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Strategic Intuition, a profound book

I have read a fantastic book:Strategic Intuition. It is one of the most profound books I have ever read. It answers the question how do you get your strategic idea? That’s the question that Strategic Intuition answers.  This link is to a 5 page recap of the book, it is worth reading many times over         http://bit.ly/nathan-strategic

William Duggan, an associate professor of Management at Columbia Business School, is an expert on what he calls “strategic intuition.” Recently, his class on this subject was rated the highest by the students of Columbia of any of the 218 classes offered. Below is my e-mail interview with Mr. Duggan:

1. Why did you write Strategic Intuition?
   I wrote Strategic Intuition because I stumbled upon the idea and immediately thought it was interesting and important. In strategy, we have lots of techniques for analyzing your industry, your competitors, your own position, customer trends and the like — but none of those methods tells you how to conclude what strategy to adopt. And we have lots of techniques for planning, where you lay out the activities and milestones to accomplish your goal — but none of these methods tells you how to set a goal in the first place. There’s a missing link between strategic analysis and strategic planning: how do you get your strategic idea? That’s the question that strategic intuition answers. I haven’t seen any other answer, and I’ve done a thorough search.
2. In a nutshell, what is strategic intuition?
   Strategic intuition is the selective projection of past elements into the future in a new combination as a course of action that fits your previous goals or sparks new ones, with the personal commitment to follow through and work out the details along the way. It happens as a flash of insight when your mind is relaxed and connects the dots.
3. How does it work?
   Modern neuroscience has overturned the idea of two sides of the brain — creativity on one side, analysis on the other — in favor of “intelligent memory”, where the brain constantly searches for a useful synthesis of a subset of elements from the huge volume it takes in and stores. As it turns out, the first great work of strategy scholarship dates from 1832 — On War by Carl von Clausewitz — and puts the same idea at the center of strategic success. Von Clausewitz gives four steps: 1) examples from history, where you take in elements of what others have done before you to succeed; 2) presence of mind, where you enter the strategic situation with no expectations of what the goal, problem, solution, or strategy should be; 3) “coup d’oeil”, which means “glance” in French, where selective elements from examples from history come together in your mind as a flash of insight; and 4) resolution, which is the determination to carry through the idea you’ve just seen in your mind.

Here is an interesting web site about the book: http://columbiapress.typepad.com/strategic_intuition  

When I went to this web site I saw a link to How Andrew Wiles solved Fermat's theorem by combining the work of other mathematicians in a flash of insight. 

Andrew Wiles (Now Sir Andrew Wiles) lived in our home in Sewanee when he was 19. His parents were friends of my folks. He is considered one of the greatest mathematicians of the 20th century. Andrew was the subject of a lecture by Malcolm Gladwell in the New Yorker 2012 conference a few years ago. Here is a link to a web log entry I did on the subject.

Reading Aloud NYTimes OpEd

I really enjoyed reading this NYTimes OpEd about reading aloud for greater understanding and benefit of the experience. I have for 9 years now subscribed to http://audible.com getting two books a month for download from a large selection. It is really nice to be able to relax and listen to a book being read to you. My device is an IPOD Touch. I recently listened to the New Testiment and read it on my IPOD using the http://www.olivetree.com/ software for the IPOD. It was just great. The audio program was Inspired By...The Bible Experience: New Testament which was the Winner of Audio Publishers Association 2007 Audie Award, Audiobook of the Year

Here is link to the NYT article:

http://www.nytimes.com/2009/05/16/opinion/16sat4.html?em=&pagewanted=print

Breathers Comment: The New Yorker

The TALK OF THE TOWN section of the New Yorker is often very insightful. This article takes us back to "It's a Wonderful Life" and compares George Bailey to Mr. Potter. Life is not often simple, the summary of their advice: "Take a deep breath... and Don't cry.

read more | digg story

-Machiavelli-The Florentine:The New Yorker

Many people act like their ethics come from "The Prince." While the author's discussions of Erasmus' "Education of a Christian Prince" and Sir Thomas Moore's "Utopia" are more noble, we would be wise to know the strategies recommended by Machiavelli to help navigate modern business and personal situations. Here is an example from the article of a Machiavellian tactic:

"Machiavelli especially admired a maneuver in which Borgia had asked the Duke of Urbino to lend him his artillery to help take a nearby town, then turned on the undefended duchy and took it instead."

read more | digg story

Credit Crunch lessons

I was reading an excellent article in "The Economist" March 14th edition but I found even more interesting were the comments written about the article's topic. The cause of this problem originated in too much liquidity (low short term interest rates) which were used to create a positive arbitrage with AAA rated mortgage securities funded by low cost treasury interest rate borrowings. I wrote about this recently in commenting on Hyman Minsky's economic theories.

http://www.economist.com/daily/news/displaystory.cfm?story_id=10855889&fsrc=nwl

Dousing the fire

Mar 14th 2008 | NEW YORK
From Economist.com

America's plan to fix the credit markets

HOW do you fight a conflagration when smaller blazes erupt almost daily? Unenviable though the task must seem, several regulatory bodies are having a go with credit markets. On Thursday March 13th the first of them, the President’s Working Group on Financial Markets (PWG), unveiled its blueprint for reform after nearly seven months of deliberation......

