Ged Carroll

Category: business | 商業 | 상업 | ビジネス

My interest in business or commercial activity first started when a work friend of my Mum visited our family. She brought a book on commerce which is what business studies would have been called decades earlier. I read the book and that piqued my interest.

At the end of your third year in secondary school you are allowed to pick optional classes that you will take exams in. this is supposed to be something that you’re free to chose.

I was interested in business studies (partly because my friend Joe was doing it). But the school decided that they wanted me to do physics and chemistry instead and they did the same for my advanced level exams because I had done well in the normal level ones. School had a lot to answer for, but fortunately I managed to get back on track with college.

Eventually I finally managed to do pass a foundational course at night school whilst working in industry. I used that to then help me go and study for a degree in marketing.

I work in advertising now. And had previously worked in petrochemicals, plastics and optical fibre manfacture. All of which revolve around business. That’s why you find a business section here on my blog.

Business tends to cover a wide range of sectors that catch my eye over time. Business usually covers sectors that I don’t write about that much, but that have an outside impact on wider economics. So real estate would have been on my radar during the 2008 recession.

  • Measure What Matters by John Doerr

    I was recommended Measure What Matters by my friend and fellow ex-Yahoo Cathy Ma. Cathy found the book useful in her way through managing teams. In Measure What Matters, John Doerr explains the idea of objectives and key results or OKRs.

    Measure What Matters

    About John Doerr

    If you’ve worked in or around the Silicon Valley technology space from the PC age through to the 2010s Doerr’s name will have a passing familiarity to you. Doerr was a salesman at Intel in the 1970s, realised that there were too many good people ahead of him and took an over in venture capital instead. Doerr was involved in funding:

    • Compaq – Compaq kicked off the market for ‘IBM compatible’ PCs and made the first portable ‘IBM compatible’ PC. Soon after IBM was no longer the dominant player in personal computing leading to the Wintel duopoly. Compaq eventually offered a full range of large servers, workstations and PC when it acquired Digital Equipment Corporation and Tandem Computing. Compaq was in turn bought by H-P
    • Netscape – Netscape Communications mainstreamed the internet browser, email client, web servers and email servers. The server software lives on in Oracle’s product line via the Netscape – Sun Microsystems alliance. The browser indirectly carried on through an open source project Mozilla
    • Symantec – Symantec started off as a natural language processing company in the early 1980s, it became famous for its Mac antivirus software and then went into the DOS and Windows market after merging with Peter Norton Computing. It now has a consumer facing business called NortonLifeLock and the business focused software part of the business was sold to Broadcom
    • Sun Microsystems – Sun Microsystems started off as a UNIX workstation manufacturer. Over time they built up a healthy server and software business that supported much of the infrastructure of the web. They were instrumental in the evolution of several key computing technologies, among them Unix – which influenced parts of the macOS that I am typing this post on, RISC processors in your smartphone, thin client computing like Google Docs, and virtualised computing that is instrumental for cloud computing. Sun Microsystems workstations were popular with investment banks, telecoms companies and internet startups bought their servers. The company’s decline can be marked by the dot com crash. Oracle bought Sun Microsystems and their technology lives on
    • drugstore.com – was a first generation e-tailer in health and beauty products. Walgreens bought the business in 2011, and shut down the website five years later.
    • Amazon.com – needs no introduction
    • Intuit – Intuit sells financial software in the US. TurboTax helps Americans do their tax returns, Mint provides a personal finance dashboard for consumers and QuickBooks is accounting software for small and medium sized businesses
    • Macromedia – Macromedia was a software company that developed tools for creatives and programmers. It was eventually acquired by Adobe. Macromedia products live on in the Adobe product range
    • Google – the search engine.

    About OKRs

    For all of the companies that Doerr has funded he has advocated OKRs. The idea of OKRs came from Doerr’s colleague at Intel Andy Grove. OKRs are a collaborative process. The idea is that it is used with teams and the individuals who make up the teams. Management seeks to set challenging, ambitious goals with measurable results. The key results in OKRs are how you track progress towards the objective, create alignment within the team, and encourage engagement around measurable goals. They are also supposed to flex with circumstance, which is one of the key points of separation from Peter Drucker’s management by objectives (MBO).

    The first part of the book Measure What Matters explains the origin and process behind OKRs.

