Spero Consulting

Archive for December 8th, 2008

Every­body knows that the short­est day is the first day of win­ter, which is usu­ally Decem­ber 21 in the North­ern Hemi­sphere. (Sorry read­ers from down-​under, but we’re rather geo­cen­tric that way.)

So, does the short­est day have the lat­est sun­rise and the ear­li­est sun­set? Is there a sym­me­try between dawn and dusk?

Per­haps you’ve never con­sid­ered it, but one can find sun­rise and sun­set times for many cities around the world at http://​www​.time​and​date​.com and prob­a­bly other sites, too.

When we have more time, we’ll write about how the earth’s axis, which obvi­ously affects the vari­a­tion in the length of days, is not con­stant. As we recall, the axis varies between 17 and 22 degrees over rather long cycles; so, the earth spins like a top – but not smoothly; instead it “wob­bles.” Does the reader think that the wob­bling might affect tem­per­a­tures and cause some regions to warm and oth­ers to cool as the angle changes through time? Yeah, we do, too.

By the way, did the reader know that sum­mer is a few days longer in the North­ern Hemi­sphere than in the South­ern Hemi­sphere? As it turns out, it is longer, but not as intense. 

While the earth’s orbit around the sun is an ellipse, the sun is not cen­tered in the ellipse. Sum­mer in the South­ern Hemi­sphere (win­ter up here) occurs when the earth is closer to the sun; there­fore, sum­mer down there is more intense but shorter. (We don’t have a short, non-​mathematical expla­na­tion for it. Per­haps that’s why our PhD is in the social sciences.)

Now, get­ting back to our orig­i­nal ques­tion, the lat­est sun­rise and ear­li­est sun­set do not occur on the short­est day of the year. 

The ear­li­est sun­sets in the North­ern Hemi­sphere occur right around this date, Decem­ber 8 (or 7^th or so). While the lat­est sun­rises don’t occur until about a week into the new year: around Jan­u­ary 5 or so. 

For those of us liv­ing at roughly the 40^th par­al­lel, the sun sets 3 – 4 min­utes ear­lier today than on the win­ter sol­stice, and near Jan­u­ary 5, is rises about 3 – 4 min­utes later in the morn­ing than on the solstice.

Some­thing sim­i­lar hap­pens in June, but it is not sym­met­ric with the win­ter. The ear­li­est sun­rise occurs around June 13, which is only about a week before the sum­mer sol­stice, whereas the lat­est sun­set occurs near the end of June, about a week later than it.

And you thought we were just a pretty face who thinks the gov­ern­ment bailout a bad idea.

We were search­ing our hard drive for a paper, and found a very inter­est­ing arti­cle that we had saved about the per­ils of exces­sive lever­age. It is As Funds Lever­age Up, Fears of Reck­on­ing Rise from the April 30, 2007, edi­tion of The Wall Street Jour­nal. It is sub­ti­tled: Fed and SEC Ques­tion Wall Street on Poli­cies; ‘A Mock­ery’ of Mar­gin.

We’re not sure if an arti­cle from the Spring of 2007 is truly an early warn­ing per our title, but “Warn­ings of Exces­sive Lever­age” doesn’t read as nicely.

In light of very recent events and mar­ket events since mid-​2007, it is quite inter­est­ing and dis­cusses or quotes many famil­iar names, includ­ing, John Paul­son (big win­ner); The Penn­syl­va­nia State Employ­ees’ Retire­ment Sys­tem (not a big win­ner); Tim­o­thy Gei­th­ner (next Trea­sury sec­re­tary); War­ren Buf­fett (not Jimmy Buf­fett); Ken­neth Grif­fin and Citadel Invest­ment Group (not big win­ners); Edward Lam­pert (not big win­ner, although we do like Lands End at Sears); and many more.

In the arti­cle, the reporters para­phrase Janet Tavakoli as follows: “the col­lat­eral pro­vided by hedge funds to secure swaps could be dif­fi­cult to trade… In a mar­ket down­turn, attempts to unwind such posi­tions could lead to a vicious cycle of sell­ing that would feed on itself…” Sounds reasonable.

We also par­tic­u­larly like this lit­tle box that doesn’t appear in the on-​line article:

RISK FACTOR

•  The Sit­u­a­tion: Reg­u­la­tors have grown wor­ried about ris­ing lever­age in the U.S. finan­cial sys­tem.
 
•  The Play­ers: Hedge funds and the Wall Street firms that pro­vide them with financ­ing are among the biggest con­trib­u­tors to the rise.
 
•  The Bot­tom Line: No one is sure what will hap­pen with this com­plex web of bor­row­ing and deriv­a­tives in the event of a seri­ous mar­ket downturn.

Wow, who would have thunk that there were peo­ple way back in 2007 warn­ing of such risks as well as the lax­ity of risk man­age­ment. Does this mean that the ongo­ing liq­uid­ity cri­sis need not have occurred? (By 2007, it was already too late to pre­vent the mort­gage cri­sis.) Does that mean the destruc­tion of tril­lions of dol­lars of wealth could have be pre­vented and avoided? So, this sug­gests that it wasn’t (and isn’t) a nat­ural dis­as­ter. Wow! And for what?

