The original discussion is here:
http://tinyurl.com/48hp7dq
I can agree with the reasons cited in the attached article. I will add a couple of my own:
1) Senior leadership: Regular (more than once a week) oversight and interaction by senior management is required to ensure both direction and buy-in from the top. The most succesful projects I have seen had almost daily involvement from management within two-levels of the CEO.
2) Put the best people on the project. You will live with this system for many years. If it is well done, it will be the source of actionable data and efficient proceessing. If it is poorly structuerd and implemented, the costs over several years cannot be calculated. Make the investment now.
3) In a system-wide project, do not let accounting lead. Yes, the accounting must work. But good accounting is meaningless absent a well run business supported by a good systems infrastructure. Accounting is a support function in any business.
4) Don't let perfect get in the way of going live. Even in legacy systems, changes and improvements are made regularly. The new system will be no different. Get it online, and this way have your whole team working in one environment instead of two. They will clean up the small problems much faster if they are focussed on the new system only.
Thursday, February 24, 2011
Tuesday, February 1, 2011
Role of Government in Innovation
These comments are in response to a thread at Linked In:
http://tinyurl.com/48jbqkg
You cannot force it, and respectfully I would submit that government efforts only stifle it. To avoid further politicization of this thread, I will limit my comments to two:
1) Approval through committees stifles innovation. The most bureaucratic committees are those formed by government. These must deliver politically desired / acceptable results, and are not disciplined by the market. Innovation not demanded / accepted by the market is useless to humanity.
2) Anecdotally, consider that the technology boom in California and elsewhere coincided with the significant reductions in aerospace and defense in the same geographic regions. Those laid-off engineers and scientists, now working outside of government dictated paths, delivered one of the greatest periods of innovation in the service of man known in recent history.
Leave it to individual human action, formed voluntarily in groups as they feel necessary, and innovation will flourish.
http://tinyurl.com/48jbqkg
You cannot force it, and respectfully I would submit that government efforts only stifle it. To avoid further politicization of this thread, I will limit my comments to two:
1) Approval through committees stifles innovation. The most bureaucratic committees are those formed by government. These must deliver politically desired / acceptable results, and are not disciplined by the market. Innovation not demanded / accepted by the market is useless to humanity.
2) Anecdotally, consider that the technology boom in California and elsewhere coincided with the significant reductions in aerospace and defense in the same geographic regions. Those laid-off engineers and scientists, now working outside of government dictated paths, delivered one of the greatest periods of innovation in the service of man known in recent history.
Leave it to individual human action, formed voluntarily in groups as they feel necessary, and innovation will flourish.
Monday, January 31, 2011
James Grant at the TMA Conference
Last week I attended the Turnaround Management Association Conference in Las Vegas. On Thursday, Jim Grant gave an overview of the monetary and fiscal situation facing the United States and the rest of the world. Following is my summary from his presentation. Any errors regarding his views can only be attributed to my poor note taking!
He described the US Dollar as the greatest monetary achievement in the history of the world, as it is an uncollateralized obligation, dependant on Congress and the Federal Reserve (both with their many failures), yet is accepted worldwide. Based on this exalted status of the dollar, Americans have had the luxury of living life on the sweat of someone else’s brow.
US Dollars go from the US to exporters in Asia. Those exporters turn the dollars in to local banks in exchange for local currency. The local banks send the dollars to the central bank, which in turn buys US Treasuries, basically sending the money back to the US to be spent again. He describes that this limitless credit card of American debt is coming to an end.
In his view, QE2 has focused the world’s attention on the true nature of the dollar. I believe he sees this with QE2 and not QE1, as most might see QE1 as necessary to stabilize a crisis. It seems QE2 (and the risk of further QE actions) has made clear to much of the world that the Fed and Congress will use the dollar in ways other than those necessary to provide a stable medium of exchange and store of value.
The most levered financial institution in New York is the Federal Reserve Bank of New York (FRBNY). He described it as having leverage of 80:1, with $15.5 billion of capital. At less than 1.5% default on its assets (or reduction in value), the equity is wiped out. Then what? He asked to consider the impact of a rising interest rate environment on the value of this portfolio.
He noted a new footnote on the Fed’s balance sheet, dated January 5, 2011. The Fed will not transfer earnings to the Treasury if the $15.5 billion equity is impaired. In Mr. Grant’s view this will eliminate the possibility of the Fed ever facing a solvency issue. I believe the Fed transfers all profits to the Treasury annually, resulting in $50 billion or more per year each of the last two years. Such amounts would certainly help offset the Fed’s balance sheet woes, but will only exaggerate further the poor state of US fiscal balance.
