Biggest Dirty Little Secret in Business: Legal–Probably, Ethical–Maybe, Interesting–Definitely…

Nothing in life, that’s worth doing, comes easily. I was reminded of that for which I’m grateful– Dirty little secret.

The business dirty little secret is information that is purposely not made available to the general public in order to gain advantage, not reveal weakness, or avoid embarrassment. Every business has secrets and some are just bigger than others: Those little things that are hide away, for fear of judgement... For example; A manager’s expectations of people and their expectations of themselves are the key factors in how well people perform in business. Known as the Pygmalion effect and the Galatea effect, respectively, the power of expectations cannot be overestimated.

According to Susan M. Heathfield; these are principles that you can apply to performance expectations and potential performance improvement at work. The Pygmalion effect was described by J. Sterling Livingston: ‘The way managers treat their subordinates is subtly influenced by what they expect of them.’

The Pygmalion effect enables staff to excel in response to the manager’s message that they are capable of success and expected to succeed; although, it can also undermine staff performance when the subtle communication from the manager tells them the opposite. If the supervisor actually believes that every employee has the ability to make a positive contribution at work, telegraphing this message, either consciously or unconsciously, will positively affect employee performance. When people believe they can succeed and contribute; in fact, their performance rises to the level of their own expectations…

In the article “The Dirty Little Secret of Overnight Successes” by Josh Linkner writes: When looking at the most successful people and organizations, we often imagine geniuses with a smooth journey straight to the promise land. But when you really examine nearly every success story, they are filled with crushing defeats, near-death experiences, and countless setbacks.

We often celebrate companies and individuals once they’ve achieved undeniable success, but shun their disruptive thinking before reaching such a pinnacle. Before Oprah was Oprah, before Jobs was Jobs, they were labeled as misguided dreamers rather than future captains of industry. In your life, you’ve probably had a setback or two. When you stumble, it’s tempting the throw in the towel and accepts defeat.

But the most successful people forge ahead. They realize that mistakes are simply data, providing new information to adjust your approach going forward. You will inevitably endure some failures along your journey, but you must realize that persistence and determination have always been primary ingredients in accomplishment. 

There’s an old saying that ‘every bull’s-eye is the result of a hundred misses’. So the next time you feel the sting of failure, just realize you’re likely one shot closer to hitting your target. Maybe after a few dozen failures and months or years of hard work, you might just be that next ‘overnight’ success.

In the article “The Dirty Little Secret of Successful Companies” by Jay Goltz writes:  How many times have you heard the head of a company say it’s successful because of its great people? You hear it in speeches and you read it in interviews, books, and other company propaganda. And it sounds great– gracious, humble, and nice. It may even be true, but it is not the whole story.

What these people don’t tell you in those interviews and books is that great companies may be great at a lot of things, but they do not always hire the right people. It’s a dirty little secret that even great companies have to fire the people who don’t work out. You don’t read about it very often, because firing people doesn’t make for great public relations.

Over the years my hiring mistakes often got me wondering what I was doing wrong. I was trying to build my business, and I was dealing with all of the repercussions of not understanding the best ways to hire, train, and manage employees. But, eventually, I learned that if you want to run a great company; a company they gives great customer service, delivers a great product, has happy employees, and a good bottom- line: Occasionally you have to fire people…

In the article “When Negotiating–Watch Out for Dirty Tricks!” by admin writes:  In the world of business negotiations, not everyone plays nice. Some parties will bring out dirty tricks to help them ‘win’ or, perhaps, hopelessly deadlock the negotiation to avoid reaching agreement.  You don’t have to fall prey to dirty tricks– the first step is to learn to recognize unethical or dirty little secrets in negotiations. For example:

  • Bribery: Unethical use of payoffs or collusion for the other party to get its way.
  • Missing person: Authority person who has final approval is deliberately absent.
  • Blackmail: Threat maneuver where the other party says pay this or else!
  • Scrambled eggs: Creating confusion by throwing-out lots of issues and numbers.
  • Low-balling: Offering a very low price; just to get into a negotiation.
  • Personal attacks: Deliberately attacking someone to destabilize the negotiation.
  • Stretch-out: Delaying in order to reveal uncertainties prior to agreement.
  • Dozens of other dirty tricks:  Always be prepared for unethical maneuvering.

In the article The Dirty Little Secret Of Silicon Valley’s Startup Boom” by Tom Foremski writes:  In San Francisco cafes and bars, even on the street, there are people talking about their startup ideas, business plans, and goals. And there are tons of incubators, Angels, wannabe Angels, VC firms, making investments in startups. There’s lots of money being made, especially by the super smart people who have made fortunes selling startups to larger companies.

The risk-to-reward ratios are off-the-charts, which is why so many people want to be Angels. There are no shortage of startups looking for seed investments, and most are told that they must have the right package, which includes; business plan, market opportunities of at least $1 billion in revenues, industry sector expertise… and many other such factors that are important to investors. But, most of these factors are BS. In the vast majority of cases, the buyers aren’t really interested in the startup’s business, they just want the engineering talent.

This happens time and time again: Mark Zuckerberg has said it many times, Facebook acquires companies mostly for their talent. Google does it too, all the giants do. They buy the startups and then close the business. Twitter bought Summify and closed it down. Apple bought LaLa and closed it down. There are hundreds of startups acquired every year and their services or products are closed down. Startups are by far the best hunting ground for new talent.

So, do we really have a startup boom? Or is it a masquerade, a proxy for battle between the Internet giants for top quality engineers? The value of software ‘code’ is proportional to the scale of its use. The same ‘code’ can be used to provide service for one hundred people or ten million. Building scale is hard, very hard. But if you already have scale, then you have means to leverage the work of software engineers across a vast realm of business opportunities.

My advice to young engineers is don’t worry too much about your business idea; bootstrap your own venture.  Produce great code, create and launch a service, then shop it around as demonstration of your talent. Silicon Valley’s dirty little secret is the startup boom is mostly a disguised jobs fair that benefits the big corporations.

Occasionally, an innovative startup makes it past this stage but it has to be so bad that no one wants it, not even for its team. It’s from among these ugly ducklings that the swans of the new age emerge: Facebook, Goog, Twitter, Yahoo! and others– no one wanted them at first, then they couldn’t get enough of them.

In the article “The Biggest Dirty Little Secret in Business” by Hugo writes:  The biggest dirty little secret in business is described in Jack Welch’s bestseller ‘Winning’ and it’s candor. Just focus for a minute on the exact meaning of the word ‘candor’ from the Oxford Dictionary: Frankness or sincerity of expression; openness, freedom from prejudice; impartiality... It strikes me that many potentially very good people fail to communicate clearly and withhold what they really think for all sorts of reasons and it’s absolutely damaging to their business.

Too many people want to avoid conflict and just make life easier. According to Welch: ‘I have always been a huge proponent of ‘candor’. In fact, I talked it up to G.E. audiences for more than twenty years. But, I have come to realize that I un­derestimated its rarity. In fact, I would call lack of ‘candor’ the biggest dirty little secret in business.  Lack of ‘candor’ basically blocks smart ideas, fast action, and good people contributing all the stuff they’ve got. It’s a killer.  

Now, when I say ‘lack of candor’, I’m not talking about malevolent dishonesty. I am talking about how many people too often instinctively don’t express themselves with frankness. They don’t communicate straightforwardly or put forth ideas looking to stimulate real debate. Instead they withhold comments or criticism. They keep things to themselves, hoarding information. That’s all lack of candor, and it’s absolutely damaging.’

The biggest dirty little secret in business is the lack accountability and responsibility at all levels from the leader to top executives to front-line managers to individual employees. As a result, companies do not execute and achieve what they set out to achieve.

In the book, The Oz Principle–Getting Results Through Individual and Organizational Accountability by Roger Connors, Tom Smith and Craig Hickman they say; pervasive lack of business accountability is the reason that most companies fail. According to David Shedd; the key to accountability is willingness of an organization’s people to embrace full responsibility for results they seek.

Many organizations move from one illusion of what it takes to achieve organization effectiveness to another without ever stopping long enough to discover truth, the dirty little secret: The results you seek depends on shouldering greater accountability, which begins with  business leadership, their decisions and actions…

When ‘all’ the people in the enterprise ask: What can I contribute that will significantly affect the performance and the results of the institution I serve? ~Peter Drucker

Companies Too Big to Fail or Too Big to Exist: Dilemma– Morton Fork, Hobson Choice, Darwin Rule…

Once you lose your freedom to fail, you also lose your freedom to succeed and you cease to be a free society. ~Jeb Hensarling

Too big to fail (TBTF) is a phrase used in regulatory economics and public policy and describes certain enterprises and institutions that are so large and so interconnected that their failure will be disastrous to the economy. Therefore, the federal government has a responsibility to support them when they face difficulty, so goes the logic.

Proponents of the theory believe that the importance of some institutions means they should become recipients of favorable financial and economic policies from governments or central banks. Some economists, such as, Nobel Laureate Paul Krugman hold that economy of scale in banks and in other businesses are worth preserving, so long as, they are well-regulated in proportion to their economic clout; therefore, the too big to fail status can be acceptable.

In addition, the global economic system must also deal with sovereign states (countries) that are too big to fail. Critics see the policy as flawed and large banks or other institutions should be left to fail, if their risk management is not effective. Critics, such as, Alan Greenspan, believe that such large organizations should be deliberately broken up: If they’re too big to fail, they’re too big.

