May 26th, 2009

How IT can help save the global financial system

Posted by Andrew Nusca @ 3:00 am

Categories: Business 2.0, Business Intelligence, Credit crisis, Disaster Recovery, Economy, Enterprise 2.0, Hardware Infrastructure, IT Management, Infrastructure, Innovation, Software Infrastructure, Sybase

Tags: Financial, Information Technology, Financial System, Framework, Financial Accounting, Financial Planning, Finance, Andrew Nusca

The ongoing global economic downturn, or “Great Recession” as it has been billed, exposed weaknesses in the U.S. financial system and the widespread interdependence of global financial markets.

But what about the weaknesses in the information technology infrastructure that makes the global financial system what it is today? How do we remedy the inefficiencies that led to delayed reactions to unbalanced balance sheets by firms in crisis?

I sat down with Sybase’s Dr. Raj Nathan, CMO and SVP; Irfan Khan, CTO; and Sinan Baskan, Director of Business Development for Financial Services, at ZDNet’s New York headquarters to speak with them about their new book, The New Data Imperative: Managing Risk Real-Time Risk in Capital Markets, and how IT can save the global financial system from itself.

Read the rest of this entry »

April 29th, 2009

Hey, Wired President. You Wouldn't Tax the Internet, the Cell Phone or the Tweet. Would You?

Posted by Tom Steinert-Threlkeld @ 1:33 pm

Categories: Communications, Credit crisis, E-commerce, Economy, General, Government, Politics

Tags: Tom Steinert-Threlkeld

Maybe it’s just me (and my wife).

We still put spare change into a piggy bank (a red pig, actually), as we go. Pays for a nice dinner, every now and then.

So it floors me, still, when I see the dimensions of the federal budget and how we pay (or don’t) for what we do.

Check this, but the federal budget is now $3.5 trillion. Okay. But the deficit is … $1.7 trillion?

This means our federal government only pays for half of what it spends by taxing you and me for it. The rest has to be borrowed.

That’s not going to keep up. China is already making noises about not buying more Treasury notes. And, why do I not believe that President Obama is going to be able to bring down the deficit as fast as he hopes and/or projects?

Doesn’t matter. The real worry is what happens when the crunch comes and our Wired President decides he’s got to find new sources of revenue to make ends meet.

Yeah, it’s cool to communicate with contributors, constituents and colleagues via the Internet and email. So, by extension, he’ll also be the first president to recognize the value of … taxing Internet and other electronic communications.

Let’s see.

• E-Commerce. There’s really no reason that an online store should have a sales tax advantage over an offline store. Stiff the States. Let’s levy a federal sales tax on Web shopping carts. Charge 4 percent on each buck. If online sales manage to hit $200 billion in 2010, that $8 billion more in the federal treasury.

• E-Mail. Hey, this is the Blackberry addict. Why are there no stamps on e-mail? States have tried to tax e-mail. But this guy – and his CIO and CTO – could figure out how to make it stick. If Americans account for even one-fourth of the 2 million emails sent a second in the world, that’s 1 million messages every four seconds and 8 trillion a year. A 4-cent stamp – one-tenth of what’s on a paper piece of mail – would generate … $320 billion a year. Now, you’re talking some real money.

And then there’s … the tweet.

Who knows how many 140-character messages are being sent every second, by Americans. But Americans love to send short text messages. And it’s easy to see another 8 trillion or so emerging here every year.

Pretty soon, communications winds up solving a lot of the revenue shortfall in this country. Heck, taxing authorities figured this out long ago. In New York, for instance, local, state and federal taxes add about 20 percent to the cost of a cell phone bill.

Now, if you were President Obama, you’ll avoid the use of communications taxes as long as you can. Would kind of undercut you with your Internet supporters that gave so many small contributions that you wound up in the White House in the first place.

But, if push comes to shove, and the budget refuses to balance, Barack Obama is a realist.

And he understands that cell phones, e-mail, text messages and tweets are eminently taxable.

If a federal cash crunch comes (hey, Bank of America, need another hundred billion?), don’t be totally surprised if he redefines what it means to be an Internet president.

IMAGE SOURCE: Geeksugar.com

March 3rd, 2009

Time to put banking executives on trial?

Posted by Phil Fersht @ 6:45 pm

Categories: Blogging, Credit crisis, Economy

Tags: HBOS Plc., Banking, Financial Services, Phil Fersht

As the sheer magnitude of the unfettered lending and borrowing that has taken place over the last few years continues to unfold, I am hearing more and more calls to put banking and government executives who failed to prevent this (or knowingly encouraged this) on trial.  I am inclined to agree with them.  The BBC’s Robert Peston just put out an excellent analysis of HBOS’s final earnings report as a discreet entity:

This corporate division generated losses of £6.8bn in 2008 from loans and advances to businesses of £116bn.  It has had to write off an average of 47% of those loans in this area that have gone bad. Almost 12% of all its corporate loans are now classified as impaired or damaged. And as a percentage of the total corporate lending book, the impairment charge is just under 6%.  On the basis of those statistics, HBOS appears to have left a big bag of money open on the pavement with a sign saying “borrow what you want”.

How can you give out over $100 billion in bad loans?  In Spain, for example, their banking system, which has been one of the least affected by the crisis, operates using dynamic provisioning, where each loan mustbe underwritten with capital in the banks’ reserves.But what has transpired in the US and UK banks is tantamount to executives knowingly driving their businesses into the ground at the expensive of getting fat and happy themselves.  It’s like hundreds of these executives were riding tigers without knowing when to get off. If I hear one more jingoistic anti-offshoring argument about the fact that a whole industry should be tarnished because a single service-provider was caught cooking the books… how about a whole industry cooking its books?

February 28th, 2009

Is the call center finally coming onshore?

Posted by Phil Fersht @ 9:20 am

Categories: Credit crisis, Economy, Offshore outsourcing, Outsourcing

Tags: Agent, Call-center, Call Centers, Customer Relationship Management (CRM), Real Estate, It Operations, Enterprise Software, Software, Business Operations, Phil Fersht

We had a great discussion a few weeks’ ago regarding the USA’s potential to take on more sourcing work, with increasing unemployment and downward wage pressures.  I’ve made this point a few times now, but BPO is clearly the bigger onshore opportunity than mainstream application services for the US to muscle in on sourcing work.  And where better to start than the call center?

Bottom-line, President Obama should take a leaf out of Margaret Thatcher’s book and examine simple effective ways to provide productive and sustainable employment in depressed areas where industry is in a terminable decline.  I never voted for old Maggie, but she did do one very smart thing during her tenure as British PM - she closed down unprofitable coalmines during the 80’s recession, and encouraged businesses to set up call centers in depressed British cities.  Now there are over 650,000 call center employees across the UK.  Wages in the UK are competitive for qualified staff - and they don’t command ridiculous healthcare premiums.  (I just saw one main healthcare insure just increased its premium by 20% this year).  While there are some good investment ideas inthe stimulus package, I would have liked to have seen some focus on business service support areas - as we discussed here.

