Hindsight

A popular current affairs blog called “YARGB” yesterday picked up on a piece on this website titled “In Search of the Future: Google Vs. Microsoft, offering that “you might want to read this article on why Google's shares are overvalued.” 

Those who take shots at hyperbole should inevitably expect to take some flack. So it comes as no particular surprise then to find some irate reactions to my take on the overvaluation of Page and Brin’s stock market darling. One reader, who goes by the name Doug suggested that “I only wish I could go long Google and short 10 times as much "Daniel M. Harrison" stock for a no-lose play”. The lambasting continues: “Mr. Harrison strikes me as long on hubris, and short on knowledge of what has brought Google to this point, believing Google's position is to a substantial degree based on hype. I'm confident this describes him better than it does Google.”

But the criticism missed the point. It was not here that I was critical of the company’s strategy; for sure, Google makes for an amazing start-up success story. I was merely pointing out that what market participants have forgotten in all the mania is that running a public company with a board and a list of shareholders to whom one holds oneself accountable and a host of day-traders continually exerting pressure on the stock price – and as such, company capital – requires a very different strategy to running a private company free of the scrutiny of the latter greedy camaraderie. As a CEO, a market rally is great while the going is good, but quite the contrary when market forces turn against you.

Either way, I expect the arguments are just semantics to the belligerent crowd. For it is all too often the case that criticism of mainstream thinking turns out to be right at the time, but the participants just don’t want to acknowledge it. A year later, of course, it’s relegated to hindsight.

CEO’s of public companies these days ought to be careful about how they let their stock rally – after all, it’s still only recent history the days when disgruntled investors came banging at the (in some cases, jail-cell) doors of top management. For when things turn against them, those who so defiantly refused to see the downside in the good times take it more personally than CEO’s could possibly realize.

Industry News, Google Noise

When news starts to sound like noise it’s usually an indicator that hype is clouding the reality of events. It’s difficult not to see the auspiciously named News.com’s appraisal of Google in yesterday’s article “What you get for $400 a share” as exactly this, and it should serve as a warning for those who are invested anywhere near the current price.

It’s easy to forget about the industry potential of any company but Google and overlook other newsworthy items with all the current hype surrounding the search-engine goliath, but some alternative analysis might well pay off.

Take TiVO, the low-key U.S. manufacturer of live television streaming boxes and yesterday’s announcement on the rather more credible news provider Reuters that it was “working on technology that lets viewers search for specific advertisements … (that) would begin testing a feature to let some rs transfer recorded television programing to Apple Computer Inc.'s iPod digital music players”. Uneventful as this might sound aside such mesmerising commentary by News. Com that “Google will no doubt figure out a way to charge for (free services) so it's not so dependent on advertising … (being) the "it" tech company of the moment”, the former is at least a statement of actual strategic intent.

A partnership with Apple computers is a smart way to leverage the brand equity of a company one-twenty-fifth of Google’s size with the capability of a company three-quarters of the size and with a price to earnings ratio in the market of half the Mountain View empire’s at a time when the latter now looks overpriced by any reasonable financial calculation (see In Search of the Future: Google Vs. Microsoft).

What the above signals is first-mover advantage in the as yet undominated computer-television market, a lucrative source of advertising revenue for those who manage to get in on the act. And TiVO, by all accounts, has plenty of experience: this was a company, after all, which entered the market in the bull-market hype of the millenium and who, despite having yet to make a profit, has weathered all the possible storms a company could in a bear market. Google, as I have stated here before, is a rookie to the NASDAQ, and its showing.

Investors should be well aware by now that past performance of an equity’s share price is certainly no indicator to future performance of the stock, and neither is it to the actual state of the company. Amidst the clamourous gong of all the noise, it's all too easy to overlook the news that makes tomorrow's headlines.

PR Malfeasance

Back in July this year, blogger and Yahoo! employee Russell Beattie published a well-publicised rant about the tactics PR firms are using to insert their promotional press in this untapped domain of publishing. In it, he fumed at the PRrazzi: “What are these people thinking? Do they really think the same lies and manipulation that they use on the corporate media establishment is going to work on me? Blogging isn’t my “job” - I do this for fun. I’m not looking to fill column inches or dead airtime with your crap, I’m looking to provide real information and opinion to my readers who in turn return the favour and educate me.”

