
their fortunate projection
The HR director,
You’d better respect ‘er
Yet Human Potential
Sounds much more consequential?
Or politically correct,
You OLD cynical fool!
Now even that word
We must reject!
Where am I heading?
With this you ask
Must there be an end?
Or just another bend?
Or just hyper inflation?
Inspired Profit Mechanic
just more rats running manic?
But to get to the point
I forgot my route
Under this hood.
I look forward
For backwards is hard
Because of this strain
And a lot of neck pain
Yes, its true!
In the race of life
Looking over my shoulder
I had it all misconstrued
No matter what you call yourself
As long as you with hand on heart
Can jump and not worry, off that shelf
Look out below!!! I’ve made my start!
theMarketSoul © 2008
We have just created a new group on LinkedIn, namely ‘The Boardroom Incubator’.
The Boardroom Incubator is aimed at encouraging and developing women to become business leaders and board members in either listed and non listed organisations. Our aim is to create a ‘risk-free’ educational, training and development resource for women aspiring to gain their rightful places in Boardrooms and be accepted as peers amongst other Boardroom members.
It is a member led resource and forum to help redress the imbalance that currently exists within the corporate and civil society leadership arena and to ensure that we build and sustain healthy governance frameworks for the future.
Our aim at this early stage is just to gauge the interest and ‘proof of concept’ in order to see in what strategic direction the new group will head.
Please feel free to drop in and send any questions to:
“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.
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.
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.
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
- 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
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.
- Alight Selected to Speak on Planning Maturity Curve at ASMI and CFO Events in 2012 (prweb.com)
- What Expert Financial Planning Services Can Do For Your Money (ruralstops.blogspot.com)
- Budgetary Process (thinkingbookworm.typepad.com)
- What is Budget (preint.wordpress.com)
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.
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.
- Do banks and colleges understand risk management? (normanmarks.wordpress.com)
- Integrate risk management with the rhythm of the business (normanmarks.wordpress.com)
- Risk Management: adding to uncertainty! (fitforrandomness.wordpress.com)
- Why is residual risk so important? (iso27001standard.com)
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).
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.
- Adam Smith’s Psychology (psychologytoday.com)
- EU Commission to adopt “new” Strategy for sustainable Bioeconomy (3eintelligence.wordpress.com)
- Adam Smith – the old Lefty (notnumber.wordpress.com)
- Adam Smith’s Ideas on Labour and Value (Part II) (quackonomics.wordpress.com)
- Sustainability? (madisondesignconstruction.com)
- Adam Smith got it all terribly wrong? (worldmediatrend.wordpress.com)
- 7 Overarching Objectives of Sustainability (linkingsustainability.com)
- What kind of web content will make my business more sustainable? (marketing.yell.com)
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   ’, 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…
- Why Talent Management Tech is Super Hot and Bound to Get Hotter (readwriteweb.com)
- TEDS Celebrates 20th Anniversary (prweb.com)
- Be social: Recruiting using social media (marketing.yell.com)
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?
- The Big Design: Moral Hazard, and the EU (themarketsoul.com)
- 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 CBI published a report entitled “The shape of business – the next ten years” in late 2009.
The authors identified 5 key drivers affecting the business environment, namely:
1. Changing finance and capital conditions,
2. The decline of trust in business and markets,
3. A less benign macroeconomic environment,
4. Social and demographic change where the recession will have a major influence,
5. Sustainability and resource issue.
We pick up our cue from the fifth driver being Sustainability for today’s post.
Our comment serves more as an aide-mémoire to return to in more detail in future articles. This post also does not serve as a commentary on the CBI’s report, but rather as a general opinion on the nature of sustainability and human a nature and is therefore pure conjecture.
We believe that sustainability as understood to mean the impact we have on the planet and the resources we consume, is not a natural human phenomenon, in the face of self-interest (as per the economic definition of the term) and competition for scarce resources.
In other words sustainability flies in the face of human kind‘s natural tendencies to compete for resources, either by war and confiscation, or by trade and exchange for those scarce resources.
We therefore contend that as human actors interacting with and through the free market mechanism, we do not naturally possess a ‘sustainability gene’, but instead have to develop a new model and framework for ensuring that this objective is effectively pursued and becomes part of the underlying psyche of being in business and discharging our fiduciary responsibilities.
