Liquidity
One possible cause of bubbles is excessive monetary liquidity in the financial system, inducing lax or inappropriate lending standards by the banks, which asset markets are then caused to be vulnerable to volatile hyperinflation caused by short-term, leveraged speculation. For example, Axel A. Weber, the president of the Deutsche Bundesbank, has argued that "The past has shown that an overly generous provision of liquidity in global financial markets in connection with a very low level of interest rates promotes the formation of asset-price bubbles." According to the explanation, excessive monetary liquidity (easy credit, large disposable incomes) potentially occurs while fractional reserve banks are implementing expansionary monetary policy (i.e. lowering of interest rates and flushing the financial system with money supply). When interest rates are going down, investors tend to avoid putting their capital into savings accounts. Instead, investors tend to leverage their capital by borrowing from banks and invest the leveraged capital in financial assets such as equities and real estate.
Simply put, economic bubbles often occur when too much money is chasing too few assets, causing both good assets and bad assets to appreciate excessively beyond their fundamentals to an unsustainable level. Once the bubble bursts the central bank will be forced to reverse its monetary accommodation policy and soak up the liquidity in the financial system or risk a collapse of its currency. The removal of monetary accommodation policy is commonly known as a contractionary monetary policy. When the central bank raises interest rates, investors tend to become risk averse and thus avoid leveraged capital because the costs of borrowing may become too expensive.
Advocates of this perspective refer to (such) bubbles as "credit bubbles," and look at such measures of financial leverage as debt to GDP ratios to identify bubbles.
http://en.wikipedia.org/wiki/Economic_bubble
Thursday 26 November 2009
A rising price on any share will attract the attention of investors.
Positive feedback
A rising price on any share will attract the attention of investors. Not all of those investors are willing or interested in studying the intrinsics of the share and for such people the rising price itself is reason enough to invest. In turn, the additional investment will provide buoyancy to the price, thus completing a positive feedback loop.
Like all dynamical systems, financial markets operate in an ever changing equilibrium, which translates into price volatility. However, a self-adjustment (negative feedback) takes place normally: when prices rise more people are encouraged to sell, while fewer are encouraged to buy. This puts a limit on volatility. However, once positive feedback takes over, the market, like all systems with positive feedback, enters a state of increasing disequilibrium. This can be seen in financial bubbles where asset prices rapidly spike upwards far beyond what could be considered the rational "economic value", only to fall rapidly afterwards.
http://en.wikipedia.org/wiki/Stock_market_bubble
A rising price on any share will attract the attention of investors. Not all of those investors are willing or interested in studying the intrinsics of the share and for such people the rising price itself is reason enough to invest. In turn, the additional investment will provide buoyancy to the price, thus completing a positive feedback loop.
Like all dynamical systems, financial markets operate in an ever changing equilibrium, which translates into price volatility. However, a self-adjustment (negative feedback) takes place normally: when prices rise more people are encouraged to sell, while fewer are encouraged to buy. This puts a limit on volatility. However, once positive feedback takes over, the market, like all systems with positive feedback, enters a state of increasing disequilibrium. This can be seen in financial bubbles where asset prices rapidly spike upwards far beyond what could be considered the rational "economic value", only to fall rapidly afterwards.
http://en.wikipedia.org/wiki/Stock_market_bubble
How the Bank of England made £62bn 'disappear'
By Edmund Conway
I’ve used my elementary Photoshop skills to add those blue lines that mark where the emergency loans for the banks began and ended. Look at the right hand graph – the assets side of the balance sheet – and in particular the purple bit that denotes “other assets”. That includes the currency swaps and, according to Simon Ward of Henderson (the City’s big expert on these complex central bank balance sheets), most likely the emergency loans as well. And, indeed, note how there is a pretty big bulge between October 08 and late January 09 – the precise period when the loans were being issued.
So the answer is that hiding this much money is actually pretty damn easy when there’s all manner of financial chaos going on. It is a finding that will definitely cheer the Bank of England, which rather likes the idea that it can step in and save a bank without anyone finding out and causing another Northern Rock. Not that RBS or HBOS ended up in a much better state in the end, but that’s another story.
http://blogs.telegraph.co.uk/finance/edmundconway/100002192/how-the-bank-of-england-made-62bn-disappear/?utm_source=tmg&utm_medium=TD_62&utm_campaign=finance2611am
Five ways the internet has transformed our personal finances
Five ways the internet has transformed our personal finances
As The Telegraph marks 15 years of its online presence, we look at how the internet has transformed the way we deal with money matters.
By Richard Evans
Published: 3:40PM GMT 25 Nov 2009
1. Internet banking
Millions of people now take for granted that they can pay bills and transfer money at any time of day and without having to worry about queues – whether in branches or on telephone lines. These days, you never even have to speak to a human being when it comes to personal banking. You can also use the internet to find the best deals on savings accounts and then set up and run accounts online. Sixty per cent of people with instant-access accounts have registered for online banking, according to the British Bankers' Association.
Many people also research the mortgage market online, and some even apply for home loans over the internet.
2. Price-comparison websites
If you want to find the best interest rates for your savings or the best price for your home insurance, you can save time by using a price-comparison website. These provide up-to-date lists of the top accounts, as well as data on the best deals on credit cards and other financial products.
In the old days, we had to phone around brokers or insurers to compare prices for car or home insurance, giving out the same long-winded information every time. Most of us would have given up after a handful of calls.
Comparison sites do all the work, showing the cheapest providers, policy details and links to application forms.
Other sites, such as Kelkoo and Pricerunner, find the lowest prices for goods such as cameras, fridges and PCs.
