Unthinkable Black Swan– Impact of Highly Improbable Freak Events on Business: Reality of Unknown-Unknowns…

Black Swan is a metaphor that describes a highly improbable, unpredictable event… the low-probability, high-impact events that are impossible to forecast or anticipate, which when they do occur carry a massive impact. The metaphor is derived from the assumption that all swans are white, and as such a black swan is seen as being unthinkable-unexpected (but, in fact they do exist)… the event is impossible to predict even with the most detailed and carefully calculated probability models…

The concept is not new, in economics these events are known as– outliers; they sit outside the range of typical occurrence. In the book ‘The Black Swan: The Impact of Highly Improbable’ by Nassim Nicholas Taleb says; it’s an event with the following three attributes: First, it’s an outlier–as it lies outside realm of regular expectations– since nothing in the past can convincingly point to its possibility. Second, it carries extreme impact within its actual occurrence. Third, in spite of outlier status– we concoct explanations for its occurrence, after the fact, making it explainable-predictable...

Bottom line; we can’t know what we don’t know… while it may seem hard to operate in unknown-unknowns environment, acknowledging you don’t know everything, but it can actually be advantage over people who instead go through business confidently  knowing the wrong things… According to Sachin Patel; difference between embracing ignorance and holding misconceptions as a shield won’t prevent black swanslearn how to plan and turn some them into– ‘gray swans’, which aren’t nearly as damaging…

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A company’s greatest challenge is to develop strategies that are flexible enough to adapt to unforeseen circumstances– improbable events– while sustaining corporate goals and objectives… According to Geary W. Sikich; this requires rethinking of– contingency plans, competitive intelligence activities, cross-functional relationships both internally and externally…We must begin to rethink business operations and focus on– ‘strategy at the edge of chaos’ This is not a radically new concept in management thinking; rather it recognizes that while strategic concepts are the foundation of management theory, appropriate strategic actions-responses do not always happen fast enough…

Markets are not in a static equilibrium; markets and organizations tend to be reactive, evolving, and difficult to predict and control… Unpredictability is the new normal, and it can be positive or negative… Never under-estimate the impact of change (we live in a rapidly changing, interconnected world), inflation (not just monetary inflation but the inflated impact of improbable events), opportunity (recognize the ‘white swans’– main stay of the business), and ultimately the customer (who is often overlooked in contingency plans– customers retention)…

Biggest single threat to an enterprise is staying with a previously successful business model, too long and not being able to adapt to the fluidity of situations (i.e., disruptive events)… The logic in black swan makes ‘what you don’t know is far more relevant than what you do know’….

In the article Preparing For Black Swan Events by Matt Atkins writes: While we may think of black swans as rare events, looking back over decades we can see they occur with more frequency than we might imagine. In the first years of the twenty-first century, for instance, black swan events have reared their heads on a frighteningly regular basis… especially in this age of rapid globalization and advances in communications, which means that events in far-flung regions of the world now have much wider impact…

According to Fox; while companies may not want to spend a lot of resources preparing for perceived once-in-a-lifetime black swan events, organizations are aware of the need to prepare for dynamic and emerging risks that could impact their strategic objectives in a catastrophic way. Those random, seemingly unpredictable, unconnected events, trends and signals are being more formally integrated into a strategic risk management approach. Despite the severity of these issues, however, some organizations still fail to pay adequate attention to possible risks. An awareness of the hazard of improbable pandemics events does not necessarily result in any contingency planning…

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According to Williams; survey by the global insurance broker ‘Willis’ found that only 5% of respondents felt that their Board of Directors pay significant attention to black swan risks. Yet at the same time over 30% thought their company was vulnerable to severe impact from these events. Economic constraints also make it difficult for organizations, and governments, to contemplate investing in changes required to increase resilience for an improbable event… which may require re-examination and significant adjustment to their fundamental business models…

Perhaps the ambivalence of many Boards to seriously plan for these types of risks are two-fold; low probability of an event, and the uncertainty of action in response… Indeed, the prospect of contending with perils of a black swan event can easily lead to frightened paralysis. Tackling the issue as a monolithic menace is, perhaps, the error of many organizations.

Bolstering existing risk mitigation techniques and weaving risk management strategies into the cultural fabric of the company can help scale down the magnitude of an event… establishing continuity plans, preparations for communications… will show their worth in the worst possible scenario, but also minimize the impact in lesser ‘grey swan’ events that are more likely to occur. Black swan events, though rare, are inevitable and within a globalized world almost everybody– countries, companies, communities… feels some impact when they strike

In the article Corporate Governance, Ostrich and Black Swan by Ed Konczal writes:  Simply put, a black swan event is one that has a low chance of happening but if it does the impact can be catastrophic. Underpinning black swans are some interesting philosophical and psychological factors of human frailties. Why don’t we acknowledge the phenomenon of these events until after they occur?

Part of the answer, according to Nassim Nicholas Taleb; human beings are hardwired to learn specifics when they should be focused on generalities. We concentrate on things we already know and time-and-time again fail to take into consideration what we don’t know. We are, therefore, unable to truly estimate opportunities, too vulnerable to the impulse to– simplify, narrate, and categorize, and not open enough to rewarding those who can imagine the ‘impossible’... The costs of black swans can be daunting; dealing with these events is extreme risk management. The Board of Directors is responsible for oversight and the strategic direction of the company— not execution.

This means Board members should take on a devil’s advocate role by asking C-Level managers questions such as– Have you considered all financial, strategic, ethical and risk issues? What is worst that could go wrong and how will you manage outcomes? Directors should increase focus on risk, and engage more in detailed appreciation and understanding of the risks in their company…

Black swans do, and will always, exist. Therefore, we must be much more alert to the fact that, even at the extreme end of risk possibility, things do actually happen… Companies must at least consider the possibility of an improbable event – and avoid the ‘ostrich head in the sand’ syndrome…

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Human brains are wired for narrative, not statistical uncertainty. And so we tell ourselves simple stories to explain complex thing we don’t and, most importantly, can’t know… According to Peter Jewett; when do you stop questioning the ‘possible’ and just deal with the ‘probable’? Eventually you must say: Okay, we’ve hit the point where we can’t justify spending more resources on further precautions given likelihood of an event happening. What’s the cost benefit of devoting time to figuring out what the unknowns are? It’s a delicate balance…

Today we face asymmetric threats that can include the use of surprise in all of a company’s operational and strategic dimensions… use of products-services in ways unplanned by organizations and markets served, or the prospect of a competitor designing a strategy that fundamentally alters the market… Perhaps these unpredictable, possibly improbable events are black swan in nature… and unsettling in that people concentrate on what they know and can extrapolate, versus looking outside their own experiences to try to fathom the unfathomable…

Business leaders need to venture past the norm– far past the norm… There-in lies the rub; business is geared toward the definable… the manageable… the here-and-now. So how can a company survive a black swan event? According to Nancy Green; you can’t prepare for the event, but you can prepare for the impact… for that, companies need to step out of their day-to-day operations and think in terms of institutional readiness for the future… Scenario planning— the practice of outlining various scenarios that can affect a business through changes– environmental, cultural, government… being retooled to think in broad terms about catastrophic unthinkable events. While a company can’t develop scenarios for every conceivable occurrence, it can look at possible outcomes and response to improbable events…