Protectionist sentiment is swelling. The Buy America provisions in the stimulus bill are symbolic of the increasing resentment towards jobs and work going overseas. I have already seen this provision included in some sourcing RFPs from healthcare organizations and other companies benefiting from bailout money, or with significant public sector influence.

With over two-thirds of Americans filing first-time unemployment claims for the week ending February 21 to bring the total to over 5.1 million, this tide will surely rise. Over the past decade there had been considerable leakage of domestic customer service agent seats to offshore locations. Customer service is returning back to the country, literally. Inspired by the Canadian model and technological advances, customer care is increasingly being delivered from rural America.

The customer service rep is the organization’s ambassador to the caller. The human voice provides the company’s human face. Much of the time when the customer calls it is because something has gone wrong. If the caller cannot understand the agent due to accent issues and/or communicative styles, the problems are compounded. The caller can become agitated and the company may wind up losing a customer. In the present economic environment, just hearing a foreign accent could trip the trigger. Losing dollars chasing dimes is not wise.

Earlier in this decade, there was a mad dash for the low-wages on offer in India - and more recently the Philippines and low-cost Latin American countries such as Peru and Nicaragua. Everything was thrown over the wall once telecommunications technology and the associated costs became less of an issue. A Mercedes Benz owner was furious when connected with an offshore agent, “How can somebody help me with problems related to my car when they have probably never even driven one?”

Like Britain in thn 1980’s, Canada has also explored ways to grow its economy, concludingthat the stability of the nation and its people were major assets. It was determined that the call center industry to serve the American market presented an excellent opportunity. Beginning in the late eighties, strategic initiatives were put in place involving tremendously unified efforts by all levels of government and higher education. These efforts were initially intended to address economic woes of unemployment in traditional industries and leverage the value of the Canadian dollar.

The programs proved to be successful, particularly in more rural areas. The Canadian turnover rate was consistently a third of US. As there was less competition in rural areas from other industries for workers, there was far greater retention and a seasoned experienced workforce developed.

American providers have noted the formula along with being able to take advantage of the lower cost of living in many rural areas. Additionally, wages are lower with a reduced turnover rate adding to the value proposition. Human resources consultant FurstPerson reports in its 2008 Call Center Recruiting and Compensation Survey that the average cost of attrition per agent is $5,466.32. Consequently, call center providers are increasingly leveraging opportunities in areas with smaller cities, particularly in the Midwest.

One such provider is West Direct headquartered in Omaha, Nebraska (the oft-dubber “call-center capital” of the US). The business model is based on having 39 contact centers around the country, mostly in cities with populations ranging from 50,000 to 150,000. West Direct also employs home-based agents.

By offering telecommute positions; a much wider net can be cast to attract agents in outlying areas. The employee saves time on commuting and the cost of fuel. The employer is able reduce the costs of a seat in a brick and mortar center while frequently attracting high quality employees at a lower wage. It is common for the churn rate to be in single digits for home-based agents.

Technology, high-speed connections, and Web based applications has enabled companies to tap into rural America with its strong work ethic. Customer care can be domestically delivered at an attractive price point with callers being greeted by a fellow American.  I’ll wager $100 we have new call center development in Michigan before 2009 is over.

February 11th, 2009

Don’t Bet On The Calculator. Bet On The Thinker.

Posted by Tom Steinert-Threlkeld @ 2:22 pm

Categories: Business Continuity, Business Intelligence, Credit crisis, Datacenter, Earnings, Economy, General, Telecommunications

Tags: Goldman Sachs & Co., Pricing, Financial Accounting, Strategy, Marketing, Finance, Management, Tom Steinert-Threlkeld

Sure, Goldman Sachs thinks it knows best or it wouldn’t have created its own digital system for analyzing financial risks it faces, aka its SecDB database and security pricing system.

But that is not what has protected it from making the kind of huge missteps in housing credit instruments that felled Bear Stearns and Lehman Brothers and are forcing Citigroup to break itself, to survive. (And made Bank of America want to break off its merger with Merrill Lynch).

“Almost everybody can get access to almost all the same models and there are very few advantages from proprietary models. So in this kind of game, everybody wants the fastest car,’’ said Robert Arvanitis, principal of Risk Finance Advisors on the ZDNet interactive discussion “Calculated Risk: Goldman Sachs’ Golden ‘Gut’ “ held Wednesday afternoon. “But in a race, you really bet the driver, not the car. You bet the rider, not the horse.’’

The drivers at Goldman include CEO Lloyd Blankfein, 10-year CFO David Viniar, who made the call to reduce exposure to housing payments in December 2006, Gerald Corrigan, a former head of the New York Federal Reserve Bank and Henry Paulson, Blankfein’s predecessor, who ran the U.S. Treasury Department during the height of the credit crisis in the fall – when even Goldman Sachs’ survival seemed at risk.

The company’s use of SecDB and its thinkers’ own analysis of market events was again evident this morning in this Bloomberg report, which noted that Morgan Stanley and Goldman Sachs share are gaining ground. And cautiously asserted “the worst of the writedowns may be behind them.”

Citigroup has taken $85.4 billion in writedowns, losses and credit provisions since the beginning of the financial crisis. That compares with $40.2 billion for Bank of America and JPMorgan’s $29.5 billion. By contrast, Morgan Stanley has written down $21.5 billion while Goldman Sachs has taken a $7.1 billion hit to earnings, according to Bloomberg data.

“You have to admit that in many, many, many ways, every firm is pretty much the same. They all use the same airplanes, they all use the same equipment, they all use the same services, they all wear the same clothes. In a whole bunch of different ways, they’re identical.,’’ said Charles D. Ellis, author of “The Partnership: The Making of Goldman Sachs” (Penguin, 2008). “So the visible differences are small, but, boy, are they decisive.”

He puts the decisive differences down as cultural, more than technological, discipline.

• Recruiting. Tougher, more rigorous, more disciplined hiring of exceptionally talented “natural leader type of personalities” than competitors, “by a substantial margin over time.” Looking at only the top 5 percent of recruits, by its measures – and then weeding out those that still don’t measure up in the first two or three years of employment.

• Ego-lessness. Even with all that talent, “no egos are allowed to show themselves at Goldman Sachs,’’ he said. “You better be comfortable inside your own skin. If you’ve got a need to be more important than the guy next to you, out you will go.’’

• Teamwork. You’re very likely to be the co-head of a committee or task. Get used to it. Make it work. And even so, at Goldman, you defer at all times to the person who knows the most about a subject, when making a decision.

• Communication. No hierarchy. No stopping. One-half hour of voice mail and email before you go to bed. One half-hour when you first wake up. Keep messaging on way to work (a driver helps). Expect to respond within one hour. Must respond within 24 hours.

• Speed. The more “nodes” in your network the faster you communicate.

Then there’s anticipation – and caution. And analysis of worst-case possibilities, before they happen.

