How the hell do they do it .. and why? Ian's May 2007 ABC Radio National Perspective Broadcast

http://www.archive.org/details/HowTheHellDoTheyDoIt..AndWhyIansMay2007AbcRadioNational

Beer Marketing at the Australia New Zealand Marketing Academy Conference (Perth, November 2011)

Surprisingly there is not yet a specialist academic Journal of Beer Marketing, or indeed, a Beer Marketing Research Institute. There are specialist academic marketing journals and research institutes for Wine, Food and lots of other types of markets, products  and services, including Banks, Services, Health Care, Sports, Tourism and so on.  Why is this?  We (not personally) drink more beer than wine, beer has a long and distinguished history and place in the culture of all societies; beer is a major industry in most countries – from Octoberfest to the Campaign for Real Ale to the impact of Germans on Chinese beer brewing for instance; beer consumption is celebrated in many ways in many countries; there are many diverse cultures of consumption – think lagerlouts in England, beer drinking competitions, the English Pub, The Irish Pub, the Aussie Pub, the Local and so on.  Innovations and entrepreneurship in beer production, branding, marketing, competition, packaging and drinking are famous in marketing textbooks and used frequently in teaching marketing – think of the beer wars in Japan, the campaign for real ale in the UK, the boutique breweries in the USA, the Fosterisation of the world in the world for example.  Beer is featured significantly in international marketing and business – Fosterisation again, Heinekenisation and many others. It’s an SME and MNC business.   

All the concepts and theories of marketing are relevant to this product and consumption context. Here are just a few translations from the general to the particular: CB (Consumption of Beer); B2B (Beer to Beer Marketing); IB (international Beer); 4Ps (After a few pints at the pub); BB (Beer Bellies); 5 Forces (Heinken, Asahi, Fosters, Corona, Guiness?) and so on.  You make it up from now on.

A call for papers for special sessions on Beer Marketing was sent out and invitations to submit papers for the special sessions were sent to a number of researchers with relevant research expertise in various countries. We were delighted by the response and the papers are of a high standard. Some international researchers, already presenting other papers at ANZMAC, opted to make a research presentation only but may contribute a formal paper to a special issue of the Journal of Food Products Marketing. Other special issues and sessions at future conferences are anticipated and, maybe, even a Journal of Beer Marketing may be borne.  Drink on!

ANZMAC Conference Day 2 (Tuesday) Afternoon Sessions:

Beer Session 1 CB: The Consumption of Beer

 Chairs: Ian Wilkinson, Sydney University and Louise Young, University of Western Sydney

Ian Wilkinson, Sydney University and Louise Young, University of Western Sydney “Opening Remarks: The Case for Beer Marketing”

Charles Areni, Sydney University “Having a Beer with Me Mates after the Footy:

Australians’ Enjoyment of Daily Life Experiences”

Louise Young, UWS “A Californian Yankee in King Arthur’s Court Hotel:  A Self-Reflective Essay on (the Pleasures of) Real Ale Consumption”

Michael Mizon and Rohan Miller, University of Sydney “Virtual Lubrication: A Preliminary Investigation of the Role of Facebook in the Development of a Contemporary Drinking Culture in Young Australian Adults”

BS 2: BM1: Cases of Beer Marketing 1

Chair: Charles Areni, Sydney University

Stephen Holden, Bond University ““Three cheers for a new beer: Marketing insights from the birth of boutique brewing in Australia”

Yimin (Stephanie) Huang, Macquarie University and Hongxia Zhang, Peking University “How to Turn Brand Value into Sales Volume in the Beer Market in China: A Case of Tsingtao Beer”

Roger March, Central Queensland University “The Japanese Beer Industry”

Nguyen Thai, University of Melbourne, “Vietnamese ‘Bia Hoi’ – The world’s cheapest beer!”

