UK Economic Meltdown?

Yesterday's Daily Telegraph could not have been more depressing on several fronts. First came the news that Tesco, that bastion of growth and barometer of the UK good times, announced slower sales growth as like for like sales growth was 3.5% and below forecasts. Second was the words of the HSBC Chairman Stephen Green that the banking model that delivered soaring debt was 'bankrupt'. Thirdly, the news that one of Britain's top house builders, Barratt, requires £1bn just to survive. Hot on the heels of this HBOS saw shares dip below their rights issue price potentially scuppering their plans for a vital £4bn injection of capital.

Looking behind these headlines, HBOS shares have dropped a colossal amount from nearly £11 at the beginning of the year to around £2.58 while Barratt has seen its share value decrease by nearly 80% in 2008. And we're only half way through. In fact only one of the UK's top house builders has seen its market capitalisation decrease by less than 50% this year - that's Redrow and their shares have dropped a mere 49%.

Banking, Housebuilding & Groceries

The three industries are very indicative of the UK economy as a whole. As the UK suffers the implosion due to unregulated greed by banks funding the once limitless credit and cheap cash which in turn fuelled a 170% increase in the average house value in the UK in the last 10 years, finally the staple industries like groceries and clothing which represent that which we cannot do without have begun to creak - Tesco being the mightiest. To boot, in the last few weeks there has been a 20% drop in sales of petrol as Britain counts the cost of its greed and wrong decisions. Mervyn King, Governor of the Bank of England, at the meeting of the British Banker's Association, hinted that Britain faces a return to 'stag inflation' which is experienced when high inflation coincides with shrinking economic growth. As if on cue, it is estimated that a further 23,000 people went into negative equity recently as house prices began to fall - those with 100% mortgages became the next wave of victims after the swathe who had 100+% mortgages. Then it was announced average family energy bills could rise to £1,300 per household and just to add to the gloom, it was estimated that 200,000 more pensioners were classed as in poverty in 2006/7 compared to the previous year. We do not have to mention growing trade deficits and rampant government borrowing - the picture tells the story. Britain is in the early stages of a serious economic meltdown.

Unemployment & Unemployability

Amidst all this gloom and doom, the one statistic that has not had a great airing is unemployment. Well, it's probably going to be the next big area to be concerned about. After the government managed to decrease unemployment by around 1m over the last 10 years it has been paradoxical to see an almost identical number added to those who are long term incapacitated and cannot work - we shan't dwell on that strange statistic even though it smacks of false accounting. However, it is almost certain that the next major bad news will be that inflation and economic slowdown will start to affect the unemployment figures in the next few months as companies strain in the face of rising costs and less profit.

The fact that Britain has become a nation of obsessive spenders and negative savers will inevitably come home to roost. For many, as the potential of employment decreases, there will be little left to rely on other than state handouts. In turn, the burden on the state will rise and accordingly there will be cuts in spending and an even greater call on taxes. The failure to deal with the immigration issue will come home to roost which will ring hollow for the likes of William Hague who 'mistakenly' fought an election on it and was poo-poo'd by Blair as being out of touch, as several million new arrivals will be affected as low-level casual jobs at restaurants, coffee bars and labouring will go first when finances get thin. These are predominantly young, unskilled workers who will be starting families here. The burden on the state could be enormous.

Accountability

I will be devoting more of my blog space to the concept of accountability, but let's just consider this for now. The Chairman of one of the world's largest banks (HSBC)has decreed that the world's banking model is bankrupt and that there should be a return to 'good old fashioned principles'. He highlighted to the BBA that 'The huge build up of leverage in the system over the last five years where profit depended on high and ever increasing leverage, that model is gone, and that model is gone because it is bankrupt. You simply cannot build a business that way. Those that will propser will be those that remember the basics - the importance of customers, deposits, capital and balance sheets...good old fashioned stuff.' He went on to say that banks will have to adjust to a future where profits and return on capital will be lower and that the bubble had burst. He also said. 'It's worth noting that some of the returns on capital looking backwards were inflated, and much of the returns were subsequently given back....the banking industry has not covered itself in glory in recent months.'

While this is a stark and honest appraisal of the situation, it also beggars belief. HSBC has not been alone in writing off almost incredible amounts of loss in the last few months to pay for its wrong decisions and mistakes as it took a greedy place at the feeding trough. He, along with many bank executives, traders and analysts, across the industry will take their extortionate bonuses and not pay them back. They will just have to look gloomily ahead and conjure up another way to keep the money pouring into their salary pots. How they can stand there and say such things and keep their jobs is amazing.

My recent article on Nassim Nichloas Taleb springs to mind. He ascerted that banks never make money on loans, mortgages, derivatives and the like - they only ever make money on the interest on current accounts and charges, all other profits being surrendered shortly after they make them. Yet, it will be the front line banking staff and everday customers who will bear the cost of all this. In higher interest and bank charges, the blame will be passed on in the form of job losses of front line bank staff, higher costs to customers and poorer services.

