On Common Sense on Mutual Funds

I recently finished reading Common Sense on Mutual Funds – New Imperatives for the Intelligent Investor – by John C. Bogle.

Below are key excerpts from this book that I found to be insightful:

Investing is an act of faith. We entrust our capital to corporate stewards in the faith—at least with the hope—that their efforts will generate high rates of return on our investments. When we purchase corporate America’s stocks and bonds, we are professing our faith that the long-term success of the U.S. economy and the nation’s financial markets will continue in the future.

To state the obvious, the long-term investor who pays least has the greatest opportunity to earn most of the real return provided by the stock market.

In my view, market timing and rapid turnover—both by and for mutual fund investors—betray both a lack of understanding of the economics of investing and an infatuation with the process of investing.

My guidelines also respect what I call the four dimensions of investing: (1) return, (2) risk, (3) cost, and (4) time. When you select your portfolio’s long-term allocation to stocks and bonds, you must make a decision about the real returns you can expect to earn and the risks to which your portfolio will be exposed. You must also consider the costs of investing that you will incur. Costs will tend to reduce your return and/or increase the risks you must take. Think of return, risk, and cost as the three spatial dimensions—the length, breadth, and width—of a cube. Then think of time as the temporal fourth dimension that interplays with each of the other three. For instance, if your time horizon is long, you can afford to take more risk than if your horizon is short, and vice versa.

Rule 1: Select Low-Cost Funds…Rule 2: Consider Carefully the Added Costs of Advice…Rule 3: Do Not Overrate Past Fund Performance…Rule 4: Use Past Performance to Determine Consistency and Risk…Rule 5: Beware of Stars…Rule 6: Beware of Asset Size…Rule 7: Don’t Own Too Many Funds…Rule 8: Buy Your Fund Portfolio—And Hold It.

No matter what fund style you seek, you should emphasize low-cost funds and eschew high-cost funds. And, for the best bet of all, you should consider indexing in whichever style category you want to include.

There are three major reasons why large size inhibits the achievement of superior returns: the universe of stocks available for a fund’s portfolio declines; transaction costs increase; and portfolio management becomes increasingly structured, group-oriented, and less reliant on savvy individuals.

Four principal problems are created by this overemphasis on marketing. First, it costs mutual fund shareholders a great deal of money— billions of dollars of extra fund expenses—which reduces the returns received by shareholders. Second, these large expenditures not only offer no countervailing benefit in terms of shareholder returns, but, to the extent they succeed in bringing additional assets into the funds, have a powerful tendency to further reduce fund returns. Third, mutual funds are too often hyped and hawked, and trusting investors may be imperiled by the risks assumed by, and deluded about the potential returns of, the funds. Lastly, and perhaps most significant of all, the distribution drive alters the relationship between investors and funds. Rather than being perceived as an owner oi the fund, the shareholder is perceived as a mere customer of the adviser.

On a closing note, on leadership:

To wrap up this litany, I put before you—both tentatively and humbly—a final attribute of leadership: courage. Sometimes, an enterprise has to dig down deep and have the courage of its convictions—to “press on,” regardless of adversity or scorn. Vanguard has been a truly contrarian firm in its mutual structure, in its drive for low costs and a fair shake for investors, in its conservative investment philosophy, in market index funds, and in shunning hot products, marketing gimmicks, and the carpet-bombing approach to advertising so abundantly evident elsewhere in this industry today. Sometimes, it takes a lot of courage to stay the course when fickle taste is in the saddle, but we have stood by our conviction: In the long run, when there is a gap between perception and reality, it is only a matter of time until reality carries the day.

A recommended read in the areas of investing and leadership.

The Self-Aware Leader

I recently finished reading The Self-Aware Leader – A Proven Model for Reinventing Yourself – by Daniel P. Gallagher and Joseph Coastal.

Below are key insights from the book, that I found to be particularly insightful:

Two important keys to leadership success are to: (1) reinvent to remain relevant and (2) make moves that are proactive, not reactive. Middle managers need to be reminded that they are the masters of their own destiny Your position in the middle affords you greater reach and access. You communicate with more players than anyone else at the table, because you are, after all, in the middle of all the action. People look to you before making their own moves and you need to do the same. Self-aware leaders grow on their own, predicting and shaping change by observing the patterns of others to influence their own patterns of behavior.

Perhaps the most important lesson of this book is that it teaches you how to leverage self-awareness in specific ways that drive professional reinvention. The guiding light for your reinvention journey is an interdependent model with three elements: the reinvention of self, the reinvention of others, and the reinvention of business.

Reinvent Self teaches you how to g;row new skills and leverage these on a larger platform on which imaginative ideas become substantive solutions. Reinvent Others teaches you how to use inclusion and collaboration as a tool for increasing the productivity of others, and therefore yourself. Reinvent the Business creates a lens for you to look at your organization, projects, and decisions in terms of profits, products, services, and people.

In the end, readers will walk away from this book with two key takeaways: a new mental framework on leadership, a functional, practical plan for putting it into practice.

Reinvention is about proactively anticipating the need to shift how you create value as a leader. It’s a way of ensuring your relevance as a leader and being ahead of the change curve. Self-awareness is what triggers you to know it s time to reinvent. There are three aspects of the reinvention model: Self: Find new skills that make you more relevant than last year. Others: Find ways to add value by helping others to be more valuable. Business: Find opportunities to upgrade the business before your competition does. Self-aware leaders know to reinvent before being asked. They take time to observe what’s needed and use that insight to adjust their leadership portfolio.

Professional authenticity is about bringing as much of your true self as is appropriate. Appropriateness should be based on what you want (not what your employer wants). Self-awareness of your professional authenticity is like brand management for yourself; you need to understand how others perceive you. Other points emphasized in this chapter include: Self-assessment on variables such as trust, rapport, and feedback from others is one method to analyzing the professional authenticity you have with others. Not bringing your true self to work will negatively influence your personal contentment with work and your ability to productively contribute. Reinvention within professional authenticity is about letting you be you—so you can be more productive and more fulfilled. You could also help do the same with others.

Embrace the fact that business literacy is leadership development. There is an extreme difference between coaching and profitable coaching. It’s no different than the difference between growth and profitable growth. One is simply more, the other is magnificent. Learning the key elements of a coaching conversation is generally simple. Define the difference between a result and a behavior, clarify how to position the conversation so the coachee owns it, and be a good listener through the process. You can use a five-step model and rectangle model or no model at all. What makes the difference between good and great coaches is that they know what drives the business and how their employees contribute. If they look at a weekly or monthly report that shows numerous productivity metrics, how do they know which one they should coach about?

Self-aware leaders know their people and their business. They make decisions every day on what and how to prioritize. If their business is evolving, leaders need to be taught how the definition of success has been altered. As the definition of insanity states, you cannot expect to do the same thing and get different results.

A quick practical read in the areas of personal development and leadership.

The Innovator’s Solution

It is hard to read any business article, blog, journal or magazine without coming across the word innovation. And while the profile of this topic has risen to prominence in the last few years, it is one that has been thoroughly studied particularly by professor Clayton M. Christensen. He is considered by many as “the architect of and the world’s foremost authority on disruptive innovation.” A few years ago, I read his seminal book in that area – The Innovator’s Dilemma, and recently I finished reading his second – The Innovator’s Solution which he co-authored with Michael E. Raynor.

Below are the key lessons from it that I wanted to share with you.

On the premise of the book:

If I wanted to start a company that could become significant and successful and ultimately topple the firms that now lead an industry, how could I do it? If indeed there are predictable reasons why businesses stumble, we might then help managers avoid those causes of failure and help them make decisions that predictably lead to successful growth. This is The Innovator’s Solution.

