Internet Security via De-Perimeterisation–Adapting to Changing Markets, Technology, Behavior: Outdated Castle-and-Moat…

Security: Most challenging aspects of enterprise security are the changing types of threats and the shifting business environments being protected, e.g.; mobility, cloud… and, other trends are altering the way we work.

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Business security networks appear completely unprepared to deal with threats from– new technologies of communication, risk behavior of users, interoperability with third-party systems, outsourcing… The perimeter-based traditional security approach (i.e., castle-and-moat model) hinders development of enterprise systems and creates the delusion of protection.

To overcome these threats; de-perimeterisation, a data-safety oriented paradigm, was conceived: De-perimeterisation is a term coined by the ‘Jericho Forum’ to describe the erosion of the traditional ‘secure’ perimeters or ‘network boundaries’ as mediators of trust and security. Today’s successful enterprises must be structured to be adaptable to market changes with regard to– people, process and technology. If information systems and processes that support the enterprise cannot adapt easily, in order to enable the enterprise to adapt, then the enterprise loses competitive position in the marketplace…

Although most organisations already have some form of perimeter security mechanisms (e.g. firewalls, encryption, authentication…), many have not bothered very much with the question of– what happens if and when information-data leaves the business premise on USB memory sticks, CDRs… methods frequently used by employees. However, change is beginning to occur as traditional enterprise security vendors are looking to include– additional levels of control in their offerings…

According to the ‘Jericho Forum’; de-perimeterisation is simply the concept of architecting security for extended business boundary and not an arbitrary IT boundary. De-perimeterisation, on business level, can be simply described as– the changes that stem from natural desire of organisations to interact with the world outside their organisation: It’s a concept-strategy for protecting organization’s information-data on multiple levels with a mixture of encryption, inherently secure computer protocols, inherently secure computer systems, data-level authentication… In contrast, an organization’s reliance, typically, is only on its (network) boundary-perimeter-security…

According to Mark Waghorne, KPMG; for many organisations, de-perimeterisation may not be the best security solution, given the  complexity of managing the approach… de-perimeterisation probably suits larger, more connected organisations better than smaller organisations. According to Paul Simmonds; de-perimeterisation of network security is inevitable as companies continue to form closer links with business partners– de-perimeterisation is a trend that business cannot afford to ignore…

In the article Business Security–Beyond the Firewall by Richard Anstey writes: Today’s disruptive technology is changing both how we do business and how businesses are structured. Enhanced connectivity and cloud computing, together with trends, such as; bring your own device’ (BYOD) and flexible working practices are blurring the line between internal-external business processes and calling established security strategies into question.

The protective security barrier around physical networks provided by firewalls is increasingly anachronistic as a primary defence mechanism. Whether business sanction it or not, employees are collaborating freely, and increasingly conducting their work outside the perceived ‘protection’ of the firewall, leaving corporate data more vulnerable than ever before.

Business security should no longer be dependant on re-enforcing perimeters, but rather on protecting data while enabling secure and free flow collaboration. To accomplish this, CIOs need to evaluate security strategy based on their flexibility rather than their rigidity, and enabling secure and effective communications regardless of access point. This disintegration of established protective parameters and the evolution of an open architecture are termed de-perimeterisation.

As systems become more interconnected, they offer ripe pickings for the technologically advanced attacker. Now, more than ever, business users are operating across and around organisational perimeters, and the resultant blurring of barriers has widened the opportunity for attack… Security needs to be revisited; trying to maintain one universal line of network security defence is a losing battle.

The focus should be on securing the data itself rather than the networks. A de-perimeterised security structure shifts the reliance on an outer boundary to a blend of powerful encryption, secure protocols and effective authentication. Such an approach addresses changing security needs raised by BYOD, cloud services and an increasingly mobile workforce, and employees are able to securely access the information-data that they require from the device and location of their choice.

Collaboration with partners and colleagues can also then occur in the cloud in a managed and secure way, enhancing business processes and productivity… There can be no doubt that this is a time of significant change for business. Progressive business and CIOs are recognising that traditional tried-tested security models do not suit the new connected shape of business today; however, technologies, such as; 4G… are acting as catalyst for implementing new security approaches to meet needs of a more connected workforce; as well as; enhancing  business productivity– securely.

In the article Rethinking De-Perimeterisation by Cleeff van André writes: For business, the traditional security approach is the hard-shell model: An organisation secures all its assets using a fixed security border; trusting the ‘inside’ and distrusting ‘outside’. But as technologies and business processes change, this model looses its attractiveness. In a networked world, ‘inside’ and ‘outside’ can no longer be clearly distinguished.

We don’t question the reality of de-perimeterisation; however, we believe that the analysis of the security problem, as well as, the usefulness of the proposed solutions have fallen short: The notion that there is no linear process for blurring security boundaries, in which security mechanisms are placed at lower and lower levels, until they only surround data– is debatable.

To the contrary, typically there is a cyclic process of systems connection-disconnection; and as conditions change, the basic trade-off between accountability and business opportunities is being appropriately made every time… Apart from that, data level security has inherent limitations and there is great potential for solving security problems differently–rearranging responsibilities between business and individuals…

In the article IT Security by David Lacey writes: Corporate perimeters are already leaking confidential data and letting in malware. The situation will progressively get worse. It’s not good enough to shore up traditional security defences– we must be more proactive and implement new solutions.

A survey of 100 top security practitioners was illuminating: Around 70% believed that ‘insiders’ represent the greatest risk with employees was at the top of the list. Traditional ‘hard shell’ security doesn’t address this risk. A majority of those polled also believe that their security network already has a porous perimeter. So what exactly do we need to make it work? In many views, the key enablers are– strategy and architecture. To achieve true de-perimeterisation will require state-of-the-art components assembled in state-of-the-art architecture.

We need new ambitious infrastructure, such as; a ‘modern federated identity management system’ that can work efficiently across ‘open network’ security environment. However, implementing such infrastructure is not a trivial task. It involves a complete rethinking of authentication, provisioning, management process… It demands an architecture and network topology that can deploy encryption, authentication and policy enforcement controls in the most effective positions. But most of all, it requires a big vision, an up-front investment in technology and a realistic migration plan.

The single biggest change in business security-threat landscape is the evolving transition from– a mass-produced scattergun-style spam, phishing and defacement campaigns to highly customised and sophisticated attacks… The biggest challenge is the increase in mobile devices being used in work environment and breakdown between their owners (i.e., workers) and corporate IT…

According to Anthony Caruana; there are two things that are a big concern; the erosion of the effectiveness of ‘two-factor’ authentication and the rising popularity of social engineering among a class of attackers who previously haven’t presented much of a threat…

According to some experts; authentication is a growing issue, and if viable solutions are not forthcoming, then it may necessitate less desirable alternatives, such as; move to single-use transaction devices, for example; a tablet computer issued by a bank that can only connect to the bank and nowhere else... However, according to most experts; security done well– can best be described as security built into the very DNA of an organization: Every business process, every job function, every requirements specification must have information-data security built-in as a key consideration.

Security becomes part of the culture of an organization… there needs to be a pragmatic approach, which is negotiated with workers; where benefits for workers and business are highlighted… For example, consideration, such as: Can you hook your own iPad up to the company network? Yes. Do you get to make all your own decisions on configuring the iPad? No. Can you install all apps? No. Can you get rid of the passcode because it’s irritating? No… In return, of course, the workers personal stuff on the device will be safer, too… It’s a win-win for business and workers..

The Jericho Forum’s commandments for information security are: The scope and level of protection must be specific and appropriate to the asset at risk. Security must enable business agility and be cost-effective. Boundary firewalls may continue to provide basic network protection, but individual systems and data will need to be able to protect themselves. Security mechanisms must be pervasive, simple, scalable and easy to manage.

Security systems designed for one environment may not be transferable to work in another. Thus it’s important to understand the limitations of any security system. Devices and applications must communicate using open, secure protocols. Security through obscurity is a flawed assumption – secure protocols demand open peer review to provide robust assessment and wide acceptance and use. The security requirements of confidentiality, integrity and availability should be assessed and built into protocols as appropriate, not added on…

The trouble with most companies is that they grow from a security system that works to a system that no longer fits the changing requirements. Proper change controls and regular reviews are necessary for improving enterprise security and mitigating potential business internet-communication risks…

Building-Managing a Business without Borders– Borderless Global Business: World is Flat… Baloney, Borderless is Myth…

Borderless business–‘world is flat’: Three primary changes at the dawn of the 21st century are the keys to the changing world. One, addition of China, India, the former Soviet Union and other countries with a combined population of 3 billion to the global world economy…

Second, technological changes such as the Internet that have made distance less of a factor. Third, shift from hierarchical, vertical power structures in business and government to democratic, diffuse ones in which it is easier for individuals to make their own destinies.

This triple convergence– new players, new playing field, new processes and habits for horizontal collaboration – are the most important forces shaping global economies and politics in the early 21st century… ~Tom Friedman

 

Borderless business: Building and managing a value system that emphasizes seeing and thinking globally is the bottom-line price of admission to today’s borderless economy. On a political map, boundaries between countries are as clear as ever. But on a competitive map, map showing the real flows of financial and industrial activity, those boundaries have largely disappeared. Eaten away by persistent and ever speedier flow of information.