    You can get everything that you need in the first two chapters covering 35 pages.

    The Cult of OKR

    The rest of the book is a series of self aggrandising endorsements of OK from senior executives who are OKR advocates:

    • Larry Page of Alphabet
    • Bill Davidow of Intel
    • Sheryl Sandberg of Facebook
    • Bill Gates on The Gates Foundation

    It crosses the line for me and almost reads like a high water mark for Silicon Valley hubris; Doerr’s book was published in 2018. Three years later and:

    • Bill Gates is in the most trouble he has been in since the Judge Jackson ruling
    • Alphabet and Facebook are being assailed by regulators around the world
    • Intel looks like a shadow of its former self. Its fabrication process are three years behind competitors. Customers are designing their own chips and AMD is eating their lunch in high performance processors

    Secondly, Doerr’s book, whilst acknowledging Andy Groves role of OKR creator; fails to acknowledge that Andy gave a good descriptor of OKRs in his 1983 book High Output Management.

    I think one of the reasons that I am not that keen on Measure What Matters, is that the book doesn’t work for culturally as a non-American. Instead I would recommend Andy Grove’s own book High Output Management. More books that might be of interest here.

  • The Exponential Era by Espindola & Wright

    The Exponential Era is a business strategy book published by the IEEE Press as part of its series on technology, innovation and leadership. David Espindola and Michael Wright work at Intercepting Horizons and advise at the University of Minnesota.

    The book is a concise 182 pages including its index. It has a satisfying hard cover about the height and width of a paperback book. The book proportions reminded of many of the books that we used to have my secondary school’s library. It felt right in my hand. Its a small thing, but it matters.

    The exponential era

    The secondary school analogy goes further; the book summarises knowledge and makes it relatively easily digestible.

    The Exponential Era includes:

    • The threat of platforms and their ability to disrupt market sectors
    • Why people find it hard to grasp the change brought about by the future
    • Megatrends with the kind of utopian tone that reminded me of Alvin Toffler, George Gilder and John Naisbitt
    • Horizon monitoring
    • Agile approach to development
    • Test and learn
    • Feedback based strategic decisions which relies extensively on the technology sector’s fetishisation of John Boyd’s OODA model
    • The Innovator’s Dilemma
    • Future business ethics

    The book consolidates the kind of reading that people in technology and marketing would likely have read anyway. Chances are if you’ve already read books like Saving Big Blue, Measure What Matters, The Lean Startup and Zero to One, then The Exponential Era isn’t written for you.

    Who should read this book?

    Instead this book seems to be an increasingly diminished audience. A company too small for it’s management to have been lectured on disruption by McKinsey, Bain, BCG or Accenture. But still large enough to be concerned. Like McKinsey et al Espindola and Wright are looking to create disruption fear and sell their SPX methodology to re-engineer their business. I would have thought the c suite in most businesses would have at least done enough reading to have a high level understanding of the content in the book.

    The book’s relentless utopian optimism reminded me a lot of business works from the 1970s to the dot com era. I think that The Exponential Era will be of most use to junior people at the start of their career looking for a primer rather than its intended audience.

  • Bullwhip effect aka Forrester effect

    Bullwhip effect

    I came across the bullwhip effect as a descriptor recently in discussions around the global chip shortage. Bullwhip effect is a concept that is well known in supply chain circles.

    The bullwhip effect is also known as the Forrester effect. Disruption ripples back from the retailer, through the wholesaler, manufacturer, on to their suppliers and so on.

    The usual causes for the effect are:

    • Demand forecast updating – this might be where a company might want to change their product mix to match consumer demand, if a product is very successful or grossly underperforms
    • Order batching – where members of the supply chain round up, or round down the quantity of orders. This happens with the periodic memory gluts or shortages affecting the technology sector
    • Price fluctuations – price discounts can encourage non-linear increases in purchases as it becomes worthwhile for customers to stock up, hedging against increased prices down the line. Oil reserves would be a classic example of this phenomenon
    • Rationing and gaming – buyers and sellers delivering over or under their order quantities. An example of this would be the actions of Enron in US electricity markets. This could be used in a positive way to promote changing the supply chain like renewable sources of electricity generation
    My, what a big holster you have.