So when, exactly, does this industry and the government that allowed it to feed at the frenzy of unsustainable growth become accountable? Taleb believes Black Swan random events caused the sub-prime collapse and aftermath. But if anyone ever read the book 'Fantasy Island' by Larry Elliott and Dan Atkinson you would have known that the New Labour Project of 'a surfeit of consumption, a surfeit of speculation and a surfeit of deceit' was at the heart of the causes. They also believe that the New Labour movement has brought about a culture a destruction of personal accountability - 'blame anyone but me' - and that flows from the very top, Gordon Brown and Tony Blair, to the bottom, you and I, plus all those greedy banking executives in between. We are all accountable.

Bricks & Mortar Turned to Gold

It has always been the mantra by the government that the previous Conservative government were 'boom and bust' and there is some truth to that. But what we have seen from the 'prudent Chancellor' is nothing short of lunacy despite all that Oxford-bred intelligence. How could he have not possibly seen the looming danger of the over-egged housing market in the UK? With over 40% of all new mortgages being re-mortgages, it was obvious the nation was leveraging the new-found equity and using it to fund a spending bonanza. With it came bundles of extra credit in the form of interest free credit cards, 125% mortgages, 5 times salary mortgage lending, cheap loans and plenty of places to spend the money. Designer fashions boomed, coffee shop culture rose, all day drinking hours and foreign home ownership shot up - Majorca turned to Mauritius for holidays and is it me or are there actually more Aston Martins, Bentleys and Range Rover HSE Sports on the roads than before.

How could we have all possibly ignored the warning signs? How could we all have forgotten that if something looks implausible it's because it probably is?

Hindsight & Foresight

With the benefit of hindsight, would the bankers and consumers have done anything different? Of course not. You do not have to look far back to see the evidence of similar mistakes - the Dotcom boom is there for us to see and the dramatic collapse of the share markets was so profound that they have never recovered the ground to this day. So why do we allow the banking industry and government to employ such people who repeatedly make the same mistakes? Why do we allow people like Stuart Green at HSBC keep his job (sorry to pick on him as he is not alone)? Why do we allow a system to build up incredible profits on the back of assets that cannot possibly sustain it?

And do not think they learn from their mistakes. As the banks suddenly realised that their credit spree was going to leave them with incredible debts backed by worthless assets, they stopped lending to one another for fear of making the problem worse and we saw for one of the first times in modern economic history, the complete disconnect between the Bank of England Base Rate and the cost of mortgages. Gordon Brown had lost his magic wand. So what did he do? First he rescued Northern Rock by putting it into government ownership and gave us all a liability of £125bn and started paying the advisors millions to do the obvious, then he stumped up £50bn to mortgage companies to try to kick start the credit bonanza again and hope the asset-backed security market would become unpetrified. The very thing that got us into the mess in the first place.

Experience & Education

There is a theme on my blog about experience and education and how that is valued or not in the recruiting process. Well consider this - you can have a ton of education from the best universities in the world and all the experience your time on earth will allow but it will not stop people making appalling and greed-driven decisions that are not in the long term interest of the corporations and government they serve. I will later assert that interviewing potential candidates for roles has little to with what's on their CVs and here is the demonstration why. We, as experienced citizens and consumers, should also shoulder blame. We swallowed the hype, took the money, spent it and will carry the can. While taxes grew stealthily and wars were declared in our name we allowed the country to be led down a path that could only end up in one place. In the meantime, we allowed the guff about health care, education, security and transport to be spouted and gotten away with. We sit in a country with outrageous taxes that do not have to be paid by the richest people, we have become a playground for the super-rich to make more money, we have allowed our school children to become dumber, carry knives and murder each other while we concentrate our efforts on 'democratising' suitably well-resourced countries, risking the lives of professional soldiers, while we hand out more parking fines and speeding tickets and let the country become flooded by immigrants who will ultimately make our system strain even more.

Meanwhile, the elite write their jocular memoires, re-write history to enhance their glory, get fat-paid jobs in the companies they helped get rich, and carry on making decisions that will affect the future our next generations.

Taking Responsibility

We are all stakeholders in this country and in the banks who hold the deeds to our houses and the money we make. It is time we stood up to the responsibility that gives us. We should make it very clear by our actions that we do not want the wealth of this country squandered and given to speculators who don't live here and we don't want officials who cannot apply the experience and knowledge they have without their greed getting in the way. We have become too dependent as a nation on the strength of the City of London's financial market - it is high time it came under the jurisdiction of proper governance, the scrutiny of the law and do the bidding of its real customers. And it is high time we wised-up to the government's lack of ability to focus on the real issues we face in society today and get the country back into financial order - that will mean us first voting out the jokers who got us into this mess.

