Posts filed under ‘b-school’
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…
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?
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.
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 
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?
The holidays are over (still here after a busy summer)
Another year is over, and I’m left cold sober. That’s how a song from Queen begins. In my case it has been an interesting but feverish year. I’ve done so many things that I can’t recall them all.
My first year in the Henley MBA is over. I have passed all three exams and I feel relieved, I had my doubts that I’d pass them all. Henley Management College has just become Henley Business School in the University of Reading. That means a lot for the future prospects of the school as it will make new additional resources available to reach new heights. It’s good news.
We had a workshop about global business environment and strategic marketing. I especially liked the first part, reflecting about the global economy and how the different economic areas in the world compare, and the current macroeconomic trends.
Later, reflecting about it, I envisioned myself as an agent of globalisation. After all I had been a few days earlier seeking business in Delhi. I can’t write much about it but Spanish companies do need to go out and compete, and who is going to do that if it is not ourselves?
Yes, that’s the Taj Mahal as captured by my mobile phone. That was one outstanding moment of the summer. I will never forget this image.
In the meantime things are on track for Barcelona’s new terminal. The building is almost complete and we are testing the first systems. The last sneak peek is from one of the busiest commercial areas. A few systems are already installed and the first system trials will begin in one month. Below is an image of the first screen ever working there, still on the floor although the support structures are already installed.
The bottom line: I’m still here. I’ll keep you appraised
Back from India (and from a cultural impact)
I’ve just arrived from Delhi. In fact it has been 24 hours but, in the meantime, my mind kept wandering inbetween all kinds of different landscapes, smells and tastes until it settled back again. So many different faces, so many different paces: our hectic effort of preparing a presentation on the club lounge of a five-star hotel, the five-year-old child making his frenzied small monkey shout and dance to attract our attention and a few coins, the slow-moving cow trying to take a nap in the middle of the street and the agitated drivers trying to pass as close as possible. Definitely distances are measured differently in this huge place.
The billion cattle estimated to be alive today are more less one sixth of the estimated human population on Earth. The lucky ones live here, where they are revered and spoiled, where they can live tranquil and blissful lives, where they can thrive and be loved. It’s a wonder that there is no cow immigration process to this beautifully colored lands. If the other cows knew!
Humanity. This word takes new meaning here. So many people. We Europeans have tended to grow aseptic, almost inhumans. We hide within huge buildings of concrete, glass and steel, like the new terminal I’ve nurtured along with my peers, and we become insignificant below our not-so-functional monuments. We want them to serve as a rule to measure our cities and civilisation, instead of ourselves, our little selves.
In India you see so many people, so many happy -and not so happy- faces. The wonder is that it’s not easy to infer which faces will be happy and which won’t. Usually you won’t see that in the colours -or cost- of the robes. Humans… sometimes so happy owning nothing but conceiving nice thoughts… you never know.
This column, blog, page -whatever this is- wouldn’t be complete without the management reflection. And today it comes from Professor Geert Hofstede, of Maastricht University: “Culture is more often a source of conflict than of synergy. Cultural differences are a nuisance at best and often a disaster.”
Are they? I’m personally a cock-eyed optimist and I tend to see the positive side to it. If we kept narrow mindedly to our own culture and background, the learning process would surely be impaired. Nonetheless cultural divergences must be managed.
As a reference, it is very interesting to examine Hofstede’s cultural dimensions, built from a handful of parameters:
- Power distance or the degree of acceptance of the less favoured members of one society of the inequalities they are subjected to.
- Individualism versus collectivism, or the degree to which the members of a society are integrated into groups.
- Masculinity versus femininity, or the degree of distribution of roles between genders.
- Uncertainty avoidance or degree of tolerance to uncertainty or ambiguity.
- Long-term orientation versus short-termism.
As an example, the former dimensions applied to the Indian, Spanish and British cultural dimensions, according to the available data by Hofstede. Of course generalisations are unfair, and the Spanish profile was never actually completed, but the exercise is still interesting.
Kobayashi Maru (a no-win situation)
Star Trek is not the encyclopedia of life. Even though it contains so many interesting ideas about leadership and management, with different styles depending on the series, that is worth knowing about.
One of the scenarios that is a reference in the Star Trek world is the Kobayashi Maru scenario, which is a “lose-lose” or “no-win” scenario. Regardless of what you do, you’re doomed. We can see this kind of scenarios in everyday life: from organisations that have a couple of conflicting objectives to pursue at all costs, pyrrhic victories or military victories that are so costly to win that are not worth-it (ring a bell?), or the kinked curve of demand for oligopolies, that can only begin competing between itselves bearing huge losses. Even the Spanish Inquisition’s confessions were like that: torture until pleaded guilty and then executed: every move made it worse.
The original Kobayashi Maru scenario was a test for Star Trek commanders. In the simulator they received a distress call: a ship had been stranded on the other side of the border. They were subsequently faced with the decision of whether or not entering into enemy zone, underpowered, to try to rescue the crew of the Kobayashi Maru.
