November 2010

A time to collaborate

Submitted by Lee Fig on Sun, 2010-11-28 21:52

Tomorrow's tube strike and the thought of finding an alternative route in to work on an icy, dark Monday morning serves to reinforce my view concerning changing working practices.

Oh, I forgot, you're never out. You've got your mobile in your pocket all the time, and wherever that is, you're on duty. You are connected. Only in rare exceptional moments when you are out and about, and you have a poor connection, does your computer/Blackberry fail to plays tag for you.

Wait a moment though. Have you thought about this from a different perspective. Never mind about not even been out. You don't even have to be in, do you? What's the point of paying money for a warm seat somewhere when your entire office fits into your laptop ? There is no in is my point. You say you miss the banter with Fred by the water cooler? He probably works at the Costa just off Liverpool St these days, you can visit him there. Pass through any coffee shop in Canary Wharf and you will see these virtual offices populated by warm lapped over caffeinated workers.

But can you say goodbye to carbon paper, rubber stamps, a fax machine, the storage cabinet, the tea lady (eh?), the office librarian, the secretary who sat in front of your door and guarded it, the guy who used to make announcements over the office call speaker to find someone when a delivery came, finding a projector for presentations, the woman who carried the slide projector, the copy machine, the curator of the company library, the man in the suit who fixed the printer, the chap in the post room and yes, sadly, the those "interesting" Electronic Trading magazines you used to read every month that were the sole source of business inspiration and insight.

Still not convinced? Then how about also getting to say goodbye to the two meetings a day we had with everyone in the office, mostly because everyone was in the office and we didn't want to hurt anyone's feelings. Or how about the finger-pointing when a project hits an exceptionally rare hiccup, because the timelines online don't lie.

Indeed, come to think of it don I need to bother sending me the annual Christmas letter or telling me you've been promoted or run an ad letting me know that you've launched a new product or landed a new client. I saw all of it as it happened, on Twitter!

Now back to reality. This distorted view is not too perverse if you imagine a culture conducive to improved work productivity that does a way with the briefcase, the unnecessary workshops or formal suits. Remote working is not a new concept. Recall the last surge resulting in many working from home when firms had to refocus operational costs and protect the bottom line as many faced going to the wall following the dotcom thing. This coincided with the proliferation of virtual networking and video conferencing software. Take a look at Cisco shares for instance.

And with the credit crunched times, protecting the bottom line is a priority - particularly from the impact of fractious industrial relations. Now the time is ripe for the leverage of social networking and other technical innovations to make us rethink how we work, for this to evolve to the next, more complete level. Whereas previously, collaborative working whilst remaining work was more of a concept. Just another buzz word. These days it is a reality.

Research research indicates that working from home, assuming access to modern technology and minus the distractions of the workplace are more conducive for collaboration. For some consistent working remotely will never be appropriate however. Ultimately decisions regarding where and how you work should be answered in terms of ability to meet your goals. This notion sits unhappily with traditional business thinking in some sense. Even today, the thinking of economist Adam Smith (1723-1790), which saw competitiveness as maximising self interest, is predominant. More recently, this thinking has resurfaced as Economic Darwinism that looks at business competitiveness in terms of winner takes all or taking no prisoners.

Fortunately, current thinking and business practice tends to take sides with John Nash, whose life was popularised in the film A Beautiful Mind. He won the 1994 Nobel Prize for proving the 1755 philosophy of Jean-Jacques Rousseau that when parties collaborate, the overall size of the pie almost always expands to the extent that each participate get more than they would going it alone. Think about hunters each catching rabbits alone as opposed to deer together. The parallels today are no different. It may be worth reflecting on this briefly tomorrow as we make our journeys.

Building the Target Operating Model for an economy

Submitted by Lee Fig on Sun, 2010-11-21 20:04

Finance

Recently I have been reminded about the concepts that one has to grasp in order to build, evaluate, purchase and sell financial structured products. Structured finance denotes the art (and science) of designing financial products to satisfy the different needs of investors and borrowers as closely as possible. This needs to be understood in the context of Target Operating Model (TOM) and respective business processes.

Recent developments in Ireland reflect, in a sense an extension specific technique and operation of the financial intermediation business - when it goes wrong. In fact, it's traditional banking activity, i.e. designing loans to provide firms with funds and deposits to attract funds from retail/private investors, along with managing the risk of a gap in their payoffs, was nothing but the most primitive example of a structuring process.