These are the views of humble voter and bank customer. I deliberately stoke up the fire to find out what your views may be. I have put the case from one point of view but it is something that requires debate and I hope you will feel you can contribute. It's hard not to get political about this but I see this more as highlighting failure on a grand scale rather than political comment.

Does an MBA make a difference on a CV?

Hot on the heels of yesterday's blog post and my Linked In question, I got a great response from one person who indignantly and rightly pointed out that it was insulting to suggest a degree was not relevant after all that hard study. And particularly in his case as he had an MBA - and he was indignant that my post might further damage his job prospects.

What makes an MBA different?

Astute readers will notice that in yesterday's blog and LI question, I clearly excluded from the discussion 'vocational' degrees - those which were pretty fundamental to a chosen career path like medicine, law, engineering, dentistry, architecture etc. Having these degrees are in no way tying you to those particular professions, mind you. I once employed a dentist as a salesman because he was bored of looking into peoples' mouths. He didn't last long as a) he realised there was far more money to be made in private cosmetic dentistry and b) there was the small matter that he wasn't much good at selling. There are other examples like lawyers becoming politicians but the point being if you want to be a doctor or a lawyer you MUST have a degree in that subject as a prerequisite.

For those even more astute readers, you will have also noticed that I deliberately excluded MBAs from the discussion. And there was method in my madness as I wanted to dedicate a distinct discussion about MBAs.

There are a few reasons. An MBA degree is an advanced qualification which is specifically designed for business is the first. The second is that many take an MBA as a deliberate choice on top of a 'basic degree' and with business very much in mind - in other words it is 'vocational' to business. I don't know if there are many doctors that have MBAs but it isn't as applicable to that profession. Another reason, is that many either take time out in their career or, harder still, study in parallel to their career in order to better themselves. That shows a very high level of commitment and ambition as well as learning ability. Often these will be done with the blessing and commitment of their current employer which indicates the kind of worth employers put on MBAs as an advanced qualification. But there are those who entirely fund their MBAs themselves - that is like any entrepreneur investing in themselves for a better future and, to my mind, shows unique levels of ambition and determination.

So does an MBA make a difference?

Like having a medical degree doesn't mean that you are going to be a good doctor, having an MBA does not mean you are going to be particularly good in business. More so, at least a medical degree means that you have demonstrated you grasped the rudiments of the scope of knowledge required to be a doctor, an MBA does not mean you even remotely know all the things required to be successful in business. This was rather famously demonstrated in the excellent book http://www.amazon.com/What-Teach-Harvard-Business-School/dp/0553345834 by the late Mark McCormack. Some MBAs can be quite narrow in their focus and subject matter too.

It is my assertion that in the selection process an MBA does make a difference. For the reasons I stated above, generally it shows that someone has made a real commitment to further their ambitions and invested time, effort and money in doing so. An MBA is very often gotten through a fair degree of personal sacrifice and again this shows great determination. When you are looking at finding special qualities in people, who are prepared to dig that little deeper to get what they want or who do indeed 'enjoy a challenge', as interviewees glibly say, people with MBAs will often be those sorts of people.

Like many things in the selection process, it is only an indicator and something to explore. After all, you need to check where the MBA was gained from - there are hooky sources.

So what's special about an MBA?

I generalise here and would like to get further comments from people with MBAs and experiences from people who work with people who have MBAs, but here is my take.

MBAs take things like Business Studies to the next level. They often can be particularly helpful in understanding the dynamics of marketing, strength and importance of brand, they are very good at understanding organisation structures, corporate governance, contract law, internationalisation, global economics, geopolitics, enterprise resource management, corporate finance, capital management and raising capital, mergers and acquisitions and above all business planning and strategy. Many of those subject areas are particularly relevant to large enterprises and so MBAs are often less valued by SMEs because they see them as less relevant and there may be a fear that 'over qualified' people may affect the delicate balance of their company culture.

One particular 'profession' I believe an MBA has less relevance for is the noble art of sales. Usually, people take MBAs to move away from sales into wider business management. I find many people who have MBAs who have not been in sales lack a good deal of understanding of the subject - but then again we sales-types would say that about anybody who hasn't 'carried a bag' as my American friends would say.

Does an MBA help you succeed?

This is where we need the input of real people - I don't have an MBA so I can only give my won view. I have seen some incredibly successful MBA people. Only yesterday, I researched a company based in Taiwan and found that the entire executive management team had MBAs - don't be surprised to find they are an amazingly successful company.

MBA people have a tremendous understanding of how to prepare a business venture. With understanding in how to research markets, how to make well thought out assumptions, how to construct a proper business plan, how to concoct a real strategy that can be tested, how to budget and forecast, how to forecast capital requirements and usage - MBA people have a good grasp of some of the areas that 'seat of the pants' business people get wrong that are very often at the heart of their failure or lack of performance in business. And I will hold my hand up to that - I have failed before through poor planning.