The FRBNY is owned by member banks. These banks acquire their interest with 50% cash and 50% pledged as a capital call, on line for solvency issues. He did not say anything more on this, but left unanswered if he felt this would be called before the Fed withheld payments to the Treasury.
In a brief overview of 20th century monetary history and default, he outlined:
1931: Britain renounced their gold standard. The pound went from 1/4 ounce of gold to 1/850 ounce of gold today.
1971: Nixon renounced the gold standard for international redemption. The dollar went from 1/35 ounce of gold to 1/1350 ounce of gold today.
From 1946 – 1981, we saw a bond bear market, with rates rising from about 2% - 3% to well over 15%. But the period from 1946-1956 was relatively benign, only about a 1% change in that time. The acceleration occurred thereafter. Since 1981, we have seen the reverse – a bond bull market, with ever-lower interest rates fueling many asset classes higher.
Are we now in the time of this to reverse? Will we see a similarly benign period of low interest rates followed by another prolonged bond bear market? As to a prolonged period of benign rates, Mr. Grant doesn’t think so. He describes that today, unlike the periods before 1971, the US now has a “weightless dollar,” un-backed by anything. He believes this makes the entire system much less stable. The world’s “faith” will not last that long. He however, does believe that we will see ever-higher interest rates.
He described the economics of the trade in currencies, and the overwhelming size of this market. If I captured it correctly, he states that world trade in currency is approximately $4 trillion per day, while world trade in goods is about $40 billion per day. This trade can change for many and any reasons, and overwhelm the ability of governments and central banks to manage a significant change in perception and reality.
In his view, QE2 changed the game. The manipulation of the dollar is fully exposed for what it is – not to stabilize world financial systems, but solely to benefit the US and, seemingly fund its debt and protect its banks. The Fed is creating ever-growing excess to address the problems caused by previous periods of excess.
Will the dollar system persist? The clear and present danger is complacency on the part of US policy makers. What will cause a change from the dollar being the reserve currency? He does not say, but notes that this change in status is quite possible with significant ramifications for the US.
We may be embarking on a new cycle of rising interest rates and potentially an entirely new monetary system. He did not discuss the ramifications of this, but in the case of rising interest rates, these are significant and reasonably predictable. In the case of a new monetary system, I believe large dislocations arise. For the US and those who have lived from the luxury the world’s reserve currency offers, I believe this will be most dramatic. The luxury of living from the sweat of someone else’s brow will be greatly reduced, if not eliminated.
He described the US Dollar as the greatest monetary achievement in the history of the world, as it is an uncollateralized obligation, dependant on Congress and the Federal Reserve (both with their many failures), yet is accepted worldwide. Based on this exalted status of the dollar, Americans have had the luxury of living life on the sweat of someone else’s brow.
US Dollars go from the US to exporters in Asia. Those exporters turn the dollars in to local banks in exchange for local currency. The local banks send the dollars to the central bank, which in turn buys US Treasuries, basically sending the money back to the US to be spent again. He describes that this limitless credit card of American debt is coming to an end.
In his view, QE2 has focused the world’s attention on the true nature of the dollar. I believe he sees this with QE2 and not QE1, as most might see QE1 as necessary to stabilize a crisis. It seems QE2 (and the risk of further QE actions) has made clear to much of the world that the Fed and Congress will use the dollar in ways other than those necessary to provide a stable medium of exchange and store of value.
The most levered financial institution in New York is the Federal Reserve Bank of New York (FRBNY). He described it as having leverage of 80:1, with $15.5 billion of capital. At less than 1.5% default on its assets (or reduction in value), the equity is wiped out. Then what? He asked to consider the impact of a rising interest rate environment on the value of this portfolio.
He noted a new footnote on the Fed’s balance sheet, dated January 5, 2011. The Fed will not transfer earnings to the Treasury if the $15.5 billion equity is impaired. In Mr. Grant’s view this will eliminate the possibility of the Fed ever facing a solvency issue. I believe the Fed transfers all profits to the Treasury annually, resulting in $50 billion or more per year each of the last two years. Such amounts would certainly help offset the Fed’s balance sheet woes, but will only exaggerate further the poor state of US fiscal balance.
The FRBNY is owned by member banks. These banks acquire their interest with 50% cash and 50% pledged as a capital call, on line for solvency issues. He did not say anything more on this, but left unanswered if he felt this would be called before the Fed withheld payments to the Treasury.
In a brief overview of 20th century monetary history and default, he outlined:
1931: Britain renounced their gold standard. The pound went from 1/4 ounce of gold to 1/850 ounce of gold today.
1971: Nixon renounced the gold standard for international redemption. The dollar went from 1/35 ounce of gold to 1/1350 ounce of gold today.