Comparison sites are also much in demand for finding the best deals on energy, although recent research by The Daily Telegraph found that energy-comparison sites did not always agree about which supplier offered the best deal.
Consumers are becoming more savvy about these discrepancies. While a recent survey by Mintel, the analyst, found that six out of 10 people had used a price-comparison site, the consumer group Which? found that consumers lacked trust in them, with one in four finding better value financial products elsewhere.
3. Voucher codes
The recession has sharpened shoppers' appetite for a bargain – and many cost-conscious consumers have turned to the internet to track down special offers. If you want to save money at Tesco you can just type "Tesco voucher codes" into a search engine and find dozens of sites offering the discount codes – short combinations of numbers and letters that you enter into the online checkout. Hundreds of retailers operate these schemes; some also allow you to print off vouchers from the website to claim discounts in shops and restaurants.
According to research from moneysupermarket.com, more than 2.2 million discount vouchers are redeemed every day, while an internet traffic analyst found that the number of web searches in Britain for discount vouchers had increased by 48 per cent over the past year.
4. Dealing and investing
Ten years ago, small investors who wanted to trade shares had to phone a broker. Now they can buy and sell online. Nine out of 10 share deals are made online, according to Barclays Stockbrokers.
Access to information online has helped level the playing field between small shareholders and professional investors with the resources of large banks behind them. "The role of the internet is key, giving the individual at home with a laptop access to the kind of tools, research and up-to-the-minute data previously the preserve of City traders," said Des Byrne, head of Barclays Stockbrokers. "The internet brought financial democracy to newly empowered investors."
People can buy investment funds, such as unit trusts from "fund supermarkets" – online shops that usually offer discounts on charges. These funds are often held in tax-free wrappers, such as individual savings accounts or personal pensions.
5. Buying and selling
Auction websites, such as eBay, have made it far easier to buy and sell second-hand goods, which in the pre-internet age would have meant a trip to the car boot sale. The average British home is estimated to have at least £450 worth of saleable items, typically clothes, CDs, DVDs, books and toys. Online auctions offer a quick way to turn them into cash. About one billion items have been sold on eBay.co.uk in the past 10 years, and 17 million people use the site each month.
http://www.telegraph.co.uk/finance/personalfinance/consumertips/6651262/Five-ways-the-internet-has-transformed-our-personal-finances.html
As The Telegraph marks 15 years of its online presence, we look at how the internet has transformed the way we deal with money matters.
By Richard Evans
Published: 3:40PM GMT 25 Nov 2009
1. Internet banking
Millions of people now take for granted that they can pay bills and transfer money at any time of day and without having to worry about queues – whether in branches or on telephone lines. These days, you never even have to speak to a human being when it comes to personal banking. You can also use the internet to find the best deals on savings accounts and then set up and run accounts online. Sixty per cent of people with instant-access accounts have registered for online banking, according to the British Bankers' Association.
Many people also research the mortgage market online, and some even apply for home loans over the internet.
2. Price-comparison websites
If you want to find the best interest rates for your savings or the best price for your home insurance, you can save time by using a price-comparison website. These provide up-to-date lists of the top accounts, as well as data on the best deals on credit cards and other financial products.
In the old days, we had to phone around brokers or insurers to compare prices for car or home insurance, giving out the same long-winded information every time. Most of us would have given up after a handful of calls.
Comparison sites do all the work, showing the cheapest providers, policy details and links to application forms.
Other sites, such as Kelkoo and Pricerunner, find the lowest prices for goods such as cameras, fridges and PCs.
Comparison sites are also much in demand for finding the best deals on energy, although recent research by The Daily Telegraph found that energy-comparison sites did not always agree about which supplier offered the best deal.
Consumers are becoming more savvy about these discrepancies. While a recent survey by Mintel, the analyst, found that six out of 10 people had used a price-comparison site, the consumer group Which? found that consumers lacked trust in them, with one in four finding better value financial products elsewhere.
3. Voucher codes
The recession has sharpened shoppers' appetite for a bargain – and many cost-conscious consumers have turned to the internet to track down special offers. If you want to save money at Tesco you can just type "Tesco voucher codes" into a search engine and find dozens of sites offering the discount codes – short combinations of numbers and letters that you enter into the online checkout. Hundreds of retailers operate these schemes; some also allow you to print off vouchers from the website to claim discounts in shops and restaurants.
According to research from moneysupermarket.com, more than 2.2 million discount vouchers are redeemed every day, while an internet traffic analyst found that the number of web searches in Britain for discount vouchers had increased by 48 per cent over the past year.
4. Dealing and investing
Ten years ago, small investors who wanted to trade shares had to phone a broker. Now they can buy and sell online. Nine out of 10 share deals are made online, according to Barclays Stockbrokers.
Access to information online has helped level the playing field between small shareholders and professional investors with the resources of large banks behind them. "The role of the internet is key, giving the individual at home with a laptop access to the kind of tools, research and up-to-the-minute data previously the preserve of City traders," said Des Byrne, head of Barclays Stockbrokers. "The internet brought financial democracy to newly empowered investors."
People can buy investment funds, such as unit trusts from "fund supermarkets" – online shops that usually offer discounts on charges. These funds are often held in tax-free wrappers, such as individual savings accounts or personal pensions.