This is a book about how to create new growth in business. Growth is important because companies create shareholder value through profitable growth. Yet there is powerful evidence that once a company’s core business has matured, the pursuit of new platforms for growth entails daunting risk. Roughly one company in ten is able to sustain the kind of growth that translates into an above-average increase in shareholder returns over more than a few years. Too often the very attempt to grow causes the entire corporation to crash. Consequently, most executives are in a no-win situation: equity markets demand that they grow, but it’s hard to know how to grow. Pursuing growth the wrong way can be worse than no growth at all.

Can innovation be made predictable? Can it be turned into a process?

What can make the process of innovation more predictable? It does not entail learning to predict what individuals might do. Rather, it comes from understanding the forces that act upon the individuals involved in building businesses—forces that powerfully influence what managers choose and cannot choose to do. Rarely does an idea for a new-growth business emerge fully formed from an innovative employee’s head. No matter how well articulated a concept or insight might be, it must be shaped and modified, often significantly, as it gets fleshed out into a business plan that can win funding from the corporation. Along the way, it encounters a number of highly predictable forces. Managers as individuals might indeed be idiosyncratic and unpredictable, but they all face forces that are similar in their mechanism of action, their timing, and their impact on the character of the product and business plan that the company ultimately attempts to implement. Understanding and managing these forces can make innovation more predictable.

We often admire the intuition that successful entrepreneurs seem to have for building growth businesses. When they exercise their intuition about what actions will lead to the desired results, they really are employing theories that give them a sense of the right thing to do in various circumstances. These theories were not there at birth; They were learned through a set of experiences and mentors earlier in life. If some people have learned the theories that we call intuition, then it is our hope that these theories also can be taught to others. This is our aspiration for this book. We hope to help managers who are trying to create new-growth businesses use the best research we have been able to assemble to learn how to match their actions to the circumstances in order to get the results they need. As our readers use these ways of thinking over and over, we hope that the thought processes inherent in these theories can become part of their intuition as well.

On the difference between sustaining innovation and disruptive innovation and the associate strategies associated with each:

We must emphasize that we do not argue against the aggressive pursuit of sustaining innovation…Almost always a host of similar companies enters an industry in its early years, and getting ahead of that crowd—moving up the sustaining-innovation trajectory more decisively than the others—is critical to the successful exploitation of the disruptive opportunity. But this is the source of the dilemma: Sustaining innovations are so important and attractive, relative to disruptive ones, that the very best sustaining companies systematically ignore disruptive threats and opportunities until the game is over. Sustaining innovation essentially entails making a better mousetrap. Starting a new company with a sustaining innovation isn’t necessarily a bad idea: Focused companies sometimes can develop new products more rapidly than larger firms because of the conflicts and distractions that broad scope often creates. The theory of disruption suggests, however, that once they have developed and established the viability of their superior product, entrepreneurs who have entered on a sustaining trajectory should turn around and sell out to one of the industry leaders behind them. If executed successfully, getting ahead of the leaders on the sustaining curve and then selling out quickly can be a straightforward way to make an attractive financial return…A sustaining-technology strategy is not a viable way to build new-growth businesses, however. If you create and attempt to sell a better product into an established market to capture established competitors’ best customers, the competitors will be motivated to fight rather than to flee. This advice holds even when the entrant is a huge corporation with ostensibly deeper pockets than the incumbent.

On where disruptive innovation occurs:

Because new-market disruptions compete against nonconsumption, the incumbent leaders feel no pain and little threat until the disruption is in its final stages. In fact, when the disruptors begin pulling customers out of the low-end of the original value network, it actually feels good to the leading firms, because as they move up-market in their own world, for a time they are replacing the low-margin revenues that disruptors steal, with higher-margin revenues from sustaining innovations.

We call disruptions that take root at the low-end of the original or mainstream value network low-end disruptions…New-market disruptions induce incumbents to ignore the attackers, and low-end disruptions motivate the incumbents to flee the attack.

And why do executives of existing companies segment markets counterproductively?

There are at least four reasons or countervailing forces in established companies that cause managers to target innovations at attribute-based market segments that are not aligned with the way that customers live their lives. The first two reasons—the fear of focus and the demand for crisp quantification—reside in companies’ resource allocation processes. The third reason is that the structure of many retail channels is attribute focused, and the fourth is that advertising economics influence companies to target products at customers rather than circumstances.

How can this be resolved?

Identifying disruptive footholds means connecting with specific jobs that people—your future customers—are trying to get done in their lives. The problem is that in an attempt to build convincing business cases for new products, managers are compelled to quantify the opportunities they perceive, and the data available to do this are typically cast in terms of product attributes or the demographic and psychographic profiles of a given population of potential consumers. This mismatch between the true needs of consumers and the data that shape most product development efforts leads most companies to aim their innovations at nonexistent targets. The importance of identifying these jobs to be done goes beyond simply finding a foothold. Only by staying connected with a given job as improvements are made, and by creating a purpose brand so that customers know what to hire, can a disruptive product stay on its growth trajectory.

On extracting growth from nonconsumption (new-market disruption pattern):

1. The target customers are trying to get a job done, but because they lack the money or skill, a simple, inexpensive solution has been beyond reach.

2. These customers will compare the disruptive product to having nothing at all. As a result, they are delighted to buy it even though it may not be as good as other products available at high prices to current users with deeper expertise in the original value network. The performance hurdle required to delight such new-market customers is quite modest.

3. The technology that enables the disruption might be quite sophisticated, but disruptors deploy it to make the purchase and use of the product simple, convenient, and foolproof. It is the “foolproofedness” that creates new growth by enabling people with less money and training to begin consuming.

4. The disruptive innovation creates a whole new value network. The new consumers typically purchase the product through new channels and use the product in new venues.

On what makes competing against nonconsumption so hard for existing companies?

In a very insightful stream of research, Harvard Business School Professor Clark Gilbert has helped us understand the fundamental mechanism that causes the established competitors in an industry to consistently cram the disruptive technology into the mainstream market. With that understanding, Gilbert also provides guidance to established company executives on how to avoid this trap, and capture the growth created by disruption instead. Gilbert’s work, fortunately, not only defines an innovator’s dilemma but suggests a way out. The solution is twofold: First, get top-level commitment by framing an innovation as a threat during the resource allocation process. Later, shift responsibility for the project to an autonomous organization that can frame it as an opportunity.

On determining the right scope for the business:

When the functionality and reliability of a product are not good enough to meet customers’ needs, then the companies that will enjoy significant competitive advantage are those whose product architectures are proprietary and that are integrated across the performance-limiting interfaces in the value chain. When functionality and reliability become more than adequate, so that speed and responsiveness are the dimensions of competition that are not now good enough, then the opposite is true. A population of non-integrated, specialized companies whose rules of interaction are defined by modular architectures and industry standards holds the upper hand. At the beginning of a wave of new-market disruption, the companies that initially will be the most successful will be integrated firms whose architectures are proprietary because the product isn’t yet good enough. After a few years of success in performance improvement, those disruptive pioneers themselves become susceptible to hybrid disruption by a faster and more flexible population of non-integrated companies whose focus gives them lower overhead costs.

On how to avoid commoditization:

1. The low-cost strategy of modular product assemblers is only viable as long as they are competing against higher-cost opponents. This means that as soon as they drive the high-cost suppliers of proprietary products out of a tier of the market, they must move up-market to take them on again in order to continue to earn attractive profits.

2. Because the mechanisms that constrain or determine how rapidly they can move up-market are the performance-defining subsystems, these elements become not good enough and are flipped to the left side of the disruption diagram.

3. Competition among subsystem suppliers causes their engineers to devise designs that are increasingly proprietary and interdependent. They must do this as they strive to enable their customers to deliver better performance in their end-use products than the customers could if they used competitors’ subsystems.

4. The leading providers of these subsystems therefore find themselves selling differentiated, proprietary products with attractive profitability.