    What caused the global chip shortage that is driving the bullwhip effect?

    There were three causes to the global chip shortage

    1. Partial shutdown – The semiconductor industry went through a partial shutdown because of the COVID-19 epidemic. This meant that there was a smaller supply of chips.
    2. Unusual increase in demand – Home working drove an increase in demand: increased sales in PCs, wi-fi routers, external hard drives, mice, keyboards, printers and so on. There was also a corresponding increase in home entertainment as consumers upgraded smart TVs, Apple and Roku set top boxes. This all coincided with the launch of the next generation of gaming consoles by Sony and Microsoft – which can usually drive a squeeze on their own
    3. Supply chain disruption – A fire in Japan at Renesas Electronics. A trade war affecting Chinese semiconductor manufacturers. Freezing winter weather in Texas disrupting employees and their businesses. Now there is a drought in Taiwan affecting TSMC – the world’s largest semiconductor foundries

    More related posts here.

    More information

    Chip shortage is starting to have major real-world consequences 

    Global chip shortage: everything you need to know | CAR Magazine

    The global semiconductor shortage can be explained by the bullwhip effect 

    Chip industry pressures spur Renesas to diversify | Financial Times

    Taiwan’s chip industry under threat as drought turns critical | Financial Times

    Texas winter storm blackouts hit chip production | Financial Times

  • OrCam + more things

    OrCam

    OrCam Read – Transform the Way You Read – YouTube – I watched this video and wondered if this was a sign of failure in the education sector in terms of literacy. As far as I can tell, OrCam is a dedicated OCR appliance that reads back the text to you. In essence it is playing the same role as a scribe to a medieval lord. I suspect that OrCam is a product looking for a market and this is a skewed pitch

    Business

    Chinese investment in UK assets estimated to be £135bn : CityAM 

    Another One Bites The Dust: Why Verizon’s Divestiture Of AOL And Yahoo Is No Surprise | Forrester – Verizon’s sale represents a giant write down. I remember the uproar when Tumblr got wrote down from $1Bn to zero. This is a greater write down in absolute value.

    Consumer behaviour

    Are some personalities just better? – All-blues might really be happier and healthier. If so, it could a result of late modernity, or it might have always been true. Still, that doesn’t mean that evolution will favor all-blues, or that all-blues are “more successful”

    Economics

    The Failed Promise of Malaysia’s New Economic Policy – Asia Sentinel – Malaysia’s 49 year affirmative action programme for the Malay majority failed and helped precipitate a brain drain of Malaysian Chinese overseas (paywall)

    Ideas

    How the U.S. Government Can Learn to See the Future – Lawfare – Research over the past decade funded by the U.S. government demonstrates that “keeping score” by quantifying the probability that a potential event will or will not happen leads to improved forecasting accuracy. This is especially true when that scorekeeping is paired with training to reduce cognitive biases, as well as tools that combine the forecasts of many people together, harnessing the “wisdom of crowds.” These methods are not just for carnival games and stock trading. They can provide clearer insight on national security questions – it looks like prediction markets might be getting their time in the sun again

    Security

    Sweden drops Russian hacking investigation due to legal complications | The Record by Recorded Future – Swedish government dropped today its investigation into the 2017 hack of its sports authority, citing the legal constraints that would have prevented prosecutors from charging the Russian hackers responsible for the intrusion, which officials claimed were mere pawns operating on behalf of a “foreign power.”

    China-linked hackers used VPN flaw to target U.S. defense industry -researchers | Reuters

    Chinese military unit accused of cyber-espionage bought multiple western antivirus products | The Record by Recorded Future 

    Apple brass discussed disclosing 128-million iPhone hack, then decided not to

    Wireless

    Opinion | Steve Jobs Never Wanted Us to Use Our iPhones Like This – The New York Times

  • Conglomerate discount

    Conglomerate discount wasn’t a concept that I was that familiar with. Conglomerates had gone out of style in the west during the 1960s to the 1990s.

    Western conglomerates

    Classic conglomerate examples would be

    • GEC
    • ITT
    • Litton Industries
    • Lonhro
    • Teledyne
    • Textron

    Spivs and financiers bought in and broke them up into their constituent parts. Or a new CEO would do it themselves to focus on core competencies and release value for shareholders.

