Greece and the European Union

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All the talk about Greece and the European Union (EU) of late has reminded me of my vehement dislike of monetary unions such as the EU. Sure there could be many benefits to having a monetary union provided one could be implemented effectively but to implement an effective monetary union is akin to implementing a utopian society – an endeavour that is doomed to fail!

Like the concept of a utopia, a monetary union such as the EU is supposed to provide its constituents with an environment where everyone can thrive; a pact where people can live, work, and operate internationally without the frictional cost that usually comes with cross border dealings. In effect, a monetary union is like the amalgamation of all the constituent countries to form one big united country where people and businesses of the constituent countries are free to move and operate anywhere within the union as though they are moving and operating within the same country.

However, the benefits of a monetary union are not without their costs. In particular, one of the most significant costs of a monetary union is that each country gives up their control of monetary policy to a central body within the union. While this is a necessary requirement for a monetary union, without which parity in the common currency between the constituent countries cannot be attained, it also severely limits the tools available to each country for the management of their economy.

If the monetary union is effective, this is arguably not a problem. However, for a monetary union to be effective, a number of conditions must be satisfied, as put forward by Robert Mundell in the 1960s – trade integration, similarities in industrial sectors, and flexibility and mobility. Put simply, the countries in a monetary union needs to be more or less equal so that the effects of any shocks or stimulus to the union has the same impact on all countries in the union. However, given the deep-rooted inherent differences between countries, satisfying these conditions required of an effective monetary union is extremely difficult, if not impossible.

Considering the above, it is not surprising that the EU, or rather parts of the EU, is struggling to recover from recent economic crises. Fundamentally, the issue is that the inherent differences between the countries in the EU are making it difficult for the conditions of an effective monetary union to be satisfied. And given individual countries no longer have access to their own monetary policy to influence their economy, they are reliant on the European Central Bank’s (ECB) monetary policy to drive changes in their economy. However, given the differences in each country, the effect of the ECB’s monetary policy on each country will be different. As such, some countries will gain and some will lose from any monetary policy stance that the ECB adopts – and at this moment in time, Greece appears to have everything to lose and nothing to gain from the monetary policy stance of the ECB.

However, all is not lost with for Greece. While it does not have access to monetary policy to dig itself out of its hole, it still has some levers such as fiscal policy to influence its economy. The question is how far is Greece willing to go with its fiscal policy to influence its economy? Judging by its resistance to its creditors’ demands, which are effectively demands on Greece to alter its fiscal policy, the answer is likely not very far.

So, what does all this mean? It goes back to my earlier point that trying to implement an effective monetary union is akin to trying to implement a utopian society – an endeavour that is doomed to fail! If you ask me, I’d rather have the ability to influence my economy as I see fit than to have my hands tied behind my back for the opportunity to get a piece of the largely illusory benefits of an idealistic monetary union.

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Are smart watches a threat to the luxury swiss watch industry?

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Much has been said about smart watches recently. In a recent poll asking if people already had or planned to buy a smart watch, the overwhelming response was “yes”. Naturally, for the business minded, this then raises the question as to wether this will pose a threat to the Swiss watch industry.

Many arguments have been put forward on this, with debaters drawing comparisons to past experiences, such as how digital watches almost wiped out the analogue watches. However, most people, especially the luxury watch industry, still believe that luxury watches will continue to stand the test of time.

The reason why many people think luxury watches will survive is that luxury watches are fundamentally different to smart watches. While they both tell the time, smart watches are more about functionality while luxury watches are more a jewellery.

However, I take a slightly different view on this. To me, the question is not whether one type of watch will replace the other, but whether once device will replace the other. Watches are traditionally used to tell the time, which was why both digital and analogue watches were able to co-exit; they both do essentially the one key thing that people need but in a different way. One does it in a functional way while the other does it in a way that allows the watch to double up as a jewellery.

But when it comes to smart watches, the key functionality might no longer be to merely tell the time. Currently, smart watch development is only at a nascent stage but a little imagination could illuminate endless possibilities on what future smart watches can do. So given our limited wrist space, what will we want to put on our wrist in the future – an expensive piece of jewellery that can tell the time or a piece of technology that gives us more information than just the time and can allow us to control more than a stop watch?

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What motivates you?

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The results of my employer’s annual Employee Promise Survey (those employee satisfaction type surveys) were released recently. Typical of the routine that was followed in previous years, teams gathered together to discuss the results and what could be done about them. My team’s version of this discussion took place informally today and the focus was on what the company could do to motivate us.

Invariably, the responses revolved around employee benefits; things such as team away days, social events, recognition rewards, and not least pay. This got me reflecting on the lengthy and, at times, heated discussions that we had as part of the Organisational Behaviour module in my MBA. Academic literature, such as the work of Frederick Herzberg, suggests that pay and other benefits-related factors do not really contribute much towards increasing motivation; Herzberg referred to these factors as hygiene factors. Instead, factors that relate to the intrinsic nature of the job, such as recognition for a job well done, opportunities to learn and develop, and being involved in challenging and interesting work, are what leads to improved motivation; Herzberg referred to these as motivators.

