Eddielogic

– Thoughts on Strategy and Management

October 10, 2007
by Oliver
Comments Off on How to improve strategic planning

How to improve strategic planning

For all who are interested in issues of strategic planning I would like to recommend a new article from TheMcKinseyQuarterly. It is now available online without being a premium member of their web services.

Core statements are

  • Only 45 percent of survey respondents said that they were satisfied with their existing process for strategic planning
  • Only 23 percent of survey respondents agree that important strategic decisions were made within these planning processes

To improve the process Renèe Dye and Olivier Sibony highlights the following ideas:

  • the organisation should identify the long term issues facing the company instead of just examining numbers
  • bring together the ultimate decision makers within the strategic review meetings for strategic conversations
  • adapt planning cycles to the needs of each business
  • implement a strategic-performance management system

The article can be found on this website (pdf-file)

October 5, 2007
by Oliver
1 Comment

Energy can not be created

When you start reading current newspapers it is very likely that you will find several articles and columns concerning the sub prime crisis. Now it seems that each and every editor, journalist, writer in every newspaper or magazine does understand risk management business, rating issues and can explain what happens and which management failures had been made in the past.
But: Where have all the comments and analysis been in the last 12 months?

Life moves in mysterious ways. A couple of day ago I organized my old magazines; most of them focus on financial management or strategic management. Two times a year I do this review in order to identify those issues that had an impact on management and those that had not. This time I faced several very interesting headlines and articles, most of them similar like this: “MBS and ABS business and their success in 2006” or “Splitting and reducing credit default risks through syndication”; “100 % (and above) house financing – the new business segment”. And on 4th of October 2007: “The gambling bank”. This is funny, isn’t it?

Continue Reading →

October 4, 2007
by Dagmar
3 Comments

Strategic Planning Meetings

Strategic planning meetings are a very controversial thing. They have a bit of a reputation to be just another fancy management trend. I have to admit that I, too, have my doubts if all of these meetings are worth the efforts. My experience tells me that there is much truth in Brian Quinn’s famous quote:

“A good deal of corporate planning … is like a ritual rain dance. It has no effect on the weather that follows, but those who engage in it think it does. … Moreover, much of the advice related to corporate planning is directed at improving the dancing, not the weather.”

However, despite all problems, pitfalls and disappointing results, I am convinced that these meetings do have a value. Even if they won’t lead to a groundbreaking new strategy, such meetings can do some good for the company:

  • For many businesses, a formal strategic planning meeting forces upper and middle management to systematically think and talk about strategic issues for the first time.
  • If halfway properly planned, the preparation for this meeting encourages middle managers to put away their daily business for some quite hours and to think about the bigger picture. How many of them are so busy with their day-to-day workload that they hardly take the time to think about the long-term prospects of their field of responsibility in the larger context – even if they would like to do that.
  • The meeting normally brings together the whole top management team and more or less members of the middle management. This might be an excellent opportunity to bring some ideas or problems to the attention of the whole management team and even to get some immediate attention, discussion and response.
  • I once met a CEO who deliberately used the annual strategy meetings to do some sort of evaluation of his middle managers. He could see them all in a very similar situation and thus could easily compare how seriously they take this, what strategic capabilities they have, how good they are at recognising and solving problems …

So why are so many people disappointed with strategic planning meetings? I can think of a lot of problems – some of them can be solved / reduced and some not. So I will just limit myself to some issues I have experienced myself. Continue Reading →

September 18, 2007
by Oliver
4 Comments

Deutsche Bank enters the market with second brand

well, before I start I have to explain that the term “second” here is equivalent to “another”. To be more specific, it is the bank’s second major strategic move to enter the lower retail banking market. One of German leading financial institutions, the Deutsche Bank, has started its associated company “Norisbank” to enter the German market for low cost retail banking. With a focus on price competition, the Norisbank has the objective to increase the number of its customers three times to 1 million at the end of this decade. The bank will focus on customers who have to take care for their financial belongings (“people who take low cost airlines to go to Rom and then shop with Prada”). The organization will gain new customers with just a few financial products; those products will be at least under the top 3 of their product range in terms of price competition.
Opposite to this the Deutsche Bank with their brand will still focus on the premium segment of banking services.

The Norisbank was a former specialist and product provider for personal loans within the DZ Bank; offering personal loans and lean loan processes to the credit cooperatives in Germany. It has been a subsidiary to a large number of other enterprises in the past. In 2006 the Deutsche Bank bought the Norisbank, leaving only the loan business within the credit cooperative sector.

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September 12, 2007
by Dagmar
Comments Off on Evonik

Evonik

If you just wondered what on earth ‚Evonik’ might be, I have already brought my message across.

Evonik is the brand-new name of a very old German industrial group, formerly known as Ruhrkohle AG. Ruhrkole AG, or briefly RAG, has just separated its activities into two different businesses: the mining business will remain branded as RAG. They are not a future core business. The other activities, which are mainly industrial, were brought together in the new Evonik Industries AG, which is planned to go public in 2008.

