Left of Centre - Fuel Inflation to Eliminate Debt

Many economists, analysts, financial advisors and consultancies are providing existing and new means to solve the US debt issue. One more left field approach is to target GDP. Undertaking this explicit way to raise inflation help raise nominal GDP to 4-5% from the paltry 1.0 at the second quarter of 2011. To do this the Federal Reserve would have to take Quantitative Easing to another new found level - that is, printing an abundance of more money. Recent posts on this site, believe QE3 would not work. That is, because consumers never saw much of the QE1 and QE2 attempts to kick-start demand and growth. 


As it stands, the US nominal GDP is plateauing. If it falls, then the US have a big problem, and debt will cause far more grief. Whilst right now there is no major Fed movement to have such a mindset change to their policy. Ben Bernanke's recent speech indicated that there is many more places to move should things continue to burn out...quite possibly this new approach could be on the agenda in months to come. At the end of the day the US Fed needs to look at all avenues, but one thing is for certain - money needs to be channelled through to those that will do the spending. 

Western Europe - Tangibly Beautiful, Balance Sheet Unfathomable

The clamour for bailouts of various kinds grows ever louder around the world. Governments around the global are looking to bailout countries from their sovereign debt. Pleas are being shrieked to protect investors and creditors. 


Unconditional bailouts as per 2008 are not the answer. Keynesian economics believes we should succumb to transparent losses, and develop new regulatory frameworks that prevent governments and businesses sinking so deep into debt-riddled quagmires. Regulations should restructure too-big-to-fail organisations into smaller organisations. Liquidation of firms should not be feared. These are big statements, ruthless ones, but ones where future leaders of governments and organisations should take heed of. 


Europe is most definitely “on the brink” of a serious economic crisis that could involve widespread defaults or significant inflation or both. At the same time, Bank of America shares this week fell to their lowest in two years; with other large banks under pressure, there is a legitimate fear of rerunning the parts of the financial crisis of 2008-9.


For Europe, a beautiful region the envy of every other continent to travel and be submerged in esethicism, is confronted with deep crisis with potential cataclysmic effects.  As recently as 2008/09, there were three kinds of government support available to the American and European economies when such systemic financial trouble hit. But all three traditional forms of bailout are now much harder to pull off.


1. First, over the last 30 years interest-rate cuts and other forms of expansionary monetary policy became standard practice in the face of potential financial market disruption. Therein lies a problem. The globes interest rates have been slashed since 2008 in most crises-laden parts of the globe. Despite the The European Central Bank (ECB.) has room to cut rates — but both the ECB and the Federal Reserve fear that inflation may soon return. If inflation returns due to prices soaring, yet people not spending, it falsifies the whole rationale of interest rate cuts. 


2. Second, after the initial monetary policy response in 2008, it was fiscal policy that took the lead in preventing global economic free fall — with significant attempts to provide countercyclical stimulus in the United States, much of Western Europe, and China. Now the european zone faces a series of fiscal crises. Further stimulus is out of the question — the issue in Europe is who will do what kind of austerity and how fast.

3. Third, in 2008/09, monetary and fiscal policies were complemented by government capital injections directly into United States and European banks. New legislation introduced has made this harder to achieve and with recent commitments by Congress to seize injections of cash without consequences. 

Therefore the worst financial-sector problems are in Europe. Countries are stricken with immense debt that is not repayable without austerity from the entire European region. The problem with this region is they recently did not include default events in 2010 in their stress testing of financial health that now appear inevitable. Such mismanagement is no coherent financial sector policy within the euro zone.

What are the policy options now? The people in charge of European policy would clearly prefer to do nothing or postpone dealing with the underlying issues. This is a bad idea as it puts markets in charge — and these markets are panicked.

The Europeans have to decide, once and for all, which governments will restructure their debts and which will be protected — to an unlimited degree — by the European Central Bank. A full-scale bank recapitalisation program is required, along with management changes at almost all major European financial institutions.

If the Europeans fail to get a grip on their economic situation, the cataclysmic financial crisis might start impacting on the tangibly beautiful.

The globe is screaming Bear Market - This is not just over-reacting markets

Media coverage is running rampant, markets are taking a hammering, yet recovering, sovereign debt is sky high, yet many Government's keep highlighting the markets are just over-reacting from scar tissue from 2008. However the globe is screaming bear market. 


Now incredibly, nearly three years later and in spite of central banks and powerful governments taking unprecedented and historic measures to right the global economy, we find ourselves steadily drifting toward the white water of another financial waterfall.