 

This type of article should make anyone working in PR sit up and think hard. As media trends towards a more democratic process, everywhere from sit-at-home online book reviewing on Amazon up to the more substantial form of Blogging, customers are becoming increasingly savvier about identifying PR insertions.

 

The most obvious – and intellectually redundant – aspect of PR is that it is designed specifically to sell products, and as such it initiates a dialogue but does not follow up on it. On the few occasions that it does follow-up, the dialogue contains none of the natural reasoning that ordinary conversation tends towards and hence there is little valuable exchange of information, opinions or ideas.

What the PR firms miss in targeting ‘weblogs’ and media platforms where people are publishing for themselves is that this new form of media is more akin to a dinner party environment than a newspaper. Just as no reasonable person would never think of attending a social function with the sole purpose of selling a product in mind, so no PR firm should seek to disguise comments geared at selling products as ‘newsworthy exchanges’ in the more democratic form of online publishing.

This is in stark contrast to advertising, which has had some encouraging success online with the likes of banner ads and Google Ads. As the publishing process becomes more user-oriented, the boundaries of forms of product promotion are going to have to become more clearly defined, or organizations are going to end up doing one worse than not selling any products at all: making sure that no one wants to buy them in the first place.

The Eternal Institution

It’s startling how the parturitional division of even just two hours of airtime can change the environment you’re in so completely. Last week, as I sat outside on the Piazza Di Spagna with a glass of Chianti, amidst the fervent nocturnal alacrity of the southern continent, the rainy four degrees of northern Europe and its four p.m. nighttimes seemed a world away. Having just spent a week in Rome, I am slowly adjusting back to the neutral, and by comparison rather uninspired routine efficiency of Oslo and the demands of my MBA programme this week.

For those who haven’t been, in stark contrast to northern Europe, Rome is a gargantuan, sprawling labyrinth of archetypal European madness. The physical infrastructure of the city holds together an impossible range of architectural accomplishments, all in varying states of disarray from every period from around 500 BC right up to the present day.

But there is also a deeper, more esoteric infrastructure at work, residing in the Northwest of the city, just above the glamorous nightspot of Trastevere.

The Vatican has to be one of the most startling displays of institutionalism at work in the twentieth century. Not only because of the vast wealth of the Church, but also the sheer quantity and diversity of the population in the world who to the Catholic doctrine: with over two billion Catholics alone, and another billion Christians, this city within a city is the spiritual home to nearly forty percent of the world population, all the way down the alphabet from the Americas to Zambia.

Into Eternity

Management guru Tom Peters started out his career obsessed by the large organizations, but has since departed this realm of the gargantuan to concentrate on the smaller organizations. And indeed, most of consultancy and academia has gone the same way.

The Catholic Church (which is the second largest owner of real estate in the world, after Mc. Donald’s), riveted by scandal after scandal of sexual molestation, lawsuits and a social trend towards moral disinterest has so far managed to defy all odds and remain virtually indestructible.

His Holiness Benedict XVI’s establishment, is an institution that, due to its size, is deeply fragmented and has ceased becoming consistently innovative. The areas of the institution that are still innovative are innovative in all the wrong ways, taking advantage of their customers and competitors with its financial and moral weight and shaming its long established reputation. And yet, still, in some way, and for many, the Catholic Church is the greatest institution around, despite the fall of Italy’s political reign in the times of the Roman Empire.

In the same way could it be that some of the American Empire’s institutions of the turn of the twentieth century shall outlive the country’s Superpower reign way into the future? It’s a fact most of the management gurus would hate to admit because it negates much of their philosophy, but no matter what seemingly suicidal manoeuvres certain institutions make, if there’s always a crowd of followers, these institutions are always going to be around to house them, as Coca Cola proved in the 80’s with its introduction and subsequently quick withdraw of “New Coke”.

Perhaps the current apathy towards large organizations from both consultants and academics alike is in their realization that for these institutions of gargantuan dimensions, just as the followers of the Christian faith have always maintained, there may be such a thing as eternal life.

NETworking

On Friday night I attended an Alumni dinner for the previous MBA students who had studied on the programme before me at the BI in Oslo. Like most networking events it was supposed to be an occasion where both previous and current MBA candidates could ‘network’ – swap ideas, names and numbers, business cards and contacts etc. Pretty though the setting was however, in one of the capital’s few ostentatious venues, the Grand Hotel, which towers over the city centre just adjacent to the National Parliament, I couldn’t help but draw comparisons with a Network Marketing conference I once attended in the U.K.

