banks and managers as agents for owners

It's going to be a very interesting 12 months in relation to bank profits. The profit made by Goldman Sachs and the quick return of smugness in the industry is a fascinating example of arrogance that completely destroys self reflection. I'm hoping the jury is still out and that someone within the industry will pull the various egos in a room, bang their heads together and then some sense ensues. The banks have generated such a phenomenal amount of destruction to market based capitalism it is one of life's great examples in arrogance in ignorance. The biggest challenge to market based capitalism for me is the challenge that banks bonuses paid to employees has proven beyond a doubt the importance of owner based management. In fact Adam Smith asserted that self interest will be guided by the invisible hand to generate public good only if the owner is also the manager. Of course, the leverage of the manager being an agent for the owner is crucial to modern market economies but the abuse of this agency power by bank employees has thrown all the benefits of this leverage to the wind.

So, lets see how the public reacts to this new arrogance of the banks that has occured so soon after these same bankers were on their knees begging the public for help.

doing business in developing countries

The latest issue in China with Mr Hu being arrested on "espionage" charges has generated a number of thoughts for me. Since 2006 I have been working with various people in the Australian cattle industry to generate markets for our marvellous cattle genetics and breeding knowledge. The important note here as background information (for blogs to be written later) is that the product is knowledge. To date, the success has been in the sale of physical seed stock both to China in the form of dairy seed stock and Russia in the form of beef seed stock. To call it a success is to have a very low hurdle for success but is made on the basis of the difficulties in opening up new markets in developing countries with more complex political systems.

I'm not sure about other countries but I have first hand experience of the two countries mentioned; China and Russia. These two countries are incredibly hard places to do business. The rules are so different to Australia that Australian businessmen can never confidently do business in these countries and are in constant peril of selling their souls to get the job done (as an example, IKEA has finally decided that it's best to stop investing in Russia....for now http://www.businessweek.com/globalbiz/blog/europeinsight/archives/2009/06/ikea_turns_sour.html).

The contradiction with all this is that both China and Russia are such beautiful countries and in terms of business have so much potential. I presented to the Russian Agricultural Minister in 2006 a proposal for Australia to export USD300m worth of Beef seedstock and USD300m worth of knowledge and infrastructure development. The research and planning that went into this proposal was massive and the strategy was snapped up by the Russian government. Within 3 months they had ordered massive amounts of seedstock breeders from Britain! Fortunately an outbreak of foot and mouth in Britain killed the deal, but why did Russia take our proposal and run to Britain with it. Since this time, I have seen versions of my proposal (even word for word) in a variety of different Russian business proposals to the Ministry for funding. However, support in Australia for doing business in Russia (and more particularly, on selling our cattle IP) is difficult to obtain. Elders have sold some shipments to Russia since my proposal but the on-sell of services hasn't occurred and the numbers of cattle are far short of what they could be. I do know that Rural Solutions in Adelaide are working on some great proposals for the Russian regions but again, little has come of it in terms of hard core investment by the Russian government.

The story is little different in China. The Australian beef cattle industry has been battling for years to get some traction in developing China's beef production with not a single sale to show for it. My experience and conversations I've had with others has given me first hand anecdotes of the frustrations businesses seem to have in operating in these countries. In Russia, corruption seems to significantly reduce the amount of investment and hence the growth that's possible. In China, the ever present oversight of government control makes it extremly difficult to utilise traditional marketing practices of differentiation and segmentation to make headway. It's more about connections and alignment to the current central plan. And yet, China continues to boom and with their switch from exports to internal infrastructure investment, looks like continuing to boom.

It seems that most people think that establishing operations in these great and populace countries is just too hard, and my suspicion is that the Hu case is only going to make this perception more entrenched, much to the disadvantage of all the world over.

proposal writing

It's been a bad week for mbh this week. We've missed a number of proposals we'd submitted and with staff either sick or on leave, it's taken all our experience in prioritisation and workload management to make sure we keep supporting our clients to the same extremely high standard they've come to expect. Still for every bad week there tends to be a good one so after a couple of days of reflection, I'm now in the lessons learnt phase of the week. I always tend to learn more from things that go wrong than right.