According to Kenichi Ohmae; today people everywhere are more able to get information they want directly from all corners of the world. They can see for themselves– tastes and preferences in other countries, styles of clothing now in fashion, sports, lifestyles… Major changes in communications and information technology, rapid progress in transportation, active international institutions, trade agreements, commitments to globalization… have resulted in significant economic-financial interconnection between nations and markets, which in effect creates ‘borderless world’.

Capital investment, technology, information– do not have nationalities anymore; they flow, essentially, freely in-out through national borders… A recent study by ‘Hackett Group’– involving nearly 200 executives representing companies in U.S., Europe, Asia-Pacific– found that most companies fully realize that growth is no longer limited by physical borders… the globalization of business functions is, in part, driving the increasing need for knowledge about– customers, suppliers, employees, operations…

Certainly, globalization has detractors, but for today’s business leaders, the issue is not to debate the merits of globalization but to learn how to thrive in the global marketplace.  The winners in this ‘new normal’ for business won’t be those with the biggest offices or the most radical architecture, but those that keep a firm eye on the bottom line, while remaining open to the possibilities of new business and organizational structures underpinned by managed technologies…

In the article Borderless Business: Pros and Cons by Steve Purdy writes: Conducting business is becoming increasingly more global as technology, mobility and revenue opportunities in emerging markets are tempting enterprises to expand into new markets in order to reach new customers. While the world continues to face well-documented economic challenges, from austerity measures in Europe, to the sluggish recovery in the U.S., and from inflation concerns in Asia to geopolitical instability in the Middle East, going global can deliver a new avenue for prosperity– despite the current climate.

According to HSBC; world trade is predicted to grow by 86% in the next 15 years as global markets boost their demand for traded goods. The global economy presents immense opportunities for investment and commerce, and with the right focus and commitment, businesses can succeed in the global marketplace… Selecting a new market for a business operation requires balanced consideration of many factors, including; personnel, costs, legal and regulatory concerns…

New technology underpins regulatory best practice around the world, and as emerging markets improve their technological infrastructure they are increasingly becoming revenue opportunity markets for the global business community.  In addition to a local market presence and strong technology platform; a critical key driver fuelling globalization is the top-tier talent pool that can be found in developed and emerging markets.

A flexible work strategy, which gives workers access to a professional workplace when needed, has been shown to increase productivity and work-life balance. A recent World Bank Report found that more countries are implemented business reforms to make it easier for overseas firms to trade with them… Emerging markets in Africa and Asia showed particular improvement in terms of business regulations, construction permits and easing the administrative burden of tax compliance.

Being able to deal with the local legal and regulatory red tape should be top priority when a business is looking to expand into a particular market. Businesses should be looking for transparent and predictable legal and regulatory rules that are conducive for businesses. Reductions in corporate income tax for certain markets have helped increase ability to attract business from foreign countries. Businesses without borders are reshaping the global economy…

In the article Globaloney–Myth of Borderless Economy by Ian Fletcher writes: We live in a borderless global economy, and to dispute this is to risk being considered, not simply wrong, but ignorant. Yet this widely held belief does not survive serious examination when we get down to the hard numbers… The world economy remains what it has been for a very long time: a thin crust of genuinely global economy (more visible than its true size due to its concentration in media, finance, technology, and luxury goods) over a network of regionally linked national economies, over vast sectors of every economy that are not internationally traded at all…

On present trends, it will remain roughly this way for the rest of our lives. The nation-state is a long way from being economically irrelevant. Most fundamentally, it remains relevant to people because most people still live in the nation where they were born, which means that their economic fortunes depend upon wage and consumption levels within that one society…

Capital is a similar story: Capital cares very much about where it lives, frequently for the same reasons people do. (e.g., few people wish to live or invest in Zimbabwe; many people wish to live and invest in California)… Although liquid financial capital can flash around the world in the blink of an eye, this is only a fraction (under 10%) of any developed nation’s capital stock. Even most non-human capital resides in things like real estate, infrastructure and types of financial capital that don’t flow overseas, or don’t flow very much at all.

As a result, the output produced is still largely tied to particular nations. So although capital mobility causes big problems of its own, it is nowhere near big enough to abolish the nation-state as an economic unit. Will it do so one day? Unlikely. ‘Inevitable globalization’ is a catch phrase that doesn’t accurately describe current trade, economic or political reality…

In the article Challenge of Change in Borderless World by John Psarouthakis writes: Fifty years ago the U.S. with 27% of world’s gross domestic product (GDP) was the world’s economic power. The ‘poor’ countries of the world, such as; India, China… were barely making 4% of the world’s GDP each. Now let’s jump ahead in today’s world. Let’s look at the state of the economies about 50 years later and see what changed: The U.S. portion of the world’s GDP has dropped to 22%, whereas ‘poor’ countries of 50 years ago are growing at a rate, such that, in another 20 years or so, their economies will surpass those of the U.S., Western Europe, and Japan together.

However, companies, today, still run business using traditional models that are no longer effective in the rapidly changing and high-uncertainty global marketplaces. For example; traditional business planning is based on ‘world of high-certainty’ and achieving specific business performance goals, numbers… In contrast, today’s marketplace reality is ‘world of high-uncertainty’ where there simply isn’t enough accurate information-knowledge to predict, with any degree of certainty, what business performance goals, numbers… might be achievable. 

While further insisting that management stick to the traditional rigid business plan with expectation that the business will– make numbers, deliver earnings… However, this can be dangerous commitment to a flawed business strategy with unrealistic goals when underlying business logic-strategy may have shifted. An argument that is central to modern business thinking is the need to use different disciplines when operating in an environment where there are many more uncertainties-assumptions– than there is knowledge.

Then, one must think ‘out of the box’. In such a world, forget about a short-lived, often meaningless ‘competitive advantage’… it’s a concept built for 20th century. In 21st century, there is nothing more asymmetrical– more disruptive, more revolutionary, or more innovative– than the world-changing power of an ‘idea’. Where are the ideas in your organization? The breath of impact of today’s rapid change including; sophistication of communications, greatly broadens the number of people, globally, who know something about and will be affected by new ideas.

As a result, we are closely interrelated with and more interdependent on other people than ever before. Therefore, each of us, whatever our role, must be more aware of other people, globally, as we initiate and adopt change…

Let us imagine, a borderless world: A world where borderless means: People can move from one place to the other without Visas. Goods and services can be bought and sold without import/export duties. Education is free (at least basic education). People would be free to do what they want to do (lawfully)…

According to Pravin Koshti; the leading economic ‘-isms’ and many spiritual/religious ‘-isms’ have been trying to do that for years. The economic ‘-ism’ are capitalism and socialism: Socialists want it by making a world a single big society where everyone is working for the society… Capitalists are trying to do it through single-minded profiteering… But until now, the results are mixed at best. USSR (Russia) failed, and is becoming more capitalistic, China is becoming more capitalistic, U.S. is walking on the way to become more socialistic…

But, is there a middle path where these ‘-isms’ can work together: Some people think– yes, and other say– impossible. But ‘what if’ the world was unified in different ways: For example;  ‘what if’ we really become an educated world, without politics, without divisions, without borders… and removed egos, greed… would that facilitate a kinder and gentler– borderless world?

 

Color of Money– Branding a Country: Currency Symbolizes the Fabric of a Country’s Identity, People, Tradition, Culture…

Color of money: Money is a commodity accepted by general consent as a medium of economic exchange. It’s the medium in which prices and values are expressed and, as currency, it circulates anonymously from person to person and country to country– it facilitates trade… and, it’s the principal measure of wealth.

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Color of money: The subject of money has fascinated people from the time of Aristotle to the present day. According to A.H.M; the piece of paper that is labeled– one dollar, 10 euros, 100 yuan or 1,000 yen is a little different, as paper, from a piece of the same size torn from a newspaper or magazine; and yet, it will enable its bearer to command some measure of– food, drink, clothing, and the remaining goods of life– while, the other is fit for just common ordinary daily usage… Whence the difference? The easy answer, and the right one, is that modern money is a social contrivance.

Money is a social convention; a convention of uncommon strength, such that people will abide by it even under extreme provocation. The strength of the convention is, of course, what enables governments to profit by manipulating the currency. But it’s not indestructible: When the quantity of these pieces of paper is greatly increased– as they have– they may be seen to be, after all, no more than pieces of paper…

Although, money (currency) can and do say much about a country’s culture: Choices are made about the type of images that are illustrated– the people, events, landmarks… that are shown– do speak to national values the country represents.

According to Richard Zeid; currency is an important part of the fabric of country’s identity. The motifs are as varied and create a rich visual document. But when all is said and done, and the right images are chosen, what does the picture say about the country from which it comes? Does it give someone– not from the country– an accurate prospective about the country? 

Among the 180 countries and jurisdictions that issue paper money, only U.S. prints bills that are the same size and color in all denominations. Most countries– color-code different denominations or simply have money that features multiple colors on individual bills.