In the thirty-​five years since the first “energy cri­sis,” have Chrysler, Ford, or GM avoided a sin­gle man­age­ment fad?

Have their col­lec­tive man­age­ments through the years embraced of any sin­gle fad that led to sus­tain­able improve­ments anywhere?

Now, it is true that many fads – and we are using that word pejo­ra­tively – con­tain use­ful rec­om­men­da­tions and are con­sis­tent with effec­tive and effi­cient man­age­ment. How­ever, that’s only if such poli­cies and tech­niques are thought­fully applied to one’s par­tic­u­larly orga­ni­za­tion and sit­u­a­tion, and that is a big, bold IF. 

Spend­ing vast amounts of time and energy try­ing to get apply the inap­plic­a­ble might be hard and expen­sive work and might require cre­ativ­ity and inge­nu­ity, but it is almost always worth­less, regard­less of the sat­is­fac­tion felt by com­plet­ing a dif­fi­cult project.

It’s our view that the thought­ful appli­ca­tion of sound busi­ness poli­cies and prac­tices pre­cludes the neces­sity for such fads in the first place. A dif­fer­ent per­spec­tive and spe­cial­ized exper­tise are ben­e­fits that some con­sul­tants offer, but the whole­sale revamp­ing of only cer­tain func­tions is usu­ally myopic and often as sense­less as fit­ting square pegs in round holes. The fact that XYZ worked for firm RST in indus­try LMN means very lit­tle for firm ABC in indus­try DEF unless there are direct analogues.

Like­wise, that fact that RST’s mar­ket value increased when it imple­mented XYZ means very lit­tle for firm ABC. For exam­ple, one could ask: how were equity mar­kets and indus­try indices mov­ing in gen­eral dur­ing that the time of the imple­men­ta­tion? As we have all read many, many times, cor­re­la­tion is not cau­sa­tion, and cor­re­la­tion based upon a sam­ple of one gen­er­ally doesn’t mean much, either.

In every func­tional area – pro­duc­tion, finance, sales, human resources – from qual­ity cir­cles and total qual­ity man­age­ment to supply-​chain man­age­ment and just-​in-​time inven­to­ries to process engi­neer­ing – even robot­ics – to activity-​based cost­ing to EVA™ to knowl­edge man­age­ment et cetera, et cetera, did the car-​makers avoid or ignore a sin­gle one of them? (We’ve actu­ally for­got­ten many older fads or the list could have been longer. We think that qual­ity cir­cles were after disco, but our mem­ory fails.)

Were any fad­dish tech­niques thought­fully applied? Was the wheat, so-​to-​speak, ever sep­a­rated from the mar­ket­ing chaff? Did the suc­cess of the imple­men­ta­tion (of a pre­vi­ous fad) pre­clude the adop­tion of a new one? Were any of the pro­grams true man­age­ment innovations?

We won­der how much have the “Big Three” spent on large con­sult­ing firms that were mar­ket­ing such fads and imple­men­ta­tions dur­ing those thirty-​five years? To what ben­e­fit, and who mea­sured the ben­e­fit? The con­sult­ing company?

Was the down­fall of the big three inevitable? We don’t think so. 

Was the time to col­lapse length­ened or has­tened by the pur­chase of those fads? Could any­thing have been sub­sti­tuted for in place of those fads that could have pro­vided longer, more per­sis­tent ben­e­fits? Say, some­thing like thought­ful, dis­ci­plined man­age­ment with a solid under­stand­ing of the busi­ness of design­ing, man­u­fac­tur­ing, and sell­ing automobiles?

We doubt that one per­son could pos­sess all of the req­ui­site knowl­edge to mas­ter and directly con­trol all oper­a­tions and func­tions of a large auto man­u­fac­turer, but that’s not the point. If senior man­age­ment does not have the per­sonal knowl­edge to design, build, and sell cars, then it needs the man­age­r­ial knowl­edge and dis­ci­pline to orga­nize and con­trol activ­i­ties of those who do. That’s not to be out­sourced through a sequence of fads.

With­out man­age­r­ial knowl­edge and discipline, what hope – other than good for­tune – does a firm, its employ­ees, and its share­hold­ers have to (1) avoid waste­ful fads and other mis­steps in the short-​term or (2) survive in the long-​term? This cer­tainly seems to be true for firms with 60% mar­ket share in the late 1960s, and 50% mar­ket share in 1980, and 35% as recently as fif­teen years, ago, and about 20% today. (Of course, we’re speak­ing of GM, the big three still had nearly 60% of the domes­tic mar­ket as recently as 2003.)

What hope does a gov­ern­ment bailout offer for insti­tu­tions that have squan­dered so much?

Does any­one else imag­ine that Henry Ford is spin­ning in his grave?