Virtuous capital: what foundations can learn from venture capitalists

U.S. foundations and nonprofits work diligently on behalf of society's most needy and yet report that progress is slow and social problems persist. How can they learn to be more effective with their limited resources? Foundations should consider expanding their mission from investing only in program innovation to investing in the organizational needs of nonprofit organizations as well. Their overemphasis on program design has meant deteriorating organizational capacity at many nonprofits. If foundations are to help nonprofits be assured of making payroll, paying the rent, or buying a much-needed computer, they must develop hands-on partnering skills. Venture capital firms offer a helpful benchmark. In addition to putting up capital, they closely monitor the companies in which they have invested, provide management support and stay involved long enough to see the company become strong. If foundation officers familiarize themselves with such practices, they can begin to build organizational capacity in the nonprofit sector. Foundations can hire organizational experts to assist grantees; they can lengthen grant terms to allow nonprofits to build up organization strengths; and they can create new classes of grants that allow for organizational effectiveness. Nonprofits in turn should articulate their organizational needs when applying for grants; they should apply to foundations known for longer-term grants; and they should create plans that justify long-term support from foundations.     

Credit risk transfer and contagion

Some have argued that recent increases in credit risk transfer are desirable because they improve the diversification of risk. Others have suggested that they may be undesirable if they increase the risk of financial crises. Using a model with banking and insurance sectors, we show that credit risk transfer can be beneficial when banks face uniform demand for liquidity. However, when they face idiosyncratic liquidity risk and hedge this risk in an interbank market, credit risk transfer can be detrimental to welfare. It can lead to contagion between the two sectors and increase the risk of crises.     

Chronic time abuse

Anyone who has ever managed people who abuse time--whether they are chronic procrastinators or individuals who work obsessively to meet deadlines weeks in advance--knows how disruptive they can be to a business's morale and operating efficiency. But lessons in time management will have no impact on these employees. That's because real time abuse results from psychological conflict that neither a workshop nor a manager's cajoling can cure. Indeed, the time abuser's quarrel isn't even with time but rather with a brittle self-esteem and an unconscious fear of being evaluated and found wanting. This article describes four types of time abusers typically encountered in the workplace: Perfectionists are almost physically afraid of receiving feedback. Their work has to be "perfect," so they can increase their likelihood of earning a positive evaluation or at least avoid getting a negative one. Preemptives try to be in control by handing in work far earlier than they need to, making themselves unpopular and unavailable in the process. People pleasers commit to far too much work because they find it impossible to say no. Procrastinators make constant (and often reasonable-sounding) excuses to mask a fear of being found inadequate in their jobs. Managing these four types of people can be challenging, since time abusers respond differently from most other employees to criticism and approval. Praising a procrastinator when he is on time, for instance, will only exacerbate the problem, because he will fear that your expectations are even higher than before. In fact, some time abusers, like the perfectionist, may need professional treatment. This article will give you insight into why they are the way they are--and what can be done to help them manage their problems.     

Business marketing: understand what customers value

How do you define the value of your market offering? Can you measure it? Few suppliers in business markets are able to answer those questions, and yet the ability to pinpoint the value of a product or service for one's customers has never been more important. By creating and using what the authors call customer value models, suppliers are able to figure out exactly what their offerings are worth to customers. Field value assessments--the most commonly used method for building customer value models--call for suppliers to gather data about their customers firsthand whenever possible. Through these assessments, a supplier can build a value model for an individual customer or for a market segment, drawing on data gathered form several customers in that segment. Suppliers can use customer value models to create competitive advantage in several ways. First, they can capitalize on the inevitable variation in customers' requirements by providing flexible market offerings. Second, they can use value models to demonstrate how a new product or service they are offering will provide greater value. Third, they can use their knowledge of how their market offerings specifically deliver value to craft persuasive value propositions. And fourth, they can use value models to provide evidence to customers of their accomplishments. Doing business based on value delivered gives companies the means to get an equitable return for their efforts. Once suppliers truly understand value, they will be able to realize the benefits of measuring and monitoring it for their customers.     