“In ’87, when they had the BP (British Petroleum stock) offering and the market took a dive down 23% in a single day, every single dimension of that possible negativity had already been scoped out and put in a written report that went to that committee. The focus on what could go wrong and how it could go wrong, gets you in a mindset and a discipline that is different. That’s a tremendously big advantage,’’ said Ellis.

So, if you’re driving a risk analysis system, drive it hard, said Ron Papanek, head of RiskMetrics Labs. Maybe you didn’t really expect to see a lot of defaults, when the S&P/Case-Shiller Index of housing prices started to move down in the last half of 2006.

“Even if you did not foresee an extremely high default rate, it’s critical to stress the portfolio as if there was a high default rate,’’ he said. “And exceed the expectations in some of the stress tests because that gives you a very clear picture of what the potential losses can be in a portfolio.’’

But in the end, it may not take more than really gathering pertinent facts that are out in the open in the marketplace – or coming in from the “nodes” in your network.

“It’s an intelligence gathering that can really only be done at the end of the day in the front of the human brain and not on paper,’’ said Arvanitis. “Remember: Flight simulators don’t make you a pilot. War games don’t make you a general. And models don’t make you a financier.”

–

The complete discussion will be available here, for playback.

The original ZDNet report on how Goldman Sachs calculates risk can be downloaded here.

February 10th, 2009

Think before you fire: The cost of replacing IT talent

Posted by Phil Fersht @ 2:54 pm

Categories: Credit crisis, Economy, IT Management, Layoffs

Tags: Cost, Talent, Information Technology, Strategy, Management, Phil Fersht

There’s currently a certain sense of déjà-vu within the IT community, as companies look at shaving even more cost out of a function that has been battered since the 2001 dot-com bust. However, when we look at the lessons of the past, you do have to question companies which decide to sharpen their knives once more when they address their IT costs. Companies need to offset the cost of every layoff with the cost of replacing that talent when the economy improves. It is not so much who is left standing, but rather who is in position to grasp the brass ring of prosperity when it returns.

If economic conditions improve in 2010, then the amount of costs saved by releasing an employee may only be $50-100K by the time all the lay-off costs are incurred. How can you put a price on replacing the inherent business knowledge of that staff member when you re-hire a replacement? It may take another year or two to get the replacement up-to-speed, and will not only end up costing you more, but may also impede your executives from accessing critical data in a timely fashion. The overall cost of replacing that staff member could easily be three times the costs saved by laying her off. And these easily-identified direct costs are only the beginning; the costs incurred to your culture and morale can prove even more damaging.

There are lessons to be learned from those who did it right and those who failed to do so during the recession of 2001. The frequently cited observation by George Santayana warrants consideration, “Those who do not remember the past are condemned to repeat it.” Furloughed IT employees in the RIF of 2001 were often reluctant to return to their previous employer. Having been viewed as expendable, the trust and bond between the two may have become a casualty. Often the company belatedly discovered the employee was not at all expendable.

Companies often failed to realize that internal technology is an ongoing work in progress with parts of the past moving forward into the future. With essential team members no longer on board, projects bogged down due to a loss of internal expertise. If new employees were brought in, there were reduced capabilities with a learning curve to scale brought on by a unique IT environment.

IT is the glue that provides the connectivity within an organization and stakeholders. Every environment is unique, often featuring proprietary software and customized legacy systems. The complexity and diversity that results are best left in the hands of those who understand and are familiar with it. In 2001 firms laid off across the board only to discover that when times improved and IT projects resumed, many key people needed to implement them were no longer available. When entering into new engagements, some companies discovered that the chickens had come home to roost and that they were in the coop.

Whether outsourcing or aligning with business partners, management teams are built involving IT. And while outsourcing provides access to technical skills to support your tactical software support and maintenance, it rarely provides the inherent understanding of your business processes and environment that several of your key staff have.

Companies facing the challenges of 2001 with the foresight to prepare for renewed business opportunities in the future fared well. Instead, being reactive to the recession, they became proactive in their business. As opposed to across the board cuts, they applied due diligence and root cause analysis into their business. They prioritized strategically. In so doing, they were able to make adjustments to reduce unneeded expenses. Much of this involved taking advantage of global labor arbitrage for routine work. They also invested in initiatives to improve the business, often involving technology. It became apparent that the success of these initiatives was very much tied into keeping their key IT in-house people on the team.

There is a form of a parable concerning competitors who are prepared and those who are not. Two friends were walking in the forest when a bear came after them. They both turned and fled. One was not in very good condition and he breathlessly called out to his fit friend who was jogging along ahead, “You need to outrun the bear!!” “No I don’t,” came the reply. “I only need to outrun you.”

The current economic morass will not produce winners, but it will produce companies that are in more favorable positions to take advantage of opportunities at the expense of their more sluggish competitors when times improve. Cutting people that shouldn’t be cut can be cutting your own throat.

Feel free to check out my personal blog “Horses for Sources” for more articles,

Phil Fersht

February 10th, 2009

Uncalculated Risk: The Fall Of Housing Prices. What Goldman Saw.

Posted by Tom Steinert-Threlkeld @ 8:04 am

Categories: Business Continuity, Business Intelligence, Credit crisis, Datacenter, Earnings, Economy, Enterprise 2.0, General, Government, IT Management

Tags: Goldman Sachs & Co., Financial Accounting, Security, Finance, Tom Steinert-Threlkeld

This is the U.S. Census Bureau’s graphing of housing values from 1940-2000.

Nationally, housing prices march upward for six uninterrupted decades.

This kept up for another six years. But as the S&P/Case-Shiller Index, below, shows housing prices — nationwide — peaked in the second quarter of 2006. And have been falling since.

This is the kind of monumental change that ought to wake up anyone that runs risk assessment programs against their portfolio of complex financial instruments. Particularly, if the underlying securities are home loans.

In fact, it wouldn’t take a sophisticated piece of software to make the call to get out of mortgage-backed securities, as soon as housing prices began to fall.

But the only investment bank to make the call before 2006 ended was Goldman Sachs. Which was even able to make a profit out of selling housing derivatives short and accumulating credit default swaps. For a while.

What is it about Goldman’s culture and systems that makes it entertain the notion that it should swim against the stream, even if trading in a given class of securities is still hot?

That question was the subject of a ZDNet Undercover report, published here yesterday. And if you want to understand the culture, financial characteristics and risk systems involved in making such a call, tune in at 2 p.m. Eastern time Wednesday (February 11) — tomorrow — for a interactive discussion with:

• Charles D. Ellis, author, “The Partnership: The Making of Goldman Sachs” (Penguin, 2008), who will discuss the nature of the Goldman culture, after 139 years of development.

• Robert Arvanitis, principal, Risk Finance Advisors, who will parse the ways securities risks are analyzed. He is a former managing director at Merrill Lynch, where he was head of its Global New Derivatives practice.

and,

• Ron Papanek, head of the RiskMetrics Labs at RiskMetrics Group. This is the outfit spun out of JP Morgan that first delivered something called the “4:15 Report” and set up the principles behind figuring out what value is at risk, in daily trading of securities.

