A Dozen Things I’ve Learned About Strategy, Business and Investing From Michael Porter

A Dozen Things I’ve Learned About Strategy, Business and Investing From Michael Porter

1.            “In many companies strategy is built around the value proposition, which is the demand side of the equation.  But …it's [also] about the supply side.” In his classic “Five Minute University” routine on Saturday Night Live the comedian “Father Guido Sarducci” pointed out: “Economics? Supply and Demand. That's it.'" What Michael Porter did after graduating from Harvard Business School was to go across the Charles River and get an Economics PhD.  Porter came back to the Harvard Business School to teach as a professor yelling: "Hey people, *supply* matters too when it comes to generating a profit." It’s that simple. If you have too much supply, then price drops to a point where there is no long term industry profit above the company's cost of capital.  That Michael Porter’s most important insight was to teach business school academics that demand *and supply* matters in determining profit is shocking, but there it is.  Sometimes you will hear a knucklehead saying moats don’t matter since all that matters is delivering customer value in innovative/disruptive ways. This ignores that fact that moats are about dealing with competitors - delivering value to customers is a different issue. Companies with strong moats are in a position to deliver more to customers if they desire. The idea that the supply of alternatives to what you sell does not matter in a business in insanity.

2.            “If there are no barriers to entry… you won't be very profitable.” If there is no impediment to new supply of what you sell competition among suppliers will cause price to drop to a point where there is no long term industry profit greater than the icost of capital.  Michael Porter calls a company’s barriers to entry a “sustainable competitive advantage.” Warren Buffett calls it a “moat.”  The two terms are essentially identical.  The principle is so simple and yet so many people think only about customers and not competitors as well.  Yes, innovate and deliver exceptional value for customers.  No, that is not necessarily enough for sustainable profitability.

3.            “It's incredibly arrogant for a company to believe that it can deliver the same sort of product that its rivals do and actually do better for very long.”  If you deliver the same product or service as your competitor you by definition don’t have a moat.  Competition will in that case be based on price and price-based competition inevitably degrades to a point where profit disappears.   Porter teaches:  “if customers have all the power, and if rivalry is based on price… you won't be very profitable.”  He adds: “Produc[ing] the highest-quality products at the lowest cost or consolidate[ing] their industry [is] trying to improve on best practices. That's not a strategy."

4.            “Competition for profits goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products.” What you pay for inputs into what you make as a product or service determines whether you will have a profit.  If the supplier has wholesale transfer pricing power that company can take your profit in a process sometimes referred to as “supplier hold up.” Having a single supplier of any essential element of your business offering is a very bad idea.  Leave it to an ordinary business person in the food business to describe the problem simply: “There’s no rent control on restaurant rent, so even if we did start to be successful, the landlord could jack up our rent. A lot of restaurants get taken advantage of by landlords this way.” Similarly if you have only one buyer of what you make, you have also a huge wholesale transfer pricing problem.

5.            "Change is faster now than it was 10 or 15 years ago. Does that mean you shouldn't have a direction? Well, probably not." Yes, moats are harder to create and maintain than they ever were. Change is accelerating and more and more of the world is part of Nassim Taleb’s Extremistan. No, that does not mean that strategy, supplier hold up, etc. do not matter.  That it is harder to generate or maintain a moat does not mean that is any less important.

6.            “Strategy is about making choices, trade-offs; it's about deliberately choosing to be different…. “The essence of strategy is choosing what not to do.” One of the hardest things for many people in business is to not do something. One common example is the restaurant with a nearly endless menu. They often serve everything poorly and unprofitably.  

7.            “Operational effectiveness is about things that you really shouldn't have to make choices on; it's about what's good for everybody and about what every business should be doing.” That operational effectiveness is not strategy does not mean that operational effectiveness is any less important. It’s just a different activity. 

8.            “You don't have to have all the answers up front. Most successful companies get two or three or four of the pieces right at the start, and then they elucidate their strategy over time.” Startups may going to need some time to sort out their strategy. That’s perfectly fine and in fact to be expected for a firm that is seeking the massive returns that can come from optionality. Larger more established firms must not only try to profit from optionality but preserve revenue streams that already exist.  

