Posts filed under 'b-school'
A weekend in Cologne (Köln) and some bits of European construction
I’ve been this weekend in Cologne, an amazingly thriving city on the Rhine born about 50BC as a Roman outpost. A city that grew in the industrial revolution thanks to the enterprisingness of its inhabitants that strategically used their proximity to the coal of the Ruhr region.
Catholics, in 1248 they began the construction of their cathedral. It would stop in 1560 for as long as four centuries, with a crane that would be Cologne’s symbol and witnessed lots of generations live and die. Until 1848 you could have seen something like this…
This was the tallest building of the wold as well, until the Washington Monument’s capstone was set in 1884.
Let’s make another step in time to 1945 after the second World War. Cologne was obliterated with bombings. Less than 10% of its buildings survived. One of them was the Cathedral. Although hit by several bombs, maybe miraculously, the Dom still stood in the middle of a lake of rubble.
Little remains of those years. Where Adolf Hitler rallied his troops, now there’s a lake where students gather instead to have fun and drink beer. Now Cologne is a cosmopolite city, a mix of cultures and lifestyles, somewhat disordered for a German city, but very much alive and breathing. It is the broadcast centre in Germany, the fourth biggest city and see to many international art festivals. Their inhabitants celebrate the good weather sitting in the terraces at night and have one of the largest Karnevals, or Mardi Gras, in Germany. Last Saturday’s view was quite different:
Yes, I went there to study, to prepare the forthcoming exam on Strategic Direction and Corporate Finance and Governance with my German peers on the MBA. We had a great time and also worked a lot.
Now for European construction. We saw the next election’s publicity in many streets. I saw it again in Barcelona, when I came back yesterday. I read the newspapers and saw, to my amazement, how Spanish politicians are using the European elections to talk about local issues, even to try to condone some misbehavings some of their numbers have committed.
Our politicians, and I do thing that’s an European wide issue, are inadvertently but irresponsibly turning us away from democracy with their constant cynicism, hypocrisy and abuse. And our democracies, our peace, our union and our prosperity are the most valued shared good that we have. They are the only guarantee that neither Cologne nor Barcelona’s inhabitants, both cities whose civilian population have been bombed by air, each from a different political side, as if it mattered now or then to any crying child whose life had been severed, are not going to endure that cruelty anymore.
We are the ones benefiting and inadvertently collaborating to the European Union by travelling, by getting to know each other, by learning to respect our difference, by meeting to study an MBA from a British business school in a German roaring town.
I’m going to miss Cologne… it is a city I could live in!
2 comments 25 May, 2009
Green shoots, maybe, but don’t expect flowers
I’m increasingly growing wary, or even tiresome, of anyone that talks about green shoots. Yes, put a lot of fertiliser over a bed of rocks and something will grow on that. Mostly weeds. After all, weeds are green, but they don’t make nice flowers.
After pouring so many fertiliser taken from the forced lenders throughout the world (yes, we and our descendants are the forced lenders, and the fertilisers are the billions of dollars irresponsibly poured everywhere) what else is there to expect than a few green shoots?
But one thing is to have green shoots, and another one is to have a sound recovery. That needs to be sustained on healthy fundamentals, which we don’t have now.
Okay, maybe we are not falling that fast… so what? Even the most bullish markets have relevant corrections, why shouldn’t the bearish? That is some hope in midst of despair, true, but the despair still has a sound reason to be.
Hiding things in the balance sheet, having assets that don’t reflect real prices, is not the way to recovery either. First we need that atonement, that reconciliation with reality, that would be a real stress test, after a previous sanity check: let’s value things for what they’re really worth.
And in the meantime the GDP of the Euro countries has contracted more than 10%. Germany is contracting more than Spain, with an unemployment growth rate 1000% bigger. We, who were the main sinners, are weathering the storm better? Something tells me that the methodology that we are using to calculate our GDP, given the fact that we have to remove seasonal effects being a touristic country, is delaying the changes to the real data. But something also tells me that the most inflexible labour markets are exhibiting those same troubles that don’t let them flexibly grow, only applied to contraction. There’s plenty for all of us.
