Imex

I think I could win “the blog post with worst english” award for this entry… but feeling lazy to correct it.

During the entire last week, the class participated in an impressive simulated business game in which 7 teams managed acompany each for 12 quarters. The objective was to create maximum share holder value and demonstrate a sound strategy while doing so. I was lucky to be part of a great group that succeeded in the first part, but failed to convince the jury of the second.

Irrespective of which age group or culture students belong to, competition and success turns everybody on. Success is sweet even if it’s not backed by material rewards. I wonder why?! The intuitive answer is that success is still our measure for chances of survival (in real and symbolic terms ) – the “survival of fittest”.

It’s usually easy to assess what we learn from each course, but I find it hard to identify the unique lessons we learnt from this week long exercise. I guess, it might be because our focus was on winning rather than learning. Nevertheless, here are four lessons I take away. The situations are over dramatised for illustrative purposes :)

Asymmetric Intelligence: The game required each team member to assume different roles (production manager, marketing manager, HR manager etc). Throughout the week, all members had access to the same data and everybody had the same knowledge from the MBA program, yet there were different opinions about how we should respond to new information like increasing demand or declining raw material cost. Most differences arose not due to asymmetric information; it was because of asymmetric intelligence. The production manager could crunch his numbers over several quarters to figure out the optimal safety stock level which is lesser than that needed to meet the market demand forecasted by the marketing manager. By the way, the marketing manager will have arrived at his forecast with an analysis just as rigorous as the production manager. However, when the marketing manager hears from the production department that the market demand cannot be met, its as if there is a conspiracy to spoil the marketing teams’ performance. Ofcourse we talk and debate about it to come to agreement, but then its not always easy when the availabiity of time is a constraint. Sharing real time intelligence is just as important as sharing information in real time.

Management control systems: Control is synonymous to ensuring accurate and complete reporting to the external world, however, during the game we also learnt that its just as important to the internal organization. The goals of the different departments within an organization are by nature in conflict with each other if they are not guided by the same business goal. It is easy for the different departments to pursue completely different paths of growth if there isn’t adequate coordination between the different departments. We were lucky to have all the “management team” sitting in the same room for a week. This is not the same in real situations in which the production manager could be located a thousand miles away from the CFO and both their calendars are fully booked for 4 weeks. The only way to avoid this is with management control systems. Incidently, balance score card is one of the final topics we discussed.

Results, results, results: The only thing that matters in business is results. The difference between a terrible and a great team is an extra ordinarily thin line called success. With success, all minor differences get ironed out and trust is built quickly but in the absence of success, the same minor differences can appear like insurmountable difficulties.

Finally, in talking to my colleagues, I was told that an MBA holds its value only for 2-3 years after graduation. I always looked at it as benchmark figure with no rational explanation. But now, it is easy to see why. There are a number of concepts and theories we learn during this year and the only way to retain and develop this knowledge is to apply them in real business just like we did during the last week, what we learn during application of knowledge is completely different compared to classroom discussion. I guess the only knowledge from this MBA that will stick is that part which we apply during the next 2-3 years. Beyond that, the value created is not from what we learn from the MBA, but from what we learnt after graduating and in the real world!

Any regrets

Its one of the posts in which I meander around.

Recently, I had the chance to meet three CEOs at a private dinner arranged in my mentor’s home (through Vlerick’s mentorship program). I’m not sure if I will ever be able to, at the same time and in an informal environment, talk to three wonderful families and converse with three successful men who are collective responsible for well over a billion dollars in revenue and over 10000 employees.

During the dinner, I was asked if I had any regrets about the decision to pursue MBA in Vlerick. My reply was an emphatic no! We tend to think that MBA pursuit decisions are based on ROI calculations. Certainly, this is an important part of the equation, but in hindsight… the decision and its variables are more emotional than rational. It is about choosing insecurity over secure job, relocating to a strange place, leaving your (girl) friend(s) and relationship(s), asking help from friends and family and about venturing into the biggest self imposed change of our lives. The expectation about what we want to get out of an MBA year is extremely high because the sacrifices are enormous. And yet, my reply was that this is one of the best decisions of my life irrespective of which kind of job I land into.