5. Buying and selling
Auction websites, such as eBay, have made it far easier to buy and sell second-hand goods, which in the pre-internet age would have meant a trip to the car boot sale. The average British home is estimated to have at least £450 worth of saleable items, typically clothes, CDs, DVDs, books and toys. Online auctions offer a quick way to turn them into cash. About one billion items have been sold on eBay.co.uk in the past 10 years, and 17 million people use the site each month.
http://www.telegraph.co.uk/finance/personalfinance/consumertips/6651262/Five-ways-the-internet-has-transformed-our-personal-finances.html
Market bubbles and individual stock bubbles are investor traps
Bubbles are not caused by fundamental events. It is investors themselves who create them. Investors come to believe some things that are not true or not rational and thus create a mania in a stock, in an industry, or in the overall market. If the mania goes on for a time, a bubble is created, and that builds until its inherent instability leads it to break.
One of the interesting differences between bubbles and bear markets is that in a bear market, there are plenty of bulls and bears. In a bubble, the few bears are drowned out by the loud and almost universal bullishness. This happened with the Internet, because a mania is normally caused by a belief in something that is supposed to be new and amazing, even though this cannot be proved.
It is natural to like momentum and money, but if investors have no disciplines and no sense of bubbles, then they are headed not for the big money, but for quite the opposite.
There are market bubbles once in a great while, perhaps once in a life-time, but individual stock bubbles are more common. All bubbles have some similarities that concern how perceptions, emotions, and a lack of accurate information combine to set an investor trap.
http://myinvestingnotes.blogspot.com/2009/06/bubble-trouble.html
http://myinvestingnotes.blogspot.com/2009/09/markets-in-government-fuelled-bubble.html
http://myinvestingnotes.blogspot.com/2009/11/stock-market-bubble-to-end-morgan.html
One of the interesting differences between bubbles and bear markets is that in a bear market, there are plenty of bulls and bears. In a bubble, the few bears are drowned out by the loud and almost universal bullishness. This happened with the Internet, because a mania is normally caused by a belief in something that is supposed to be new and amazing, even though this cannot be proved.
It is natural to like momentum and money, but if investors have no disciplines and no sense of bubbles, then they are headed not for the big money, but for quite the opposite.
There are market bubbles once in a great while, perhaps once in a life-time, but individual stock bubbles are more common. All bubbles have some similarities that concern how perceptions, emotions, and a lack of accurate information combine to set an investor trap.
http://myinvestingnotes.blogspot.com/2009/06/bubble-trouble.html
http://myinvestingnotes.blogspot.com/2009/09/markets-in-government-fuelled-bubble.html
http://myinvestingnotes.blogspot.com/2009/11/stock-market-bubble-to-end-morgan.html
Wednesday 25 November 2009
****Every decision has to be taken on the basis of the factors present in the situation right NOW
Sunk Costs
One key to understanding how the past affects the present is the concept of 'sunk costs'. This refers to the tendency to allow past investments or expenditure to affect decisions in the present. Even though every decision has to be taken on the basis of the factors present in the situation right now, the pull of past events can be very strong.
We need, wherever possible, to see decisions in terms of future benefit rather than past losses or gains. But we are often more likely to choose alternatives that are in line with our past spending rather than changing direction, because we don't like the idea that past investment is 'wasted', and wish to redeem it. This can lead us into the trap of 'throwing good money after bad', or 'honouring' sunk costs.
What has been invested need not be financial, or even tangible. In fact, we may feel a far stronger 'pull' from emotional investmetns than financial ones. For example, we might wish to continue with a project because of the time we have put into it and the attention we have lavished upon it, even though it has become clear that the probability of success is far lower than we had thought. The problem is that we have 'put something of ourselves into it'; to give up on it now is to give up on a part of ourselves. Obviously, these feelings are a long way from objective decision making.
One key to understanding how the past affects the present is the concept of 'sunk costs'. This refers to the tendency to allow past investments or expenditure to affect decisions in the present. Even though every decision has to be taken on the basis of the factors present in the situation right now, the pull of past events can be very strong.
We need, wherever possible, to see decisions in terms of future benefit rather than past losses or gains. But we are often more likely to choose alternatives that are in line with our past spending rather than changing direction, because we don't like the idea that past investment is 'wasted', and wish to redeem it. This can lead us into the trap of 'throwing good money after bad', or 'honouring' sunk costs.
What has been invested need not be financial, or even tangible. In fact, we may feel a far stronger 'pull' from emotional investmetns than financial ones. For example, we might wish to continue with a project because of the time we have put into it and the attention we have lavished upon it, even though it has become clear that the probability of success is far lower than we had thought. The problem is that we have 'put something of ourselves into it'; to give up on it now is to give up on a part of ourselves. Obviously, these feelings are a long way from objective decision making.
When things go wrong: Key Ideas
We make mistakes because our brains are not suited to the processes of rational decision making.
If errors happen, we need to ensure that they have some positive impact; we need to learn from them.
Although blame is a natural reaction, it benefits the business to create a no-blame culture.
A no-blame culture implies that those who get bad results, but make decisions in the right way, should be rewarded.
The smart organization builds up its collective learning and decision-making ability to ensure a brighter future.
If errors happen, we need to ensure that they have some positive impact; we need to learn from them.
Although blame is a natural reaction, it benefits the business to create a no-blame culture.
A no-blame culture implies that those who get bad results, but make decisions in the right way, should be rewarded.
The smart organization builds up its collective learning and decision-making ability to ensure a brighter future.
When things go wrong: Moving forward
Decision making is focussed on the future. It is always forward-looking. All actions in business should be focussed on what is to come: on realising postive future outcomes and avoiding negative ones.
Better risk management and decision making are means to this end; they are tools to help you achieve your goals by looking forward, not back.