According to Emil Agarunov; just about everyone carries around small pieces of art– paper money– in their wallet and most people don’t realize it. Almost every nation has currency that reflects their nation’s heritage, culture… This is depicted in several ways, for example; some show images of– founders, heroes… others use a national symbol or landmark. Either way, national currencies, throughout the world, are as diverse as the people who live on the planet…

In the article Changes to Currency May Help the Blind by Jay MacDonald writes: U.S. is one of the few nations that prints all bills the same size and color… Before reading any further, close your eyes, reach into your purse or wallet and fish out $12 in cash. Can’t do it? You now know what currency discrimination feels like. Currently, 3.3 million blind and visually impaired Americans depend on someone else– a family member, friend, cashier, or bank teller– to identify the denomination of each bill for them before they can organize and spend their money.

Some depend on talking electronic bill identifiers that aren’t always accurate and fail to work on every bill. Once the bills are identified, most blind people use a personal folding system to tell their bills apart… Now, thanks to a recent court ruling, truly accessible currency may finally be in sight for all Americans. In a recent lawsuit, the U.S. Court of Appeals ruled that the Treasury Department must make U.S. currency accessible to blind and visually impaired… When it happens, U.S. greenbacks will look and feel significantly different. So different, in fact, that a blind person will be able to tell them apart… Here’s how other countries have addressed this issue:

  • Size: Nearly every country prints different denominations in different sizes. In Australia, where bills vary by length and color, they even sell a notched plastic device to help blind foreigners get a grip on their money. Aussie bills also are made of a plastic polymer that lasts four times longer than fibrous currency.
  • Color: The color of money may not help the blind, but it does help the visually and cognitively impaired. Only the U.S. and Switzerland do not designate denominations by color.
  • Embossing: To the sighted, it would seem intuitive to use embossed Braille to identify bills, but not all blind and visually impaired people read Braille. In Canada, the upper right corner of the bills’ face side is embossed. However, the downside is that embossing tends to flatten with use.
  • Engraving: Sixteen countries engrave their bills with printed patterns. These, too, tend to flatten with age.
  • Watermarks: Similar to engraving, watermarks provide a  raised surface to help the blind identify notes. The Japanese yen incorporates watermarks in the corners of bills.
  • Notches, cut corners and holes: Corner clipping and other low-cost solutions are generally ineffective. The same holds true with notches, while holes would weaken the bill, shortening its lifespan.

In the article The Color of Money Around the World by brian writes: A country’s money can tell stories of its leaders, culture, identity, traditions… and, how people inside and outside of its borders perceive it. It can be as interesting as a region’s art, movies, music… Here are a few samples of money from around the world. What does this money say to you?

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Egyptian Pound: You can’t think about Egypt without the Great Pyramids of Giza: It’s a national icon and world treasure, and it would be a surprise if it wasn’t on the money… The pyramids are so awe-inspiring and magnificent…

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South African Rand: The image on this bill is that of the buffalo; one of the ‘big five of Africa’ which include; lion, leopard, elephant and rhino…

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Canadian Dollar: Hockey is Canada’s national sport, and their identity is closely tied to hockey… it’s a national symbol…

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U.S. Dollar: The first U.S. president was George Washington and his image is shown on this bill… other U.S. presidents are shown on most U.S. bills… Some countries like Cambodia will accept U.S. dollars as legal tender like they accept their own money. With the world financial turmoil, U.S. currency is still the gold standard. But now people are talking about the Euro or even the Chinese yuan taking over…

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Ghana Cedi: This bill shows a depiction of the ‘big six’, who helped launch the British colony known as the Gold Coast toward its independence in 1957… we now know it as Ghana. This money is colorful and is a great history lesson…

Take note: The next time you look at money, look at it beyond the good or service it can buy. What does it tell you about a country and a people? Probably a lot– Just look-dig a little deeper…

Understand Business Cycle– Upward-Boom, Downward-Bust– Economic Movements-Shifts: Critical for Good Decision-Making…

Business cycle is a fundamental, and yet elusive concept in macro-economics… it’s a pattern of economic booms-and-busts– economy-wide trends– that can have significant impact on businesses… The term business cycle (or economic cycle) refers to economy-wide fluctuations in production, trade… and economic activity, in general, over several months or years…

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The business cycle is the upward-and-downward movement of GDP (gross domestic product) with periods of expansions-contractions in the level of economic activities (i.e., business fluctuations) centered around its long term growth trend. The fluctuations typically involve shifts, over time, between periods of relatively rapid economic growth (expansion or boom), and periods of relative stagnation or decline (contraction or recession). 

The basic definition of the business cycle was developed by Arthur F. Burns and Wesley C. Mitchell in their book ‘Measuring Business Cycles’: Business cycles are a type of fluctuation found in the aggregate economic activity of nations that organize their work mainly in business enterprises: a cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions, contractions and revivals, which merge into the expansion phase of the next cycle.

Another definition by Parkin and Bade says; the business cycle is periodic, but irregular up-and-down movements in economic activity measured by fluctuations in real GDP and other macroeconomic variables. A business cycle is not a regular, predictable or repeating phenomenon like swing of the pendulum of a clock. Its timing is random and, large degree, unpredictable. However, many experts say that the term business cycle is misleading– ‘cycle’ implies that there is some regularity in timing and duration of upswings and downswings in economic activity–and most economists prefer the term ‘short-run economic fluctuations’ instead of business cycle

In the article What Is a Business Cycle– Why Is It Important? by Gregory Hamel writes: The rise and fall of economic conditions are part of the business cycle. Business planning usually revolves around decisions related to specific markets in which a company operates, but economy-wide trends can have significant impact on businesses. The business cycle is a pattern of economic booms-and-busts exhibited in the modern economy.

Understanding business cycle is important because it affects– sales, profitability… and they ultimately determine whether a business succeeds-fails. Business cycles have four phases: booms, downturns, recessions, and recoveries. During booms; economic output increases quickly and businesses tend to prosper. Eventually, a booming economy reaches a peak point where economic growth rates start to fall, leading to an economic downturn. Downturns lead to periods of economic stagnation or decline called recessions.

Also, the point at which economic growth rates begin to increase again is called the trough of the business cycle; a period of economic recovery follows the trough and leads back into an economic boom. The business cycle can have major effect on total level of employment in the economy: During periods of economic growth-prosperity, employment tends to be high because businesses need more workers to meet demand and expand their companies. Whereas, economic downturns-recessions are characterized by cuts in worker hours, cuts in worker pay, rising unemployment…

Also, business cycle can have significant influence on consumer demand: High levels of unemployment and under-employment mean consumers have less money to spend on products and services and that can lead to lower sales… Overcoming economic downturns-recessions is one of the biggest challenges for sustaining business: During economic recovery-boom, conditions are ripe for businesses to enter markets, but during downturns-recessions the result can be the failure of many weak businesses. Surviving sluggish business cycle typically revolves around cutting costs, improving efficiency, drawing on resources saved during periods of prosperity.

In the article Economic Business Cycle Indicators by Shane Hall writes: Business cycles are difficult to predict but certain indicators can provide signals to corporate leaders, investors, economists, government officials… about the onset-progress of business cycles. The ‘Conference Board’, global business research association, identifies three main classes of business cycle indicators, based on timing: leading, lagging and coincident indicators.

The Conference Board website states that all the indicators are designed to predict– peaks-troughs of business cycles in several nations-regions around the world including; U.S., Britain, Australia, China, Japan, Euro area of Europe, Germany, France, Mexico… Leading indicators are measures of economic activity in which shifts may predict the onset of a business cycle. For examples, leading indicators include; average weekly work hours in manufacture, factory orders for goods, housing permits… Increases-decreases in these measures could signal beginning of a business cycle.

The ‘Conference Board’ reports that leading indicators receive the most attention because of their tendency to shift in advance of business cycles. Other leading indicators include; index of consumer expectations, average weekly claims for unemployment insurance, interest rate spread… If leading indicators signal the onset of business cycles, lagging indicators confirm these trends. Lagging indicators consist of measures that change after an economy has entered a period of fluctuation. Lagging indicators include; average length of unemployment, labor cost per unit of manufacturing output, prime rate, consumer price index, commercial lending activity… Because lagging indicators change direction after the economy enters a business cycle, they are sometimes dismissed as unimportant.

The Conference Board points out, however, that lagging indicators are costs of doing business, and can provide valuable insight into structural issues of an economy. Coincident indicators consist of aggregate measures of economic activity that change as business cycle progresses. Therefore, according to the ‘Conference Board’; these indicators help define business cycles, and examples of coincident indicators include; personal income levels, industrial production, unemployment… Although leading indicators receive the most attention, the ‘Conference Board’ emphasizes the importance of all three classes of indicators when observing business cycles. Leading indicators are most meaning, when they are included as part of a framework that includes coincident and lagging indicators that help define and describe fluctuations in economic activity…

In the article 4 Phases of Business Cycle in Economics by Gaurav Akrani writes: Business cycle (or trade cycle) is divided into four phases:

  • Prosperity Phase: Expansion-Boom-Upswing of economy. When there is an expansion of output, income, employment, prices and profits, there is also a rise in the standard of living. The features of Prosperity are: High level of output and trade. High level of effective demand. High level of income and employment. Rising interest rates. Inflation. Large expansion of bank credit. Overall business optimism… There is an upswing in the economic activity and economy reaches its Peak.
  • Recession Phase: The turning point from Prosperity to Depression is termed as Recession Phase. During a Recession  period, the economic activities slow down. There is a steady decline in the output, income, employment, prices and profits. Business loses confidence and become pessimistic… reduces investment, business expansion stops, stock market falls. Typically, an increase in unemployment that causes a sharp decline in income and aggregate demand. Recession, generally, lasts for a short period.
  • Depression Phase: There is a continuous decrease of output, employment, income, prices, profits, and fall in standard of living… The features of Depression are: Fall in volume of output and trade. Fall in income and rise in unemployment. Decline in consumption and demand. Fall in interest rate. Deflation. Contraction of bank credit…The aggregate economic activity is at the lowest, causing a decline in prices and profits until the economy reaches its Trough (low point).
  • Recovery Phase: The turning point from Depression to Expansion is termed as Recovery or Revival Phase. During the period of revival or recovery, there are expansions and rise in economic activities. Steady rise in output, employment, income, prices and profits. Business gains confidence and optimistic… increases investments, banks expand credit, business expansion takes place, increase in employment, production, income and aggregate demand, prices and profits start rising,  and business expands. Revival slowly emerges into Prosperity, and business cycle is repeated.

business cycle

The ‘media’ often likes to refer to the business cycle model, since it can use terms, such as; ‘boom’ and ‘bust’. It’s a model that can communicate several important pieces of information about a nation’s economy. Basically, the business cycle is a graph which shows the level of real GDP over time. The ‘vertical axis’ shows– level of GDP, and ‘horizontal axis’ shows– time frame.