Hmm, I’m so sorry to be negative but… let’s prepare and get ready, because those shoots are bound to whither and the worst is yet to come.
Add comment 18 May, 2009
I sense some hope… sorry not yet! (Pandora’s jar is still not completely open)
Lately I’ve been hearing some musings about how the economic situation is improving. Yes, optimists are always necessary, though they can also be a bit annoying sometimes.
In any case it’s good to reflect for a while on where are we now. Have the fundamentals of the current crisis changed so much that we can say things are changing? Maybe is it that people are sensing that we have already touched the floor thus the situation is about to rebound? If it is the second one, let me tell you, we spent so many years skyrocketing ceiling after ceiling, why should the bear animal spirits be less powerful than the bulls?
Crisis, at least most crisis, aren’t the results of sudden disasters or fulminant downturns. Although everyone can recall tipping points, such as certain interventions or lack thereof, they are the consequences of deeply undergoing currents, things that have been happening for a long time.
And what has been happening for a long time? Things like the excess of liquidity, thus the excess of leverage. Piles and piles of debt. Unsound financial constructs acting like dark boxes trying to hide the risk inside, just like a giant Pandora’s jar (incorrectly translated from the ancient greek as a box instead of a jar).
Ephimetheus had been warned not to accept any gifts from Zeus, and Pandora had been warned not to ever open her box. But you know mankind, the former couldn’t resist marrying her, and the latter couldn’t resist her curiosity to know what was inside the box… Otherwise mankind would have lived tranquil and blissful (for another while).
So, has this man been able to close the jar (or box) that brings all the evils to mankind? I know it’s ugly to personalise but, has quantitative easing helped? It probably has, somehow, albeit many doubt so. I think it has bought us some more time, but we still haven’t taken care of that atonement I’ve written about a few times.
Because putting still more money into the system doesn’t address the fundamental problem we are facing. It’s more like trying to remedy a symptom than a disease. It’s true the pendulum has swung to the other side, and injecting liquidity, the swing won’t be that strong anyway, but that still doesn’t solve our problem.
Yes, banks are paralised. But that’s not because they have forgotten how to be banks, but because nobody really knows how much their assets are worth now. We are permitting them to alter their book to market ratio thanks to the backing of the ultimate lenders (yes, you know who they are, those forced lenders), and they are not lending because they are holding to those promises that permits them not to face reality.
Any reconstruction must begin by assessing the losses, instead of counting on a white (forced) knight that will save them all. This thought paralyses them, makes them look to the future with unrealistic expectations.
In the meantime, the forced lenders have to back and even buy bad assets. But they can’t sell them, as they don’t know how or whether they are worth anything. Just like another Pandora’s jar that trades hands without anybody actually looking what’s inside. And it won’t be a bad thing to look inside this jar, as at least we’ll know what we are able to recover. Bad assets are bad because they are worth much less than what’s in the books, it’s time to know how much.
So what then? Is this all? Even when we reach this point we will still have to face the biggest problem: the excess of debt. Right now we are still indebting us more and more as the quantitative easing still needs to be financed, as each and every infrastructure we may be trying to build, or every single measure taken to protect the weakest.
An interesting article from the New York Times wrote last month that the debt in the hands of the consumers had begun to recede from 98% of the Gross Domestic Product to 97%. Those were the good news. The bad news were that the debt in the hands of banks had not. And, according to the article, that debt stood at $17.2 trillion, or 121 percent of the size of the GDP of the United States, compared to 6% of the GDP half a century earlier. Yes, that’s a problem.
Still two final reflection in this already too long post: if households are saving more, that will have a long lasting impact on the economy as well, an impact that will last for sure much longer that the present recession. No more exuberant lending to households.
The other reflection is like this, what if we added to the debt held by households the debt that the governments are generating? They are the forced lenders after all. And if you look at the whole picture this way, the debt is still growing and growing… and the end is still further away.