5. This creation of a profitable, proprietary product is the beginning, of course, of the next cycle of commoditization and de-commoditization.

A reminder that integrated companies possess a strategic advantage in their ability to respond to changes of value across the value chain:

To the extent that an integrated company such as IBM can flexibly couple and decouple its operations, rather than irrevocably sell off operations, it has greater potential to thrive profitably for an extended period than does a nonintegrated firm such as Compaq. This is because the processes of commoditization and de-commoditization are continuously at work, causing the place where the money will be to shift across the value chain over time.

The concept of core competency, which is often used to determine which part of the value chain to keep in-house, is misguiding:

Core competence, as it is used by many managers, is a dangerously inward-looking notion. Competitiveness is far more about doing what customers value than doing what you think you’re good at. And staying competitive as the basis of competition shifts necessarily requires a willingness and ability to learn new things rather than clinging hopefully to the sources of past glory. The challenge for incumbent companies is to rebuild their ships while at sea, rather than dismantling themselves plank by plank while someone else builds a new. faster boat with what they cast overboard as detritus.

To successfully build and manage growth businesses you need the right people, processes and values:

Executives who are building new-growth businesses therefore need to do more than assign managers who have been to the right schools of experience to the problem. They must ensure that responsibility for making the venture successful is given to an organization whose processes will facilitate what needs to be done and whose values can prioritize those activities. The theory is that the requirements of an innovation need to fit with the host organization’s processes and values, or the innovation will not succeed.

On managing the strategy development process:

In every company there are two simultaneous processes through which strategy comes to be defined. Figure 8-1 suggests that both of these strategy-making processes—deliberate and emergent—are always operating in every company. The deliberate strategy-making process is conscious and analytical. It is often based on rigorous analysis of data on market growth, segment size, customer needs, competitors’ strengths and weaknesses, and technology trajectories. Strategy in this process typically is formulated in a project with a discrete beginning and end, and then implemented “top down.”…Emergent strategy, which as depicted in figure 8-1 bubbles up from within the organization, is the cumulative effect of day-to-day prioritization and investment decisions made by middle managers, engineers, salespeople, and financial staff. These tend to be tactical, day-to-day operating decisions that are made by people who are not in a visionary, futuristic, or strategic state of mind…When the efficacy of a strategy that was developed through an emergent process is recognized, it is possible to formalize it, improve it, and exploit it, thus transforming an emergent strategy into a deliberate one. Emergent processes should dominate in circumstances in which the future is hard to read and in which it is not clear what the right strategy should be. This is almost always the case during the early phases of a company’s life. However, the need for emergent strategy arises whenever a change in circumstances portends that the formula that worked in the past may not be as effective in the future. On the other hand, the deliberate strategy process should be dominant once a winning strategy has become clear, because in those circumstances effective execution often spells the difference between success and failure.

On the execution of the strategy, three points of leverage:

1. Carefully control the initial cost structure of a new-growth business, because this quickly will determine the values that will drive the critical resource allocation decisions in that business.

2. Actively accelerate the process by which a viable strategy emerges by ensuring that business plans are designed to test and confirm critical assumptions using tools such as discovery-driven planning.

3. Personally and repeatedly intervene, business by business, exercising judgment about whether the circumstance is such that the business needs to follow an emergent or deliberate strategy-making process. CEOs must not leave the choice about strategy process to policy, habit, or culture.

General rules of thumbs relating to the financial management of growth businesses:

• Launch new-growth businesses regularly when the core is still healthy —when it can still be patient for growth—not when financial results signal the need.
• Keep dividing business units so that as the corporation becomes increasingly large, decisions to launch growth ventures continue to be made within organizational units that can be patient for growth because they are small enough to benefit from investing in small opportunities.
• Minimize the use of profit from established businesses to subsidize losses in new-growth businesses. Be impatient for profit: There is nothing like profitability to ensure that a high-potential business can continue to garner the funding it needs, even when the corporation’s core businesses turn sour.

On a concluding note:

Many successful companies have disrupted once. A few, including IBM, Intel, Microsoft, Hewlett-Packard, Johnson & Johnson, Kodak, Cisco, and Intuit, have disrupted several times. Sony did it repeatedly between 1955 and 1982, before its engine of disruption got shut down. To our knowledge, no company has been able to build an engine of disruptive growth and keep it running and running. That reality has made this a risky book for us to write: Few business books say “Do this; no one’s ever done it before.” But there is little choice. Creating and sustaining successful growth has, historically speaking, vexed some great managers. Given the existence of principles but no precedent, we have simply done our best to suggest how successful growth can be created and sustained. We have offered an integrated body of theory derived from the successes and the failures of hundreds of different companies, each of which has illuminated a different aspect of the innovator’s dilemma. And so we now pass the baton to you, in the hope that you will find our efforts to be a valuable foundation upon which to build your own innovator’s solution.

I highly recommend this book, as a follow-on to Clayton’s earlier work.

 

On Flow

I just finished reading Flow – The Psychology Of Optimal Experience – Steps Toward Enhancing The Quality Of Life by Mihaly Csikszentmihalyi.

Below are key excerpts from the book that I found particularly insightful:

1- “This book summarizes, for a general audience, decades of research on the positive aspects of human experience—joy, creativity, the process of total involvement with life I call flow…This book tries instead to present general principles. along with concrete examples of how some people have used these principles, to transform boring and meaningless lives into ones fill of enjoyment.”

2- “What I “discovered” was that happiness is not something that happens. It is not the result of good fortune or random chance. It is not something that money can buy or power command. It does not depend on outside events, but, rather, on how we interpret them. Happiness, in fact, is a condition that must be prepared for, cultivated, and defended privately by each person. People who learn to control inner experience will be able to determine the quality of their lives, which is as close as any of us can come to being happy.”

3- “From their accounts of what it felt like to do what they were doing, I developed a theory of optimal experience based on the concept of flow—the state in which people are so involved in an activity that nothing else seems to matter; the experience itself is so enjoyable that people will do it even at great cost, for the sheer sake of doing it.”

4- “The most important step in emancipating oneself from social controls is the ability to find rewards in the events of each moment. If a person learns to enjoy and find meaning in the ongoing stream of experience, in the process of living itself, the burden of social controls automatically falls from one’s shoulders. Power returns to the person when rewards are no longer relegated to outside forces. It is no longer necessary to struggle for goals that always seem to recede into the future, to end each boring day with the hope that tomorrow, perhaps, something good will happen. Instead of forever straining for the tantalizing prize dangled just out of reach, one begins to harvest the genuine rewards of living. But it is not by abandoning ourselves to instinctual desires that we become free of social controls. We must also become independent from the dictates of the body, and learn to take charge of what happens in the mind. Pain and pleasure occur in consciousness and exist only there. As long as we obey the socially conditioned stimulus-response patterns that exploit our biological inclinations, we are controlled from the outside. To the extent that a glamorous ad makes us salivate for the product sold or that a frown from the boss spoils the day, we are not free to determine the content of experience. Since what we experience is reality, as far as we are concerned, we can transform reality to the extent that we influence what happens in consciousness and thus free ourselves from the threats and blandishments of the outside world.”

5- “Control over consciousness cannot be institutionalized. As soon as it becomes part of a set of social rules and norms, it ceases to be effective in the way it was originally intended to be. Routinization, unfortunately, tends to take place very rapidly. Freud was still alive when his quest for liberating the ego from its oppressors was turned into a Staid ideology and a rigidly regulated profession. Marx was even less fortunate: his attempts to free consciousness from the tyranny of economic exploitation were soon turned into a system of repression that would have boggled the poor founder’s mind.”