These MBA 'skills' have a real relevance not just for large enterprises but also SME and even start ups. It's no surprise that at the heart of many US Hi Tech start ups lie MBA qualified people. The more you know the greater the chance of success in business although, particularly in sales, it is what you don't know that will often lead to failure.

The final word

As with anything in life, it often is not about what you know. It is very much about how you apply that knowledge. A great MBA student may not be the best at executing plans. But what if you teamed an MBA with a person good at execution? The US and other countries particularly in Asia have really understood how to apply MBAs in organisations. The degree is highly valued and it is certain that MBA graduates in those countries enjoy greater rewards than they would have done without the qualification - the qualification is valued. These countries have learnt how to apply the knowledge and that may not actually have the MBA person executing plans on their own but be part of teams.

This is where I think the UK is missing a trick. The MBA qualification is often seen as some kind of 'better than you'-stigma qualification and not valued. In the process of talent acquisition, I think many managers ignore it and sometimes consciously screen it out because they fear anyone more qualified or better able than themselves. It comes back to my views on the cost of bad recruitment - I think recruitment in the UK is not taken seriously enough nor are people made accountable for poor recruitment decisions that are the biggest hidden cost to any business and they are repeatable year after year.

I have lately met a lot of people who have MBAs that are struggling to find jobs and certainly not those that are willing to value the advanced qualification they have. Recruiters and recruiting managers in companies should take a long hard look at themselves because an MBA qualification will often indicate a person who has made the greatest sacrifices to better themselves in interrupting their career and investing their time, effort and money to bet on themselves. For those who haven't done that, you won't understand what I'm talking about. It's called 'Entrepreneurism'. That's something when mentioned by interviewees I am quick jump on and demand 'Show me'.

I would love to hear your views - does an MBA make a difference? From employers, to those with MBAs and those without them. Has it made you more successful? What makes it special? Is it just a show off degree and has no relevance on business?

Is a degree essential on a CV?

"I have a degree from the University of Life" - a common phrase in interviews or the front bar. But how important is it to have a degree these days?

The UK Government has spent around £800m to target 50% of all 6th formers to go on to University - despite the noble target, the drop out rate when they get to university has increased. There are various theories (as voiced on BBC Radio Five Live's phone in this morning) that modern undergraduates are less prepared academically due to easier exams, to the youth of today being more sensitive to leaving home, to fear of long term debt and costs, to poor career advice leading to the wrong course selection and therefore disillusionment. However, I wanted to look at the issue from the point of view of whether a degree actually gets you a better job, enhances your credentials over those that haven't got one, makes you more money, or does it not matter - it's your experience that counts? From an employer's point of view - what level of importance do you put on a degree being on a CV? Do you actively use it to screen out candidates or differentiate those at interview?

Degree on the CV

As a manager who recruits and finds talent for growing companies, I actually think a CV is not that important. More often than not they are 'floral' to say the least, used as marketing objects and have so many varieties of structures and inclusions as to be hard to compare. They have become documents to enter the CV repositories to be key word searched by recruiters along with Linked In Profiles. If you are one of those managers who thinks having enough CVs thrown at you until one sticks is a good way of recruiting then this article won't appeal to you.

I must admit I am interested to see if a degree is on a CV and it does have some influence although in the final analysis it has little bearing on differentiating between shortlisted candidates for a job and none whatsoever in the interviews. I am much more interested in what makes them the person they are and whether they could add value to my company or my client's.

So does having a degree matter?

My strongest advice for anyone at school is to continue learning. I did a degree in Physics & Chemistry and became a computer salesperson - I would put hand on heart and say that I have used only small parts of the academic stuff I learnt about the subjects at any point in my career. However, what I did learn was how to express what I knew in words and speech, and that has served me in great stead in my career. I also learnt how interaction with people can have positive effects on your life and most importantly I gained ambition (not that I couldn't have learnt that elsewhere but it was at a time of great industrial unrest and poor job prospects - I became a very determined person). Most all it got me on a rung in the ladder of my career; it got me a job with Hewlett Packard via their annual graduate intake.

But, has it had any further bearing on my career? I can honestly say it hasn't. Now I'm talking from the position of going through sales, marketing, general management to senior executive positions - we like to call ourselves 'professionals' but I do not mean it in the same way an engineer or lawyer or accountant or microbiologist or architect or doctor may need the necessary learning to do their jobs. Let's draw that distinction - I mean general purpose business jobs.

One last point on this - so if there is a degree on the CV and it is important to have one, then surely there must relevance in the subject taken? That's where most of this falls flat and so does my own ideas on relevance. If a degree is in Air Guitaring or Klingon (trust me you can get them).......well, I think you get my point.

But what if there were no degree on a CV?

