Eddielogic

– Thoughts on Strategy and Management

February 19, 2009
by Dagmar
3 Comments

What makes a good business plan?

From time to time I receive mails from MBA-students asking me some more or less specific questions that are related to management and strategy. Normally, I reply to such mails with only a few sentences since I am not going to help them out with significant parts of their MBA assignments. However, the last one was lucky enough to ask me some questions that make a nice blog post. So here are some thoughts about business plans:

The first question is easy enough to answer – What makes a good business plan? I wrote an article with exactly that title some years ago.

Than he asks: How do you develop a business plan when change in the industry is imminent? How does innovation fit into a business plan? I firmly believe that a good business plan should describe a good strategy. This in turn should be developed on the basis of a thorough internal and external analysis.
Such an analysis would reveal, for instance, if change in the industry is imminent. If this is the case, the business plan has to consider that. It should at least describe the expected change and suggest some course of action for this scenario (scenarios). Depending on how certain or uncertain the expected change is, the business plan has to be more or less flexible. If the outcome of the industry change is unclear, scenarios are a good tool. The strategy and business plan can than take the form of a decision tree – if the industry takes a particular development, the strategy will be adapted to a respective direction too. Continue Reading →

January 26, 2009
by Oliver
Comments Off on Change is everywhere

Change is everywhere

No, I don’t want to write a post about the change which is related to the presidency of Mr. Obama. I guess that there are articles enough available in the media which discuss this issue. In the case that you would like to employ the “we can change” in order to improve your organization this post could offer some interesting content to you.

Change is easy? Well, the basic answer is yes, if…. According to various research results change is not an easy business, hence you have to be sure of the following three issues before implementing change.

  1. Change is really necessary. You and/or your organization should identify the strategic story that is establishing the need for change, e.g. the need to protect the competitive advantage. But you have to keep in mind that there can be situations where “doing nothing” can be an approach to protect (or to maintain) the competitive advantage (e.g. an traditional restaurant which is appreciated by its customers because it has remained unchanged for long periods of time and the cook did not change his or her famous recipe).
  2. The need for change is understood. Your organization at all including yourself (!) should understand the drivers that create the need for change. It should also be clear what the negative effects (without change) and the hot issues that will damage your competitive advantage. Furthermore you should be able to make a distinction between the real problem and its symptoms.
  3. The right solution has been developed. There are many advocates that will promote the right the solution from their own point of view – but in most cases not all are able to see full facts and attributes of the case. Your organization has to design the solution which is the correct answer to the problem that has been identified before. I have to mention that correct answer does not mean the “perfect” solution. In many cases “85 percent”- solutions with the right timing have been proofed their ability to fix the problem. The correct answer includes the right solution in technical terms + the right organizational solution. The latter one requires that your solution addresses cultural issues within your organization, too.

You can summarize the last issue a little bit: You should manage every change project as an organizational change project. In many cases technical issues represent only the facilitator of change, but cultural / organizational change is the main driver to overcome possible resistances to change.

January 13, 2009
by Dagmar
2 Comments

Guest Article – Nine New Mega Opportunities of 2009

Naseem Javed is a regular contributer of interesting articles for our Management Portal. His latest piece of thought covers nine opportunites that – as he thinks – will be hot for businesses in 2009.
I think these are very interesting ideas. If you think about your business strategy for 2009, it is well worth to have a look at Naseem’s points. Some of them might be relevant for your business

Here is Naseem’s article:

The Nine New Mega Opportunities of 2009

The daily cinema living
The hunger for moving pictures, like a global conspiracy or an underground movement, has almost killed the flat and still imagery. Every marketing or propaganda message now has to move in dimensions or it will be considered boring or dead. This change has already made a very positive impact on screen-based mediums, from hand held devices, wall size TVs to building size electronic billboards. The streets and shopping malls will eventually look like the insides of cinemas. As long as these new mediums can project and show things live and in color the world will keep on moving. The entire interiors, walls, corridors, hallways floors and ceilings would be nothing but screens with projected moving images. The dramatic reductions of the cost of projection, availability of dynamic animated contents will keep customers enticed and ring the cash registers. The more available surface the better, tackle the new shape and style of imagery, create new business models and watch the show.
Continue Reading →

January 4, 2009
by Oliver
Comments Off on Strategy in dynamic times

Strategy in dynamic times

OliverA couple of days ago I was involved in a discussion concerning the sense of strategy in the times of financial crisis. I think that is a very interesting question, whether organizations should “think strategically” in a situation with a very dynamic and unstable environment (e.g. like the current financial crisis and global economic recession). If you cannot predict the future (what nobody can basically, even not in dynamic times), is it really appropriate to spend resources on strategic thinking?

First of all I would like to reconsider the basic principles of strategy. A situation (e.g. the financial crisis) when the corporate environment can be described as very unstable, is not that new. During the so called “New economy” (do you remember?) the concepts and ideas of strategy it its broadest sense including strategic planning were treated as less important. There seem to be no time for strategic thinking; “business operations were started with an experimental approach in order to adapt them later on market conditions”. Another reason was that experience for such a situation of technological changes did not exist and therefore organizations did not know how to consider them. At first sight there seems to be some kind of conflict between strategic thinking and dynamic environments (?). But: The learning effects were that the future is still unpredictable – but a “try and error approach” did not fulfil the expectations as well. The loss of significance of experience in times of large changes does not mean that strategy is less important – indeed strategy has to be considered more seriously. Hence an analyzing walkthrough and long term planning are still worth to be considered.