6- “Over the endless dark centuries of its evolution, the human nervous stem has become so complex that it is now able to affect its own states, making it to a certain extent functionally independent of its genetic blueprint and of the objective environment. A person can make himself happy, or miserable, regardless of what is actually happy “outside,” just by changing the contents of consciousness. We all kn»now individuals who can transform hopeless situations into challenges to be overcome, just through the force of their personalities. This ability to persevere despite obstacles and setbacks is the quality people most admire in others, and justly so; it is probably the most important trait not only for succeeding in life, but for enjoying it as well.”

7- “Whenever information disrupts consciousness by threatening its goals we have a condition of inner disorder, or psychic entropy, a disorganization of the self that impairs its effectiveness. Prolonged experiences of this kind can weaken the self to the point that it is no longer able to invest attention and pursue its goals.”

8- “Following a flow experience, the organization of the self is more complex than it had been before. It is by becoming increasing complex that the self might be said to grow. Complexity is the result of two broad psychological processes: differentiation and integration. Differentiation implies a movement toward uniqueness, toward separating oneself from others. Integration refers to its opposite: a union with other people. with ideas and entities beyond the self. A complex self is one that succeeds in combining these opposite tendencies. The self becomes more differentiated as a result of flow because overcoming a challenge inevitably leaves a person feeling more capable, more skilled. As the rock climber said, “You look back in awe at the self, at what you’ve done, it just blows your mind.” After each episode of flow a person becomes more of a unique individual, less predictable, possessed of rarer skills. Complexity is often thought to have a negative meaning, synonymous with difficulty and confusion. That may be true, but only if we equate it with differentiation alone. Yet complexity also involves a second dimension—the integration of autonomous parts. A complex engine, for instance, not only has many separate components, each performing a different function, but also demonstrates a high sensitivity because each of the components is in touch with all the others. Without integration, a differentiated system would be a confusing mess. “low helps to integrate the self because in that state of deep concentration consciousness is unusually well ordered. Thoughts, intentions, feelings, and all the senses are focused on the same goal. Experience is in harmony.”

9- “There are two main strategies we can adopt to improve the quality of life. The first is to try making external conditions match our goals. The second is to change how we experience external conditions to make them fit our goals better. For instance, feeling secure is an important component of happiness. The sense of security can be improved by buying a gun, installing strong locks on the front door, moving to a safer neighborhood, exerting political pressure on city hall for more police protection, or helping the community to become more conscious of the importance of civil order. All these different responses are aimed at bringing conditions in the environment more in line with our goals. The other method by which we can feel more secure involves modifying what we mean by security. If one does not expect perfect safety, recognizes hat risks are inevitable, and succeeds in enjoying a less than ideally predictable world, the threat of insecurity will not have as great a chance of marring happiness. Neither of these strategies is effective when used alone. Changing external conditions might seem to work at first, but if a person is not in control of his consciousness, the old fears or desires will soon return, reviving previous anxieties. One cannot create a complete sense of inner security even by buying one’s own Caribbean island and surrounding it with armed bodyguards and attack dogs.”

10- “As our studies have suggested, the phenomenology of enjoyment has eight major components. When people reflect on how it feels when their experience is most positive, they mention at least one, and often all, of the following. First, the experience usually occurs when we confront tasks we have a chance of completing. Second, we must be able to concentrate on what we are doing. Third and fourth, the concentration is usually possible because the task undertaken has clear goals and provides immediate feedback. Fifth, one acts with a deep but effortless involvement that removes from awareness the worries and frustrations of everyday life. Sixth, enjoyable experiences allow people to exercise a sense of control over their actions. Seventh, concern for the self disappears, yet paradoxically the sense of self emerges stronger after the flow experience is over. Finally, the sense of the duration of time is altered; hours pass by in minutes, and minutes can stretch out to seem like hours. The combination of all these elements causes a sense of deep enjoyment that is so rewarding people feel that expending a great deal of energy is worthwhile simply to be able to feel it.”

11- “The same situation holds true for the artist painting a picture, and for all activities that are creative or open-ended in nature. But these are all activities that are creative or open-ended in nature. But these are all recognize and gauge feedback in such activities, she will not enjoy them. In some creative activities, where goals are not clearly set in advance, a person must develop a strong personal sense of what she intends to do. The artist might not have a visual image of what the finished painting should look like, but when the picture has progressed to a certain point, she should know whether this is what she wanted to achieve or not.”

12- “As this example illustrates, what people enjoy is not the sense of being in control, but the sense of exercising? control in difficult situations. It is not possible to experience a feeling of control unless one is willing to give up the safety of protective routines. Only when a doubtful outcome is at stake, and one is able to influence that outcome, can a person really know whether she is in control.”

13- “In our studies, we found that every flow activity, whether it involved competition, chance, or dimension of experience, had this in common: It provided a sense of discovery, a creative feeling of transporting the person into a new reality. It pushed the person to higher levels of performance, and led to previously undreamed-of states of consciousness. In short, it transformed the self by making it more complex. In this growth of the self lies the key to flow activities.”

14- “There is ample evidence to suggest that how parents interact with a child will have a lasting effect on the kind of person that child grow up to be. In one of our studies conducted at the University of Chicago, for example, Kevin Rathunde observed that teenagers who had certain types of relationship with their parents were significantly more happy, satisfied, and strong in most life situations than their peers who did not have such a relationship. The family context promoting optimal d experience could be described as having five characteristics. The first one is clarity: the teenagers feel that they know what their parents expect from them—goals and feedback in the family interaction are unambiguous. he second is centering, or the children’s perception that their of parents are interested in what they are doing in the present, concrete feelings and experiences, rather than being preoccupied with whether they will be getting into a good college or obtaining a well-paying job. Next is the issue of choice: children feel that the variety of possibilities from which to choose, including that of breaking parental rules—as long as they are prepared to face the consequences. The fourth differentiating characteristic is commitment, or the trust that allows the child to feel comfortable enough to set aside the shield of his defenses. and become unselfconsciously involved in whatever he is interested in. And finally there is challenge, or the parents’ dedication to provide increasingly complex opportunities for action to their children.”

15- “Without interest in the world, a desire to be actively related to it. a person becomes isolated into himself. Bertrand Russell, one of the greatest philosophers of our century, described how he achieved personal happiness: “Gradually 1 learned to be indifferent to myself and my deficiencies; I came to center my attention increasingly upon external objects: the state of the world, various branches of knowledge, individuals for whom I felt affection.” There could be no better short description of how to build for oneself an autotelic personality. In part such a personality is a gift of biological inheritance and early upbringing. Some people are born with a more focused and flexible neurological endowment, or are fortunate to have had parents who promoted unselfconscious individuality. But it is an ability open to cultivation, a skill one can perfect through training and discipline. It is now time to explore further the ways this can be done.”

16- “Even the simplest physical act becomes enjoyable when it is transformed so as to produce flow. The essential steps in this process are: (a) to set an overall goal, and as many subgoals as are realistically feasible; (b) to find ways of measuring progress in terms of the goals chosen; (c) to keep concentrating on what one is doing, and to keep making finer and finer distinctions in the challenges involved in the activity; (d) to develop the skills necessary to interact with the opportunities available; and (e) to keep raising the stakes if the activity becomes boring.”

17- “To realize the body’s potential for flow is relatively easy. It does not require special talents or great expenditures of money. Everyone can greatly improve the quality of life by exploring one or more previously ignored dimensions of physical abilities. Of course, it is difficult for any one person to reach high levels of complexity in more than one physical domain. The skills necessary to become good athletes, dancers, or connoisseurs of sights, sounds, or tastes are so demanding that one individual not have enough psychic energy in his waking lifetime to master more than a few. But it is certainly possible to become a dilettante—in finest sense of that word—in all these areas, in other words, to develop sufficient skills so as to find delight in what the body can do.”