Linking to our previous post ‘The Markets do not need certainty’, we contend that it is structure that helps shape markets and creates the conditions conducive to the effective operation of those markets. Other factors will ultimately affect the efficiency of the markets and some of these factors include Innovation and such like.
In conclusion, let us wrap up with a few quotes on sustainability:
- You can never have an impact on society if you have not changed yourself. Nelson Mandela
- The very process of the restoring the land to health is the process through which we become attuned to Nature and, through Nature, with ourselves. Chris Maser
- We can learn whatever we need in nature because we are part of nature. Human beings are part of Creation. We live by the same laws as all of nature. Anne Wilson Schaef
And in the final quote above we possibly see a glimmer of hope for a possible answer to our ‘Sustainability Gene’ deficiency. Somehow Adam Smith’s ‘self interest’ and the modern free(ish) market system require an injection of nature law and justice.
Whatever that shall be.
- Sustainability? Ask the CFO, says KPMG (nigelcameron.wordpress.com)
- What Is America’s “Worldview?” (papundits.wordpress.com)
- Growth Vs Protection! What is your Perception…? (consciousnesssintegration.com)
- Adam Smith’s Psychology (psychologytoday.com)
- Biodiversity is Important! (environmentechnology.wordpress.com)
- Will is Power… from the Selfish Gene to the Transcendence of the Human Being (claudiafeitosasantana.wordpress.com)
We hear this management buzz word quite often touted in office settings, and conferences in the media, etc.
We argue today that silos are cultural norms. They are national cultural models possibly endemic of certain national cultures. We certainly have no empirical evidence for this, so this is pure opinion and conjecture on the part of theMarketSoul contributors.
In our previous article titled Increased Friction Costs we briefly touched on the issue of processes being back to front in Britain. Processes are very much driven by the national ‘Carrot & Stick’ approach, rather than an enablement, ‘build and they will come’ approach where solutions are found and embedded then suitable and profitable markets are found for those solutions.
Now we can argue that in a very narrowly defined risk management culture and faced with the reality of reduced opportunity to obtain and procure financing to ‘build solutions on speculation’, we just cannot afford to change our exiting disastrous management and control processes.
But this is exactly where we have to stop the train as quickly as possible and change direction to ‘climb the hill ahead’ so that we can experience the potential and opportunity to ‘see the view from another mountain top vantage spot’…
We are in a tight spot. That is a fact. However, we are being held to ransom at the moment by a ‘political’ system and governing party trying to string out the last days of their tenure in power. [This article was initially written before the General Election in Britain].
There is hope, there is a sliver of light and opportunity on the horizon. However, we will need to learn to deal with some pain, as we readjust the ‘crowding out’ of growth by the public sector and debt burden. However, we need to recognise that we will have to apply a bit more ‘market discipline’ to finding, scoping, building and implementing solutions to our problems.
Small and localism are in fact parts of (but not the entire) solution, where small providers (entrepreneurs) are incentivised and tasked with coming together to experiment and create solutions, that hopefully mitigates the risk of large scale failure, but at the same time find scalable solutions that can rapidly be deployed to solve some of the challenges we currently face.
In IT deployment and development projects they call this kind of rapid, ‘low hanging fruits’ approach to development work Agile Development or AD for short. Maybe this together with the professional service chains and clustering we will touch on in subsequent articles is the way forward.
- Comments on the COSO draft update of the internal controls framework (normanmarks.wordpress.com)
- Proactive Risk Management (paulevery.me)
- Integrate risk management with the rhythm of the business (normanmarks.wordpress.com)
- Bridging Departmental Divides: Workplace Design Offers a Smart Solution (forbes.com)
- What is the difference between cultural knowledge and cultural awareness? (nadiaabunuwar.wordpress.com)
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:
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:
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%.
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.