At the beginning of the dinner the President of the Alumni association stood up to great applause and announced that one of the committee members was not able to be there this evening as she was celebrating a birthday dinner with the King of Denmark, where she concluded “so I don’t know what kind of contacts she has!”

There were some inevitable guffaws from the tables, but this kind of problem is typical of such networking functions. Usually the problem is that those who are the most valuable to a networking event have too many other (bigger and better) things to do than to attend these types of gatherings of hungry amateurs and wanna-be’s.

Of those that were present, again either those there were all too keenly looking for opportunities and contacts without thinking what they themselves had to contribute, or the people that genuinely did have something interesting to say and were actually doing something of some importance were badly prepared and had not thought to bring along their business cards to exchange with the others. Hence the dinner function resembled a jumbled combination of ‘feel good’ exchanges of power-maxims and meaningless condescending power talks, where just as in Network Marketing conferences, the hierarchy of those who had first completed the MBA ten years ago stood to give speeches about how the programme wouldn’t be what it was today if it weren’t for what they had been able to go on and accomplish as a result of the Master’s Degree.

Online

In the excellent book, “The Rise of the Creative Class”, social economist Richard Florida opens with a somewhat critical appraisal of the “tech-utopians” who propose that technology will change and better our entire future as technology erodes “the powers of despots and bureaucracies, powers and principalities”, and concludes sceptically that “I haven’t seen a technology yet that cures the dark side of human nature”.

In the same way many assume today that the internet, by the very fact that it is a massive platform for knowledge-sharing and networking, will necessarily fulfil this purpose. What such tech-utopians miss, however, is exactly what the organizers of the function of the MBA Alumni dinner missed in preparing for Friday – that unless the participants are willing enough to part with their information, (that is assuming they have anything useful to part with at all), and unless they are even willing to be there to participate in the first place, a platform has the net result of serving no purpose but to reinforce what most of the participants already knew anyway and merely wastes time which one might have used to do something genuinely constructive had the platform not been put up to begin with.

And indeed, as most of us will testify, this is absolutely true of the Internet itself. While it can be used as a great platform for any kind of research and exchange of information, it can equally be an endless portal for time-wasting activities that contribute little to the constructive thinking or working process.

It seems that whenever a novel technology hits the scene we tend to get very excited about how it is going to improve our lives and enhance our effieciency and capability, without thinking about how we already use our existing infrastructure. A new communication platform is not going to make those who previously had no interest in knowledge-sharing at all suddenly start opening up and networking.

When consultants and managers start talking about “knowledge-sharing” as a solution to efficiency performance then, as you commonly hear today, they should also think about the potential downside. In order for any kind of networking platform to function well, the inputs remain the same, no matter what the platform, and those inputs are age-old: a mixture of the right people, at the right time, in the right place. Get any of those wrong, and the platform is pretty much worthless, whether it is real or virtual.

In Search of the Future: Google Vs. Microsoft

Since last year, the Google Phenomenon has been creeping steadily into all factions of society, from the broadsheet financial papers right down to the teenage magazine weeklies, making Larry Page and Sergey Brin household celebrities worth billions of dollars and determined to change the way everyone works, plays and interacts over the next decade. When even notoriously “anti-American corporate” French periodicals start declaring the rise of U.S. companies, you know something’s going on: only last week, Le Point featured both founders on the front cover and declared boldly inside: “L’ambition de Google parait n’avoir aucune limite” (the ambition of Google seems to recognise no boundaries).

Suddenly everyone everywhere is talking about Google teaming up with Sun Microsystems, who has come obligingly out of left wing, to possibly create the most advanced new desktop software around, making a challenge to the Windows standard. And Google is laying the groundwork with numerous Beta test applications, taking on everything from academia (Google Scholar) to e-mail (Google Mail) down to internet chat and VOIP communications (Google Talk).

But how credible are these threats? Certainly the savvy invitation-only launch of applications such as GMail and Google Talk has elicited some favourable press, and the functionality and usability of its Beta launches has been extremely well received by both the public and by technical critics, but could this innovative relative newcomer really take on Microsoft? Many seem to think so.