According to Nassim Nicholas Taleb; these events are extremely rare or, in other words, have negligible probability of occurrence. However, if they do happen, they have a disproportionately major impact… But the question remains; how can business predict events that have major impact but are fundamentally dissimilar to anything that happened before– there ‘unknown unknowns’… to cope with such possibilities, business  would do well to heed Taleb’s advice; if’ analysis… explore what would happen to the enterprise if one of these unpredictable events continue to be a ‘black box’ for most companies…

Great Gatsby Curve- Trumps- Horatio Alger’s Rags-to-Riches: Society– More Unequal, Less Mobile– Income Disparity…

The Great Gatsby: A novel by F. Scott Fitzgerald highlights the inequality and class distinctions in U.S. during Roaring 20s… whereas, the Great Gatsby Curve illustrates the connection between inequality of wealth in one generation and the ability of those in the next generation to move up the economic ladder, compared to their parents… Some economist and policy makers use the Great Gatsby Curve to make rough forecasts of mobility across generations by the projected rise of inequality…

The Gatsby curve was introduced in a 2012 speech by Alan Krueger using data from economist Miles Corak; the curve plots inter-generational income elasticity, i.e., the likelihood that someone will inherit their parents’ relative position of income level and inequality… By contrast Harvard economist Greg Mankiw noted– this correlation is not particularly surprising, curve is an artifact of diversity… According to Alan Krueger; because of rising inequality the happenstance of having been born to poor parents makes it harder to climb the ladder of economic success…

According to Timothy Noah; you can’t really experience ever-growing income inequality without experiencing a decline in Horatio Alger-style of upward mobility because (to use a frequently employed metaphor) it’s harder to climb a ladder when the rungs are farther apart… Horatio Alger’s ‘rags-to-riches’ narrative is about impoverished boys that rise from humble backgrounds to lives of middle-class security and comfort through– hard work, determination, courage, honesty…

According to Miles Corak; Great Gatsby Curve is the outcome of a whole series of gradients between socioeconomic circumstances and the outcomes of young people as they make the transition from infancy to school readiness and ultimately from school to the job market… The stronger and more enriching the family environment, the more equal life chances, the more equal the labor market, the more equal life chances, and the more progressive public policies in place, the more equal the life chances…

According to Jonathan Hopkin; U.S. has long had higher inequality than other advanced democracies, although many Americans see this as part and parcel of the ‘American Dream’ of rising living standards and social mobility. But recent research established that social mobility between generations has in fact remained quite stable in U.S. over recent decades…

This means that ‘young people’ entering the labor market today have the same chances of moving up in the income distribution (relative to parents) as those born in the 1970s. So what exactly does this study show, and how reliable is it? It depends on how you define ‘mobility’… If you think it’s about relative positions in a stratified society, it has stayed roughly the same, but if you think it’s about relative incomes, it has gotten worse… So what’s to be done about it?

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In the article New Research Finds No Evidence of Great Gatsby Curve by William McBride writes: New research indicates that there is no Great Gatsby Curve, at least not in the U.S. over the last several decades… Raj Chetty of Harvard and others use previously unavailable data from tax returns and elsewhere to show that economic mobility remains remarkably constant since 1971, while income inequality appears to have increased during the 1980s– they find children born to parents in the lowest quintile of income earners (bottom 20%) have about a 9% chance of eventually making it into the top quintile of income earners (top 20%) and that has essentially not changed since 1971…

According to researchers; high mobility areas have, for example; (1) less residential segregation, (2) less income inequality, (3) better primary schools, (4) greater social capital, (5) greater family stability… All of this makes sense, except income inequality stands out as a function of other factors, indicating that the way to address economic mobility at its core is to fix underlying problems, i.e. failures of primary schooling, breakdown of family structures, prejudice… This is not complicated stuff its been well-known for decades by experts and non-experts alike. We appear to have simply gone off the rails of late in attributing all sorts of ills to tax policy…

In the article Why Gatsby Curve is Poor Measure of Income Mobility by Philip Cross and Ian Lee write: Great Gatsby Curve asserts that more income inequality in one generation leads to less income mobility for the next generation… Every generation expects to achieve more than the one that came before it and for many years those expectations came true; but a disquieting trend has emerged over the past two decades, as the gap between the richest and the rest has grown in the U.S…

The question is whether more inequality, by itself, triggers a mechanism that reduces mobility for the next generation, and why this mechanism would exist across societies with different institutions and demographics… But if we carefully examine the Gatsby curve it exists with a wide range of mobility outcomes…

That is to say, the importance of other factors is why reducing inequality in the U.S. and other nations would not change mobility significantly without changes to institutional such as; health care, education, criminal justice system, family structure… Without taking these factors into account, the Gatsby curve begins to look more like convenient narrative stringing together unrelated facts, posing as a meaningful insight into income and class dynamics…

A further limitation of the Gatsby curve is that it measures inter-generational mobility only between fathers and sons. Doing so, however, exaggerates the importance of the long-run deterioration of incomes for young men while ignoring the gains made by women… While restricting data to men is technically appropriate to preserve sanctity of assumptions underlying the equations, it means sacrificing any relevance to policy…

Policy makers must live in the real world: If labor market outcomes for sons are deteriorating, but daughters are doing better, is there really a problem of inter-generational mobility?

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In the article U.S. Social Mobility Is Not Decreasing by Rebecca Strauss writes: There is no question that income inequality has been increasing since the 1970s in most of the world. And it has been the general assumption that as inequality went up, class mobility between generations would go down. This relationship cleverly named– the Great Gatsby’s Equality of Opportunity Project, finds that the chance of going from the bottom quintile to the top quintile has in fact remained relatively constant at about 8 to 9% for everyone born in the second half of the 20th century.

If you dig further into the details and count decimal points, social mobility on average may have improved (slightly) for Americans born in the early 1990s. We can likely trust these results more than any other social mobility study to date; its datasets are more precise and claim a larger sample size… The findings do not mean the picture is all rosy– even if Americans are no more stuck in their economic class than they used to be, rising inequality means that the ‘birth lottery’ of– who your parents are– matters more now than before…

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In the article The Great Gatsby by Maura Pennington writes: So, how did Gatsby become great? Where did he get his money? To figure out how exactly Gatsby became rich, you have to actually read the end of Fitzgerald’s book. It’s revealed that a businessman of dubious means took him under his wing, saying: I raised him up out of nothing, right out of the gutter… I saw right away that he was a fine appearing gentlemanly young man… It was quite an act James Gatz (Gatsby) was playing, but it paid off: He was able to execute his new polished, Oxford-educated, but entirely false identity because he put work into it… He filled his days with exercise, sports, study, hygiene, financial saving. Most importantly, he sought to– practice elocution, poise and how to attain it and read one improving book or magazine per week…

It wasn’t a lack of inequality that gave Gatsby his lucky break in business; it was his daily schedule and resolve to keep it. It had nothing to do with how much money his father had or how much of an improvement that was on his grandfather’s situation. Jay Gatsby was, in essence, the truest kind of American. One who made himself; and not just his fortune, out of nothing…

Given that some pundits think– Great Gatsby is a tale of social mobility and not one of a self-created hero, these pundits seem to think that inequality is the root of all evil, that no one can move in society because the rungs of the ladder are too far apart, so to speak. That’s not to say there isn’t anything to remedy in this country; it’s just not what some pundit suggest… Gatsby had personal benefactor and it was not the government… He earned good-will by being an upstanding person, by proving the quality of his character. When it’s government administering equalizing funds, there’s no test of character. Gatsby worked every day of his life to be the person he created…