18- “But for a person who has nothing to remember, life can become severely impoverished. This possibility was completely overlooked by educational reformers early in this century, who, armed with research results, proved that “rote learning” was not an efficient way to store and acquire information. As a result of their efforts, rote learning was phased out of the schools. The reformers would have had justification, if the point of remembering was simply to solve practical problems. But if control of consciousness is judged to be at least as important as the ability to get things done, then learning complex patterns of information by heart is by no means a waste of effort. A mind with some stable content to it is much richer than one without. It is a mistake to assume that creativity and rote learning are incompatible. Some of the most original scientists, for instance, have been known to have memorized music, poetry, or historical information extensively.”

19- “External forces are very important in determining which new ideas will be selected from among the many available; but they cannot explain their production. It is perfectly true, for instance, that the development and application of the knowledge of atomic energy were expedited enormously by the life-and-death struggle over the bomb between dited enormously by the life-and-death struggle over the bomb between Germany on the one hand, and England and the United States on the little to the war; it was made possible through knowledge laid down in more peaceful circumstances—for example, in the friendly exchange of more peaceful circumstances—tor example, in the friendly exchange of over to Niels Bohr and his scientific colleagues by a brewery in Copenhagen.”

20- “The bad connotations that the terms amateur and dilettante have earned for themselves over the years are due largely to the blurring of the distinction between intrinsic and extrinsic goals. An amateur who pretends to know as much as a professional is probably wrong, and up to some mischief. The point of becoming an amateur scientist is not to compete with professionals on their own turf, but to use a symbolic discipline to extend mental skills, and to create order in consciousness.”

21- “At the same time, it would be erroneous to expect that if all ill jobs were constructed like games, everyone would enjoy them. Even the mos favorable external conditions do not guarantee that a person will 1 be in flow. Because optimal experience depends on a subjective evaluation of what the possibilities for action are, and of one’s own capacities, it happens quite often that an individual will be discontented even with a potentially great job.”

22- “A community should be judged good not because it is technologically advanced, or swimming in material riches; it is good if it offers people a chance to enjoy as many aspects of their lives as possible, while allowing them to develop their potential in the pursuit of ever greater challenges. Similarly the value of a school does not depend on its prestige, or its ability to train students to face up to the necessities of life, but rather on the degree of the enjoyment of lifelong learning it can transmit. A good factory is not necessarily the one that makes the most money, but the one that is most responsible for improving the quality of life for its workers and its customers. And the true function of politics is not to make people more affluent, safe, or powerful, but to let as many as possible enjoy an increasingly complex existence.”

23- “Why are some people weakened by stress, while others gain strength from it? Basically the answer is simple: those who know how to transform a hopeless situation into a new flow activity that can be controlled will be able to enjoy themselves, and emerge stronger from the ordeal. There are three main steps that seem to be involved in such transformations: 1. Unselfconscious self-assurance…2. Focusing attention on the world…3. The discovery of new solutions.”

24- “THE AUTOTELIC SELF: A SUMMARY – 1. Setting goals…2. Becoming immersed in the activity…3.Paying attention to what is happening…4. Learning to enjoy immediate experience.”

25- “But complexity consists of integration as well as differentiation. The task of the next decades and centuries is to realize this underdeveloped component of the mind. Just as we have learned to separate ourselves from each other and from the environment, we now need to learn how to reunite ourselves with other entities around us without losing our hard-won individuality. The most promising faith for the future might be based on the realization that the entire universe is a system related by common laws and that it makes no sense to impose our dreams and desires on nature without taking them into account. Recognizing the limitations of human will, accepting a cooperative rather than a ruling role in the universe, we should feel the relief of the exile who is finally returning home. The problem of meaning will then be resolved as the individual’s purpose merges with the universal flow.”

Regards,

Omar Halabieh

Flow

On The Alchemy Of Growth

I recently finished reading the Alchemy of Growth – Practical Insights For Building The Enduring Enterprise – by Mehrdad Baghai, Stephen Coley and David White. This book was referenced during a recent CIO conference I attended.

Below are key excerpts from the book that I found particularly insightful:

1- “Growth’s transformative power is akin to the alchemy of old. Always a mystery, alchemy’s magical blend of science, philosophy, art, and spirituality held secrets that even its practitioners found difficult to penetrate. Still, they were all drawn to its alluring aim: to transform the everyday into the exalted. The pursuit of corporate growth has prompted a similar reaction in the field of management. Although excited by growth’s promise, executives are uncertain about how to capture it. Feeling ill equipped to lead a growth charge, many seek a approach that shows them how they can actually attain and sustain growth. This book is addressed to them. It attempts to arm business leaders for growth by laying out a proven practical framework for the holistic management of a growing enterprise. The ideas and approaches suggested here are applicable to businesses and business units of all sizes, in all locations. They are intended to provide guidance to all levels of business leadership.”

2- “Our research makes it clear that very few companies sustain above-average growth for their industry year after year. Indeed, some of the companies we studied have already suffered slowdowns, and we fully expect more to do so. But these setbacks do not detract ft-om the lessons to be learned from the sustained phases of growth; indeed, they serve to reinforce the need for new approaches to help executives keep growth going. Our own approach has been specifically developed to help companies grow throughout the business cycle – not only sailing through the upswings, but also maintaining growth during the downturns.”

3- “Horizon 1 encompasses the businesses that are at the heart of an organization – those that customers and stock analysts most readily identify with the corporate name. In successful companies, these businesses usually account for the lion’s share of profits and cash flow. Horizon 1 businesses are critical to near-term performance, and the cash they generate and the skills they nurture provide resources for growth. They usually have some growth potential left, but will eventually flatten out and decline. Without the support of a successful horizon 1, initiatives in horizons 2 and 3 are likely to stagnate and die. Management’s primary challenge in horizon 1 is to shore up competitive positions and capture what potential remains in the core businesses. Even when these are mature, continuing innovation can incrementally extend their growth and profitability. Traditional sales force stimulation programs, product extensions, and marketing changes can aim contribute. Restructuring, productivity enhancement, and cost reduction measures will also help maintain healthy performance for as long as possible.”

4- “Horizon 2 comprises businesses on the rise: fast-moving, entrepreneurial ventures in which a concept is taking root or growth is accelerating. The emerging stars of the company, these businesses are attracting investors’ attention. They could transform their company, but not without considerable investment. Though substantial profits may be four or five years away, they have customers and revenue, and may already generate some profit. More important, they are expected to become as profitable as horizon 1 businesses in time. Horizon 2 initiatives are usually characterized by a single-minded drive to increase revenue and market share. They need continuing investment to finance rollouts or otherwise accelerate the expansion of the business. In a few years, horizon 2 initiatives should complement or replace a company’s current core businesses. They may represent either extensions of these businesses or moves in new directions. Horizon 2 is about building new streams of revenue.That takes time and demands new skills. Without horizon 2 businesses, a company’s growth will slow and ultimately stall. A good growth company needs to have several of these emerging businesses “on the boil,” working to convert promising ideas into future earnings generators.

5- “Horizon 3 contains the seeds of tomorrow’s businesses – options on fiiture opportunities. Although embryonic, horizon 3 options are more than ideas; they are real activities and investments, however small. They are the research projects, test-market pilots, alliances, minority stakes, and memoranda of understanding that mark the first steps toward actual businesses, even though they may not produce profits for a decade, if ever. Should they prove successful, they will be expected to reach horizon 1 levels of profitability. A company that thinks it has a promising horizon 3 just because it compiles a long list of whiteboard ideas at a management retreat is fooling itself. Without deliberate initiatives to develop good ideas into horizon 3 opportunities, a company’s long-term growth prospects will fade. The options in horizon 3 are rarely proven opportunities, but they need to be promising and to have the support of management. Building successful businesses means seeding numerous options. Some will fail for internal reasons; others will fall victim to shifting industry winds. Most will never grow to become successful new businesses. Given these odds, a great deal of horizon 3 activity is needed to cover the multitude of possible futures. A company’s goal should be to keep he option to play without committing too much capital or other resources. The challenge is to nurture promising options while ruthlessly excising those with diminishing potential.”