A typical nation’s business cycle will most likely look like a wave, showing how GDP ‘rises and falls’ over time. Assuming that a country is achieving economic growth over the long-term, the business cycle’s ‘line of best fit’ or ‘trend line’ will slope upwards, indicating that over the span of years or decades, a nation’s economy will produce more output. But over shorter periods of time, output may fluctuate, as the economy experiences those ‘boom’ and ‘busts’ that the media is so fond of.

According to Jim Riley; the business cycle is crucial for businesses because it directly affects demand for products. Every business is affected by the stage of the business cycle, but some businesses are more vulnerable to change than others. For example, a business that relies on consumer spending for its revenues will find that demand is closely related to movements in GDP. During a boom, such businesses should enjoy strong demand for their products… But during a slump, a business can suffer a sharp drop in demand…

Businesses whose fortunes are closely linked to the ‘rate of economic growth’ are referred to as ‘cyclical’ businesses. By contrast, however, some businesses actually benefit from an economic downturn. If their products are perceived by customers as representing good value or it’s a cheaper alternative, then consumers are likely to switch.

According to Noah Smith; modern business cycle models used by mainstream macro-economists are, for the post part, not actually models of cycles. When we think of a ‘cycle’, most of us think of something like a wave– it’s a harmonic motion such as; snapping rope or whip, ocean waves, bouncing ball… also, it may be natural to think of business cycles in this same way. When a recession comes on the heels of boom or economic bust– we can easily conclude that booms cause busts. However, very few macro-economists think like this! And very few macro-economic models actually have this property. In modern macro-economic models, since ‘cycles’ are nothing like waves.

A ‘boom’ does not make a ‘bust’ more likely, or vice versa. Modern macro-economic models assume that what may looks like ‘cycle’ is actually ‘trend’… Some economists argue that the business cycle is an essential part of an economy.

Even downturns have their role to play– they tends to ‘shakeup’ the economy and weed-out weak firms– creating greater incentives to cut costs and more efficiency. However, this view is controversial and other economists argue that in recession, even ‘good’ firms can fail– leading to permanent loss of productive capacity…

Changing Face of Global e-Commerce: More Personal, More Mobile, More Channels, More Selection, More Convenience…

E-commerce: A good e-commerce user experience is unobtrusive and transparent– ‘it just works’… The best content in the world won’t drive revenue if nobody sees it…ecommerce 1357822839_470932899_1-Ecommerce-Portals-Sector-10E-commerce: Build a business, not a website. An e-commerce website is a business– first and foremost; the website is merely the commerce delivery channel. An effective e-commerce site begins by understanding and defining the business strategy, goals, and metrics for the site, and then crafting a website that is tailored to meet those site objectives.

Begin with 5-Ps: Proper-Preparation-Prevents-Poor-Performance: You don’t build a house without an architect and a blueprint, and you shouldn’t build website without a digital equivalent. If you want your digital ‘house’ to crumble, the surest way to ensure failure online and waste untold time and money is to skip proper planning and jump blindly into implementation.

A successful e-commerce business must deliver real economic value… The Internet has torn up the rulebook by which businesses have traditionally operated, and the new rules are still being formulated… According to Evans and Wurster; companies must be prepared to repeatedly revise their ideas and strategy as their e-commerce business evolves. They must also be prepared to rethink, radically– the structure of their organizations and not shrink from making major changes to operations. The future of e-retail is global… there is an increasing trust and confidence in purchasing online… e-commerce is becoming an integral part of any country’s economy and should be considered so…

According to Helen Thomas; e-commerce trends for 2013 clearly pose a win-win situation for both the brands and their customers. Online retailers will have to build distinctive strategies to suit their business motives, whereas consumers will be ‘picky’  looking for better alternatives. Companies will have to spend more time building brand loyalty by consistently providing a great user experience for both existing, as well as newly acquired consumers. The trends that are shaping e-commerce are: Go Local! Go Mobile! Go Cashless! Get a Video, Share it Social Media! Get Short, Simple, Original Content!

E-commerce Market Trends: B2C e-commerce sales in 2012 grew 21.1% to top $1 trillion for the first time, according to new global estimates by eMarketer. This year, 2013, sales will grow 18.3% to $1.298 trillion worldwide, eMarketer estimates, as Asia-Pacific surpasses North America to become the world’s No. 1 market for B2C e-commerce sales.

Sales in North America grew 13.9% to a world-leading $364.66 billion, in 2012– a figure expected to increase 12.2% to $409.05 billion, 2013– as more consumers shift spending from physical stores to retail and travel websites– thanks to lower prices, greater convenience, broader selection and richer product information. But despite strong growth, North America’s share of global sales will drop from 33.5% in 2012 to 31.5% in 2013 as Asia-Pacific surges ahead. B2C e-commerce sales in Asia-Pacific grew more than 33% to $332.46 billion in 2012.

This year, 2013,  the region will see sales increase by more than 30% to over $433 billion– or more than one-third of all global B2C e-commerce sales. The rapid growth in Asia-Pacific sales is a result of several factors. Three Asia-Pacific markets– China, India and Indonesia– will see faster B2C e-commerce sales growth than all other markets worldwide in 2013, while Japan will continue to take a large share of global sales. China, unsurprisingly, is the primary driver of growth in the region.

The country will surpass Japan as the world’s second-largest B2C e-commerce market this year, taking an estimated 14% share of global sales, as its total reaches $181.62 billion, up 65% from $110.04 billion in 2012.  The U.S. will remain the single country with the largest share of worldwide B2C e-commerce spending, at 29.6% in 2013– down from 31.5% in 2012 despite relatively strong growth. This will continue throughout the forecast period, though China is closing the gap fast. In 2016, China will have 22.6% of the worldwide market vs. 26.5% in the U.S.

China also boasts the highest number of people who buy goods online in the world– nearly 220 million in 2012, according to eMarketer– a result of increasing Internet penetration; burgeoning middle class with growing trust in online shopping; government-driven campaigns to promote consumerism; improved infrastructure; greater product selection and services offered by online sellers and retailers.

According to eMarketer, B2C e-commerce sales in the U.S. will grow 12% to $384.80 billion in 2013—after growing 13.8% to $343.43 billion last year– as average B2C e-commerce sales per user reach $2,466 this year among those who buy goods online in the U.S. Average spending per user is lower in China– set to reach just $670 this year, eMarketer estimates– but the sheer growth in China’s digital buyers is staggering. The country will nearly double the number of people buying goods online between 2012 and 2016, eMarketer estimates, resulting in considerable upside for B2C e-commerce sales in China through the forecast period.

In the article Trends That Drive E-Commerce Strategy by Heather Clancy writes:  Retail businesses are in the middle of one of the most profound business model transitions for the industry ever, as consumers transfer their shopping habits to mobile devices and e-commerce Web sites. So where should business development executives and merchandise managers’ focus their attention?

A recent analysis from Forrester Research (U.S. Online Retail Forecast, 2011 to 2016) offers some sign-posts. Overall, the research firm believes we’ll spend $327 billion annually by 2016; that compares with $200 billion spent in 2011. Here are five trends underlying that prediction:

  • Higher percentage of sales from existing online shoppers: While new shoppers are driving increases in e-commerce activities, existing ones are actually more of a factor. Forrester predicts that the average shopper will spend $1,738 annually by 2016, compared with $1,207 in 2011. So, it’s imperative that retailers consider– technology, Web site design principles, and incentives that encourage people to fill their online shopping carts with more items.
  • Fourth quarter remains dominant cyber-season: More than 70% of the shoppers who purchased items online during the fourth quarter of 2011 said that they did so because of deals and promotions, Forrester reported. In November and December 2011, e-commerce accounted for about 15% of overall holiday sales, which is a much higher percentage than during other times of the year.
  • Keep an eye out for flash sales sites: Forrester calls out sites that offer what we used to call ‘fire sales’ in real world retail. These are sales where the prices keep dropping, as long as merchandise lasts.
  • Online loyalty programs are more of a factor: Forrester reported that in 2010, about 9% of shoppers belong to new frequent buyer programs. In 2011, about 12% of online shoppers were members of such clubs.
  • The tablet is driving mobile shopping: The smartphone is extremely important for when shoppers are in stores, but the tablet is more likely to be used for researching and for browsing products online. In addition, shoppers were more likely to ‘place an order for physical goods’ using a tablet than a smartphone.