The trouble with social ladders is that no matter how high the first person gets who climbs it, there will never stop being a person at the bottom who has not or cannot climb it. We are human beings, a competitive species: It’s a race to get to the top… That’s how Gatsby bought his mansion. That’s how inner city drug lords buy their Escalades. This only goes to show that social equalization is a policy minefield… Jay Gatsby was socially mobile in a world vastly different from ours. The essence of how he was able to do it is universal, though. He was his own person and he made opportunities… There’s no chart that can show how to do that…

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The Gatsby Curve illustrates an important point and one that over time is likely to produce profound consequences; there is a negative relationship between how unequal a country is, and how difficult it is to change the social statusAccording to Thomas Mucha; one of the major themes of The Great Gatsby, loosely defined, is the ‘American Dream’– but more broadly it’s the idea that it’s possible to transcend your current economic and social circumstances if you dream big enough and work hard enough. That profound notion has fueled dreams of millions in U.S. and around the world…

But as The Great Gatsby Curve warns, this dream is much harder to achieve in a country with high inequality… According to Will Wilkinson; the issue is not so much income disparity as economic well-being… no one doubts that income inequality is a fact and that it may be growing; but few have explained exactly why it’s a problem… According to David F. Ruccio; clearly inequality has increased in U.S. since mid-1980s but income mobility hasn’t much changed…

However, what is not considered for example; (a) income inequality did in fact increase over time (which means the consequences of the ‘birth lottery’ are larger today than in the past), (b) major source of inequality over the course of the past three decades is the growing gap between the top 1% and everyone else… Inequality of opportunity is bigger problem than income inequality because the latter should be discounted due to individual choices, individual effort… Unfortunately, equality of opportunity is a highly problematic concept…

The bottom line: Society is more unequal but not more mobile, so the fact that only 8-9% of bottom fifth make it to top fifth is now far more important than it was when inequality was lower. The stakes are getting higher but chances of winning haven’t budged… We must think about– more important understand; ‘how’ inequality and ‘what kind’ of inequality– influences opportunity…

 

 

 

Economic Freedom– Engine That Drives Prosperity: Global Economic Freedom Continues to Rise Except for U.S…

Index of Economic Freedom (Index) is an annual index and ranking created by Heritage Foundation and Wall Street Journal in 1995 to measure the degree of economic freedom in the world’s nations…

The definition of ‘economic freedom’ is– the fundamental right of every human to control his or her own labor and property. In economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond extent necessary to protect and maintain liberty itself…

The creators of the index took an approach similar to Adam Smith’s in The Wealth of Nationsbasic institutions that protect the liberty of individuals to pursue their own economic interests result in greater prosperity for the larger society… The Index measures the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions…

According to Justin Katz; the Index is naked punditry masquerading as economic analysis and undermines real efforts towards passing legislation that will help to reform the business climate and contain the ever-growing power of the corporatist state… in actual fact the Index does not measure the economic freedoms of families, but the economic freedoms of corporations and 1%-ers…

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2014 Index of Economic Freedom measures country’s commitment  to free enterprise on a scale of 0 to 100 by evaluating 10 categories based on 50 measurements including; property rights, freedom from corruption, government spending, business freedom, fiscal freedom, labor freedom, monetary freedom, trade freedom, investment freedom, financial freedom… where a score of 100 is ‘most free’, 0 is ‘least free’… In 2014, out of 186 countries, the top six countries are Hong Kong, Singapore, Australia, Switzerland, New Zealand, and Canada. These six scored above 80 to merit the description ‘free’. Canada’s economic freedom returned to ‘free’ this year, having been only ‘mostly free’ for the past two years, but changes in the U.S. score is more discouraging.

The U. S. is the only nation to have declined in economic freedom for each of the past seven years dropping nearly 6 points to this year’s score of 75.5, which is the ‘mostly free’ category… In contrast, global average economic freedom score improved 0.7 points this year to 60.3, which is the highest average in the index’s 20-year history… Based on an aggregate score, each of 186 countries graded in the 2014 Index is classified as ‘free’ (i.e. combined scores of 80 or higher); ‘mostly free’ (70-79.9); ‘moderately free’ (60-69.9); ‘mostly unfree’ (50-59.9); or ‘repressed (under 50)…

The Index also studies economic freedom on a regional basis. In the 2014 Index, economic freedom levels rose in all but two regions; North America and Middle-East/North Africa… South and Central America/Caribbean, Europe, and Sub-Saharan Africa charted regional improvements, and the Asia-Pacific region dominates both top and bottom of the 2014 Index rankings. Long-established free-market institutions in many European countries help the region score above the world averages in most categories of economic freedom…

On balance, Europe is doing well, according to the 2014 Index… North America continues to be the world’s freest region, though Canada was the only economy that improved its Index score over the last year. It’s also the region’s only ‘free’ economy. The U. S. is ‘mostly free’ economy and Mexico is ‘moderately free’… According to the editors; the ‘substantial growth in the size and scope of government’ in the U.S. contributed heavily to it losing its spot among 10 freest economies, as well as, its second-lowest score in 20-year history of the Index. The 29 countries of South and Central America Caribbean region show ‘mixed progress’, according to the editors...

Most of the 15 countries graded in the Middle East/North Africa region are mired in the ‘moderately free’ or ‘mostly unfree’ categories… Sub-Saharan Africa’s overall level of economic freedom remains weak, yet no other region has made greater strides toward economic freedom over the past two years, according to the Index editors. A majority of its economies are either ‘mostly unfree’ or ‘repressed’, yet all but 12 of the 46 economies scored in the Index posted improved scores.

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In the article 2014 Index of Economic Freedom: Five Points You Should Know by Anthony B. Kim writes: The 20th anniversary edition of the Index of Economic Freedom, published jointly by Heritage Foundation and Wall Street Journal, was released on January 14, 2014 in Hong Kong and Washington, DC. Here are five key points you should take away:

  • The 2014 Index shows economic freedom once again on the rise: Much of the momentum lost during the past five years has been regained. The global average economic freedom reached the highest level in the 20-year history of the Index. 114 countries, majority of which are less developed, contributed to growth in economic freedom over the past year; 43 countries including; Colombia, Poland, Cape Verde, and Turkey, achieved their highest economic freedom scores ever in the 2014 Index.
  • Competition for the top spot in the Index rankings has intensified: Hong Kong maintained its status as the world’s freest economy, a remarkable distinction that it has achieved for 20 consecutive years. Singapore, the second-freest economy, has closed the gap between itself and Hong Kong to the second narrowest difference in their competition over the past two decades.
  • A notable realignment of European countries continues to be underway in terms of advancing economic freedom: Eighteen, including; Sweden, Lithuania, Georgia, Austria, Czech Republic, Norway, Macedonia, Latvia, Poland, Bulgaria, and Romania, recorded their highest economic freedom scores ever in the 2014 Index. By contrast, five others (Greece, Italy, France, Cyprus, and United Kingdom) registered scores lower than those they first received nearly two decades ago when the Index began recording economic freedom.
  • The U.S. continues to lose ground to its competitors in the global race to advance economic freedom and prosperity: Registering a decline in economic freedom for      the seventh year in a row, the U.S. tumbled from ranks of the top 10 freest economies, falling to 12th place in the global economic freedom rankings.
  • The link between freedom and human progress has never been clearer: The 20 years of Index data attest unequivocally that economies achieving or sustaining higher levels of economic freedom measurably outperform others in long-term prosperity and greater progress in many dimensions of socioeconomic development.