That's an interesting point - if I look for one then there must be a reason. Some think it is a certain marque of approval, like seeing if the person has driving licence only it has more Kudos, I think I would agree with that. Some say that it means the person has the capability to learn - but I would say that I think that wanes with time, though I greatly admire people who study in parallel with their career. Very often you will see job adverts mandating a degree (or sometimes 'equivalent experience' - I am not sure how that works) and I wonder what value these organisations are placing on the degree itself. Are they seriously saying that they want to filter our budding Alan Sugars? Or are they just filling in the boxes because the process is becoming more regimented?

And what of experience in place of a degree? Is spending the missing three years canoing down the Amazon or sweeping floors in a bakery or starting as office boy at a computer store more valuable than university? The jobs are merely examples, there is a terrific You Tube video of Steve Jobs' address to Stanford University students in which he outlines why dropping out of his course at Stanford prepared him for his amazing career - it's worth listening to.

I think my point would be that experience of any sort is worth nothing unless you learn from it. In the same way, valuable experience from which you learn in place of a degree course could well be a good alternative. I think you have to read beyond the CV.

Here's a controversial point

I think recruiting and finding talent is devalued in the modern business world. I recently talked to a very experienced businessman who went for a job interview to find the interviewer was a young HR person barely out of university who was doing a first interview for a Vice President position. After 15 minutes worth of 'what are your strengths?' followed by 'what are your weaknesses?' the businessman got up to leave. When asked why he was ending the interview he replied, 'I'm being interviewed for the second most senior job in the company by a person who has no idea of what is required and who doesn't even work at the company. How do you think that makes me feel about the Company?' While he may have felt good at the time, I can't help feeling he was lopping off his nose to spite his face but I really understand the point - the point being the young HR person worked for the outsourcer for the particular company and would you ask a monkey to find a new organ-grinder?

From the mass of commoditised Contingent Recruiters to HR people to Recruitment Outsourcers there is a common theme, for the kinds of sales and executive jobs they are recruiting for they have zero or little experience of actually doing them. So they tree-hug the 'official requirements' - the boxes to tick. A degree is required and if it ain't on the CV you don't get interviewed. How many talented people get automatically screened at that point and would the recruiting managers be concerned if they knew? The fact is most recruitment or Talent Acquisition is executed as 'slot-filling' and it's expensive at that.

A final thought

I recently worked with Theorem Inc to help establish their business in the UK and I researched and found a superb new UK Business Development Manager as their first employee. When the CEO, Jay Kulkarni, and I were brainstorming the Ideal Candidate Profile I asked him would a degree be required. He replied no. When I asked why, he replied 'It doesn't prove a person is intelligent, it just proves they can learn to pass exams.'

With that, I would like to hear your views. Is a degree really that important today or is experience the more important?

SaaS vs Premised-Based Solutions - A Shootout

The big debate - SaaS vs premise-based solutions. As the wave of SaaS increases with the recent announcement in Information Week of the largest SaaS order ever of 200,000 seats of Workday Human Capital Management Solution and in the wake of the stellar performances of such pioneers as Salesforce.com and Webex and upcoming applications like Adaptive Planning for business planning it seems SaaS is not only here to stay but it is making inroads on the likes of the giants of software like Oracle.

From a sales perspective, I have lived the dream having been the European end of PlaceWare (now Microsoft LiveMeeting). I saw at first hand the benefits of SaaS and how to sell against traditional premise-based solutions. More recently, a very prestigious headhunting firm claimed to me that SaaS salespeople are lesser mortals than premise-based ones as they command the massive, high ticket sales. Firstly, he had never sold either so it was a speculative comment and secondly I think he's wrong. The reason why SaaS is doing so well is that the salespeople are having to sell very differently and based on commercial values such as bottom line impact or long term, sustainable impact to the business rather than the technological, FUD-led selling of traditional software.

Here's a quick insight into the PRO's and CONs of SaaS - it isn't exhaustive:

PROs

* Cost of Trialing

It is easy and cheap to trial SaaS based solutions. You don't need to wait to have access to expensive quarantined networks, you can just get a few licences, choose some users and you can be up and running in a few hours at most.

* Cost of Deployment

Once trialed, the cost of deployment is relatively low for SaaS. No extra infrastructure is required, no mass software downloads from the IT department, no Helpdesk guys going around each desktop to make changes - SaaS is downloaded at login. There may be some firewall issues to solve and possibly some browser compliance annoyances but in the main, thousands of users can be switched on to the new application overnight.

* Cost of Maintenance & Upgrades

SaaS is served from the application source and delivered refreshed each time you login. This means routine bug fixes and even major upgrades can be made available to all users, simultaneously and as fast as they are made available. It means new features can be delivered faster and easier. For the application vendor, it means that, in general, most users will be on the same version and so legacy support is kept to a minimum. This helps keep costs down.