BS 3: Beer Tasting Session

MC: Stephen Holden, Bond University

This session will feature boutique beers from Little Creatures and Matilda Bay Brewing and others

ANZMAC Conference Day 3 (Wednesday) Afternoon Sessions

BS 4: BM2: Cases of Beer Marketing 2

Chair:  Louise Young, University of Western Sydney

David Low, James Cook University and Laurel Jackson, University of Western Sydney, “Your shout mate: From the Rum economy to the Beer economy”

Ian Wilkinson and Fabian Held, University of Sydney, “The Beer Game: Research Implications and the role of Agent-Based Simulation Models in Beer Distribution”

Michael Kleinaltenkamp, Freier Universitat Berlin, “B2B to Beer Marketing: A 20 Century Marketing Textbook” (Presentation only)

Per Freytag, University of Southern Denmark, “A Case of Danish Beer” (Presentation only)

Session 5: More Cases of Beer and Panel Discussion

Chair: Ian Wilkinson, University of Sydney

Henrikki Tikkanen, Joel Hietanen, Timo Järvensivu et al, Aalto University “A Case of Finnish Beer” (Presentation only)

Phil Gendall, Massey University, “A Case of New Zealand Beer” (Presentation only) to be confirmed

Panel Discussion “Do we need a Journal of Beer Marketing and which idiot is going to do the serious stuff?”

Panelists (in drinking order):
Louise Young, UWS (Chair and drinker)

Charles Areni, USYD (Drinker and Discussant)

Phil Gendall (D&D)

Yimin Huang (NonD&D)

Michael Kleinaltenkamp, FUBerlin (D&D)

Stephen Holden, Bond (D&D)

Henrikki Tikkanen, Aalto (D&D)

Ian Wilkinson, USYD (D&D)

and others on the floor.

Business Relating Business -- Or Shameless Self Promotion!

This book assesses the nature and development of collaborative advantages as a means to boost international competitiveness as well as the performance of both organisations and nations.

 http://books.google.com/books/about/Business_relating_business.html?id=no-FpmuekEc

Business Relating Business argues that business performance depends on the way a firm is connected to other firms and organisations and not just its own skill and resources. The book synthesises thinking from marketing, management, economics and international business with evolutionary biology and complexity theory, as well as integrating many years’ research on interfirm relations and networks. It develops the management and policy implications of adopting relationship and network perspectives and sets out an agenda for future research.
It brings together the latest thinking and research in the area and this book will be of particular interest to academics focusing on a wide range of subjects within business and management and marketing including: industrial and business-to-business marketing, marketing channels, supply chain management, purchasing, relationship marketing and management, strategic alliances and joint ventures, business strategy and competition. The book will also appeal to economists as well as researchers in management and economic sociology, industrial and organisation structure and strategy.

Contents

Introduction: Relationships and Networks Are Us 
1. The Nature and Role of Relations and Networks in Business 
2. Why Business Relations and Networks Exist I: Specialisation and the Economics of Insourcing
    and Outsourcing 
3. Why Business Relations and Networks Exist II: Value Creation and Innovation 
4. Business Mating: Establishing and Developing Business Relations and Networks 
5. Relationship Attractors: Typologies of Business Relations 
6. Business Dancing: Managing and Being Managed in Business Relations and Networks 
7. Strategies for Firms in Business Relations and Networks: The Extended Enterprise and 
    Soft-Assembled Strategies
8. Strategies for Policy Makers in Business Relations and Networks: Evolving Evolvable Relations
    and Networks 
9. Reinventing The Future of Business Relations and Networks 


Reviews

‘This is a most informative, comprehensive, and well-written book. It is full of interesting detail, and the analysis – though involving many complex ideas – is presented in a coherent and logical style that ensures the reader’s interest in retained throughout. It is very suited for its intended market – final undergraduate and postgraduate students in a variety of disciplines, including business, business organisation, marketing, and customer-relationship management.’
– First Trust Bank Economic Outlook and Business Review

'This book demonstrates that no organisation is an island, but is part of a complex structure composed of a myriad of other organisations. The author provides an analytical framework within which an organisation’s marketing strategy may recognise the opportunities and challenges offered by the interrelated networks within which it operates.’
– Don Dixon, formerly of Temple University and Penn State University, US

‘With few exceptions, professors of marketing are balanced and diplomatic and avoid being personal or original. They hide behind references to Journal of Marketing articles; it makes them feel secure. Not so Ian Wilkinson. No doubt well-read, he explores the networks of B2B marketing on his own terms, with originality; business dancing is such a creative example. Read his book and learn to business dance!’
– Evert Gummesson, Stockholm University, Sweden

On Religion

I am having a running battle with my nephew, who has become a bible basher, is doing religious studies and has decided that he has "let JC into his life" or some such.  I am rather disappointed with these developments for several reasons. I have never been religious minded myself and my parents also.  At school I used to come last in religion classes as I only ever wrote my name on the exam papers. My parents could not have cared less about this. It was the other subjects that mattered - though it did pull my average mark down a mite. My daughter is similarly inclined and opted to be Jewish at primary school because the food was better. We also at one time thought we had Jewish blood in us so this made some sense.  But this turned out to be a furphie (i.e. not true).  But that is another story.