Things surely must have gone very well for me. Yes, they have… I have been lucky not just with the school, but also with my home and landlord in Leuven, my friends visiting here, me visiting friends and parties, with networking, my mentor and with the company project and to be honest, even with the Belgian weather lately :)

I wonder why then are few students unhappy with this year, some even utterly bitter. I don’t know the reason; it does not seem to have a correlation to a gender, nationality or prospects in the job market. In every profile, few students are unhappy and few others are delighted with this year. I guess statistically speaking, this kind of distribution is normal for a satisfaction score. It is the skewness that isn’t normal.

The bottom line is that having realistic expectations directly affects a student’s satisfaction and managing expectation well is equally important for the school’s reputation. It’s easier said than done. I just happened to be lucky that the school’s culture was a completely perfect fit to me. I can only imagine that the best way to solve the risk of this inadequate information is to make the best out of the year rather than to waste time thinking about how one wanted this year to be different.

Weather elasticity of demand

Little I knew that elasticity of supply could explain the seeming irrational swings in oil prices. Especially considering that economics was the first course of the MBA… it was one of the first “aha” moments.

Today I realised that along with price and income elasticity, there is also the weather elasticity of demand and probably many more types of elasticity. Its (actually was) sunny in Belgium today… the temperature may have hit around 13C and while I was having my burger in an empty quick restaurant, I saw at least 15 people enjoying a cone of ice-cream outside… I guess it is different from mere seasonal demand if there is a correlation between the changes in demand based on change in temperature. I wondered if this type of demand is fully exogenous to an organization because obviously the weather cannot be controlled like price. But then, I think about Coca-Cola or Pepsi and they have figured a way to sell the drinks, at least in the western world, irrespective of whether the temperature outside is -5C or +15C…

Now, something more interesting… although, we know that the earth will eventually face the apocalyptic freeze due to the global warming… at least for the next 30-50 years, it is safe to assume that the temperature will rise. I wonder if this means Coca-Cola and Pepsi will sell more! Is it a good hedge to holding oil stocks in a portfolio!

Yeah… its nice to be silly sometimes :)

Weakness One: Procrastination

This is a continuation of my previous post called “what is your weakness?”

 

Two topics, which were not part of the core courses, caught my attention this year. Firstly, Game theory. Although difficult to practice, it seems to be an interesting alternative of the static and prescriptive 2X2 strategy models (e.g. the five forces). 

The other being “Options”. I was fascinated by the simplicity of the concept, which I had considered a complicated technical term of equity markets. “Options” mean just that, Option to buy, to sell, to delay or do anything else. I cannot derive the mathematical equations; however I understand the application of the concept.

Intuitively, we know that it is better to hold as many options as possible. We also know that every option has an expiration date within which it needs to be exercised and finally, if the probability of outcomes does not change over the option period, it is better to exercise that option as close to the expiration date as possible. Well, unfortunately the three rules are not always true for options in real life and yet I seem to follow all three rules to the extreme. Therein lies my weakness! Here are four examples to illustrate what I mean.

Example 1: If we have lunch in school, we are supposed to order our sandwich by 11 AM (so that they are prepared in advance). Failing to order by 11 am means we need to wait longer in the line during the lunch break at 1 Pm. It is such a simple task and yet, I have never ordered the sandwich at 11 am! I have always wondered why! Now I realise that ordering the sandwich at 11 am means I close the option to join friends to a restaurant during lunch break. I simply don’t like the idea of closing an option. I’d rather hold both the options (lunch in school or lunch in a restaurant) until the last moment especially when the opportunity cost of holding both the options is a 15 minutes longer wait in line at 1 Pm!