Of course this was fuelled by what we now to be a property bubble. Nowadays, the structured finance term has been provided with a more specialized meaning, i.e. that of a set of products involving the presence of derivatives, but most of the basic concepts of the old-fashioned intermediation business carry over to this new paradigm. Building on this basic picture, Ireland like other countries fell into the hotpot trap involved with making products more and more attractive to investors and borrowers.

The motivation is the same i.e. to provide funds to borrowers to enable someone to do something that could not be done in any other way (or in a cheaper way) under the regulations. So long as risk was not compromised once the numbers had been crunched this business model remained unbroken.

To explain, take the simplest financial product you may imagine, a zero coupon bond, i.e. a product paying interest and principal in a single shot at the end of the investment. The investor’s question is obviously whether it is worth giving up some consumption today for some more at the end of the investment, given the risk that may be involved. The Irish borrower’s question is whether it is worth using this instrument as an effective funding solution for his commercial property development say.

What if the return is too low for the investors or so high that the borrower

cannot afford it? That leads straight to the questions typically addressed by a TOM providing for a more effective structuring process with risk being a core principle:

Maybe the maturity is too long, so what about designing a

different coupon structure? Or maybe investors would prefer a higher expected return, even at the cost of higher risk, so why not make the investment contingent on some risky asset, perhaps the payoff of the project itself? If the borrower finds the promised return too high, what about making the project less risky by asking investors to provide some protection?

All of these questions, in ideal world, would be addressed by a TOM to mitigate risk for lender, borrower and institution or in the case of Ireland the sovereign nation. It would lead to the definition of a “structure” for the bond as close as

possible to those needs as opposed to being a product that effectively retrospectively fit those needs/requirements. So long as the risk management processes did not flag the transactions the numbers made sense.

But the problem with this assumption is now obvious. That the "structure" is probably be much more sophisticated than any traditional banking product. And in the absence of any satisfactory operating model the production process of a structured finance tool involves individuation of a business idea and the design of the product, the determination and analysis of pricing, and the definition of risk measurement and management procedures was fatally flawed.

Going back again to the comparison with banking, the basic principles were already there: design of attractive investment and funding products, determination of interest rates consistent with the market, management of the misalignment between asset and liabilities (or asset liability management, ALM). Mostly the same principles apply to modern structured finance products: how should we assemble derivatives and standard products together, how should we price them and manage risk? These are all questions that my be analysed and modelled using complex equations but fundamentally our resolved by the business's operating model. An economy is no different.

Ironically, for Ireland this notion has become even more prerequisite in order for it to recover. The hard part of the job without there being a new or updated TOM would then be to convince or at least explain the structure, as effectively as possible, to the investors and borrowers involved, and convince them that it is made up to satisfy their own needs. The difficulty of this task is something, it appears, that we are going to share. We will need a model that provides great transparency. What are you actually selling or buying? What are the risks? Could you do any better?

A sound TOM will force asking the right questions that will lead to an answer that will be found to be straightforward, almost self-evident: why did not I get it before? It is more than simply the replicating portfolio. The bad and good news is that many structured products like lenders and borrows, have their own replicating portfolios, peculiar to them and different from those of any other. Bad news because this makes the design of a taxonomy of these products an impossible task; good news because the analysis of any new product or economic recovery may be enhanced by and indeed require a principled business operating model. Defining the blueprints for the new model is the challenge not just but for Europe that will likely have ramifications on the Euro, Basel III and beyond.

Let's go exploring!

These may be the last and infamous words uttered by Calvin to Hobbes as they zoom off over the snowy hills on their sled. But In a sense, my life has been about following through this sentiment. I want to continue this journey with you. It has been an exciting and exhilarating journey so far.

Although I have spent the last 10 years specialising in consulting for major clients within financial services in business facing roles, formative years were spent operating in a technical capacity. I was the "techie's techie" having developed state of the art information systems for various banks.

Of course this background helps when occasionally advising clients concerning strategic information management systems decisions. Along the way I have had fun qualifying as a Barrister-at-Law that better equipped me with the ability to analyse in a structured or logical even better than my ISEB Business Analyst certification.

A varied background helps when a fresh perspective is required. This tends to involve assisting clients, typically within financial services operate more effectively. My involvement may range from assisting clients to meet regulatory challenges of Basel II or Solvency II, to developing business and operational synergies for a business merger or acquisition.

I enjoy working with business leaders to deliver tangible gains. This varies from developing business vision and strategy, to helping with requirements and processes. I apply a focused approach that relates to the bottom line to assist clients with quantifiable expectations of financial costs and benefits - wherever changes are process or system orientated.

