Power and leadership

I am a big fan of schumpeter’s column in the Economist. If all schumpeter’s articles were bundled into a book it would certainly make a very useful navigational guide to the business badlands like terrain. The write-up on leadership and power (Sep 2010) and what it takes to climb up the corporate ladder is particularly well written. It confirms the vox populi – lack of correlation between ability and power. However, the fact that power leads to better health, more friends, and a healthier heart doesn’t really resonate with what we have witnessed in the lost decade. None of the above attributes can be ascribed to the profligate leaders of the disgraced corporations – BP, Lehman, Enron.  A critical attribute of a successful leader that Schumpeter might have missed out is the effective articulation of a compelling vision and ensuring that this vision trickles down and continously energises all employees.

Public vs Private companies and Skype

The August edition of the Economist raises a very relevant question (http://www.economist.com/node/16843627?story_id=16843627) : whether the sun is finally setting on the public company (vs the private company)?

I started thinking about  Skype’s recent announcement of going public and whether that is a good or a a bad move. Although, the offering is not significant, going public would force Skype to react to impatient investors and erratic street expectations. Skype’s core competency has been cutting edge technology innovation and exploring unprecedented business model that pioneered the destructive creation of domestic telecom industry. Would Skype continue to innovate when suddenly its goal will be more aligned towards the Street’s quarterly expectations? In skype’s case the problem is further exacerbated by Ebay’s 3 years long failed adoption of Skype that had slowed the rate of innovation. Now is the time for it to start exploring the next round of creative solutions with wireless technology and wireless carriers and for that it needs to be free of  the Street’s shackles.

Economist in the same write-up points out how the most fashionable investment vehicles—leveraged buy-out firms, hedge funds and venture-capital funds—are spearheading the [private] revolution. “These firms are usually organised as partnerships, though some, such as the Blackstone Group, are also listed. Corporate raiders often raise money by creating funds in the form of partnerships. Their targets are often restructured as partnerships. This makes managers behave like owners rather than hired hands: they can lose money as well as making it and they have years to turn their companies around rather than answering to the stockmarket every quarter. Hedge funds can make money by buying companies and selling underperforming assets. Venture capitalists make money in the long term by lending their names and expertise to start-ups. Hedge funds and venture-capital firms also make money in their different ways by getting fund managers to behave more like partners, with “skin in the game”, as the modish phrase puts it.”

Why aren’t my Latin American Mutual Funds doing as well?

A recent article in the Economist explains why Latin American economies aren’t growing as fast as some other global economies.  It has been blamed on lower Productivity growth. It defines  Productivity growth as “gains in the efficiency with which capital, labour and technology are used in an economy—is the elusive holy grail of economic development”. It goes on to say ” productivity growth means squeezing more output from the same inputs. And Latin America has been particularly bad at this. The short answer is that the typical Latin American firm is a small, inefficient service business and may well be operating in the informal economy. Productivity growth tends to be higher in manufacturing and agriculture than in services.”

This is quite interesting since, typically, lower population and homogeneous demography are considered key ingredients for success. South American countries qualify in both those areas yet this region gets dinged due to lower productivity growth. Although Chile and Brazil might be a little ahead of others we have to wait for quite some time before the benefits of education and infrastructure start impacting productivity positively.

3 Gs of Negotiation

3 Gs of negotiation  is part of groundwork that must be carefully done before the first negotiation meeting.

Give:  Information that will/may be offered to the other party (ies) at the appropriate time. Keep in mind Give and Get go hand-in-hand.

Get : Information that needs to be obtained from the other party (ies) or from other sources. This can be driven by understanding self-interest of the parties involved.

Guard : Information that must be kept confidential or that will only be given under limited circumstances. This is perhaps most important and can be used when exploring  BATNA (Best Alternative to No Agreement).

Debt Sustainability

In light of the ongoing economic meltdown in Greece, the Economist has an interesting article that quantifies debt sustainability of countries. It uses the simple reasoning that if interest rate paid on debt is more than the economy’s growth rate (represented by GDP)  - the country might be in trouble.

Excerpt Feb 13th economist:  So which countries are in the biggest trouble? The ability of a government to honour its debt depends on a number of factors, in particular the size of the debt burden relative to GDP, the interest rate paid on that debt relative to the economy’s growth rate and the size of the government’s primary budget balance—the surplus, or deficit, before interest costs

http://www.economist.com/businessfinance/displaystory.cfm?story_id=15498265

Why state sponsored entrepreneurship worked in Israel?

Economist has interestingly pointed out why government sponsored entrepreneurship scheme succedeed in Israel while it failed in the other countries -”The government let foreigners decide what to invest in, and then stumped up a hefty share of the money required.”

http://www.economist.com/businessfinance/displaystory.cfm?story_id=14743944

 

Make or Buy

In a strategy course I had taken last year I came across a very useful tool to make a make-or-buy (or outsourcing) decision.  In order to determine which products or services might qualify for the “make” or “buy” components of this multi-dimensional problem, the tool employs “suppliers” as the first dimension and “technology” as the second dimension. The terms to describe the alternative or extremes in the supplier dimension are “few” and “multiple”. “Few Suppliers” refers to unique technologies, for which there are limited supply of vendors. The opposite alternative, “multiple suppliers”, represents broad technology activities for which there are many vendors. “Critical” and “non-critical” are the terms selected for alternatives within the technology dimension. This dimension reflects the degree to which the operations constitute the core-competency of a company.

Is this a “balance-sheet recession”?

Really liked how Economist (Ocr 3rd-9th) likened current recession to the one Japan had and is almost coming out of after nearly 2 decades - ‘balance sheet recession’ – “before the crises the overpriced assets held by banks and households were accompanied by vast debts. After the crises their assets were shattered but the liabilites remained standing.” http://www.economist.com/specialreports/displaystory.cfm?story_id=14530093

The same article explains String theory quite clearly.

Is your job Meaningful?

Malcolm Gladwell, in his book, Outliers, lists out three characteristics that make one’s job meaningful:

These are:

1. There should be a clear relationship between effort and reward.
2. The task should be complex. It should engage your mind and imagination.
3. One should have autonomy. You should be your own boss.

Predatory pricing vs discounting

In rare circumstances, a big firm with cash in reserve may cut prices below costs in order to starve smaller rivals of revenue. The profits sacrificed in the short term can be recouped by higher prices once competitors are out of the way. source:  #mce_temp_url#