You will be able to use your keyboard to ask questions of these corporate, finance and technical experts on this ZDNet Webcast examining just how risk gets identified, evaluated and calculated. And how the principles can be applied and deployed in organizations whose operations or businesses are not based on Wall Street or securities trading at all.

Here’s the signup page for Live Webcast: Calculated Risk: Inside the Billion-Dollar ‘Gut’ of Goldman Sachs

February 9th, 2009

Calculating Risk: Panning for gold in Goldman's 'gut'

Posted by Tom Steinert-Threlkeld @ 8:16 am

Categories: Business Continuity, Business Intelligence, Credit crisis, Datacenter, ERP, Economy, General, IT Management, Innovation

Tags: Merrill Lynch & Co. Inc., Goldman Sachs & Co., Mortgages, Strategy, Financial Services, Finance, Capital Structures, Management, Tom Steinert-Threlkeld

All five investment banks that existed a year ago are gone.

These are firms which put their own capital and the capital of big institutional and individual investors at risk, to merge or acquire companies. And were supposed to be experts at identifying, evaluating and acting on risks, before they took their shareholders or themselves down.

The risks were largely ignored, as they tried to make killings on that and trading in all forms of complex securities, including the now much-maligned batch known as mortgage-backed securities. Pools of mortgages sliced up into different pies of stuff known as “collateralized debt obligations.” No one wanted to believe the most obvious risk: That housing prices can go down, not just up.

Bear Stearns, bought before it failed by J.P. Morgan Chase. Lehman Brothers, allowed to disappear. Merrill Lynch, bought on the cusp of failure by Bank of America (causing it to go wobbly). Morgan Stanley and Goldman Sachs, turned into depository institutions, aka bank holding companies.

But even the most gold-plated of those bankers have had to fight to survive. And are not out of the woods, by a long shot.

The one with “gold” in its name is Goldman Sachs. ZDNet Undercover looked to find out whether Goldman deserves its reputation as having the most “golden gut” of all the investment banks. And, found (a) the reputation had foundation, but that (b) it’s not enough to stave off a wholesale shrinkage of its business and its bottom line, when an entire industry has bet on ever-rising housing prices. And been, collectively, wrong.

Goldman Sachs avoided commercial risk evaluation software and systems. In its examination, titled “Calculated risk: How Goldman Sachs stepped back when others didn’t,’’ ZDNet Undercover found that Goldman Sachs – using sophisticated house-built systems for analyzing the risks it faced in the complex securities it was investing in — succeeded early on in the pricking of the real estate bubble by betting against indices of securities that were derivatives of home loans and accumulating insurance against defaults. In effect, it passed along its exposure to the collapse of risky mortgages to Merrill Lynch, the investment manager, and AIG, the international insurance agency.

But it was a very short-lived victory. In the third quarter of 2007, Goldman, by sensing in its bones that a collapse was possible, earned a $1 billion profit, by betting against mortgage-backed securities. Merrill Lynch took a $2.2 billion loss on an $8.4 billion writedown. Citigroup wrote off $5.9 billion, then another $8 billion plus.

“We didn’t get everything right, and there are more than a few decisions we’d like to take back,’’ chief executive Lloyd Blankfein told attendees of a Merrill Lynch financial services conference in November.

Goldman’s “net revenue” from trading in mortgage-backed securities and other complex instruments was $31.2 billion for all of 2007. Last year, it contracted to $9.1 billion. Most stunningly, that trading turned negative in the fourth quarter. Its revenue was minus $4.5 billion. And that’s the top line for business activity. No surprise at all that Goldman reported its first-ever loss on the bottom line, at $2.1 billion for the quarter.

Now, let’s see whether Goldman Sachs can report a profit for the first quarter of its new year, or if the slide continues.

Jeff Zucker, having done so well with an American version of “The Office,” is probably about to engage Simon Nye to begin penning a series for NBC entitled “Bankers Behaving Badly.”

American lenders never seem to learn from the past. The nation’s savings and loans went nuts in the ‘80s, financing condos for tenants who did not exist. There were crooks, too, flipping properties with alacrity, thanks to friendly title agents and property value assessors, who made money by being in cahoots.

In this epoch, the problem was group-think. Every bank wanted to party as long as every other bank was partying. No matter what the government or public thought. Things would have to work out, because these were the smartest folks on the planet. Even on his way out, Merrill Lynch CEO John Thain, a Goldman Sachs alumnus, wondered how Bank of America could possibly survive without him. He who had the smarts to renovate his office for $1.2 million, while his company was losing billions. Now, Thain will be remembered for that, not moving the New York Stock Exchange in the 21st Century or, as he would like, rescuing Merrill Lynch from passing into oblivion.

His former colleagues at Goldman must have grimaced. They had shown that, even in this age of automated trading and automated risk analysis, the most important factor in succeeding in a financial nightmare was … good judgment. The willingness to identify when markets have turned. To generate the numbers. But look honestly at the numbers – and behind the numbers.

Then, make the call first. Goldman Sachs uses risk analysis systems to support what looks to the outside world as a seemingly intangible thing known in popular terms as a ‘golden gut.’ Go here to see how that gut is fed.

February 7th, 2009

Forget 2006, let's go back to '96

Posted by Phil Fersht @ 9:37 am

Categories: Credit crisis, Economy

Tags: Salary, Benefits, Payroll Solutions, Personal Finance, Food & Beverage, Human Resources, Manufacturing, Phil Fersht

Like many of you, I have been waking up in the middle of the night wondering what’s going on with the global economies and how the world will look in a few months when we adjust to the new economic reality.  I started thinking about about the world when people lived within their means, took a job for a job’s sake, and could plan for the future.  It then hit me hard - things have simply fallen out of proportion. 

When I graduated in ‘94 there weren’t a lot of high-powered careers available to graduates - you took what you could get and worked at it until something better came along.  I actually started off in customer relations for a burglar alarm firm… doesn’t make my LinkedIn profile, but it actually started me off on a track that somehow got me here (and I did have some hilarious conversations with London celebs with their alarms wailing in the background).

Let’s talk about proportion and focus on the two staples in life - food and shelter.  By 1996, I was flying high as an analyst earning a whopping $30K a year (about the same as an Oracle developer in Bangalore today).  I also purchased an apartment for $100K.  In those days you could borrow 3 times your annual salary - that was it.  The cost of groceries was about $40 a week, and a good restaurant meal was never more than $35 a head.  I’ll stop there.  While my salary seems terrible by today’s standards, I didn’t build any debt and I had a mortgage that was manageable for a property that was fairly valued.  Life was good, and I slept well at night.

Take 2008.  The equivalent salary for a graduate-level analyst is about $50K.  The cost of that equivalent apartment is $300K (6 times the salary), weekly groceries $75 and a good meal $60 (if you’re lucky and the wine’s cheap).  There’s no feasible way you can enjoy the same quality of life without mortgaging yourself way beyond your means and delving deep into credit-card debt.  What’s worse is that debt has become part of life for so many people.  And that’s precisely what happened, and now everyone’s paying the price.

The optimum way out of this crisis is for these proportions to be redressed, however painful it may be. 