In the article Economic Freedom Index: U.S. Falls From Top 10 by Michelle Smith writes: The 2014 index shows global economic freedom continues to rise, reaching record average score of 60.3. While the U. S. ranks higher, its score of 75.5 is half a point lower than it was last year and puts it in 12th place… The U.S. decline is primarily due to deterioration in property rights, fiscal freedom and business freedom, the report states. The U.S. has seen– substantial expansion in size and scope of government and cronyism increased with that expansion…

Finance and healthcare regulations are also contributing to the nation’s erosion of economic freedom… But this isn’t the first time U.S. has lost ground. Since 2006, the country has seen a ‘dramatic decline’, losing nearly 6 points due to issues such as declining property rights and its weakening grasp on corruption and government spending…

The U.S. is the only country to have recorded a loss of economic freedom for seven straight years… Increasing economic freedom elsewhere makes it inexcusable that a country like the U.S. pursues policies antithetical to its growth while wielding its influence to encourage other countries to chart the same disastrous course…

According to Derrick Morgan; the 2014 Index of Economic Freedom rankings should act as a wake-up call to U.S. policymakers and citizens alike. Freedom leads to prosperity, and our founders put us on that path of freedom. As we fight for just government, we must also fight for a government that lives within its means and does not spend the next generation’s money...

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In the article Debunking the Index of Economic Freedom by John Miller writes: I must be confused: I somehow thought that an Economic Freedom Index would showcase countries that are reducing the democratic deficits of global economy by giving people more control over their economic lives and the institutions that govern them… Upon examination, this Index turns out to be a poor barometer of either freedom more broadly construed or of prosperity…

The Index does not even pretend that its definition of economic freedom has anything to do with political freedom. Take the two city-states; Hong Kong and Singapore, which top the Index’s list of free countries: Both are only ‘partially free’ according to the ‘Freedom in the World’ Index… Hong Kong is without direct elections for its legislature or its chief executive, and proposed internal security law threatens both press and academic freedom, as well as political dissent. In Singapore, freedom of the press and the right to demonstrate are limited; films, TV, and other media are censored; preventive detention is legal; and you can do jail time for littering…

An Economic Freedom Index that tells us little about economic growth or political freedom is a slipshod measure that would seem to have no other purpose other than to sell the neo-liberal policies that stand in the way of most people gaining control over their economic lives and obtaining genuine economic freedom in today’s global economy…

For well over a hundred years, the economic world has been engaged in a great intellectual debate. On one side of this debate are those philosophers and economists who advocate an economic system based on private property and free markets– or what one might call economic freedom… Adam Smith was one of the first economists to argue for a version of economic freedom…

According to Robert A. Lawson; key ingredients of economic freedom are; personal choice, voluntary exchange, freedom to compete in markets, and protection of person and property… On the other side of this debate are people who instead argue for an economic system characterized by centralized economic planning and state control of the means of production… These scholars argue that free markets lead to– monopolies, chronic economic crises, income inequality, increasing degradation of the poor… and that centralized political control of people’s economic lives avoids problems of the marketplace.

According to Robert Lawson; big question is: Do countries that exhibit greater degrees of economic freedom perform better than those that do not? Much scholarly research has been and continues to be done to see if the index of economic freedom correlates with various measures of the good society, which means: Higher income, economic growth, income equality, gender equality, life expectancy, and so on. While there is scholarly debate about the exact nature of these relationships, the results are uniformly positive.

Economic freedom is the key to greater opportunity and improved quality of life. It’s the freedom to choose how to produce, sell, and use your own resources, while respecting others’ rights to do the same. While a simple concept, economic freedom is an engine that drives prosperity in the world and is the difference between why some societies thrive while others do not…

Economic freedom affects every aspect of an individual’s life. Living in a society with high levels of economic freedom leads to higher income, lower poverty, less unemployment, longer life expectancy, cleaner environments, among a host of other benefits. More economic freedom improves business and leads to a higher quality of life…

 

Age of Casino Capitalism– Unabated Speculation–Unregulated Excesses– Insidious Practices: Temple of Greed or Darwinism…

In common parlance, the term casino capitalism refers to the unregulated excesses associated with the ‘boom and bust’ cycles of large speculative ventures… the kind of high-risk/high-reward behavior indulged in by former banks, financial institutions… which helped lead to the economic crisis…

Its origins in the literature probably lie with John Maynard Keynes and his famous General Theory of Employment, Interest, and Money, first published in 1936 were he refers to the ‘casino capitalism’ embodied in the winning and losing of fortunes on the stock market.

In his book Keynes writes; when the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laissez-faire capitalism…

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In the book Casino Capitalism by Susan Strange writes: The Western financial system is rapidly coming to resemble a vast gambling casino… considerable increases in risk and uncertainty in economic markets gave rise to substantial social and political disruptions in the global system.

She links these changes to five major trends: (1) innovations in the way financial markets operate; (2) increased scope of markets; (3) shift from commercial to investment banking; (4) rise of Asian investment markets; (5) government regulation in banking…

Ms. Strange argues for increased regulation and more substantial American leadership, which she believes is required because of the predominant role of the United States in the world markets..

The term casino capitalism also appears in the work of Irving Fisher and Hyman Minsky. Fisher, along with others in the 1930s, was faced with the problem of explaining the tragedy of the Great Depression. The common view among economists of this era was that financial markets were like casinos, rather than ‘markets’ in the usual sense of the word, and that these speculations contributed mightily to the social ills of the day. Fisher, along with John Burr Williams and Benjamin Graham, claimed that the casino metaphor was misplaced.Instead, they argued that asset prices of financial assets reflected ‘intrinsic value’, which in turn could be calculated by deciding the total value of dividends likely to be produced in the future…

In all these cases, the notion that capitalism is essentially speculative and little more than a system of big and small bets in a grand game of chance is at work, and most of the writings around this topic focus on ways to make this irrational system more susceptible to reason and stability…

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In the article Casino Capitalism by Mark G. McLaughlin writes: Wall Street is a ‘casino’ where the dice are loaded in favor of financial institutions and the ultra-rich; according to economist Susmit Kumar in his book Casino Capitalism. Hedge fund managers have ‘squeezed the juice’ out of the U. S. economy, charges Kumar. He argues that, through a variety of insidious practices, they have twisted capitalism into something so ‘evil’ that ‘not only does it destroy its own people, it also creates its own Frankenstein, China…

According to Kumar; in its present form ‘capitalism is not feasible’, although democracy is the best of all ‘-cracies’ but it too has deficiencies that needs major reforms… What hope there is for the future lies in the democratic process… But, democracy requires educated, informed, sensible voters; spread of education is thus of the highest priority…

In the article Casino Capitalism by Robert Reich writes: The so-called attack on ‘private equity’ is neither a personal attack on individuals nor a generalized attack on U.S. business… It’s an attack on a particular kind of capitalism that both practice: Using other people’s money to make big bets which, if they go wrong, can wreak havoc on the economy… It’s the substitution of ‘casino’ capitalism for ‘real’ capitalism, the dominance of the betting parlor over the real business, and financial innovation rather than product innovation…

In the article Casino Capitalism by Patrick J. Buchanan: With the ‘robber barons’ of the early 1900s one could see a connection between the wealth, for example of; Rockefeller, Harriman, Carnegie, Henry Ford… and their contributions in building America. Railroads were tying America together. Oil was fueling industry. America was surpassing Britain in steel production. Ford was putting the nation on wheels. When J.P. Morgan took to the floor of the New York Stock Exchange in 1907 to issue a buy-order; he stopped a panic…

There was perceived to be connections between wealth of these men and achievements. They were helping make America the most awesome industrial nation known to man. But as scholar William Quirk writes in his essay ‘Saving the Big Casino’; financial institutions now seem to rise and fall on profits and losses from the trading of; ‘derivatives’, ‘credit default swaps’, ‘exotic securities’… that not one man in a thousand understands…Fortunes are lost and made overnight. Names appear on the list of richest people who no one has ever heard of. Cheating and corner-cutting are constantly being unearthed.