* Ubiquitous Availability

In the modern,geographically disparate world of global businesses, the idea that everyone will have the same image on their computer at the same time is increasingly unlikely and certainly much harder to maintain. SaaS means that as long as you can log into the web, your application is served to you refreshed at each login. It means you have access to the latest information while on the go and not have to wait for long downloads of new data if you are working remote.

CONs

* Ubiquitous Access

This means just that - you have to have the ability to log onto the web prior to having access to the application. While mobile computing is pretty much a reality it is not entirely ubiquitous as yet.

* Stability

One of the age old issues with SaaS is not just the stability of the application itself but the constant availability of internet access. Bandwidth fluctuations or even lack of availability of connectivity can have a direct impact on performance - still.

* Security

SaaS is hosted outside Corporate firewalls at highly secure and many times redundant hosting centres with the highest levels of security both physically and IT wise. However, this does not get over the fact that your sensitive Company date is stored on servers beyond your sphere of security and control. It is an act of trust.

* Single Points of Failure

We can argue that such points of failure are potentially ubiquitous in business today, such as a router getting into an illogical loop and needing to be reset. However, that router may reside within your network, on your premises and within your direct sphere of control. SaaS may have the same issues, but then it comes down to the performance of the SaaS provider and possibly other third parties to rectify problems and most certainly you are less in control. Further, such a single point of failure may affect multiple customers simultaneously.

* Integration and Compliance

SaaS brings huge benefits of being able to react quicker to market changes and build in new features and integrate with more applications faster. However, there may, at times, be drawbacks. Such new features may require updates to the operating system, a new release of something like messaging applications, a certain level of Office Software. Such things can, in the extreme, render the benefits not applicable or worse, even cause conflicts.

There are so many variables that it is difficult for SaaS Vendors to accommodate all, but therein lies a certain rub. In the race to overwhelm premise-based solutions, the real world can be awfully complex.

The Case on ROI

This is where the SaaS salesperson comes into their own. The cost of SaaS is an annual licence fee per user or concurrent user at best. It means that upfront costs may be cheaper than the equivalent premise-based solution but that fee is an annuity and repeats each year.

BUT, within that annual fee is all the maintenance and costs of upgrades. Premise-based solutions will have maintenance costs at typically around 20% of the seat cost per annum plus the cost of upgrades. THEN, comes the cost of infrastructure and deployment and this is where SaaS starts to move ahead. Typically, the speed and ease of deployment and lack of impact on the infrastructure will make SaaS easier on the bottom line.

One other aspect to consider - the cost of application support. Typically, the cost of support and training of users will not only be built in but actually the responsibility of the SaaS Vendor. But premise-based solutions will also have Helpdesk support and possibly even people assigned to application support; an overhead often missed off in calculations.

Each application fares differently, but the SaaS ROI and impact on the bottom line is developing a very strong case over premise-based solutions. What has happened at companies like Workday and salesforce.com is that chasm has long since been crossed and the impetus is there.

Ride the wave! I would love to hear views and actual experiences - let's challenge these views on SaaS v premise-based and ROIs from real users. Please post your comments.

Investing, The world of Finance and Black Swans

So that's it - now I understand. Investing is simple, just ignore all the mathematical trends and advice, just follow this man.

Nassim Nichloas Taleb

His last book 'The Black Swan: The Impact of the Highly Improbable' argues that almost all bankers are 'subhuman and very, very dangerous'. Powerful words that might confirm a few suspicions we all have - I mean, how come banks always feed in a frenzy in a boom and the bust hits them like a brick wall? What happened to management foresight, prudence, survival instinct or just plain common sense? Taleb gives us the answer - they live in a fantasy world in which sophisticated mathematical models and risk management systems can control the future. Well Gordon Brown might want to read this - after all he was the one that believed the UK economy could be controlled by fine tuning interest rates; suddenly there is a complete disconnect between the base interest rate and borrowing. While economists poo-poo'd Taleb's assertions that one random event can can disprove an entire theory, the world was hit by the credit crunch and the aftermath of the sub-prime revelations.

The article can be read in full but Taleb's interesting slant basically puts mathematics into an interesting position and he illustrates it saying if you toss a coin 40 times and each time it turns up heads, then statistical theory will say the chance of it turning up heads on the 41st toss is 50-50. Not so, argues Taleb (and this in some way augments some of the answers I gave in my statistics exams - at least the randomness aspect anyway), the chances of 41 straight heads are minimal, below 1%, unless cheating is involved. You see his logic? I think what Taleb is saying that there is a difference between theory and real world. So I shan't be buying any more lottery tickets for a while as I won £10 last time and the chances of that happening twice in two weeks are minimal by my standards.