Herzberg’s work is based on Maslow’s hierarchy of needs (see diagram above), which suggests that human needs follow a hierarchy starting from needs that relates to one’s survival and well being, and eventually to one’s self-actualisation. As these needs are hierarchical, satisfying one’s higher level needs before the lower level needs are satisfied does little for the individual. In a work context, the importance of this is that unless people are safe and well, they will not be motivated to perform well on their job. Intuitively, this is because they will be too pre-occupied with trying to satisfy their need for safety and well being to care much about their work. Herzberg’s hygiene factors are the factors that contribute to satisfying people’s lower level needs in Maslow’s hierarchy of needs, while Herzberg’s motivators are the factors that contribute to satisfying people’s higher level needs.

From this perspective, benefits such as pay merely go towards satisfying people’s need for well being. As long as they are paid enough to live well, they will be satisfied. Paying them more might improve their well being but since their fundamental need for well being is already satisfied, the increased pay and improved well being is of a lesser importance to them. Instead, what is more important to people is the satisfaction of the higher level needs in Maslow’s hierarchy of needs; things such as social interaction, recognition, and advancement opportunities.

Many people argue against this theory that downplays the importance of pay. The most common arguments used are “would you still come to work if your pay got halved?”.This association of pay to motivation is the subject of much organisational behaviour research and many arguments have been put forward for why this is the case. The one that I like most is that pay is one of the few, if not the only, tangible and quantifiable factors that companies can use to satisfy people’s need for recognition. In this sense, pay is used as a motivator not because it satisfies people’s need for money, but as a way to satisfy their need for recognition. One way of seeing this is to answer the question “would you stay in your current job if your pay is doubled but your role is changed from that of a divisional manager with thousands of direct reports to cleaning the toilets?”. I suspect the majority of you would say no and those who say yes would likely end up regretting it.

I’m sure many people would disagree with my views on this, just as the views on this were divided in the Organisational Behaviour module. I also acknowledge the many limitations of the theories discussed here. However, I stand by my views and believe that if the suggestions in my team’s discussion were taken seriously and implemented, then the only outcome would be that there would be a lot more wealthy people in my team but none that are any more motivated!

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Understanding consumer behaviour

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It’s fascinating travelling the world and seeing how some businesses flourish in some countries and not in others. I just came back from a weekend break to Salzburg and was amazed to find people there having cakes and other “dessert” food for breakfast. For me, cakes are usually associated with afternoon teas and desserts but never breakfast. This is not to say that it’s wrong to have cakes for breakfast but I guess most people, at least those that I know, have not warmed to that idea.

What is interesting from this, however, is how people can have such different tastes and preference. If we can understand where this difference comes from and how we can develop these preferences, then no doubt that will be the key to unwordly business success! Until then, I guess businesses will be prone to people’s taste and preferences.

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Apple’s success

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“You can’t just ask customers what they want and then try to give that to them. By the time you get it built, they’ll want something new” – Steve Jobs

Much has been said of Apple’s success, not least by Professor Heracleous of Warwick Business School, who wrote the 2013 ECCH Case Award’s Overall Winning Case – Strategic Leadership and Innovation at Apple Inc, as well as a very interesting article in the first edition of the WBS Core magazine, where he argues that Apple’s magic will stand the test of time. In particular, Professor Heracleous notes in his WBS Core article that Jobs has embedded in Apple the ability to simultaneously innovate in product development and operate at an industry leading efficiency level, two performance objectives that are contradictory and hence typically unattainable. This achievement, Professor Heracleous argues, provides Apple with a competitive advantage that is sustainable, at least in the medium term.

While the product innovation and operational efficiency advantages that Apple has are significant factors in Apple’s success, I would argue that they alone do not drive Apple’s success. What is missing from this is Apple’s, or rather Steve Jobs’, marketing prowess.

Some would say Jobs is a master marketer and I agree. His comment in the quote above aptly reflects this – that you cannot simply give customers what they want and expect to succeed, but rather, you need to give them what they want before they even know they wanted it. Jobs ability to do this is unparalleled.  While many have copied him, none has done it as well as he has.

Breaking down Jobs’ marketing prowess into its key elements, we can see why he was such an effective marketer. First, Jobs’ success lies in large part with his ability to redefine products to better satisfy customers’ needs. He redefined mp3 players with the iPod, mobile phones with the iPhone, portable computers with the iPad and MacBook Air, etc.

Second, Jobs’ success is also highly dependent on his ability to shield his products from secrecy before their release. This is crucial to his point that you cannot simply give customers what they want. Had people known what innovations were in Apple’s pipeline, they would have started forming expectations on what to expect from these products. In turn, this would have lead Apple to risk falling short of people’s expectations.