At the highest level, better decision making means better strategic direction for the business. Strategy is about finding new answers the question 'what shall we do?' By enhancing your understanding of risk, you can be as sure as possible that the answers you find will take the answers you find will take the business forward to a brighter future.
Through learning and practising, you will be able to move forward and achieve positive outcomes by taking decisions and managing risks more effectively.
Better risk management and decision making are means to this end; they are tools to help you achieve your goals by looking forward, not back.
At the highest level, better decision making means better strategic direction for the business. Strategy is about finding new answers the question 'what shall we do?' By enhancing your understanding of risk, you can be as sure as possible that the answers you find will take the answers you find will take the business forward to a brighter future.
Through learning and practising, you will be able to move forward and achieve positive outcomes by taking decisions and managing risks more effectively.
When things go wrong: The smart organisation
Consultants and researchers David and Jim Matheson identify research and development (R&D) as a key area of decision making for business success. R&D decisions affect any areas where innovation (rather than improvement) is required. This principally means creating and marketing new products and services, but also includes designing the new processes and systems that will make them possible. 'Processes' could mean manufacturing processes, but it could also refer to strategically critical aspects of the business, such as its decision making processes.
Essentially, R&D is about ensuring that the business moves forward. As we have seen, potential strategic risk downsides include
The Mathesons suggest three levels of 'smart' R&D:
Technology strategy:
Portfolio strategy:
Project strategy:
Nine principles of smart R&D
They also propose nine principles of smart R&D, or the attributes that businesses need in order to be capable of making strategic decisions:
The Smart Organisation: by David and Jim Matheson
Essentially, R&D is about ensuring that the business moves forward. As we have seen, potential strategic risk downsides include
- failing to innovate,
- failing to achieve renewal, or
- putting processes in place that fail to allow for the right kind of development.
The Mathesons suggest three levels of 'smart' R&D:
Technology strategy:
- How will you support existing products, generate new ones and develop radically new ones?
- Will technology be developed or supplied from inside or outside the business?
- What skills are required?
Portfolio strategy:
- Which R&D projects will be funded?
- Which will not?
- How will resources be allocated so that they provide the best R&D value?
- How will you balance short-term business needs with long-term renewal?
Project strategy:
- How will you ensure that each individual project delivers maximum value?
- How could commercial concerns (as well as technical, budget and timescale issues) be brought in?
Nine principles of smart R&D
They also propose nine principles of smart R&D, or the attributes that businesses need in order to be capable of making strategic decisions:
- Value creation culture: the business has a purpose that everyone understands; this purpose is the test of whether strategies and actions will deliver value for the business and its customers.
- Creating alternatives: for each decision, there must be a good set of competing alternatives; these must be created if they don't exist or aren't apparent, and carefully evaluated
- Continual learning: change is certain, and everyone must learn from new situations and information rather than feeling threatened by it.
- Embracing uncertainty: since there are no facts about the future, everyone must learn to live with and recognize uncertainty, measure and evaluate it, and understand what they are doing.
- Outside-in strategic perspective: rather than thinking about where the business is and then where it should be going (inside-out), consider the big picture first and work back to the business (outside-in)
- Systems thinking: use tools and techniques (such as the decision tree) to simplify the complexities involved in strategic decisions as far as possible and enable insights (but not so far that objectivity is lost)
- Open information flow: any type of information may be important, so information needs to flow, unrestricted, to all parts fo the business, the habit of hoarding information as a source of power must be driven out.
- Alignment and empowerment: rather than micro-managing every action through 'command and control' systems, aim to involve people in decision making through participation, while building alignment through common understanding of goals
- Disciplined decision making: build processes that recognise the need for strategic decisions to be made before it is too late; then apply systematic, disciplined processes to making those decisions.
The Smart Organisation: by David and Jim Matheson
When things go wrong: Collective learning
Unless you have successfully eliminated a risk, there is always a probability, however, small, that negative outcomes will happen. The impact can range from the highly specific and individual (such as personal injury) to the general and communal (damage to the reputation of the business). Any negative consequences are regrettable, but we can make them worse if we don't learn from them. By failing to learn the lessons of our mistakes, we allow negative outcomes to extend into the future, instead of limiting them to the present.
The learning that comes from considering the outcomes of decisions is likely to be collective rather than individual. Individuals who frequently make a large number of decisions that are similar in nature, and stay around to observe the results, are best placed to learn from them. Weather forecasters and poker players are examples of this rare breed. Managers, unfortunately, are much less likely to make frequent decisions of a similar type and be able to learn from them.
In business, individuals are likely to move on, get promoted or retire before the consequences of their most significant decisions play themselves out to a conclusion. This makes it vital to embed the learning from major decisions in the organisation, rather than leaving it to individuals:
Measures like these help to prevent information about how decisions were taken from being lost when the decision makers leave the company. Losing such information could potentially pose a major strategic risk to the organization, since it could result in big mistakes being made again and again.
The recording of information about decisions needn't be a huge undertaking. Even brief notes on how a decision was taken can be illuminating when returned to a later date. As we've seen, people have a strong tendency to 'edit' their memories to fit their own perspective.
The learning that comes from considering the outcomes of decisions is likely to be collective rather than individual. Individuals who frequently make a large number of decisions that are similar in nature, and stay around to observe the results, are best placed to learn from them. Weather forecasters and poker players are examples of this rare breed. Managers, unfortunately, are much less likely to make frequent decisions of a similar type and be able to learn from them.