In the article Develop an E-commerce Pricing Strategy by Mark Hayes writes: With the advent of highly competitive pricing tools, winning the online pricing war can be lose-lose for e-commerce retailers. Large online retailers have an advantage in competitive pricing, as they can set the price low enough to run smaller retailers out of business. But there are other ways to compete – and it all starts with developing (or at least thinking about) an e-commerce pricing strategy:

  • Know your Margins: The reality of online retail pricing is that the lowest price doesn’t always win. In fact, pricing battles usually end with you pricing your products too low. When you consistently price too low, your customers will always expect the lower price, even when it is unsustainable to your business. As a result, you could lose those customers over time.
  • Know your USP (Unique Selling Proposition): What makes you different? Every company has to tackle this question to determine their value proposition and target market. With pricing competition at an all-time high, retailers have to ‘think outside of the box’ when crafting a marketing or promotional strategy for their online store…
  • Lose-Leader (Selling Below Market Value): Highly discounted pricing can be advantageous if paired with the appropriate merchandising strategy. The Lose-Leader Strategy assumes that an item sold below market value will encourage customers to buy more overall… The end goal is to sacrifice losing money on one item in order to make a profit on the rest of the products sold (i.e. cereal cheap, milk expensive).
  • Offer Incentives: Once you know your margins and price accordingly, then you can offer  incentives to motivate your customers to buy. Even if you can’t sustain an ultra-low price in the long-term, you can always offer limited time pricing to reach these customers… Being savvy with your incentives allows you the ability to garner attention to your products, and build a reputation for having good deals, without breaking the bank.
  • Diversify Product Offerings: To offer a diverse product offering that will sell, e-commerce store owners must first understand their market demand… Having a better idea of what your customers want gives you the opportunity to sell and generate profit from diversified products. The end result of proper diversification is that online retailers will offer bad options to emphasize the good, driving customers to act based on perceived value.
  • Test your E-commerce Pricing Strategy: As with many things in e-commerce, one size does not fit all, so it is important to measure and test the success of changes you make to your online store’s pricing strategy. Ideally, every change should be tested and validated with an analytics tool…

While e-commerce sales will grow for all industries, according to Gartner– retail, discrete manufacturing, wholesale distribution, entertainment, and travel/leisure industries have the greatest potential for growth. No surprise here. But, keep in mind, that if you are a solopreneur or a small, completely virtual firm, you have a huge competitive advantage over larger companies trying to digitize their sales efforts.

The companies that learn how to make each customer experience a stellar one will stay at the head of the industry. Gartner sees the changes in– mobile, social and globalization as the 3 most important reasons to evaluate your e-commerce marketing strategies. The wide availability of cloud technology and finely honed market research are some additional reasons to reevaluate your product marketing strategy.

With globalization, one of the most overlooked strategies is– how well you are able to market to the needs of individual international customers. For example, while Americans prefer uniqueness and individuality; the Chinese prefer long-term relationships…

There are a number of challenges for e-commerce businesses on the horizon, and companies that adjust first– then their success will come easier and swifter… This is scary time, but for brands and companies who get it, who are able to make sense of it, this is an exciting time, a time of great opportunity… But for those who don’t– well, try something else…

 

Raise the Bar, Push Harder, Dig Deeper: Meaningful Change–Set High Expectation, Praise Results, Recognize Achievement…

Raise the Bar: Achievement is largely the product of steadily raising one’s levels of aspiration and expectation ~Jack Nicklaus

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Raise the Bar is a common business cliché that refers to setting a higher standard… It means never accept ordinary or the minimum because ordinary and/or minimum will never make you great. Its expectations that impacts outcome– where you start impacts where you finish… In every organization, there is a ‘line’ that can be drawn: Above the line, generally more senior management levels of organizations– people use the word ‘we’ to imply collective responsibility for success and failure.

People in this group say things like; We did this well. We should have done this better. We need to discuss this more. We should have planned this out more carefully. Below the line, generally lower management levels of organizations– people use the word ‘they’ to imply that things are being done to them by others and frequently these things are not good. People in this group say things like; They messed up. They should have done that better. They should have planned more carefully...

To improve-change the organization’s level of performance (i.e., raise the bar) means developing an effective strategic process that moves the ‘we/they’ line down the organization so that more people use the word ‘we’, and they take ownership for making things happen– making things better. A deep-lower ‘we’ line produces winning strategies because the ‘we’ are much more willing and able to meet the greater demands of perpetual change… 

Similarly, moving goalposts (i.e., shifting goalposts) is a metaphor that means to change criterion (goal) of a process or competition, in such a way that the new goal offers an intentional advantage or disadvantage.

Moving goalpost, also known as raising the bar, is an informal logically fallacious argument in which evidence presented for a specific claim is dismissed and some other (often greater) evidence is demanded. In other words, after an attempt is made to score-reach a goal, the goalposts are moved to exclude the attempt, i.e., changing rules of the game. The problem with changing rules of the game is that the meaning of the end result is often changed too… it counts for less…

In the article Raise the Bar– Over Promise! by John Halter writes: The ‘speed of business’ continues to multiply exponentially shaping the arena for competitive control… If we are not asserting ourselves to be– the best, the fastest, the most reliable, then what would avert us from hastily dropping behind competitors in the contest to deliver ‘best in class’ performance.

The ability to ‘over promise-over deliver’ is today’s business necessity… continually raising the bar and jumping over it; is the means towards building great companies, impressing customers, gaining employee loyalty. Acting with a sense of urgency, speed of action is an important differentiator–speed shows you care… Doing something for someone ‘right away’ means you ‘care’ and they do value it... To drastically improve a company’s performance, you must embrace the risk of ‘over promising’ through excellence; exceeding the capability of competition and delivering passionate valued-results to customers…

You must establish and attack elevated (raise the bar) goals with all your available resources to make it a reality. The ability to ‘over deliver’ at ‘best in class’ levels will distinguish your team, and create competitive advantages beyond normalized feature-benefit claims. You must establish team commitments in raising the bar’… striving for the highest standards... being first and setting the ideals for your industry. When you have the right people, they thrive on challenge and take pride in achievement. A ‘street smart leader’ challenges the conventions of the past… he takes personal risks to reach breakthrough performance… Most important, he makes one thing very clear; you are going to raise the bar and succeed, because ‘you care’!

In the article Raising the Bar on Performance: Leader as Coach by KornFerry writes: Today’s demanding business environment requires a high level of performance from the full team. They need to be responsive, innovative, independent, nimble, and align their work with the organization’s mission. Leaders must drive the high level of performance through ongoing and focused coaching conversations… Recent research shows that coaching is ranked first among 22 desirable management practices. Yet, coaching was rated as the ‘poorest’ of all the performance management processes. Organizations find it very difficult to build effective programs that raises the bar on performance.

Coaching is key essential for organizations under pressure to exceed current levels of performance and productivity. Leaders must communicate the organization’s current state, where it is headed, and expectations for new standards of performance… they must be collaborators and coaches to uncover and stimulate the untapped team potential for excellence in the organization…

In the article Why Raising the Bar Doesn’t Always Work by Noah St. John writes: We always hear that we need to raise the bar to be more competitive and more successful. That term raise the bar is a metaphor borrowed from sports world, meaning to constantly strive for–better, farther, faster… and that’s a great aim to have. However is that the way life really works? While it may sound simplistic, many people set themselves up to fail simply because their ‘bar of success’ is set too high.

Sometimes, the bar is so high that even when we ‘do’ accomplish something meaningful or significant, it’s never good enough. If this sounds familiar, you’re not alone. But the great news is that all of this is completely within your control. That’s why I often tell my team to ‘lower’ the bar, but keep it high enough so that you can succeed…

In the article Raising the bar on Performance Management by Trevor Dagg writes: In the current business environment ‘average is over’. Employees that don’t work to their full potential are negatively affecting the performance of their companies… Hiring people with the right skill sets for a job is no longer the most important factor in determining success of a company… managers must focus on the employees actually performance…

According to Harry Sinden; it’s the attitude of the players, not their skills, that is the biggest factor in determining whether you win or lose So how can an organization ensure that their people have the right attitudes, such that they work hard, effectively, and win? This can be achieved through– raise the bar on performance management! It involves setting objectives-goals and ensuring they are SMART (i.e., Specific, Measurable, Achievable, Realistic, Time Bound).

To achieve SMART objectives, performance must be managed on a ‘continuous’ basis. This means the implementation of continuous review process that allows managers and staff to discuss elements of performance– frequently and when it’s most relevant. Ongoing transparent feedback, mentoring, coaching are all key elements of the continuous review process, which will help raise the bar on performance…

Raise the Bar means– change beliefs, change attitude, change behaviors, change results– it’s the ‘bar of expectations’. According to Lou Ludwig; when we establish crystal clear expectations for our future, we create the foundation in our minds on how we will achieve our maximum potential. Steadily raise the bar of our expectations-aspirations just a little higher and a little out of our reach cause us to stretch out of our comfort zone.

