Is it surprising that many investors, private or public are frustrated with the value they are failing to realise on their investments? Although many will not go as far as John Naughton in his article in the Sunday Observer recently, who suggested “we should feel sorry for the VCs…..well, almost”. More pertinently - he comments later – that it is really only in a bubble that “VCs apper to be like alchemists – able to turn the dross of technology start-ups into pure gold”.
The same is true of the globa
l capital markets and the various professional investors who on their own and their client’s behalf, scan for alpha. There has been much criticism of this industry and in particular the lack of value added by intelligent analysts. Perhaps the most pointed being the research suggesting that chimpanzees can be as effective as fund managers because really, they are only taking a random sample of the markets. Statistically that means they will perform roughly the same as an unweighted index. There are of course exepctions that appear to break the rule. Namely Warren Buffett or closer to shore, Anthony Bolton (although even he has recently left to ply his trade in China). What is interesting about these chaps, is they only seem to invest in what they understand, rather than random samples. Secondly they both had real jobs before they decided to start messing around with large sums of their own and other people’s money. Perhaps work experience counts for something after all?
The thought that springs to mind when reflecting on the general ability of invesment professionals to perform well when the market goes up, and not so well when the market goes down, is that experience counts. If it counts for two of the best stock pickers in the world then perhaps, the VC and PE firms should take note. Perhaps the Corporate world should also take note. For many institutional investors, pension funds and private investors however, there is a suggestion of a wider malaise and a systemic problem in modern investment management models and criteria. I have been told that even Anthony Bolton is cited as saying he would not qualify for a role in Fund management if he were to apply today.
With this in mind, in the context of how business should execute strategy, I was discussing this value realisation dillema with two leading academics recently. The enlightened view they shared,was that over 2 decades ago, when business schools were seeking to answer the questions “what business should do” and “how business should do it” two complementary philosphies emerged. The economic imprative and the cultural/behavioural imperative. Over the ensuing period the focus on economic value has eclipsed the softer field of interrogation. This Buy Cialis Online has resulted in a business school alumni exiting into the business world with a highly numerate, overtly economic and accountancy based view of strategy definiton and value added. Important that may be, but it is not the whole picture in business!
Is this a problem you may ask? Well, consider the current global economic crisis, the potential lack of future growth and the net zero returns in the last decade quoted by our VC chums. Clearly there is a problem. Firstly, a macro-economic view engenders an abstract view of investment decisions. Consider a potential acquisition or business investment where the strategy is developed by a Ivy league consultant, the due diligence is carried out by an Ivy league accountant, the deal is managed by an Ivy league Investment Banker. In this scenario where is the voice of challenge regarding feasibility of actually delivering an exit on time-cost or scope. Where is the voice of experience? The reality is, often the transaction or deal value is the main focus. Too often, the future integration or transformation required in the technology, process, culture and people is a secondary matter. For sure, one does feel sorry for the executive team saddled with the challenge of delivering an unrealistic business plan. Is there a solution?
Quite simply, I believe there is. Over 20 years ago when I was an engineer, our profession stumbled on the simple yet profund realisation that “early involvement” of manufacturers in design would lead to better product design. Specifically, if one designs a product that can actually be made or made more easily, it is cheaper to produce and more reliable in the field. Design for Manufacture and Concurrent Engineering subsequently emerged as the solution. In short, involving people with experience early on in the change life-cycle leads to reduced costs and increased the value subsequently.
Perhaps early involvement of the change manager or business professional. The person who actually understands the reality of strategy execution may accelerate or realise tangible value. Perhaps Corporate, VCs and PE firms might acknowledge this fact. Mabye even more radical, fund managers might consider employing people who have actually worked in the industries they are analysing? Who knows? Conversely perhaps the recent ressurection of Gordon Gekko in a sequel movie will give rise to another generation of successful investors. Perhaps it is time to return to the real fundamental of value realisation. Perhaps it is time to Design for Strategy Execution rather than theoretical economic imperatives. Context is great if you have the capability to deliver. If you have the capability maybe its time to use it. If you don’t maybe its time to find it. See the Haldane 4C model to see how strategy alignment and execution help realise value faster.