The new science of sales force productivity

For years, sales managers at many companies have relied on top performers and sheer numbers of sales reps to stay competitive. But while they may have squeaked by on this wing-and-a-prayer technique, their sales teams haven't thrived the way they once did. Today's most successful sales leaders are taking a more scientific approach. Savvy managers are reshaping their tactics in response to changing markets. They are reaching out to new customers in innovative ways. And they are increasing productivity by helping the reps they already have make the most of their skills and resources. Leaders who take a scientific approach to sales force effectiveness have learned to use four levers to boost their reps' productivity in a predictable and manageable way. First, they systematically target their firms' offerings, matching the right products with the right customers. Second, they optimize the automation, tools, and procedures at their disposal, providing reps with the support they need to boost sales.Third, they analyze and manage their reps' performance, measuring both internal processes and results to determine where their teams' strengths and weaknesses are. Fourth, they pay close attention to sales force deployment--how well sales, support, marketing, and delivery resources are matched to customers. These four levers can help sales leaders increase productivity across the board, the authors say, though they have the greatest impact on lower-ranked performers. The overall effect of increasing the average sales per employee can be exponential; it means a company won't have to rely on just a few talented individuals to stay competitive. This is especially important because finding and keeping star salespeople is more difficult than ever. What's more, managers who optimize the sales forces they already have can see returns they never thought possible.     

价值链会计:助中国企业应对入世挑战

中国加入WTO后,企业的业务模式会发生改变,对于我国的民族企业而言,信息化和风险防范是新的业务模式成功的关键。我国民族企业要想提高自身的竞争力,不能只将目光局限于本企业自身,应通过价值链分析实现物资、信息的共享,从而降低成本,提升本企业的价值。价值链会计可以帮助我国的民族企业在中国加入WTO后适应变化了的生存环境,是值得推广的一种管理方法。     

Blockholder Trading,Market Efficiency,and Managerial Myopia

This paper analyzes how blockholders can exert governance even if they cannot intervene in a firm's operations. Blockholders have strong incentives to monitor the firm's fundamental value because they can sell their stakes upon negative information. By trading on private information (following the “Wall Street Rule”), they cause prices to reflect fundamental value rather than current earnings. This in turn encourages managers to invest for long‐run growth rather than short‐term profits. Contrary to the view that the U.S.'s liquid markets and transient shareholders exacerbate myopia, I show that they can encourage investment by impounding its effects into prices.     

Securities Laws, Disclosure, and National Capital Markets in the Age of Financial Globalization

As barriers to international investment fall and technology improves, the cost advantages for a firm's securities to trade publicly in the country in which that firm is located and for that country to have a market for publicly traded securities distinct from the capital markets of other countries will progressively disappear. Securities laws remain an important determinant of whether and where securities are issued, how they are valued, who owns them, and where they trade. I show that there is a demand from entrepreneurs for mechanisms that allow them to commit to credible disclosure because disclosure helps reduce agency costs. Under some circumstances, mandatory disclosure through securities laws can help satisfy that demand, but only provided investors or the state can act on the information disclosed and the laws cannot be weakened ex post too much through lobbying by corporate insiders. With financial globalization, national disclosure laws can have wide-ranging effects on a country's welfare, on firms and on investor portfolios, including the extent to which share holdings reveal a home bias. In equilibrium, if firms can choose the securities laws they are subject to when they go public, some firms will choose stronger securities laws than those of the country in which they are located and some firms will do the opposite.     

Executive Stock Options: Early Exercise Provisions and Risk-taking Incentives

Traditional executive stock option plans allow fixed numbers of options to vest peri‐odically, independent of stock price performance. Because such options may climb deep in‐the‐money long before the manager can exercise them, they can exacerbate risk aversion in project selection. Making the proportion of options that vest a gradually increasing function of the stock price can ensure that appropriate numbers of options are retained while they provide risk‐taking incentives, but are exercised once they have lost their convexity. “Progressive performance vesting” can allow the firm more efficiently to rebalance the manager's risk‐taking incentives.     

Discovering new points of differentiation

Most profitable strategies are built on differentiation: offering customers something they value that competitors don't have. But most companies concentrate only on their products or services. In fact, a company can differentiate itself every point where it comes in contact with its customers--from the moment customers realize they need a product or service to the time when they dispose of it. The authors believe that if companies open up their thinking to their customer's entire experience with a product or service--the consumption chain--they can uncover opportunities to position their offerings in ways that neither they nor their competitors though possible. The authors show how even a mundane product such as candles can be successfully differentiated. By analyzing its customers' experiences and exploring various options, Blyth Industries, for example, has grown from a $2 million U.S. candle manufacturer into a global candle and accessory business with nearly $500 million in sales and a market value of $1.2 billion. Finding ways to differentiate one's company is a skill that can be nurtured, the authors contend. In this Manager's Tool Kit, they have designed a two-part approach that can help companies continually identify new points of differentiation and develop the ability to generate successful differentiation strategies. "Mapping the Consumption Chain" captures the customer's total experience with a product or service. "Analyzing Your Customer's Experience" shows managers how directed brainstorming about each step in the consumption chain can elicit numerous ways to differentiate any offering.     

