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Inside Job – Unveiling Economists’ Ties to the Financial Sector

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America and the world are still recovering from the global economic crisis of 2008. And with unemployment rates above 9 percent, many wonder if the market turmoil will ever end.

PBS NewsHour Economics Correspondent Paul Solman talks to Charles Ferguson, director of Academy Award winning documentary, Inside Job, a film that raises red flags about the world of finance. Paul examines how the film – which raises concerns about conflicts of interest for economists in academics – is influencing some leading economic thinkers.

The Alfred P. Sloan Foundation provided funding for this project.

Are You a Good Fit for Potential Employers?

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Determining if you are a good fit for an employer and vice-versa is not always as hard as it might seem. As I describe in my book Career Mapping: Charting Your Course in the New World of Work, you first need to have decided that you want to work in the industry in which the company does business.

If you are a functional expert, say in HR or finance, you might tend to think your skills are transferrable and can be applied anywhere. That might be true, but you need to understand and appreciate the context you are working in. Human Resources in a consumer goods company, which might be product and sales oriented, is quite different from an industrial company where manufacturing plants and unions are the order of the day. You need to like, or at least want to learn, about the business the company is in. As you move through your career, your industry, as well as functional knowledge are what allow you to move up the ladder.

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About the Author

Ginny Clarke is an expert in talent and career management, executive coaching, and diversity and inclusion in the workplace. She has recruited C-suite executives and corporate directors, and coached numerous executives and professionals. She is widely respected as a thought leader and practitioner of recruitment and retention strategies that go beyond traditional definitions of diversity. She offers provocative, unconventional remedies for organizations seeking to leverage their global workforce. Having been a senior executive herself, Ginny is credible and confident. Her candor, intellect and results-oriented approach appeal to those committed to growth and change. To ready Ginny Clarke’s full biography, click here.

Performance Measurement

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Performance measurement typically drives much of the way a large company works. We talked extensively in this book about how accounting profits or profit growth as a sole performance metric doesn’t lead to value creation. Supplementing profits with ROIC and revenue growth is a step in the right direction to ensure that the profits a business earns are actually creating value, not simply over-consuming capital that another company could better deploy. However, profits, ROIC, and revenue growth are backward looking. They don’t tell you how well the business is positioned for future growth and ROIC improvement.

One company we know had a particular business unit that consistently recorded growing profits and high levels of ROIC for about four years. Since the unit’s reported financial results were so good, the executives at the corporate headquarters didn’t ask many questions about the drivers of the unit’s profits – until it was too late. It turned out that the unit was driving profits by raising prices and cutting marketing and advertising expenditures. Higher prices and reduced advertising created an opening for competitors to take away market share, which they did. So while profits were rising and ROIC was high, market share was declining.

The next thing the company knew, it couldn’t raise prices anymore, and market share kept falling. The company had to reset the business with lower prices and more advertising. It took many years for the company to regain its lost position. If the corporate executives and board had probed into the unit’s sources of profit expansion, they likely would have taken corrective action earlier. This example also speaks to the obligation of management and boards to challenge high-performing units as much as they challenge those that are troubled.

Good performance measurement can help overcome the short- term bias of financial measures by explicitly monitoring how well a company or business unit is positioned to sustain and improve its financial performance. This is what we call a business’s health, and related metrics explain how financial results were achieved and provide causal insights into future performance potential. An example of systematically measuring both performance and health is illustrated in Exhibit 17.1.

The left-hand side of the exhibit shows the financial drivers of value: revenue growth and ROIC. Companies also need metrics that indicate the short-, medium-, and long-term health of the business, as shown to the right of the financial metrics. While every business needs some metrics tailoring, the eight generic categories presented in Exhibit 17.1 can be used as a starting point to ensure that a company systematically manages all the important areas.

Short-term value drivers are the immediate levers of ROIC and growth. They indicate whether current growth and ROIC can be sustained, will improve, or will decline in the near future. They might include sales productivity metrics such as market share, the company’s ability to charge premium prices relative to peers, or sales force productivity. Operating-cost productivity metrics might include the component costs for building an automobile or delivering a package, the rates of rework, and so forth.