January 30th, 2009

Tipping Point Reached For Cloud Computing?

Posted by Tom Steinert-Threlkeld @ 1:48 pm

Categories: Business Intelligence, Cloud computing, Credit crisis, ERP, Economy, General, IT Management, NetSuite, SaaS

Tags: Software-as-a-service, Software As A Service (SaaS), Managed Hosting, Cloud Computing, Tools & Techniques, Pricing, Emerging Technologies, Management, Marketing, Tom Steinert-Threlkeld

Has the tipping point come for software to be widely adopted as an online service?

William S. McNee, president and CEO of Saugatuck Technology in Westport, CT, believes it has.

He says that mainstream adoption within small and medium-sized businesses is “accelerating” – and that 20 percent of enterprise IT workloads will be run “in the cloud” by 2013.

This will lower operating costs, reduce IT staffs and cut down on carbon footprints, he says.

Speaking recently at a forum sponsored by a software-as-a-service purveyor, NetSuite, held at the New York Stock Exchange, McNee said, “On-premise solutions are going to drop off the cliff.”

Basing his comments on a survey by Saugatuck of 150 chief financial officers with budget authority, he said the movement toward what increasingly is being called “cloud computing” will put not just payroll and other administrative processes on remote servers and software, but “mission-critical computing,” as well.

The chart atop this story shows, in red, the applications that Saugatuck expects to see the greatest acceleration in adoption this year and next. Whereas only 18.3 percent of companies said they would use some form of software as a service in their finance and accounting operations by the end of 2008, twice as many, or 39.3%, expect to by the end of 2010. Also rising rapidly: Compliance and risk management, procurement, and business intelligence applications.

Driving the movement is an expectation that new services can be unrolled faster, improvements made behind the scene without staff, ease of integrating services not just by application but across geographies and countries, and lower total costs, compared to in-house applications. That will help the CFOs fill in an estimated two-thirds of the gaps they face in meeting their ROI goals over this span of time, he said.

The survey was taken in summer 2008, before the Fall brought a credit crisis and global economic slowdown. So the gaps could be bigger, now.

Nonetheless, by the end of 2010, in fact, he expects 70% of companies will have deployed at least one application in the service “cloud.”

Putting computing into the cloud makes it easier to update and integrate services. McNee asserted that more than 70 percent of SAP’s installations of its R/3 set of business applications predate 1998.

January 27th, 2009

What goes around comes around

Posted by Phil Fersht @ 8:53 am

Categories: Credit crisis, Economy

Tags: Humility, Friend, Professional Development, Recruitment & Selection, Career, Human Resources, Workforce Management, Phil Fersht

This credit-crisis-fueled recession is testing us far more deeply than merely everyone shaving a few costs while we ride this sucker out. And while it hurts, a little pain should bring about some positives that go far deeper than mere penny-pinching. We need to dig deeper to understand more about what makes us good people: fun to be with, smart to do business with, and decent returners-of-favors. I have always (somewhat naively) operated on the “what goes around comes around” principle, but I truly believe these times will help many of us get what we deserve. I don’t mind doing people favors – I just don’t do them twice if the first one never got returned when I needed it.

But we will come out of this, and we will emerge a bit smarter, a bit leaner, a bit more streetwise, and I firmly hope this will bring the best qualities out of us. We may emerge a few percentage points poorer than when we went into this, but the world we will be living in should be one where we help each other out more, and appreciate what we have.

When I look at the way many corporates and people behaved during the greed years, I sincerely hope these experiences bring a degree of humility to us all. I live and die by my friendships – whether personal or work-related, and I know many of you who have the same principles will get through the next couple of years. However, we all know people who just focus on what they can get out of others and rarely put back – those are the people I fear for in this economy, and I hope learn to act with more humility as a result.

Anyway, I will finish this little diatribe with a couple of points about how to treat our friends and colleagues:

People: remember who your friends are. Stop thinking just about your career and your self-interest, but take some time to get to know people a little better – and not simply those aspects that can further your own goals and ambitions

Work: use this episode to get smarter at what we do. Focus heavily on providing value and put in a little extra time and effort. If you are lucky enough to be in a job, remember the unluckier folks who helped you along the way, and take some time to see if you can help them out. If you are one of the unlucky ones, call in your favors – you will quickly learn who your real friends are…

January 18th, 2009

Are we demonstrating value?

Posted by Phil Fersht @ 5:16 am

Categories: Credit crisis, Economy, Layoffs, Outsourcing

Tags: Revenue, Staff, Professional Development, Operational Accounting, Career, Finance, Phil Fersht

When we talk about “change”, we’re not just talking about Washington or Detroit.  We also need to include OURSELVES.

The events of the past couple of months have given us all pause for thought with our careers and what we’re going to be doing in a couple of years’ (or weeks’ / months’) time. 

We had a great discussion a few months’ back when we talked about the challenges of staying relevant in today’s corporate climate, and this current economic shift is driving this need for relevance right down to all employees in the organization.  The “relevance” discussion now goes far deeper than roles and responsibilities, it goes right into demonstrable value-add, and the ability to impact revenue.  Whether you work in sales, operations, finance, marketing etc., you need to be able to tie what you do to your company’s mission and revenue stream.

Bad recessions bring out different reactions from companies with their approaches to steadying the ship and readying themselves for sustained profitability.  These reactions nearly always result in staff reductions, reorganizations and aggressive means of reducing both variable and fixed costs.  Past recessions have resulted with most companies “snipping” costs without changing their business models, and several firms even kept hold of all their staff and rode out the downturn in anticipation of recovering much quicker and stronger than their competitors.  Most of the snipping was focused on low-performers.

This time is different.  Most companies - right now -  are snipping staff who do not directly impact their revenue, whether they be a low or high performer.  Staff who may be incredibly talented, but focus on activities which are peripheral to the company’s core revenue-generation, are at risk in today’s corporate environment. 

Employees at risk in today’s corporate climate:

1) Staff working in new product lines which are yet to have matured, or are considered discretionary in this environment;

2) Staff in management roles that are largely administrative and have limited involvement in direct sales / client relationships;

3) Staff who are unpopular and considered to have a negative impact on revenue development;

4) Low-performers, which the company has wanted to shed for a while and now see the long cold winteras a chance to ease them off the payroll with limited reproach.

And if you are unlucky enough to get caught in the cross-fire, your next challenge is to understand why this happened.  Most likely, you were unlucky and need to find a new opportunity that aligns you with another firm’s core revenue channel.  But if you dig really deep, you may have to concede that you need to develop your skills and knowledge to make yourself attractive to future employers, so you can directly impact their core businesses.  I believe we’ll see many people seeking career changes in the coming year as they concede their current skills and experience are no longer as relevant as they once were. 

New growth and investment areas, such as health-care, renewable energy, new technology development, are going to be the lucky recipients of an influx of talent willing to retrain for long-term career security. Moreover, jobs in the public sector and education are now appearing far, far more attractive than they were a couple of years’ ago.