Breakthrough bargaining

Unspoken, subtle parts of a bargaining process--also known as the shadow negotiation--can set the tone for a successful negotiation. Deborah Kolb and Judith Williams, whose book The Shadow Negotiation was the starting point for this article, say there are three strategies businesspeople can use to guide these hidden interactions. Power moves are used when two negotiating parties hold unequal power--for instance, subordinates and bosses; new and existing employees; and people of different races, ages, or genders. These strategies, such as casting the status quo in an unfavorable light, can help parties realize that they must negotiate: they will be better off if they do and worse off if they don't. Process moves affect how negotiation issues are received by both sides in the process, even though they do not address substantive issues. Working outside of the actual bargaining process, one party can suggest ideas or marshal support that can shape the agenda and influence how others view the negotiation. Appreciative moves alter the tone or atmosphere so that a more collaborative exchange is possible. They shift the dynamics of the shadow negotiation away from the adversarial--helping parties to save face--and thus build trust and encourage dialogue. These strategic moves don't guarantee that all bargainers will walk away winners, but they help to get stalled negotiations moving--out of the dark of unspoken power plays and into the light of true dialogue.     

Getting the most out of all your customers

Companies spend billions of dollars on direct marketing, targeting individual customers with ever more accuracy. Yet despite the power of the myriad data-collecting and analytical tools at their disposal, they're still having trouble optimizing their direct-marketing investments. Many marketers try to minimize costs by pursuing only those customers who are cheap to find and cheap to keep. Others try to get the most customers they possibly can and keep all of them for as long as they can. But a customer need not be loyal to be highly profitable, and many loyal customers turn out to be highly unprofitable. Companies can get more out of direct marketing if they see it as a single system for generating profits than if they try to maximize performance measures at each stage of the process. This article describes a tool for doing just that. Called ARPRO (Allocating Resources for Profits), the tool is essentially a complex regression analysis that can estimate the impact of a company's direct-marketing investments on the profitability of its customer pool. With data that companies already gather, the tool can show managers how much to spend on acquisition versus retention and even what percentage of their funds they should allocate to the different direct-marketing channels. Using the model, companies can easily see that even small deviations from the optimal levels of customer profitability are expensive. Applying it to one catalog retailer showed, for instance, that a 10% reduction in marketing costs would lead to a 1.8 million dollar drop in long-term customer profits. Conversely, spending 69% less on marketing would actually increase average customer profitability at one B2B service provider by 42%. What's more, the tool can show that finding the optimal balance between investments in acquisition and retention can be more important than finding the optimum amount to invest overall.     

Financial Intermediaries, Markets, and Growth

We build a model in which financial intermediaries provide insurance to households against idiosyncratic liquidity shocks. Households can invest in financial markets directly if they pay a cost. In equilibrium, the ability of intermediaries to share risk is constrained by the market. From a growth perspective, this can be beneficial because intermediaries invest less in the productive technology when they provide more risk-sharing. Our model predicts that bank-oriented economies can grow more slowly than more market-oriented economies, which is consistent with some recent empirical evidence.     

American dreams,American imperatives

In this article I.F. Clarke continues his theme that the special nature of life in the American colonies inevitably led to an extra-European view of society. That can in general be called a composite idea—individuality, liberty, freedom, and great opportunities—and it appealed to many Europeans who saw in the USA a hope for the future and a model for imitation. It is reported that when some of Robert Owen's contingent crossed the Atlantic to New Harmony, they celebrated their approach to New York with a song composed by one of the party. ‘Land of the West! we come to thee,’ they sang. ‘ Sick of the old world's sophistry’, they went on. Today, only the well-off can sail into New York, usually on the QE2, and they do not usually sing as they sail.     

Betting on the future: the virtues of contingent contracts

It happens all the time. Two parties with common interests fail to reach an agreement--about a sale, a merger, a technology transfer--because they have different expectations about the future. They are both so confident in their prediction, or so suspicious of the other side's motives, that they refuse to compromise. Such impasses are hard to break through. Fortunately, they can often be avoided altogether by using a straightforward but frequently overlooked type of agreement called a contingent contract. The terms of a contingent contract are not finalized until the uncertain event in question--the contingency--takes place. In some areas of business, such as compensation, contingent contracts are common: a CEO's pay is tied to the company's stock price, for instance. But in many business negotiations, contingent contracts are either ignored or rejected out of hand. That's mistake, according to the authors. In an increasingly uncertain world, flexible contingent contracts can actually be more rational and less risky than rigid, traditional ones. In particular, contingent contracts offer six benefits: they enable a difference of opinion to become the basis of an agreement, not an obstacle to it; they cancel out the biases of negotiators; they level the playing field by reducing the impact of asymmetric information; they provide a means of uncovering deceitful dealings; they reduce risk by sharing it among parties; and they motivate parties to fulfill their promises. While contingent contracts are not appropriate in all instances, they are much more broadly applicable than managers may think.     