In business, individuals are likely to move on, get promoted or retire before the consequences of their most significant decisions play themselves out to a conclusion. This makes it vital to embed the learning from major decisions in the organisation, rather than leaving it to individuals:
- record the information that supports decisions
- document the decision making process
- document responses to problems arising
- share information between decision makers
Measures like these help to prevent information about how decisions were taken from being lost when the decision makers leave the company. Losing such information could potentially pose a major strategic risk to the organization, since it could result in big mistakes being made again and again.
The recording of information about decisions needn't be a huge undertaking. Even brief notes on how a decision was taken can be illuminating when returned to a later date. As we've seen, people have a strong tendency to 'edit' their memories to fit their own perspective.
When things go wrong: Lessons for risk management
The responses to risk will vary from business to business and from risk to risk, but they tend to fall into one of these categories:
If the downside result of a specific, foreseen risk occurs, you will want to look at the way you analysed it and chose your response, and the effectiveness of the chosen response. Consider questions such as:
1. Are there any clear lessons for your estimates of probability? (For example, has an event that was regarded as extremely rare happened twice in a week?)
2. How accurate was your assessment of impact?
3. Were the plans and processes made to deal with operational risks effective in practice?
4. Could operational problems occur again?
5. Did you choose the right response to the risk?
6. If you chose to tolerate a risk, was this the right decision?
7. If you chose to try and minimise a risk, what effect did this have on its impact?
8. Can you demonstrate the link between your decisions and the positive results for the business?
9. If you chose to hedge against a risk, how good was the hedge? How balanced were the different risks against each other?
10. If you chose to diversify risks, was the extra effort worthwhile?
11. If you chose to concentrate risks, was the saving in effort worth the extra exposure incurred?
12. If a risk was transferred, did the third party accept responsibility when things went wrong?
13. What knock-on effects are now apparent?
- eliminating risks
- tolerating risks
- minmising risks
- diversifying risks
- concentrating risks
- hedging risks
- transferring risks
- insuring risks.
If the downside result of a specific, foreseen risk occurs, you will want to look at the way you analysed it and chose your response, and the effectiveness of the chosen response. Consider questions such as:
1. Are there any clear lessons for your estimates of probability? (For example, has an event that was regarded as extremely rare happened twice in a week?)
2. How accurate was your assessment of impact?
- Was it more or less severe than anticipated?
- Did it affect areas you didn't predict?
- Did it have consequences of a different nature than those you expected?
3. Were the plans and processes made to deal with operational risks effective in practice?
- Should they be improved?
- What alternatives are there?
4. Could operational problems occur again?
- Is the situation different now?
- If not, how should it be changed?
5. Did you choose the right response to the risk?
- How has it worked out in practice?
- Do you need to choose a different response in future, or just make the chosen response work better?
6. If you chose to tolerate a risk, was this the right decision?
- Was it based on enough probability and impact information, or information of sufficient reliability?
7. If you chose to try and minimise a risk, what effect did this have on its impact?
8. Can you demonstrate the link between your decisions and the positive results for the business?
9. If you chose to hedge against a risk, how good was the hedge? How balanced were the different risks against each other?
10. If you chose to diversify risks, was the extra effort worthwhile?
11. If you chose to concentrate risks, was the saving in effort worth the extra exposure incurred?
12. If a risk was transferred, did the third party accept responsibility when things went wrong?
13. What knock-on effects are now apparent?
- Is the outcome fully known (or knowable), or is it still unfolding?
- What new risks have arisen?
- What new decisions now need to be taken?
Malaysia’s next export: Maids?
Malaysia’s next export: Maids?
By Lee Wei Lian
Malaysians could soon find themselves filling the same roles as these Indonesian migrant labourers. —
KUALA LUMPUR, Nov 24 — The nation’s mismanagement of talent could have serious repercussions not only on its ambitions to become a high income economy on par with that of developed nations but could also lead it to fall further behind even its counterparts in the region.
Head of research at Corston-Smith Asset Management, Lim Tze Cheng, recently did a tour of South East Asian countries and came away sufficiently impressed that he feels Malaysia may soon be found lagging behind its neighbours that it was once ahead of.
He cited a recent visit to the Philippines, a current major supplier of maids, where he visited a company, International Container Terminal Services Inc (ICTSI) and he drew comparisons to local port champions Westport and Port of Tanjung Pelepas.
He said that ICTS now draws 50 per cent of its revenue from eight profitable ports outside the Philippines, and noted that no Malaysian port company can boast of similar achievements.
“I give it a 70 per cent chance that Malaysia will be exporting maids in 20 years. I wouldn’t be surprised if that happens unless we get our act together,” he said.
Lim says that the issues plaguing Malaysia includes its “problematic” education system and distressingly low ability to retain talent.
“Whoever manages to excel in our education system will be courted by Singapore,” he points out.
Lim is not the only one who is worried about Malaysia’s talent issues and there has been warnings from other parties as well including the World Bank and the Malaysian Employers Federation (MEF).
MEF executive director Haji Shamsuddin Bardan says that Malaysia is currently a net exporter of talent with outflows exceeding inflows.
According to Haji Shamsuddin, Malaysia has only about 38,000 expatriates as compared with seventy to eighty thousand in the 1990s even while some 785,000 Malaysians are working abroad, two out of three of which are professionals.
“Our ability to attract expatriates is quite challenged,” he said.
If Malaysia falls further behind our neighbours in the next twenty years, it wil be a case of history repeating itself.
Lim points out that Malaysia in the 1970’s was once economically on par with Korea.
“Electronics will be dominated by Thailand and Philippines, plantations by Indonesia, financial services by Singapore and our oil could be depleted in 20 years,” Lim predicts.