While there is a lot to be said for the weighing up of the technological merits of both companies' capabilities, how about looking at it from a purely financial perspective? After all, as history has continually proven, a specification war is not only won on the technilogical superiority of a comapny's product but on its muscle in the fight. What most people seem to have forgotten in the midst of the Google hyperbole are the fundamentals behind the two companies. Google has a reputation for being very secretive, something that has been, again, well received, while Microsoft’s very public announcements appear to be going in one ear and out the other of most analysts. But is Google really that secretive? The company is touted almost weekly in one broadcast or another as “changing the world” or “knowing no limits” or “never ceasing to adapt”, and one has to posit, with this much excitement in circulation, does Google really have nothing at all to do with all this?

It would be naïve to think not. Furthermore, a closer analysis of the company’s share price since the IPO last year seems to give way to more suspicions about the apparent ‘secrecy’ Google encloses around its HQ in Mountain View, California. The company is now trading at nearly four hundred dollars a share, or, in real value, at a P/E of 85! The last time this kind of valuation was seen anywhere near the NASDAQ was back in the heydays of the tech bubble. To believe that this kind of price performance in the current market climate is achievable without a heavily active PR department is somewhat risible.

The more “extrovert” Microsoft, by comparison, trades at only a fraction of this price, at a P/E ratio of just over 20. In addition to this, while Google is worth just over $100 billion dollars, Microsoft is worth $250 billion. This comparison alone makes Microsoft extremely good value and Google way overpriced by any measure, espcially with Microsoft's earnings up on the year to date.

It is easy to take cheap shots at Microsoft because of its gargantuan monopoly, and undoubtedly, it makes for great news when a young upstart takes top lead over a franchise of Microsoft’s size. But for all its evils, Microsoft has consistently delivered us into the world we now know and use: from the desktop to the application I use to write this article on, to the software that enables me to broadcast it out to a planet of six billion people, Microsoft has provided by far the bulk of the platform.

What is interesting however, despite the potential Microsoft-Google wars, is that all this publicity signals a demand from the world at large for some kind of change of the current software standardization. A lot of Microsoft’s success depends on whether its next foray into the market, Windows Vista, can provide a sufficient enough change to satisfy the demands of customers tired of filing by a limit of subject and surfing by a limit of criteria.

Because, contrary to public opinion, it looks like Google might have over-sold itself too early. A P/E ratio at its current level cannot be sustained for an indefinite period of time. The only way that Google can possibly sustain this kind of price to earnings valuation is to actually deliver a viable desktop software before Microsoft comes out with its challenge next year. If it doesn’t, and the price of its shares starts to fall (as it surely will), Google is going to find itself having to split its current stock in order to attract more investors to its equity, a strategy that could lead it to decline further. Capital withdrawal from shareholders at the moment of a head-on confrontation with a monolith such as Microsoft can be disastrous to the outcome, particularly when Microsoft is sitting pretty right now at a relatively low industry valuation. Microsoft has been a public company for long enough to know the tricks of the trade that rookie Google still has yet to acquire: Page and Brin should be careful where they tread.

Good News For China

The floatation of China Construction Bank (CCB) at the end of last month is good news. Despite the enormous market capitalization of $66 billion (which makes it larger than Barclays, American Express and Deutsche Bank) based on perhaps less than reliable indicators, it is a step in the right direction when countries allow national banks to become public.

The scepticism expressed by some about the value of the investments CCB receive as collateral for lending should be eased by the other scenario: that CCB remains private and thus does not need to be accountable to a large pool of public shareholders about its internal valuations and projections. Because the money trails of most investments lead back to banks in one way or another – especially in the case of the CCB – they are usually pretty good indicators of the genuine performance of market as a whole, helping to give some good performance indicators. This has been evident in developed countries for many years - when the good times start rolling, banks are usually the first to feel the impact; conversely, when the going gets tough, banks tend to catch cold more quickly than some of the more elastic industries.

Part of the problem with investing in China before now was the lack of a large public financial organization. Because of the lack of any financial regulatory or reporting systems in China in the 90’s, it made it very hard for foreign investors to gage the valuations of the market as a whole – even in the case of traditional manufacturing industries investors paid way over.

As hard as Liu Mingkang, head of the China Banking Regulator (CBRC) tries, real-time reporting is often the best indicator of economic performance. CCB going public means it will be harder for companies within China to fudge valuations as the bank is forced to become more reliable with its reporting figures. This can only mean for a more accurate and efficient market. The long-term viability if investment China depends on more than the current round of sales hype.