    Conglomerate discount

    A conglomerate discount is when the stock market values a diversified group of businesses and assets at less than the sum of its parts. This is because investors are worried about the management not being able to focus on improving the operational performance and figuring out a coherent strategic direction.

    Michael Milken moderating the panel on Investing African Prosperity - Los Angeles, 1 May 2013
    Michael Milken who was famous for financing leveraged buyout deals

    Taking advantage of a conglomerate discount

    So our spiv financier could borrow money, buy the company at a discount. Sell off parts to pay off the loan and be left with more money than they initially had to borrow. Many of the constituent companies couldn’t be sold quickly as a going concern. Instead they were shut, machines sold for scrap and their factory land sold for redevelopment.

    Asian conglomerates

    Asian business people, especially those running Hong Kong and Chinese companies don’t view conglomerates in quite the same way.

    Li Ka Shing 李嘉诚
    Li Ka shing

    The Li family manage two publicly listed companies in Hong Kong. They came out of the merger of Cheung Kong Holdings and Hutchison Whampoa.

    Cheung Kong

    Cheung Kong Industries was formed in the 1950s as a plastic flower manufacturer during the post-war industrialisation of Hong Kong. It evolved into a property investment company after the 1967 riots and Cheung Kong Holdings was established in 1971. Over the next decades it became one of Hong Kong’s largest developers and land owners.

    In 2015, the group went under a reorganisation, the groups property assets were spun off into what is now CK Asset Holdings.

    Hutchison Whampoa

    Hutchison Whampoa was bought in 1979. HSBC had a strategic holding in the company and sold that on to Cheung Kong. They also provided Cheung Kong with the loan to make the purchase. In 2015, Cheung Kong bought the parts of Hutchison Whampoa that it didn’t already own. It eventually became CK Hutchison Holdings, incorporating all the non-property aspects of the Cheung Kong – Hutchison Whampoa combine.

    In addition, the Li family have some of the shares in businesses that they own held in the Li Ka shing Foundation (LKSF).

    CK Hutchison and CK Asset Holdings

    CK Hutchison Holdings and CK Asset Holdings both trade at a conglomerate discount. However, the Li family has a controlling share in them. This probably explains why they haven’t come under attack by an activist shareholder from within China or abroad.

    In his article for Apple Daily Yeung Wai-hong explains how the Li family uses the concept of conglomerate discount to their advantage.

    The CK Hutchison Holdings and CK Asset Holdings creation allowed shareholders to see clearly delineated businesses. One focused on property, the other one on non-property assets in 2015.

    CK Asset Holdings started to blur the lines buying into businesses that more sensibly fit into CK Hutchison Holdings – aircraft leasing, pubs and utilities. Creating conditions for a conglomerate discount that is disadvantageous to non-family shareholders. The bigger business has a larger turnover. Even if the profit margin is lower, management still have an excuse to raise their salary and benefits.

    CK Asset Holdings has a large amount of cash on hand indicating a lack of investment opportunities. Recently CK Asset Holdings bought shares in utilities from LKSF in exchange for shares in CK Asset Holdings.

    I’ll let Yeung Wai-hong explain the next bit

    …CK Asset promised to buy back shares equivalent to the amount of HK$17 billion and cancel them. Whether the equity will be diluted is up to the minority shareholders. If they do not accept buyback, their equity will be diluted; if they do, then it won’t. The buyback price is about 10% more than the average share price of CK Asset, so the minority shareholders do have a chance to cash in at a “high price.” However, the buyback price of HK$51 per share is only 53% of the net asset value after deducting the debt. So accepting the buyback is like allowing Li’s family to grab a bargain at half price.

    Conglomerate discount by Yeung Wai-hong, Apple Daily Hong Kong (March 29, 2021)

    If that happened outside Hong Kong there would be shareholder class action suits. The theory goes that these trades slowly put the squeeze on minority shareholders at a discount. Transferring value to the Li family. Eventually allowing for a gradual privatisation of the business at the expense of retail shareholders.

    Once this has been done the value of the assets at their full price can be realised. More finance related content here.

    More information

    ‘Conglomerate discount’ | Yeung Wai-hong ｜ Apple Daily 

    Britannica, T. Editors of Encyclopaedia. “Conglomerate.” Encyclopedia Britannica, September 26, 2007.