Taking the stress out of stressful conversations.

Stressful conversations are unavoidable in life. In business, they can run the gamut from firing a subordinate to, curiously enough, receiving praise. But whatever the context, stressful conversations carry a heavy emotional load. Indeed, stressful conversations cause such anxiety that most people simply avoid them. Yet it can be extremely costly to dodge issues, appease difficult people, and smooth over antagonisms; avoidance usually only worsens a problem or a relationship. Using vivid examples of the three basic stressful conversations that people bump up against most often in the workplace, the author explains how managers can improve those interactions unilaterally. To begin with, they should approach the situations with greater self-awareness. Awareness building is not about endless self-analysis; much of it simply involves making tacit knowledge about oneself more explicit. It is important for those who are vulnerable to hostility, for example, to know how they react to it. Do they clam up or do they retaliate? Knowing how you react in a stressful situation will teach you a lot about your trouble areas and can help you master stressful situations. The author also recommends rehearsing difficult conversations in advance to fine-tune your phrasing and tone. And the best way to keep from being thrown off balance by difficult conversations that crop up unexpectedly is to develop a few hip-pocket phrases that you can pull out on the spot. We all know from past experience what kinds of conversations and people we handle badly. The trick is to have prepared conversational tactics to address those situations.     

Information asymmetries and spillover risk in settlement systems

I show how information asymmetries between agents in different settlement systems can increase the risk that a problem in one may spill over to another. I focus on the strategic behavior of participants who operate in multiple systems as they choose how best to manage their liquidity across the systems. In the event of an operational shock in one system, these participants may continue to make payments in order to avoid delay costs, thereby risking a liquidity sink, if they believe they can recycle liquidity from the other, unaffected system. They are more likely to risk a liquidity sink if they believe banks in the unaffected system will continue making payments early, unaware of the operational problem. I show that a liquidity-saving mechanism (LSM) in one system may reduce the probability of spillover into the other; in this sense, I identify a positive externality from the introduction of an LSM.     

Eager sellers and stony buyers: understanding the psychology of new-product adoption

Companies that introduce new innovations are the most likely to flourish, so they spend billions of dollars making better products. But studies show that new innovations fail at a staggering rate. While many blame these misses on lackluster products, the reality isn't so simple. The goods that consumers dismiss often do offer improvements over existing ones. So why don't people purchase them? And why do companies keep peddling products that buyers are likely to reject? The answer, says the author, can be found in the brain. New products force consumers to change their behavior, and that has a psychological cost. Many products fail because people irrationally over-value the benefits of the goods they own over those they don't possess. Executives, meanwhile, overvalue their own innovations. This leads to a serious clash. Studies show, in fact, that there is a mismatch of nine to one, or 9x, between what innovators think consumers want and what consumers truly desire. Fortunately, companies can overcome this disconnect. To start, they can determine where their products fall in a matrix with four categories: easy sells, sure failures, long hauls, and smash hits. Each has a different ratio of product improvement to change required from the consumer. Once businesses know where their products fit into this grid, they can manage the resistance to change. For some innovations, major behavior change is a given. In those cases, companies can either wait for consumers to warm to the product, make the improvement so great that buyers get past their apprehension, or try to eliminate the incumbent product. Firms can also try to minimize buyer resistance by making products that are compatible with incumbent goods, seeking out those who are not yet users of the existing product, or finding true believers.     

A Search-Based Theory of the On-the-Run Phenomenon

We propose a model in which assets with identical cash flows can trade at different prices. Infinitely lived agents can establish long positions in a search spot market, or short positions by first borrowing an asset in a search repo market. We show that short-sellers can endogenously concentrate in one asset because of search externalities and the constraint that they must deliver the asset they borrowed. That asset enjoys greater liquidity, a higher lending fee ("specialness"), and trades at a premium consistent with no-arbitrage. We derive closed-form solutions for small frictions, and provide a calibration generating realistic on-the-run premia.     

Endogenous research vs “experts” from outside

Administrators and planners are often guilty of academocentrism, that is, they focus to such an extent on theories generated by their own logic and methodology that they fail to recognise the existence of other logics. In practice this can produce a very distorted view of social reality. The author illustrates how a truer picture can be obtained when the purpose of the researchers converges with that of the people in the community studied.