Add comment 27 April, 2009
An unexpected impact of the crisis in project management (no, they are not lazy)
As the new terminal in Barcelona’s airport nears its completion and the trials are increasingly successful, we are increasingly dwelling into the depths of this recession / depression. No manager can have the luxury of forgetting the external environment, as it always impact us somehow, somewhere.
Sometimes project managers tend to think that they are insulated from the rest of the world. They have their budget, their plan, their milestones. Of course there’s a great deal of interaction with the customer and the stakeholders, but sensing the environment isn’t usually deemed necessary.
They are wrong.
I’m not talking here of budget cuts, or milestones changing. That could happen anywhere, anytime. I’m here referring back to an old post: Soft and hard human resource management (utilitarian instrumentalism versus developmental humanism) and the concept of the psychological contract.
There are many definitions of the psychological contract. For our purposes, let’s say that the psychological contract is the assumed relationship between employer and employee that includes a lot more than what’s included in the papers: what you’ll do for me, what you expect from me, including the promises I might have made, the way you expect to be treated, and the expectations you have for the future. Those small things you’ve talked with your boss about and the trust you have in him that they’ll be taken care of. If your boss lied to you, for instance, your psychological contract would be shattered, and your attitude with your job would dramatically change… for worse.
So, what’s in it for construction workers here? They are usually contracted through companies that have a working relationship with the companies that have been awarded the construction contract. There may be two, three, even four layers of agreements between them and the project. They may even work for several contracts, always ready to switch between one form of contract or another, everything transparent and irrelevant to the direction of the project, apparently.
But, what used to be the reality for them, that they went from one thing to another always having things to do and always earning money in one form or another, no longer holds true. Their expectations have dropped and, for many, next destination is unemployment. They won’t get bulky severance pays as many other layoffs. They will be simply be no longer required and no longer invited to participate in the next move. They will be have unemployment compensations, of course, but I bet they will be lower, for many reasons, than those of other kinds of workers.
So it’s no wonder they psychological contract has been shattered as well, as they expected to be able to keep living as they had been living. Not anymore.
And when is that going to happen?
The scary thing is that this is going to happen whenever they finish their job.
So, where is the motivation to finish as soon as possible? Do you think their intentions are aligned with the timeframe of the project’s direction? Obviously they are not. If they are not paid lump sums but depending on the days spent working, which is the usual contract as the lump sums are in higher layers, they will take as much time as they can. And with that they will also shatter part of the psychological contract.
I have been observing this effect. And this feeling is dangerously infectious as workers from one contract see workers from others procrastinating as much as they can. Moreover, this has no easy solution, as the usual ways of control are not responding effectively as they were never designed to overcome this threat or to better manage people, but to apportion and divide the value of the contract between several companies.
Sometimes, when we are thinking of leading our team to peak performance, we are forgetting to look around and realise how things are changing. We can name them however we want, but we can’t forget that, layers below, there is not a collection of resources: they are people.
Add comment 9 April, 2009
Moving from the tyranny of success to the crisis-stifled innovation
Yes, your company used to work so well. You were succeeding. And since you were succeeding and you were the incumbent, you needn’t innovate. Well, of course, you were better than that and you decided to innovate anyway, letting go some leash and opening some space for incremental innovation, probably parting from your customers and clustered companies suggestions, and put up some resources to think of new ways of doing the same things, or even new things. You were great.
So, let’s agree that your successful company innovated in any case, at least namely. But you were in a disadvantage with respect to new smaller entrants, that did not have a strong corporate culture to protect, and some rules to adhere to. Yes, you did have those, as that was the culture that helped you to be successful in the first place, and the first thing you’d need to do, if you were not successful, in your turnaround strategy, would be to build a new, aligned and strong culture anyway.
True divergence, the one that was contrary to everything you held dear, had to be repressed. That success was the tyrant that stifled innovation, till now.
The tyrant has died with the crisis. Now you’re no longer that successful, but prone to crisis-fighting and worried about keeping your ground. Who thinks of innovation now? Surely you know about the importance of innovation, as the innovators now, the ones that rethink the business and learn the ropes of the new rules, will be the winners of tomorrow, but, what about those innovators that bend the norms, destroy capabilities in order to build new ones, ride through the waves of creative destruction inside your company. Couldn’t they wait and not to bother too much until a better time comes? Aren’t they annoying?