I fully understand that this new entity needs a new name. Even more so, since the old name ‘Ruhrkole’ (a combination from the river Ruhr and the German word for coal) is related to the mining activities only. Nevertheless, What is ‘Evonik’? What does that mean? What is it supposed to tell me? I couldn’t find any answer on the new website. So I assume it simply does not mean anything at all. Continue Reading →

September 12, 2007
by Oliver
1 Comment

Falco meets Subaru

As one can notice in terms of missing new posts, we have been on vacation for the last weeks. During out stay in Canada, we “had the opportunity” (of course!) to enjoy commercials. One was really worth to keep in mind.

It’s a commercial from Subaru for the car Impreza WRX 2008. Four German engineers drive this car over a proving ground, enjoy the car’s performance and sing to the song “Amadeus” from Falco. When returning to the garage, another engineer grimly asks (in German) “What do you think what are you doing here?”

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August 15, 2007
by Dagmar
Comments Off on Do banks know what they do? – Part 2

Do banks know what they do? – Part 2

I discovered it only today: Yesterday, the same day as Tobias Bayer’s article “For they know not what they do” in Financial Times Deutschland, there was a comment with a similar message in Financial Times: John Kay – “The same old folly starts a new spiral of risk” (available on his website).

John also says that those banks who invest in particular risks can’t really comprehend them. Here are some quotations:

“Risk markets are driven less by different tastes for risk than by differences in information and understanding. People who know a little of what they are doing pass risks to people who know less. Since ignorance is not evenly distributed, the result may be to concentrate risk rather than spread it.”

“If trading was motivated not by differences in attitudes and preferences but by differences in information and understanding, risk would gravitate not to those best able to bear it but to those least able to comprehend it.”

I especially like his last sentence: “The most costly investment advice of all is the expert assurance that “it’s different this time”. I will keep that in mind. This insight should encourage me to trust more in my gut feeling than in some optimistic market predictions no matter how convincing the supporting arguments are.

August 14, 2007
by Dagmar
1 Comment

Do banks know what they do?

Actually, this is not exactly the question I want to answer with this post. It is borrowed from an article in today’s Financial Times Deutschland, which is titled “For they know not what they do”. Author Tobias Bayer looks at the latest bank-failures (or better almost-failures) in Germany and presents some surprisingly simple explanations:

At first, he refers to the ‘too big to fail’-phenomenon. Banks enter too risky and too speculative businesses since they can expect the state to rescue them. The implication for the financial system and the economy would be far too severe. This is what economists call ‘moral hazard’ – wrong incentives lead to wrong behaviours.

However, Bayer argues that the deeper reasons of latest problems are even simpler: Banks have started to do things they don’t understand – for they know not what they do. Almost failed IKB is a mid-sized bank focused on mid-sized companies in Germany. Similarly, troubled WestLB is a German public sector bank that originally was intended to be the central bank for a German federal state and a partner for the local savings banks. Bayer lists several terms from the world of modern finance that are all related to the actual market turmoils (derivatives, conduits, special purpose vehicles, liquidity facilities, securisation structures, investment grade ratings etc), and assumes that such businesses are way outside the banks core business models. Hence, banks were not fully able to evaluate what they entered into.

At this point, Bayer refers to a study from the Bank of England about ‘Causes and Management of Banking Crises’. (I will come back to this later) This study analysed 22 cases of banks which failed or encountered severe difficulties, of which 18 were partly of fully due to mismanagement (poor strategy – 11, poor systems and control – 17). Bayer concludes that both banks, IKB and WestLB lack a sound strategy and business model. They had no answer to the question why they are actually in business and hence, tried to increase their profits with risky businesses. Continue Reading →

August 7, 2007
by Dagmar
Comments Off on Customer Lifecycle Party

Customer Lifecycle Party

A word in advance: I have no idea if this is a special German phenomenon or if these parties are popular in other countries too.
There is a concept called “Ü-30 Party” (an abbreviation from “Über 30”, roughly translated as 30-something party) here in Germany for about a decade. These are parties that are targeted at people in their thirties with music from the time when they were teens and young twens, i.e. mainly from the 80s. As it happens, I have been in my thirties for about a decade too. I never was at one of these parties. However, I assume that they must have their audience, since you will almost always find some advertising posters for a party to come on the streets.

This morning, something unfamiliar caught my attention. There was a poster advertising a Ãœ-40 Party. I took some time to contemplate the fact than I am becoming older (although not yet 40!). Than I realised that those 30-40-something parties are a fascinating product. Continue Reading →

August 2, 2007
by Oliver
Comments Off on Middle management as participant for strategic planning

Middle management as participant for strategic planning

When you observe strategic planning processes in different organizations it is possible to find “closed shop” planning processes. In some cases only top manager “develop” the strategy, in other situations they are supported by specialised departments. Various sources in the academic literature have discussed and criticized the disadvantages of this approach.

But why is it so important to involve middle managers in strategic planning. So let us look at some research findings.  Some important tasks can be found in terms of agenda setting, understanding the context, combining old and new strategy, and stressing crucial issues.

Agenda setting. Various sources in the academic literature highlight the role of middle management for agenda setting. FLOYD and WOOLDRIDGE (1992, 1997) see a positive correlation between corporate success and middle management participation due to the improved quality of strategic decisions. Top management can develop strategies that are qualitatively richer in content if it considers knowledge and opinions of middle managers (Note: FLOYD and WOOLDRIDGE (1997) argue that consensus between both management levels and improved implementation processes do not represent success drivers.)

Continue Reading →