As we stretch out of our comfort zone we stretch our potential, as a result our potential steadily grows and will never return to its previous size. Continual raising the bar of expectations maximizes achievement. Raise the bar starts with taking responsibility for what you have, what you have to do to get the performance you need, what you should expect, and ultimately, what you are responsible for

According to Anthony Cole; this means no excuses for lack of performance… there must be consequences… No excuses about not getting things done because of ‘whatever’. Perhaps the biggest problem for under-performing is the reality that many managers have established minimal standard for performance– they are rewarding minimalism… Raise the bar and eliminate the minimal acceptable standard of performance and embrace a new approach of extraordinary standard of performance, and that must be the new mind-set.

A mind shift is required in how you look at goals, performance, performance management. According to Harold Resnick; there is phenomenon known as ‘expectancy theory’, or ‘Pygmalion Effect’, which simply says: people respond to the way they are treated and respond in kind. If treated with high expectations based on the belief that they have the ability to perform, individuals tend to rise to those expectations… when performance is recognized, supported and rewarded then people will continue to increase in competence.

As competence increases, so does confidence. Increased confidence encourages them to raise the bar further and more competence continues to develop. This is known as ‘virtuous reinforcing cycle’. Positive performance builds on itself. The reverse is also true: If managers deliver the message– perhaps quite subtly and even unconsciously– doubting an employee’s ability, then the employees will be more cautious and lose confidence, which creates lower level performance, and in their mind this is a confirmation of lesser ability– as a result; the bar is set bit lower.

Over time confidence erodes, performance continues to lag and these individuals spiral downward into a negative chain reaction known as a ‘vicious reinforcing cycle’. Expectancy theory is real, and how it’s applied can have profound leveraged impact on the overall performance of an organization. Raise the bar– Set high expectations, expect people to respond… most important; help individuals achieve goals, praise results, and recognize achievement.

Stupidity Defense– Incompetence, Misunderstanding, Trickery– Malice: Ascribe to Hanlon’s Razor, Occam’s Razor, Grey’s Law…

Hanlon’s Razor: Only two things are infinite, the universe and human stupidity, and I’m not sure about the universe. ~Albert Einstein.

Never ascribe to malice that which is adequately explained by incompetence. ~Napoleon Bonaparte. hanlon 514_400x400_NoPeel

Hanlon’s Razor is an eponymous adage and it reads; never attribute to malice that which can be adequately explained by stupidity, but don’t rule out malice… and this particular form is attributed to Robert J. Hanlon.

Other maxims that convey the same basic idea are; misunderstandings and neglect create more confusion in the world than trickery and malice. The Razor part of Hanlon’s Razor is derived from Occam’s Razor, which is the– principle of reducing assumptions to their absolute minimum (as Albert Einstein once said: Things should be a simple as possible, but no simpler).

Also, a less-known corollary of Hanlon’s Razor is Grey’s Law that imitates Clarke’s Law, which says; any sufficiently advanced incompetence is indistinguishable from malice. This quote appears to be particular favorite of hackers, often showing up in signature blocks, fortune cookie files, bookmarking website, login banners of BBS systems and commercial networks… spread through email, and it appears to be of recent origin. This probably reflects hacker’s daily experience of environments created by well-intentioned but short-sighted people.

As mentioned, Hanlon’s Razor is essentially a special case of Occam’s Razor, which says; if you have two equally likely solutions to a problem, then choose the simplest; or, the explanation requiring fewest assumptions is most likely to be correct. Also, the word ‘Razor’, in philosophy, is a conceptual device allowing one to shave away unlikely reasons for a phenomenon; for example, refuting a conspiracy theory when the conspiracy is not supported with specific evidence… then, the issue is more likely to be ineptitude or apathy rather than malice…

Now, all this information sounds great, but I don’t get it… Why is this relevant? One reason is that there is a fair amount of over-drama in our lives and we tend to attribute the actions of many people to malice instead of stupidity…and not because of being ‘mean‘ but because, well; we’re stupid that way. But, more important, business at its heart is about people. No matter what your role, better you are at understanding people the more effective a business person you will be. Here are a few rules:

  • Never assume malice when stupidity will suffice.
  • Never assume stupidity when ignorance will suffice.
  • Never assume ignorance when forgivable error will suffice
  • Never assume error when lack of information will suffice.

In the article Shaving Rancor with Hanlon’s Razor by Wee Mama writes: Most of us know Murphy’s Law, and perhaps in this form; anything that can go wrong, will. We’ve had more than enough moments that this seemed true. Still, few people know a related rule, i.e., Hanlon’s Razor. Hanlon’s Razor is a relational tool of immense but rarely appreciated power both for the relief it offers to the user and for the possible strategies it suggests for change.

Perhaps a concrete example will clarify: Suppose you are on a crowded subway which suddenly jerks, impelling you backwards. You take an abrupt step to keep balance and accidentally stomp on the foot of the person behind you. The stomped person is likely to say one of two things: (A) Ouch! That hurt! (pure description) or (B) You oaf! You don’t own the whole car! In this example: (A) In addition to being descriptive, implicitly applies Hanlon’s Razor; you were incompetent (unable) to keep balance, hence there were undesirable consequences.

(B) Implies you acted intentionally even though there was no evidence of intention. However, if you applied Hanlon’s Razor: Then, how are you likely to react? To (A) you will likely say: ‘I’m so sorry! This train is really riding roughly today’ (confirming your absence of malice). To (B) you might make any of several responses; e.g., stew in silence or angrily rebut or even perhaps stomp down a second time just to assert your freedom…

Using Hanlon’s Razor, in most situations, means that a much smaller portion of the world is out to get you (i.e., conspiracy theory), than a simple ‘harm=malice filter’ suggests. Dealing with ignorance or incompetence, while still a struggle, feels like less of an assault than believing that most of the world is malicious. Also, Hanlon’s Razor suggests strategies for change: Ignorance is overcome with facts, if they are presented– clearly, repeatedly, within different contexts… also, incompetence can be overcome with guidance and experience for most folks…

Then, applying Hanlon’s Razor for ignorance and incompetence means; rebutting errors, not maligning characters. However, applying Hanlon’s Razor in context of the larger world means– committing to mutual education, sharing skills, showing by example that we want to work together, and a more grounded realistic grasp of the issues… It may be worth trying…

In the article Hanlon Razor-Assumption of Stupidity by Bernard Schiffer writes: Whenever I’m having a hard time dealing with the resistance of change– struggling with emotions and unreasonable colleagues, or facing the stubbornness of a friend, or whenever it seems like I’m dealing with some kind of malice, I find a lot of comfort in Hanlon’s Razor… However, the assumption of malice is a good way to kill any communication– it puts all kind of ugly pictures in your head– it’s an effect known as; fear, uncertainty, doubts (FUD), and it’s used against opponents in sales, marketing, public relations… with the goal to spread disinformation.

But, by applying Hanlon’s Razor, it often turns-out that there’s a misunderstanding somewhere. But, it’s a huge step– from assuming malice to identifying a misunderstanding– it’s often the assumption of malice preventing identification of misunderstandings. By assuming malice you often turn away from the real issues; because it’s unpleasant to deal with malice and that’s when someone seems to be working against you. However, identifying a misunderstanding, then suddenly no one’s left to blame… Hanlon’s Razor can help a lot in various situations by giving you the opportunity to put myself in someone’s position, and turns-out that often you are lacking information that effects your judgment…

Although Hanlon’s Razor is helpful in most contexts, Grey’s Law might be helpful in other situations, it states; any sufficiently advanced incompetence is indistinguishable from malice. In other words: If you find someone acting so stupid that you can’t believe their doing it without the slightest chance of knowing that it’s stupid, then they might be acting out of malice… When I tell people about Hanlon’s Razor, they tell me that they don’t like it because it’s disrespectful to call others stupid; I agree.

However, Hanlon’s Razor is not about calling someone stupid, it’s about putting you in a position to interpret the message that’s transmitted to you by changing your assumption (i.e., if it’s not malice it may be stupidity)… Hanlon’s Razor can be one of the best tools in life– It can help you to stay cool in difficult situations, because it’s a source of comfort to know that someone may be acting out of stupidity rather than out of malice…

In the article Stupidity is no Excuse by John Scotus writes: When we speak of stupidity, we are not speaking of mental deficiency. As the word ‘stupidity’ is most often used it refers to people who– putting it bluntly– go around with their head-up their butts… According to Hanlon’s Razor; such people should be judged by a lesser standard than others who are motivated by malice.

Some people suggest that there is very little difference between someone who acts in malice and someone who constantly behaves like an idiot– the result is more often than not identical, and what’s often passed-off as stupidity is really just a lack of concern for others. For example, using the phrase; I should not blame him, since he was merely incompetent– is the ‘stupidity defense’. I have often noticed that people who claim the ‘stupidity defense’ have little or no problem handling their own affairs. However, often what is called stupidity is really just manifestation of behavior, such as; laziness, selfishness, greed, general lack of concern for others and, yes, malice… Stupidity is often just a cover for selfishness and narcissism…

A practical observation on stupidity was made by General Kurt von Hammerstein-Euord in Truppenfuhrung in 1933, he said: I will divide my officers into four classes; clever, lazy, industrious, and stupid. Each officer possesses at least two of these qualities: Those who are ‘clever-industrious’ are fitted for the highest staff appointments. Use can be made of those who are ‘stupid-lazy’. The man, who is ‘clever-lazy’ however is for the very highest command; he has the temperament and nerves to deal with all situations. But whoever is ‘stupid-industrious’ is a menace and must be removed.