Broker-and banker-gamblers in their 30s amass and flaunt nine-figure fortunes… Were the rest of Americans doing well, this might not matter but America is not doing well. And Americans are coming to believe that a system where high-rollers rake in tens of millions playing ‘Monopoly’ while workers who build things and make things never see a pay raise is rigged and wrong… Few begrudge a Bill Gates his fortune. But where vast wealth accrues to people whose actions seem unrelated to any contribution to society or country, and to have come simply from rigging the system for their own benefit, that system will not endure. The casino capitalists are playing with fire…

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In the article Casino Capitalism Explored by Michael Sandel writes: Risk is part of life, but financial speculation plays a growing role in the economy. When farmers plant crops or when companies build factories, they place a kind of bet. But these bets are incidental to productive activity. What about traders who don’t grow crops, but simply bet on the future price of wheat? Or hedge funds that don’t own Greek bonds, but bet on the likelihood that Greece will go bankrupt? Or brokers who buy insurance policies on lives of strangers and collect when they die?

These practices raise questions that intersect ethics and economics: Is there a moral difference between investing and gambling? If so, of what does it consist? The financial crisis of 2008 posed these questions with great urgency, but public debate has yet to grapple with them. Has capitalism lost its way, and how might it find its moral bearings…

In the article Rise of Casino Capitalism by Chris Hedges writes: The cultural embrace of illusion and the celebrity culture that has risen up around it have accompanied the awful hollowing out of countries. We have shifted from a culture of production to a culture of consumption. We have been sold a system of casino capitalism, with its complicated and unregulated deals of turning debt into magical assets, to create fictional wealth for us and vast wealth for the elite.

We have internalized the awful ethic of corporatism– one built around the cult of the self and consumption as an inner compulsion– to believe that living is about our own advancement and our own happiness at the expense of others… The free market became the god and government was taken hostage by corporations, the same corporations that entice us daily with illusions though mass media, entertainment industry and popular culture… According to Willy De Backer; we live in an age of proliferating political zombies, dis-imagination machines and punishing factories. This is an age of full-blown authoritarianism parading, ironically, in the name of freedom and liberty….

So how justified is disillusionment with capitalism? According to Lawrence Summers; this depends on the answer to two critical questions. Do today’s problems inhere in today’s form of capitalism or are they subject to more direct solution? Are there imaginable better alternatives? This problem is genuine. But does this reflect an inherent flaw in capitalism or, as Keynes suggested, a ‘magneto’ problem that can be addressed with proper fiscal-monetary policies, and which will not benefit from large-scale structural measures? So at one level the answer here is simply to insist on more political will and courage. But at deeper level, citizens of the world who believe that they live in progressive societies are right to wonder why increasingly affluent societies need to roll back levels of social protection.

Paradoxically, the answer lies in the very success of capitalism… When outcomes are unsatisfactory, as they surely are at present, there is always a debate between those who believe that the current course needs to be pursued with increased vigor and those who argue for a radical change in direction. That debate is somewhat beside the point in the case of capitalism: Where it has been applied its been an enormous success…

According to Dorian Scott Cole; many countries and people point to capitalism as if it was an independent entity that we serve and which dominates the world. If we allow it to be, then it is. In reality, what capitalism is, is up to us. It is up to us to make capitalism serve us. But first we have to understand what we are pursuing. Each will have its own reward. Simple gluttonous greed will end in the destruction of us all because we are simply competing against ourselves. But a system that is controlled to benefit us all, will benefit us all…

Challenge Business Assumption– Strategy, Market, Customer… Based on False Assumptions, Fail: Hope-Wish Not an Option…

Assumptions are foundations of business and they are characterized by things that are accepted as true or as certain to happen without proof. They are statement, methodology, ideas, concepts… that are presumed to be true without concrete evidence to support it, and they are used in wide variety of situations that enable companies to plan, make decisions… in face of uncertainty… they impact the very survivability, sustainability, and success of business…

Making accurate, valid… assumptions is the difference between success and failure of business… The more accurate the assumptions the lower the risk of failure, and the higher the odds of success. However, many companies wait until they hit rough times to question basic business assumptions; when sales are growing and profit is good, most businesses don’t want to mess with success…

According to Don Miguel Ruiz; the problem with making assumptions is that we believe they are the truth. We could swear they are real… We make assumptions that everyone sees life as we do. We assume others think the way we think, feel the way we feel, judge the way we judge… We base business decisions on assumptions all the time, and it’s time we own up to this, because assumptions are not always correct.

Assumptions are based on past experiences; they are reactive-unconscious, so we often don’t question them… According to Geoff; question everything you do that touches the customer; your business name, web site, brochure, posters, letters, phone messages, ads…  question every detail. Stakeholders often approve a strategic plan without scrutinizing the assumptions, the very foundation on which the plan was built (sound familiar)?

According to Mark Hollingworth; the reality is strategic assumptions form the underlying foundation for a strategic plan. They underpin everything contained therein – and hence reflect the vision, strategic map, performance, targets… which subsequently follow… According to Maurilio Amorim; eventually all assumptions need to be either validated or disproved, and the sooner we have clarity on foundational beliefs the better decisions we make with increasingly better results.

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In the article Importance of Assumptions by Steve McKinney writes: Every business leader, no matter business size or industry, makes assumptions about the organization’s business, industry, products, customers, competitors, effectiveness… Assumptions are the very foundations of the business… the reason the business was started and the reason the products were created, and perhaps the biggest assumption of all takes the form of: If I build it, they will come. That little sentence, at the heart of so many companies, services, products, is actually hiding potentially thousands of untested assumptions…

Assumptions that are derived from the leader’s experience, vision, knowledge… They may come from perceiving shortcomings of other businesses, products… They may be a copy of another company’s perceived strengths. They may be a derivation by analogy of something seen in a partner, competitor, or even a completely different industry. They may even have been created through our experiences as customers of some other business…

Wherever they come from, assumptions must be tested and tested well, before they can be relied on. They are only the raw material inputs for the feedback loop, not the answers they masquerade as. Leaders, in particular, should keep this in mind when they embrace ideas for business.

In the article Avoiding Bad Assumptions by Seth Elliott writes: Decisions based on invalid assumptions can have disastrous results, but we are usually blind to bad assumptions until after the terrible results have surfaced… By formalizing procedures to protect against incorrect assumptions, you can minimize the danger. The most effective mechanism for this is to institutionalize a procedure of inquiry. Seek out second (and third and fourth) opinions about key assumptions for critical decisions: Create a questioning environment and foster an environment in which stakeholders, employees… are encouraged to question assumptions.