My passions involve invariably getting injured running where I live on the outskirts of London to day trading using a particular technical strategy.

But above all, I enjoy life and working with the best talent to analyse and solve complex problems or deliver change. You may wish to get in touch to mention a little about yourself or just to say hello.

lee.fig@sopica.co.uk

Your breakeven point

Submitted by Lee Fig on Sat, 2010-11-20 13:06

Leadership

Most leaders, whether they be the President Obama or you average CEO, gets 100 days to prove himself; you get 7 days. The actions you take during your first week in a new job will largely determine whether you succeed or fail.

OK, I may be exaggerating slightly. Nevertheless, transitions are periods of opportunity, a chance to start afreshand to make needed changes in an organization. But they are also periods of acute vulnerability, because you lack established working relationships and a detailed understanding of your new role. If you fail to build momentum during your transition, you will face an uphill battle from that point forward.

The stakes are obviously high. Failure in a new assignment can spell the end of a promising career. But making a successful transition is about more than just avoiding failure. Some leaders do derail (and when they do, their problems can almost always be traced to vicious cycles that developed in the first few months on the job). But for every leader who fails outright, there are many others who survive but do not realize their full potential. As a result, they lose opportunities to advance in their careers, and they endanger the health of their organizations.

Think, therefore, as much about transition acceleration as about failure prevention. This approach provides a blueprint for dramatically condensing the time it will take you to get on top of the job, regardless of your level in your organization. If you succeed in this, you will free up time to concentrate on fixing problems and exploiting opportunities in your new organization.

After all, your goal should be to arrive as rapidly as possible at the breakeven point, where you are a net contributor of value to your new organization. Every minute you save by being systematic about accelerating your transition is a minute you gain to build the business. The breakeven point is the point at which you have contributed as much value to the organization as have consumed from it. By keeping this target on your event horizon helps provide a pragmatic and fresh perspective on the initial and most critical phase. Good luck!

Becoming An Expert Problem Solver - Step 1

Step 1: Identify

Identifying the correct problem to work on is often where people trip up. It’s not as simple as you might think -- breeze over this step at your own peril. Think about a business that has revenue issues. There could be a few hundred reasons for that issue.

Asking the right questions and being a smart detective help you zero in on the problem with precision. The good problem solver asks a lot of questions about what the problem really is, instead of guessing and making snap decisions about it.

Becoming An Expert Problem Solver - Conclusion

Problem solving is no problem

Problem solving is a skill that pays handsomely. Practice the steps so that you become efficient at them. Require it of others you work with. Then execute.

Get them in the habit of always bringing at least one solution idea for every problem you identify. No problem.

Becoming An Expert Problem Solver - Step 5

Step 5: Re-examine

The final step is to check in with the solution’s progress and determine if it is still the right one. There will be times when the problem still exists because the solution wasn’t right. Don’t throw in the towel.

Go back to step two and get going on the next solution to try.

Becoming An Expert Problem Solver - Step 4

Step 4: Execute

This is another step average problem solvers often skip. It does no good to come up with a great idea and then bungle execution on it. We’ve all been in those meetings where ideas are brainstormed and funneled into a few doable deeds, only to walk out of the meeting and never know when or how the ideas will be executed. Fruitless.

Come up with a plan to get your idea done. You don’t have to be the executor of the full idea, but as a problem solver, you have some responsibility for implementing the solution.

Becoming An Expert Problem Solver - Step 3

Step 3: Evaluate

This is when you evaluate the ideas you came up with during the ideation phase. Evaluate ideas first based on their impact on a goal, and secondly, on the complexity of the idea. Complexity is not about difficulty. Instead, it is determined by only two things: time and money.

Can the idea bring about successful results in the time constraints you have, and does it fit any known budget constraints you have? Ask yourself how large an impact the idea has. If you’re trying to cut £10,000 out of a budget and you come up with an idea that saves £100, the impact is relatively low. One with £1,000 becomes a higher-impact solution. You are looking for high–impact, low-complexity ideas.

Becoming An Expert Problem Solver - Step 2

Step 2: Ideate

Now that you have a short list of what the problem might be, brainstorm all the possible solutions. The best brainstorming happens when you have the opportunity to bounce ideas off others. Get the right people in the room and think of as many solutions as you can. This is not the time to evaluate.

The physiological brain process of generating ideas is not the same as evaluating them, and they cannot be switched on at the same time. They are both critical processes, but don’t turn off the ideation by turning on the evaluation.

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