What I found even more interesting were some comments on the article:

There are such opposite opinions. First one that I don't agree with which advocates government takeover of the financial institutions:

Socialism for the Rich

In his recent book - The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash - Charles R. Morris writes:

"The question is whether the Countrywides of the world are risk-taking enterprises or public utilities. You can't be both. If the government is going to be on the hook, by means of deposit insurance, the various federal borrowing windows, or implicit federal insurance for "too important to fail" institutions, bank risk-taking has to be tightly controlled. Cautions, risk-adverse public utility-style banks need intelligent credit and balance-sheet managers, not envelope-pushing high-rollers with eight-figure paychecks."

We are being led to believe that taxpayers have just two options: (1) bailout the banks and brokerages or (2) see the economy go into a tailspin.

But, there's a third option: nationalize the banks and brokerages.

Essentially, this is what the British did with their troubled Northern Rock bank.

Unfortunately, that's not what will happen with failed investment banks like Bear Sterns.

Bear will be bailed out. It is socialism for Bear's rich clients and managers.

To prevent public outrage, we're now hearing that in the future the government will regulate these institutions tightly. By doing so, we're told, regulators will keep risk low so a credit crisis like this will never happen again. But, of course, this is what we heard back during the Savings and Loan crisis.

However, I don't think you can blame the regulators. They work with the regulations they're given, and the finance industry lobbies congress heavily to take away regulation to "free up free enterprise and innovation." But financial innovation is similar to creative income tax accounting: the innovation comes in finding loopholes in the rules and regulation. The high-rollers in finance get paid their eight-figure paychecks to find the loop holes (or create them through lobbying) that will allow them add more risk and take on more leverage.

Perhaps someday the taxpayers are going to come out of their mass media induced hypnotic trance and realize their being played for saps. When this happens, they won't let the banks fail, and they won't bail them out: We will nationalize them and all the other so called "private companies" who are "too big to fail."

And another opinion which represents what I think is accurate:

The credit-crunch and current meltdown have many causes, but the principal one was too much liquidity (money supply expanding faster than the economy). This was combined with possibly/probably negligent work by the rating agencies; regulations which FORCE most large investors (pension funds and insurance funds) to invest in highly rated securities; some fraud on the part of the mortgage broker/real estate appraisal community; an overall under-valuation of credit risk and credit risk analysis; the move to Basel II regulations which allow banks to put limited capital against loans to AAA rated entities; and other factors, including greed.

As an aside, who were the (in)sane lenders who allowed Carlyle's recently collapsed fund to lever 32X loan to value? I get nervous over 2X and my margin account is limited to about 0.8X!

One of the big accelerators of the mess is the uncertainty around all the monoline insurance companies. To me, the cleanest near-term solution is to nationalize any at-risk monoline insurance company (All?). The executives are severed, possibly with cause. The US government then guarantees all written insurance. The equity holders take the hit, as they should. All those which bought insurance, based on the flawed and regulated credit rating process, would be covered. This would dramatically increase confidence in the credit markets, because the risks would be much easier to assess.

Just the thoughts of a credit guy.

Ayn Rand reading

I have been remiss in not commenting on my reading of Ayn Rand 's books Atlas Shrugged and The Fountainhead.

I actually listened to them with my Audible subscription which is really great.

Atlas Shrugged came first. The audio book was over 50 hours in length (1200 pages for the book) and I could not put it down. It took me less than three weeks to hear. What a great story and also an accurate commentary on human nature. Ayn Rand was born in St. Peterburg Russia in 1905 and came to the US in 1921 at age 21. She really had a perspective on society coming from Russia of that day.

According to Amazon, "Atlas Shrugged is the 'second most influential book for Americans today" after the Bible, according to a joint survey conducted by the Library of Congress and the Book of the Month Club." I can understand why.

According to wikipedia, in 1931, Rand became a naturalized American citizen; she was fiercely proud of the United States, and in later years said to the graduating class at West Point, "I can say—not as a patriotic bromide, but with full knowledge of the necessary metaphysical, epistemological, ethical, political and aesthetic roots—that the United States of America is the greatest, the noblest and, in its original founding principles, the only moral country in the history of the world."^[17]

I think that America has faults and I don't think it is the *only" moral country but I do believe that she got it mostly right in her views.

