Corporate Culture

This question posed in a discussion forum made us pause and think:

“Bosses think their firms are caring and “values-driven.” Their minions disagree. I think it’s hard from top-down, policy-driven firms to switch to values-driven because even the values are enforced top-down and bosses who have never listened carefully to their employees don’t suddenly start to do so – thus, they never know if their values have caught on or not. What do you think?”

Firstly we need to define Values – We will use it in this post in its economic sense, such as Economic Value Added, meaning that both value creation, return and risk evaluation is as such is ‘built into the value based system’.

Most corporate managers / leaders would probably understand values in terms of two different contexts:

  1. Values as guiding principles, morals, a ‘code to live by’, etc., shaping behaviours and norms
  2. Value in terms of the standard Du Pont analysisReturn on Investment (ROI) calculation methodology.

The third (and probably not last) way of viewing the values question is the economic value added approach, capturing:

  1. Economic Profit (including risk)
  2. Guiding principles and behaviours – the bottom up doing the right thing all the time view

Turning to values as a guiding principle, these are the ‘feel-good’ words and phrases we stick on corporate office walls, the intra- and internet “connecting” people inside and outside the organisation to the “emotional-side” and binding them together.

This is the way we believe the Value question has been posed.

Here we have the problem of the ‘generals in the tents’ versus the ‘generals in the trenches’ scenario.

The generals in the tents believe what their eyes and ears are telling tell.  “People look and sound happy, so they MUST be happy”.

The generals in the trenches believe what they ‘feel’ and experience everyday in their leadership roles amongst the ‘troops’ and employees they serve with are the real true values of the organisation.

This is where a disconnect manifests itself.  The two types do not see eye to eye or understand each other.  Charts, reports, statements, observations, facts separate the general in the tents from the raw emotions, feelings, qualitative experiences and ‘Values’ of the general in the trenches.

When they meet to talk, the language and behaviours each other uses and displays are different.  They don’t understand each other and each side leaves the conversation with a sense of an ‘unaccomplished mission’ and frustration.

To conclude and draw this ‘Values’ post together:

Right from the off, there is potentially a misunderstanding as to what is exactly meant by Values.  The corporate leadership may think, warm ‘fuzziness’ or hard numbers and return on investment, yet the employees and middle management layer think, “squeeze some more, but keep on smiling, here they go talking about values again and all I want is some certainty and job security…”

Finally, there has to be the recognition that culture and culture creation in organisations is not easy.  (We are not even talking cultural change here yet).

If it was, then it would obviously not be a problem.  There are many more factors and dynamics at play, so hopefully your question sets off an interesting discussion.

theMarketSoul ©2011

 

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.

English: Risk management sub processes
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


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’.

 

Helmet from the Sutton Hoo ship-burial 1, England.
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:

  1. Market structure – free market versus socialist structures
  2. Regulatory framework – the disjointed regulatory frameworks and mixed agendas and the sense of urgency in the global regulatory framework
  3. Cultural setting – Anglo-Saxon, European, Middle Eastern, Far East, etc.
  4. Reliance on macro-economic tools including monetary and fiscal policies
  5. Skewed nature of national performance measurement
  6. Balance between equilibrium and disequilibrium clearance mechanisms in the economy
  7. Erosion of moral hazard and other distorting signals

 

Régulation de la machine à vapeur Merlin
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


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).

Profile of Adam Smith
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


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 SECLondon Stock ExchangeNYSENASDAQ, 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…

 

theMarketSoul ©2010


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:

  1. Incubate
  2. 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:

  1. The Tyranny of the Status Quo
  2. 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:

theMarketSoul ©1999 – 2011


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.

theMarketSoul ©2010