1. Standard & Poor’s downgraded, rightly or wrongly, the U.S. credit rating with a negative outlook. Over the medium term, this can’t be good for equities markets or corporate profits as confidence has been damaged, interest rates will very likely rise, growth will probably slow and all of this could work together to easily tip an economy that grew at just 0.8% in the first quarter into a double-dip recession.


2. China pounced on the U.S. downgrade, but things aren't so rosy for the dragon either, as its economy slides into contraction, according to a recent purchasing-managers index from HBSC that came in at 49.3 for July — a level not seen since the end of the financial crisis in March 2009.


3. Italy and Spain continue their convulsions, so strong and persistent that an emergency weekend phone meeting was called among European leaders, a couple of whom had to interrupt their near-sacrosanct August vacations to attend. German investor sentiment and PMI are also in decline, and a slowing German economy can only add to the already dour outlook for the once-shining euro and the global economy.

4. Economic reports at home continue to be dismal and clearly indicate a slowing second quarter on top of a razor-thin, first-quarter growth rate that makes for a difficult math problem to come out with a positive bottom line for the second half of 2011.


Global Government's need to take action, rather than 'out-skirt' economic management and realise traditional principles of economic policy and management have failed miserably. Highlighting markets over-reacting is a cop-out and proper economic management is a MUST

Regardless of the Organisation's design - speed and efficiency is paramount in lean times

Functional, Divisional, Matrix, Networked, Cluster, Process, Geographic, Customer-back, Life-Form structures all exist in some shape or form in many organisations. Many C-Level executives mandate consultants or HR divisions to develop a new structure. The problem is a new structure is just a new structure. The key for organisations is to come up with a new design that will achieve the following objectives:

• Is the organisation capturing the necessary sources of competitive advantage in each market it participates in?
• Is the corporate core helping the market-facing business units rather than impeding them achieve their objectives and important financial metrics?
• Does the organisation capture the strengths, motivations and weaknesses of its talent?
• Does it facilitate different cultures across different parts of the business i.e. regulated division vs. unregulated?
• Does the organisation provide coordination for unit-to-unit links that are likely to be problematic?
• Does the organisation enhance efficiency, effectiveness?
• Does the organisation equip the organisation to maximise revenue and profits, whilst containing cost bases?
• Does the design of the organisation drive effective governance and control systems?
• Is the organisation designed to adapt to rapid change requirements in strategies enforced by external markets?
• Does the organisation reflect the complexity of markets and industry relationships whilst being sufficiently straightforward for stakeholders to understand and optimal work with and co-exist?

Answering these questions will assist leaders as they search for ways of increasing the speed, flexibility, integration, and innovation of the organisation - without losing control of it. C-level and senior leadership need to not turn first to the organisational structure, despite being an easy thing to do. Rather thinking what structure does the organisation need, leaders need to ask what operating model and organisation design will help achieve speed, efficiency and adaptability to change in a turbulent market.

Re-cutting and restructuring budgets - Don't forget Social Media

Now is the time for learning professionals to embrace social media as an emerging and engaging way to enhance an organisation’s strategy. A confluence of issues, both mitigated and unmitigated, has arisen over the past several quarters. Budget cuts, staff reductions, travel embargos, and facility consolidation have left many chief learning officers, chief marketing officers, and chief operations officers clamouring for the emergency brake. Add to this the rising inferno of social media, informal learning, and anything to do with a 2.0 moniker—and a full-blown learning crisis is existing for improving learning for employees, marketing with intent for customers, and expending the right energy on retention and acquisition of customers whilst providing your core operation.

Given this pending calamity, it’s time for business leaders to rethink their strategy to make enterprise 2.0 an important piece of the corporate spectrum if you want to stay ahead of the game. Leaders should be embracing it, but it does require new approaches in leadership and budget planning to successfully execute, rather than simply tightening the purse strings on conventional marketing, learning, operations. This spend should be transitioned to enterprise 2.0 spend.

More with less

Despite recent and modest gains in the economy, the latest US credit downgrade, Europe sovereign debt crisis and general contraction globally, training budgets are going to plummet. It always does in firms when budgetary pressures rear their ugly head. During these times executives preach to senior managers and senior managers preach to middle managers to do “more with less” is. No matter the study, training, traditional marketing, service budgets have been and continue to reduce or run flat. Whilst social media marketing budgets might be increasing, organisations are showing a tendency to transition traditional forms of marketing professionals into this field. The problem with this is the professionals have distinctively different skill sets.

In a 2009 IDC report, training budgets decreased on average by 19.5 percent. ASTD research also suggests that corporate learning investment, as a percentage of company payroll, has decreased from 2.24 percent in 2008 to 1.96 percent in 2010. Clearly, a fiscal pattern is emerging and corporate learning budgets are running flat or, worse, dramatically shrinking.