In the article Too Big to Fail by Kimberly Amadeo writes:  The phrase too big to fail arose during the financial crisis to describe why the government needed to bailout some companies. Big banks, insurers…  improved their profitability by creating, then selling, complicated derivatives…

When economy was booming, they derived an unfair competitive advantage, took over smaller firms, and became even bigger. When their investments started going south, they knew the taxpayers would be forced to bail them out– or risk global economic collapse. An example is AIG, one of the world’s largest insurers. AIG was too big to fail because, if they went bankrupt it could trigger the bankruptcy of many other financial institutions…

Lehman Brothers, investment bank, was also too big to fail but the government refused bailout and it filed for bankruptcy, triggering a deep-drop in the stock market… The mortgage giants, Fannie Mae and Freddie Mac, were also too big to fail because they guaranteed 90% of all home mortgages.

The government guaranteed $100 million in their mortgages, in effect, returning them to government ownership. If Fannie and Freddie had gone bankrupt the housing market decline would have been much worse, since banks were not lending without their guarantees...

Enter the Dodd-Frank Wall Street Reform Act, which is the most comprehensive financial reform since the Glass-Steagall Act. It sought to regulate the financial markets and make another economic crisis less likely. It set-up the ‘Financial Stability Oversight Council’ to prevent any more banks from becoming too big to fail. How? It looks out for risks that affect the entire financial industry. It also oversees non-bank financial firms like hedge funds.

If any of these companies get too big, it can recommend they be regulated by the Federal Reserve, which can ask it to increase its reserve requirement. The Volcker Rule, another part of Dodd-Frank, also helps end too big to fail. It limits the amount of risk large banks can take. It prohibits them from trading in stocks, commodities or derivatives for their own profit, however, they can do so only on behalf of customers, or to offset business risk.

In the article “Big Banks: Now Even Too Bigger to Fail” by David J. Lynch writes:  Two years after the Obama administration vowed to eliminate the danger to the economy from financial institutions that are too big to fail; those same institutions, the nation’s largest banks are bigger than they were before the financial meltdown. Five banks: JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs– held more than $8.5 trillion in assets at the end of 2011, equal to 56% of the U.S. economy, according to the Federal Reserve, and that’s up from 43% five years earlier.

These banks, today, are about twice as large as they were a decade ago relative to the economy, meaning trouble at a major bank would leave the government with the same Hobson’s choice it faced earlier: let a big bank collapse and perhaps wreck the entire economy or inflame public ire with a costly bailout. ‘Many believe that nothing has changed, that too big to fail is fully intact, says Gary Stern. Giant institutions sheltered under an invisible government umbrella pose ‘a clear and present danger to the U.S. economy’.

This isn’t what the president had in mind two years ago when he vowed to prevent the further consolidation of the banking industry. The sprawling Dodd-Frank financial regulation bill that he signed in July 2010 was designed to avoid a repeat of the government’s frantic rescue of failing banks. Yet credit-rating companies Standard & Poor’s and Moody’s aren’t convinced that the too big to fail threat has been vanquished.

According to Richard Spillenkothen, former Fed’s director. ‘Probably the only way you can be 100% sure you’ve solved too big to fail,’ he says, ‘is by doing away with banks that are too big.’

In the articleToo Big to Fail – Too Big to Govern – Too Big to Manage.” by John W Rodat writes: The recent news that JP Morgan Chase had incurred a $2 billion trading loss reminds us again of the risks, to the rest of us, of organizations that are not only too big to fail, but too big and complex to be effectively managed.

Professor Simon Johnson, economist, puts it in simple terms:  The lessons from JP Morgan’s losses are simple. Such banks have become too large and complex for management to control. The breakdown in governance is profound. Conventional regulation will not protect either the economy or society because regulators have even less information and what information they do have is even more delayed than in the organizations they presume to regulate. 

The only effective solution is to reduce the size and perhaps the complexity of organizations that are so interlinked with the economy and society that the economy and society cannot afford to let them fail. According to Johnson; while information processing capabilities have grown to an extraordinary degree over recent decades, they have still not kept up with the growth in the size and complexity of large financial institutions. When too big to manage meets too big to fail; disaster – or another bailout – is inevitable.

In the article If It’s Too Big to Fail – Is It Too Big to Exist?” by Eric Dash writes: Nearly a century ago, the jurist Louis Brandeis railed against what he called the ‘curse of bigness’. He warned that banks, railroads and steel companies had grown so huge that they were lordingit over the nation’s economic and political life. ‘Size, we are told, is not a crime,’ Brandeis wrote. ‘But size may, at least, become noxious by reason of the means through which it is attained, or the uses to which it is put.’ Brandeis worried that the corporate giants of his day would imperil democracy through concentrated economic power.

His essays, published in 1914 under the title, ‘Other People’s Money and How the Bankers Use It’, helped drum up support for the creation of the Federal Reserve System, antitrust laws, and trust busting.  Devotees of economic Darwinism insist that corporate size, and its accompanying economies of scale, brings progress and benefit to consumers.

But how big is too big to fail? And how would you measure it anyway? In the case of big organizations, policy makers argue that interconnection of modern finance, as much as the size of the players, is the real issue. Frederic S. Mishkin, former Fed director, said; ‘there could be no turning back on too big to fail. You can’t put that genie in the bottle again. We are going to have to deal with it’.

In the article Too Big to Fail or Too Big to Change by Chad Johnson, Bernstein Litowitz Berger & Grossmann LLP write:  Pundits have criticized the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) as capitulating to the interests of big finance; citing the characterizations of SEC settlements as mere slaps on the wrist and the DOJ’s failure to convict a single executive responsible for creating the great recession despite significant evidence of misconduct. 

While the SEC has reached several settlements in connection with misconduct related to the financial meltdown, those settlements have been characterized as cheap, hollow, bloodless, and merely cosmetic, as noted by John C. Coffee, law professor. The relative lack of prosecutions stemming from this financial meltdown stands in sharp contrast to the government’s response to past corporate malfeasance.

The criminal cases arising from the ‘Savings and Loan’ scandals of the 1980s and 1990s, where some of the biggest kingpins– including Charles Keating of ‘Lincoln Savings & Loan’ and roughly 3,800 other bankers– were thrown behind bars, as well as, the Enron and WorldCom accounting debacles in the early 2000s where Jeffrey Skilling, Kenneth Lay and Bernard Ebbers were jailed, demonstrated that executives would be held accountable for their crimes.

As David Einhorn, hedge fund manager, told The New York Times; ‘since there have been almost no big prosecutions, there’s very little evidence that the government has stopped bad actors from behaving badly.’ Simply put, without forcing executives to answer for their misconduct, no amount of financial reform will restore public trust in government or the markets…

Too big to fail (TBTF) has no clear guidelines and thus any large organization can claim; it’s vital to the health of the economy, because its failure would have a domino effect on suppliers. For example, large oil companies going out of business would have a terrible impact on supplies of gasoline and heating fuel…

Big pharma that produce antibiotics and vaccines… which are essential and an interruption in their supply could have catastrophic consequences, from a public health point of view… According to Michael Heberling; TBTF is problematic, because it indirectly influences how companies are managed. If there is a real, or implied, government safety-net, management might be inclined to take on more risk for greater profit… Expecting a government bailout if things go wrong creates an incentive for a company to take on risk and enjoy the associated increase in return’, said Gregory Mankiw.

According to Thomas Sowell, ‘the hybrid public-and-private nature of these activities amounts to privatizing profit and socializing risk since taxpayers get stuck with the tab when high-risk finances don’t work out.’

In other words, it is a travesty to say or imply that current crisis stems from market failure. The most troubling aspect of ever-increasing number of government bailouts is the subtle change overtaking the entire country.

The mindset of companies and individuals today is shifting away from self-responsibility. We blame everyone else for our mistakes and look to others (the taxpayer) to come to the rescue. When it comes to handouts and bailouts the government is no longer simply on the slippery slope– it’s in free-fall. Every bailout makes it harder to say no when the next TBTF request comes forward…

If you put all your eggs into one basket, you better watch that basket. ~Mark Twain

Reviving Brand in Decline, Fading, Failing, Dying, or Dead: Reinvention to Rescue…

Businesses are reviving dormant brands to minimize risk and exploit consumers’ love of nostalgia… a growing trend. ~ Patrick McDermott

Frequently the statement; the ‘brand’ is a company’s most valuable asset is a marketing executive’s justification for the investment of additional resources to grow and support the ‘brand’. According to Jonathan Knowles the phrase is insightful when ‘brand’ is used to mean ‘perceived uniqueness in the minds of customers’ and not simply about reputation.

This was the meaning that John Stuart, chairman of Quaker, had in mind when he made his famous remark that; ‘if this company was split-up, I would give you the land and bricks and mortar, and I would take the brands and trade marks, and I would fare better than you.’

The industries in which ‘perceived uniqueness in the minds of customers’ is truly the most important asset of the business are ‘consumer’ industries (e.g., alcohol, cars, electronics, entertainment, fashion, retail…) in which brands are a form of self-expression for consumers; or ‘distress purchase’ industries (e.g., insurance, financial services, medical products, certain technology products…) in which consumer preference is driven by loss-aversion.

If your company deliver the right brand experience consistently, and customers and prospects find that appealing, then the brand will grow and prosper… However, if the brand has no heart, no soul and no personality, then that attitude will position the brand as; bland, feeble, and more vulnerable to pricing pressure, customer churn, and declining margins. The brand is what the company is; nothing more, nothing less. Brands aren’t built with tools, techniques, slogans, sayings, light-up buttons…

Brands are built through the development of value propositions that are exchanged between buyers and sellers, between people and organizations, and if people who deliver the brand experience aren’t sold on the brand and don’t live the brand, then they should not expect it from the customer.  According to Jonathan Knowles; the key ingredients in branding are:

  • Brand must be based on solid business model and sound business proposition.
  • Brand must differentiate itself from competition with a meaningful value proposition. Slogans and jingles are fine, but, they generally won’t pay the rent.
  • Brand must deliver what is truly important to customers and doesn’t run counter to common sense.