Malaysia’s future? Bangladeshi workers wait at an airport carpark turned immigration depot in KLIA. — Reuters pic
“The (Malaysian) economy seems to be caught in a middle-income trap - unable to remain competitive as a high-volume, low-cost producer, yet unable to move up the value chain and achieve rapid growth by breaking into fast growing markets for knowledge and innovation-based products and services,” the World Bank said recently.
Prime Minister Datuk Seri Najib Razak appears aware of the problem and has been stressing the need for the country to embrace innovation to escape the “middle-income trap” as well as attract overseas talent, Malaysian or otherwise.
He noted recently as an anecdote that half of the medical specialists working at the Mt Elizabeth hospital in Singapore were Malaysians and two weeks ago hosted a dinner for about 100 Malaysians in Singapore and told them that the government would make Malaysia a better place to live and work in, to bring back its citizens who are residing overseas and also attract global talent to the country.
“We will create more opportunities, more excitement and more buzz in Malaysia to attract the Malaysian diaspora and expatriates to the country,” said Najib.
Lim says that revamping the education system could take years and one fast way to lure talent was to open the Malaysia My Second Home programme to talented individuals such as scientists and researchers instead of limiting it to just retirees.
Haji Shamsuddin says that the government needs to put in place the right policies and structures to retain local talent.
“Otherwise, we become a training ground for others,” he said.
http://www.themalaysianinsider.com/index.php/malaysia/44439-malaysias-next-export-maids
By Lee Wei Lian
Malaysians could soon find themselves filling the same roles as these Indonesian migrant labourers. —
KUALA LUMPUR, Nov 24 — The nation’s mismanagement of talent could have serious repercussions not only on its ambitions to become a high income economy on par with that of developed nations but could also lead it to fall further behind even its counterparts in the region.
Head of research at Corston-Smith Asset Management, Lim Tze Cheng, recently did a tour of South East Asian countries and came away sufficiently impressed that he feels Malaysia may soon be found lagging behind its neighbours that it was once ahead of.
He cited a recent visit to the Philippines, a current major supplier of maids, where he visited a company, International Container Terminal Services Inc (ICTSI) and he drew comparisons to local port champions Westport and Port of Tanjung Pelepas.
He said that ICTS now draws 50 per cent of its revenue from eight profitable ports outside the Philippines, and noted that no Malaysian port company can boast of similar achievements.
“I give it a 70 per cent chance that Malaysia will be exporting maids in 20 years. I wouldn’t be surprised if that happens unless we get our act together,” he said.
Lim says that the issues plaguing Malaysia includes its “problematic” education system and distressingly low ability to retain talent.
“Whoever manages to excel in our education system will be courted by Singapore,” he points out.
Lim is not the only one who is worried about Malaysia’s talent issues and there has been warnings from other parties as well including the World Bank and the Malaysian Employers Federation (MEF).
MEF executive director Haji Shamsuddin Bardan says that Malaysia is currently a net exporter of talent with outflows exceeding inflows.
According to Haji Shamsuddin, Malaysia has only about 38,000 expatriates as compared with seventy to eighty thousand in the 1990s even while some 785,000 Malaysians are working abroad, two out of three of which are professionals.
“Our ability to attract expatriates is quite challenged,” he said.
If Malaysia falls further behind our neighbours in the next twenty years, it wil be a case of history repeating itself.
Lim points out that Malaysia in the 1970’s was once economically on par with Korea.
“Electronics will be dominated by Thailand and Philippines, plantations by Indonesia, financial services by Singapore and our oil could be depleted in 20 years,” Lim predicts.
Malaysia’s future? Bangladeshi workers wait at an airport carpark turned immigration depot in KLIA. — Reuters pic
“The (Malaysian) economy seems to be caught in a middle-income trap - unable to remain competitive as a high-volume, low-cost producer, yet unable to move up the value chain and achieve rapid growth by breaking into fast growing markets for knowledge and innovation-based products and services,” the World Bank said recently.
Prime Minister Datuk Seri Najib Razak appears aware of the problem and has been stressing the need for the country to embrace innovation to escape the “middle-income trap” as well as attract overseas talent, Malaysian or otherwise.
He noted recently as an anecdote that half of the medical specialists working at the Mt Elizabeth hospital in Singapore were Malaysians and two weeks ago hosted a dinner for about 100 Malaysians in Singapore and told them that the government would make Malaysia a better place to live and work in, to bring back its citizens who are residing overseas and also attract global talent to the country.
“We will create more opportunities, more excitement and more buzz in Malaysia to attract the Malaysian diaspora and expatriates to the country,” said Najib.
Lim says that revamping the education system could take years and one fast way to lure talent was to open the Malaysia My Second Home programme to talented individuals such as scientists and researchers instead of limiting it to just retirees.
Haji Shamsuddin says that the government needs to put in place the right policies and structures to retain local talent.
“Otherwise, we become a training ground for others,” he said.
http://www.themalaysianinsider.com/index.php/malaysia/44439-malaysias-next-export-maids
When things go wrong: Lessons for decision making
When things go wrong, an important area of learning is the decision-making process itself. With the benefit of hindsight, you can consider how efective your processes for making decisions were. Consider questions such as:
For any of these questions to be answered effectively, it's crucial that you have an objective record of your original decision making processes.
- how likely is it that you were influenced by a taken-for-granted frame?
- do you need to rethink the way you regard risks (i.e. as opportunities or threats)?
- are there any lessons in terms of the way you regard outcomes (i.e. as gains or losses)?
- did you identify all the alternatives, or has it become clear that unconsidered alternatives would have been better? how can you ensure that your future decision-making frames cover these alternatives?