6- “The three horizons can be used to promote growth in three ways. First, as a diagnostic tool, the three horizons can help managers assess the prospects for growth at any level in an organization and reveal possible gaps in the volume and consistency of new profit sources. Second, as a language, the three horizons approach offers a coherent way to communicate with employees and investors. Its simple terminology makes it easier for both groups to understand and discuss corporate priorities.”

7- “An excessive focus on growth can be just as much a problem as because they have failed to fill their business creation pipeline. others lose the right to grow when they become obsessed with new businesses. The novelty of these opportunities can be so exciting that managers take their eyes off horizon 1, forgetting that it must be maintained in order to provide the financial capacity to drive growth.”

8- “Another troublesome pattern occurs when companies have strong horizon 1 businesses and lots of ideas in horizon 3, but few people working to turn these ideas into real businesses. No matter how exciting the ideas may be, horizon 2 will remain empty until businesses are built. A company can find itself in an insidious situation as promising horizon 3 options lull it into a false sense of security. To complicate matters, these options can also inflate market expectations for growth far beyond the company’s capacity to meet them. As the gap between market expectations and the company’s actual growth widens, a steep fall in stock price becomes more likely.”

9- “If there are no hard and fast numbers to determine ideal balance across the three horizons, how should you define it? The standard is simple: balance means having the next engine of growth ready when it is needed. Applying the standard, however, is far from simple. The definition of balance varies from company to company. Consider the following factors: Pace of industry evolution…Degree of uncertainty…Managerial and financial capacity…Shareholder expectations.”

10- “Pruning the portfolio of businesses through divestment creates capacity for growth. Although a business unit may still be earning adequate profits, these must be weighed against the opportunity costs of management distraction and competition for resources. Management attention and other resources are often more productively focused on growth opportunities than on businesses with limited potential…Shedding unsatisfactory businesses has the added benefit of signaling strategic intent to both stock markets and employees. Conversely, not pruning increasingly irrelevant businesses can send mixed messages about a company’s direction and resolve to grow.”

11- “In our work, we have looked for ways to open managers’ eyes to hidden opportunities. To this end, we have developed a tool that we call the “seven degrees of freedom.” By systematically addressing each degree of freedom in turn. managers can learn to think more broadly about growth opportunities in their businesses.  1. How could we increase sales to the same customers with the same product mix? 2. How could we extend the business by selling existing products to new customers? 3. How could we grow by introducing new products and services? 4. How could we expand sales by developing better delivery systems for customers? 5. How and where could we expand into new geographies? 6. How much could we grow by changing the industry structure through acquisitions or alliances? 7. What opportunities are there outside existing Industry boundaries?”

12- “Companies are right to be cautious about pursuing growth initiatives. But to let due caution prevent them considering unusual ideas is foolish. Collins and Porras strike the right balance: “We’re not saying that evolutionary progress equals wanton diversification…. Nor are we laying that the concept of ‘stick to the knitting’ makes no sense. The real question is: What is the ‘knitting’ in a visionary company?””

13- “Whether the process is top-down or bottom-up is beside the point. It is not just the breadth of involvement that matters. but the breadth of the search. In the end, whatever the process used and resources deployed, finding attractive opportunities is always as much art as science.”

14- “Executives who want to develop horizon 3 options into core profit engines face two big problems: market uncertainty and gaps in their skills, assets, and relationships. We have found that successful growers typically address these problems by taking not bold leaps, but a series of measured steps. Each step takes them a little closer to their ultimate :es money in its own right, and adds capabilities that prepare them for further opportunities. When these growers look back on what they have achieved, they see not a chaotic zigzag but a distinctive staircase pattern.”

15- “No formula can substitute for managerial iudement. Even so analysis of more than 100 growth staircases reveals a consistent pattern. Virtually all successful staircases proceed in four phases: seeding the initial growth options; testing the the business model; replicating and extending the business; and managing for profitability.”

16- “Even when there is strong capability building at each step, migrating an idea from a horizon 3 option to an emerging horizon 2 enterprise and on to a horizon 1 core business is tricky. The advantage of taking many small steps rather than a few big leaps is that it helps companies manage the risks that arise on two fronts. First, market uncertainty makes it impossible to predict the success of a business: for every great idea, there are many that will fail. Second, new businesses call for capabilities that a company does not yet have; without them, the promise these businesses hold out will not be realized.”

17- “A broader definition of capability is required that includes all resources useful in gaining competitive advantage. In addition to operational skill, our definition of capability includes three other classes of resources: privileged assets, growth-enabling skills, and special relationships.”

18- “Only by differentiating their management systems across the three horizons can corporations avoid the barriers to growth that most systems inadvertently perpetuate.If all managers are evaluated purely on the profitability of their businesses – a good measure of horizon 1 performance – they will have little appetite for building horizon 2 enterprises. If some leadership time is not systematically reserved for building fledgling businesses, the needs of the core business will consume all managers’ days and nights, and they simply will not have a free moment to build horizons 2 and 3.”

19- “Horizon 1 operators: Deep functional and/or industry expertise Strong drive to hit targets and meet plans consistently, Discipline; Horizon 2 Business builders: Entrepreneurial desire to create, Comfort with ambiguity,  Top-line-focused, sharp decision makers ; Horizon 3 Visionaries: Champions, Unconventional thinkers”

20- “Our research indicates that about three-quarters of the companies that sustain high growth and high shareholder returns make acquisition a critical component of their growth strategies. They frequently acquire other companies – often up to five a year – to further the development of their growth staircases.”

Regards,

Omar Halabieh

The Alchemy of Growth

On Discovering The Soul Of Service

I recently finished reading Discovering The Soul Of Service – The Nine Drivers of Sustainable Business Success – by Leonard L. Berry.

Leonard summarizes the main premise of this book as: “My purpose in this book is to identify, describe, and illustrate the underlying drivers of sustainable success in service businesses. Creating a successful service operation is unquestionably a difficult task. However, sustaining success can be even more difficult. Services are performances, and the challenge of sustaining the performers’ energy, commitment, skills, and knowledge day after day, week after week. month after month, year after year—especially as the organization grows and becomes more complex—is daunting. The greater the involvement of people in creating value for customers, the greater the challenge. This is a book on the lessons 14 outstanding service companies teach about sustainable success. And the lessons they teach are clear indeed. Although the sample companies differ on the outside – the nature, size, and structure of their businesses—to a remarkable degree they are the same on the inside, sharing the drivers of their ongoing success.”

Below are key excerpts from the book that I found particularly insightful:

1- “Three specific challenges in sustaining success are accentuated in enterprises that create value for customers primarily through services. The more labor-intensive the services, the greater the challenges of: operating effectively while growing rapidly, operating effectively when competing on price, retaining the initial entrepreneurial spirit of the younger, smaller company.”

2- “A set of core values permeates the high-performance service companies studied for this book. These values are remarkably consistent among the companies. The values of excellence, innovation, joy, teamwork, respect, integrity, and social profit underlie the ongoing success of the sample firms. Unchanging, these core ideals, principles. and philosophies define the very soul of these dynamic companies.”

3- “Values-driven leaders continually convey by their words and actions the meaning of success. They not only make palpable the dream (where we are going, why we are going there), they define the indicators of progress (how we know we are getting there). A key factor in sustaining success is combining a compelling dream that inspires commitment with a success definition that is reinforcing rather than contradicting.”