9.            “Strategy can be seen as a set of relationship to profitability. Profitability is revenue minus costs.”  People who believe they can “exclude items” in calculating profit sometimes fool themselves when their original intent was just to fool others. 

10.          “Successful companies do not skate to where the puck will be—they define it.” Speaks for itself and besides I am over my self-imposed limit of 999 words.

11.          "Continuity of strategic direction and continuous improvement in how you do things are absolutely consistent with each other. In fact, they're mutually reinforcing." Speaks for itself.  

12.         “If people in the organization don't understand how a company is supposed to be different, how it creates value compared to its rivals, then how can they possibly make all of the myriad choices they have to make?"  Speaks for itself. 

10 Benefits of Reading: Why You Should Read Every Day - lifehack.org

10 Benefits of Reading: Why You Should Read Every Day

When was the last time you read a book, or a substantial magazine article? Do your daily reading habits center around tweets, Facebook updates, or the directions on your instant oatmeal packet? If you’re one of countless people who don’t make a habit of reading regularly, you might be missing out: reading has a significant number of benefits, and just a few benefits of reading are listed below.

1. Mental Stimulation

Studies have shown that staying mentally stimulated can slow the progress of (or possibly even prevent) Alzheimer’s and Dementia, since keeping your brain active and engaged prevents it from losing power. Just like any other muscle in the body, the brain requires exercise to keep it strong and healthy, so the phrase “use it or lose it” is particularly apt when it comes to your mind. Doing puzzles and playing games such as chess have also been found to be helpful with cognitive stimulation.

2. Stress Reduction

No matter how much stress you have at work, in your personal relationships, or countless other issues faced in daily life, it all just slips away when you lose yourself in a great story. A well-written novel can transport you to other realms, while an engaging article will distract you and keep you in the present moment, letting tensions drain away and allowing you to relax.

3. Knowledge

Everything you read fills your head with new bits of information, and you never know when it might come in handy. The more knowledge you have, the better-equipped you are to tackle any challenge you’ll ever face.
Additionally, here’s a bit of food for thought: should you ever find yourself in dire circumstances, remember that although you might lose everything else—your job, your possessions, your money, even your health—knowledge can never be taken from you.

4.Vocabulary Expansion

This goes with the above topic: the more you read, the more words you gain exposure to, and they’ll inevitably make their way into your everyday vocabulary. Being articulate and well-spoken is of great help in any profession, and knowing that you can speak to higher-ups with self-confidence can be an enormous boost to your self-esteem. It could even aid in your career, as those who are well-read, well-spoken, and knowledgeable on a variety of topics tend to get promotions more quickly (and more often) than those with smaller vocabularies and lack of awareness of literature, scientific breakthroughs, and global events.
Reading books is also vital for learning new languages, as non-native speakers gain exposure to words used in context, which will ameliorate their own speaking and writing fluency.

5. Memory Improvement

When you read a book, you have to remember an assortment of characters, their backgrounds, ambitions, history, and nuances, as well as the various arcs and sub-plots that weave their way through every story. That’s a fair bit to remember, but brains are marvellous things and can remember these things with relative ease. Amazingly enough, every new memory you create forges new synapses (brain pathways)and strengthens existing ones, which assists in short-term memory recall as well as stabilizing moods. How cool is that?

6. Stronger Analytical Thinking Skills

Have you ever read an amazing mystery novel, and solved the mystery yourself before finishing the book? If so, you were able to put critical and analytical thinking to work by taking note of all the details provided and sorting them out to determine “whodunnit”.
That same ability to analyze details also comes in handy when it comes to critiquing the plot; determining whether it was a well-written piece, if the characters were properly developed, if the storyline ran smoothly, etc. Should you ever have an opportunity to discuss the book with others, you’ll be able to state your opinions clearly, as you’ve taken the time to really consider all the aspects involved.

7. Improved Focus and Concentration

In our internet-crazed world, attention is drawn in a million different directions at once as we multi-task through every day. In a single 5-minute span, the average person will divide their time between working on a task, checking email, chatting with a couple of people (via gchat, skype, etc.), keeping an eye on twitter, monitoring their smartphone, and interacting with co-workers. This type of ADD-like behaviour causes stress levels to rise, and lowers our productivity.
When you read a book, all of your attention is focused on the story—the rest of the world just falls away, and you can immerse yourself in every fine detail you’re absorbing. Try reading for 15-20 minutes before work (i.e. on your morning commute, if you take public transit), and you’ll be surprised at how much more focused you are once you get to the office.