Medium-term value drivers look forward to indicate whether a company can maintain and improve its revenue growth and ROIC over the next one to five years (or longer for companies, such as pharmaceutical manufacturers, that have long product cycles). These metrics may be harder to quantify than short-term measures and are more likely to be measured annually or over even longer periods.

Medium-term commercial health metrics indicate whether the company can sustain or improve its current revenue growth, including the company’s product pipeline, brand strength measures, and customer satisfaction. Cost structure metrics measure a company’s ability to manage its costs relative to competitors over three to five years. These metrics might include assessments of continuous improvement programs or other efforts to maintain a cost advantage relative to competitors. Asset health measures might show how well a company maintains its assets and consistently improves asset productivity. For example, a hotel or restaurant chain might measure the average time between remodeling projects as an important driver of health.

Metrics for long-term strategic health include a company’s progress in identifying and exploiting new growth areas and the company’s ability to sustain its competitive advantages against threats. Long- term strategic health metrics might be more qualitative than short- and medium-term metrics, and might be more along the lines of assessments of the company’s ability to deal with changes in the environment. Some examples include new technologies, changes in customer preferences, new ways of serving customers, and disruptive threats.

The final category is organizational health, which measures whether the company has the people, skills, and culture to sustain and improve its performance. As with the other measures, what is important varies by industry. One dimension of this is the needed flows of talent. Pharmaceutical companies have long needed deep scientific-innovation leadership capabilities but relatively few general managers. This may change with trends like the proliferation of personalized therapeutics into product markets. Retailers historically need trained stored managers, a few great merchandisers, and, in most cases, store staff with a customer service orientation.

This framework shares some elements with the balanced scorecard concept that was introduced in a seminal 1992 Harvard Business Review article, The Balanced Scorecard: Measures That Drive Performance, by Robert Kaplan and David Norton. Numerous organizations have subsequently advocated and implemented the balanced scorecard idea. Kaplan and Norton point out that customer satisfaction, internal business processes, learning, and revenue growth are important drivers of long-term performance.

Although our concept of health metrics resembles Kaplan and Norton’s nonfinancial metrics, we don’t advocate their off-the-shelf application. We advocate that companies choose their own set of metrics tailored to their industries and strategies. For example, product innovation may be important to companies in one industry, while in another, tight cost control and customer service may matter more. Similarly, an individual company (or business unit) will have different value drivers at different points in its life cycle.

Reprinted with permission of the publisher John Wiley & Sons, Inc from Value: The Four Cornerstones of Corporate Finance by Tim Koller, Richard Dobbs, and Bill Huyett. Copyright (c) 2011.

About the Authors

McKinsey & Company is a global management consulting firm that helps leading private, public, and social-sector organizations make distinctive, lasting, and substantial performance improvements. With consultants deployed from more than 90 offices in over fifty countries, McKinsey advises companies on strategic, operational, organizational, financial, and technological issues.

Tim Koller leads the firm’s research activities in valuation and capital market issues. He advises clients globally on corporate strategy, capital markets, M&A, and value-based management. Tim is a coauthor of Valuation: Measuring and Managing the Value of Companies. To read Tim Koller’s complete biography, click here.

Richard Dobbs is a director of the McKinsey Global Institute, the firm’s business and economics research arm. He advises Korean and other Asian companies and governments on strategy, economics, and M&A issues. Richard is an associate fellow of University of Oxford’s Said Business School. To read Richard Dobbs’ complete biography, click here.

Bill Huyett advises clients in healthcare and other technology-intensive industries on corporate strategy, M&A, product development and commercialization, and corporate leadership. He is also a leader in the firm’s corporate finance practice. Bill is active on several not-for-profit boards in basic life sciences research. To read Bill Huyett’s complete biography, click here.

Human Performance Management Best Practice 1b – Verbalized Self Checking

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StrategyDriven Human Performance Management Best Practice ArticleEven the most well-intentioned and dedicated humans are fallible. Therefore, the challenge becomes one of minimizing human error.