Finally, Jobs’ success also comes from his ability to effectively promote his products. Come launch day, Jobs would do a spectacular job of unveiling the product. Given the redefining nature of Apple’s products, which puts them in the “complex” category of product types, effective communication of the product’s features and use are of paramount importance to consumers’ acceptance of the product. To this end, no one is better at doing this than Steve Jobs. Take the MacBook Air for example. At its launch, Jobs brought on stage an A4 sized envelope from which he pulled out, to the amazement of the world, the new MacBook Air. No one would have guessed that a computer was inside the envelope! This straight away associated the MacBook Air with ultra portability and effectively communicated to the world one of the redefining features of this innovative new product.

Unfortunately, those days of marketing supremacy appears to have gone for Apple. While, as Professor Heracleous rightfully pointed out, Apple’s innovative ability and efficiency might help propel it for a while to come, Apple’s ability to ingratiate its products with its customers appears to have died down. These days, Apple’s product pipeline is not as water tight as it used to be. Products like lower end iPhones and iWatch are widely touted to be in development. With this comes much speculation on what to expect from these products and the longer it takes for Apple to deliver on these products, the more time it gives people to form wild expectations on what these products will offer. In turn, this would put these products at risk of falling short of customers’ expectations.

Let’s hope that I’m wrong and that Jobs have left behind some of his marketing magic so that Apple can still surprise us in the months and years to come!

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Kitchen sinking what’s already sunk

Kitchen sinking is, according to the wordspy website (http://www.wordspy.com/words/kitchen-sink.asp), “To announce all of a company’s bad financial news at one time” and how can any new leader of a poorly performing company resist from doing it! This was the case with Aviva. After several years of poor performance the last CEO was finally forced to resign by disgruntled shareholders. After his departure, Aviva’s new chairman took on an executive role and went about turning Aviva around. As part of that, he helped himself to a generous serving of kitchen sinking while cutting and dicing Aviva into a simpler organisation with a much reduced workforce. This seemingly pleased investors while provided employees with a healthy dose of anxiety attack.

In the meantime, a search was underway for someone to permanently take the helms of this massive ship and given the massive change that has taken place, one would expect the new ship steerer to merely steer the changed ship on its changed course. Unfortunately, the temptation of kitchen sinking is just too strong for the newly minted CEO and despite the chairman having already sunk the financials down the kitchen sink, the new CEO had to do it again and do it with authority!

First, he cut the dividend – something that the chairman said would not be touched unless absolutely necessary. Next he cut the workforce – a good 2,000 on top of the 3,000 that was cut last year. Needless to say, people were not happy!

So, could this whole turning Aviva around initiative have been handled better? I would argue yes!

In my view, Aviva’s chairman should not have taken such drastic actions before the new CEO was minted. His strategy for turning Aviva around should have been to do the bare minimum to keep the ship running and leave the joy of kitchen sinking to the new CEO. True, Aviva would have suffered a few months more but in the grand scheme of things, it would not have mattered much as all that would’ve gone down the kitchen sink and the end result, in terms of Aviva’s future performance, would have likely been the same. The only difference would like be a happy bunch of workers with the retention of some much needed talent compared to the current dismal atmosphere and the loss of some much needed talent!

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Thoughts on career and the hourglass model

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There are many things to hate about working in a consultancy but one thing that I think consultancies do much better than corporate is staff development. After all, human capital is arguably the single biggest asset of any consultancy!

During my time as a consultant, I learnt a very interesting model for career development, and that is that as you progress in your career, you follow the path of an hourglass. When you start out, you are a generalist in whatever field you do. Your work consists of doing anything that the more senior guys don’t want to do. So your experience is as wide as the widest part of the hourglass. But as you progress through your career, you need to start specialising in order to progress. You can’t be a jack of all trade and expect to climb up the corporate ladder as, simply put, there are no manager, senior manager, head of, etc position of a jack of all trade team. So those who progress are those whose skills and experience starts narrowing, just like how the hourglass narrows towards the middle. Once you’ve become the expert in your field and have reached the narrowest part of the hourglass, you then have to expand your skills and experiences further in order to continue to progress in your career. If not, you will forever be a subject matter expert (SME) and nothing more.

Arguably, making this transition is the most difficult part of your career. Unlike your progression towards the middle of the hourglass, here you need to expand through specialising in multiple areas. This is why most senior execs are transitioned through heading different areas of the organisation once they’ve been earmarked as a potential CEO.

So there you have it, an hourglass model of career development. Now, it’s all good and well to have a model to describe the process but what’s more important is to know how to make the progression. Unfortunately, this is the part that no model could explain. In my view, a successful career progression depends on a number of factors, not least luck, which is beyond anyone’s control. Think Nadal and Federer, arguably the two most successful tennis players of recent times. Had either Nadal or Federer been luckier and that one or the other did not come into existence, then the string of achievements that they would have under their names would no doubt be much longer! In the presence of uncertainty, the best that one can do to improve their odds is to have a sound strategy.

To this end, I have come to the conclusion that my best strategy is to create as much of the opportunities to progress my career as possible, rather than leaving it to luck and all the things that I cannot control. And to do that, I will need to start my own business and promote myself to those positions that I want to specialise in on my quest to conquer the hourglass!

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