There may be some teething troubles as industry in China adjusts to this new step-up in reporting efficiency, but the long term benefits will be felt with a higher degree of confidence in China as a whole, which should bring transparency and liquidity to shadier areas of the market. This is exactly what happened in Thailand a decade ago, and helped massively in swiftening the recovery of the economy after the currency debacle in 1997 as the world banks and economies were able to offer viable solutions to the hybrid loans weighing down on cashflow. The more investors can see, the more willing they are to participate, whatever the scenario.

The Outsourcing Rush

Is it just me, or is the heat starting to go to everyone’s head south of the equator?

In his bestseller “The Power Of Unfair Advantage”, John Nesheim illustrates the boom-bust cycle of market phenomena as a “Wave” consisting of six stages: Displacement, Euphoria, Overtrading, Mania, Financial Stress and finally, Revulsion (where no one gets funded). It’s a good model, and one which those of us who experienced the tech bubble five years ago (who didn’t?) will identify with. And before that, those that were invested in China in the late nineties will recognise. And if you were active at the time of the market crashes of the late eighties and even 1929, you’ll recognise the stages of Nesheim’s “wave model” too.

Those are just a few examples, so what is it about the nature of waves that keeps them coming back time and time again, only to eventually suck in a zealous camaraderie of supposedly informed market participants? Usually the problem in identifying an overly bullish market is in the fact that it takes on a form we don’t recognise, so it’s harder to see coming. But if there’s a fairly standard pattern, shouldn’t it be obvious?

I’m not sure about everyone else, but almost monthly on the front covers of the Business Monthly’s and daily in the financial presses at the moment I read more amazing news about the development of outsourcing to all these cheap, far-flung locations and how it is saving Western companies millions/billions of dollars a year on such ‘overpriced’ organizational components as IT and Customer Service at the same time as providing an entire platform/solution for economic development for these poor economies. In fact, one would be forgiven for thinking that some Western companies are contemplating ‘outsourcing’ the entire organization altogether (actually I think I saw something on that too) and that such reputable enterprises as AT&T and Bell Canada might soon re-brand as IT&T and Bell India. Has everyone forgotten the days only half a decade ago when every company was going to become ‘virtual’ overnight and the internet was going to totally replace physical reality with such ground-breaking concepts as Pets.com (virtual pets and pet food!), Bamboo.com (virtual real estate agents!) and infamously … Worldcom (what was it exactly that they were going to do again other than make more millionaires than any other company around?)

Nesheim breaks down his six-stage wave model into the following summaries:

1. Displacement: Something arrives to upset business as usual.

2. Euphoria: The first excited investors being to put money into related new enterprises

3. Overtrading: A rush starts to get in on the ground floor, and money flows into many new companies.

4. Mania: A wild rush to get in before it is too late sends a river of money flowing into anything related.

5. Financial stress: Reality arrives as new enterprises begin to crash and optimism turns to pessimism.

6. Revulsion: Investors depart, many with nothing.

In my experience, stages 4 and 5 are usually accompanied by a distinct set of psychological conditions.

• First of all, common sense hits the window. Any type of rational analysis is usually put aside at the expense of the hype being circulated in the marketplace.

• The advocators of the trend being hyped usually admonish “This is happening and you can’t top it!” as pretty much a blueprint reply to any kind of critical attempt at reasoning.

• At these stages the press is full of articles about how glorious this new revolution is, as the PR machines of organizations that are eager to promote the new trend are working in overdrive.

• There can be absolutely nothing wrong or potentially perilous about this new trend and anyone who dares to criticise it is “old fashioned” or “behind the times”.

• There are usually just a few market participants who are benefiting big time off the new trend, with most zealously “following the crowd” in implementing this exciting new trend of standardisation.

The parallels between a bull-market rush and the outsourcing phenomenon are so remarkable, I’m very surprised no one has thought to point them out yet.

In Context

Common sense suggests to me that if you pay bottom dollar for something, you’re probably getting bottom dollar delivery. Only for a very short period in time does a trend or solution represent actual value, as Microeconomic theory dictates. Someone suggested to me the other day that outsourcing was not only cheap, it was higher in quality than if you did the process yourself. My response to this is: Please. But it’s not just the cost-saving that is worrying in the outsourcing phenomenon, it’s where the cost-saving is being exercised, and the degree to which it is being done. Areas of organizational operations such as “Customer Service” are the fundamental building blocks to any kind of successful operating principle: who would honestly, given the choice, rather have an unknown company eight thousand miles away dealing with their customers on a more regular basis than doing that themselves. What is really worrying though is point this perfectly valid criticism out to anyone in the outsourcing industry and you get the standard response: “It’s happening anyway. You’re behind the times.”