Verbalizing the written word further engages the activity performer in the task at hand. By speaking the directions, the performer is driven to mentally register the assigned actions.

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The Big Picture of Business – Fine Wine, Aged Cheese and Valuable Antiques: Part II

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StrategyDriven Big Picture of Business ArticleThe successful professional person takes the time and appropriates the resources to develop a Body of Work, rather than just hold jobs. Business is approached as a lifetime track record of accomplishments. This sophisticated and vital category includes:

  • Building a clear, cohesive, operational Vision for the individual.
  • Conceptualizing a specific action plan to be effective on all branches of the tree.
  • Facilitating programs where progress is measured and maintained.
  • Attentiveness to company obligations.
  • Maintaining a well-earned reputation.
  • Contributing much to the economy and communities in which one lives and works.
  • Taking concepts (quality management, ethics, outside-the-box thinking) out of the esoteric and into daily operation.
  • Recommending new ideas and business practices which surpass the niches of others.

The Big Picture provides leadership for progress, rather than following along. The successful person develops and champions the tools to change. The quest is to manage change, rather than falling the victim of it.

Body of Work encompasses leadership development, mentoring and creative ways of re-treading old knowledge to enable executives to master change, rather than feel as they’re victims of it.

Executives’ value to organizations, employees, customers, influential constituencies and ascendancy to management is a direct reflection of mastering the life skills.

Organizations are populated with individuals who possess a plethora of education, skills and talents. Companies are comprised of human beings, who bring their culturalization (or lack of it) to the job. Thus, they set the pace for the tree (company) in question.

Business professionals are the sum of their life experiences. People, like organizations, develop, grow and thrive. If not, they are of little market value in a career.

Core Values Worksheet: Criteria for Basing Your Professional Vision

  1. Core Industry… The Business You’re In.
  2. Rendering the Service… Administering Your Work.
  3. Accountability… Qualities with Which You Work.
  4. Your Relationships-Contributions to Other People… Colleagues, Stakeholders.
  5. Professional-Leadership Development… Your Path to the Future.
  6. Your Contributions to the Organization’s Overall Goals… Your Place in its Big Picture.
  7. Body of Work… Your Accomplishments to Date vs. Anticipated Future Output.

Characteristics of a Top Professional:

  • Understands that careers evolve.
  • Prepares for the unexpected turns and benefit from them, rather than becoming the victim of them.
  • Realizes there are no quick fixes.
  • Finds a truthful blend of perception and reality… with sturdy emphasis upon substance, rather than style.
  • Has grown as a person and as a professional… and quests for more enlightenment.
  • Has succeeded and failed… and has learned from both.
  • Was a good ‘will be,’ taking enough time in early career years to steadily blossom… realizing that ‘fine wine’ status wouldn’t come quickly.
  • Has paid dues… and knows that, as the years go by, one’s dues paying accelerates, rather than decreases.

Rising Stars

Here are some characteristics of young people (rising stars) will make it as professionals and business leaders:

  • Act as though they will one day be management.
  • Think as a manager, not as a worker.
  • Learn and do the things it will take to assume management responsibility.
  • Be mentored by others.
  • Act as a mentor to still others.
  • Don’t expect status overnight.
  • Measure their output and expect to be measured as a profit center to the company.
  • Learn to pace…and be in the chosen career for the longrun.
  • Don’t expect that someone else will be the rescuer or enable you to cut corners in the path toward artificial success.
  • Learn from failures, reframing them as opportunities.
  • Learn to expect, predict, understand and relish success.
  • Behave as a gracious winner.
  • Acquire visionary perception.
  • Study and utilize marketing and business development techniques.
  • Contribute to the bottom line… directly and indirectly.
  • Offer value-added service.
  • Never stop paying dues… and see this continuum as ‘continuous quality improvement.’
  • Study and comprehend the subtleties of life.
  • Never stop learning, growing and doing. In short, never stop!