- what information has come to light that could help to reduce the subjectivity of your probability assessments in futures?
- how can learning be enshrined in the business and made easily available and usable for future decisions?
- are downsides and/or upsides in line with expectations? are there any unforeseen dimensions or knock-on effects in the outcome?
For any of these questions to be answered effectively, it's crucial that you have an objective record of your original decision making processes.
When things go wrong: Towards better decision making - measuring success
What to use to measure success - quality of decision making or results?
The implications for businesses are profound. If it is the quality of decision making , rather than results, that are the measure of success, then those who take decisions in the right way should be rewarded, even if they make mistakes. They should also be given more decisions to make in the future, not fewer.
This doesn't mean automatically promoting people who get bad results. it means:
It is important to remember that none of this means ignoring poor results or mistakes. Financial loss or commercial reverses are bad for business. But failing to learn can be worse. The focus of management has to be the future, and what can be learned from the present and past to help shape the future. By focussing on learning and better decision making, the business is doing everything it can to do to avoid bad result in the future, rather than simply reflecting what has happened in the past.
The implications for businesses are profound. If it is the quality of decision making , rather than results, that are the measure of success, then those who take decisions in the right way should be rewarded, even if they make mistakes. They should also be given more decisions to make in the future, not fewer.
This doesn't mean automatically promoting people who get bad results. it means:
- encouraging better decison making and making it clear that it will be rewarded
- setting boundaries to limit the impact that mistakes can have; acknowledging and actively managing the risk of mistakes
- avoiding or limiting exposure to fatal downsides (doctors and airline pilots, for example, need systems to help them avoid errors)
- when rewarding people, considering the way decisions have been taken as well as the results of decisions
- questioning the business benefit of punishing those who get bad results
- weighing the negative impact of mistakes against the learning and development they can bring.
It is important to remember that none of this means ignoring poor results or mistakes. Financial loss or commercial reverses are bad for business. But failing to learn can be worse. The focus of management has to be the future, and what can be learned from the present and past to help shape the future. By focussing on learning and better decision making, the business is doing everything it can to do to avoid bad result in the future, rather than simply reflecting what has happened in the past.
When things go wrong: Towards better decision making - quality of decision and the role of chance
Business results are the outcome of the interaction between our decisions, our actions and chance. Even if we make no error, there is always the cahnce that a bad outcome will result from a 'good' decision. For example, we might play dice game version A (http://spreadsheets.google.com/pub?key=te9MzyHoIN6EyuoHmfDxMaw&output=html) ten times and lose every time, despite having established that hte risk had a positive expected value. But how would such a decision be regarded in business?
If we were rewarded solely on results, with no attention paid to the way we took our decisions, our $10 loss would look pretty bad. Our performance report might read as follows: 'Despite your poor results, you played this game again and again, throwing good money after bad on the off-chance of things somehow coming right. You recklessly gambled company money on an uncertain future. Your poor results are evidence of your bad judgement. What were you thinking?'
But if we were rewarded on the quality of our decision-making process, our actions would appear in a very different light, resulting in a different review: 'Although results have been poor, due to circumstances beyond your control, the quality of your decision making was excellent. You obtained all the information that you could on possible outcomes, and the probabilities of each, and took a decision on that basis. The negative results, though disappointing, have not bankrupted the company. You will be rewarded on the basis of decision-making quality.'
The flip side of this is that people might make decisions on impulse, or randomly, and still get good results by chance.
- By rewarding or promoting these individuals, the business risks having lucky managers rather than competent ones - fine, until their luck runs out.
- Also, although spontaneous decisions may turn out to bring some business benefit, they don't teach us anything. We can't use them to improve the way we take decisions, or to instruct others.
When things go wrong: Towards better decision making
In business, we tend to judge people by the results of their actions. Many performance management systems are oriented in this way, placing a strong emphasis on management by results. Realise upsides and you reap rewards and promotion; realise downsides and you are blamed and maybe even fired.
To most managers, this seems a natural way to 'encourage' and 'motivate' people to 'improve'. If we reframe the argument in terms of decision quality, rather than result quality, the picture changes. People's 'mistakes' indicate that they are willing to make decisions, and it is only by making decisions and observing the results that we can improve. We learn about novel, unfamiliar or complex things through experiment and error.
A study of financial traders showed, it is a serious error for decision makers to assume that bad results mean a bad strategy, just as it is to asume that making money was because you have a good strategy. In business, as in markets, luck plays a part, and the best managers are like the best traders in having an accurate and sufficiently modest view of which results to attribute to skill, and which to serendipity.
Business results are the outcome of the interaction between our decisions, our actions and chance. Even if we make no error, there is always the cahnce that a bad outcome will result from a 'good' decision. For example, we might play dice game version A (http://spreadsheets.google.com/pub?key=te9MzyHoIN6EyuoHmfDxMaw&output=html) ten times and lose every time, despite having established that hte risk had a positive expected value. But how would such a decision be regarded in business?
To most managers, this seems a natural way to 'encourage' and 'motivate' people to 'improve'. If we reframe the argument in terms of decision quality, rather than result quality, the picture changes. People's 'mistakes' indicate that they are willing to make decisions, and it is only by making decisions and observing the results that we can improve. We learn about novel, unfamiliar or complex things through experiment and error.
A study of financial traders showed, it is a serious error for decision makers to assume that bad results mean a bad strategy, just as it is to asume that making money was because you have a good strategy. In business, as in markets, luck plays a part, and the best managers are like the best traders in having an accurate and sufficiently modest view of which results to attribute to skill, and which to serendipity.