Asking; ‘why’ should be rewarded not discouraged… Once you’ve determined a course of action, step back, and question it… You want the decision to be stripped down and questioned– particularly the assumptions. Encourage a ‘devils advocate’ approach to the process. If you can’t readily answer questions raised, perhaps you’ve made too many unwarranted assumptions or rushed too quickly to judgment…

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In the article Assumption Management by Quentin Sarafinchan writes: How much time do you spend looking and thinking about assumptions? People blindly copy assumptions from a boiler plate documents just because they are good catch-all assumptions, but never actually think about them… What we rarely do is think about why we made assumptions in the first place… Assumptions are not there to cover your ass; they are there to provide a meaningful framework for making critical decisions…

Another way to look at assumptions is that they provide the highest probability of not being mired in quicksand-indecision… Assumptions may only be valid for a specific period of time… and in some cases they may be factors we’ve declared, unknowingly, true even if they are not.  Once an assumption is determined to be invalid, it must be refuted, removed, or turned into risks.

So what makes a good assumption? There is no hard and fast rule but a few guidelines can be applied, for example it must be; very specific, unambiguous, concise… and, if there is no risk involved then it’s not an assumption…

In the article No Room for Assumptions in Business by Joe Evans writes: Assumptions often lead us astray and problems frequently stem from unproven assumptions. Therefore, one regularly ask: How do you know that is true? A common reply is: Well, I just assume that it’s true. As defined in Webster Dictionary; assumptions are anything taken for granted; supposition… Sisson’s Synonym Book uses words like; arrogance, audacity, imagination, judgment, presupposition, suspicion, usurpation… as substitutes for the word ‘assumption’.

Many of these synonyms are negative and presumptuous, implying that we have overlooked, perhaps unintentionally, pertinent facts. We rely on our own interpretation rather than search for support of the truth… When we assume, we have not fully tested our thoughts against the evidence, for example; we make business decisions by making guesses about customers’ preferences… We rely on such limited thinking on a daily basis…

What if we are wrong? The consequences can be catastrophic… Some assumptions help us function, but many are dangerous– they destroy businesses. So begin by being aware of the assumptions: Then work on keeping them in check. Verify them. Put them to the test... According to Lemony Snicket; making assumptions simply means believing things are a certain way with little or no evidence that shows you are correct, and you can see at once how this can lead to terrible trouble...

We must make the effort to check-verify assumptions, for example: Recognize the difference between assumptions and reality.  Know the biases. Ask questions. Listen to perceptions of others. Investigate…

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In the article Managing Assumptions by Joe Evans writes: Assumptions form the basis of strategies and those underlying assumptions must all be fully vetted. Testing strategic assumptions requires allowing the people involved with planning to back away from the ‘givens’ and challenge them to ensure the team is not assuming the rosiest of scenarios on which to base strategy… Considering that the synonyms for the word ‘assumption’ includes words; hypothesis, conjecture, guess, postulate, theory… assumptions are beliefs we take for granted, but they can be no better than guesses in many cases.

Assumptions are not always justifiable, and defending them may be difficult… That doesn’t mean they are incorrect, but it does underscore the challenge assumptions present in planning. In fact, assumptions are particularly difficult to even identify because they are usually unconscious beliefs… Here is an ‘assumption’ about assumptions: One can safely assume– if an assumption is sound, the inference and conclusion associated with that assumption will also be sound, but the reverse is also safe to assume… Questions you might ask: Is there anything being taken for granted? What beliefs are being ignored that shouldn’t? What beliefs are leading to the conclusion? What are we assuming? Why are we assuming?

In the article Business Plan–Underlying Assumptions by Ed Howat writes: It’s interesting to note that many business plans have performance increases built-in from year to year. Perhaps these increases are based on ‘fact’ or just assumption… For example; perhaps some of the assumed improvement will come from growing account values thereby increasing revenue… Perhaps the ‘experience’ assumption is invoked– you naturally get smarter and more skilled each year; subsequently performance should improve… Now as an exercise; can you articulate five assumptions that you used to build the last business plan? 

Did you test whether or not last year’s assumptions were valid?  If you use the same assumptions again and didn’t test validity, perhaps the new plan is built on sand instead of a solid foundation… Wishful thinking and operating on false assumptions are inherently problematic. Company executives-managers make assumptions, but only a few actually examine, challenge, validate, disprove assumptions.  It all starts with a plan, and valid assumptions…

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Carefully examine your business plan and make a list of all the ideas you believe are true. List the decisions you make based on those beliefs. Highlight the decisions that cannot be supported by reliable data, no matter how strongly you believe in them, and demand that independent evidence be found to support them… According to Joe Murtagh; managers must demand factual data to verify all assumptions. If assumptions cannot be proven… no matter how much or how long you have believed them, they must be abandoned in order to avoid pending disaster…

According to  Dave Brock; sales strategy based on assumptions is pure wishful thinking. Assumptions are particularly dangerous as we become more experienced, seasoned… Sales people are eternally optimistic, so that may make assumptions that even more dangerous… As you develop-execute sales strategies, make sure you are acting based on what the customer said; what you have validated directly with the customer, otherwise you are just guessing.

History is rich with business failures due to false assumptions, which were supposedly ‘known for sure’. However, there are also many examples of successes for those who were able to effectively challenge those false assumptions. Challenging assumptions allow organizations to seize competitive advantage opportunities…

Circumstances are constantly changing in business, even more so in today’s environment. Unpredictable, sudden, and violent shifts are increasing in this turbulent setting. Therefore, understanding strategic risk requires systematical-regular challenge of fundamental assumptions that underlie basic business practices… According to Deborah Mills-Scofield; we’ve heard the phrase; Hope is not a strategy… and it isn’t, especially when based on illusion, delusion, fiction or false assumptions…

Beware, Bad Advice Can Kill a Business– Protect The Company From Pseudo Experts Whose Advice Can Ruin an Organization…

Bad business advice: People offer lots of advice about business, some good, some awful; some asked for, some completely unsolicited. But remember the meaning of ‘advice’: Advice is an opinion or suggestion about what someone should do, a recommendation regarding a decision or course of conduct…

As a business person you’ve got to understand your vision well enough to know when to take advice and run with it, and when to take advice and run it through the shredder…

According to Robert Cordray; beware of danger from thorny advice: There is a saying that is now cliché; ‘ask 10 people for advice and you’ll get 10 different answers’… Advice is just that; advice… choose the advice that fits your situation best and go for it… When you have a problem, it seems like everyone has a solution: If you’re on the receiving end of advice, ask the person about their success (or failure) and try to separate hard-earned experience from idle guess…

According to Eric Ravenscraft; ideally, you’ll get the best advice from those who have already achieved what you want in business… By diving into the stories behind some advice, you may be able to separate the wheat from the cliché analogies, platitudes… According to Samantha; the worst piece of business advice I ever got was to put my nose to the grindstone and work my way up because according to the advice– great work will get noticed and rewarded: It won’t…

That completely puts you at mercy of people who don’t have stake in your success. You must set your own goals and pursue them directly instead of relying on someone else to make it happen for you. According to Bob Warfield; the world is full of pseudo experts who will tell you the many reasons something can or can’t be done, and the why, what, how, how much… That’s what experts do

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In the article Bad Business Advice: Avoid It like Plague by Marc A. Price writes: Bad business advice is, quite possibly, the most damaging form of assistance anyone in business can give or receive… Yet, I would imagine that we have all been on both sides of the equation… Bad business advice can be overcome by simply not looking for it where it can’t be found, such as through unqualified sources. With that being said, if you make decisions for the business, it’s imperative you also seek out the proper channels to secure information and guidance you require for making sound business assessments...