From 1946 – 1981, we saw a bond bear market, with rates rising from about 2% - 3% to well over 15%. But the period from 1946-1956 was relatively benign, only about a 1% change in that time. The acceleration occurred thereafter. Since 1981, we have seen the reverse – a bond bull market, with ever-lower interest rates fueling many asset classes higher.
Are we now in the time of this to reverse? Will we see a similarly benign period of low interest rates followed by another prolonged bond bear market? As to a prolonged period of benign rates, Mr. Grant doesn’t think so. He describes that today, unlike the periods before 1971, the US now has a “weightless dollar,” un-backed by anything. He believes this makes the entire system much less stable. The world’s “faith” will not last that long. He however, does believe that we will see ever-higher interest rates.
He described the economics of the trade in currencies, and the overwhelming size of this market. If I captured it correctly, he states that world trade in currency is approximately $4 trillion per day, while world trade in goods is about $40 billion per day. This trade can change for many and any reasons, and overwhelm the ability of governments and central banks to manage a significant change in perception and reality.
In his view, QE2 changed the game. The manipulation of the dollar is fully exposed for what it is – not to stabilize world financial systems, but solely to benefit the US and, seemingly fund its debt and protect its banks. The Fed is creating ever-growing excess to address the problems caused by previous periods of excess.
Will the dollar system persist? The clear and present danger is complacency on the part of US policy makers. What will cause a change from the dollar being the reserve currency? He does not say, but notes that this change in status is quite possible with significant ramifications for the US.
We may be embarking on a new cycle of rising interest rates and potentially an entirely new monetary system. He did not discuss the ramifications of this, but in the case of rising interest rates, these are significant and reasonably predictable. In the case of a new monetary system, I believe large dislocations arise. For the US and those who have lived from the luxury the world’s reserve currency offers, I believe this will be most dramatic. The luxury of living from the sweat of someone else’s brow will be greatly reduced, if not eliminated.
Sunday, January 9, 2011
At Linked In: "The Tribal Knowledge Paradox".
This conversation is at Linked IN, within the TMA Group. The original conversation can be found here:
http://tinyurl.com/34c4oxg
My response is posted within the thread, and here below:
With certain exceptions (which I will discuss later), I have not found a need for or benefit from bringing in outside consultants into a turnaround situation.
I have found it most effective to engage the employees of the company directly in the turnaround. They know the most about the company already. Many of them already know what is wrong and how to fix it. The hindrance has been the executive management. This leads me to conclude that often consultants are brought in when in fact it is the executive leadership that must be changed - yet this is the same group that the consultants usually set out to answer to. What else could it be? They either answer to the same executives that led the company down the road to ruin, or they answer to the new executives. But why not just bring in new executives that already know how to get the employees working in the right direction and on the right things?
Root out the naysayers within the organization, those who find fault with every new idea or every consideration for a change in direction. The employees in the organization are adults. Without the naysayers, and with proper information, they will understand that hard decisions must be made, and will appreciate that you think enough of them to shoulder this burden.
Listen to the people. Set objectives for them. Identify the key, high-leverage actions and assign responsibility with regular, even daily, accountability meetings. Implement incentive systems that push the leadership (and in fact all employees) to work as a team. The energy in the organization will amaze. The people are ready to run, after a (usually) prolonged period of shouldering the daily burden of living on the financial precipice, an emotional death march.
The exceptions I have found regarding a value to bringing in outside consultants was in foreign assignments. With a lack of language skills, outside resources can be helpful. However even in these cases, the idea was to set up structures and work through the existing management to train and implement mid- and lower-level employees on new processes and procedures. More of the medium- to long-term fix; not the quick hitting turnaround. This was a great success within one organization, and a reasonably good success in another.
http://tinyurl.com/34c4oxg
My response is posted within the thread, and here below:
With certain exceptions (which I will discuss later), I have not found a need for or benefit from bringing in outside consultants into a turnaround situation.
I have found it most effective to engage the employees of the company directly in the turnaround. They know the most about the company already. Many of them already know what is wrong and how to fix it. The hindrance has been the executive management. This leads me to conclude that often consultants are brought in when in fact it is the executive leadership that must be changed - yet this is the same group that the consultants usually set out to answer to. What else could it be? They either answer to the same executives that led the company down the road to ruin, or they answer to the new executives. But why not just bring in new executives that already know how to get the employees working in the right direction and on the right things?
Root out the naysayers within the organization, those who find fault with every new idea or every consideration for a change in direction. The employees in the organization are adults. Without the naysayers, and with proper information, they will understand that hard decisions must be made, and will appreciate that you think enough of them to shoulder this burden.
Listen to the people. Set objectives for them. Identify the key, high-leverage actions and assign responsibility with regular, even daily, accountability meetings. Implement incentive systems that push the leadership (and in fact all employees) to work as a team. The energy in the organization will amaze. The people are ready to run, after a (usually) prolonged period of shouldering the daily burden of living on the financial precipice, an emotional death march.