- What Is Competitive Advantage? (futurelab.net)
- The Top Ten Management Primer on What Do We Mean by Strategy: All That You Need to Know About Strategy and The Quest for Competitive Advantage (bizcovering.com)
- Cable calls for return of industrial policy (leftfootforward.org)
- The Strategic Advantage of Culture (brettboston.com)
- Facilitators and Institutions Defined? (henrytapper.com)
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:
Jurisdiction and cultural norms
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
- Pension gap increases between private and public sector (moneyexpert.com)
- Bonuses in public sector under review – BBC News (bbc.co.uk)
- How spending cuts will impact house prices (confused.com)
- Achieving better results from public sector institutions (apperi.org)
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
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’.
- Integrate risk management with the rhythm of the business (normanmarks.wordpress.com)
- Proactive Risk Management (paulevery.me)
- Should the head of the internal audit function also direct the risk management program? (normanmarks.wordpress.com)
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.
- Rising demand for interim managers (money-news.com)
- Interim management job help targeted with new workshop (mywaysavings.com)
- Are interim managers cost effective? (bestsavingsnews.co.uk)
- Unprecedented Change Creates Demand for a new Type of IT Executive – Harvey Nash Launches Interim Management IT Division (prnewswire.com)
- A new year a new.. (wimrampen.com)
- Krede Ltd – Interim Management Provider – Launches Updated Digital Platform – Chorley Lancs UK – 17th January 2012 (prweb.com)
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.
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.
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.
- Intellectual Property Rights (socyberty.com)
- Will 2012 see the end of the Cold War over Intellectual Property Rights? (computerweekly.com)
- Intellectual Property Laws Damage Innovation (insideview.ie)
- On ACTA, U.S. Media Turned The Other Way (themoderatevoice.com)
- From fragment to framework: a live EU initiative (ipkitten.blogspot.com)
- SOPA, Incentives and Efficiency (truthonthemarket.com)
- Why can’t I copy money? Is that censorship?: Thoughts on framing SOPA and PIPA (lawrenceserewicz.wordpress.com)
- Intellectual Property Rights Protection in Asia Discussed in Most Recent Report Published at MarketPublishers.com (prweb.com)
- Thousands across Europe protest against ACTA (pdalbury.wordpress.com)
- ACTA – Money tries to write more laws – not for the people – but for the money (cyberwaves.wordpress.com)
Today we address one of the critical and key factors of production, it is a factor we have severely neglected addressing earlier in this forum. It is about Innovation.
Our model is broken!
If we investigate some of the underlying factors ‘driving’ this problem, we would point the finger at the social experiments we embarked on over the last two centuries in Europe. The simple fact is that we just did not get on with each other. There are two ways of accumulating wealth very quickly, one of them being to steal it and the other is to trade activity to get it. However, in both choices you side require a lot of the other factors of production, namely land and capital and labour.
If neither of these two options are open to you then you need to follow the slow road of progress. But here is where Innovation comes to the fore as an enabler.
The USA is a far better incubator and fertile soil for entrepreneurial and innovative development.
In Europe we lack the cohesion of two factors that drove American innovation:
(1) A common language (English) and
(2) a common goal (making money).
Irrespective of the language issue, we treat ‘raw’ capitalism with disdain and suspicion in Europe, whereas the States embraces this with open gusto, so much so that the current administration is frustrating its efforts to burst forth once more as a power house of growth.
Now we are not advocating abandoning regulation per se, what we would ideally like to see is innovation in the Regulatory space too, where regulation is thought through on an end to end basis, with due consideration for the law of unintended consequences that knee jerk regulation sets in motion.
So the hope in Europe now is this: We have been building the platform for collaboration for a while now, with the EEC, EC and EU experiments and we now have continuity at the top with an appointed President and Foreign Secretary.
Lets bury the hatchet and utilise the platform of collaboration in order to launch and harness the power of ‘Innovation Incubation’, thereby eliminating the wasted effort and duplication of processes currently taking place and shaping our European hinterland.
Let’s explore these ideas further in future posts.
- These 16 Countries Are Leading European Innovation (businessinsider.com)
- More and Bigger Europe…Is that what we really want? (themarketsoul.com)
- Does Europe have what it takes to be an internet innovator? (cnn.com)
- The New Factors Of Production And the Rise of Data-Driven Applications (forbes.com)
- “Alexander Field, Greg Clark, and Optimism about the Current Unpleasantness” (economistsview.typepad.com)