8. Better Writing Skills

This goes hand-in-hand with the expansion of your vocabulary: exposure to published, well-written work has a noted effect on one’s own writing, as observing the cadence, fluidity, and writing styles of other authors will invariably influence your own work. In the same way that musicians influence one another, and painters use techniques established by previous masters, so do writers learn how to craft prose by reading the works of others.

9. Tranquility

In addition to the relaxation that accompanies reading a good book, it’s possible that the subject you read about can bring about immense inner peace and tranquility. Reading spiritual texts can lower blood pressure and bring about an immense sense of calm, while reading self-help books has been shown to help people suffering from certain mood disorders and mild mental illnesses.

10. Free Entertainment

Though many of us like to buy books so we can annotate them and dog-ear pages for future reference, they can be quite pricey. For low-budget entertainment, you can visit your local library and bask in the glory of the countless tomes available there for free. Libraries have books on every subject imaginable, and since they rotate their stock and constantly get new books, you’ll never run out of reading materials.
If you happen to live in an area that doesn’t have a local library, or if you’re mobility-impaired and can’t get to one easily, most libraries have their books available in PDF or ePub format so you can read them on your e-reader, iPad, or your computer screen. There are also many sources online where you can download free e-books, so go hunting for something new to read!
There’s a reading genre for every literate person on the planet, and whether your tastes lie in classical literature, poetry, fashion magazines, biographies, religious texts, young adult books, self-help guides, street lit, or romance novels, there’s something out there to capture your curiosity and imagination. Step away from your computer for a little while, crack open a book, and replenish your soul for a little while.

First Among Equals: True Democracy in Action - JOGISHWAR SINGH

First Among Equals:  True Democracy in Action

JOGISHWAR SINGH

As a Swiss citizen born in India, I am many times brought to think about my experiences of the democratic systems prevalent in the two countries. 

Before Indian ‘patriots’ start screaming murder at what I am going to say, I should point out that I am fully aware that I am talking about two different historical realities.

Switzerland has been independent for over 800 years while India is a newly created entity, now a mere 66 years old.

Switzerland has a population of only 8 million while India has the second highest population of any country in the world at over 1.2 billion (give or take a few million). And expected, in the near future, to even outstrip China, and become the world’s most populous.

The trigger for this set of reflections was what I saw on the 7.30 pm evening news on Swiss TV a couple of weeks ago.

The Swiss President, Mr Ueli Maurer, was leaving on a five day state visit to China. The news showed him arriving at Zürich airport in an ordinary private vehicle. The President got out of the car by opening the car door himself. He walked to the nearby baggage trolley stand outside the airport entrance. He took a baggage trolley out, rolled it towards the car, lifted his suitcase and travel bag himself, put these on the trolley which he then rolled towards the entrance like any passenger lambda like you or me. He walked up to the check in counter with just two other persons walking behind him. He checked his luggage in for a commercial flight without any special treatment being meted out to him.

For any Indians (or others) who might find it difficult to believe what I have described above, you can CLICK on the link provided hereunder, at the end of this article, to view a TV news clip from the evening prime time news for July 16, 2013..

You’ll get visual proof of the Swiss President’s arrival at the airport, his check in for his state visit to China and a short interview with a TV journalist. This clip is really worth watching.

Conditioned by my personal experiences of dealing with politicians and government ministers in India while serving as an IAS (Indian Administrative Service) officer, I was so struck by the contrast between what I had experienced in India and what I was seeing on the TV screen that I told my wife that this represented one of the finest examples of democracy for me, certainly of the Swiss variety. It made me proud to be the citizen of a country where the serving President behaves like an ordinary citizen and does not feel the need to consider special privileged treatment as his divine birthright.

I remembered the countless times when I had seen the fury of Indian politicians, much below the level of the President of a country, at what they considered as a slight because they had not been treated as demi-gods.

I am not a psychologist. I do not know whether centuries of slavery have generated this distorted VIP culture in India but I remember that we all did curse the politicians there for causing so much inconvenience to the general public by expecting, demanding and getting privileged treatment.