In recent years I have become more aggressively anti religion because I believe religions have been responsible for incredible evilness in the world over the centuries - in the name of religion. Think of the Crusades, the religious wars in Europe, the Spanish Inquisition, extremist Islamic religions etc etc. I am a big fan of Richard Dawkins as a scientists and he has had a major impact on my thinking. I value his book The God Delusion.  This nicely turns the debate on its head.  Turning a scientific eye to the existence of religions.  And when you think about it it is very understandable.  Back then the world was a pretty strange and scary place.  There were monsters out there.  If the sun did not come up again the next day we were stuffed.  And what were all those twinkly things in the sky? And why did people die?  What happened to the person you knew when their body packed it in?  Scary stuff yet the people back then had more or less the same brains as us.  But they could not go to school or read a book and find out how and why things worked the way they did.  They had to make it up for themselves or listen to someone else.  And they did and some stories had more appeal and greater following.  Important and powerful people with ideas and claiming irrefutable truths.  If they had all this power and strength of belief they may be right. Or anyway it was prudent to go along with them.

And knowledge is power.  The Greeks and Romans had it in spades (and shovels, roads and bridges and philosophy too). But they had slaves and the downtrodden. Christian beliefs united the underdogs and help set them free mentally (the afterlife) and actually - the rose up.  Then there was darkness upon the earth. The thugs and barbarians took over and they could not read the Roman stuff. Except for the Arabs, thanks, for keeping all the Roman literature and knowledge alive and storing it for the future. But after the barbarians fought it out some big irrefutable ideas arose and united large numbers of people in the name of religion (in the West anyway). The Catholics arose and had big armies to ensure acceptance of their ideas.

They had the Greek and Roman knowledge in the books and stored them. But no one was allowed to read them.  The general populace could not read anyhow and did not understand Latin.  Imagine trotting along to church on Sundays and seeing all that stuff on display.  The statues, the gold, the terrifying pictures, the fine costumes, and the strange sermons in a language you did not speak.  The guys in charge must be better informed than me. And they tell me this too. And if I do not understand and do not go along I get into all sorts of trouble both here and now and hereafter.  So I do go along physically and mentally.

The ideas are rather clever and many are common sense rules for living with others in productive and mutually acceptable ways.  Do good not bad. Do unto others as you would be done by.  Follow the 10 big rules. All very sensible.  You don’t have schools and a legal system yet. Other beliefs are impossible to refute and cover up anything.  For example: "God works in mysterious ways" "It might be tough now but this is only practice for the next life" No evidence based reasoning here.  The only evidence is what a few books say (which one or more depends on your religion).  And they can be rather inconsistent and interpretable in various ways. But when only the few in charge can read it the official interpretation rules.

This serves humanity well in some way.  Keeps order.  Keeps the peasants from revolting.  Keeps some in luxury. But all hell brakes loose when someone translates the bible into languages people can speak and read. Then different interpretations arise and Protestants start to argue with Catholics, the Pilgrims get going and long periods of religious wars occur with much mayhem and pain.  And it continues to this very day.

Religion seems to suppress thinking rather aid it.  It drives it down dead ends and gets it caught up with angles on pinheads type arguments.  True thought about life, living and society is dangerous and to be avoided for the most part.  Focus on finding ideas to follow from the few main sources.  But even then there is room for variation.

To me science, evidence based reasoning and open transparent sharing and criticism of ideas is the new "religion".  It does not get you bogged down in dead ends. It evolves and evolves and grows unendingly. But more on that anon.  You cannot argue your way into believing you are "right" and have the right to kill those who do not believe as you do.  You cannot argue that "God" is on my side and every side make the same argument and justify mayhem and inhumanity in the name of humanity.

