The subprime crisis of us-American mortgages (and its primary and secondary impacts on the financial system) has increased the pressure for mergers and acquisitions in the European financial services market. In particular in Germany major transactions are likely to occur: Postbank and Citibank are on Sale. Some Federal State banks (former Sachsen LB and West LB) have demonstrated their problems to manage risk related issues or did enter business segments outside their business model and faced financial losses. Daily news are full with ideas, recommendations and hypotheses which bank could or should be involved in M&A transactions. Everything seems to be fine, isn’t it?

The issue with all those concepts and recommendations is the performance of the new organization in the future. We have to have in mind that most large mergers and acquisitions have difficulties to achieve the expected synergies. Nearly a decade ago (01.1999) the Economist reported study results of mergers: Two of three M&A transactions did not work. In 2003 a study by Merrill Lynch reported that not only most mergers cannot deliver their promised value / return. Furthermore large transactions follow the trend to “perform worse compared to small transactions. ML found out that at least 50 % of important transactions (time frame since 1990) did reduce shareholder returns and hence organizational value.

Continue reading ‘Mergers and acquisitions in the banking industry’

As you might have noticed from one of my blog posts I am an external PhD-student of the Warsaw School of Economics / Institute for Organization and Management in Industry. My research topic focuses on the strategic planning of European retail banks. As part of my studies I was given the opportunity to present some of my research findings in the institute’s journal “Economics and Organization of Enterprise”. My last paper was titled “Problems and barriers to strategic planning”.

In my paper I analyze and summarize the existing problems and barriers related to the strategic planning process. In the last two decades a large number of articles and books related to this matter have been published. Taking the number of publications into consideration it could be argued that the relevance of strategic planning process is unquestioned and would need no further explanation. But still research results – including new ones - from different studies express that a “duality” of strategic planning still exits. On one side the relevance of the strategic planning process for developing organization’s strategy is described as very important. On the other side a number of concerns and problems when running that process can be found. Identified problem areas include in particular strategy implementation, communication of strategic planning results and monitoring of strategy execution.

Continue reading ‘Problems and barriers to strategic planning and proposals for solutions’

A couple of weeks ago I discussed four major benefit criteria of innovation in this post. Now it is time to look on the other side of innovation. Yes, there are not only benefits; in the case that your organization starts to focus on innovation you should have in mind to face some disadvantages. You can also refer them as risks when entering an unknown field (of business). I won’t argue that you should not use innovation. But it will helpful to anticipate and to understand these risks in order to prepare yourself.

Innovations always involve particular risks for the organization. A company that searches for new ways, processes and types of organization is confronted frequently with the risk to land in a dead end. Another disadvantages of a “we are innovators”-approach is the need to review strategy more often; hence structural adaptations which are linked to strategy can take place more often, too. An organization has to consider further five typical disadvantages:

• It is possible that a new business model (in order to add value) does not create a competitive advantage (e.g. due to bad timing). Eventually the new business model has to be abandoned after the testing phase.
• An economically strong follower copies the innovation and turns it into the industry standard. Therefore the innovation become the “standard solution” for every company within the industry and loses its innovation status. This will destroy the competitive advantage for the innovator. (Note: It is also possible that a competitor has another innovation and transfers it to the industry standard. Example for this is the format war between Blu-ray and HD-DVD, that was won by Sony)
• A follower is able to learn more quickly (e.g. to fix starting errors) and to achieve the readiness for marketing quicker than the innovator.
• The innovator overestimates his innovation power and his organizational capabilities (e.g. change management, financial resources) to bring an innovation to the market place.
• Misinterpretation of the market. The new product is excellent in terms of technical specifications. Despite these features no customer is willing to pay for them, since their costs are higher than their expected benefits (e.g. over engineered product). Another option is that customers have a minor different behavior then expected (e.g. do not accept your pricing policy, are less loyal).

Continue reading ‘Risks of innovations’

Last week I received a newsletter from McKinsey concerning some selected articles. The major purpose was to present some thoughts around the 7 S Framework. Furthermore the newsletter suggested some other publications from The McKinsey Quarterly; some of them have the premium status (which means you have to pay in order to have access).