In the article Revitalizing, Rejuvenating and Reformulating a Struggling Brand” by Ted Mininni writes: When should companies allow declining brands to quietly finish life cycles, and conversely, when should they opt to revitalize them? Many experienced marketing executives and brand managers feel that brands follow irrevocable life stages, e.g., they are born, mature, plateau and eventually begin to decline and die.

Companies with brands that are in the declining phase, generally, employ the strategy of best business practice, i.e., cutting advertising and marketing investment on these brands and reallocate the dollars to other growth brands. Some companies choose to sell-off weak brands or price discount them to wring-out whatever value is left. While other companies are interested in revitalizing their diminishing brands, which is currently a growing trend.

However, the important question remains; how can companies determine whether to invest in the revitalization of brands or not? Sometimes revitalization requires the re-branding of a company from top-down and that can include; a refurbishment of the logo, trademark and trade-dress to revamp entire corporate brand image. Sometimes it’s an updating of the brand’s products and specific product attributes with better and demanded features. Also, revitalization can require a repackaging for a fresher, more contemporary brand-look for appeal to new generations of consumers.

Bottom line: Revitalizing a corporate brand, when consumer research signals the time is right or sales have either come to a plateau or begun to slump is essential component of ongoing brand management. Revitalizing a brand contemporizes and gives it new life to what could have been perceived as a tired, aging product line…

In the article “How to Revive a Shaken Brand” by Karen Post’s article writes: How will you pick up the pieces once your brand’s foundation has been shaken by a brand crisis? For example, a legal issue, natural disaster, sudden market shift or troubled product– these types of issues can test any brand’s stamina.

But with careful navigation and rethinking, you can bounce back. When a brand faces a big blunder, their world starts crumbling and it seems like there is no way out. Moving forward after a crisis is no easy task, but with the right plan and timely actions, you can regain your brand power even through the toughest situations. There are ‘game changers’– key concepts that transform a brand from bad to back-on-top.

One of these ‘game changers’ is to keep improving; and that takes a commitment to change and the ability to rethink current ways. That requires meaningful rethinking, recycling, focus on scalable improvements, and the willingness to kill traditions. With the right level of adjustment and innovation, you’ll have your brand back on track, quickly…

In the article “Dead Brands Come Back to Life” by Richard Bergovoy writes:  Once popular but abandoned brands are being rescued from obsolescence and used as branding for other products; at no charge (free) and it’s perfectly legal. For example; Wal-Mart sells ‘White Cloud’ toilet paper, CVS sells ‘Nuprin’ analgesics… and, due to residual goodwill of these abandoned brands, both companies sell these rebranded products at a higher price point than generic options.

Yet, neither pay a license fee to the original brand owners. How is that possible? Normally, a company would be sued for trademark infringement, if it used a branding without the owner’s permission. But a trademark is a use-it-or-lose-it legal right. The federal ‘Lanham Act’ says, ‘that if a trademark is not used in commerce to identify goods or services for three years, it is presumed abandoned’. Then it becomes available to anyone; first come, first served. 

However, the three-year period is just a presumption; if the original owner can show that it had no intent to abandon the mark then it retains ownership. For example, the brand owner might be doing behind-scene product development, so a would-be trademark recycler must proceed with caution.

How can one find abandoned brands to recycle? First, a little old-fashioned research: Check promising candidates against the online federal trademark register, and also there are brand licensing agencies that specialize in securing and licensing abandoned brands…

In the article “Can a Dead Brand Live Again?” by Rob Walker  writes: Marketers like to talk about something called ‘brand equity’, a combination of familiarity and positive associations, which clearly has some value, even if it’s impossible to measure it in a convincing empirical way. Exploiting the equity of dead or dying brands– sometimes called ‘ghost brands’, ‘orphan brands’ or ‘zombie brands’–  is a topic many consumer-products firms, large and small, have wrestled with for years.  

Whether these brand-reanimation efforts pan-out as a successful business strategy is problematic; however, they do offer an unusual perspective on the relationship between brands and brain. By and large, examinations of successful brands tend to focus on names like; Harley-Davidson, Apple, Converse… which have developed ‘cult’ followings, however, such cases are misleading, because they are not typical of most of what we buy.

A great deal of what happens in the consumer marketplace does not involve brands with zealous loyalists. What determines whether a brand lives or dies (or, can even come back to life) is usually a quieter process that has more to do with mental shortcuts, assumptions, and memories– and all the imperfections that come along with each of those things.  It’s often hard to pin-down the exact moment a brand disappears, because a product can linger on shelves for quite a while before its sold-down or otherwise liquidated.

According to John F. Sherry Jr.; ‘there’s no real reason that a brand needs to die, unless it is attached to a product that functionally doesn’t work; that is, as long as a product can change to meet contemporary performance standards, your success is really dependent on how skillful you are in managing the brand’s story so that it resonates with meaning that consumers like.’

Brands fail, lose favor, fade from memory, and suffer a decline in effectiveness and value, and this happens for a number of reasons. For example: The brand may no longer represent product qualities or corporate values that are important to customers; poor management may have damaged the performance of the company or products;  stronger competitors many have overtaken the brand in terms of its consumer recognition or market share…

Strategies to revive a brand take a number of forms, such as; redesign the visual elements of the brand, increase brand communication, restructure the company to improve performance.

In the article ‘Brand is Forever! Framework for Revitalizing Declining & Dead Brands’ by Sunil Thomas & Chiranjeev Kohli write: Over years, brands have met untimely deaths, such as; Oldsmobile, Pan Am, Woolworth… Many more have steadily declined into oblivion, while others have been revived. When a brand dies, significant investments that were made to build the brand are lost. Unfortunately, even the strongest brands with high net-worth are not immune from brand decline and subsequent death. In today’s market, where new product introductions are expensive and risky, it may be worthwhile to evaluate brands that are declining and invest in revitalizing them.

An article ‘How to Reinvigorate Old Brands’ in ‘Forbes Magazine’ says: Reinvigorating a brand may require a few simple adjustment, or much more drastic changes, for example; redesign the logo and other visual elements that are outdated; development program that better aligns the brand with market requirements; communication plan to increase exposure of the brand; fundamental organization change that impacts the brand…

‘Intangible Business’ writes; ‘the main reason businesses, behind successful legacy brands, die is due to management & operational incompetence’.  Example: Gibson  Guitars, where a change of management saw a dramatic revival in brand strength following a period of neglect by previous owners. Another, Apple Computer was practically dead, back in 1997: ‘Wired Magazine’ ran a cover story about Apple with the caption ‘pray’.

In a world that Apple had helped to create, it was becoming irrelevant. But then strange things happened a wildly popular creative maverick was brought back– Steve Jobs. He had offended as many as he inspired but his presence ensured that nobody remained indifferent, let alone bored. He turned the fortunes of the company round, big time. Lesson to be learned: Reviving a brand can work…

The strength of a dormant brand is you can remake it, however you want; and the challenge is you can remake it, however you want. ~Paul Earle

 

Your Company’s Organization Chart is Probably Obsolete: Time to Rethink, Realign, Rebalance… Keep an Eye on Future…

Every company has two organizational structures: The formal one is written on the charts; the other is the everyday relationship of the men and women in the organization. ~Harold S. Geneen

Most organization charts are old, out-of-date, inaccurate, non-aligned with company strategy, and just plain useless… An organizational structure is a formal outline of the managerial reporting relationships and information flows within a company. A company’s organizational structure is a core component of its culture, and serves as a backbone for all operational activities.

The organization chart is a manifestation of the organizational structure and provides a roadmap between people and departments, and provides the foundation for standard operating procedures and practices. It shows the key individuals that participate in the decision-making process, and the extent to which their views shape the organization’s actions.

 The early theorists of organizational structure, such as; Taylor, Fayol, and Weber ‘saw the importance of structure as a condition for an organization’s effectiveness and efficiency, and whatever structure was needed people would fashion it accordingly… Organizational structure was considered a matter of choice.’ 

In the 21st century, organizational theorists, such as; Lim, Griffiths, and Sambrook ‘say that organizational structure development is very much dependent on the expression of the strategies and behavior of management and workers, as constrained by the power distribution between them, and influenced by their environment and the desired outcomes.’  

While organizational structures are usually portrayed as sets of interconnected boxes, the reality is that the boxes are human beings with strengths, weaknesses, and personalities that often don’t fit with the logic of the organizational design. But, instead of directly dealing with the misfits, most managers make accommodations to the design of the organization that leads to structures that don’t quite work as they should.

It may not be possible to fully solve the dysfunctional design puzzle in your organization, but a good way to start is to ask these three questions: (1) Is the problem the structure, or the way we are managing it? (2) Does the structure match our strategy? (3) Has the organizational design been compromised by accommodating personalities? Starting a dialogue may not solve everything, but it might help you start shifting those organizational pieces into their correct place (or, if you wish, shifting boxes).

In the article “Your Organization Chart” by Erin Duckhorn writes: Most companies organize around personalities rather than around functions, i.e., people rather than accountability or responsibility. Keep in mind that your organization chart is an essential, central, and critical piece of documentation in your business. Perhaps, if it’s been awhile, now is the time to revisit your chart and take a strategic look at your organizational structure.