4- “A smaller group of companies has been able to sustain high levels of service performance and continue to improve. What they hold in common is a strong set of values that tap into employees’ own core values, and a strong set of leaders who teach model, and cultivate the values. Values-driven leadership sustains the high discretionary efforts of human beings to individually and collaboratively achieve and gives root to the eight other success drivers § discussed in the remainder of this book.”

5- “Brilliant strategy is insufficient to drive sustained success. The total product that customers experience from a company is its strategy executed. A poorly executed strategy openly invites competitors to imitate the strategy, execute better, and take away the business. Excellent service companies not only have focused strategies, but they also focus on execution. They continually raise their standards of service delivery and constantly strive for perceived superiority over competitors.”

6- “Control of destiny is largely attitudinal. If sufficiently determined. companies need not relinquish control of their future to other parties. If they do not allow the lure of growth to impede operational effectiveness, if they stay totally focused on creating superior  value for customers, if they continually strive to get better than they are— companies can control their future.”

7- “Trust-based customer relationships honor these friendship rules. Excellent service companies may not have a personal relationship with their customers, but they are effective in personalizing service transactions and counteracting the anonymity that customers so often experience with companies. Relationship companies look for ways to please their customers, to do something extra or special for them, just as friends would do for one another. As in friendships, relationship companies do not take advantage of customers. They respect, honor, and trust them. They value the relationship and invest time, effort, and money in strengthening it.”

8- “Customers can teach companies how they want to be served. Relationship companies that capture and use this knowledge make it more difficult for customers to leave the relationship.”

9- “The initial days and weeks of employment offer a wide-open window for learning about the company’s values, traditions, history, strategy, customers. competitors, policies, and procedures. Like actors on a stage, service providers need to know the play; to perform their role well, they need to know where their part fits in the overall performance.”

10- “How can service companies that depend on energized, resourceful. committed people to deliver value to customers reap the benefits of smallness when no longer small? The answer lies in a blend of values-driven leadership, innovative structure, customer- and employee-focused information technology, and ownership attitudes.”

11- “The sample companies are strategic in their generosity. They not only are extraordinarily generous, they are effectively generous. Rather than giving for the sake of giving, they invest with a plan in mind, with 1 long-term goal. Rather than spreading their resources thinly in numerous initiatives, they concentrate their resources to have a powerful impact and make a meaningful difference. Rather than investing time, energy, and money outside the mainstream of their business, they invest in concert with the business’s overall purpose and strategy. Thus, generous acts not only benefit society, they benefit the company too, seating a stronger company and enabling more generous acts in the future.”

12- “Values-Driven Leadership: Humane organizational values sustain human excellence. Stable leadership stabilizes values. Values-driven leadership propels all other success sustainers…Strategic Focus: Constancy of purpose leads customer value creation. Strategic focus inspires innovation…Executional Excellence: A well-executed strategy diminishes opportunity for competitors. Attracting great people is the first rule of execution…Control of Destiny: Pursue success on your own terms…Trust-Based Relationships: Sustaining service success requires trust…Investment in Employee Success: Investing in the performer contributes to the performance…Acting Small: In services, acting small is big. High touch and high tech are mutually supportive…Brand Cultivation: Branding the company means performing the service…Generosity: Generosity drives service success.”

 

Regards,

Omar Halabieh

Discovering The Soul Of Service

CIO Perspectives

I recently read CIO Perspectives by Dean Lane (The Office of the CIO). Dean was kind enough to send me a copy, after reading his earlier work CIO Wisdom.

As with CIO Wisdom, this book is a collection of articles by various IT executives on topics of relevance to CIOs and IT professionals at large. The topics are grouped into four broad categories: Finance and Performance, Customers/External, Internal Process, and Learning and Growth. What sets this book apart is the diverse perspectives gained from the contributing authors as well as the breadth of topics covered that include the people, process and technology aspects.

Below are excerpts of key learnings from this book:

1- Guiding Principles for Successful M&A: “1) People are number one. 2) Speed is king. 3) There must be IT governance. 4) Design for scale and reliability. 5) Use common project management methodology. 6) Communicate effectively. 7) Align IT with other business function.”

2- Zero Based Budgeting: “Know the critical influencers of IT cost, keep the executive team informed and involved, be flexible, and treat your budget as a tool you use to align IT with the business.”

3- Business Immersion: “Business immersion is about learning how business functions based on your own observations and through the perspectives of your peers from within their functional areas. It involves making an assessment of the challenges and opportunities affecting each, and how this information relates to the company’s strategy and financial objectives.”

4- Software-as-a-Service (SaaS): “…SaaS could create an opportunity for IT to grow from a (seemingly) ineffective cost center to a proactive technology strategy center, from deploying and maintaining software to a service-centric entity, supporting the business goals of the enterprise.”

5- Commitment and Delivering: “IT serves two internal customers. One is the executive management (the true customer) and the other is the end users. These two customer’s needs are not necessarily aligned.”

6- Phases of Corporate Lifecycles: “1) Spark it: Building/adding short-term capacity with low investment, 2)Grow it: Creating sustainable capacity for ongoing business operation and growth, 3) Hold it: Controlling costs in the face of steady capacity use and risk avoidance, 4) Trim it: Retreating or diverting to alternate modes of operation”

7- Leadership Characteristics: “What are the hats that a CIO juggles every day? 1)  Officer: Be a full business participant 2) Visionary: Look to the horizon! 3) Technologist: Know the field and the market.4) Educator: Teach, teach them all! 5) Controller: Process and method makes it all tick and tie. 6) Executioner: Get it done or get it gone. 7) Firefighter: First responders save the day.”

8- IT Governance: “There are four categories of IT governance: 1) Investment governance…2) Execution governance…3) Operational governance…4) Organization governance.”

9- Elements of Communication: “Message…Transmitter…Receiver…Medium.”

10- Communication in Information Technology: “Communication in the business environments is critical to the success of any undertaking. Good communications cannot ensure good results, but bad communications will most certainly fuel poor results.”

11- Keys to CIO Success: “1) Understanding of the business…2) Project management…3) Customer and client relationships.”

12- CIO as Anthropologist: “The anthropological CIO reminds him- or herself that the ultimate goal is to introduce the most effective, not necessarily the most efficient, process and technology. Effectiveness is based as much on acceptability within a company’s culture as it is on best practices; the most efficient processes and technologies are ineffective if the community refuses to adopt them, undermines their implementation, or mounts an outright insurgency…Introducing change means learning about these soft aspects of the organization and navigating a course that flows with rather than against the cultural currents that travel through it.”

13- Innovation: “Innovation seems to be most recognizable as revolutionary, but it is only one of three main classifications of innovation: incremental innovation, evolutionary innovation, and revolutionary innovation.”

Regards,

Omar Halabieh

CIO Perspectives

 

 

On The HP Way

I recently finished reading The HP Way – How Bill Hewlett and I Built Our Company – by David Packard.

As the title indicate this book is about the story of Hewlett Packard as told by one of the founding partners David Packard. This book offers a corporate history of how the company started from the infamous garage into a global enterprise, but more importantly focuses on the guiding principles on which this company was built – the HP Way.

What stands out in the HP Way is the deep commitment and belief in values and principles. These radiate from the founders and affect everyone and everything at HP. The HP Way covers all aspects of operations within the company and with external stakeholders (customers, shareholders etc.) in a way that transcends time and specific technologies (see below excerpts). Almost half a century later most of what is discussed is just as relevant than as it is now.

HP is currently in a desperate need to revive the HP Way and transform itself in order to turn itself around and succeed in the future. A highly recommended read.

Below are excerpts from the book that I found particularly insightful:

1- “…it has been a guiding principle in developing and managing HP. Get the best people, stress the importance of teamwork, and get them fired up to win the game.”