This week's lessons are around proposal writing and having just finished a proposal 15 minutes ago ( and having committed to maintaining this blog) I thought I'd sign in and write down some random thoughts. After finishing the proposal, I asked my partner to have a read and give me her thoughts. Thankfully, she has far superior intellect than me and her communications degree certainly assists in challenging my arguments. Her comment this time related to the use of the term "hot" when referencing a product that is doing well at the moment. We have a four hour project planning course that takes people through a crash course in critical path analysis and network crashing. This course is very popular at the moment and I referenced this in the proposal as a "hot" product. My partner's challenge was "is this formal enough for a proposal" and my response at the moment is yes for when you are competing in bloody red ocean (which we are when it comes to PM training), one has to differentiate yourself as much as possible. However, as always, the doubts creep in.

Thoughts please, is using the term "hot product" too informal for a business proposal?

strategy execution

Over the years, this blog has been poorly maintained. One of the frustrating things is feeling constrained in being able to write the things I verbally comment on during the day. I'm a fairly argumentative person and have strong and passionate views. These views can land you in hot water if you don't think them through. When speaking, there's always the feedback loop from the listener in the form of them replying but also in terms of their body language that assists me to determine if I'm going too far. On the web, through a blog, this is much different. However, there is the opportunity to reach a far wider audience and obtain some validation or repudiation on thoughts and ideas. So, I am determined to make another attempt at regular blogging. On this occasion, my blogs will be less researchy "white papers" and more just random thoughts and observations about what happened during the day.

One of the more peculiar terms I've observed over the years is the management consultant's term "strategy execution". There's an American based management consultancy that differentiates their business via the tag line "strategy execution" and yet when you look at their services, they're much more about strategy formulation than strategy execution. To me, the only thing that "executes" strategy is the implementation of portfolios of projects aligned to that strategy with its associated change and resulting benefits based on the shareholder value created. It's not that I think their service offering wouldn't add value, its just that their whole proposition around strategy execution seems weird to me and undermines my trust in them actually knowing what makes a business hum.

Any thoughts?

what happens when a company achieves its vision?

One of the interesting things that is commented on in change management texts and can be observed as a frequent phenomena for nearly every company that has ever succeeded is the plateau and slow decline that occurs once they have achieved what it was that they originally set out to achieve. This diagram below best illustrates what I'm talking about:

This graph demonstrates the linear growth trajectory of a successful start-up. However, once the initial vision has been reached and the product range that supported that vision is no longer unique, success plateau's and finally starts to fall. During this contraction phase, a serious of wake-up spikes occur where management reacts to the fall and tries new strategies to re-invigorate the company. However, the loss of an end state (see previous post) means that none of these periods last very long and are always followed by an even sharper fall. Finally, pending doom either results in bankruptcy and death or the re-emergence through a new vision and new mind-set of the organisation. Of course, there are many permutations in how these events take place, but in each permutation the overriding problem of a loss in ends state or vision driving failure. Often it is hard for the original successful organisation to let go of its sacred cows. These are, after all, the things that made them successful in the first place. But, ultimately, what will make the company grow again is an organisation the barely resembles the original at all. Some examples of this may help:

Having nearly died at the end of the 90s, IBM re-invigorated itself to the point where it no longer manufactures computers and makes nearly all its revenue from IT services and software(who would have thought that in the 80s).

Apple went through a tortuous period during the 90s and nearly went out of existence before its original founder created a new vision for the company centred around sleek design that has led to the iPod, iPhone and even a re-emergence of its original Mac product.

Yahoo is currently going through a period of chaos centred around identity (will it re-emerge or die)?

General Motors is representative of the automotive industry in general but as been slower to respond. It is going through a period of chaos centred around a lack of vision now that its big is beautiful vision has been cast aside by society. Will it re-emerge along with the automotive into the new world of electric powered automobiles. There's no doubt in my mind that this is the vision to aspire to in the automotive industry and several organisations have taken up the challenge of meeting this all electric vision (e.g. Better Place, Nissan etc). Progress has been remarkably rapid due to their commitment to a vision they know is real.

What can we learn from this? The truth is that it is difficult to move a big ship once its course has been set and if you don't set a new destination once you reach the original one, you will fail. However, methodologies and tools to do this re-alignment are few on the ground. We have some ideas but are yet to really test them in the marketplace. Any thoughts?