Your organization chart is like the grand schematic of your business, and it’s the means through which the crucial transitions can be made. Once you have a working organization chart, the next step is to figure out how that chart is going to serve the future of the business. That is, keeping in mind how the present is going to serve the future. As you build the business toward your strategic objective, think about how your organization chart needs to morph and evolve, in order to serve that vision.

In the article “Your Organizational Chart (and Why It’s Needed)” by Judith Lerner writes:  Tear-up your organizational chart: It’s not working and doesn’t show the positions that need to exist in your company in order to support your vision. It’s not revealing who really is responsible for what, and how they’re held accountable. Since it’s not serving you, then change it and create a picture of what is supposed to be happening every day in the business to assure consistency and growth. 

The organizational chart should be a schematic of the true workings in your business – not only as it exists now, but as it scales out to meet your strategic objective. As company grows, the organization chart is a road map for your plan to fill specific needs in your business. Once you have a clearly defined organization chart, you have the framework for understanding, structurally, what has to take place in every center of company to successfully accomplish your goals. In other words, you have created an organization chart that depicts the company structure as it must be, in order to meet your future expectation.

In the article “The Myth of the Organization Chart by Gerald McLeod writes: The organization chart is myth and should be done away, or at least hidden away, only produced and shown on demand. Most exiting charts deceive, and only include a small representation of a select few, the so-called, important people in an organization. Many charts appear to have been designed more for ego satisfaction rather than actual graphic representation of the business organization. If you were to ask a customer who is on the top of the organization chart, most likely, they wouldn’t have any idea.

Those who are on the front line are really the important people in an organization. They are the people who customers see and interact daily, and customers base their image of the organization according to these encounters. The organization chart is an archaic relic of by-gone days and should be put away. Today’s businesses and organizations are inter-dependent enterprises with constantly rotating head-honchos. No organization chart design can truly display the real organization.

In the article Why Organization Charts Can Get in Way of Change by Andrew writes: The most common maps of enterprises are hierarchical organizational charts. We see them everywhere. We depend on them to illustrate the structural elements of an organization and identify the people working within them. Their underlying organizing principle is top-down granting of authority. However, getting work done in organizations depends on relationships that traverse these artificial boundaries.

Collaboration and cross functional teams is a necessary feature of organizational life. However, if you think your organizational chart represents the relationships that get work done, you need to pull your head-out of the sand (or, the chart). It’s amazing how much attention is paid to the hierarchy documented in organizational charts. Most of us when asked, will freely admit that the relationships required to get work done are not illustrated by an organization chart.

The reality of the modern organization is that it’s a network. It’s the sum of social and working relationships that traverse both organizational silos and levels. The old boys’ club, grapevines, even the smoker’s huddle are the type of networks that uses informal paths of communication to share knowledge and support. Adopting a network view is much more useful when it comes to understanding connections between people in organizations.

The mesh of personal interaction isn’t revealed by an organizational chart, but exists, nonetheless. Working with key or central people within the networks can; amplify communication, accelerate change, and identify opportunities for promoting development; however, the key is to become fully engaged within the networks…

There is a  ‘new normal’ in doing business today. Think of it as a tidal wave of change that is relentless and moving at high-speed. According to Neil Ducoff; the pace is so fast that it has rendered many tried-and-true leadership approaches and systems grossly underpowered or totally ineffective. To survive and thrive in a change-on-steroids economy, leaders need to rethink everything quickly or drown in the wake of change.

It’s hard for a company to be fast, responsive and innovative when its organizational structure is complicated and, in many ways, designed to be territorial. This is exactly what happens when organization charts are built around titles and functions. In the new normal, organizational structures must be streamlined, simplified, and focused on what’s truly important; i.e., the outcomes. We need to rethink our reliance and devotion to organization charts. I don’t condemn them completely, but we need to ease-up on our reliance on titles and hierarchy. Supporters of organization charts claim that they are tools that can effectively delineate work responsibilities and reporting relationships.

Managers of different organizational units may not fully understand how their work fits into the work of other units. The early adoption of an organization chart can help to identify the areas in which a firm is lacking the supervisory role before this lack begins to have a serious impact on the organization… Detractors of organization charts point out that formal organization charts do not recognize informal lines of communication and influence that are quite vital in many business settings.

Organization charts are often seen as narrow and static in perspective, and they may exclude important relationship and reporting factors… Critics charge that the diagrams may paint a misleading picture of the importance and influence of various people within an organization. Since organization charts, out of necessity, are somewhat streamlined representations with limited detail; it’s important for businesses that do rely on them to continually examine and update those diagrams to ensure that they reflect current business realities.

In fact, the changes in organizational structures have spurred innovative changes in the format of many organizational charts; whereas, traditional models are formatted along general up-down lines, newer models sometimes utilize flattened or spoke frameworks. Also, the implementation of various kinds of team models are more common as modern businesses move towards a more organic organizational structure. For example; some organizations have established models using self-directed work teams, cross-functional teams, and other variations. 

These models are established, either as ad-hoc (e.g., for problem solving) or on permanent basis, as the regular means for conducting the organization’s work. Part of the impetus toward the organic model is the belief that this kind of structure, work-wise, is more effective and provides greater employee motivation. The first half of the twentieth century was dominated by the one-size-fits-all traditional organization structure. Whereas, now in the early twenty-first century, the dominate thinking is that changing organizational structures, while still a monumental managerial challenge, is a necessary condition for competitive success…

The WL Gore Company: There are no traditional organizational charts, no chains of command, nor predetermined channels of communication. Instead, we communicate directly with each other and are accountable to fellow members of our multi-disciplined teams. We encourage hands-on innovation, involving those closest to a project in decision-making. Teams organize around opportunities and leaders emerge.

Return on Investment – ROI – and Why Its Important… Or, Is It? Usage in Marketing, Sales, Social Media, R&D, Training…

Not only are we able to help our customers navigate the complexity of the marketplace. We are able to show a 20%  to 50%  ROI ~Ellen Siminoff

Return on Investment (ROI) analysis is one of several commonly used approaches for evaluating the financial consequences of business investments, decisions, or actions. ROI analysis compares the magnitude and timing of investment gains directly with the magnitude and timing of investment costs. A high ROI means that investment gains compare favorably to investment costs.  

In the last few decades, ROI has become a central financial metric for asset purchase decisions (e.g., computers, factory machines, service vehicles…), approval and funding decisions for projects and programs of all kinds (e.g.,  marketing, recruiting, training…), and more traditional investment decisions (e.g., management of stock portfolios, use of venture capital…).

In the article “Ten Myths About ROI” by Jack and Patti Phillips write: Originally, the concept of ROI was used in the context of showing value from investing in capital expenditures, such as buildings, equipment, and companies. In the past two decades, it has been used in the context of showing return on investing in a variety of non-capital expenditures like human resources, technology, quality, and marketing.

But the term ROI is entered into the business lexicon on a routine basis. What’s the ROI on that? is a common question. ‘Can you show me the ROI?’ is often a request from executives. ‘This will deliver a very high ROI’ or ‘You can expect a very high ROI with our solution’ are commonly heard from sales professionals. Most of these requests are brought into play without understanding the true meaning of ROI. In reality, the return on investment is a financial term. It shows, in a single metric, the potential (or actual) contribution of different projects, services, programs, and events…

In the article “Return on Investment: What is ROI analysis?” writes: One serious problem with using ROI as the sole basis for decision-making, is that ROI by itself says nothing about the likelihood that expected returns and costs will appear as predicted. ROI by itself says nothing about the risk of an investment. ROI simply shows how returns compare to costs, assuming the action or investment brings the anticipated result. For that reason, a good business case or a good investment analysis will also measure the probabilities of different ROI outcomes, and wise decision makers will consider both the ROI magnitude and the risks that go with it.

In complex business settings, however, it’s not always easy to match specific returns (e.g., increased profits) with the specific costs that bring them (e.g., the costs of a marketing program), and this makes ROI less trustworthy as a guide for decision support. The standard advice for ROI is usually explained as: ‘Other things being equal, the investment with the higher ROI is the better business decision.’ 

However, important business decisions are rarely made on the basis of one financial metric, moreover, the condition other things being equal almost never applies. Therefore, when reviewing ROI figures, or when asked to produce one, it is a good idea to be sure that everyone involved: ‘Defines the ROI in the same way, and understands the limits of the concept when used to support business decisions’.

In the blog “The Internal Importance of ROI” by Greg Ness writes: To some, return on investment (ROI) may appear to have reached marketing buzzword status. However, despite its widespread use in the current business lexicon, its importance cannot be understated — especially to marketing executives. While understanding and being able to measure ROI is of vital importance to external marketing efforts, it’s just as important for internal communication and credibility.

With all the financial turmoil that many companies are facing, it’s very important that marketing is represented as a lifeblood investment rather than a costly excursion.  Without hard numbers to support requested marketing budgets, top management and boards of directors are in no position to approve marketing outlays in today’s economic quagmire. Faced with declining sales, some companies cut marketing by a certain percentage across the board.

That may be an easy way to cut budgets, but it is seldom the smart way. If, and that is a ‘big if’, you absolutely need to cut your marketing, concentrate on cutting out what isn’t working for you and preserve what is working well for the organization. The only way to know is by having an ROI analysis in hand.  The thought of CMOs or marketing executives trying to navigate their way to success without having numbers (i.e., ROI) that support efforts could be a challenge.

In the article “Why ROI Doesn’t Work” by Glenn Gow writes: Many technology companies, especially those that offer complex or expensive solutions, have developed ROI tools for their sales organizations. The goal is to provide a way to offer prospects a factual, economic basis for making a purchase decision. A truly useful ROI tool/sales approach will be flexible enough to guide the buyer and sales person to constructing a customized business case and in the process will help to define the playing field for the evaluation itself.