Yes, they are the traitors that are breaking the ranks precisely when you needed everyone unconditionally by your side, to put up the fire.
Innovation is stifled again… different reasoning… business as usual.
Add comment 24 March, 2009
Never say no to upper management (reality will do it for you anyway)
In many organisations, bad news just go one way, and that’s out the door. Managers try to keep their superiors happy, and you bet they do, just talking more about the good things than the bad things. Who can blame them for that?
Well, you should. As I like to say, reality is stubborn. As stubborn as reality can be, and that’s a lot. When you try to make your boss happy, you are making a good deed… unless there are deadlines.
How can huge companies make huge mistakes when everyone knew they were not ready? Well, the leaders didn’t. Upper management really thought they were in a sweetened version of reality. And then an airport fails to work as it should, or a supposedly great product is a flop, or a huge investment in satellites is simply converted into flying junk. Whatever.
This bears an important relationship to what John Kay, a brilliant British economist, labels as the architecture of an organisation. If we see the information as the blood that flows inside the organisation’s veins, a good architecture will ensure that it reaches wherever it needs to reach: the right information to the right people that can make the best use for it.
That won’t happen in sclerotic organisations where there is lack of clear purpose, weak leadership. stakeholder conflicts, where failure is severely punished and where hierarchy is very important. Managers won’t have holistic perspectives at all, but tunnel vision instead. They will make erratic and irrational decisions guided by personal interests, maybe defending their clans and silos. Problems will tend to be assigned to someone else, or simply dissoluted around.
And bad news won’t go upwards. Only downwards. Think of “Why should I bother telling them while it’s not my responsibility to tell? Someone will realise” or maybe “If I put the spotlight in this problem, it will be my problem. Mind into my business.”.
If you add a pinch of “That’s the way we do things around here”, the recipe is made for cooking the ultimate failure. With its executives doped with tons of saccharine, the organisation will start behaving recklessly. And down below cooperation will give way to antagonism, combined effort to abrasion and erosion. Through the confrontation, we will be collectively driving looking through the rear view mirror… or even, while figthing crises one after the other, looking at nowhere at all… it’s only a matter of time…
3 comments 10 February, 2009
Are we in a liquidity trap? (am I blind or is this another black swan?)
Liquidity traps are one of those obscure concepts hidden into macroeconomics books. Obscure enough to occupy some marginal comment only and disputed enough to be denied by the Austrian School of Economics. Ludwig von Mises would label them as myths. But, as mytical as a black swans that have recenty decided to come out of their closets and start teambuilding in the Thames, are we going to face this myth soon as well?
When Sir John Hicks thought of the IS-LM model, he already thought of liquidity traps somehow, but it was the first Baron Keynes (also known as John Maynard Keynes) who shaped the concept (did Ludwig von Mises need a better reason to label them as myths?).
The idea is simple. With the IS-LM model, cutting the interest rate is the scape from any recession, as we make more money available into the system to boost growth and employment. But, does more available money always equate more growth?
There’s a obvious limit to this: interest rates cannot be negative (hmmm, let’s leave it like this for a minute…) so there’s obviously a limit to monetary policies, that is when rates reach zero. Are we there yet? Well, the following table borrowed from Bloomberg can help:
Regardless of the fact that we are getting there, what if the rate where monetary policy became ineffective was not zero but higher? That’s in fact the idea behind liquidity traps. What if the banks and the firms -in short, people- became risk averse enough that they preferred the liquidity of cash to offering it to others at low rates?
In other words, what happens if the free-risk situation is no longer perceived as risk-free? How should this extra aversion to lending be rewarded?
The conclusion from Keynes was that there would be a point where monetary policies would be ineffective and the economy would remain trapped in recession. Then only fiscal policy, that would be a lot of government spending, would do the trick. But are we psicologically prepared for this extra spending and increased budget deficit and debt? Will the debt attract enough financing? Will the solution even deepen the liquidity trap by substracting even more money from the private sector?