There was no escape, the only option was not to try the rescue.
One briskly student devised a solution: cheating. Cadet Kirk did in his third attempt. Strangely enough, tweaking the simulator was considered original thinking. Probably that was only because it had not been attempted before. In time Cadet Kirk became the infamous Captain Kirk.
Sometimes, regardless of what you do, defeat is unavoidable.
Yes, I’m exagerating a little, but this has been a hell of a Kobashi Maru week. And to you all there that have Kobayashi Maru weeks once in a while, there’s still a message of hope. The Kobayashi Maru scenario had a meaning and purpose.
Because it wasn’t an intelligence or ability test. It was a character test. How do we face odds and specifically unsurmuntable odds? After all managing death is a way to learn to manage life.
Paraphrasing another Star Trek classic, Mr. Spock, “fear is the mind killer”. Sometimes the worst might simply happen, and what’s important then is how to handle the situation, how to keep your own control and integrity under adverse or inauspicious circumstances.
Making the most out of it. That’s how you learn to be better, and how to bounce back and subdue the next possibly conquerable odd. Don’t let circumstances drag you down, because you need to keep fit for the next, possibly unforseeable, challenge. And it may well be one you can cope with.
Under-promise and overachieve (the expectations model)
One of the things that happen to often in program management is that contractors, specifically their project managers, want to be too nice. Yes, of course they must be nice, but not that nice.
I’m not talking of nice presents or sumptuous dinners. I’m talking of making too much promises. Well, it’s understandable when you don’t have the contract but, once you have it, it’s a most annoying practice.
Reality is stubborn, bull-headed, disobedient, especially to the wishes of a project manager. It’s not her but her team who is really doing the hard work and, as they try to please her, they will tell her whatever she wants to hear… until the milestones get closer and the completion gets -or should get- nearer.
Then, nervousness gives way to hysteria and the hidden truth arises and comes out of the closet. The project is not going well. Guess what? Now hard decisions must be made, there’s almost no time and they (we) all go crazy.
Follow my advice: it’s all about managing expectations correctly. Too eager to please, sometimes we are too optimistic and make our projections forgetting risk management, inefficiencies, overheads, limited budgets, mistakes or that people are simply people.
If you are realistic in your predictions, and still take out a small bite allowing for some slack, you’ll be able to actually achieve what you have promised. Even, on the eyes of your benevolent customer, the under-promise might become an overachievement. You won’t lose your face but keep your credibility and increase your perceived efficiency.
Even in the worst case, it’s better to know the truth. Maybe the customer decides not to go ahead with the contract, but that will be better for you because there is no glory in projects that are doomed beforehand. Or maybe you and your customer can discover a better way of doing things, put some safeguards in place or simply make some drastic measures that might increase the probability of success. In any case, honesty is always a good advice.
I’ve tried to describe all this in the following expectations model:
It’s all about aligning expectations and results. The credibility zone is along that line but also tending to the overachievement. In short, people might expect you to do things better as they thought you would, but they won’t forgive if you do worse.
When you go down the credibility zone, there’s only danger: dissatisfied customers are your worst enemy: they may spread the word of a poor job.
Still there’s another danger zone in the upper left hand: giving too high achievements when you’ve managed poor expectations. In this case the problem is the bottom-line: probably you’ve spent more resources than were necessary and your customer would have been satisfied with less. It seems to me you should make a better use of your resources, or handle a few of them back to your organisation: after all they have a cost, although you might not perceive it. But with less capital employed, the profitability grows higher.
Remember: don’t be the one to put the rope around your own neck but do your best to keep it healthy instead. You might have much more leverage than the one you think you have.
After the final exam (aka after the storm)
The exam was really stressful. More than three hours writing like crazy. At the end I was rather confused, not really sure of what to expect. Fortunately, it was over.
I sat the exam at Barcelona’s British Council. I thought it would be a better experience than taking a plane and driving to Henley. It was a good idea. The place is just ten minutes from home.
On the other hand it was rather weird to be the only one taking the exam. The invigilator was there only for me. At least he was nice and had a thick book to read so he didn’t spend three hours glancing at me in suspicion. That would have been awkward.
Half full or half empty, who knows. I hope I pass. In the meantime I just need some time to relax. And that’s what I did on the weekend. The garden needed my attention so I just focused on trimming the bushes and getting tired. Oh my, my arms got so bruised!
The view from home is rather relaxing. The weather wasn’t perfect. It was the fourth rainy weekend after the most severe draught that I can recall. From scarcity to the most rainy May in 25 years. Our water reserves have tripled and reservoirs have reached 60% capacity. It looks like we’ll have enough water for the time being.
I like it when the beach is almost empty, and the showers scare the tourists. The calm seems to envelope everything, the air is fresher, the plants greener. This spring the plants are blooming like never before. Let’s forget about the price of oil, the high interest rates, the lack of liquidity and the forthcoming stagflation. It’s time to enjoy… at least for a while…
The garden this year is full of Mediterranean roses. The plants grow by the hour. A good omen? I hope so.
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