Example 2: Every time, I talk to my friends about my potential “arranged” marriage in 2009, the typical response is shock, anguish or pity. The reply normally is “you are an intelligent educated person and yet you are open to the idea of marrying a girl you hardly know!?” Well, my friends (both from west and east) refuse to consider “arranged” marriage as an option. I on the other hand don’t want to close that option. Whether or not I choose to exercise it is a different matter, but by refusing the idea of an arranged marriage, I would close an option of a certain search model. I’d rather hold both the options of arranged marriage or marriage after relationship especially when the opportunity cost of holding both options is nil!

Example 3: Every time my friends invite me to a party, I absolutely never say no. My immediate response is “Yes, I’ll be there!” and yet the parties I turn up for is less than 30%. Again, when asked whether I’d like to join the party, saying no means closing the option to attend. I’d rather say yes and choose at the end of expiration (start time of party) whether or not to exercise the option (attend it) especially when the probability of the host allowing me into the party does not change over the option period. Interestingly, if the host invites me to the party the second time (just before everybody is leaving for the club), I will almost certainly attend that party because I see that very moment as an expiration point and I will exercise the option.

Example 4: For the vacations in the month of April, I am invited to join my classmate to attend his wedding in Poland. I’m also invited to the house of my dear friends in Poland which means this could be one of the most economical trips I can take. I also would love to visit the country since I can meet a very dear friends there and yet I have not booked the tickets! Booking the tickets means that I close the option of joining some of the other classmates to a different part of Europe. I cannot but help choose to hold both options of visiting my Polish friends or visiting other European countries with classmates especially at an affordable opportunity cost of 30 USD (for booking the ticket at the last minute).

There is a name to the established pattern of behaviour in all the above cases. It’s called Procrastination! I do believe that is a weakness. However, it’s a weakness which seems to work for me because I’m constantly maximizing the number of options I hold, I maximize their value and exercise them at the right moment! Unfortunately, evaluation of options in personal life is not the same as in financial instruments or business decisions because how one evaluates options relays certain values and affects near and dear ones. So far, I have steered clear of trouble due to my intimate relationship with “real options” but it remains as a potential weakness!

What is your weakness?

I wonder if the question about “tell me something about your weakness” tests a candidate’s self awareness or creativity. The reply to such question only needs to follow a standard formula… identify areas which you have improved most in the recent past (even if it’s not a weakness that is improved upon) and basically turn the story around to say that X was the weakness and with steps A,B and C, you have now improved. 

Shows great self awareness, initiative and openness to change and of course achievement (in actually changing). But this reply borders on dishonesty.

MBA is supposed to be the year when we learn about ourselves. I can now confess that this is absolutely true and I have identified two distinctive established patterns in my behaviour which are the main weaknesses in me. I will dedicate the next two posts to describing them in detail and with all honesty!

Chinese Democracy

The first time I realised that danger is very close was when, in 2008, we were asked to evacuate the office building due to a bomb threat which later turned out to be a hoax. The entire office evacuated and assembled in the “safety” zone, which was outside the office premise on the main street! If the terrorists felt too lazy to storm the office building, nearly 1500 employees were now lined up along the street waiting to be sprayed with bullets and grenades. It was the most idiotic moment of my life. Since then, the world has gotten more dangerous. News is rampant about Somalian pirates, situation in India and Pakistan, Russia’s peripherals and multiple warzones of US and the enemy does not have a face in any of the case.

Recently, we presented to the MBA class, a summary of the book called the long tail. I was intrigued when my team mate choose to present how the long tail affected warfare. Here’s an excerpt from “the dark side of long tail” which explains why the enemy does not have a face:

Traditionally, warfare (the ability to change society through violence) has been limited to nation-states (except in rare cases).  States had a monopoly on violence.  The result was a limited, truncated distribution of violence (a power law). That monopoly is on the skids due to three trends:

• A democratization of the tools of warfare.  Niche producers (for example: gangs) are made possible by the dislocation of globalization.  All it takes to participate is a few men, some box cutters, and a plane (as an example of simple tools combined with leverage from ubiquitous economic infrastructure).
• An amplification of the damage caused by niche producers of warfare.  The magic of global guerrilla systems disruption which turns inexpensive attacks into major economic and social events.
• The acceleration of word of mouth.  New groups can more easily find/train recruits, convey their message to a wide audience, and find/coordinate their activities with other groups (allies).