Furthermore in the downturn from 2008 to 2010, service budgets have been slashed, with talent being let go, downsizing conducted with broad brushes. Refocusing service efforts into the social media channel would likely offset any need to downsize.

Enter Enterprise 2.0

Given the meteoric rise of social media in the consumer space, it was only a matter of time before various 2.0 technologies surfaced within the organisation. Not only is it crucial that organisations embrace social media to understand consumers, companies need to restructure for social media, particularly within marketing, customer analytics, and business intelligence groups. It is a whole of business paradigm shift, not just required to lazily go where the interest is. Furthermore it should not be viewed as a time wasting tool.

This is where the concept social learning comes into play. Social learning can be thought of as the use of Enterprise 2.0 opportunities and technologies to help facilitate the learning experience of employees. Blogs, wikis, micro-blogging, YouTube-like video sharing, tagging, ranking, virtual worlds, discussion forums, and generally any other form of user-generated content (for learning, communication, and marketing) are both practical and engaging ways to complement the learning strategy of any organisation. Enterprise 2.0 opportunities are no longer just to socially connect with friends. It mines real-time information, sources real-time preferences and drives understanding of new trends to reshape an organisation’s capability around to drive financial and organisational performance.

Social media and enterprise 2.0 within organisations is essential to capability building and transforming talent from point A to B, finding the next best product, building a consumer-fellowship, distributing product and services via new channels. Gartner predicts that by 2014, social learning-like services will actually replace email as the primary communications vehicle for at least 20 percent of the workforce. Clearly, change is upon us all. Therefore, if planned correctly, social media and appropriate mobilisation of capability can not only help with the points of practicality and engagement, it can also assist those aforementioned budget problems.

Restructure for Enterprise 2.0 – starting at the top

Prior to solving the budget issue, organisations need to structure and build an organisation that can leverage social media for it’s multitude of purposes: learning, marketing, product development analytics, and customer understanding. Organisations need to develop an organisation within the organisation focused on enterprise 2.0. Regardless what industry the organisation plays within, social media implications exists. For fast-moving consumer goods companies – customers want the latest deal, and want to know where, via a social media means. Conversely, the company wants to know consumer preferences to develop new products and augment existing ones. What better way to understand this through the enterprise 2.0 social media ‘like’ functionality permeating the online world now. Share of wallet has never been so crucial for banks, and customer churn is the death spiral – financial services firms need to leverage social media to look at methods to cross-sell, bundle products, to the savvy social customer. Energy companies need to educate about environmental footprints, customer awareness on energy usage, help their communities with demand management – channelling this through to the mass market via social media is a must to have a hard-hitting impact.

Nevermore has the matrix structure been more pertinent in building a social media organisation within the construct of an existing organisation. Social media and enterprise 2.0 capabilities need to permeate almost every function of the organisation. Hence the social media operation needs to be virtual. A word that is synonymous with this capability. These professionals with dedicated functional expertise be it marketing, customer analytics, business intelligence, ICT, or sales and operations, need to work across the traditional forms of the organisation yet act as a remote community to bring the organisation on the Enterprise 2.0 transformation. This is what the construct could look like:

Example Enterprise 2.0 Organisation Blueprint - Investment is required for all industries today

But where is the ROI?

There are plenty of individuals within the Enterprise 2.0 space who are not yet on the train. Before hopping on, as is customary to the social vertical itself, leaders need to prove its worth. Babson Education, in the report Social Software in Business, estimate that 84 percent of organisations do not measure return-on-investment when it comes to the use or implementation of social technologies such as wikis, blogs, user-generated content and videos, discussion boards, microblogs, ratings, chat, and others. Quite simply, those organisations already subconsciously investing in social media aren’t yet interested in return-on-investment; although C-level executives and senior management paradoxically highlight they are interested in connecting employees, improving engagement, and allowing the learning and knowledge sharing to naturally occur in more effective and efficient ways.

Did the sales team wait for an ROI calculation before trying to get a leg up on the competition by offering a differentiated product or service? No, it just made sense. Social media, in this case, is analogous to investing in something new and it must start strategically and organisationally. It’s time to evade those budget cuts and begin investing in an area that will only show growth for years to come.

Does Corporate Culture impact P+L performance?

Organisations are forever looking at corporate culture. Trying to improve it, before have a solid taxonomy or understanding about what it actually is. For organisations to capitalise on culture and translate it to organisational performance a direct link needs to be made about company culture and the impact it can have on long-term economic performance.