All-in-all, we’re moving into an environment where some industries will find their feet, others will decline and some may die altogether.  Many people will be refocusing their careers in new areas that they may not have envisaged in the recent past.  One thing is clear - we are in new era where people are going to have get used to change and learn to adapt themselves to new job roles, new routines… and new expectations.
 

January 14th, 2009

Beware of Satyam ambulance-chasers

Posted by Phil Fersht @ 5:12 pm

Categories: Credit crisis, ERP, Economy, General, Government, Offshore outsourcing, Outsourcing

Tags: Satyam, Service Provider, Business Services, Phil Fersht

I’ve been inundated with questions from Satyam’s competitors who have all been eagerly circling the beleaguered service provider’s clients over the past week. As discussed in my recent post “Satyam: It was like riding a tiger, not knowing how to get off without being eaten“, I do not believe customers can easily sever their existing services relationships with Satyam without significant issues re-badging personnel, losing critical operational staff, and the expense of transferring H1B-Visas. It often takes clients two-to-three years to establish an effective working relationship with their service provider and we are concerned with the advice several service providers are giving Satyam’s clients that switching will be quick, easy, uneventful and at minimal incremental cost.

While the future of Satyam hangs in the balance, my advice to clients is to remain patient in the short-term before evaluating their future options. Yes, clients should be concerned and seek reassurances from Satyam regarding any imminent service delivery issues. However, they should disregard the propaganda coming from several of Satyam’s competitors and the mainstream media, where many business publications are eager to tarnish the image of offshore outsourcing.

Should Satyam be acquired (which I believe likely), then there may be few compelling reasons to move to alternative service providers in the short-term. However, should Satyam start to lose critical staff and it’s execution suffers significantly, then clients may have little choice but to jump ship and go through the switching pain. My view is that customers can afford to wait for at least a few weeks to evaluate the situation. It does appear that the Indian government is likely to lend some short-term support to the ailing service provider as it struggles with short-term financial liquidity, so there should not be major cause for panic at this time. 

December 31st, 2008

Outsourcing Predictions for 2009

Posted by Phil Fersht @ 7:54 am

Categories: Credit crisis, Datacenter, Economy, IT Management, Offshore outsourcing, Outsourcing

Tags: BPO, Service Provider, Outsourcing, Business Process Outsourcing (BPO), Managed Hosting, Business Services, It Operations, Business Operations, Outsourcing & Subcontracting, Phil Fersht

It’s going to be a pivotal year in the global IT and BPO services business as companies seek to get more for less with their budgets.  How will this impact the world of global services delivery and outsourcing?

Low-hanging fruit outsourcing with immediate cost-savings will be strong.  As we discussed and surveyed here, it’s areas where enterprises can streamline initial costs over a contract and get an immediate impact on the bottom-line.  That’s bread-and-butter application outsourcing, high-arbitrage BPO areas such as Finance & Accounting  and vertical-specific analytics (that KPO stuff).  I am also expecting increased adoption of procurement BPO models as increased procurement and supply management work is moved offshore, and buyers can benefit from labor arbitrage to underpin the transformation costs that have held back adoption in the past. 

Many initiatives which require incremental upfront investment that cannot be tied directly to revenue-metrics will suffer.  The back-end of Q1, Q2 and Q3 2009 will be busy times for outsourcing deal activity.

The onshore/offshore decision-process is reversed to “why should this stay onshore?”  The traditional evaluation methodology for companies’ outsourcing and offshoring opportunities is fast-changing.  Rather than companies determining which processes can be carried out from a remote location, most will be determining why processes need to be carried out onshore. 

Services firms will be forced to consolidate.  With deals getting smaller and more plentiful, combined with renewed pressure on services firms to hold-back on hiring, the need for added global scale and staff resources, process and technology expertise, are going to drive consolidation at a much more aggressive pace than we saw in 2008.  Most outsourcing service providers are currently waiting out the year to get a firm picture on how to address their go-to-market strategies after the New year.  I predict these to take several forms:

• Large service vendors going for a pure scale-play.  Like HP/EDS, we will see more mega-mergers to ramp up into that “mega IT-BPO” provider bracket.  The “big 3″ could pull away from the rest of the market for some mega-deals and we will likely see other service providers combine to challenge. 
• Offshore captive cherry-picking.  There are some high-quality captives that are ripe for acquisition, that can give providers immediate entry into new industries, or consolidation in existing ones.  In many cases, it is more appealing for service providers to invest in buying up clients than each other, but further devaluations in the stock prices of many service providers will create tough investment decisions for ambitious providers.
• Increased blending of IT-BPO offerings will drive vendor acquisitions.  In many situations today, BPO is becoming a natural extension of an ITO relationship.  This is especially the case where the service provider is willing to take on industry-specific processes that augment the IT services, for example supply chain merchandising with retailers, or check-and-lockbox services in financial services.  There are simply not going to be “world-class” captives for sale to fulfill every industry need, which is going to force many providers to seek mergers.  I anticipate some strategic acquisitionsbetween BPO-centric and IT-centric vendors.  Those that choose to remain as pure-IT, or pure-BPO will get forced into the middle-market to scrap for smaller engagements.

Global HR strategies are moving to the top of the agenda.  As we have discussed-to-death on this blog, one of the most redeeming facets of outsourcing is to become more competitive globally, to use a service provider’s skills and resources to enter new markets, or divest from others.  One area of note has been the increase in firms moving onto global HR models where they have a much more integrated view of their global organization and can make much faster, more informed, decisions about their business and their workforce.  The recent revival in global payroll and HR-IT outsourced services is testament to this growing need for firms to globalize their workforce data.

Survival of the fittest.  Let’s not beat around the bush here… we’re in for a very tough economy, budgets are being cut across the board and companies won’t be increasing their spending on IT and business operations.  They are going to use outsourcing as a vehicle to save money, and - hopefully - increase their competitiveness.  So, while we can expect to see increased spending on lower-cost services with a strong offshore element, we are already seeing many areas of planned spending put on hold - for example, costly software upgrades, or business transformation initiatives. Hence, the competition for the outsourcing dollars is going to be increasingly intense as revenue opportunities for services firms are already drying up in other services markets.  Many of the smaller service providers, which are more focused on staff-augmentation delivery and discretionary projects, are going to struggle. 

At the same time, it’s a great opportunity for the well-resourced providers to edge out smaller low-cost competitors and increase market share as they use this tough market to their advantage.  Shaving small portions of cost isn’t going to make a huge difference to many firms - they will have to make bold and radical decisions to survive.

December 6th, 2008

After the wake-up call: time to focus on our young talent

Posted by Phil Fersht @ 6:22 am

Categories: Credit crisis, Economy, Education, General, Innovation, Offshore outsourcing, Outsourcing

Tags: Expectation, Talent, Recession, Professional Development, Workforce Management, Career, Human Resources, Phil Fersht

As painful as this current economic climate is, we really need to start looking ahead to the positive changes that times like these can bring in the long-term when we recover. Recessions normally occur when many years of bad habits culminate, where certain things were progressing down the wrong track and, finally, the bottom fell out of the market and woke us all up. And, this time, the wake up call is a very loud one.