The exceptions I have found regarding a value to bringing in outside consultants was in foreign assignments. With a lack of language skills, outside resources can be helpful. However even in these cases, the idea was to set up structures and work through the existing management to train and implement mid- and lower-level employees on new processes and procedures. More of the medium- to long-term fix; not the quick hitting turnaround. This was a great success within one organization, and a reasonably good success in another.
Monday, January 3, 2011
The Big Idea: The Case for Professional Boards - Harvard Business Review
This question was posted at Linked In, at the following location:
http://tinyurl.com/2fbpeeu
The orignial HBR article is linked through this address as well. I have also posted my comments directly to the Linked In discussion thread.
From what I saw in the preview, and based on my personal experience, I would agree with the three main recommendations made by the author, specifically:
1) Smaller size: the author recommends six to seven members, with the CEO and the rest as outsiders.
I have been on boards of this size, as well as both much smaller and much larger boards. Where I felt the board was most effective was in just the size and composition that the author recommends. In the case of too small a board, I did not find enough difference of opinion on any subject to make a worthwhile dialogue. Additionally, with a very small board, there are risks that one or two will dominate the conversation, especially the CEO. On the boards that are too large, as the author indicates, no one feels terribly responsible. Because of this, the board meeting becomes an echo chamber for the CEO.
2) Most of the independent directors would be required to have extensive expertise in the company’s lines of business.
I would agree, given the qualifier “most.” I offer the following cautions:
a) Experience in the industry by the board members must be tempered with the realization that management has the charge to run the company, and it is management that best understands the customers, suppliers, and other competitive dynamics faced in the present time and in the company’s particular situation, and
b) Outside perspective is always needed. Candidates could include someone with:
i) Complementary background, perhaps from a supplier or customer of the subject company,
ii) Someone from an industry with similar labor or cultural dynamics, or
iii) Someone who has experience dealing with a particular management situation (perhaps a turnaround, etc.).
3) They would spend at least two days a month on company business beyond the regular board meetings.
Of the three recommendations, I find this the most critical. I find it inappropriate to believe that one person can sit on several boards and somehow provide real value to the management and shareholders of each of the companies. However, this expectation is reinforced by the typical compensation practice for a board member. Board members are paid as if they are expected to not be involved more than four board meetings per year, so that is what happens.
It is not possible to properly serve as a board member in more than a small handful of situations at a time. Time must be spent with management; interaction should be encouraged beyond that with the CEO. This relationship must be clearly understood and defined to ensure that lines are not crossed between oversight and execution, but certainly this can and should be done.
http://tinyurl.com/2fbpeeu
The orignial HBR article is linked through this address as well. I have also posted my comments directly to the Linked In discussion thread.
From what I saw in the preview, and based on my personal experience, I would agree with the three main recommendations made by the author, specifically:
1) Smaller size: the author recommends six to seven members, with the CEO and the rest as outsiders.
I have been on boards of this size, as well as both much smaller and much larger boards. Where I felt the board was most effective was in just the size and composition that the author recommends. In the case of too small a board, I did not find enough difference of opinion on any subject to make a worthwhile dialogue. Additionally, with a very small board, there are risks that one or two will dominate the conversation, especially the CEO. On the boards that are too large, as the author indicates, no one feels terribly responsible. Because of this, the board meeting becomes an echo chamber for the CEO.
2) Most of the independent directors would be required to have extensive expertise in the company’s lines of business.
I would agree, given the qualifier “most.” I offer the following cautions:
a) Experience in the industry by the board members must be tempered with the realization that management has the charge to run the company, and it is management that best understands the customers, suppliers, and other competitive dynamics faced in the present time and in the company’s particular situation, and
b) Outside perspective is always needed. Candidates could include someone with:
i) Complementary background, perhaps from a supplier or customer of the subject company,
ii) Someone from an industry with similar labor or cultural dynamics, or
iii) Someone who has experience dealing with a particular management situation (perhaps a turnaround, etc.).
3) They would spend at least two days a month on company business beyond the regular board meetings.
Of the three recommendations, I find this the most critical. I find it inappropriate to believe that one person can sit on several boards and somehow provide real value to the management and shareholders of each of the companies. However, this expectation is reinforced by the typical compensation practice for a board member. Board members are paid as if they are expected to not be involved more than four board meetings per year, so that is what happens.
It is not possible to properly serve as a board member in more than a small handful of situations at a time. Time must be spent with management; interaction should be encouraged beyond that with the CEO. This relationship must be clearly understood and defined to ensure that lines are not crossed between oversight and execution, but certainly this can and should be done.
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