Since these are very interesting articles which might help your organization to survive (or at least to manage) current uncertain times, I recommend to consider their findings. You can find the articles on the following websites:

• Strategy at the Edge of Chaos (pdf)
• The next revolutions in Interactions (pdf)
• The 21^st-century organization (pdf)

As a very interesting collection I would recommend this edition of the McKinsey Quarterly Reader that puts an emphasis on strategy in an uncertain world. You can find the full paper (39 pages) on this website for free.

The race of the two presidential candidates of the Democrats in the US, Mr. Obama and Ms. Clinton, is becoming more and more dramatic. It receives extensive media coverage and surely has many interesting aspects. It even fits into our blog on strategy, since both candidates’ campaigns follow their particular strategies. Unfortunately, the further this race goes the more it is driven by reactions to latest developments instead of an overall strategy. Well, I don’t follow this issue closely enough to elaborate on it in more detail. However, two of our regular contributors to our Management Portal obviously do. They are both experts in branding. So they both wrote down their view about the branding aspects of presidential campaigns in general and of Mr. Obama’s campaign in particular.

In the first article Naseem Javed discusses The Presidential Branding. He states that ‘these days, the know-how of Presidential branding is as important as the keys to the Whitehouse itself. The combined billion-dollar costs of campaigns to get votes is no longer a simple matter of shaking hands and soundbites. Today, all over the world, national leaders looking for breakthrough images depend on ultra sophisticated branding and image identity systems to strategise and oversee their campaigns.’

In the next article, Dan Herman asks: Can Short-Term Brand “Candidate Obama” Transform Successfully Into Long-Term Brand “President Obama”? He concludes that ‘if he [Mr. Obama] wins the nomination, then this will certainly be the next challenge which the “President Obama” campaign masters will have to overcome:  to smoothly handle the transition from short-term brand “Candidate Obama” to long-term brand “President Obama”.  Time will most certainly tell.’

I think this branding issue is an interesting aspect of the presidential election in the US. When all this is over and the US have elected their new president, it will be worth to look bank and thing about the branding lessons we can learn from each candidates fortune or misfortune.

Well, this post is not that strategic. It is more an example that life still writes the prime stories. If I would try to name it as a strategic issue I would argue that card counting (changes in the environment) in blackjack (the product) shifted the probability to win (financial objective) from a casino to the player (= strategic threat). What I am writing about?

As some among you will have discovered that this post is (just a little bit) about the movie “21″ that started in March 2008 (US) and April 2008 (Germany). The full list of starts can be found on this website. Ben (Actor Jim Sturgess) is a very smart M.I.T. student who needs capital to pay university tuition. After invitation he joins a group of the institutes’ most gifted students which travel to Las Vegas nearly every weekend armed with fake identities and the know-how to shift the odds at blackjack to their benefit. The unorthodox math professor Micky Rosa (Actor Kevin Spacey) leading their way, they have developed a statistical approach to increase their chances to win. By counting cards and employing a secret system of hidden signals, the team can beat the casinos big time.

The movie is based on a true story of M.I.T students that identified the approach and hit Las Vegas’ casinos. It a really good movie and I recommend to visit the theaters. For those who interested to know a little bit more about the story I recommend this WIRED article “Hacking Las Vegas. THE INSIDE STORY OF THE MIT BLACKJACK TEAM’S CONQUEST OF THE CASINOS.” The article (2002) is based on “Bringing down the House: The inside Story of Six MIT Students Who Took Vegas for Millions”.

Enjoy it!

Since many, many years an amazing number of articles, books and studies discuss CRM systems and their importance or effects on corporate success. Furthermore companies did spent large amounts of capital for implementation, training and very often for consulting when introducing CRM systems. But sometimes the best CRM system is a very good value for money, hopefully well self-directed “simple” system. You might be wondering about what kind of system I am writing? As explained in my last post on Eddielogic I would like to present some observations from our last vacation in April this year. So – sometimes the best CRM system is your employee.

As I said in my last post we travel to Majorca once a year. Since 5 years we make our car reservation with the same rental firm; since 6 years we always stay in the same hotel. Since a few years we receive a “welcome back” greeting fruit basket from the hotel management. That is a really nice attention from our perspective and gives us a warm welcome. I guess that the hotel’s database indicates our booking frequency. That is very good feature to increase customer loyalty for a vacation hotel; I know some very nice hotels in Germany (which are far more expensive) that are not able to identify us as their former customers and to demonstrate any sign of “welcome back”.