Following this logic, I think it is safe to assume that the violence will grow in the coming years.

In this context, I wonder if it is wise to obsess with democracy as the only governance model for the entire world. The main threats of 21st Century arise from failed democracy, unlike from dictatorship or communism in 20th Century. When the tools of production and distribution of violence are democratised and the power of law enforcement agency dwarfs the collective power of terrorists in their ability to create violence, the governance model should adapt to the change in a way that the balance of power shifts back to the law enforcement agencies. Democracy unfortunately does not seem to be the answer here. 

Freedom of expression is the most fundamental human right which needs to be upheld, but clearly there are parts of the world where this freedom is simply unaffordable today. What is the purpose of freedom to express if the guy next door is uncontrollable and is successfully exporting meaningless murder! Democracy is not a sustainable governance model in such situations.

For the past 20 years, the most successful economy in the world in terms of growth is China, a communist country. Russia which is still in a transition phase does not mess around its security either. When I visited Moscow, it was not unusual to see police with automatic weapons patrolling the main streets. Frankly, it did not feel intimidating; it felt rather safe to see such show of power.

Maybe a hybrid of capital markets and totalitarian political powers is what we need for the new century; Chinese democracy could be the answer because it is one thing to empower an individual to become an overnight superstar on YouTube and another to empower him to spray bullets in a train station.

Experienced student

I believe I can call myself an “experienced student” for I have discovered a thing or two about the learning process by experience :)

Peter F. Drucker in his article for HBR called “Managing Oneself” describes the different methods of learning:

“There are people, like Churchill, who learn by writing. Some people learn by taking copious notes… Some people learn by doing, others learn by hearing themselves talk”.

I will begin this post by stating an assumption as a fact: “Students cannot learn without questioning”. The most controversial topic among the MBA class is the differing questioning behaviour among students in class. The main complaint being that few of us ask questions frequently or at the wrong times compared to others and therefore disrupt the flow of the class or in the worst case waste time! I have myself held this opinion until recently. But, only until recently!

In my opinion, there are five steps in a learning process. Four of them being Listen -> Understand concept -> Look for opportunities to apply -> Integrate. The fifth step is Questioning and can come in at any stage of the learning process. A “Cynical” student will question as soon as he listens, the “Rational” student will question when he understands the concept, “Practical” student questions after looking for opportunities to apply and the rest of students either question right at the end or don’t question at all.

I myself am a Practical learner… If the concept is authored by Porter, I’ll accept everything without questioning the merits… My emphasis is really on application. And as I think about applying the concept, my questions arise out of curiousity about how best to apply. For example, when we discussed the CAPM model, I let my imagination run wild about applying the concept to financial investments, product portfolio of a company or even the portfolio of a country’s GDP. Great! But only later found out that the model is based on certain assumptions which render all those applications useless. Assumptions like “the marginal investor is diversified” and “all investors are rational and on the efficient frontier”! The risk with my learning process is that if I fail to ask the right questions at the right time, I will end up applying the wrong concepts to the wrong situations. That risk is reduced if there is a “rational” student in class who questions the validity of the model and tries to understand the logic and assumptions. But then the problem with the “rational” student is that he/she will accept the concept as soon as the mathematical/logical derivation of the model is understood. There is still a risk that we will not question the fundamental assumptions of the model.

This is where the “Cynical” student plays a key role. They question the very logic of the concept right at the beginning, irrespective of whether it is published in Harvard business review or whether the concept’s author received a Nobel prize!