Oh well back to work.  I will tell you more of about my "discussions" with my nephew in a later blog.

Would you couple the real world markets to the Monte Carlo Casino?

No, of course not.  But this is in effect what we do today when we couple real markets to that big gambling joint called the stock exchange and financial markets.  People make bets and counter bets all the time, in micro second intervals as well as for slightly longer periods.  Research shows that the short to even medium term fluctuations in the financial markets - the stuff newspapers and the media love to tell us about and try to interpret every blip and dip - is not connected to the real world.  It is responding to itself only.  So why do we use it to judge the worth of executives, firms and especially banks and investment houses?

It is as if we link the evaluation of executives and firms and and banks to the Monte Carlo Casino - or any casino. In casinos bets (investments) are made and accepted by the house or others (as in poker games for example). Some win some lose and fortunes fluctuate over time.  A Black Swan event here would be the guy that broke the bank of Monte Carlo.  An extreme and rare run of "shrewd investment". But there are better rules in casinos.  You cannot run a ponzi scheme like Bernie Madoff.

As a result of the GFC, nations started to reexamine their economic models and financial systems.  I have blogged about that before - see "What is wrong with our economic models?" In the UK they have forced a decoupling of the retail and investment sides of banks.  This is a good  move because it shields the retail customers from the gambling, sorry investment, behaviour of the bank.

The financial markets are a means of liquidity in the world that facilitates trade and real investment.  But things have gone way way way beyond that in the last 30 years or so.  Share prices are not linked to profit performance in the short term but to speculations, bets and counter bets on what others are going to do in response to profit and other announcements and any event you can think of that people may think about. Exchange rates are not longer determined by the trade flows and need for foreign exchange to buy and sell goods and services between nations and currencies. Now they are determined by hot money washing around the world based on bets everyone is making. And dont get me started on derivatives, that no one understands and have been described by one of their inventors as like toxic drug.

In the longer term there is some sanity in the markets and this is reflected in the rise of share prices of impressively performing real firms that do provide value - the miners in Australia, Google, Microsoft, Boeing etc etc. Pension funds look bad in the short term,  if they get their bets wrong, which can be real scary for pensioners, but over a longer period they may be more stable - but  not always and then the poor pensioner loses out.  Many firms, not just so called financial investment houses, these days make much of their profits and losses by gambling, oops investing, in financial markets rather than from the products and services they provide.  Enron was a classic case of manipulating the markets and prices. They made more money from disrupting electricity supplies it seems.

The current wall street sit in and protests around the world are testimony to the public waking up and shouting "we have had enough and we are not going to take it any more" - just like Peter Finch did in that great movie.

May you live in interesting times.  This is a Chinese curse.

On Not Listening to What is Not Said

We interact with others all the time and they are a source of joy, wonder, trade, warmth, sex, cooperation and compassion.  They can also be damn frustrating and a source of conflict, rancor, intimidation and blame. Here I want to single out one interaction strategy that really gets my goat.  It is a strategy to win and not lose out to others in the interaction game.  I refer to the following three sentences as exemplars. “You are not listening to me.” “You don’t listen to me.”  “You never listen to me.” These sentences are devastating and destructive and invite no answer or repost. I know.  Are you listening? I thought so.

Let me attempt to deconstruct these sentences. I might not have been listening closely enough but what I hear are assertions about the (non) success of someone’s argument, (non) satisfaction and respect for the verbal and other responses of the counterpart, place saving and time saving gambits and maybe a whole lot more.

After I showed the draft of this essay to my wife she added another meaning that had escaped me – indeed I had not listened!  I listened to her and this is it. Sentences of the kind I describe can be a plea to end a discussion or argument, to move on, to accept that one or both interactants will not change their mind – at least not now.  Give me some space.  Stop destroying my logic, arguments and position already.  Leave me some place to go.  I see (I hear).  So hearing what has not been said is the key.

So now I understand (a little more) why some people get so angry with me and I get so angry in return because I did listen and responded precisely to what you said.  But what you said is not what you said and what I heard was what I wanted to hear. Get those damn words out of here; wasn’t Lewis Carol correct, they mean what I want them to mean.  No, this is not so. Not what I want them to mean (the hearer) but what you want them to mean to me, if I really understood.  Phew!  Are you still with me on this?  Have I heard right?  Am I gendered challenged in this endeavor?