To correct our future, we need to focus on where our future is going to be molded - our young talent.

So how could this play out?

Career expectations will be re-set. I’ve had this conversation with several people across both the US and Europe in recent weeks: one common theme has been about career expectations of our younger talent. I recall graduating from college in 1994 and there were very few “exciting” jobs available for graduates - you took what you could get, and built your experiences.  If you ever get me out for a beer, I may share a few of mine…

These days, most of our graduates seem to want to bypass the first couple of rungs of the ladder, not satisfied to get some ground-up experience before making the big dollars. Graduates in China, India, Philippines and Romania don’t seem to mind taking on some grunt work to learn the ropes. It’s not that we’re mismanaging our young talent, we’ve just created an unrealistic environment that breeds unrealistic expectations. You can even buy advanced software today with algorithms to predict when your key staff may quit, but how about doing something about why they may want to quit in the first place?

The globally-integrated economy will emerge stronger. Meanwhile, the eagerness of developing economies to get a taste of the good life has crept up on us – as we discussed here. Unfortunately, for developing nations, their fortunes are very much tied to ours, and are catching the germs from Wall St. But it wasn’t only Wall St, at the center of this crisis, it was the culmination of years of fat-living and overheated expectations. I take heart in the fact we’re all in this together this time – in past recessions, investors would divert funds into new areas of growth, such as the BRIC countries, however, this time the new growth opportunities are being centered on areas such as transforming flagging industries, investing in new sources of renewable energy, in education and research and revamping broken healthcare systems. It’s going to be painful as the demand isn’t there yet, but I cling to the hope that astute stimulus packages will eventually grease these rusty wheels.  This time, the governments have become the new investors, not the private equity firms looking for a quick buck. 

We now live in a much more integrated global economy, and this crisis is forcing our finance leaders to put their heads together to correct these flaws in our system. With the massive advances we have experienced in global technology delivery, mobility and the Internet, global supply chains, and the availability of global talent, there is an incredible globally-integrated economy waiting to pick itself up. The speed with which the global economy reacts to situations gives me hope that we may be able to recover quickly, once we have found our equilibrium.

Let’s think about the younger generations. When we look back at this episode in the not-too-distant future, I hope we view this crisis as the jolt we needed to re-set expectations, take advantage of the tools at our disposal to create an economic environment that is sustainablee, that doesn’t wreck the environment, that doesn’t breed too much greed, where people can get up for work in the morning with a smile on their face.

I generally feel a sense of guilt when I think of the generation entering the workforce over the next decade. They will be be paying our debts when many of us will be retired. So what if our houses are worth 20% less that they were a year or two ago? Everything else is worth less too. And – heaven forbid - first-time buyers might actually able to buy a property again.

We’ve been talking about this recession for well over a year now, but I sense only now are we really addressing the fundamental issues, after the world nearly went bust. All-in-all, the business world has changed beyond all recognition in barely more than a decade, and the only way forward for our businesses and our career paths, is to grasp how the world has changed, accept the new realities we live in, and carve out fresh plans for growth with fresh expectations. And to coin an old phrase – sometimes a step back is needed before taking two forward.

November 30th, 2008

How should companies approach outsourcing in this economy?

Posted by Phil Fersht @ 10:44 am

Categories: Credit crisis, ERP, Economy, Enterprise 2.0, Offshore outsourcing, Outsourcing, SAP, SaaS

Tags: BPO, Business Process Outsourcing, Economy, FAO, Financial Crisis, HRO, Human Resources, IT, Phil Fersht, Procurement, Recession, Sourcing

In this tough economy, it’s easy for enterprises to jump at outsourcing opportunities, simply with the goal of shedding some cost from the bottom-line - as we recently discussed here. However, many enterprises have jumped at the lowest cost option in too many situations, and now live to regret their decision.

Outsourcing clients have to think more smartly and strategically about creating an experience than can drive new growth, deliver business value to the top-line, and not just take out short-term costs from the bottom. If clients can engage outsourcing to become more competitive, it creates an entirely different paradigm than simply “shipping jobs offshore”.

Believe it or not, many of the smart businesses that survive this economic hardship are going to emerge more nimble, more competitive, and more globally-integrated. Outsourcing alone is not the answer; it simply provides a vehicle for enterprises to gain access to new talent, better process acumen, new technology and global markets, provided they venture into an outsourcing engagement with the right objectives in mind. There is a proliferation of service providers eager for business, and most of them will offer attractive short-term cost savings. However, clients must focus on forging a partnership with a provider which will work with them to add a lot more competitive bite to their business over a multi-year contract.

Key decision-points companies must take onboard when approaching outsourcing opportunities

1. Think globally.  One of the core differences between the current economic recession and those of the past, is the fact that all of today’s financial markets and economies across the globe are so much more integrated than they used to be.  The Internet and global communications revolution have created unprecedented access to global talent, where you can have your mainframe computers managed in Brazil, your general ledger consolidated in Hungary and your logistics analytics performed in India.  The need to enter new global markets quickly has never been as pressing as it is in today markets, and the right service partners can help you grow your business globally.  Having a ready support infrastructure that can support foreign payrolls, accounting procedures, local regulations etc. can save your company months of painful work to set up shop in new markets.

2. Focus on common standards.  Engaging an outsourcing provider which can provide common processes around a solid ERP backbone is critical (see earlier discussion on bundling).  Smart enterprises are moving ever-closer to developing commons standards to support processes that can enable them to operate and compete as global entities, and this current economic predicament is accelerating this dynamic.  When you have rapid access to your global financial, HR, supply chain, customer and product information, you are in a position where you can make quicker informed decisions to enter new markets, sunset dwindling product or service lines and mobilize your resources and partners accordingly to respond to your existing and future customers.  ERP platforms are far more globally-integrated now than they were a decade ago.  These platforms provide a crucial backbone for supporting global business initiatives, and developing technology standards, such as XRBL and HR-XML, are helping firms re-use and optimize a lot of what they already have.  

3. Add discipline to your revenue cycle.  A good BPO provider can add discipline to your collections and speed up your cash-flow, eliminate bad debt and free up a more timely cash-supply. On the flip side, quality procurement processes help you keep the cash you currently have. This is critical in today’s tougher environment.

4. Approach cost-containment as an ongoing objective.   A good outsourcing partner should be able to help you sustain cost-savings over a long period, not simply at the onset of an engagement, through ongoing quality and process improvements.  For example, you may save $10 million in the first year or your engagement, but how about the subsequent years?  Those initial costs you saved will creep back if you don’t constantly refine your processes across your global supply chain.

All-in-all, it’s really not a good time to go to your board and demand multiple millions of dollars to add a new service provider to your outsourced delivery infrastructure, or even rip up your current contract, if you rushed into an outsourcing situation without an eye on the medium-to-long term.  My advice to clients is to use this economic climate as an opportunity to drive more radical changes into their business and consider the decision-points above when they start engaging outsourcing providers.  I’ll leave you with a more peaceful scence from Mumbai… 

November 24th, 2008

Ho, Ho, Ho: Credit Card Fraud Not A Holiday Killer. Unless You Get Hit.

