How wrong can a guru be? Every so often, I run across some confident—but wrong statement regarding the state of something or other, and just this afternoon (while hunting for something else) ran across one that I simply can’t resist sharing. In a way, it’s sad, because the poor prediction was shared by the entire financial services industry, yielding a crisis of massive proportions.
The guru in question is Adrian J. Slywotzky, best-selling author of a number of good books, among them The Profit Zone. The wrong prediction has to do with how the banking industry has managed risk, and it appeared in no less an authoritative publication than the Harvard Business Review. The article is entitled “Countering the biggest risk of all” and it appeared in the April, 2005 edition.
The article opens with the following paragraphs:
WHATEVER YOUR BUSINESS, consider for a moment the remarkable turnaround over the past decade in the U.S. banking industry. In the early 1990s, the industry--rocked by the Latin American debt crisis, a major real estate bust, and economic recession- suffered massive loan losses, erratic earnings and the highest rate of bank failures since the Depression. A decade later, as much of the economy reeled from the dot-com bust and another recession, banks were generally flourishing. The number of bad loans was down, earnings were relatively stable, and the banking industry was outperforming the market as a whole.
The turnaround occurred in large part because banks were able to develop new tools and techniques to counter risk, in the process giving birth to an entirely new discipline of financial risk management. Sophisticated credit-scoring measures reduced banks’ credit losses. New forms of options, futures, and counter-party agreements allowed banks to redistribute their financial risks. In fact, banking regulations now require companies to employ financial models that quantify their market risks.
We cite this example because the risks that plagued banks 15 years ago are emblematic of the challenges that companies across all industries increasingly face today. What if these companies could also employ tools and techniques that would provide some protection against a broad set of high-stakes risks?
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- Posted Rita McGrath on January 11, 2008
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Each year, I had come to look forward to Business 2.0’s compilation of idiotic things that happen in the world of business. As that magazine is now unfortunately defunct, Fortune appears to be picking up the onerous burden of remining us all just how Stupid people in business can be sometimes.
Here are a few that I hadn’t heard about before checking out the list (you can find a complete index of all 100 here).
13. Disneyland
It’s a fat world, after all
Disneyland announces plans to close the “It’s a Small World” attraction to deepen its water channel after the ride’s boats start getting stuck under loads of heavy passengers. Employees ask larger passengers to disembark - and compensate them with coupons for free food.
44. Another subprime stunt. A Bank of America branch in Ashland, Mass., is evacuated after it receives a fax with the image of a lit match being held to a bomb’s fuse. The fax, sent by the company to alert employees to an upcoming promotion, somehow comes through without its text, which should read “The Countdown Begins—Small Business Commitment Week June 4-8.”
50. The Defense Department
Makes you wonder what it would cost to ship a million German screws
Exploiting a flaw in a Defense Department purchasing system, South Carolina parts supplier C&D Distributors rakes in $20.5 million in shipping fees on just $68,000 in sales. The scheme is finally detected when a Pentagon clerk spots a $969,000 bill for shipping two 19-cent washers to an Army base in Texas.
55. Frank Gehry
Who left R2D2 alone with the AutoCAD and peppermint schnapps?
MIT sues architect Frank Gehry, alleging that flaws in his design of the school’s $300 million Stata Center - which Gehry himself once described as looking “like a party of drunken robots got together to celebrate” - resulted in problems including cracks, leaks, and mold.
62. Nepal Airlines
In related news, Sony plans to acquire Nepal Airlines
After mechanical problems ground one of its Boeing 757s, officials of Nepal Airlines sacrifice two goats on the tarmac at Kathmandu airport to appease Akash Bhairab, the Hindu god of sky protection. The plane then successfully completes its scheduled flight to Hong Kong.
65. Verizon Wireless
Another PR department in the fetal position
Verizon Wireless refuses to distribute text messages from the abortion-rights group NARAL Pro-Choice America to people who ask to receive them, citing its prohibition of “controversial or unsavory” content. But after media coverage, the company reverses course, asserting “great respect for the free flow of ideas.”
70. Circuit City
Good job. You’re all fired.
In a cost-cutting move, Circuit City lays off all sales associates paid 51 cents or more per hour above an “established pay range” - essentially firing 3,400 of its top performers in one fell swoop. Over the next eight months Circuit City’s share price drops by almost 70%.
81. 365 Main
Fate’s here to see you, and she brought her wire cutters
On July 24, San Francisco data-center operator 365 Main issues a press release touting its 24/7 reliability: “In the unlikely event of a cut to a primary power feed, the state-of-the-art electrical system instantly switches to live backup generators, keeping the data center continuously running.” That day a power outage hits and three of its backup generators fail, taking down high-profile customers including RedEnvelope, Technorati, and Craigslist.
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- Posted Rita McGrath on December 19, 2007
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