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Archive for November, 2008
A Waste of TARP |
Bank of America is making a $7 billion dollar cash investment into China Construction Bank. Bank of America received $15 billion directly from TARP and will get another $10 billion (when they close the Merrill Lynch acquisition at year end). “Bank of America isn’t funding the purchase with proceeds from the government’s Troubled Asset Relief Program, or TARP,” spokesman Scott Silvestri told Bloomberg. It’s the old “in one pocket and out the other” trick. In the end, the U.S. taxpayer has just provided a capital injection into a Chinese bank.
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Strategy in Tough Times, Part II: Reinforce Your Ability to Create Value |
This is the second installment in a four-part series of postings by Duke Strategy Professors Will Mitchell and Richard Burton. Mitchell and Burton outline four principles for leading your business as an opportunity driven strategist in tough times, rather than falling into purely defensive positions that are destined to be overwhelmed by economic pressures.
PRINCIPLE 2. REINFORCE YOUR EXISTING ABILITY TO CREATE VALUE You would not exist as a business if you were not offering some form of value to the market – whether manufactured goods, human services, or other valuable activities. Be absolutely clear about the sources of advantage that allow you to create value that your competitors do not match – know where you have cost advantages, where you have advantages based on differentiation, whether in fundamental quality or in delivery speed and reliability, and where you have advantages based on your ability to innovate. Then make sure that you protect and reinforce those advantages in value creation. Principle 2 has three parts: Integrity, investment, and adaptability. 1. Integrity. Retain your integrity as a business – know your core principles and stay true to them. It is easy to fall into the temptation to cut corners when times are tough. We can all think of opportunities that will help us generate a bit more cash if we did something illegal, unethical, or simply out of keeping with our core principles. But bad practices that we use to survive typically turn around and bite us when the economy improves, either because the illegalities catch up or because the people we squeezed will remember. Moreover, cutting corners often contributes to failure in tough times rather than helping us survive, because those few who have money to buy our goods and services will look for alternatives if they recognize the lack of integrity. |
What’s Good for General Motors is Good for the Country |
How ironic. Congress is entertaining a $25 billion bailout of the autos. The President and Secretary of the Treasury are OK with this as long as it doesn’t come out of the $700 billion TARP money. To the average person, the problem with GM is well known. Indeed, most realize that there have been fundamental, structural problems for the past 20 years. We have been beaten at a game that we invented. There is no doubt that a failure of GM would be disruptive to markets. This must be balanced by the fact that doling out to GM will cause a rush of suitors looking for government dough. Most importantly – will it solve the problem?  Image courtesy of Wikimedia Commons |
Strategy in Tough Times, Part I: Protect Your Cash Flow |
This week we will feature a four-part posting from Duke Strategy Professors Will Mitchell and Richard Burton. Mitchell and Burton outline four principles for leading your business as an opportunity driven strategist in tough times, rather than falling into purely defensive positions that are destined to be overwhelmed by economic pressures. PRINCIPLE 1. PROTECT YOUR CASH FLOW Tough times mean that credit is tight. The money you generate from your operations will be the money you can count on for the foreseeable future, no matter how profitable you may be. While investors might love your business in principle, they often will have little cash to give you in practice. Cash flow planning takes some of uncertainty out of tough times and puts you more in charge of your own destiny. Seek both savings and revenue. Protecting your cash flow begins with cost reductions. Tight control on hiring is an obvious need. Travel is also an easy place to begin, whether this means cutting unnecessary travel or traveling coach (trust us, your legs will wake back up from their crowded coach seat positions once you walk around for a few minutes). Experiment with new “virtual” ways of staying in touch with suppliers, customers, and partners. But protecting revenue is equally important. Protect your best customers and look for new markets, in order to find new revenue rather than simply seek to control costs. |
Combating Neglected Diseases |
Bloomberg reported yesterday that several pharmaceutical companies are working on new treatments to combat neglected diseases, illnesses occurring primarily in impoverished regions of the world. The companies’ interest in developing these treatments is due in large part to the work of Duke faculty members Henry Grabowski, Jeff Moe, and David Ridley. Two years ago the Duke trio proposed a plan to encourage companies to develop these less-profitable treatments by offering a voucher for priority FDA review of another, more lucrative treatment (priority review means FDA reviews paper work sooner, so drugs reach the market four or more months earlier). The Duke team estimated each voucher could be worth more than $300 million per drug. The Duke proposal was published in the journal Health Affairs. At the recommendation of a reporter, the authors contacted Senator Brownback, who contacted Senator Brown, and together they used the Duke idea as part of the basis for a bill that was voted into law in 2007. In a world where progress sometimes seems painstakingly slow, it’s great to see a smart idea not only published in an academic journal, but also turned into law and acted upon by companies, all in less than 3 years. |
#1 in Intellectual Capital |
Congratulations to Fuqua’s faculty, ranked #1 in intellectual capital in the latest BusinessWeek rankings. This is well-deserved recognition for a fine group of scholars and teachers. |
Children in the Candy Store |
The bad news keeps piling in:
It is like children in the candy store – ironically, as our economy accelerates its downward spiral.
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Striking a balance between regulation and innovation |
Recent investigations by Congress and the media have focused on doctors’ financial ties to companies whose products they use or prescribe. Duke Professors Aaron Chatterji, Kira Fabrizio, Will Mitchell and Kevin Schulman set out to learn more about cases where doctors invent new products that are then developed and marketed by private companies with which the inventor doctors typically have some sort of financial relationship. The group found that physicians are responsible for nearly 20% of all new medical device inventions patented in the U.S., leading them to caution that excessive regulation could potentially squash innovations that could help patients. Read more about the results, and the researchers’ take on the delicate balance between innovation and patient care, here. |
The Hurdles the New President Faces |
 Image courtesy of Wikimedia Commons President-elect Obama wants to avoid the Herbert Hoover scenario. In this scenario, many economic initiatives are tried but fail to bring the U.S. out of recession. The high expectations are not met. The result: a single term. Of course, there are differences. Herbert Hoover was inaugurated in March 1929. The stock market crashed in the last week of October 1929 and the economy fell into recession and depression shortly thereafter. It is clear that the initial economic damage precedes President-elect Obama. Even though he inherits this mess, the American public fully expects a recovery during his administration. If the recovery does not happen, the Obama administration will be viewed in the same way as Hoover’s – a failure.
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A time for optimism? |
From Professor David T. Robinson: Throughout the election cycle pollsters have delighted in telling us on an almost daily basis how Republicans and Democrats side on various issues: the economy, the war, same-sex marriage, abortion, off-shore drilling, solar power, the second amendment. Some of these issues matter a lot; others not at all. That’s how Democrats and Republicans see the world around them. But how do Democrats and Republicans see themselves? After all, Obama’s message—the victorious message, in the end—was a message of hope, change, a message of breaking with the past. Embracing change requires a healthy knowledge of one’s own self. To look inside the hearts and minds of Democrats and Republicans, I took advantage of a Harris Interactive poll commissioned by the personal finance expert Jean Chatzky this past Spring. In political time, this was before the economy went into a free-fall, but after it became unpatriotic to argue that the surge in Iraq was anything but a success. Around the time McCain established his dominance, but well before Hillary and Barack had sorted things out. In short, the perfect time to assess how people with opposing political views see themselves, because the defining political issues of this election were still up for grabs.  Image courtesy of Wikimedia |