Strong cultures facilitate adaptation to economic change and turbulent environments. However can culture foster better or stronger financial results? Is there direct profit and loss impact achieved from a type of culture. For organisations that want their culture to positively and tangibly impact financial performance, the key is to embark on performance-enhancing culture change programs. Many mistakes organisations take is that they address the intangible, emotive language without having a direct correlation back to the hard tangible measures of a business in the form of performance KPIs, compensation systems. Executives asking their companies to change the intangibles because it’s the moral high-road will lead to failure and exhaustion of companies, divisions, functions, teams and employees. If culture is directly linked to the hard quantitative measures for companies, divisions, functions, teams and individuals then it becomes more real and the direct cause-and-effect on a balance sheet and profit and loss can be linked.

One standout Exhibit in that book highlights the difference in results over an eleven year period between twelve companies that did and twenty companies that did not have this sort of culture.

	Average Increase for Twelve Firms with Performance-Enhancing Cultures	Average Increase for Twenty Firms without Performance-Enhancing Cultures
Revenue Growth	682%	166%
Employment Growth	282%	36%
Stock Price Growth	901%	74%
Net Income Growth	756%	1%

Table 1: How culture impacts financials - Corporate Culture and Performance

The above table highlights that a performance enhancing culture drive equity value over 900%. Of course there are many other contributing factors that drive performance, but the difference between the four financial ratios in Table 1 are enough evidence, that organisations need to bring quantitative tangibility when driving culture. Executives and HR professionals need to roll up the sleeves and do some ‘heavy lifting’ in linking cultural performance directly to KPIs that track performance of employees, teams, divisions and codify these metrics with hardwires to financial performance. Otherwise employees will just continue to roll their eyes when an unrelated culture initiative is force-fed without any direct link to the very fabric of what the organisation stands for: its core operation and financial performance.

Designing your new organisation from scratch...Operating Model perspective

Organisations can’t succeed in business without an operating model that delivers value to customers at a reasonable price, with an underlying cost that allows you to make a profit. There are no “shortcuts” – for example, very few businesses thrive just because they offer the latest technology, or the new fad, except maybe Facebook etc. 

This should seem logical for entrepreneurs, investors, venture capitalists, but what about organisations looking to reinvent themselves in tough times. Many investors have war stories  about startup funding requests with major business model elements missing. This often leads to many common failures, as the solution is just looking to solve the problem, whilst giving away the product. This is why devising an business and operating model is so crucial. 

Organisation's looking to reinvent need at least seven of the following ten principle elements to renew their organisation to capture new sources of value and revenue from customers. This is fundamental before an organisation embarks on a radical restructuring, talent renewal, performance overhaul without having the end-game designed and detailed. These elements are: 

1. Value proposition. What is the need you fill or problem you solve? The value proposition must clearly define the target customer, the customer’s problem and pain, your unique solution, and the net benefit of this solution from the customer's perspective.
2. Target market. Who are you selling to? A target market is the group of customers that the startup plans to attract through marketing and sales their product or service. This segment should have specific demographics, and the means to buy your product.
3. Sales/Marketing. How will you reach your customers? Word-of-mouth and viral marketing are popular terms these days, but are rarely adequate to initiate a new business. Be specific on sales channels and marketing initiatives.
4. Production. How do you produce your product or service? Common choices include manufacturing in-house, outsourcing, off-the-shelf parts. The key issues here are time to market and cost.
5. Distribution. How do you distribute your product or service? Some products and services can be sold and distributed online, others require multi-level distributors, partners, or value-added resellers. Decide whether the product is local or international.
6. Revenue model. How do you make money? The key here is to explain to yourself and to investors how your pricing and revenue stream will cover all costs, including overhead and support, and still leave a good return.
7. Cost structure. What are your costs? New entrepreneurs tend to focus only on product direct costs, and underestimate marketing and sales costs, overhead costs, and support costs. Test your projections against actual published reports from similar companies.
8. Competition. How many competitors do you have? No competitors probably means there is no market. More than ten competitors indicates a saturated market. Think broadly here, like planes versus trains. Customers always have alternatives.
9. Unique selling proposition. How will you differentiate your product or service? Investors look for a sustainable competitive advantage. Short-term discounts or promotions are not a unique selling proposition.
10. Market size, growth, and share. How big is your market in dollars, is it growing or shrinking, and what percent can you capture? Venture capitalists look for a market with double-digit growth, greater than a billion dollars, and a double-digit penetration plan.

Investors, shareholders, employees and even customers, will want to understand the business and operating models of the organisation as it embarks on renewing itself. Admittedly they will want to understand from different vantage points, but nonetheless they all have the basic denominating question. Where is the value in it for me from my vantage point? 

As organisations look to renew, stabilise, strengthen or just plain survive in this contracting economy, they must change their business and operating model, because knee-jerk changes like cutting off their face despite their nose. These principles just might help organisations with the how....