And, If They Don’t…

Here are characteristics of ‘wanna-be’s’ who do not choose to view their apprenticeships as a mode to grow, viewing it as a burden or unnecessary time. They think the dues paying process is for others, never themselves. Such persons will undoubtedly become stuck in the land of ‘never-gonna-be’ because they:

  • Perennially want the status that others have.
  • Will not go the distance or see their career as a longterm set of challenges.
  • Seek to become a carbon copy of someone else.
  • Fail to do adequate research into their industry and its business challenges.
  • Fail to pay sufficient dues.
  • Want a job, not a career.
  • Have poor people skills… and fail to improve them.
  • Show an unwillingness to learn beyond just the sheepskin on the wall.
  • Fail to show proper respect to their elders.
  • Assume they’re a senior member of the profession when they never mastered being an effective junior, let alone mastering the middle career years.
  • Constantly whine and say they are trying when they are not.
  • Use, abuse and knowingly waste the time of others.
  • Always have an excuse.
  • Skillfully learn to cover tracks and justify excuses.
  • Contend that it’s always someone else’s fault.
  • Maintain that ‘I can do that’ mentality… challenging seasoned professionals.
  • Don’t learn how to be a joiner.
  • Cannot ascend as a leader.
  • Always looking somewhere else, without appreciating the opportunities at hand.

Differences Between a Career and a Job

  • Possession and nurturing of a dream.
  • An interest in pursuing and achieving, versus just doing something.
  • 20 hours a week.
  • Not knowing what a coffee break is.
  • Working smarter hours, not necessarily longer.
  • A career is not something that one retires from or puts on the shelf temporarily.
  • Thinking like the boss, whether or not you are it at this present position.
  • Money is not the dominant driving influence.
  • Training and professional development are rewards… not punishments.
  • The more you know, the more you realize what you don’t know…and proceed to learn.

Truisms of a Career… and Life:

  • Whatever measure you give will be the measure that you get back.
  • There are no free lunches in life.
  • The joy is in the journey, not in the final destination.
  • The best destinations are not pre-determined in the beginning, but they evolve out of circumstances.
  • Circumstances can be strategized, for maximum effectiveness.
  • You gotta give to get.
  • Getting and having are not the same thing.
  • One cannot live entirely through work.
  • One doesn’t just work to live.
  • As an integrated process of life skills, career has its place.
  • A body of work doesn’t just happen. It’s the culmination of a thoughtful, dedicated process… carefully strategized from some point forward.
  • The objective is to begin that strategizing point sooner rather than later.

The Moment of Truth

There comes a point when the pieces fit. One becomes fully actualized and is able to approach their life’s Body of Work. That moment comes after years of trial and error, experiences, insights, successes and failures.

Young people think that they can ‘have it all’ overnight. They don’t know how much they don’t know. Many aren’t willing to pay sufficient dues to ‘get there.’

As one matures, survives, life becomes a giant reflection. We appreciate the journey because we understand it much better. We know where we’ve gone because we know the twists and turns in the road there. Nobody, including ourselves, could have predicted every curve along the way.

However, some basic tenets charted our course. To understand those tenets is to make full value out of the years ahead. The best is usually yet to come.

Your output should be greater than the sum of your inputs. This is accomplished by reviewing the lessons of life, their contexts, their significances, their accountabilities, their shortcomings and their path in charting your future.

Alas, all of us practice Futurism. It is not an esoteric concept. It is a potpourri of where we’ve been, why we’ve done well and what we’re going to do about the lessons learned. That’s the wholistic, common-sense approach to Futurism.

About the Author

Hank Moore has advised 5,000+ client organizations worldwide (including 100 of the Fortune 500, public sector agencies, small businesses and non-profit organizations). He has advised two U.S. Presidents and spoke at five Economic Summits. He guides companies through growth strategies, visioning, strategic planning, executive leadership development, Futurism and Big Picture issues which profoundly affect the business climate. He conducts company evaluations, creates the big ideas and anchors the enterprise to its next tier. The Business Tree™ is his trademarked approach to growing, strengthening and evolving business, while mastering change. To read Hank’s complete biography, click here.