The right tool, presented in the right way, gives the sales rep the power to help the prospect make his economic justification as to the value of the solution. Prospective buyers need help in articulating their own ROI, and in constructing a business case. By providing this pivotal business-case-construction assistance, the sales professional is positioned for greater visibility into the deal, providing him with key information that can move the dialogue forward and accelerate the time-to-close.

The sales organization needs skills to assist prospects in developing their own approach to whatever economic justification process is best for the prospect and your solution. An ROI program designed to build trust and face-time opportunities will accelerate the sales cycle only if it is enthusiastically adopted, and proper support mechanisms are in place.

In the blog “Your ROI: The Most Important Number for Your Business” by Richard Seppala writes:  The bottom line success or failure of a business boils down to the numbers: Profit, revenue, labor cost, profit margin– each of these calculations (and others) are powerful indicators of health of your business. The marketing ROI is another important number for the business.

Knowing the ROI for each of your marketing investments tells exactly how successful each initiative is per dollar spent. And that enables you to stop spending money on campaigns that don’t produce results. It enables you to focus all of your marketing dollars on the initiatives that are the most profitable. Once you identify tactics with a strong positive ROI, you can invest money confidently; knowing that you’ll recoup your investment and more.

Knowing your marketing ROI allows you to pick up more business efficiently. And that, in turn, allows the improvement of most other financial numbers dramatically.

In the article Marketers Use Varying ROI for Social Media” by KingFish Media writes: The report ‘Social Media Usage, Attitudes and Measurability’ indicates that marketers are directly measuring the number of people responding as the ROI of their social media campaigns. For example: Almost all (93%) measure the number of visitors/page views, while 85% measure the number of fans/ followers generated. Another 79% measure the traffic generated to the corporate site from social media.

Other popular metrics directly measuring people include leads generated (72%) and new customer conversion (58%). Some metrics measure the actions people take, such as number of comments posted (71%) and shared links (55%). In their use of qualitative metrics, marketers are most apt to measure the impact social media campaigns have on customer relationships. Eighty-four percent measure increased dialogues with prospects and customers, while 68% measure how much existing customer relationships were strengthened. In addition, 57% measure customer retention and 43% track the ratio of negative to positive relationships with prospects and customers.

One popular qualitative metric, corporate/brand reputation (68%), does not directly measure some aspect of customer relationships. Surprisingly, 43% of marketers say they have not yet measured the ROI of their social media efforts. Another 34% say social media efforts have met expectations, and 13% say they have exceeded expectations. In a positive sign for the effectiveness of social media as a marketing tool, only 8% of marketers say social media efforts performed worse than expected, with 2% considering them far below expectations.

In what may be reflective of the relative newness of social media as a marketing tool, only 29% of marketers say they will have to show positive ROI to continue their social media programs. Forty-three percent will track ROI but not set requirements, while 21% will not track ROI and 6% don’t know…

In the blog Experts: Old-fashioned ROI is Best” by Barney Beal writes: The most dangerous pitfalls in attempting to measure ROI are people who rely on an average ROI or rely on the ROI from another company. A sales rep may be selling an application and says the average ROI is 200% or the person down the street has a 300% ROI. There’s no such thing as an average ROI. You can’t compare your ROI to someone else’s. ROI is just an indicator of how big a step you take. 

Another important problem is that many companies rely on benchmark data. Benchmark is good guidance data, but you should never use benchmark data to drive your calculation. Your calculation is just for you and your company. If you use benchmark data, you’re going to generate an average ROI based on average companies and an average benchmark, which doesn’t tell you anything about what you’re going to get. Finally, never trust a sales person to do an ROI assessment for you. You might as well trust a car dealer to write the check. It’s like handing them a checkbook and saying, ‘You figure out what I can spend on the car.’

In business, it is often said ‘it takes money to make money’. The ROI is a profitability ratio that helps measure the performance of the application of money. ROI measures the link between profits and the investment required to generate profits. ROI is frequently used by management to measure performance against internal goals, competitors, or a specific industry.

Management also utilizes ROI to determine where to allocate future resources based on previous investment’s profitability, which allows the ROIs from different amounts of revenue to be compared. For example, an expensive piece of machinery may generate more revenue than a lower cost investment, but that lower cost investment may have a better ROI. ROI allows management to see past revenues, and view the effects of investment expenses on return.

Although there are  many issues with the ROI calculation, it’s a good method of measuring and comparing earning power of investments. The ROI is a versatile and simple measurement for deciding where to allocate capital funds and that makes it a very useful management decision-making tool…

Most companies are looking for a 12-month return on investment, or payback in the same fiscal year. It may be that the price point is too high. ~Richard Barrett

Greenwashing– Marketing Strategy with Green Facade: Advertising Spin, Bending Truth, Deceptive Practices…

Many companies have jumped on the bandwagon of ‘greenwash marketing’; that is, inaccurately promoting their products as green or environmentally friendly when they are not…

Greenwashing is a pejorative term derived from term ‘whitewashing’; It was coined by environmental activists to describe efforts by companies that portray themselves as environmentally responsible when, in fact, they are trying to mask possible environmental wrongdoings.

The term greenwashing was originally used to describe instances of just misleading environmental advertising, but in recent years the term greenwashing has evolved to include other environmental issues as companies attempt to portray themselves as good citizens of the environment.

According to Melissa Whellams, Chris MacDonald write; Regardless of the strategy employed, the main objective of greenwashing is to give consumers and government policy makers the impression that the company is taking the necessary steps to manage its ecological footprint. When in fact they are just attempting to cover-up their misdeeds and deceive the public in thinking that a company with an awful environmental track record actually has a great one. Of course, not all environmental advertising is dishonest, but any advertising legitimately labelled as greenwashing is dishonest.

In the article The Green Hypocrisy: U.S.’s Corporate Environment Champions Pollute The World” by Ash Allen at ‘24/7 Wall St.’ writes: A majority of U.S.’s largest companies have become part of the green movement and have initiated green programs, such as; fleets of hybrid cars, solar for cost-effective energy, contributions to environmental non-profit organizations…

However, the irony of the green movement of these companies
is that many of the firms that spend the most money and public relations effort to show the government, the public, and their shareholders that they are trying to improve the environment are also among the most prolific polluters in the country.  Pollution does not mean that the companies are doing anything illegal. Instead, it simply refers to natural consequence of the companies’ industrial efforts which result in contamination to; air, soil, or water by the discharge of substances that are toxic to the environment…

At the heart of greenwashing is a company’s desire to represent its business as environmentally friendly at the expense of honestly portraying their environmental character. Common methods used by corporations include; advertising, press releases, websites… Less obvious methods that are equally pernicious include; trade groups lobby the public on the company’s behalf, adoption of non-governmental standards for environmental protection, and establishing endowments for green academic research…

In the article “Is the Corporate World’s Patina of Green, Sea-Change, or Course Correction?” by Keith Johnson writes: Greenwashing is a buzzword on increase, and many companies are overly exaggerating their environmental programs in order to win points with consumers and government agencies.

According to ‘State of Green Business Report’ by Joel Makower, green business guru, he writes: Greenwashing is a mixed bag… we’re more or less treading water: Environmentalists, regulators and the media are increasingly scrutinizing what companies are claiming in the green arena. For example; Wal-Mart got the green gospel — at least in part on the advice of management consultants– and they’ve been on a mission to preach the company’s environmental efforts…

So far, with some success; the retail giant takes steps to trim energy use in stores, trucking fleet, supply chain…  Critics like ‘Wal-Mart Watch’ takes aim not just at the retailer, but at the whole economic model supporting it. ‘Wal-Mart Watch’ argues; the efficiency gains through these environmental programs are fine but they are more than offset by the retailer’s relentless growth, expanding its ever-bigger-box stores in ever-more-remote places… thus, the PR is great but the actual benefits to the environment overall is problematic.

The Federal Trade Commission (FTC) is beginning to pay more attention to deceptive advertising claiming environmentally friendly or sustainable products or services. Under Section 5 of the Federal Trade Commission Act, the FTC is authorized to police deceptive
advertising and marketing claims, including; bringing law enforcement action against companies that are found to have engaged in unfair or deceptive practices. Companies found guilty of deceptive and unfair advertising and marketing practices are subject to potentially significant fines…

The FTC has issued an environmental reference guide, namely; ‘Guides for the Use of Environmental Marketing Claims’ (Green Guides), which sets forth a variety of rules and restrictions on green marketing and requires all marketers making express or implied claims about the sustainability of their products have a ‘reasonable basis’ for claims. Where ‘reasonable basis’ might require competent and reliable scientific evidence to prove claims, including; without limitation, tests, research, analyses, studies… Thus, a company that overstates the environmentally friendly nature of its products or may run a foul of the FTC’s rules on deceptive environmental marketing, and might be subject to fines and other penalties…

In the article Greenwash: A Way to Say Hogwash by Jonathan D. Glater writes: Building contractors and developers are increasing endorsing elements of green, including; planning, construction, energy-efficiency, recycled materials... But, the questions remain; how can anyone be sure that the actual building construction is true to promise of green. For example; how do we know that particular carpet really was made from old trash bags?