There’s still a way to have negative interest rates and that’s thanks to inflation. After all with inflation our money inside the sock loses value every day. And an expansive monetary policy should raise inflation. (hmmm, look at inflation dropping and that other scary, even mytical word too: deflation) Even though, with a low enough interest rate, and with the current global scare, many people may choose to still leave it there.
Yes, a liquidity trap is a rare think. It may have happened in Japan long ago, even in the US in the previous recession (Krugman would say, and Reisman deny). May we already be into one?
Add comment 9 January, 2009
Crowding out time (more wood from the forced lenders)
Yes, right now the governments are pouring a lot of money into the system. Is it working? Can it work? Ain’t we trying to extinguish this fire the same way it started?
A well known effect in macroeconomics is the multiplicator accelerator model: there is a multiplicative effect when new investments are introduced in the economy and the economy grows in a higher rate. The other way can happen too, as the resources leave the economy and the slump is also accelerated. We are suffering this effect now, catalysed with instruments such as banks that are monetary multiplicators per se.
If we wanted to stop and reverse this effect, introducing new resources into the system, how can we do that?
The first temptation is, of course, to substitute this private money lenders for some other lenders that have no choice: the forced lenders. Yes, you guessed well. We are the tax payers. We are the forced lenders. Where private investors need trust to decide to participate, we simply have no choice.
Yes, you get the idea, our money, government’s money, gets poured down regardless the amount of trust present in the system. And the investors trust governments because they are backed by us: forced lenders.
But what happens when we pour all this money into the system? There’s another less known effect in macroeconomics, the crowding out effect. Government’s spending will substitute private initiative and occupy an even higher proportion of the economy. If the flow of money goes the way of the state, it won’t go the way of the private investors.
But then, being the state the lender and the backer of many securities, amidst this global scare, why should anyone not forced to invest in riskier assets? Investors will end up financing the treasury instead, and leaving the financial markets.
Where will the money come from to finance public companies? What will happen to suffering capital markets further short-circuited from the money flow? They might as well keeping go down the slope for a long time.
Yes, I am aware that to explain this crowding up effect, the IS/LM introduced by Sir John Hicks and Alvin Hansen needs higher interest rates that affect the unwillingness to invest to the private sector through an increased cost of capital. In the present situation, with lower costs of capital, the crowding out effect lacks the mechanism to happen.
But what if the present scare of capital turns into a similar mechanism to the increased cost of capital? What of the negative animal spirits? Can they make us disinvest from profitable companies and make them inviable? Couldn’t that make a crowding out effect too?
Meanwhile, but let me express my reservations about this stocking-more-wood process. More wood in the hands of the government, lower interest rates: more wood everywhere. Seems dangerous to my little me. Maybe our firemen should think of other options.
Add comment 10 December, 2008
Blogging from the Opera (blogging with Figaro)
Less than two weeks into an important milestone for the airport’s operational readiness and less than three weeks from my marketing and business environment exam, I find myself blogging from el Liceu, Barcelona’s opera house. Amidst this quagmire that my daily job has been turning into, I still could scape to enjoy Mozart’s The Marriage of Figaro. It really sounds strange in English instead of Italian’s: Le nozze di Figaro, ossia la folle giornata.
Yes, the second name for the opera is “the day of madness”. That’s how I live my days at work now. Trying to cope with unmatching requirements, trying to sync reality with political requirements. But, as I like to say, reality is too stubborn for that. And we always end up crashing with a concrete wall which we could have avoided. But that’s second nature to us, humans. Why is it that reality ends up resembling just another opera buffa?
Yet here I am. Everyone needs a place to hide. And that’s mine today. I even could open my computer in the bar in the basement, use my HSDPA connection and write this lines while sipping a coffee. Watch the old ladies ingest huge quantities of sugar and chocolate in different shapes and colours. Isn’t life nice after all?