According to triumfant: So how do you stop stupid? What is needed is something that is doggedly persistent-tireless in its defense against stupidity… something that never throws up its hands in face of relentlessly repetitive stupidity...

According to ‘mlmskeptic’; an expanded version of Hanlon’s Razor is made by M.L. Plano, he says; never attribute to malice what can be explained by stupidity… Don’t assign to stupidity what might be due to ignorance. And, try not to assume the opponent is the ignorant one — until you can show it isn’t you.

 

Zombie Companies– Barely Alive, Living Corpse, Walking Dead: Clinging-Financially Undead, Waiting For Creative Destruction…

Zombie companies… it’s inevitable and necessary to allow the failure of some non-competitive companies, so as to release the capital and labor for more promising companies ~Winnie Wu

Zombie companies are neither dead or alive… they have so much debt that any cash generated is used to pay off the interest on the debt… there is no spare cash or capacity for the company to invest or grow…  Zombie company is a media term for a company that needs constant bailouts in order to operate, or indebted company that is able to repay the interest on its debts but not reduce its debts…

The term can be traced to Edward Kane and his analysis of the insolvency of U.S. ‘savings and loans’ in 1980s, and Japanese banks in early 1990s. Zombie firms are loss-making and have little hope of improvement in near future. Therefore, they depend on banks-other investors to grant them continuous loans to survive, effectively putting them on never-ending life support…

According to R3; there are 146,000 zombie businesses teetering on the edge of solvency… they are only able to pay the interest on their debts but not tackle payments around the debt itself… R3 identifies three defining features of a zombie company; having to negotiate payment terms with suppliers; struggling to pay debts; facing the probability that if interest rates rise, they will be unable to service debts at all…

According to Richael O’Brien; while allowing businesses to fail may not be a popular choice, it is becoming increasingly evident that it’s vital for overall economic growth. It can be easy to think in short-term when faced with the economic problems, but allowing progressively weaker business models to stack up will ultimately stall economic growth in the longer term. There is a lot to be learned from the Japanese and other similar experiences over zombie companies… As long as economic capital is tied up in struggling companies, the playing field is not level for emerging businesses…

According to Hugh Pym; the rise of so-called zombie companies is, to some extent, a consequence of the current record low-interest rates… And, according to some experts around a third of UK companies– approaching 50,000– could be doomed to failure if interest rates go up. According to Christine Elliott; urgent attention is needed to avoid multiple failures and tens of thousands of job losses.

According to Jon Moulton; more companies should be allowed to fail to overcome the economic downturn… Zombie companies is not a phrase that bankers and regulators like to use. Most shy away from the idea-prefer to talk in the usual jargon, like ‘forbearance’ and ‘provisions’. But there is no doubt that the dead hand of the zombie is casting a shadow over the economy…

In the article The Rise of the Zombie Companies by financialtimes writes: Europe is in midst of a zombie company revolution, where thousands of firms that should have folded due to colossal debts, are clinging on to solvency… Zombie companies are being blamed for Europe’s weak recovery, triggering fear that it may echo Japan in 1990s, where low-interest rates, loose government policy, big banks reluctance to foreclose unprofitable companies, caused decades of weak growth. According to Alan Bloom; the basic tenet of capitalism is that some bad companies need to fail to make way for new and better ones, is being rewritten. Many European companies are just declining slowly and have an urgent need for new management, revised capital structure, or at worst allowed to fail.

According to Bank of England; some companies were able to remain in operation during recession [as result of government and central bank action], and might have hindered reallocation of capital towards more productive sectors. In U.S., ‘creative destruction’ is more in play; there are increases in insolvency rates since the crisis. But far less in Europe, where policy makers are focused on protecting jobs than on boosting efficiency. Europe is like a forest floor that is being clogged with weeds, choking off nutrients-light to saplings with a chance of becoming trees. What Europe needs is fire to clear undergrowth.

In the article Zombie Companies by Ian Stewart writes: Some commentators suggest that the UK economy is being held back by so-called zombie companies. These are weak companies that only survive thanks to low-interest rates and more tolerant attitude to corporate borrowers on part of banks-investors. The argument runs– that if zombie companies are allowed to fail, then more productive businesses would fill the gap, leading to more efficient allocation of resources. To advocates this sort of ‘creative destruction’ makes way for stronger businesses of the future…

However, it’s impossible to prove weaker companies are holding back recovery. But some data are consistent with this theory. For example, despite a deep downturn– corporate insolvency have remained remarkably low in recent years. Roughly a third of UK companies is now making loss, and at higher rate than economy experienced in the 1990s recession. UK productivity growth has also been weak, something which might in part, be explained by the poor performance of zombie companies.

The idea of zombie companies is not new: Economists of ‘Austrian School’ champion the notion that recessions clear out unproductive capacity and create space for more efficient companies. Joseph Schumpeter’s coined the phrase ‘creative destruction’ to describe this process… The failure of Japanese banks to foreclose on highly indebted and  unprofitable firms in late 1980s recession is seen by some as contributing to two decades of weak growth.

The central problem with the zombie company’s argument is the difficult to distinguish between unviable businesses and those that, if nursed through a downturn, would have a bright future. The main weapon to counter the financial crisis and recession has been low-interest rates… it may be that one result of current ultra low levels of interest rates, in fact, is that some unviable companies are able to survive for a longer period. Yet this does not prove that low-interest rates or forbearance on the part of banks is an inappropriate response to the crisis.

According to Spencer Dale; the whole point of monetary loosing is to keep companies that have a viable long-term future in business while demand is temporarily weak… The willingness of banks to nurse companies through tough times is predicated on a view that business has a long-term future. More generally, all economic policies that aim to bolster demand have unavoidable-unwanted side effects: For example; low-interest, ‘quantitative easing’ rates hit savers… Increasing government spending adds to the debt burden faced by future generations…

Killing off zombie companies by raising interest rates could have huge, unwanted side effects, e.g., raising debt servicing costs for consumers-business, hitting confidence-depressing demand. Some experts predict that one percentage rise in interest rates could depress GDP up to 0.35%. This as a potential medicinal cure can risk killing the patient. The aim of the current macro-economic policy is to sustain business through this difficult period. The hope is, in time, many of zombie companies will be able to ‘rise from the dead’…

In the article How to Spot Zombie Company by Sydney Finkelstein writes: Nearly every company studied in our ‘failure’ research was glorified as ‘number one’ in some category and made this status part of their self-image. Almost all of them trumpeted their front-runner status in company slogans, displays, PR… For example; Enron had a sign inside its corporate entrance that read: The world’s best energy company. Later, this sign was changed to read: The world’s best company. Nice.

The problem is that when a company makes being ‘number one’ part of its self-image, the behavior that made the company ‘number one’ starts to change. The consequences of this inward maintenance of status can be seen almost immediately in the way employees of the company begin to treat others from outside the company. They are polite but condescending; since they believe they don’t have to listen to others, because they already know better.

Many executives of failed companies were not only arrogant, but they were proud of it… Another sign of a zombie company is when it has unwavering vision of what it’s doing and this vision takes on a momentum of its own… then, after a while, the company will tend to do things not because they make any business sense, but because they carry out the vision.

The extreme form of this irrational sense of mission is the strategy that could be called; ‘if-we-build-it-they-will-come’. The single worst aspect of this excessive loyalty is that it prevents companies from hearing what their customers are trying to tell them; they don’t just claim; we know what our customers want. They go further, claiming in effect; we know what our customers want better than they do, because we know what’s best for them, and eventually they’ll see it too…

Now, astute readers may ask, doesn’t Apple do this too? Well, if you want to create a successful strategy, following Apple’s strategy, in the Steve Jobs era, is like professional basketball teams selecting Ivy League players, at the top of the draft, because of Jeremy Lin. Wild exceptions do not make the rule folks…

The term zombie company is metaphor to describe companies that are merely treading water until a trigger, such as an increase in interest rates, pushes them into insolvency. It can be argued that this stagnation ties up capital that could be used for other healthier businesses and indeed these zombie businesses risk dragging healthy companies into decline…

According to Ernst & Young; financial crisis had created an environment where it’s ‘too difficult to fail’, with businesses being kept afloat to detriment of the broader economy… According to Alan Bloom; everything is becoming complicated and making insolvency difficult option…. It means that businesses which probably should fail, don’t fail. In a capitalist economy you get winners and losers…

According to Sarah O’Connor and Brian Groom; companies with broken business models should be allowed to fail, so that their resources and workers can then ‘flow’ into new-expanding companies that are better able to drive economic growth. However, according to Richard Barwell; real world is messier than the world of macro-economic models. Workers do not always ‘flow’ effortlessly into new and more productive jobs, especially when the economy is weak. However, in the long run we do probably need capital, and more importantly human capital, to be released from inefficient firms to more efficient ones…

According to Lauren Lyster; in the life cycle of capitalistic boom-and-bust there is failure, as well as success… One must acknowledge– failure, then re-price, liquidate, and move on… According to Joseph Schumpeter; capitalism is like– forest floor– life, death, regeneration… Here you’re looking at stagnation without death-regeneration… zombie imagesCA2DYW2M

 

Non-Bank Banking–Shadow Banking Systems: Changing Shape of Financial Intermediation and Banking Regulations…

Non-bank banking system or shadow banking system can broadly be described as– credit intermediation involving entities and activities outside the regular banking system… in short, non-bank financial intermediation…

Non-bank banking: What exactly is non-bank banking? Government agencies expend a lot of time and money coming up with definitions. These exercises might seem silly until a seemingly obvious term like, ‘bank’ gets caught up in some sort of regulation, civil action, enforcement… Then, the official definition suddenly becomes a serious matter… A current example concerns the term ‘non-bank banking’, which has become important since the federal law now authorizes the Consumer Financial Protection Bureau (CFPB) to supervise large banks, thrifts, credit unions… i.e., non-banks.