How do we know that a particular redwood tree was not killed just to install a new deck? How do we know that a pump in an air-circulation system is high-efficiency model? According to Anthony Bergheim, architect, says; the danger is greenwash: Greenwash is when somebody says; ‘Oh, we have the greenest building in town’, but they don’t have metrics (validation) to show that, in fact, it’s a true green environment…

‘The U.S. Green Building Council’, a nonprofit group, promotes energy efficiency and other environmental benefits in construction and design, and has established criteria to measure how green buildings are built. According to S. Richard Fedrizzi, The Council’s Chief Executive, say; the way that we have tried to build better green buildings and affect building stock is to create a ‘rating system’ that recognizes certain characteristics of the building, including; products, materials… but, for the most part, today we are relying on the honesty and the integrity of the manufacturers of those products, systems… The system is flawed and there is no verification or validation and claims made are not necessarily true…

In the article “Ben & Jerry’s Backs Off ‘All Natural’ Claims” by GreenBiz Staff writes: The Ben & Jerry Ice Cream Company’s mission statement trumpets an aim to make; ‘the finest quality, all-natural ice-cream and euphoric concoctions and to promote business practices that respect the earth and the environment’. But, the firm has come under fire from the Washington-based ‘Centre for Science in the Public Interest’ (CSPI), which took issue with their ice cream ingredients, such as; alkalised cocoa and corn syrup, as well as, partially hydrogenated soya bean oil.

The pressure group contended that the ingredients had either been chemically modified or did not exist in nature: Calling products with unnatural ingredients ‘natural’ is a false and misleading use of the term. In an abrupt about-turn, Ben & Jerry agreed to remove the term from product descriptions… Although the CSPI’s complaint didn’t lodge a greenwashing charge against Ben & Jerry for the use of all natural, the move comes as governments and consumers are growing more aware of false marketing claims in health, as well as, environmental areas.

According to a report from ‘The Guardian’: In the wake of a complaint filed by the advocacy group, the Ben & Jerry Company will remove the phrase ‘all natural’ on its products that contain partially hydrogenated soybean oil and any other questionably natural ingredients.

Buzzwords like; ‘environmental-friendly’, ‘energy efficient’ and ‘carbon offsets’ flow freely from company press releases, brochures, web sites, blogs, and promotional materials. According to Debra Kent Faulk; some claims are accurate, certified and verifiable; while others are misrepresentations designed to sell products. It’s amazing how everywhere you turn, products and practices are suddenly green and earth-friendly:

A natural spring water company promotes their new ‘Eco-Shape Bottle.’ An airline entices employees to leave their cars at home by offering them frequent flier points. A fur trade organization says their product is ‘Eco-Fashion.’ Television is producing green programming, and an on-line retailer advertises electric lawn and garden tools under the headline Think Green

A recent survey of 1,018 products found 99% falsely claimed green credentials. Through an examination of everyday products purchased at category and leading big-box-stores, such as consumer goods ranging from; oven cleaner to caulking to toothpaste and shampoo… researchers studied and found false or misleading green marketing claims.

The watchdog group ‘CorpWatch’ defines ‘greenwash’ as; the phenomena of socially and environmentally destructive companies attempting to preserve and expand their markets or power by posing as friends of the environment. This definition was shaped by the group’s focus on company behavior and the rise of company green advertising. The practice of greenwashing is wide-spread and goes beyond commercial companies; it’s been found in many government agencies, trade associations, and other organizations where they been accused of making false and misleading environmental claims.

The environmental group ‘Greenpeace’ launched a website ‘Stop Greenwash’ to confront deceptive greenwash, engaged in debate, and distribute information to consumers, activists, and lawmaker, as needed, in order to hold companies and other organizations that violate the environment, accountable for the negative impact they are having on the planet.

Green’ design means designing with the whole life cycle of the product in mind (not just about product performance)– that is, eliminate or minimize any negative impact of the product on the environment by using only materials that are biodegradable or recyclable in the product’s design…

 

Importance of Folklore – Folkloristic in Business Management, Leadership…: Facts, Traditions, Culture… or, Much to Do about Nothing…

Folklore, and things that speak in symbols can be interpreted in so many ways that although the actual image is clear enough, the interpretation is infinitely blurred… folklore is anything that is passed down through generations; myths, legends, stories, customs…

Folklore (or lore) consists of legends, popular beliefs, stories, tall tales, customs… they are the traditions of a culture, subculture, group, or organizations. Folktales is a general term for different varieties of traditional narrative. The telling of stories is universal and folklore is common to basic and complex societies alike. Corporate folklore are abound with stories about the catastrophic failures of famous companies and products; such as the Ford Edsel, New Coke, Japanese Pampers… many iconic stories about hugely successful; companies, products, big deals… many of them live-on as folklore.

Some folklore are statements of a company’s decision-making process, or ‘that’s the way we do things’: Probably one of the most noteworthy examples is the H-P way. Employees [at Hewlett-Packard] would say: What would Bill (Bill Hewlett) have done? What would Dave (Dave Packard) have done? These men represent the company’s culture, conscience, and folklore.

According to A.C. Mike Markkula Jr. writes; when Apple first started, we spent a long time developing Apple values. They were statements everyone could relate to; not integrity, truth, justice or words like that. They were statements like; we want to be good citizen in communities. Although, for some that could be as simple as saying, let’s not put big piles of trash outside our offices… we don’t want to mess up the neighborhood. Markkula goes on to say; at Apple, we wanted to make a company that worked the way we wanted it to work.

A hidden issue, in many companies, is politics; who has what job title and what authority. So at Apple, we made a rule that we would have no job description longer than two paragraphs. We first considered not having job titles at all, but we decided against that because people outside the company wouldn’t know how to relate to us.  Still, we did have an unusual structure. It didn’t really matter who you work for; but it did matter what you did. I suppose the ethical facet is; how you interact with other people… whether they’re the janitor or chairman of board, you treat them with respect and recognize their contributions and their faults. That became part of our company folklore, culture...

In the articleGuru Review: Folklore Of Management by Matthew E. May writes: Timeless wisdom from one of the century’s most celebrated business leaders, Clarence B. Randall. In his book The Folklore of Management, published in 1959, he has a collection of 16 essays, each covering a different business folklore. I was struck by how, over 52 years later, Randall’s savvy insight is every bit as relevant as it was in 1959. I was struck by how this tome fits so well into current emerging trends. They are concise and provocative manifestos. Here at-a-glance are s few of his folklores.

  • Organization chart: If your company is run ‘by the book,’ if the job description is more important than the man, if organization charts take precedence over the realities of personal relationships, your company is in danger of succumbing to an all-too-common form of creeping paralysis.
  • Management committee: Who runs your company– the president or a bevy of committees? Are decisions made in time– or are they continually put off  for ‘further study’ by ‘the group?’ Every business profits from a well-run committee system, but keeping it within bounds is a critical test of management skill.
  • Production wizard: Perpetual motion, split-second decisions, and jet-propelled personality are his hallmarks. He can run any function of  the business better than the man he hired to do the job– and he can’t stop proving it. Sometimes he’s just as good as he thinks he is. But his kind of management can cost a company its future.
  • Almighty dollar: Are we too tolerant of the top man who justifies a swollen salary with the magic word ‘incentive’? Top-heavy executive pay reflects a distorted view of human relations. Worse still, it can dangerously undermine public confidence in our system.
  • Specialist: Unless the danger is seen in time, galloping specialization can bring any company to the brink of chaos. The remedy? Top managers with the breadth of vision only a liberal education can provide.
  • Cost cutter: When profits shrink and prospects for the coming  months look dim, the cry goes up– ‘Slash overhead!’ But that is just the moment when hasty action can do irreparable harm.
  • Overworked executive: Pity the overworked executive! Behind his paperwork ramparts, he struggles bravely with a superhuman load of  responsibilities. Burdened with impossible assignments, beset by constant emergencies, he never has a chance to get organized. Pity him– but  recognize him for the dangerous liability he is.

In the article Management Folklore and Management Science by J. Scott Armstrong and Richard H. Franke write:  Management contains folklore. By folklore, I mean techniques and concepts that managers adopt without any formal evaluation of their effectiveness simply because others use them. Some folklore prove useful, whereas,  others are harmful.

Research that tests management folklore is valuable… consider an analogy to medical science. Folklore (e.g., do not sit in a draft, get lots of rest, or eat an apple a day) is tested along with new treatments, and the testing is replicated and extended. Ideally, those who do the replications and extensions strive for objectivity. Such a process helps to determine which treatments are useful. Management folklore probably developed as a way of recognizing certain– beliefs, customs…; what seem to be obvious.

In research by J. A. Lee; he examined popular management techniques and concluded that much folklore are simply; common beliefs. An example of folklore used in management is Maslow’s ‘hierarchy of needs’, which was adopted based mainly on the argument that it made sense.  Another example of management folklore is the ‘experience curve’, which states; ‘costs decrease as cumulative production volume increases’. Here, advocates advise managers to increase production to gain economies of scale and, in cases, that can prove to be harmful to the company.  

Many researchers have successful careers by doing research that supports folklore. For example, the 1995 Nobel in economics recognizes the claim that people have rational expectations about the future (some are folklore). Similarly, many findings in psychology appear to be based on common sense.

In research by W. Mischel; he asked fourth and sixth-grade students to predict the outcome of 17 classic experiments in psychology…  the students correctly predicted the outcome for 12 of them (suggesting that much folklore is just common sense). Folklore is probably the most important and well-acclaimed component of the cultural heritage of a nation, people, company… as such, the truthfulness in folklore must be supported, but also, the falsehood in folklore must be exposed…

In the article “Business Folklore: Origin of the Expression– You are Fired!” by Nagesh Belludi writes: The term ‘fired’ is a colloquial expression for dismissing a person from employment. It became more popular owing to the TV reality show ‘The Apprentice’ where the host, Donald Trump, eliminates contestants for a high-level management job by ‘firing’ them successively. Indeed, in 2004, Donald Trump filed a trademark application for the catchphrase– You’re fired!