Most of the hype is centred around India, but on closer analysis, one has to seriously question the validity of the outsourcing model as a Long Term strategy. India’s infrastructure is not just second-rate, it’s practically non-existent. One-third of the population is illiterate (half of those women), the transport systems are a nightmare and the national power grid is some of the worst in the world. To this kind of criticism Indian politicians reply flatly: “We’re a democracy. We can only grow so fast.” That may be all well and true (though it sounds more like a statement to appeal to Western organizations) but with these massive infrastructural faults in place, is there really room for the mass-development of an entire quality industry?

In the Dot.Com boom, it was the Corporate Finance departments of major investment banks who were making a killing branding traditional and new businesses with the tech logo and taking them public, which ultimately led to a series of lawsuits and subsequent penalties. In this instance, it seems the Consultants are at fault. Consultants love outsourcing for an obvious reason: it enables them to point to a clear cost saving solution that looks original and dynamic and implement it with minimal hassle. And at first they may have had a point. I’m not denying that outsourcing was not a smart idea and that it has a sustainable future, just that the current rate of quality implementation is unsustainable. The danger is that consultants will become the investment bankers of the turn of the millennium, and end up paying high penalties for poor advice. After all, if a consultant has an existing relationship with an outsourcer in India, for example, and feeds client business that way, where’s the difference in an investment banker giving chunks of what they think is a ‘hot IPO’ to their favourite clients?

Most people by now have spoken to an ‘outsourced’ department in one capacity or another. Ask yourself: was it always great quality? My experience has been that the quality of these outsourced call centres has declined dramatically in the last few years. Outsourcing is undoubtedly a smart concept, and right for some: it’s just that the current hype in the marketplace is not sustainable given the infrastructure in the outsourcing countries. In the stages 4 and 5 above, one of the key signals to an over confident market is when the quality opportunities start running out, and the ‘suppliers’ begin manufacturing clones just to keep the momentum going. Take a look at Chinese private equity in the nineties. There were a number of excellent value opportunities in the market, where a few people were making some above-average returns until London and New York decided that they could develop ‘funds’ to invest in all these exciting opportunities. The reason investors lost so much money is that it turned out there just weren’t enough quality private equity opportunities in place to feed the purchasing demand. In the mad rush to get in on the action at any cost, these funds started purchasing anything that could be reasonably construed as Private Equity, a strategy which was obviously very much in China’s favour as it encouraged more investment directly into its own pockets but which left lots of unsuspecting Westerners seriously out of pocket.

The same can be said for outsourcing. It is in countries like India’s interest to keep Western companies in the outsourcing cycle; this is what is contributing so massively to the GDP growth, and short-term thinking consultancy companies have the incentive to keep recommending outsourcing as a viable alternative to keep the fees rolling in. The big irony is that outsourcing as a cost-saving phenomenon is going to leave some Western organizations seriously out of pocket just as boom-bust cycles in markets have consistently left the retail investors.

The MBA Conundrum

A colleague on my MBA programme here at the BI in Oslo questioned me somewhat aggressively the other week: “You seem very relaxed about the process of studying. Is this something you really want to do?”

Over the last few years, there has been a lot of scepticism surrounding the true value of MBAs once inside an organisation. As the first term of my MBA programme comes to a close, and I begin to look forward to a week absent of work and full of long Mediterranean dinners and hot evenings, I can’t help reflect as I sit in class now on the validity of all the scepticism. First of all, I am sympathetic to the cynics. For a long time I was a cynic myself of the validity of MBAs – after all, they are usually twenty-somethings like myself who think they know all the answers based on what has to be a fairly limited amount of real, practical experience.

From my experience on this MBA programme here at the BI in Oslo, the scepticism is not unjustified but it is misplaced.