The thing is that when I began the MBA I promised to reflect. And these latter days have been so amazing. So many different things happening from a global perspective, at work and even a personal perspective. And I don’t want to feel that the many things that flow around me just do that: flow. I need to capture some of them. I need to retain, absorb, think, grow.
They say that experience is everything, that you actually learn by doing. And that is a blatant lie. Well, you learn, true, but only in a mechanical way. As Figaro doesn’t actually learn about Almaviva until he actually sees him fishing in his waters, or Almaviva doesn’t learn about behaving until his infidelity is publicly exposed. The aristocracy depicted, ridiculised here didn’t learn on time to change. Until it was too late. Pierre Beaumarchais saw his play censored in France, only to be played in 1778, with the French Revolution almost at the doors…
You learn when you think about what you live. When you think of improving what you’ve already learnt to do mechanically. When you make it grow inside of you. When you go one step further to accepting what is already established, what is already known. When you apply something more than common sense. When you’re not scared of rethinking something that is already working (apparently).
When I give project management classes, I always stress how important is the “post-mortem” analysis at the end of the project to clarify not only what we have done well but also what we could have done better and what we have learnt from the experience. Now I feel that the end is too far, too late. It must be done now and again, in a continuous process of taking a step back, getting perspective, digesting, and then going in again with regained strengths that will not hold us back from stepping out of the comfort zone. Every manager should take some time to learn now and then.
And now, let’s enjoy this opera 
Add comment 18 November, 2008
Thinking of Walter Bagehot (forgotten panics and not-so-forgotten bankers)
After a weekend in Henley closing the strategic marketing and global business environment modules, and endless talks about the capital markets, including a valuable late-hour conversation in the plane with an economist whose expertise are intangibles, I felt I needed to dwell on the past knowledge to gain some perspective on the issue.
And who better than Walter Bagehot and his Lombard Street. I’d rather externalise the explanation on who’s Walter Bagehot using Wikipedia, but it suffices to say that he was the chief editor of the Economist, as well as a banker, and had studied mathematics and philosophy. What’s more interesting, that was in 1873.
1873 was also a year of panic: another crisis that lasted for four years (roughly like the 1929s’ depression), beginning with a mortgage crisis, another link worth externalising to the Chronicle Review. (Thanks to Brisebois )
Many will see analogies between what has happened in the past and what’s happening today. Even though, we tend not to care about what happened so long ago (or maybe not that long) and good lessons are simply forgotten. We could know so much if we simply didn’t collectively forget!
Because, in times of panic, what should a central bank do? Bagehot thought “that it must in time of panic do what all other similar banks must do; that in time of panic it must advance freely and vigorously to the public out of the reserve.”
But still a conditions for the intervention: “first that these loans should only be made at a very high rate of interest. This will operate as a heavy fine on unreasonable timidity, and will prevent the
greatest number of applications by persons who do not require it. The rate should be raised early in the panic, so that the fine may be paid early; that no one may borrow out of idle precaution without paying well for it; that the Banking reserve may be protected as far as possible.”
Where should we stop? “that at this rate these advances should be made on all good
banking securities, and as largely as the public ask for them. [...] But if securities, really good and usually convertible, are refused by the Bank, the alarm will not abate, the other loans made will fail in obtaining their end, and the panic will become worse and worse.”
“The only safe plan for the Bank is the brave plan, to lend in a panic on every kind of current security, or every sort on which money is ordinarily and usually lent. This policy may not save the Bank; but if it do not, nothing will save it.”
After all, some things could be done much better, but doing nothing leaves us all worse off. Guess what, the alternative was also tried a lot of years before, in the panic of 1825, also another long-lost panic, when “the Bank of England at first acted as unwisely as it was possible to act. [...] The reserve being very small, it endeavoured to protect that reserve by lending as little as possible. The result was a period of frantic and almost inconceivable violence; scarcely any one knew whom to trust; credit was almost suspended; the country was [...] within twenty-four hours of a state of barter. Applications for assistance were made to the Government, but [...] the Government refused to act…”
Ring a bell, maybe?
Add comment 30 October, 2008