Some sources suggest that the term may have originated from the expression ‘fire a gun’ as in ‘discharge a gun’. However, legend has it that the term ‘you’re fired’ originated, in the 1910s, at the National Cash Register (NCR) Company by John Henry Patterson (1844–1922) who was widely recognized as the pioneer of sales management and for developing formal methods for training and assessing sales persons. Nevertheless, Patterson, for all his genius, was quirky. He often dismissed employees for trivial reasons just to break their self-confidence and recruited them back soon after.

John Patterson’s employees and customers branded him abusive and confrontational. Patterson once dismissed an executive by asking him to visit a customer then when the executive returned, to NCR headquarters, he observed his desk tossed out onto the lawn. Where upon, at the right time, his desk burst-out into flames: He was ‘fired’. Famously, NCR’s star sales executive,

Thomas Watson Sr. met a similar fate. In 1914, Watson argued that NCR’s dominant product, mechanical cash registers, would soon go obsolete and proposed that NCR develop electric cash registers. Peterson resisted the idea and demanded that Watson focus on sales and not worry about innovation.

Following an argument, Patterson  in a fit of anger, had workers carry Watson’s desk outside and had it lit on ‘fire’, thus Thomas Watson Sr. was ‘fired’. Thomas Watson Sr. then joined a smaller competitor, named IBM… there Watson led IBM for forty years and turned IBM into the world’s leading technology company. The stories of being ‘fired’ at NCR by Patterson became folklore.

Folkloristic is the term preferred by academic folklorists for the formal, academic discipline devoted to the study of folklore. The term itself derives from the nineteenth-century German designation folkloristik (i.e., folklore). In scholarly usage, folkloristic represents an emphasis on the contemporary, social aspects of expressive culture, in contrast to the more literary or historical study of cultural texts.

According to Dundes, folkloristic work will continue to be important in the future and writes, ‘folklore is universal: there has always been folklore, and in all likelihood there will always be folklore.’ According William A. Wilson, the study of folklore is not just a pleasant pastime for whiling away idle moments. Rather, it is centrally and crucially important in our attempts to understand our behavior and that of our fellow human beings.

According to Patrick Jory; while the study of folklore is important for full understanding of ‘humanity’, I have to admit that I have no idea what it has to do with ‘management’ and why we should study folklore in order to ‘manage’ people. Peter Drucker says, management; in the last analysis, means the substitution of ‘thought’ for brawn and muscle, ‘knowledge’ for folklore and superstition, and ‘cooperation’ for force.

Folklore and myths are cultural. Ethnic groups of every country have their beliefs and views and they are gradually changing as societies evolve…

Beyond Great: Think Unthinkable; Do the Undoable; Reach the Unreachable– Dare Disruptive Innovation..

We must dare to think about ‘unthinkable things’ because when things become ‘unthinkable’, thinking stops and action becomes mindless.  ~ J. William Fulbright

In this complex and rapidly changing world, it’s an imperative that you dare to think the unthinkable thoughts and explore all the options and possibilities that confront business; without it you lose. In order to perform better than other businesses you must think differently, and you must learn to welcome and not to fear the voices of change. Managing in an uncertain world means spotting market trends, preferences, and potential threats and turning them into opportunities.

Business leaders must be the catalyst for new ideas, creators of innovative cultures, and the motivators for making the unthinkable a reality. In the article ‘Think the Unthinkable’ by Jane Simms writes: Business leaders must challenge institutional knowledge, traditions and explore unknown areas for innovation. She notes that people have become more arrogant and conceited as they acquire more knowledge and expertise.

Business leaders miss opportunities to innovate when they are comfortable with being reactionary, safe, and predictable thinkers. In our fast-changing world, when business certainties are no longer certain, the ability to imagine things as they never were, and ask: What if? This is an essential part of every executive’s skill set. Quote from George Bernard Shaw says; … see things as they are and ask: Why? Or, dream things as they never were and ask: What if?

In the book “Disrupt: Think the Unthinkable to Spark Transformation in Your Business” by Luke Williams writes: Business leader must begin to look at their business– and the world around them– through a fresh lens, one that turns assumptions and conventions upside down. Business people are trained to focus only on problems– things that don’t work and need fixing. They live by the motto, ‘if it ain’t broke, don’t fix it.’

Consumers are changing the way they buy, and businesses need to change the way they compete. Every business needs to rethink the habits that have made it successful in the past. There are three big stumbling blocks for an organization to overcome.

First, teams and individuals feel overwhelmed, directionless, and lack focus. In my experience, this is the direct result of relying on traditional brainstorming approaches.

Second, many organizations think of the world in terms of isolated products, services, and information. When, they should be thinking holistically of product-service-information hybrids. For example, the disruptive idea behind the iPhone is that it blends; such as, product (iPhone + iPhone OS), service (iTunes + App Store), and Internet (wireless providers, developers, social communities). In other words, the relationship between; product, service, and the information they provide is more important than the details of any one particular feature alone.

Third, most ideas never get articulated in anything other than through casual conversations: Stop talking about it, and explain it in sensory terms. Sketch it out! Ambiguity disappears when you describe ideas in visual or written form. Paul Romer defines ideas as; ‘the recipes we use to rearrange things to create more value and wealth.’

The goal for an organization, no matter what size or what industry, should be to generate a steady stream of new recipes… ideas that alter the trajectory of the business and reinvent the competitive dynamics of a segment, category, or industry.

In  the article Revolution in Business: Disruptive Thinking by Luke  Williams writes: Disruptive thinking is about making significant changes to the way you think about competition and business. The old adage, ‘differentiate or die’, has been a key mantra for business competition for a long time. It’s embedded in everyone’s psyche, and companies have been obsessed with trying to overcome the competition by making incremental changes to their existing offerings.

Disruptive thinking is not about how to spot a revolutionary change in technology or the marketplace. It’s about how to ‘be’ that disruptive change. How to ‘be’ the only one that does what you do. How to surprise the market with exciting and unexpected solutions. How to turn consumer expectations upside-down and take an industry into its next generation.

In the article “Sustainability: Dare to Think of the Unthinkable” by Julie Urlaub writes: All change begins with an idea and an openness to explore the boundaries of the current world. We observe that those making the biggest strides are not necessarily the ones who have the greatest capacity, financial means or even the most resources. The ones who implement change are those who simply want to change, and are committed doing it.

Consider your current business plans for the future. Creating a sustainable business involves more than an innovative product and a creative marketing plan. Successful companies address long-term business sustainability with an overarching and continuous expanding mindset present in all aspects of the organization; more important, through the unthinkable thoughts that shape the very core of an organization…

According to Richard Bosworth writes: What If?– you could make your team think the unthinkable? It seems that a good proportion of CEOs have an elevated opinion of their own company’s level of creativity. According to a recent survey, when 1200 CEOs were asked to rank their company’s innovation; over 52% of them felt they were in the top ten per cent of their industry.

Traditionally, innovation is defined as changing and introducing new methods, ideas or products, however, in recent years it has come to mean more in the corporate environment; for example, now it’s leadership, vision, and the assumption that an increase in creativity will lead directly to above-average growth.

There is no doubt that CEOs would like to develop a stronger vision for their company, but innovation doesn’t just happen; it’s a strategy in its own right. The thinking of chief executives and business owners can be clouded by day-to-day challenges of running a business, particularly in the current economic climate. In order to plan and prioritize their innovation strategy, leaders must take a step back and think objectively.

Disengage from the nitty-gritty, push boundaries and challenge the whole team to think the unthinkable about all aspects of the business. Only then is there clarity of vision; if not, ‘the vision’ that will underpin the company’s future growth.

In the article “Think the Unthinkable” by Jane Simms writes: The inability to think boldly really matters. It confines us to the reactionary, reactive, safe and predictable, and it strengthens our biases and reinforces our prejudices. It blinds us to the alternatives, possibilities, and potential and, as such, it’s the enemy of innovation and creativity that are necessary for progress. In a climate of increasing volatility and accelerating change, we are snuggling deeper into our comfort zones on the grounds that all this stuff is too big and difficult to deal with that there’s really no point in trying.

To prepare and adapt businesses and countries for the future, we must grapple with the unknown, however difficult and unpalatable that might be. If we don’t, those strategies amount to wild guesses, figments of our imagination, and that really would be pointless. We have the capacity to think beyond best practice to ‘next practice’, but rarely use it because best practice is reassuring and give us a sense of control and certainty.

But it’s this very control and certainty that we need to ditch, if we are to make progress. Best practice, process, and policies are important anchors, but instead of letting them trammel our thinking we must challenge them and test ourselves. Because it’s the difficult, unexplored, even taboo, areas that offer the greatest opportunities for innovation.

In the bookWhat Matters Now” by Gary Hamel writes: We owe our existence to innovation. We owe our prosperity to innovation. We owe our happiness to innovation. We owe our future to innovation. Innovation isn’t a fad– it’s the real deal, the only deal. Our future, no less than our past, depends on innovation. Achieving continuous innovation, lies outside the performance envelope of today’s bureaucracy-infused management practices. It requires major changes in mind and heart, new values, new process, greater adaptability, infusion of passion in the workplace, and a new belief system or ideology.

Many experts agree with this thinking; that is, firms that are the masters of the future; are different. Hamel calls it ‘management 2.0’; John Hagel and John Seely Brown and Lang Davison call it ‘the power of pull’; Ranjay Gulati calls it ‘reorganizing for resilience’; and, Robert Pirsig calls it ‘radical management’. Whatever you want to call it, it’s certainly different from what is normally called ‘management’ in large organizations. The stakes are high and those firms that opt not to embrace innovation and change and think the unthinkable won’t survive…

Disruptive innovation is not just about following a process: It’s a mindset– a rebellious instinct to discard old business clichés and remake the market landscape. As Luke Williams says; it’s an eagerness to deliberately target situations where the competition is complacent and the customer has been consistently overlooked or under-served. Richard Branson captures the essence of disruptive thinking; he says, ‘one has to passionately believe it’s possible to change the industry, to turn it on its head, to make sure that it will never be the same again.’

