Economic Round-up

 America’s Federal Reserve kept interest rates at a level close to zero. The Fed’s accompanying statement, which markets were keenly awaiting for any sign of a shift in policy, reiterated its intent to keep rates “exceptionally low” for an “extended period”.

 The Bank of England decided to inject a further £25 billion ($42 billion) into the British economy through its quantitative easing programme, raising the cumulative total to £200 billion. The extra asset purchases will be made over the next three months, a slower rate than before.

 At a conference in London several leading bankers criticised new proposals for regulating banks that are “too big to fail”. Josef Ackermann, head of Deutsche Bank and chairman of the Institute of International Finance, defended large banks as the “most efficient” means of providing financial services to multinationals.

 In an effort to diversify its foreign reserves, India bought 200 tons of gold from the IMF during October, which will nudge the country into the top ten gold-holders worldwide. The news sent the price of gold to another high.

 UBS made an unexpected loss in the third quarter, as net outflows from clients mounted in its private-banking business. The Swiss bank earlier this year reached a settlement with American authorities over “secret” accounts.

 CIT, a lender to small businesses, filed for bankruptcy protection under a reorganisation plan that had been accepted by most of its bondholders. The move was widely anticipated as CIT struggled with $30 billion in debt, which its restructuring will reduce by a third. The company received a $2.3 billion bail-out last year—money that is now unlikely to be returned to taxpayers.
(From The Economist)

US Dollar Index – USDX

The USD Index measures the performance of the U.S. dollar against a basket of currencies: EUR, JPY, GBP, CAD, CHF and SEK. A measure of the value of the U.S. dollar relative to majority of its most significant trading partners. This index is similar to other trade-weighted indexes, which also use the exchange rates from the same major currencies. Currently, this index is calculated by factoring in the exchange rates of six major world currencies: the euro, Japanese yen, Canadian dollar, British pound, Swedish krona and Swiss franc.

It is a weighted geometric mean of the dollar's value compared only with:
. Euro (EUR), 57.6% weight
. Japanese yen (JPY), 13.6% weight
. Pound sterling (GBP), 11.9% weight
. Canadian dollar (CAD), 9.1% weight
. Swedish krona (SEK), 4.2% weight and
. Swiss franc (CHF) 3.6% weight.

The makeup of the "basket" has been altered only once, when several European currencies were subsumed by the Euro at the start of 1999. This index started in 1973 with a base of 100 and is relative to this base. This means that a value of 120 would suggest that the U.S. dollar experienced a 20% increase in value over the time period. It is possible to incorporate futures or options strategies on the USDX. These financial products currently trade on the New York Board Of Trade.

Twitter's Business Model

An interesting article recently published in 'Harvard Business Review' about Twitter's business model by David L. Smith who is the is the CEO of Mediasmith. I think everyone will like to go through it as anyone and everyone is talking about Twitter now.

It has become a popular game, even among investors who should know better, to dismiss Twitter based on lack of a business model. But there is a difference between not generating income and lack of a business model. I believe that, in just a few short months, Twitter will show the world that not only do they have a business model, but that theirs is the most sophisticated around. As the founders have admitted, they did not necessarily plan out their success. But the result of their outside funding and considerable valuation is that they have been free to watch and learn what might be possible.

Most publishers talk about the two common monetization streams — advertising and subscribers — as though there are no other options. As many have seen over the last year, dependence upon advertising is a slippery slope in a downturn.

Last week, Microsoft's Bing and Google announced "search deals" with Twitter, with Bing also making a deal with Facebook, allowing the search engines to show results related to "what is going on right now". They tried to build this and still may, but paying Twitter and Facebook is logical for now as they are rapidly becoming major referral engines to many sites.

In fact, these are traffic deals. Until now Google has been the only company on the planet to make major money by driving traffic to other sites. These deals are Twitter's first steps toward doing the same.

A better way to cut costs

According to a recent McKinsey Quarterly survey, 79 percent of all companies have cut costs in response to the global economic crisis—but only 53 percent of executives think that doing so has helped their companies weather it. Yet organizations continue to cut. Cost reductions often go wrong, and experts suggested that they can be done in a better way.

In the heat of a financial crisis, companies must focus on their financial viability, but they tend to cut about equally everywhere—without considering their strategic needs—because that seems more straightforward, and in some senses more fair, to all executives concerned. A second problem, with longer-term consequences, is that quick head count reductions often come at a price: missing the opportunities that crises can create to improve business systems or to strengthen parts of an organization selectively.