But let me put some emphasis on the rental firm. The firm offers that you can pick up your rental car at the airport.

Continue reading ‘Your best CRM system’

The international financial crisis claimed another victim among German banks this week. It was the specialised mortgage and public sector lender Duesseldorfer Hypothekenbank (Duess Hyp). “The small German bank’s owners have temporarily transferred ownership to the BdB’s depositor guarantee fund, after which it will be sold to a third party.”  The bank is fairly small with a balance sheet total of about 27 billion Euros. Due to this size, the German banking system will not fall into major turmoil because of this bank failure. The only concern was that Duesseldorfer Hypothekenbank is a Pfandbrief issuer (German version of covered bond) and that its failure might further damage the good reputation of the German premium product Pfandbrief. This fact surely motivated the quick rescue activities.

What makes this case interesting is the fact that – unlike the much larger and more prominent IKB-failure – Duess Hyp’s problems were not directly caused by investments in sub-prime related products or MBS notes. Duess Hyp simply failed because of its business model. It probably would have failed anyway sooner or later. The current financial crisis was just brought up their strategic problems quicker:

Continue reading ‘Financial crisis reveals weaknesses in banks business models’

We are back from our “annual”one week holiday trip to Mallorca (compare this old post from 2007). For a very specific reason we decided to travel a month earlier this year; we going to post this reason somewhen in summer. April is a good time for visiting this beautiful island, too. Compared to May the weather is not that stable and warm. But we got luck and had just one rainy day; all other days were warm with 19 – 22 degree Celsius. In the case that you can choose between April and May I would recommend to select May.

Anyway…We made some very interesting observations concerning management related issues. To be more specific: How to satisfy longtime customer OR that the right staff can be the best CRM system. I gonna describe these issues in one of my next posts, so stay in touch with Eddielogic.

This trip was also a good opportunity to test my new gadget, an Asus Eee PC in the 4 G version. Due to some supply bottleneck in Germany (this sale started in December last year) I had some time to consider this “investment”. Until then I used a VPA IV (a mobile digital assistant with Windows Mobile 5.0 and UMTS), which has a brilliant screen and small keyboard to write e-mails on the road. The major disadvantage is that is does not have a broadband internet access (I bought that device in 2006). Furthermore opening larger word files may take some time. Hence I decided to upgrade my hardware and considered to buy a Nokia E 90 or to spend a small fortune one a very small 12 inch notebook.

Two weeks ago I got the opportunity to test and to buy the Asus Eee PC and I never looked back so far. It comes with Linux as OS, Open Office (Version 2.0) and Mozilla Thunderbird as e-mail client. The price was 299 Euro. So what can you expect for this price?

Continue reading ‘Hardware for Holiday trips’

I know, the headline of this post doesn’t sound very topical. Don’t worry, this will not become a review of a not-so-new management book. However, exactly that is what I found on the website of Financial Times Deutschland last Friday. There is an article with the headline roughly translated as “Why should competition bother me”. The abstract reads
“The blue ocean strategy enables companies to win new customers. In uncontested markets there is no need to continuously look at competitors. Instead, companies can focus on their customers.”

What follows are some real-world examples of companies with successful blue ocean strategies and a brief description of this concept. This is complemented with some comments about sustainable innovation. The authors, W. Chan Kim and Renée Mauborgne are mentioned, but not the book itself.

At that point I felt the need to do some background research: As a reminder – the first edition of the book dates back to February 2005; hence, it is more than three years old now. Even the German edition is from September 2005.

The content of the article is nice and I don’t want to debate the idea of the blue ocean strategy. What I really dislike about this article is that I reads like the presentation of a brand-new management concept. There is no reference to the book and no hint that that Kim and Mauborgne developed this idea some years ago. Even worse, I could not find any reference point to some topical news like for instance a company that hit this weeks headlines with a big success of a typical blue ocean strategy. So what is today’s newspaper article supposed to tell me? There is nothing new in it. I can’t avoid the feeling that it is just a space-filler that was written some time ago but never got published – or was it actually published before and is now recycled? I really like the On Management-series in the FT. These comments usually refer to latest developments or at least don’t recycle three years old ideas. The above article in contrast does not provide any value for the reader. It probably just occupies some space for which they had no topical content and no advertisement to fill it. Now I wonder which market space Financial Times Germany intends to win with this sort of strategy!