Although seemingly quite harmless, the smallest amount of bad business advice can change the course of the business altogether. Unless the person delivering the advice has a track record of success in the area of concern; then, thankfully decline the advice… or, if that would make the situation awkward; just smile, nod, and quietly move on… You would never have a person who isn’t a fully qualified medical provider diagnose your illness and then prescribe surgery. The same thinking should be applied to business when you need professional advice…

Likewise, once you’ve made it in business, make sure to practice the same principles when delivering advice to others. Unless you’ve ‘been there’ and ‘done that’ and you are considered an authority in the field, do everyone a favor and bite your tongue. We were born with two ears and only one mouth for a reason, so do the right thing; avoid bad business advice– whether you’re giving it or receiving it, nobody wins when advice is just plain bad…

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In the article Worst Business Advice Ever by Chuck writes: The worst business advice ever is to ‘work harder’… I’m one of the hardest working guys you will ever meet, and I used to think that ‘working hard’ was the secret to success in life and in business. I thought that putting in more hours, taking massive action and working around the clock would help me reach my goals faster. I thought that in order to make more money I simply had to work harder: Boy was I wrong!  To make money in business, you have to work smart. You  must constantly question why you are doing what you are doing.

You must leverage yourself through others, develop systems and focus your valuable time on tasks that produce real  income for the business… You can work 100 hours a week, but if you spend your time on the wrong tasks, you are doomed for failure. On the other hand, you might be able to work 10-20 hours per week and make more than someone working 100 hours per week, if you focus on the right tasks…

Work ‘on’ the business rather than work ‘in’ the business… Set priorities, delegate and spend time wisely, and don’t work for work’s sake… Question everything you do, and always ask yourself– Is there a better way to do it? Is this the best use of my time right now? Do it every day; set goals, focus your time… and be careful with people’s advice…

In the article Rising Cost of Bad Advice by Adam Hanft writes: Given all the bad advice out there, business management must develop a healthy skepticism of experts, recognizing that doing so requires more than just an inquiring mind… Once outside experts have been hired, their wisdom (generally without accompanying wit) gets adopted– if not sanctified– pretty much at face value.

Sure, the buyer may ask a few questions for show, but these outside ‘solution-providers (consultants)’ rarely get the same grilling as internal staff… The usual  outcome: CEO pays big bucks for the same information that he or she has already ignored (or scoffed at) when offered internally… And, it isn’t just management consultants causing all the trouble… IT consulting– which is hogging an increasing percentage of corporate spending– is well-littered with wreckage of projects run amuck…

Advertising agencies also are catching more flak… As for bad legal advice, all those with sob stories line up here… So what are my final deliverables, i.e., as consultants are fond of saying? They are: Develop a healthy skepticism of experts, managers need a broad enough understanding to ask astute questions– that can be difficult in today’s hyper-specialized business cosmos… When experts laud you with buzzwords in a well-practiced ritual of intimidation: Remember that it’s your business not theirs and most important cultivate the internal staff…

Don’t let consultants leverage their influence with senior management to browbeat and silence middle-management truth-tellers. Don’t be swept-up by grandeur of a slick PowerPoint presentation… In short, whether you’re having an appendix or a subsidiary removed, check the medicine in the bottle…

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In the article Run, Don’t Walk Away From All-Too-Common Words of Advice by Barry Moltz writes: Business managers get unsolicited advice everyday. Some of it can be very helpful, some of it is better off ignored. If you hear any of the ‘words of wisdom’ listed below, our advice to you is to smile, say thank you, and move on:

  • Good things come to those who wait: If you follow this advice, you may be waiting a      very long time for success…
  • Failure is not an option: Unfortunately, it’s the most likely outcome in any business venture. Better advice: Accept failure, learn from it, let go of it, and look for another opportunity to succeed…
  • Do what you love and the money will follow: In the ideal world, this would always be true. Better advice: The money will follow if you find something you are passionate about…
  • The customer is always right: If the customer was always right then it would be too expensive for any company to stay in business. Better advice: Listen to the customer’s concerns and show empathy in proposing solutions to their problems.
  • Think outside the box: Sometimes ideas so far outside the box will make a business fail because customers won’t pay for it. Better advice: Look inside the box for constant problems customers still pay to solve.
  • Never give up: This hard fast rule can lead to bankruptcy. Don’t go down with the ship! Better advice: Follow Kenny Rogers’ advice; know when to hold ‘em’ and when to fold ‘em’…
  • Separate out business and personal life: In the world of the Internet-enabled smart phone, it’s nearly impossible to separate the two worlds. Better advice: Merge business and personal aspects into one happy life. But establish business free zones (like the gym, dinner table…) so you are able to recharge.
  • Never leave money on the table: This strategy is greedy, shows short-term thinking. Better advice: Emphasize long-term relationships so annuities with vendors and customers can be built to maximize their lifetime value.
  • Always be innovating: While it’s important to evolve and change with the market, innovation should not be done for its own sake. Better advice: Consistently ask customers and survey competitors on new ways to solve problems.
  • Business is about taking big risks: This is a sure-fire way to go out of business and never have the financial resources to recover. Better advice: Take small risks and analyze the results. Business is ultimately a series of small decisions, incremental steps.
  • Everything is fair in business: You will be surprised what people have audacity to do in business and no– not everything is ‘fair’: What may be considered ‘fair’ is not always right. Better advice: Think about code of conduct on how you want to conduct business then train the staff to stick to it.
  • You can’t change the world: Often you are advised that you can’t make a difference.  Better advice: You actually can change the world; focus on doing it one customer at a time.
  • Quit while you are ahead: This is a fearful and fatalistic approach to business. Better advice: Find out how you can build on success already achieved and minimize some risk going forward…

There’s no shortage of people eager to hand out advice. It seems that everyone, even someone you’ve just met, has an opinion on how you should– develop product, run sales, handle finances… According to Nellie Akalp; people will always give advice — some good, some bad… People’s opinions should always be viewed through the context of your own– experiences, convictions, value system… Final decisions are always up to you, so there’s no blaming someone else for bad advice…

According to Wendy Kenney; it’s as important for management to understand what not to do, as it is to know what they need to do.  It’s also important to remember that not every tactic or strategy is right for every business… The lesson is don’t take advice from people who don’t know your business, customers, market… What works for one business doesn’t necessarily work for others: Companies are not built-in a lab and there are way too many variables and too much randomness for anyone to claim that if you add ingredient X or do A then B then C it will work…

Reading about success for advice doesn’t make success, but it does tend to make you want to be successful: That’s important. We can benefit from positive advice, good guidance… that  shows us what’s possible, make us want to think bigger, work smarter, keep trying… especially when going gets tough…

Blurring of Globalization, Localization, Internationalization, Regionalization… Business Dilemma in Changing World…

Globalization, Localization, Internationalization, Regionalization… What’s the difference?  There are many definitions for these terms, but as a starter try these: Localization is the process of adapting a product-service and making it linguistically, culturally appropriate to the target market-locale (country, region, language…) where it will be used and sold…

Globalization is the  process of international integration and implies the opening of world markets to a broader outlook of interconnection, interdependency…

Internationalization is the process of generalizing a product-service so that it can handle multiple languages and cultural conventions without the need for re-design (i.e. language, culture neutral…)

Regionalization is tendency to form decentralized regions, and when used in opposition to globalization this often means the world is less connected with a stronger regional focus…

According to experts; internationalization and localization are subsets of globalization and localization is described as the old-fashioned way of doing things. Globalization is the new thing, which for some experts is synonymous with internationalization, but for others it’s very possible to globalize but fail to correctly internationalize…

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Traditionally, to be an international company all that was need were offices in multiple countries… however, to be truly global requires– multicultural sensitivity and consciously considering how every action — or inaction — affects all customers, suppliers, distributors, and employees, regardless of where they live… It means building awareness into the fabric of the company at every level, including; organization, process, product, documentation…

According to Jun Chen and Zhiqiang Jiao; multinational corporations (MNCs) are facing the paradox of globalization and localization in entering each new market. Generally, there are two perspectives for how a MNC configure its cross-border activities: The first is a global convergence perspective, which focuses on leveraging corporate resources and attaining global synergies. The second is international diversity perspective, which lays more emphasis on local adaptation and harnessing diversities. Both perspectives have their pros and cons, but balance between international standardization and local adaptation is vital.