Sometimes the interaction game here is a game of predictive conversation. One jumps ahead, anticipates and predicts the ending of a sentence or argument and offer up a response too early.  The counterpart wants their day in court (moment of contribution) and this should not be curtailed. It also restricts the time for formulating responses. We know that predictive text is not always correct and wise people tell us that forecasting anything is very hard, especially if you want to predict the future – even the end of a sentence.

Hey you argue, what about me? Spouses and parents and kids do not listen, really, and they need to be told so. This is the viewpoint of the listenee not the listener.

How do we know whether someone has really listened to us?  Obviously this is when they agree with us, sympathise with us and obey us (including moving on). Otherwise they have some kind of deficiency.  After all, if I can understand me and why I am right why can’t they?

Such is life. I want to know who uses these strategies most and why.  Is there a gender difference?  Is there an age difference? How does it depend on the mix of people involved or the topic?

But the big, big question is: how to respond?  A simple answer is to listen better From what I said above (did you hear what I said and did not?) it’s tricky ground here (hear).  You hear the words but you have to hear the meaning or you get it wrong, it seems.

If you take the words as meaning you may be in a whole lot of trouble. Disputing the logic and arguments of the other can escalate. Things can also get quite personal, which I guess is to be seen as less successful.  How about counterposing the same argument, i.e. you don’t listen to me.  Is this helpful and constructive?  I mean I mean as much as they mean and I meaning should be heard too.  Shouldn’t it? 

Other strategies I have considered with varying degrees of success are: Lol (not recommended unless, as I once did, you think the second l stands for love); change the topic; silence (hinting at listening intently); jumping up and down on the spot and screaming abuse at everyone for the conspiracy that conspires against me and then running away to hurt them.  Trouble with the last one is you have to go back to get your jacket and Iphone and sleep somewhere!

I am keen to hear about others’ experience and their advice.

Ian Wilkinson,

April 11, 2011 

Bizarre Bazaar Behaviour: A view from the fishes side

I was in Istanbul in June 2011 and was kind of interested in buying a carpet.  As you do there. One day I was dragging my wife and friend off to see some carpets I had seen earlier.  I got ahead of them and sat down at a local café to have some tea.  As you do in “The Bull.” A man nearby came up to me and said “Aussie Aussie Aussie, Oi Oi Oi.” I was wearing my Akubura hat so and it had happened before.  I laughed and we had a little chat.  He was very humble and said how he liked Aussies and how they treated everyone equally.  Flattery will get you anywhere I guess.  He went on saying how honoured he was that I would talk to him.  Meanwhile my wife tripped and fell in reaching me and hobbled up not in a great mood. Wrong again! The kind stranger helped her to a seat and ran and got some ice to put on her sprained ankle. I ordered some more tea for her. The man was very helpful and polite.  The chat continued a bit and he did ask what we were doing that day.  A natural question and we told him.  The conversation moved on and eventually we decided to leave to go see the carpets I wanted to. 

Then he made his first move. He said there was a carpet place nearby that was run by someone who once lived in Australia and he was very genuine and liked Aussies.  Maybe he could show me? Seems innocent, doesn’t it?  It’s not.  I agreed to check it out with him and see if my wife, with sprained ankle should bother to go. I am an experienced traveller and thought I had seen most tricks. I walked over with him.  A personable guy sitting alone in a small carpet shop down a side alley, in a non touristy area but not far from good hotels and a richer suburb of Istanbul.  We chatted and I asked questions about  carpets and prices – I have bought them before so I had some idea. He mentioned a suburb of Sydney he had lived in and told me his kids were studying at La Trobe University.  Seemed genuine to me and his English was perfect.  As he said to me: “Once you buy a carpet from me you are with me for life.”  His prices were not bad compared to others, as far as I could tell.  Others in my group were really taken for a rid, literally and figuratively, being asked outrageous prices and thinking they had got a bargain when they beat them down by $10,000.  But a $1000  carpet bought for $10,000 after an opening price of $20,000 is not much of a bargain.  And one guy in the group was going back there for the third time after two previous trips to Istanbull.  But they never shipped his carpet before and when he turned up some years later with his receipt they said they had sent it; or no, it was that nasty brother-in-law who did that (or not do that) and this is now a separate company, as they have separated fro this bad man. But they still did not send him the carpet and here he is back again to buy another one for his new wife.  Need I say more.