Business results are the outcome of the interaction between our decisions, our actions and chance. Even if we make no error, there is always the cahnce that a bad outcome will result from a 'good' decision. For example, we might play dice game version A (http://spreadsheets.google.com/pub?key=te9MzyHoIN6EyuoHmfDxMaw&output=html) ten times and lose every time, despite having established that hte risk had a positive expected value. But how would such a decision be regarded in business?
Tuesday 24 November 2009
When things go wrong: Some themes of a no-blame culture
Some themes of a no-blame culture include:
- discussion of risk (and responsibilities for them) before problems arise, rather than afterwards
- emphasising collective responsibility and shared business goals
- aiming for insights and understanding about decisions, arrived at through a process of co-operation and collaboration
- acceptance of a joint commitment for taking specific actions, with no-one putting their 'head on the block' (regardless of any individual responsibilities that are assigned)
- using tools (such as the decision tree) to generate and confirm a joint commitment to decisions
- taking risks in an informed way, with full knowledge of the potential consequences
- when problems arise from particualr decisions, remembering and re-stating the reasoning that went into those decisions
- aiming to draw collective learning rather than individual advantage from mistakes, problems and negative situations
- using passive language to defuse tensions and sidestep the assignation of blame (e.g. 'there is a problem' rather than 'so-and-so has made a mistake')
- understanding that creativity, innovation and new directions imply some freedom to make mistakes
- thinking of ways to reward people on the basis of how well they take decisions, not the results of those decisions.
When things go wrong: No blame, as blame is counterproductive and damaging
Blame is counterproductive and damaging for several reasons:
Decision tools such as the decision tree create joint commitment to an action, so that no one person's position or reputation is on the line if things go wrong. In effect, this approach transfers business risks from the individual decision maker, who has much to lose from downsides occurring, to the business as a whole, which can absorb the impacts of downsides ( both financial and reputational).
Good risk management is about being prepared for problems, which in turn helps to avoid a culture of blame. By valuing control, analysis and objectivity, the focus can be kept on the problems that everyone in the business faces together.
- it has a negative emotional impact on the person concerned, making them more likely to 'self-regulate' their future behaviour in a limiting way
- it closes down the discussions that should result from mistakes
- it shifts the spotlight away from analysis, learning and objectivity
- it discourages other people in the business from taking any kind of risk, whatever the expected value.
Decision tools such as the decision tree create joint commitment to an action, so that no one person's position or reputation is on the line if things go wrong. In effect, this approach transfers business risks from the individual decision maker, who has much to lose from downsides occurring, to the business as a whole, which can absorb the impacts of downsides ( both financial and reputational).
Good risk management is about being prepared for problems, which in turn helps to avoid a culture of blame. By valuing control, analysis and objectivity, the focus can be kept on the problems that everyone in the business faces together.
When things go wrong: No blame
Errors arise when individuals make decisions, but their root causes are deeper than how 'competent' we are at the point when we make decisions. Their sources include :
Because being blamed gives rise to negative emotions, and often leads to some kind of sanction or punishment as well, people who make errors tend to blame them on circumstances or events, rather than themselves ('it's not my fault!').
Neither of these all-too-familiar 'natural' perspectives on error is useful in improving the way we make decisions, or the way we respond when things go wrong. Refraining from blame is a crucial part of informed decision making and good management.
- the tools available to help us make decisions (such as the decision tree)
- the information we have at our disposal
- our psychological make-up; our values; the way we use information; the frames we deploy; our memories and how we regard past events
- the organisational contex: corporate values; support systems; the way decisions and their results are analysed and rewarded.
Because being blamed gives rise to negative emotions, and often leads to some kind of sanction or punishment as well, people who make errors tend to blame them on circumstances or events, rather than themselves ('it's not my fault!').
Neither of these all-too-familiar 'natural' perspectives on error is useful in improving the way we make decisions, or the way we respond when things go wrong. Refraining from blame is a crucial part of informed decision making and good management.
When things go wrong: Human errors
Preventing errors by good decision making is not easy. Our brains aren't computeres; they are poor at calculating probabilities, thinking of different possible outcomes and holding lots of information. Situations that are complex, or constantly changing, confuse us even further.
Our 'natural' decison-making processes are often false friends in business. To help our brains get to grips with uncertainty, we have to create mathematical and logical structures. The fact that these are hard to understand indicates how 'unnatural' they are for us. Our brains are designed for self-preservation -taking decsions quickly, under pressure - to ensure survival. To do this, we take 'cognitive shortcuts' that allow us to cut through the information we're facing and reach a decison. The problem is that we often make the wrong choice.
It's the same story with error prevention. When things go wrong, many 'natural' responses, such as blaming others, are self-preservation impulses. They won't help us to learn from our mistakes or share learning with others. To do so, we have to overcome our 'natural' responses and adopt approaches that can, at first sight, seem counter-intuitive.
Our 'natural' decison-making processes are often false friends in business. To help our brains get to grips with uncertainty, we have to create mathematical and logical structures. The fact that these are hard to understand indicates how 'unnatural' they are for us. Our brains are designed for self-preservation -taking decsions quickly, under pressure - to ensure survival. To do this, we take 'cognitive shortcuts' that allow us to cut through the information we're facing and reach a decison. The problem is that we often make the wrong choice.
It's the same story with error prevention. When things go wrong, many 'natural' responses, such as blaming others, are self-preservation impulses. They won't help us to learn from our mistakes or share learning with others. To do so, we have to overcome our 'natural' responses and adopt approaches that can, at first sight, seem counter-intuitive.
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