Valuing companies by present and future value

This is a really good article.

http://online.wsj.com/article/SB119247756242759621.html

http://link.brightcove.com/services/link/bcpid572031310/bclid572028407/bctid1184457301 video

In the weekend edition of the WSJ was a super article entitled "The Future is Now" which included a very good 3 minutes video segment which can be seen below. As a business sale intermediary, businesses are sold in vast part based on historical cash flow. This article explains has to break the value of the enterprise into current value and future value. It uses McDonalds as a case study. In my business, there is a saying, "you get paid for past but people buy for the future."

11/8/07-Here is a link to a recent McDonalds earnings announcement after the article above about the Earnings increase at McDonalds. McDonald's Profit Increases 27%; Look at McDonalds stock over the past year:

Librarything.com web site

http://www.librarything.com/ is an interesting web site where you can catelog the books in your library and thus find other people who are interested in the same books.

Book Review "How" by Dov Seidman

My cousin Pat is a teacher at University of South Florida and recently asked me if I had read "How" by Dov Seidman:

"Nathan, a prof from UT-Austin who teaches business ethics just recommended a book called "How: Why How We Do Anything Means Everything...in Business (and in Life)" by Dov Seidman. Have you read this or heard anything about it? (The application to my immediate

interests: that it's not enough for students to improve writing and presentation skills, though both of those are crucial, but there's a third component that functions along with these 2: alertness to body language, social customs, etc--maybe what we could generally call social skills. Any thoughts on this?)

P"

I ordered the book from the library and read it over the past few days. 

My comments: I think the book is very good, it reminds me a lot of Stephen M.R. Covey's work "The Speed of Trust." We live is a world of instant communication and new consequences of "how" we do things. The essence of the book is Leadership and developing the habits that cause leadership. The book reminded me of my Dad because Dad used the same quote from Aristotle as Dov did in the final chapter "We are what we repeatedly do. Excellence, therefore, is not an act but a habit." Aristotle

Here is a summary from the Amazon page of book reviews and here is a link to a web page:

Book Description
The flood of information and unprecedented transparency reshaping today’s business world has dramatically changed the rules of the game. It’s no longer what you do that sets you apart from others, but how you do what you do. Whats are commodities, easily duplicated or reverse-engineered. Sustainable advantage and enduring success—for both companies and the people who work for them—now lie in the realm of how, the new frontier of conduct. For more than a decade, Dov Seidman’s pioneering organization, LRN, has helped some of the world’s most respected companies build "do it right," winning cultures. Seidman’s distinct vision of the world, business, and human endeavor has enabled more than ten million people doing business in over 100 countries to outbehave the competition. In HOW: Why How We Do Anything Means Everything . . . in Business (and in Life), Dov Seidman shares his unique approach with you. Through entertaining anecdotes, surprising case studies, cutting-edge research in a wide range of fields, and revealing interviews with a diverse group of business leaders, experts, and everyday people on the front lines, this book explores how we think, how we behave, and how we govern ourselves to uncover the values-driven "hows" of 21st-century success.

Divided into four comprehensive parts, this insightful guide:

• Exposes the forces and factors that have fundamentally changed the world in which business operates, placing a new focus on the hows with which we conduct ourselves
• Provides frameworks to help you understand these hows and implement them in powerful and productive ways
• Helps you channel your actions and decisions to thrive uniquely within today’s new business realities
• Sheds light on the systems of how—the dynamics between people that shape organizational culture—and introduces a bold new vision for winning through self-governance

The qualities that many once thought of as "soft"—trust, integrity, values, and reputation—are now the hard currency of business success and the ultimate drivers of efficiency, productivity, and profitability. With in-depth insights and practical advice, HOW will help you bring excellence and significance to your business endeavors—and your life—and refocus your efforts in powerful new ways. If you want to stand out, to thrive in our fast changing, hyperconnected, and hypertransparent world, open this book and discover HOW.

Dov Seidman’s professional career has focused on how companies and their people can operate in both a principled and profitable way. He is the Founder, Chairman, and CEO of LRN. Leading companies such as Disney, Dow Chemical, eBay, Johnson & Johnson, Procter & Gamble, Raytheon, and 3M turn to LRN to help management govern more effectively and workers do the right things the right way, even in the most challenging of situations. Dov is a Harvard Law School graduate who also earned a bachelor’s and master’s degree in philosophy from UCLA, and a BA with honors in philosophy, politics, and economics from Oxford University. For more on this book, visit www.HowsMatter.com.