Who in India, except maybe some politicians or bureaucrats, has not been inconvenienced by VIP visits for which miles of roads and highways, even entire neighbourhoods, are blocked off to traffic, and flights are delayed, awaiting the arrival of some VIP or even his/her flunkies/family members?

Any such inconvenience would cause an uproar in Switzerland.

In India, it does not generate even a whimper.

In this context, an incident from the not very distant past strongly lingers in my memory. A few years ago, a former IAS batch-mate of mine (1976 batch) had visited Switzerland.

I have noticed that Switzerland becomes a prize destination of choice for a lot of Indian ministers and bureaucrats during their hot summer for attending all kinds of useless conferences which are essentially talking shops organised by the United Nations, an organisation which is a hotbed of nepotism and inefficiency.

This IAS officer wanted to see Switzerland, so I acted as his local tourist guide.

While we were going around the Swiss federal capital, Bern, it was lunch time so we decided to have lunch at a restaurant very close to the Swiss parliament building.

As we took our seats at a table, a Swiss gentleman sitting at the next table, reading his newspaper while sipping his coffee, greeted us in English. While we ordered our meal and waited, he finished reading his newspaper, drank his coffee and called for his bill which he paid before leaving. While going out, he again politely wished us goodbye, even saying, “I hope you enjoy your stay in Switzerland” in English.

After he had left, I asked my visitor if he knew who the man had been. Obviously, my visitor did not know the answer. I informed him that we had just been greeted by the then serving Swiss President, Mr René Felber.

My guest thought I was making fun of him. He would not believe me so I called the restaurant manager to confirm the veracity of what I had told him. The manager duly confirmed what I had said.

My Indian visitor was flabbergasted. He said, “How can this be possible? He actually paid his bill before leaving”.

So, what struck my visitor the most had been the fact that a VIP had actually paid his bill! I wonder what he would say if he saw our current President, Mr Ueli Maurer, personally loading his bags on to a baggage trolley and wheeling it to a check-in counter just like any ordinary citizen. His disbelief could only be countered by visual evidence on the TV!

My visitor’s reaction brought back memories of when, as a serving sub-divisional or district level official, I had been called upon to organise lunches and dinners for numerous collections of freeloaders travelling with ministers or bureaucrats in India.

I seldom remember any politician or bureaucrat actually paying or even offering to pay for the bonanza laid out for them. Those who did offer to pay, did so at the ridiculously low official daily fare of eleven rupees (today, a mere 20 cents US) per person or something like that.

Nobody ever asked how it had been possible to lay out a lavish meal comprising several dishes, accompanied by expensive alcoholic beverages, for such a petty sum. I never found out myself who used to pay for all this extravaganza at the end of the line.

Like a good Indian bureaucrat, I just used to pass the buck down the line to my junior magistrates and revenue officials. To this day, I am unable to clarify which poor victim -- read, citizen! -- who got stuck with paying for all the freebies on offer.

While working as chief of staff to the President of the Swiss Commission for the Presence of Switzerland in Foreign Countries many years ago, I had the chance of accompanying him to Strasbourg for meetings of the Council of Europe. I also had the privilege of close interaction with several Swiss members of parliament over an extended period of 12 to 14 months.

The contrast to the behavioural pattern of what I had experienced in India with politicians was so stark that it has stayed seared in my mind even till today.

I am by no means suggesting that Swiss politicians are angels but the kind of behaviour that Indian politicians or bureaucrats get away with as a matter of routine in India would torpedo their careers in Switzerland in a jiffy.

Each such incident deepens my gratitude to Waheguru Almighty for having made me settle down in a country like Switzerland where the President carries his own bags to the check-in counter.

Where no roads are blocked for hours so that some VIP can, in the name of security, be whisked around in convoys of official vehicles.

Where politicians and bureaucrats pay their bills in restaurants.

Where grossly sycophantic behaviour is not the general and accepted norm.

Where no red-light beacons or screaming sirens signal the passage of VIP vehicles. Indeed, the red-light-beacon culture of officialdom in India merits a full story in itself.

I might accept India as a true democracy the day I see its President or Prime Minister behaving like the Swiss President before his departure on an official visit abroad.

I don’t think I will ever see such a sight in India during my lifetime.