First, companies should start any cost-cutting initiative by thinking through whether they could restructure the business to take advantage of current and projected marketplace trends (for instance, by exiting relatively low-profit or low-growth businesses) or to mitigate threats, such as consolidating competitors. An important part of the analysis is to understand a company’s financial situation and the range of potential outcomes under a number of different external economic scenarios. Second, within the resulting strategy, take time to understand which activities drive value—in the public and nonprofit sectors, a good proxy might be mandated outcomes, such as the number of workers, health metrics, or school performance—and which activities do or could make the organization competitively distinctive. Organizations should invest in value-creating activities and cut costs in others while meeting clear financial goals in a set time frame.

Intelligent cost cutting need not reduce the overall scale of the savings that organizations can achieve. But by shifting the focus from organizational structure to current and future strategic needs, it makes for smarter savings, even at companies that have already started down another path.

Matrix Management

Matrix management is a structure for running those companies that have both a diversity of products and a diversity of markets. In a matrix structure, responsibility for the products goes up and down one dimension and responsibility for the markets goes up and down another. This leaves most managers with a dual reporting line: to the head of their product division on the one hand, and to the head of their geographical market on the other.

The matrix management had been part of an attempt by companies to create complicated structures that matched their increasingly complicated strategies. But it focused only on the anatomy of the organisation. It ignored the physiology (the systems that allow information to flow in and around the organisation) and the psychology (the “shared norms, values and beliefs” of the organisation’s managers).

Making Better Decisions

In recent years decision makers in both the public and private sectors have made an astounding number of poor calls. The list of examples will be never ending if anyone starts to pen down those examples. So let’s not waste time in citing examples. Let’s get into the core issue as being carried in a recent article published in 'Harvard Business Review'.

Why this decision-making disorder? First, because decisions have generally been viewed as the prerogative of individuals—usually senior executives. The process employed, the information used, the logic relied on, have been left up to them, in something of a black box. Information goes in, decisions come out—and who knows what happens in between? (The black box deserves some unpacking). Second, unlike other business processes, decision making has rarely been the focus of systematic analysis inside the firm. Very few organizations have “reengineered” their decisions. Yet there are just as many opportunities to improve decision making as to improve any other process. Recent popular business books address a host of decision-making alternatives.

However, although businesspeople are clearly buying and reading these books, few companies have actually adopted their recommendations. The consequences of this inattention are becoming ever more severe. Organizations must help their managers employ better decision-making processes. Better processes won’t guarantee better decisions, of course, but they can make them more likely. One can improve decision making in following steps:

Identification - Managers should begin by listing the decisions that must be made and deciding which are most important. For example, “the top 10 decisions required to execute our strategy” or “the top 10 decisions that have to go well if we are to meet our financial goals.” Some decisions will be rare and highly strategic. Without some prioritization, all decisions will be treated as equal—which probably means that the important ones won’t be analyzed with sufficient care.

Inventory - In addition to identifying key decisions, you should assess the factors that go into each of them. Who plays what role in the decision? How often does it occur? What information is available to support it? How well is the decision typically made? Such an examination helps an organization understand which decisions need improvement and what processes might make them more effective, while establishing a common language for discussing decision making.

Intervention - Having narrowed down your list of decisions and examined what’s involved in making each, you can design the roles, processes, systems, and behaviors your organization should be using to make them. The key to effective decision interventions is a broad, inclusive approach that considers all methods of improvement and addresses all aspects of the decision process—including execution of the decision, which is often overlooked.

Prioritize Value over Volume

Recently I came across an article from Harvard Business Review and the subject is very close to my heart as I have several arguments on this and today I am happy that my thought process was right. Research has shown that multitasking results in mediocre outcomes. By giving too little attention to too many things, you fail to do anything well. However, the answer isn't single-tasking either. Single-tasking is far too slow to help you succeed in today's fast-paced world. Instead, identify the tasks that will create the most value and focus on those. By prioritizing value over volume and sharpening your focus on the things that truly matter, you'll increase the quality of your work, and ultimately, the value you provide. What to do with all those tasks that didn't make the high value list? Put them on a "do later" list. If they fail to make it to the high value list over and over again, ask yourself: why do them at all?