Posted by Tom Steinert-Threlkeld @ 1:58 pm

Categories: Credit crisis, E-commerce, Economy, General, News to know, Security, Symantec

Tags: Bank, Symantec Corp., Credit Card, Fraud, Sales Strategy, Sales Channel, Financial Services, Sales, Tom Steinert-Threlkeld

A recession is when your neighbor gets laid off. A depression is when you get terminated. With credit cards, fraud is not a big deal. Unless it’s your number that’s for sale, online.

A Symantec report says the underground economy is booming. The total value of goods and services was “more than” $276 million. The most popular stuff: Bank account credentials and credit cards that have CVV2 security codes with them.

But bank account credentials can be had for as little as $10. Credit cards with security codes? As little as 10 cents, up to $25 each.

What does the thief get?

Symantec figures the average balance per credit card at $4,000, yielding a potential spend of $5.3 billion. Average bank account? $40,000, yielding a potential spend of $1.7 billion.

All told, about $7 billion of money to spend. If you’re willing to go underground and get it.

That’s not chump change — if the sellers can get buyers to cough up the $276 million to buy $7 billion of purchasing “power.”

But it’s not a holiday killer. Online merchants are likely to pull in $32 billion of sales this Christmas, Hannukah and general gift-giving season, according to eMarketer. And Nielsen, at least as of October 9, was still predicting in-store sales this holiday season to rise 4.7% to $98 billion. Unit sales may be flat, but dollar sales will be up, the research firm said.

So even if every one of the 1.3 million credit cards and 42,500 bank accounts at risk, by interpolating Symantec’s numbers, are purchased and exploited to the full, that would only pump up the holiday season another 5%.

Until the sales got reversed by complaining card and account holders and start to wipe out merchants’ earnings.

November 12th, 2008

Are visits to massage parlors and bars impacting your credit?

Posted by Sam Diaz @ 5:45 am

Categories: Credit crisis, Economy, General

Tags: Credit Card, Credit Card Company, American Express Co., Magazine, Tech Blog, Sales Channel, ATM, Financial Services, Sales, Networking

Tech blogs are quick to point out when things appear to be a bit too big-brotherish for our comfort levels - cookies, deep packet inspection, Gmail ads. Now, it appears that the one to watch out for is the credit card companies.

Money Magazine, in its December print edition, reports that some major credit card issuers, including American Express, are taking into consideration where people use their credit cards when deciding whether to cancel credit lines or cut spending limits. “Studies have found that consumers who frequent certain types of businesses pose an increased credit risk,” an Amex spokeswoman told the magazine. (Sorry, no link available. The piece appeared in the print version only.)

Hmmm. Which types of businesses will prompt creditors to throw a red flag? American Express won’t say, according to the magazine, which also did some digging to come up with some ideas. The magazine reports:

A lawsuit over a similar scoring model, filed by the Federal Trade Commission against subprime issuer CompuCredit earlier this year, may offer some clues. The suit claims that CompuCredit dinged cardholders for using eight kinds of vendors, among them bars, massage parlors, billiard halls, nightclubs and marriage counselors.

If bars and massage parlors lead to marriage counselors and eventually credit problems, maybe it’s time to either start spending more time at home - or hitting the ATM before you hit the town.

October 15th, 2008

Essential strategies for weathering the economic storm

Posted by Larry Dignan @ 5:50 am

Categories: Credit crisis, General

Tags: Team, Corporate Governance, Team Management, Stock Options, Investment, Operational Accounting, Strategy, Business Operations, Corporate Law, Management

Guest post: Christopher Lochhead, the retired chief marketing officer at Scient and Mercury, offers some turnaround strategies (learned the hard way) for weathering the economic storm.

Economic downturns require extraordinary leadership. They require brutal honesty. They require action. If your market and company are truly in trouble, here are some turnaround strategies (learned the hard way) to weather the storm so you can live to fight another day.

1. There Is No Such Thing As One Bad Quarter

When your markets get weak and/or you really screw up, fixing it will take a lot longer than you think it will. Pray for spring, but get ready for a long, cold winter.

2. Get The Facts Yourself

People don’t like to deliver bad news. As an executive, your job is to get to the heart of the problem fast. You (not someone who works for you) need to figure out how bad your problem is.

How bad is the sales forecast? How late is the next release of the product? What is the cash burn rate? How many critical projects are broken? You must drill into the “whys” to make sure you understand the facts and the causes of the problems. The key is to ask “why?” five times.

Why is the project late (you will get an answer)? Then ask why that is the case (you will get another answer), then ask why that is the case (you will get yet a deeper answer), and so on.

Once you’ve asked why five times, end every conversation with the most powerful question you can ask, “Is there anything else?” Read the rest of this entry »

October 9th, 2008

Economy-pinched semiconductor industry: How to ride the storm

Posted by Sam Diaz @ 12:06 pm

Categories: Credit crisis, General, Hardware Infrastructure, Semiconductors

Tags: iSuppli Corp., Semiconductor Industry, Lidlow, Semiconductors, Hardware, Sam Diaz

The credit crisis and overall economic downturn is starting to hit the semiconductor industry, which saw 5.5 percent sales growth in August. Research firm iSuppli has cut its 2008 sales growth forecast for the semiconductor industry from 4 percent to 3.5 percent and potentially even more if economic conditions continue to worsen, according to a report on Tech Trader Daily.

ISuppli said the industry is taking hits from several different sides, among them Wall Street, where the demand for electronic equipment is expected to drop, as well as from companies that, unable to get credit, will slow down their demand and consumers, who have low confidence and are expected to slow spending. iSuppli President and CEO Derek Lidow wrote in a report:

Semiconductor profitability has eroded steadily since mid 2004, with quarterly net profits having fallen into the single-digit range in 2008, down from the 17 percent to 19 percent range in 2004. The semiconductor industry now is less profitable as a percentage of revenue than the notoriously low-margin PC business, something that hasn’t occurred before, except during a short period of the severe market downturn in 2001.

So how do they ride the storm? Lidlow says one proven strategy is for suppliers to “capture value from their customers by designing more of the total system with system-level chips built around proprietary Intellectual Property (IP).” Financially-stable suppliers also have the option of outspending rivals on products and manufacturing to “maintain technical and scale dominances in competitive market segments.”

A third approach might be to “milk established cash-cow products in the industry,” he said.

Such cash-cow products typically are trailing-edge devices that have passed through their commodity stage, have fairly steady pricing and have a dwindling number of suppliers that are willing to devote their best people to designing and managing products that most semiconductor cowboys would find boring.

There is one more option, albeit a daring one, he said. Build a scalable acquisition process and grow by buying other companies or selected parts of companies. “Developing such a process would allow a company to achieve unprecedented scale and vast wealth,” he said. “With semiconductor processing becoming increasingly commoditized, such an endeavor is becoming practical.”