But back to my story.  I persuaded my wife and friend to see this shop, so she hobbled over sort of good naturedly. We learned more about carpets and did see some beautiful pieces of art in the form of carpets.  My wife was even moved enough by one carpet to even entertain the idea of buying a carpet.  There, that is progress. But, after about 30 mins we moved on and he said to us if we could find a better deal for a similar carpet please tell him, as he would like to buy it.  Bloody good persuasive tactics.  So we left on good terms.  Other things happened and we did not get to see the other carpets together that day. 

I began to think about the business model of this carpet seller, sitting alone at the back of his shop in a side alley waiting.  Waiting for what?  A passing tourist or local?  He would have to wait a long time and could not afford to send his two kids to La Trobe!  So what was going on?  Where did that friendly humble guy come from?  Did he work nearby?  Was he on his way to work?  No he did not. He was at work and well trained.  Or am I paranoid?

He was part of the ant colony that searches out food to feed the carpet store, where the guy sits in his lair – like a spider in the centre of a a web.  I began to think of them in social insect terms, ants. Ants were everywhere but they were parts of different colonies with different Queens or Kings to nurture and feed.  We tourists are the food or the fishes waiting to be lured by the fisherman – hence the subtitle of this essay.

After this we were looking out for ants and how they approached food and lured it back to the nest.  They were everywhere.  In the Hotels.  That friendly local guide and assistant in the foyer who can assist you with your shopping. The guy who helps you with directions on the street.  The guy that helps you to get to the Mosque, or up some steps, or just smiles and wants to be friendly.  “I like you Aussies (Dutch, Americans, Swedes, etc etc.)”  “Hey beautiful girl can I help you?” “Aussie Aussie Aussie.”  “Hey, Harry Kewell.” 

And they dress differently.  Some are in suits and ties and appear to be on their way to work.  Others are just longing around. Some are young, some are old.  I am not sure but not many are women.  But hey how do I know.  I began to even wonder if the Professors I knew at the local University had “friends in the business.”  It might go something like this” “You help me and introduce me to some of the distinguished professors that come to you university and I give you a fee carpet each year.”

The point it that they understand us much better than we under them and much better than we understand ourselves.  They use a Westerner’s sense of politeness against them.  We try to answer their questions and they reel us in.  Q:Hi, are you from (insert a country)?  A: No, I am an (name you country).  Q: Why are you here?  A: I am on holiday (business).  Q: Do you like my country?  A: It is very nice and the people are very friendly.  Q: do you want to buy a postcard (insert anything here).  And then it begins.

Lessons learned.  Mistakes made.  The joys and sorrows of travel.  All of it.

Big Mike explains the deficit - but why do the rich think like they do?

I wrote this before the sit ins in Wall Street and the other protests around the world began on August 22, 2011. 

The last lines are a bit of a worry.

A key question here (see Big Mike Breaks the Deficit Down) is why the super rich think they deserve to pay less taxes and that deficits are reduced by removing social and medical welfare programs for the poor and less well off. I think it stems from the obsession that has arisen over measuring value in monetary terms - like the value of an executive is measured by the price of their firm's shares multiplied by the number of shares (usually billion and billions). Then the media loves to report how a firms value measured this way changes hourly, weekly, quarterly, annually etc. So if there is a minor speculatory blip in a share price from 4.30 to 5pm one day they can shout out that billions of value has just been destroyed! Oh yeah! Sack the executives responsible! How dare they destroy so much value in 30 mins of incompetent management activity. Did they go to the toilet or something, kept their eyes off the ball? And executives get to play a great value game of first you dont see it then you do. Start at time 1, an incoming top exec gives their assessment of their firm and its prospects. Be pessimistic, be critical of past practice and make sombre pronouncements about cost cutting and tough stuff. Hey the share prices went down - of course merely measuring the true value of the firm and informed by the top exec. Then we come to the end of the bonus assessment cycle. Do all in reverse - be optimistic, celebrate what a great executive you have been, strong growth if expected and the whole place has become so strong and is moving forward. Yeah! Oh and the share prices the next day (hour? minute? second?) go up. subtract value at time 1 from value at time 2 and you get an enormous number. Calculate my bonus please and send the money to my offshore account (or my good foundation for the good guys). And we know that the omniscient market knows all and takes account of all and so the share price is a real measure of value - after all some economists tell us that it is an efficient market.