When I chose to study an MBA, it was predominantly for the intellectual process of reasoning and studying that I wanted to do it. Unlike some, for me graduating in the top ten of the class is not an all-consuming goal – it is rather the acquisition of knowledge and the opportunity to be back in one of my favourite places, the classroom, again that are the pivotal reasons I am studying for this degree. It seems I am part of a minority, however. I may be fortunate in not finding the task of getting high grades overly demanding and actually enjoying the process of studying, but putting it diplomatically, there are certainly a number of less than congenial individuals on the programme who are clearly studying an MBA for one sole purpose: because they can’t rise any higher in their careers without one. The problem with these individuals is that studying an MBA is not what they need: what they need is a lesson in how to get on with people. Most of the types I am speaking about ironically have quite outstanding qualifications already; it is certainly not for lack of academic kudos that they have encountered a limit to how far they can rise within their respective organisations.

The problem is in the classification of “MBA’s” as a general categorical statement. It is immediately evident on this programme at least that those who are going to climb the ladder in an organisational context would do so anyway, without an MBA. All the programme does is to sharpen the intellectual process so that those who have been “winging” subjects like accounting for the past four years, like myself, can now talk about it with a sense of meaning. On the other hand, an MBA won’t teach those who have a personality disorder how to acquire a personality. Ironically, it is these students who are the most “grade” focused, and who therefore immediately, at least, come across as the most ambitious: because they have found themselves in the unenviable position of having to be. However, once these individuals assume management positions, they quickly find themselves at square one.

Management is more of an intuitive process than an intellectual one. The problem with studying an MBA for the students who are doing it with the sole purpose of advancing their careers in mind is that, while being somewhat more intuitive perhaps than most degrees, it is still predominantly an intellectual pursuit. MBA’s are great degrees, they are just being used for the wrong purpose.

The Lonely Planet Guide to the Organisation

Ask most people in an organisation what they think of the salespeople, and the response it likely to be mute and/or confused. The best salespeople are, after all, a bizarre hybrid between the charming and arrogant, generous and selfish, calm and diplomatic extremely emotional and extremely aggressive. Unfortunately, the organisations which these salespeople represent tend to see most of the negative traits, in large part perhaps because all the positive ones are reserved exclusively for clients. Such unpredictable schizophrenia can alienate more sober members of the organisation, and lead many to believe that salespeople are just a necessary evil in any organisation.

This reputation has lead most firms over the past two decades to label their salespeople with distinctly neutral titles, such as “Account Executive” or “Client Services Representative”. Organisations claim that the titles detract from the negative ‘sales’ image prospective buyers might naturally associate with someone knocking repeatedly on their door for a deal, but ask any salesperson and you know this is fallacy. Most salespeople only too readily admit at the first prospective client engagement that “I am the sales guy/girl” or “What I’m trying to sell you is” … For a salesman there is no shame in the process of selling, and nor for the prospect: we’re all interested in being presented with offers, after all.

Ask most MD’s what they think of their salespeople and the response is likely to vary in accordance with the bottom-line performance of the company. This is unfortunate, because what such uncertainty signals is the inability of organisations to understand the value of their salespeople and fully utilise them for a whole spectrum of activities. Perhaps because people do not naturally empathise with these obscure egomaniacs, in most firms the salespeople tend to be left on the fringes of the organisation, with the clear instruction that their job is to create revenue. This emphasis only makes the situation worse, and the salespeople more arrogant and alienated, which in turn leads to further feelings of detachment from the rest of the firm. And ultimately, all this negative sentiment impacts the all-important bottom-line. (How many sales people usually end up leaving organisations, burned out or just plain pissed off?) But the smart organisation sees what motivates its sales people and what added value they offer the firm.

Untapped Knowledge Resource

The sales force is perhaps the largest untapped knowledge resource in an organisation. In large part this is because of the above, but organisations are also sceptical about the agendas salespeople hold in presenting any kind of unbiased analysis. To some degree the scepticism is justified; most of these individuals are, after all, in some way or another rewarded directly for quantity of delivery. But equally, these are the people who are talking to the organisation’s customers every day. They usually have a far better grasp of what customers want than any marketing survey (a real pet hate of mine) or even worse, demographic projections chart can offer. Even in more complex value chains, the salespeople are talking to the suppliers who are talking to the end consumers every day: it follows logically that they are the ones in the organisation who damn well should know the customer better than everyone else.

Salespeople usually end up with a broader knowledge of the product/service specifications in an organisation, too, because of the requirement implicit in their job descriptions to know such things. Add these two things together and as a manager you get the best part: your salespeople are nearly always the ones in an organisation that know what the customers like about your products and what your customers don’t like about them, what features they derive massive benefit out of, and which ones they don’t use at all.