You think, maybe, my grandchildren will?

 To see the video clip please click on the link below

http://www.rts.ch/video/info/journal-19h30/5071654-ueli-maurer-se-rend-en-chine-en-toute-simplicite.html#.UgmtslvQqi8.facebook

5 Reasons why you should involve your family in financial matters

5 Reasons why you should involve your family in financial matters

• Involving your spouse in financial planning: In our country, most financial decisions are taken by the bread earner or the head of the family. In this process, the views of the spouse (usually the wife) are generally not taken into consideration. This may be because the spouse lacks financial knowledge or interest in the financial affairs of the family. However, as irrelevant as this may sound to you, it is extremely important to include your better half while planning or reviewing your financial plans. You might be surprised at the inputs your spouse can provide while planning your finances. The final goals of you and your spouse may remain the same such as educating and getting your children settled, saving for your retirement and medical emergencies and so on. However, her views regarding each goal and how she would prefer them to be realised might be different. For example, your spouse might want to retire in a different city or want your child to pursue a different stream and have a different future from what you may have envisioned. She might be in a better position to understand your child's dreams or her personal wishes. Her opinions about various subjects can bring a great deal of clarity and another perception to your financial plan. 

• Investments and Liabilities: Nomination is a process where you nominate an individual (usually a family member) to rightfully claim your assets in your absence. Appointing a nominee for all your assets will reduce the hassles faced by your family in case of your death. It is imperative that your spouse knows about all your bank accounts, investments (both financial and physical) and liabilities. This will ensure that she never faces helplessness and is never misled by any of your debtors or creditors in your absence. Make sure that you have disclosed the whereabouts of your life and health insurance policies to your family. This will help them in easily procuring the money when they need it the most. It is also prudent to undertake estate planning and have a will in place as your age progresses to ensure that your belongings can easily be passed on to your spouse or successors. It is also important to make your children aware of the family's assets and the procedure to claim the money in case something happens to both the parents. If you have minor children, make sure that a guardian has been appointed thoughtfully and is one who's trustworthy. 

• Creating awareness among children: Many of you may have experienced that today's generation is very smart and are fast learners due to their inquisitive acumen. Schools today are also training children about personal finances, but having said that it is imperative to involve your children while taking financial decisions for the family, especially the ones that will affect them, and infuse in them the value of money no matter what your economic status is. Today, while most parents want to provide their children with the best education of all, it is imperative to involve the child while creating a financial plan for the said goal. You see, children learn a great deal by observing. Discussions like these will create curiosity in their mind and help them understand the family's financial situation. As parents, the earlier you create financial awareness among your children, the lesser mistakes they would make as they grow up. 

• Financial Independence: Although involving the family members in handling all the day-to-day finances may not be necessary, it would be prudent to discuss with them the monthly budgets and expenses. You must give your spouse and kids an opportunity to handle some of their personal and household expenses. For instance, let your spouse pay certain monthly expenses if he/she is not already doing so. This will create a feeling of being involved and the ability to contribute to the financial affairs of the family and also help them to become financially independent in the long term. Also most teenagers use mobile phones. Give them a budget for the usage and let them pay for their own expenses from their pocket money. This will help them to appreciate the importance of financial planning and budgeting. It will be easier for them to step into the shoes of the 'finance manager' of the house easily in his/her absence. Make sure that all the vital financial information is passed on to all your family members. This will avoid any confusions and stress in case of any unforeseen contingencies that may occur in the future. Also, be open and honest regarding the financial history of the family. Let your experiences, whether favourable or unfavourable be a teaching lesson for them. 

• Team Effort: It takes discipline and efforts from all the family members to ensure that the financial goals of the family are fulfilled. You must ensure that you have a meeting with your spouse and children to determine the monthly budget and review the expenses. Only if all the members of the family mutually take efforts for curbing unnecessary expenses and work towards a common goal, can the financial objectives of the family be met. You must discuss and together develop a plan of action; which will increase the chances of bringing your wishes to fruition than only a single person doing all the brain storming. Without team work between members, all these wishes and dreams might never come true. 

The important thing to draw is that discussing money matters with family is not a taboo topic. If you have not yet disclosed, then it is high time you started sharing all financial issues with your family before it's too late and discuss it rationally with maturity.