The potential for reinvention is all around us and it’s an exciting time to be thinking about how to structure (or restructure) business, community, or life in ways that create new value. In the article “Impossible is Nothing” by M. Farouk Radwan writes: How many times have you been told that you can’t do something, because no one did it before? How many times have you told yourself that you can’t do something, because no one did it before? Even if no one did it before, does this mean that no one will do it in the future? Why can’t this one be you? Why don’t you be the first one to break the rule? Why don’t you challenge the false belief instead of helplessly accepting it?

The word impossible has different meaning for each one of us: What’s impossible for someone may not be impossible to you. To compete, business leaders need a revolution in thinking: a steady stream of disruptive strategies and unexpected solutions to stay ahead of the game; they must think the unthinkable… do the undoable… reach the unreachable…

Let’s think the unthinkable, let’s do the undoable. Let us prepare to grapple with the ineffable itself and see if we may not eff it, after all. ~Douglas Adams

 

LIBOR is World’s Most Important Number: Probing Allegation of Shenanigans– Conspiracy, Manipulation, Collusion…

LIBOR is currently being used by both Fannie Mae and Freddie Mac as an index on the loans they purchase.

One of the most important barometers of the international cost of money is under investigation for possible manipulation: It’s LIBOR (London Inter-Bank Offered Rate). This is the interest level that stands behind many mortgage rates and unsecured loans, as well as, providing the essential numbers for trillions of dollars of more complex products.

But while LIBOR is an essential part of the financial scene, only a very few people have any idea what it means, fewer could hazard a guess at the rate, and just a handful know that this vital capitalism component is privately owned and not subject to external regulation. According to MindfulMoney; this lack of oversight is now under fire as its users and rate setters stand accused of manipulating the figures for their own profit. The UK watchdog– ‘Financial Services Authority’ has one investigation, the Canadians are looking into seven major banks, and U.S. authorities including the Justice Department are probing a number of big Wall Street firms.

The LIBOR is the world’s most widely used benchmark for short-term interest rates. It’s important because it’s the rate at which the world’s most preferred borrowers are able to borrow money. It’s calculated every business day in 10 currencies and 15 time-zones, ranging from overnight to one year and is based on the level at which banks have been lending to each other. The sterling three-month LIBOR rate influences the level at which lenders set some rates on loans, especially mortgages to consumers and to businesses. It’s the rate at which banks lend to each other; also, a measure of how much they trust each other and a measure of the credit crunch.

The LIBOR is derived from a filtered average of the world’s most creditworthy banks’ inter-bank deposit rates for larger loans with maturities between overnight and one full year. Countries that rely on the LIBOR for reference rate include; U. S., Canada, Switzerland, and the U.K.  Both Fannie Mae and Freddie Mac use LIBOR as an index for loans they purchase.  Considered one of the most important barometers of the international cost of money, LIBOR has historically reflected money market rates more accurately than ‘prime’ and Treasury-based indices. The LIBOR rate can be found daily in The Wall Street Journal ‘Money Rates’ table.

In the article “What’s in a Number?” by Donald MacKenzie writes: The ‘London Inter-bank Offered Rate’ (LIBOR) matters more than any other set of numbers in the world. LIBOR anchors contracts amounting to some $300 trillion, the equivalent of $45,000 for every human being on planet. It’s a critical part of the infrastructure of financial markets, but it doesn’t usually get noticed. The rates on borrowing, amounting to around $10 trillion (e.g., corporate loans, adjustable-rate mortgages, private student loans…) are pegged to LIBOR.

The level of LIBOR determines the monthly payments on around half of the adjustable-rate mortgages in the U.S.: Rates are set as ‘LIBOR plus a fixed margin’, and reset periodically as LIBOR changes. Even in the UK, where explicit pegging of this kind is rare, LIBOR is a big influence on mortgage rates. LIBOR is an even more important factor in the huge market for interest-rate swaps. The swaps market is the biggest financial market, and most depends on LIBOR.

The British Bankers Association’s (BBA) System for calculating the LIBOR involves a fixed procedure and predetermined panels of banks that was set-up in 1985. The BBA System has worked very well, which is why the participants in financial markets are prepared to have $300 trillion indexed to LIBOR. Much of the most vocal criticism of LIBOR has come from the U.S., and has focused on dollar LIBOR– especially three-month dollar LIBOR, which is the rate used more than any other in the swaps market.

In the articleWhy LIBOR Rate is Important to the U.S. Economy” by MoneyRates Team writes: LIBOR is base interest rate paid on deposits between banks in the Eurodollar  market. A Eurodollar is a dollar deposited in a bank in a country where the currency is not the U.S. dollar. The Eurodollar market has been around for over 40 years and is a major component of international financial market. London is the center of the Euromarket in terms of volume. The index is quoted for one month, three months, six months as well as one-year periods. LIBOR rates quoted in the Wall Street Journal are an average of rate quotes from five major banks: Bank of America, Barclays, Bank of Tokyo, Deutsche Bank, and Swiss Bank.

The most common quote for mortgages is 6-month quote. LIBOR’s cost of money is a widely monitored international interest rate indicator. LIBOR is currently being used by both Fannie Mae and Freddie Mac as an index on the loans they purchase. Most adjustable rate mortgages and credit card interest rates are based on LIBOR. As rates reset, the high LIBOR makes the monthly payment also higher, which will cause higher mortgage rates for this type of loan. Also, higher LIBOR rates will reduce liquidity in the economy.

In the article The Basics of LIBOR- London Inter-Bank Offered Rate by Joshua Kennon writes: The global inter-bank market provides means for financial institutions with excess capital to earn higher rates-of-return by its loaning liquid assets to those in need of the funds.  LIBOR is released each day at 11 a.m. London time. It then fluctuates through the day based upon the market’s expectations for economic activity and future direction of interest rates.  LIBOR loans are expressed in Eurodollars; U. S. currency held by foreign entities, such as British, German banks or insurance company.

Eurodollars are often the result of U.S. companies using U.S. dollars to pay internationally-domiciled  corporations for goods, service, and merchandise purchased.  LIBOR is important because it’s used as the base for variable-rate government and corporate loans and derivative-based products such as credit swaps. A spread of a percentage point-or-two above and beyond the established LIBOR rate will result in a corresponding rise or fall in its cost of borrowing.

In the article “LIBOR Probe Morphs Into Criminal Investigation” by Kyle Colona writes:  The U.S. Justice Department investigation into possible shenanigans affecting LIBOR has now reportedly become a criminal probe, according to Reuters. This is a world-wide effort of ‘serious nature’, says Reuters. Investigations are underway in Japan, Canada, and the UK, and the probe includes a host of regulators and law enforcement agencies who are looking under the hood of several major worldwide banks including; Citigroup, HSBC, Royal Bank of Scotland, UBS, and among others.

But thus far, none of these firms or their employees has been criminally charged in the LIBOR probes, so it’s not clear which way the probe will go, or even, if there is a case for wrong doing. As many in the industry know, LIBOR is set daily in London town for 10 major currencies and debt transactions and bond offerings for a range of maturities. The rate is supposed to reflect the rate at which banks lend to one another and is the peg to which, up to $10 trillion in loans; consumers, companies, and $350 trillion in derivatives transactions are linked. 

Manipulation of  LIBOR could have serious consequences for the global markets; and the ripple effect will surely be felt throughout the financial system. Investigators are trying to determine if traders at the banks in question ‘tried to influence’ the direction of LIBOR up or down, where a shift could mean a windfall of tens of millions of dollars if a trader has bet correctly. In the end this matter  goes far beyond just a civil matter, since manipulating LIBOR does not happen on its own or by negligence, if criminal wrong doing is proven, then the consequences are very serious.

Beyond these current shenanigans– the question being asked is: ‘What happened to LIBOR during the credit crisis?’ According to A.W. Berry; when the most recent credit crisis began and the U.S. Federal Reserve was lowering interest rates and making funds more accessible, the LIBOR continued to rise, while still in the credit crisis.  Essentially, this meant British Bankers Association responsible for setting LIBOR rates was either unable to convince banks to lower rates or not fully cognizant of the implications high LIBOR has on financial markets.

The causes of changes in LIBOR have been measured statistically by comparing the rate to other market lending rates.  The LIBOR is an important banking-lending rate tied to a large amount of money worldwide: When credit and lending risk for banks rise then so does LIBOR. However, when these risks become resolved or are less important than the need for commercial growth, the LIBOR declines. During the unresolved concerns of the credit crisis, LIBOR rose dramatically, even as the U.S. Federal Reserve had consistently lowered its lending rates. Because LIBOR is not regulated, there appears to be a lack of ‘Chinese walls’ at many banks between rate-setters and the traders who can profit if they are ‘better informed’ than rivals.

According to ‘The Financial Times’ the most likely way forward is for regulators to start regulating the rates or at least demanding more information on the process… Also, there is a strong likelihood that this will mean the end of the BBA sponsored process: Watchdogs may consider that an organization which lobbies for banks should not be involved in such a delicate rate setting operation. It could also end the Thompson Reuters role in reporting rates and looking at anomalies– or at least it will have to comply with a demand that reports and other investigations are made public…

The rate at which the banks say they are willing to lend to another is a central plank of the world’s financial system.