2- “We published a second version of the objectives in 1966 and they are as follows…1) Profit: To recognize that profit is the best measure of our contribution to society and the ultimate source of our corporate strength…2) Customers: To strive for continual improvement in the quality, usefulness, and value of the products and services we offer our customers…3) Field of Interest: To concentrate our efforts, continually seeking new opportunities for growth but limiting our involvement o fields in which we have capability and can make a contribution. 4) Growth: To emphasize growth as a measure of strength and a requirement for survival. 5) Employees : To provide employment opportunities for HP people that include the opportunity to share in the company’s success, which they help make possible. To provide them job security based on performance, and to provide the opportunity for personal satisfaction that comes from a sense of accomplishment in their work. 6) Organization: To maintain an organizational environment that fosters individual motivation, initiative, creativity, and a wide latitude of freedom in working  toward established objectives and goals. 7) Citizenship: To meet the obligations of good citizenship by making contributions to the community and to the institutions in our society which generate the environment in which we operate.”

3- “An important element of the HP Way has to do with the company’s relationship with its shareholders and the investment community. A primary objective in this area is to provide consistency in our corporate performance, including steady growth in earnings and equity.”

4- “At that time our policy at HP was to regard increased market share as a reward for doing things well – for providing customers with superior products and services and keeping our costs down. This has been a basic policy from the very beginning of our company, and we expect it to continue in the future.”

5- “The key to HP’s prospective involvement in any field of interest is contribution. Our objective is to expand and diversify only when we can build on our present strengths, and with the recognition that we have the proven capability to make a contribution. To meet this objective, it is important that we put maximum effort into our product-development programs. This means we must continually seek new ideas for new and better kinds of products.”

6- “The fundamental basis for success in the operation of Hewlett-Packard is the job we do in satisfying the needs of our customers. We encourage every person in our organization to think continually about how his or her activities relate to the central purpose of serving our customers.”

7- “…gains in quality come from meticulous attention to detail and every step in the manufacturing process must be done as carefully as possible, not as quickly as possible. This sounds simple, but it is achieved only if everyone in the organization is dedicated to quality.”

8- “It’s imperative that there be a strong spirit of helpfulness and cooperation among all elements of the  company and that this spirit be recognized and respected as a cornerstone of the HP Way.”

9- “Although we minimize corporate direction at HP, we consider ourselves one single company, with the flexibility of a small company and the strengths of a large one – the ability to draw on corporate resources and services; shared standards, values, and culture; common goals and objectives; and a single world identity.”

10- “I should point out that the successful practice of management by objective is a two-way street. Managers at all levels must be sure that their people clearly understand the overall objectives and goals of the company, as well as the specific goals of their particular division or department. Thus, managers have a strong obligation to foster good communication and mutual understanding. Conversely, their people must take sufficient interest in their work to want to plan it, to propose new solutions to old problems, and to jump in when they have something to contribute.”

Regards,

Omar Halabieh

The HP Way

The Intelligent Investor

I recently finished reading The Intelligent Investor – The Definitive Book on Value Investing by Benjamin Graham. This is  a book that has been on my reading list for a while – as The reference in the investment field (from a fundamental analysis perspective). As Benjamin puts it in the introduction: “the purpose of this book is to supply, in a form suitable for the laymen, guidance in the adoption and execution of an investment policy.”

The author makes it very clear from the beginning of the book (and throughout it) that his advice is addressed to investors and not speculators (see excerpts below). Within the investor class – he further makes a distinction between the “defensive” and “aggressive” investor as it relates to the time and energy intended to be spent on research/analysis and in conjunction the expected associated returns. Regardless of which class the investor belongs to, the main premise of the book revolves around value investing – buying securities when they are undervalued based on their fundamentals. Benjamin goes on to discuss a breadth of topics in the area of investing including inflation, market fluctuation, portfolio management, stock selection, convertible issues, bonds etc.

Last but not least, the commentary by Jason Zweig, adds a more modern context and further explains the concepts presented by Graham. By reading both texts, the ideas and concepts are in definite reach of any reader.

A must read for any investor, whether a beginner or pro. As an investor myself, I have found (as I am sure others have as well) that the perspective Benjamin brings is both timeless and very applicable.

Below are excerpts summarizing some of the key investing principles outlined in the book:

1) “1 – Obvious prospects for physical growth in a business do not translate into obvious profits for investors. 2 – The experts do not have dependable ways of selecting and concentrating on the most promising companies in the most promising industries.”

2) “Note that investing, according to Graham, consists equally of three elements: a) you must thoroughly analyze a company, and the soundness of the underlying business, before you buy its stock; b) you must deliberately protect yourself against serious losses; c) you must aspire to “adequate”, not extraordinary, performance.

3) “The more enthusiastic investors become about the  stock market in the log run, the more certain they are to be proved wrong in the short run.”

4) “The only thing you can be confident of while forecasting future stock returns is that you will probably turn out to be wrong. The only indisputable truth that you will probably turn out to be wrong…And the corollary to that law of financial history is that the markets will most brutally surprise the very people who are most certain that their views about the future are right. Staying humble about your forecasting powers, as Graham did, will keep you from risking too much on a view of the future that may well turn out to be wrong.”

5) “To obtain better than average investment results over a long pull requires a policy of selection or operation possessing a twofold merit: (1) It must meet objective or rational tests of underlying soundness and (2) it must be different from the policy followed by most investors or speculators.”

6) “Investment policy, as it has been developed here, depends in the first place on a choice by the investor of either the defensive (passive) or aggressive (enterprising) role. the aggressive investor must have a considerable knowledge of security values – enough, in fact, to warrant viewing his security operations as equivalent to a business enterprise. There is no room in this philosophy for a middle ground, or a series of gradations, between the passive and aggressive status. Many, perhaps most, investors seek to place themselves in such an intermediate category; in our opinion that is a compromise that is more likely to produce disappointment than achievement.”

7) “A great company is not a great investment if you pay too much for the stock.”

8) “Those formulas (forecasting and trading) that gain adherents and importance do so because they have worked well over a period, or sometimes merely because they have been plausibly adapted to the statistical record of the past. But as their acceptance increases, their reliability tends to diminish.  This happens for two reasons: First, the passage of time brings new conditions which the old formula no longer fits. Second, in stock-market affairs the popularity of a trading theory has itself an influence on the market’s behavior which detracts in the long run from its profit-making possibilities.”

9) “Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.”

10) “The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator’s primary interest lies in anticipating and profiting from market fluctuations. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices.

11) “Which factors determine how much you should be willing to pay for a stock?…Graham feels that five elements are decisive. He summarizes them as: a) the company’s “general long-term prospects” b) the quality of its management c) its financial strength and capital structure d) its dividend record e) and its current dividend rate. ”

12) “Nevertheless, the future itself can be approached in two different ways, which may be called the way of prediction (or projection) and the way of protection. Those who emphasize prediction will endeavor to anticipate fairly accurately just what the company will accomplish in future years…By contrast, those who emphasize protection are always especially concerned with the price of the issue at the time of study. Their main effort is to assure themselves of a substantial margin of indicated present value above the market price 0 which margin could absorb unfavorable developments in the future.”

13) “No matter which techniques they use in picking stocks, successful investing professionals have two things in common: First, they are disciplined and consistent, refusing to change their approach even when its unfashionable. Second, they think a great deal about that they do and how to do it, but they pay very little attention to what the market is doing.”

14) “Our preference for the analyst’s work would be rather that he should seek the exceptional or minority cases in which he can form a reasonably confident judgement that the price is well below value. He should be able to do this work with sufficient expertness to produce satisfactory average results over the years.”

15) “In the short run the market is a voting machine, but in the long run it is a weighing machine.”

16) “To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.”

17) “…the intelligent investor must focus not just on getting the analysis right. You must also ensure against loss if your analysis turns out to be wrong – as even the best analyses will be at least some of the time.”

Regards,

Omar Halabieh

The Intelligent Investor