Hence we have to understand the basic ideas of strategy. Since there is a number of definitions available, I selected one for the purpose of this post. There is a famous statement – some would argue it is one of the oldest statements in terms of strategy:

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” (chapter 3, axiom 18 (c. 490 B.C.). Sun Tzu (ca. 6th century BCE) Chinese general)

Continue Reading →

January 2, 2009
by Oliver
Comments Off on 2008 – a great year!

2008 – a great year!

Well, we do not have been published posts for a while. There is a very good reason.

Also the headline might be confusing. Enterprises, people, and governments have to manage the results of a large financial crisis that started as a crisis related to US subprime loans in 2007. A great year? A couple of days ago I discussed this issue with some friends and colleagues: “We” had to learn a lot: “to big to fail” – we do disbelieve in this statement in 2009. Zero-interest rates in Nippon only? – The Western civilization can have them (or try to use their hopefully stimulating effects), too. Negative growth rates in gross domestic products – not only an issue in text books.

In economic terms it was a very dramatic year.

 

But what did touch us really? In personal terms it was a very, very beautiful year – thanks to our “sweet sunshine” Stella Christin, who was born in 2008.

An ancient saying (I am not sure whether its origin is German) argues: A farmer who always looks back (on the groove behind him) when tilling his field is not able to keep straight on. In order to find the right path and to make straight grooves he needs to look forward.

In this spirit we wish our readers all the best for 2009, luck and success (both in private and professional life) and the courage, not to look back. May the New Year bring you and your loved ones joy and happiness.

 

 

Best wishes

Dagmar and Oliver

October 27, 2008
by Dagmar
2 Comments

Make Things Happen

Dagmar“Some companies make things happen.
Some companies see things happen.
Some companies wonder that things happen.”

This is one of my favourite management quotes because this is all strategy is about. I heard it in a lecture during my MBA course back in 2000. This was the time when the Internet was said to change the way business is done for ever and the New Economy was booming. This context had influenced my understanding of the quote for a long time. For me this was some sort of reminder that businesses should never rely on their current strategic position, however comfortable it might be. Businesses should always look out for new strategic opportunities, should scan the horizon for upcoming changes like disruptive technologies (which was a big buzzword at that time), and should try to change the rules of the game (another popular term).

You don’t have to be a gifted strategist to understand that it is better to make things happen – i.e. to be active and to drive changes – than to see things happen – i.e. just to react to changes. If you come into a situation that you wonder that things happen you probably are in serious trouble because it might be too late to react at all.

Today we have a different situation. There is a financial crisis which is probably followed by a crisis of the real economy in many countries. I guess if there was any chance to avoid an economic crisis it was given away by talking so much about the danger of a crisis that it will finally become a self-fulfilling prophecy. In this situation, the majority of companies belong to the categories that see things happen or even wonder that things happen. I suppose no company intentionally made these things happen. Hence, it is first priority for managers and business leaders to manoeuvre their companies through this crisis and to keep them in business at all. This task is difficult enough these days.

However, if I know one thing about the actual crisis it is that it will be over some day sooner or later. It doesn’t take much strategic foresight to know that the business world will look different than. When this time comes, to which category do you want your company to belong? To those that make things happen, to those that see things happen or – again – to those that wonder that things happen? It is already today that business leaders can determine to which of these categories their companies will belong once the crisis is over. Besides the daily struggle for survival, they should devote some time to thinking about how the business world will look like after the crisis. There are some straightforward approaches, for instance: Continue Reading →

October 21, 2008
by Oliver
Comments Off on Mac vs. PC

Mac vs. PC

When I read about this advertising campaign I remembered a specific strategic approach called “judo strategy”. This strategy was presented in the book “Judo Strategy: Turning Your Competitors’ Strength to Your Advantage”; the authors describe an approach how this kind of martial arts can also be used to help organizations battle seemingly bigger and stronger competitors. Well, to be a little bit more precisely: It is very hard to evaluate which of these two companies is the stronger one. However, this advertising approach can be described as a judo attack.

Using two new advertising clips from the “get a mac” show, Apple makes fun of a very expensive MS advertising campaign, which Microsoft has started for Windows. The cost of the MS campaign has been estimated for 350 million US dollar that had it start in Germany recently. Last weekend Apple started two new funny commercials that address this campaign for Vista in detail. (In the US the windows campaign for Vista was started with two commercials featuring Bill Gates and star comedian Seinfeld.)

The two new commercials:
 
 

Continue Reading →

October 19, 2008
by Oliver
1 Comment

The new future of bank regulation?