His greatest vindication was seeing the joint winners of the 1997 Nobel Prize in Economics who had set up a hedge fund in 1994 go spectacularly bust 1998 with positions worth $1.25 trillion outstanding. So Taleb is saying is that we have created a world which we actually do not understand, where winners tend to take all, the rest nothing. Things like banking systems are over complicated and have no redundancy. Are you getting the picture? No? What it means is that the banking system doesn't have slack and in a normal situation banks would go bust regularly. 'But in the complex system of today there is a tendency to cluster around powerful units - so all banks become the same bank so they can all go bust together.' Tell that to Northern Rock and Bear Sterns, but I see where he's going.

He goes on to point out that banks really make money from two sources - interest on current accounts and charging for services. The risks they take on loans, mortgages, derivatives and other things, he argues, they have never, ever made a penny on as they rake in huge profits and then lose all of it in crashes. In the last few months, Merrills made $2bn loss in Q1 vs $2.1bn profit a year before and wrote off $24bn (and still paid the outgoing CEO millions) and shed 4,000 jobs, Credit Suisse made $2.1bn loss in Q1 vs $2.7bn profit a year earlier and wrote off $5.3bn, UBS wrote off a staggering $37bn, Citigroup made $5.1bn loss in Q1, $9.8bn loss the quarter before with $12bn write downs and over 13,000 job cuts, RBS wrote off £5.9bn, made a £12bn issue and will sell various arms also. The scale of loss is staggering - yet still the whizz kids got paid their massive bonuses.

Pascal Lamy, Director-General of the WTO, says it is all to do with deregulation. The WTO boss also said that workers hurt by globalisation should receive more help from their governments. Mr Lamy's remarks put him at odds with the so-called "Washington consensus" that liberalisation, privatisation, and open markets are the only way to bring about economic growth.

It makes you think

In these times of financial turmoil, restricted credit, potential recession, menacing inflation, potential downturn in corporate profitability, uneconomic large-scale wars, mixed with a sudden crisis of availability of food, shockingly high oil price, rapidly expanding budget deficits, mounting debt and potential job losses - do we really think this was all started by one of Taleb's Black Swans? Or did we plan our way into this mess? Does galloping greed in the financial system skew judgement or was it really the result of a complicated system not having a variable to cope with a spanner in the works like sub-prime?

But didn't we invent sub-prime and allow it to spread as the clamour to hand out more credit and sell off the debt secured against almost worthless assets fuelled by commission at the front end and massive bonuses at the back end? Did those who bought the debt not think about actually doing the necessary due diligence on the true worth of the assets? Or has the system got so incredibly complex that to stop and check would have been impossible?

I would love to hear people's views on this and perhaps some suggestions on how we can plan to avoid it again. Or indeed should we just sit back and allow the financial gurus to regroup, lick their wounds, and find another way to earn those fabulous bonuses as they risk our money?

Taleb asserts that we should learn by trial and error and the best innovation comes from it like computers, the internet and lasers because trial and error reveals hidden black swans. If that is the case, have we not learnt a massive lesson about our fragile financial system? By the way, his investment tip is to put 90% of your money into government securities and about 10% into a large number of very high risk ventures.

And here is a final thought-provoking point from Taleb. In the Information Age, not only does he argue that the best information comes from real-life social interaction at parties or restaurants but also be mistrustful of knowledge - it's a bad thing. Afterall, if you give a bookie 10 pieces of information he will pick his horses - give him 50 pieces of information and he will do no better but fatally he will be more confident.

Heck, this about argues in the face of everything I have ever been taught. What do you think?

Twitter - Business Tool or fad?

Out of sheer morbid interest I have signed up to Twitter and several people who had recommended it are now following me and I them while a rather pretty girl in a furry bikini has also decided to follow me as she does, it seems, most others too.

And that's it really.

I just don't seem to get it. No lesser person than Thomas Power (Chairman of www.ecademy.com) had put me on to it but I don't really understand why someone would want to know I had a bacon sandwich for breakfast, watched Wasps v Leicester (farewell Lawrence Dallaglio - what a way to bow out) and am about to take the dogs for a walk? Or why that would help me in business?

Am I missing a trick? Your views would be appreciated.

www.calxeurope.com

Denial - A good business weapon or stupidity?

There is a great article in this week's London Evening Standard ES Magazine Page 23 by Helen Kirwan-Taylor.It basically states an anecdote of someone attending a meeting at a certain Global Bank and asking the executive how was the bank coping in the wake of the credit crunch. The reply was that the bank was pretty lucky not to be affected by it. The same bank had recently written off £12bn against sub-prime lending. The executive of the bank was in denial.

Was he being downright stupid to be in denial or was this a useful coping mechanism in business?

The article goes on to argue that in the extreme this is how African dictators or wife-beaters cope with their wrong doing - it is self-deception which conventionally is thought to be a sign of moral ineptitude. The article argues that this may not be the case. Denial is a defence mechanism by the body in response to fear or anxiety by pretending the problem doesn't exist. By doing so the body can channel its energy and focus elsewhere. It is the body's way of coping with trauma and stress that if left unchecked could lead to depression.

