We have all had to learn more than we ever wanted to know
about the internal workings of the Finance Industry and its impacts on the rest
of the economy. After, literally, decades of viewing the industry as a magic
black box where super-intelligent wizards created wealth out of thin air we’ve
all learned, painfully, that the wizards had more in common with carnival
side-show hustlers out to make a fast buck by fleecing the next fool in line.
We’ve also learned, even more painfully and unfortunately, that Finance wasn’t
just another industry and part of the economy. Instead it was the lifeblood
who’s credit creation mechanisms kept the real economy flowing. Now we all know
that systemic risk means that the survival of the economy could be at stake.
We’ve been tracking the Finance Industry for over two years
now and following a learning curve of our own and translating those learnings
into various postings and discussions. Starting with early in 2008, in this
case, with the suggestion that the Industry was going to have to be re-thought.
And debunking other early 2008 fantasies that the credit crunch and the
problems with the Industry would go away soon. In fact they were just beginning
and as the crunch went to crisis we found out that the business models were
badly flawed.
This set of postings traced the evolution of the breakdown
and near-collapse of the Industry from early 2008 until the end of the year.
Sadly all of this analysis is far from out of date. The problems with
malfeasant behavior, willful ignorance, violations of fiduciary trust, lack of
understanding and badly flawed, even broken, business models are still with us
and will be for years. As we look back at the crisis perhaps the scariest thing
is that the leadership of the industry was in denial until the cusp of the
collapse. And would have taken us all over the edge of the cliff without
government intervention.
It will take years to contain, stabilize and repair the
damage within the industry and, more broadly, for the economy as a whole.
Perhaps the worst of all though is that it appears that the Industry is not
only still in denial but attempting to return to business as usual. Where this
is important to you is in several ways. First off, as a potential direct
stakeholder: investor, employee or supplier. Secondly as a customer and thirdly
as a member of society. Unless these problems are corrected and new strategies,
business models and services that are value-creating, instead of leverage
manipulating, result the Industry will perform poorly, credit will continue to
be restricted and society will remain threatened.
Put another way, by paying attention to the warnings and analysis at the time
you could have avoided loosing a lot of money, suffering a lot of pain and
could even made a lot of money with the right investment tactics. We think the
same thing will hold true in the future because all the problems discussed are
still in place, only in slightly different form....
....for the complete essay on the future of the Finance Industry see...
In the early part of the last century David Hilbert proposed a set of unsolved questions that shaped the research agenda for math ever since. And the state of the real world as well since many of the areas he suggested had immense practial applications. An e-friend (Tim Walker of Hoover's) suggested a similar approach to business which got me thinking and riffing. One of my primary interest, concerns and worries is the question of improving business performance. As anybody who's noticed that the Auto Industry is 4% of GDP and employs approx. 13 million people the issue might be of concern to you as well. Here's my pass at it: Business Hilbert Problems: Fundamental Factors of Performance in case you're interested. Instead of Hilbert's 23 though I got down to five.
1) Organosclerosis - all organizations that are successful reach a point where they are insulated from external pressures, internal agendi become the dominant decision-making criteria and self-interested political decisions replace a focus on value. What kind of management system is required to correct these historical and innate tendencies - other than Darwinian sortation ?
2) Integration - no single factor determines the success of an enterprise. It needs to integrate the strategy and business model with the operational execution capabilities and establish a management system that holds the responsible parties accountable against realistic operating plans. How do we migrate from our decades-old set of isolated and conflicted functional silos to a more synergistic enterprise ?
3) Execution - most companies are competent or better on a few core disciplines but often neglect developing the full suite of functional capabilities to where they should really be. A growingly classic example is MSFT who's core discipline is Software Development but after the Code Red fiasco delivered an emasculated Longhorn to market based more on market power and coercion than enhancing customer value. How do we ensure, ala Billy Beane's A's, that we get as good a "player" in each position for the "game" we want to play at an affordable and value-effective price ?
4) Innovation - execution is all well and good but once you detox history and transform current capabilities, like a shark, you need to figure out how to swim into the SEE of the future.(Sailing Into the Storm: From Execution to Innovation) What's the best way to go about designing and implementing continuous innovation as a fundamental core competency of the enterprise ?
5) Leadership and Humanity -at the end of the day business is a team sport. And as Red Auerback taught us and the new Celtic have demonstrated you need great players with superb skills who play for the jersey they're wearing. Which requires Leadership which communicates, management systems that measure and reward real contribution and provides an environment that respects, in all senses, the individual as an adult (Aholes, Shirkers and Performance: a Draft People Principles Policy). What HR, Communication and Leadership development approaches are best suited to the enterprise we're envisioning here ?
The full post has a bunch of excerpts and links in each of the major areas that make up an enterprise that struck me as valuable. This particular post, btw, was the capstone of a series exploring various facets and previous posts. The complete series, on which there's a wealth of industry, company, economic and related tools and analysis is:
Not sure how many folks who'll be on the FastCompany community pay
attention to the Economic indicators but I'd suggest it'd be very much
worth your while to pay a fair amount. Part of the problem is that just
going by the headlines can be very mis-leading. For one thing the
headlines are just about the most recent data point and don't tell you
what the trend is - which is more valuable. And since many of the data
series reported on are very noisy because of period-to-period
fluctuations it's easy to get lost in the noise. We can cure almost all
of those problems by looking at the trends in real, inflation-adjusted,
economic data on a Year-over-Year (YoY) basis. And when we do that we
get a further benefit that the trends, structural relationships,
timing/lags and change points start to pop out at you. For somore more
on this I can't recommend highly enough Joseph Ellis' book
"Ahead-of-the-Curve". His web site with charts is here.
Hopefully (mechanics are challenging here - especially response
time) you can see the chart and we can use it to make these points. If
the chart isn't visible try here.Total
output of the economy is GDP and 70% of it is Consumption (PCE for
Personal Consumption Expenditures). Future demand depends on several
things but a key one is Employment. In the chart you can see the YoY%
changes in each since 1994. Notice that we're in a slowmotion slowdown
in GDP but Consumption has begun to tip over rather rapidly and
Employment is really hurting. The fundamental answer to the title
question is, "Dude, it's coming unless we get real lucky". So all brace
for heavy weather.
Just to put another point on it, if it works, everybody got all
excited because Retail Sales - which is an early and high-frequency
indicator, was up because of the government stimulus checks. When you
back out Gasoline and look at Real Retail Sales we've been experiencing
negative growth though; and the rate of decline is increasing.
And if you want to dig into the real data in more depth and see the
big and little pictures try this recent series of posts on my main
blog. Starting with this one which'll read you into things fairly
quickly: Economic Outlook: Demand Declines, Bad News, & Wealth. And to really dig in here you go:
I've already got a rather extensive blog and while I may post from time-to-time here it's unecessary to duplicate the postings. You can see my blog at:
Hopefully you'll find some value in them. Feel free to stop buy, read, share and comment. Always interested in expanding the community and gaining new readers.