Why Localize? Localization  is the process of adapting a product or content to a specific local market… In addition to translation, localization process may also include adapting images and graphics relevant to target markets, modifying content, layout and text, converting to local currencies, using of proper formats for dates, addresses, and phone numbers, addressing local regulations and more.

The goal is to provide a product with the look-and-feel of having been created for the target market to eliminate or minimize local sensitivities. There are many statistics that effectively illustrate the need to localize content for each target market, for example:

  • It would take 83 languages to reach 80% of all the people in the world, and over 7,000 languages to reach everyone…
  • 56.2% of consumers say that the ability to obtain information in their own language is more important than price..
  • 74% of multinational enterprises believe it is either important or most important to achieve increased revenues from global operations…
  • 65% of multinational enterprises believe localization is either important or very important for achieving higher company revenues…
  • 71% of North American executives expect revenues from foreign operations, sales and/or imports to increase…
  • A critical success factor for cross border merger and acquisition deals is the ability to communicate information clearly and accurately in multiple languages.
  • 95% of Chinese online consumers indicate greater comfort level with websites in their language; only one percent of US-based online retailers offer sites specific to China…

In the article Time to Replace Globalization with Localization by Colin Hines writes: Economic globalization has a clear end goal: maximum trade and money flows for maximum profit. From this goal comes a clear set of policies and trade rules supporting this approach. The adverse effects of this economic priority have become increasingly evident and include growing global inequality, job insecurity and adverse environmental effects.

There is now growing support for a radical alternative, that of localization.  This has at its heart the protection and rebuilding of local economies rather than gearing them to ruthlessly out-compete each other internationally. Depending on the context, the ‘local’ is predominantly defined as part, region, state… within the nation, although it can be the entire nation itself or occasionally a regional grouping of nations.

Everything that can sensibly be produced within a nation or a region should be. Long-distance trade is then reduced to supplying what could not come from within one country or geographical grouping of countries; the historic role of such trade…

Localization is not about restricting the flow of information, technology, management and legal structures, but it’s about a different end goal for such activities… Localization can help ensure a more just, secure, environmentally sustainable future… The prerequisite for achieving a re-localization of the world economy is to replace globalization with a plausible alternative. The policies involved must reverse the instability and insecurity created by trade liberalization.

Their essence should be to allow nations, local governments and communities to reclaim control over their local economies; to make them as diverse as possible; and to rebuild stability into community life… This does not mean a return to overpowering state control, merely that governments provide the policy framework which allows people and businesses to re-diversify their own local economies. It would ensure a transition from the present situation to one where goods and services are provided locally wherever possible.

Reducing product or service miles is also an environmental goal. In short, there is a positive discrimination in favor of the local… Under these circumstances, ‘beggar-your-neighbor’ globalization gives way to the potentially more cooperative ‘better-your-neighbor’ localization… It’s time for a radical change…

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In the article Globalization, Localization and Internet by Ori Fishler writes: Many companies that sell products or services internationally are finding themselves in a familiar dilemma, should their web presence be global or local? While a global site is easy to control and maintain and can ensure consistency in branding and content quality, it can not address local culture, interests and variation.

According to ‘Localization Industry Standards Association’; globalization is a process with 2 parts: 1. Internationalization which is the process for defining applications and sites to work in every market, 2. Localization which is the adaptation of an international framework to local needs and process…

The challenge in this approach is that defining international requirements and anticipating all local variations is very expensive and time-consuming. So what should a company that is expanding internationally do?

Here are a few questions and guidelines to consider: Globalization is the term given to the process of making sure that an application does not contain any internal dependencies on a particular culture… Localization is a process of adapting an application and in particular the user interface, to suit a specific culture… Localization typically involves tasks such as translating strings into different natural languages, resizing user interface elements to fit on the screen, and regenerating images for specific cultures…

Although globalization has touched most populations, it has spread unevenly. Regionalization is the integration process that builds concrete patterns and networks within a regional space and creates a transition into the global market. It emerges as a response to globalization and can be mutually reinforcing… Regions throughout the world are known to be as diverse as the inhabitants that occupy them.

Technological advancement has helped regionalization by creating the ability to transport and alter goods with lower costs to different regions… By serving varying regions it’s tremendously important for companies to specialize their products for each different region: This process is better known as localization…

In the article International Business Localization by internationexpert   writes: Venturing into the international markets is about breaking down walls and barriers. These barriers can include; physical, geographic, political, cultural, economic, legal… Breaking down these barriers can enable collaboration, sharing ideas and conducting commercial business with companies, organizations, countries,  people… outside the local markets…

The more you learn about other cultures, business etiquette,  localization needs… the more likely you will succeed in establishing a base of business in your target international/global markets. Very often the biggest barrier for many is– oneself. No matter how hard many try, there is still the barrier of– Why don’t others do business the way we do? Some countries require full localization of product-services, documentation, while others do fine with partial localization…

The culture of business is about understanding how business works in different countries; and the best way to learn and understand is– to ask, but more important– to listen …

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The 21st century is an era of economic globalization with enterprises from developed countries swarming into many developing countries to ‘localize’ products-services, and particularly in China. Simultaneously, enterprises in the developing countries, including China, are also actively entering-engaging markets, both in the developed and developing countries…

According to CCID Consulting (Chinese consulting company); localization and internationalization talk about the same thing: Some people stand out of the door, while some stand inside. Those who enter it talk ‘localization’, while those who go out speak of ‘internationalization’. In fact, ‘localization’ and ‘internationalization’ mean that enterprises leave their former fertile soil to tillage a piece of new land… 

When enterprises select their strategies they face two directions: 1. Change themselves to adapt to the market… 2. Stick to their strategy and lead the market… Whatever the choice, localization does not mean; set-up local company, speak local language, provide services that are already available in the local market… In fact, localization really is a thinking model: Companies need to learn and understand the local market and even get integrated into the local culture.

This is why many multinational companies choose local people to serve as their executives for the local branches. When the management team cannot fully understand the market, failure; rather than opportunities is the only result… To learn about the thinking of localization, some indigenous methods may have to be grasped… companies need to put a mirror in the door between localization and internationalization to see whether they look more like a foreigner or local person: Make sure of it, and then march forward!

According to Jacqui Hauser; globalization is a goal for more and more companies, and the lines within companies between ‘home country’ and ‘host country’ are becoming blurred… and the need to set priorities that fit a global mobile workforce is a critical factor… Without a doubt, companies are utilizing localization– defining the word in their terms– more than ever…