There are only 2 more weeks of core courses left! As I look back at this year, I think I have learned as much from the “unnecessary” or “mistimed” questions as I have learned from the questions which were in line with my own thought process. I guess this probably is not the case in an engineering class where every student is “like minded”, where as in MBA classes with diverse cultures, professional backgrounds and age, this situation must be common. 

There you go; I guess that is one reason to study in a diverse MBA class. But, to get the most out of it, we’ve got to be aware that there are going to be many questions that we won’t like… that’s an insight which can only come from an experienced student :) 

By the way, let me not be naive, there are certainly few questions which are indeed unnecessary… the reason for raising these questions is often not to enhance one’s understanding of the topic, it is rather to assert one of the two messages to the professor which are “Look, I’m smarter than you” or “How can you not think like me!” Professors and Students can sense that attitude from a mile away especially if the questions always begin with “Isn’t it…”, “Don’t you think…” or “In my opinion…”  ;)

Money and MBA

In the past, I, like many others I pressume, was confused about the philosophy of money. How much should I desire? How much do I need to be happy? What is OK to sacrifice for it? How wonderful it would be if only we didn’t care about it so much? and most importantly what is the point of being rich? I have desired, lusted for, loved, hated and respected money for what it did for me.

MBA has an effect on this perception of Money. It does not equate to the big house, nice car or expensive clothes anymore. It’s not about how much it lets us consume… Instead, it is an indicator of how much value is added. Yes! this is really philosophical now :) From “what is the point of earning more”, my attitude has changed to “earning more means doing more good to the society”. But then, not everyone earns money for being useful or even precious, e.g. my mom. Parenting, just like world at large, is a distorted market. so, the most important role of the government is to create a free undistorted market.

Most quotes I’ve heard about money have a negative connotation like “Money talks”, “Cash is King” or “Money spins the world”… I must admit, MBA has led me to respect money in a profound way like never before :) I dont desire it any less or more than before, dont lust for it any less more, but I feel that way in, I beleive, the right context. The respect for money is not because of what it can do for me… it is rather because of what it can do for everyone… for the world.

New-age business plans

Its almost 2 AM and I see half the MGM’ers (our juniors) finalizing their business plans for presentation presumably early today morning. Yes, I’m in school too :). On March 16th, we (MBA’ers) present the final version of our business plans. Few of my classmates were not overly enthused about the fact that their business plans did not pass the initial screening due to the lack of a clear revenue model definition. Others (like my own team) received feedback that the business plan should focus on a specific value proposition.

The jury members who provided these feedbacks are highly accomplished both in research and successful entrepreneurial endeavours and therefore I respect the feedback. However, I cannot help but feel that these feedbacks cannot apply universally to all business plans .

Firstly, about a revenue model. If the business plan is to start up an innovative online service, the costs are so low that we don’t really need to care about a revenue model. Twitter received funding of 35 million dollars recently and nobody has a clue if and when it will ever make money. The same was true for YouTube, Face book or even Google. The revenue model for these businesses is not a “set target and achieve” process, rather its sort of an evolutionary process based on how consumers, not producers, find innovative uses of the service.

Secondly about focus. Every strategy course we study will prescribe focus as a key element of success. Therefore, this feedback is based on conventional wisdom. But we need to understand why strategy courses prescribe “Focus”. In my opinion, it is because organisation are built with a certain value chain which can only deliver certain value proposition like low cost or best quality or flexibility etc. Therefore to not focus is to be everything to everyone which is a perfect recipe for failure. But, in a start-up, there is no value chain of production yet. So why not try offering different services and figure out what we are good at. Then, focus on a specific value proposition rather than begin the business plan with “focus”. I mean, with no prior experience in running a business, how could anybody know what to focus on. Isn’t it a bigger risk to focus right from the beginning because we could be staring completely at the wrong end!

I have a feeling that North American schools might have a different attitude to business plans with “no revenue model” and “no focus” simply because they have witnessed them succeed and more importantly, they love risk.