What’s more, salespeople are, contrary to popular scepticism, usually only too happy to help out. A salesperson likes nothing more than to be called in to help out with something other than bottom-line issues. OK, so there are some organisations that use their salespeople in applications other than pure revenue-generation, but I have yet to see one that really “gets” the value of these individuals at every stage and process of the firm’s strategic analysis. What company, for example, pulls the top sales guy into a meeting on accounting in order to asses whether a certain cost is really necessary at all or to come up with ideas as to what other functionalities the cost represents? Maybe R&D departments in organisations work more closely with salespeople these days, but it’s still uncommon to see a sales girl from the front desk attending meetings on product design and specification and contributing usefully.

Organisations might save fortunes on hiring overpriced consultants just by asking these nomads a few simple questions. They are usually the lonely plane guidebooks to an organisation, because to succeed at what they do they have to be.

OFEX musings

“Know your customer” has to be the oldest rule in the book. Who buys your product? What are the reasons your customers buy your products? And how do you make them keep coming back? Twenty-five years ago, the now infamous management consultant Tom Peters co-authored the revolutionary bestseller In Search of Excellence, in which these were the very focus of his criticism of big companies in the United States. In this magnus opus, Peters’ number two “rule” was Staying close to the customer.

One thinks on the face of it that perhaps Simon Brickles might be tempted to pick up a copy of In Search of Excellence. When one considers the all-too-often overlooked fact that Ofex was launched in the same year that the Alternative Investment Market was formed, the discrepancy between the two markets is startling. Admittedly the bulk of Ofex’s evolution has absolutely nothing to do with Mr. Brickles, who only joined to head up the flailing market late last year, but one does have to consider why AIM seemed to get it right and Ofex, by comparison, has seemed to get it so badly wrong, in exactly the same timeframe.

And contrary to popular investor opinion, the answer does not entirely lie with J P Jenkins. In fact, under J P Jenkins’ guidance, the market has experienced some of its best years, and although this has more to do with the macro-economic “tech hype” of the late twentieth century, this still has to be considered in relation to the dismal passing of its predecessor, the Unlisted Securities Market, which failed even in the bull market of the 1980’s to make any relevant kind of impact. The big question is: why are the majority of investors still looking for an AIM listing as an ultimate exit strategy, and is this sentiment justified? And, if justified, what are Ofex to do to reverse this sentiment?

            

Unfortunately, this is where the argument becomes somewhat complex, and is hopefully one which the chiefs at PLUS Markets are asking themselves right now (if not, they certainly should be!) Yes and No, is the answer. Investor apathy towards Ofex stems from, by and large, one very prescient concern: liquidity. And this is precisely the concern that Mr. Brickles has been attempting to address since his appointment to the helm of Ofex. And his track record speaks for itself: as one of the key founders of the Alternative Investment Market, he succeeded beyond all expectations (especially considering that at the time, the UK had yet ever to establish a small company market with any kind of real regular market size) in creating the first UK small cap “trading” environment. By proactively approaching potential market makers to get involved with Ofex, by increasing the public prominence of the listings through simple old-fashioned relationship building with the City Corporate Finance houses, Brickles has made a great start. But the problem remains for many investors: Ofex is still illiquid.

In an obvious sense, the investors are justified: the only real reason one makes an investment in the first place is to realise a capital gain, and a gain cannot be realised in a marketplace where there is no demand for the investment. But more astute investors have been picking up on this dearth of interest through the lack of liquidity lately, and seeing there is more than one way to make a capital gain other than in selling shares in the “open market”. As the Private Equity market has begun to swell, Ofex has increasingly begun to look to some like a bargain basement for undervalued private equity companies, where due to the short term whims of irrational investor psychology there are, literally, twenty pound notes lying around waiting to be picked up. Take Vicorp, a recent issue from St. Helen’s Capital. With the prospective sales pipeline and what looks like a steal on future revenue, the company for many investors represented a steal in the early hundreds.

            

So Ofex now has another headache on its hands. Is it a “platform” for private equity opportunities or is it attempting to become a “speculative” traders’ marketplace, where the day-trader will ultimately be able to buy and sell with no fear of sitting on an unrealisable asset, no matter what the theoretical capital gain?