So these executives and financial gamblers (who dont even have a real firm at all to play with) make off with billions and think they are really very smart people who create trillions in market value every minute of every day. We should appreciate them and celebrate them like elite athletes and popsingers. We should not tax them more or the same they did in the past. Instead we should make up deficits by taking value (=costs ie now rebadged) away from those who obviously produce no or very very little value compared to them. After all they only make things, clean things, service you and me, or cannot find a job to do anything meaningful at all. They should suffer and worship us as Gods. Ever heard of the French Revolution?

In Hong Kong May 2011

I am in Hong Kong.  I was last here 10 years ago and some things have changed, especially around the Soho area on HK Island.  What was run down tenements and awful old 60s council house type apartment buildings only 5 years of so ago has been literally and figuratively transformed into a mix of Madrid's old town with its little streets and bars and cafes and restaurants and shops, Balmain but intensified a hundredfold, Chelsea, many many small art galleries and fashion shops and boutiques and it is so alive. Teaming with people on even a Tuesday night.  I started at miniature English pub and had gorgeous tapas and a Tetleys English Ale (they were having a quiz night for the crowded place of some 20 or so people (max capacity), the German beer shop was not too far away.  The little concrete streets and back alleys wander all over the foot of the mountain, so it is up and down as well. Everywhere is life fun creativity in spades, experimentation.  They are trying everything to get you business but all is on a small scale.  I saw one Art shop with a modern version of Klimt that blew me away - Louise?? I will take a photo today.  Then I was determined to go to the Lonely Planet's recommended Tasting House.  It has an Italian invented sampler system for win (and another place, which I am going to tonight for single malt whiskeys.  You paid by the sip, small medium or large, where large is a good-sized wine serving.  Then there was the chees and bread to sample with it and the guy serving makes me up a selection to tickle my taste buds.  The wines are well informed and from all over the world.  Only 4 whites though and one Chardonnay from France.  I went to see the reds. The new world outdoes the old when it comes to wine these days and you don¹t have to pay top dollar.  At the far end of the 15 or so wines being dispensed by the amazing machine were the most expensive, including a 1997 Grange Hermitage. It is a truly great wine but I have tasted better in Sydney (Rouge Homme 1980 Claret, 2006 Pinotage that held Louise and I spellbound in Cape Town.  A Margaut was there and stuff Luis Arujo would be seriously impressed by. Then I met the manager when I was checking out the cheeses - He looked really French but slightly Oriental too. I thought at first he was Aussie or NZ even as he said mate a lot. He was from Stepney in London, his parents emigrated from HK? In 1969 and hasn't that area of London changed!  I still think what has happened in Soho is bigger, much more varied and it happened so fast.  Time is speeding up my friends. History matters as some basic infrastructure was there to be refreshed and the geography and original streets and ally impose a path dependent legacy.  The best part is still to come.  A group of Aussie from Melbourne wandered into the bar and I think I sensed that immediately.  It was a mix of ages cos they were at a group hug in and think mini conference for 2 days followed by fun fun fun for a few days. I threw the apparent leader a line and things took off.  He is about my age probably 5-10 years younger and rich.  He has kept Granges by the case for all years since the 70s?? Maybe 60s.  I joked he probably washed his car with Grange. 3 women by 2 were tired and left, one this blokes wife.  Then it was on for young and old. Serious partying and serious subjects as well.  I think they liked me and all wanted to know who I was and what I was doing and they seem extremely well connected. I am going to hear from them I think and may be catch up at the whiskey tasting bar later tonight, who knows. One ending vignette.  I was struggle up a very even alley way with concrete steeps and covered up bits, some interesting shops and bars etc etc and it was steep.  Then I looked up and there was a living room sized shrine, with lanterns, burning incense and other cultural thingies.  Wow the really old lives on amidst all this change.  I think HK has sent armies around the world to see what's on offer, taking the ideas and some machines and people back to HK and let them loose to compete, evolve and have sex with each other - in the Matt Ridley, although I understand that Wan Chai is a combing Bangkok, Bali, geisha happening place - I may go see.