According to Marcie Geffner; to carry out supervision, the CFPB must figure out which firms qualify… A working definition on CFPB website suggests that– firms offering financial products-services to consumers without; bank, thrift, credit union charter, and that don’t take deposits– qualify as a ‘non-bank banking’. Broadly speaking that includes; payday lenders, student loans, debt collectors, credit reporting, mortgage banking… Non-banks simply intermediate transfer of funds from the bank accounts of original investors to the bank accounts of the ultimate borrowers… they act as conduit between those with funds to lend and those in need of funds.

According to ‘economist’; fixing one problem often creates another. The financial crisis has produced a wave of regulation to make the banking system safer, but that opened the door to other providers of non-bank finance… At one end of spectrum, peer-to-peer lenders are experimenting with entirely new forms of finance in which individual savers and borrowers are matched in electronic marketplaces. At the other end, the world’s biggest insurers and asset managers are building up credit-analysis capabilities so that they can lend money directly to mid-market companies, infrastructure schemes, property developments…

The banks are often partners in the process, originating debt and then passing it on to institutional investors. The idea that more funding activity will pass from banks to non-banks makes many people queasy. The term shadow banking is often used to conjure up– dark world of non-bank banking firms. But, like regular banks, shadow banks provide credit and generally increase the liquidity of the financial sector. Yet unlike regulated banks, they lack access to central bank funding-safety nets, such as; deposit insurance, debt guarantees… However, due in part to specialized structure, shadow banks can sometimes provide credit more cost-efficiently than regular banks.

Many shadow non-bank firms have emerged and are playing an important role in providing credit across the financial system. In U.S. and prior to the 2008 financial crisis, shadow banking system had overtaken the regular banking system in supplying loans to various types of borrower, including; business, home and car buyers, students, credit users… According to Paul Krugman; the shadow banking system is the ‘core of what happened’ to cause the crisis… He referred to this lack of controls as ‘malign neglect’. One former banking regulator has said that– regulated banking organizations are themselves the largest shadow banks, and shadow banking activities within the regulated banking system were responsible for the severity of the financial crisis…

In the article Rise of Non-Bank Credit: Revolution or Evolution? by KPMG writes: Traditional bank lending continues to be constrained by tighter regulation, increased capital requirements and a more conservative approach to risk. This would appear to open up significant business opportunities for alternative sources of credit, but there are a number of factors that may hinder the much-heralded revolution in credit provision.

The global scale of bank lending is so large that if banks retrench their activities by even a few percentage points, it opens-up a significant market for non-bank lenders. But if there are any concerns about a potential explosion in non-bank lending leading to another credit bubble, these should be balanced against the countervailing constraints: The market is globally fragmented, barriers to entry can be high, and it’s hard to identify and implement the right business model for the right market. For example, differences between Europe, North America and Asia are stark. In Europe, the traditional model of bank lending dominates the market – and indeed the culture– of many countries… In the UK, retail and small and medium enterprise lending is dominated by the banks.

Access to credit in the UK is perceived to be difficult and, in an effort to free up alternative financing, the government is effectively sponsoring new entrants… In North America, by contrast, there is a mature non-bank lending sector from community banks to micro-lenders to accounts receivable financing to peer-to-peer or social lending, and it would appear this increased diversity is one of the reasons why the supply of credit is not such an issue in the U.S. as it is in Europe…

Asia with its growing export-led economies has no lack of local currency liquidity and there is not the same tension as in Europe with regard to retail and business lending– the strategic focus is on funding the big-ticket items like, China’s numerous infrastructure projects…

However, rapid economic growth has also led to a significant expansion of non-bank lending in China… We are entering an era of opportunity for alternative credit. Just as in the past, we have seen the leasing industry flourish as firms looked for more flexibility in their use of capital, and securitization boom as banks seized the opportunity to free up their balance sheets, now there is an opening for non-bank lending to achieve a step change.

But success for a new entrant is not a given and it only come from a clear understanding of their own business model– and how flexibly it can be shaped to meet local needs of markets, regulators and customers. In the end, what we may be witnessing is not so much a revolution, but evolution in non-bank banking.

In the article Shadow Banking Out Of Shadows by ‘financialtimes’ writes: The threats posed by shadow banking are not hard to understand. The sector is rife with sources of instability. Much of the leverage in the U.S. economy grew outside bank balance sheets through securitized loans; networks of derivatives involving non-bank firms amplified systemic risk… As regulators constrain banks’ room for maneuver, they must beware of risky behavior merely migrating to the shadow banking sector where it will be harder to spot.

Other threats flow from the connections between the ‘lit’ and ‘shadow’ side of finance. Banks have long relied on shadow banking (non-bank banking) by borrowing from money market funds in repo markets. Risks that might be acceptable outside the banking system can become systemic by exposing conventional banks to disruption. But with wise policy, usefulness of shadow banking activities can be greater than threats. Taming and harnessing non-bank finance rather than smothering it should be the goal of rule-makers.

There is advantage to having alternatives to conventional banks. It’s not coincidental that U.S.– where ‘banks’ intermediate less of financial flows than in UK or euro-zone– is further ahead in recovery: If all financial plumbing is routed through banks, you have a much worse problem when pipes clog up– as Europe is now learning the hard way. Non-bank banking can also offer healthy competition in markets where normal banking is dominated by a few big names.

And there are various types of financing with risk and maturity profiles more suited to equity-like relationships than conventional loans: For example, banks should steer clear of entanglement in the payment system, deposit account provision… Also, the risk that consumers treat money-market funds much like insured deposits… This must either be counteracted or the funds must face equivalent rules to deposit-taking banks.

Similar decisions must be made in many other cases. If financial regulations don’t spread the ‘light’ of risk wider-brighter, it will only drive more risk into ‘shadows’… Non-bank banking should complement the business of banks– not substitute for it– they must not be banks with just another name, without regulation…

In the last five years, few industries have changed as rapidly as the banking industry. Once viewed as stodgy and conservative, banks have become increasingly aggressive and competitive. Banks and non-bank banking businesses have expanded both their financial services and geographic markets. Despite these changes, Congress, perhaps influenced by lobbyists, has not reformed old bank laws to meet market conditions. Consequently, federal courts-regulators have had difficulty applying dated laws to recent developments.

One such law is the ‘Bank Holding Company Act (BHCA). The BHCA defines a ‘bank’ as any institution organized under state or federal law that meets both parts of a two-pronged ‘bank’ test: (1) accepts deposits that the depositor has a legal right to withdraw on demand, (2) engages in the business of making commercial loans. In recent years, banks have avoided regulation under the BHCA by acquiring financial institutions that do not meet one of the two prongs of the ‘bank’ test. These new financial hybrids, which often offer most other types of banking services, have become known as ‘non-bank banking’… The non-bank banking (i.e., shadow banking) global industry has grown to about $67 trillion; leading global regulators to seek more oversight of financial transactions that fall outside traditional oversight…

The ‘Financial Stability Board’ (FSB), a global financial policy group composed of regulators and central bankers, found that shadow banking grew by $41 trillion between 2002 and 2011… The Dodd-Frank Act provides some provisions towards regulating shadow banking systems by stipulating that the ‘Federal Reserve System’ would have the power to regulate all institutions of systemic importance… There are concerns that more businesses may move into the shadow banking system as regulators seek to bolster the financial system by making bank rules stricter… However, the good news is that despite the dismal credit environment, there are many non-bank financing options available to companies that need a cash infusion, whether to beef-up working capital or help facilitate growth.

The bad news is that business management often shy away from non-bank or alternative financing because they don’t understand it. Most automatically rely on their banker for financial information and many bankers (not surprisingly) have only limited experience with options beyond those offered by the bank… The message is simply; ‘financially challenged’ companies should not be afraid to consider alternative or non-bank financing options. It’s a fairly simple matter to learn– what they are, how much they cost, how they work– then companies would be in a better position to decide if they are the answer to their financing challenge…

Even more, according to the Deutsche Bank; conventional banking could soon become a thing of the past with the use of the Internet and mobile devices booming. Following a technological revolution in payments, web services could take the next steps by developing their own applications for allowing credits-making deposits... Also, traditional banks will be challenged by new rivals, like; Google, Apple, Amazon, Paypal… who are developing Internet applications to effect mobile payments…

According to Elizabeth Warren; it’s time for serious oversight of non-bank lenders like; mortgage brokers, payday loan outfits… to protect consumers from abusive practice of these largely unregulated businesses…