Examples of problems that need an end state

What I love about mbh and my role in the company is that we often get involved in developing cases for companies and governments to invest in potential solutions. What is frustrating, as per my previous post, is the lack of an overall guiding goal or end state to weigh up the worth of these investments. There are many large problems facing society that are being commented on in the mainstream press. What is often lacking from these commentaries is the end state or new world that we are trying to achieve. 

The two main examples where we have been involved lately or where I have taken a personal interest is the current water and energy problems around the world. While both problems are world problems, their end state scenarios and solutions to reach said end states differ from region to region. At the moment, global warming and peak oil are being blamed for high energy prices and for problems countries are having with supplies of water. The amount of data in the marketplace on these two causes of problems (i.e. global warming and peak oil) is huge. As an example, check out this awesome website on energy http://peakenergy.blogspot.com/. Not only are the blog entries great, there are dozens of links to excellent and reputable websites for further information. It would be possible to write a business case on a variety of investment opportunities from the date linked within 6 degrees of separation from this one site. The problem would be distilling so much information.

It is almost impossible to distill information and analyse options if we don't know the end state of what it is we're proposing. However, once you put a stake in the ground, or define an end state, the options for investing are reduced to those that facilitate achieving the end state. As an example, this link to a video of a school friend of mine talks about a stake in the ground on CO2 emissions http://www.youtube.com/watch?v=wbwxF47x5ss. What Saul does is suggest an end state stabilisation of CO2 and then discusses how much demand needs to be reduced by as one option to achieving this end state CO2 figure.

I'd be interested to know societies expectations on these matters. It would certainly lead to better investment decisions if we debated what goal we were aiming for. Two answers I'd like are around water supply and energy use:

1. Is Sydney and most other Australian cities happy with permanent water restrictions or do we feel an end state of watering our concrete whenever we feel like it should be the goal or is it somewhere in between?
   
2. Is the industrialised world satisfied with Saul's reduction in consumption to meet global warming or the fact that we're going to lose various islands, flood parts of every coastal town in the world and have far more frequently dramatic weather events ok with is? Or again, is it somewhere in between and if so, what?
   

I know in a democracy that a definitive answer to these questions is impossible but gleanings as to general collective preferences would make government investment decision making a whole lot easier.

ramblings on investment decision making

I've been doing a lot of things around investment decision making lately. Reviewing business cases, teaching people how to complete feasibility analysis and compile business cases, actually compiling business cases for clients and assisting project teams to compile business cases. I've gotten to the point where I need to ramble for a few blog entries to get out of my system some thoughts that have been running around my head.

Real asset investment decision making has been a fascination of mine since University days. The process of discovering if an investment has potential is fascinating. The range of topics you get across is huge.

Over the years I've also discovered the massive political and emotional aspects to decision making too. I've experienced the political and emotional responses through observation rather than participation. Most of my experience in observing the emotive and political response to a problem has been through the review of business cases or cabinet submissions that have been written to get a certain decision up rather than testing and proposing the best option for decision makers. Other observed phenomena is the retrospective business case. This is where a document called a business case is written to cover for the fact that a decision has already been made. What I find interesting in these cases is discovering what was the business case that caused the actual decision to be made. Was it a conversation, a presentation, a site visit or something else. There is always something that is the catalyst for a decision maker or person in power to decide to act. Sadly, it is often some small, quick comment or observation rather than as a result of a sound and well developed business case.

The most frustrating thing for me has been the difficulty in understanding the overall thread or long term goal to investment decisions. They are so often made in isolation with the dependancy and impact on other initiatives rarely considered. Yes, the investment aligns to strategy but does it contribute to an overall plan that leads to some end state that the organisation, community or society finds desirable.

Many new management theories are being explored around complexity theory and the uselessness of trying to predict the future (e.g. through forecasting and modelling). However, I find it impossible to be motivated and commit to investing money in a project that has no clear purpose and cannot be defined as part of some overall goal or end state.

I understand that it is extremely difficult to define an end state, but without one, all common principles of strategic planning and business management are useless and the complexity theorists become 100% correct in their description of organisations as self forming organisms that bumble along much the same way life always has since that first single cell split and became two.