Researchers have shown (Peter Kim at Univ Southern California and Donald Ferrin of Singapore Management Univ) that groups of students were asked to rate trustworthiness when told an applicant for a job has behaved fraudulently at another job. They were shown videos of the applicant being confronted with the problem and either denying or admitting it. When the students saw the applicant deny the transgression saying it was a mistake but apologising they rated him trustworthy. When shown that he admitted to it, he was rated untrustworthy. The conclusion was that most people already assume others are imperfect and are prepared to deny flaws for the sake of maintaining a relationship.

The article goes on to say that denial is essential factor for maintaining a positive point of view. Michael MCullough of Univ Miami claims that 'There is increasing evidence that memory can be updated or changed' and he cites examples of how politicians can selectively push positive aspects about themselves while putting negative things into the background. With the spate of recent 'Blair Years' biographies and TV programs around, it is very topical. I personally watched some of the 'Blair Years' TV program and got very angry about how it seemed to be a blatant attempt to rewrite a history I had lived through and somehow make a nation remember things differently. More recently, I heard John Prescott (he was actually being interviewed about Hull City's forthcoming date at Wembley) saying that he 'should be judged on his record' and I had to pinch myself to make sure if I was dreaming or him. I also remember people leaping to the defence of Jeffrey Archer when he was convicted of basically lying to get substantial damages from a Newspaper saying that 'He was a lovable rogue' and therefore should not go to prison. Denial, it seems, can be a powerful thing.

And so to business, is it healthy for a senior executive to use denial to paper over problems? Should we rate people as trustworthy who deny transgressions?
I would like to hear your views on this. For my part, I have to say I worry a great deal about companies who use denial. At a customer service level you see it day in and day out - companies who put out marketing statements that their products and service are superb yet when you call them with a problem they are useless - things do not get better by denying issues at that level. Remarkably, Willie Walsh at BA presided over the debacle at Terminal 5 but managed to turn in large profits at the same time - and he was then rated by some authoritative magazine as one of the top executives in Britain. It must have been cold comfort for those forlorn travellers who suffered the lunacy of BA and BAA ineptitudes. I have strong views on such a culture in business that rewards failure but that's another subject. We all have our stories on this.

As another example to stimulate thought, we see MPs rushing to cover their tracks on their expenses (the average MP annual expense bill is £136,000 and there are over 600 of them!), we see large companies enforcing low pay rises on staff yet the CEOs are earning large salaries and obscene bonuses, we see merchant banks paying out many £million+ bonuses to certain staff yet are writing off £billions for poor decisions many of which are linked directly to the culture of greed in those that earn the large bonuses. Denial is more powerful when there is money at stake, it seems.

Yet, perhaps by denying all these problems and dilemmas, the executives actually can steer their businesses more effectively? Maybe, that's what makes them good at their jobs and therefore good for their staff and shareholders? I am sure we all have examples - I would appreciate your views.

Since publishing - I had some great feeback from Robin Cole-Hamilton who is based in Syria and cannot access blogs so he asked me to post his excellent contribution here. Robin has rightly picked up that many responses have confused straightforward deception or lying with denial and he illustrates his points really well:

On 6/4/08 5:35 AM, Robin Cole-Hamilton wrote:
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Nigel, one of the most common areas you'll find it is in sport, where the practice of positive thinking - blanking out the negatives - looks to observers like denial or delusion, but is essential to getting the mind in the right frame. See Bob Rotella's books for lots of stories.

In business, the answer to your question is, as usual, one of degree and timing. I remember fondly a museum director in 1998 cheerfully describing a huge and expensive collaborative project that had no consensus between its partners and no funding as "running on optimism and adrenalin". Sometimes there's just no other way to get a bold and innovative vision into play but to shut out the doubts and go for it as though it was as good as done. In which case, sometimes the bigger the better.

The trick of course is to know when it isn't going to happen, and how best to retreat. When people don't have that sense of timing, or can't accept reality, confidence can turn to denial, organisations get stuck in a game of diminishing returns, and knives get sharpened.

Good luck

On 6/4/08 5:35 AM, Robin Cole-Hamilton added the following clarification:
When I started the project I'm running in Syria I was told by a senior cabinet minister that what I was proposing was "nothing but a dream". To him I was in denial - refusing to realise the realities of the situation. We just kept on going, and today he is one of the most enthusiastic advocates for what we are doing. I was told that by the then Governor of Damascus that we would never be allowed to build a discovery centre on a particular brown site in the centre of the city. To him I was in denial because I wouldn't accept his preferred alternatives. We just kept on going, and today he has been replaced and we are master-planning the entire 16 hectares for a new public park. Denial can sometimes take the form of a necessary and productive stubbornness, but as I say, you have to know when to call it quits as well.


www.calxeurope.com