A large number of articles concerning the financial crisis have been published these days. In sum all write offs in financial institutions (worldwide) have reached a total of 485 billion USD this week. 42 billion USD write offs can be found among banks in Germany. The amount of recapitalization (worldwide) within banks is 459 billion USD. All figures illustrate the galactic size of financial risks among various financial products and the risk potential of instable linkages within the capital markets.

Lesson 1: We had to learn the “to big to fail” is not always a reliable option; under specific circumstance (say hello to the Black Swan) everything is possible. Lesson 2: Liquidity is not just a question of price (in this particular case: spread), it is more a question of trust and price…and therefore illiquidity is not always available for everyone in the market place. What Lehman Brothers was for the US, was Hypo Real Estate and its subsidiary DEPFA for Germany. But this is not specific enough: There is a similarity and a difference. The similarity is: Both banks (the collapse of Lehman and the nearly collapse of HRE) represent the watershed how the Governments and their authorities managed these issues. After two risks situations for a collapse of HRE (yes, we had two situations for the same bank, since the organization was not able to quantify their liquidity needs precisely enough) Germany had to learn that the financial crisis would affect the German financial landscape “a little bit more” than predicted. The difference is: Since the Lehman collapse and its dramatic impact on the financial markets took place before HRE, the German government was prepared mentally to act…So let’s describe it this way; Germany and other countries had luck since they could observe a collapse of a large bank and its impact on the market place.

Is this the end of the story? No, definitely it is not. The next months we will struggle with secondary effects in the real industry. But I would like to have a brief look at the regulatory side. What can we expect in terms of new regulatory issues?

  • Existing sophisticated risk management systems/approaches were not able to enough to protect banks against financial losses from credit default risks (evaluation risks). Banks focused on external ratings instead of really analyzing the background of structured products; rating agencies could not offer reliable data.
  • Liquidity risk management approaches used assumptions that not were valid in stress situations.
  • Write offs in assets reduced the tier 1 capital, hence banks came under pressure to find new capital sources. In the past some banks had optimized their equity in order to establish the mathematical fundament for very high ROE ratio.

Taking these issues into consideration, I assume that

Continue Reading →

October 11, 2008
by Oliver
3 Comments

The interview – How a large US bank manages their liquidity risks.

In mid September we published a short post with the title “the worse is yet to come“. Now, one month later, we can observe worst case scenarios becoming reality. Black swan effects test the survivability of financial institutions. Large banks on both sides of the ocean are in very serious trouble and need massive government support. Very strange market conditions challenge risk management systems to the max. A good time for raising questions how large banks manage their liquidity and liquidity risks. A large US bank agreed to participate in an interview –please see details at the end of this post – for eddielogic.com – the blog on strategy and management.

 

Q: Thank you very much for the opportunity to make this interview. Time is money; hence I would like to start with my first question right away. Liquidity has become one of the most important business aspects. How would you describe the current situation of your organization?

A: “We have achieved our best-ever geographic diversification, with half of the Firm’s revenues generated outside the Americas. The result of all this is that we have built a balanced global organization – able to withstand the stresses of rapid shifts in world liquidity flows.

Our Firm ranks #1 “Most Admired Securities Firm” by Fortune. The organization achieves record net revenues, net income and earnings per common share for the fourth consecutive year based on record results in all three business segments.”

 

Q: Could you please describe your general management approach?

A: “We effectively managed our risk, balance sheet, and expenses. Ultimately, our performance in 2007 was about our “One Firm” sense of shared responsibility and careful management of our liquidity, capital commitments, and balance sheet positions. We benefited from our senior level focus on risk management and, more importantly, from a culture of risk management at every level of the Firm.”

 

Q: Could you describe your general risk management approach?

A: “Our goal is to realize returns from our business commensurate with the risks assumed. Our business activities have inherent risks that we monitor, evaluate and manage through a comprehensive risk management structure. These risks include market, credit, liquidity, operational and reputational exposures, among others. The bases of our risk control processes are:

  • We establish policies to document our risk principles, our risk capacity and tolerance levels.
  • We monitor and enforce adherence to our risk policies.
  • We measure quantifiable risks using methodologies and models based on tested assumptions.
  • We identify emerging risks through monitoring our portfolios, new business development, unusual or complex transactions and external events and market influences.
  • We report risks to stakeholders.”

Continue Reading →

September 30, 2008
by Dagmar
Comments Off on Planning ahead for an unexpected crisis

Planning ahead for an unexpected crisis

Strategic planning is about preparing a business for the future. As we all know, a strategy should put a business in a position to maximally exploit potential chances and to minimize the damage of potential threats.

We all witness the worst financial crisis most of us would have thought of in these days. We also witness the breakdown of more and more financial institutions. With every such breakdown, the remaining banks and financial institutions get into more problems and the risk of even more breakdowns increases. We can safely assume that all those banks in trouble have (or had) some sort of strategy. Banking regulators and capital markets explicitly require that. Hence, we can also safely assume that those banks have (had) some intelligent, well educated and highly paid strategists. Many may also have hired strategy consultants who are even more expensive. According to the above definition, wasn’t it the job of those strategists to prepare their employers or customers for hard times, even for a financial crisis? Have they all failed?

To my opinion – yes and no.  Continue Reading →