What is wrong with our economic models?

The global financial crisis was not predicted by any economic model, not 10 years out, not 5 years out, not 1 year, 1 month or 1 minute out.  Nearer the time some models did suggest some temporary minor blip and recovery predicted shortly thereafter but no more than this. The Head of the European Central Bank, Jean-Claude Trichlet, said of the GFC: “In the face of the crisis, we felt abandoned by conventional tools."  In response, government and some researchers have begun to reexamine the foundations of traditional economic models and to ask how we can do better. For example, European nations, banks, and business are cooperating in building a major new type of complex systems simulation model of the European Economy, CRISIS.

Another example is the complex systems model of banking networks developed by Lord May and his colleagues published in Nature earlier this year.  This showed how the banking network as a whole becomes increasing unstable as each individual bank diversifies its portfolio to spread its risk – a reasonable thing to do – and ends up with all being diversified in the same way.  As a result, when a crisis hits they are all blown away.

Complex Systems Models (CSM) is a fast growing method revolutionising many sciences. It complements and extends existing methods. Other examples are the visionary EU funded framework project to build a complex simulation model of the world – all of it (www.futurict.eu); business systems (www.antoptima.com/site/en/index.php); epidemiology (www.medscape.com/viewarticle/709859_2).  They can be vast, for example the Epicast model at Los Alamos has 300m agents, one for every person in the USA.

Economic systems are complex systems made of a multitude interacting people and organisations. Larger scale order and patterns of behaviour, such as movements in prices, incomes, trade balances and deficits, emerge in a self-organizing bottom up way from these interactions. And these large scale patterns are noticed and reported and have feedback effects on actions and interactions. Understanding and influencing the dynamics and evolution of such systems is not easy.  Actually impossible. It calls for a total rethink of what we mean by control management, prediction and understanding.

We are all participants in a system we jointly co-create. Our actions and performance depend on much more than our own endeavours, they depend on what others do and how they respond.  And how we respond to their responses ad infinitum. Overall behaviour and performance are not simple additive sums of the behaviour of the actors involved.

The challenge for managers and policymakers is not about the management and control of such systems but how to participate and manage in them. Government agencies and policy makers do not operate outside business networks: instead, they are part of them along with the other people, firms and organisations. No one is in overall control, though some may have more influence.

Unfortunately, past research and modeling of economic systems is dominated by non realistic models of behaviour, constructed for analytic convenience. They tend to assume highly egoistic behaviour (homo economicous), represente only  average behaviour, and assume infallibility of markets (the efficient market hypothesis). Such models are of limited value in showing how real systems behave and evolve and how rare extreme events such as the GFC can emerge.

A different approach is needed, one that involves developing much more realistic and nuanced models of social and economic systems, like the ones I already referred to. They are called complex simulation models or agent-based models (ABM). We no longer have to make silly simplifying assumptions in order to make the maths and stats work out.

CSM are models formalized in computer code that could be written down as equations but that does no good as they are highly non-linear - way beyond any algebraic solution. The only way is to literally play out the rules over time and count what happens using a computer. This is why this approach is referred to as computational economics or social science.

If they are so good, why don’t we see more of them?

For one thing, mainstream economic and business researchers, the ones in charge of the top journals and grants, resist it.  This is because it requires  a new type of skill to build such models – programing and algorithmic thinking, which they are generally not good at. So CSM undermine the value of their established expertise – even though CSM complement and extend traditional research approaches; they do not compete with them. And the analysis of CSM models requires the same maths and stats skills they do have.

Another major factor holding back CSM is a lack of awareness and training in such methods in business schools and economics departments.  Students get trained in maths and stats but not high level programming skills. However, there is good news, the programs to do it have become ever more friendly and freely available.  One is NetLogo, which was started out as a way of teaching ABM to primary school kids!  Surely, university researchers can learn to do it to?  Aren’t they smarter than a fifth grader?  Moreover, the very same methods are behind all the games kids now play on the computer, such as TheSims, SimCity, SimLife, SecondLife.  Instead of developing playworlds we can be used the same methods to develop models of the real world in order to better understand it and study it, in ways that are impossible in the real world.  In the real world we only have one history – our history – an effective N of 1.  But in articifial worlds we can explore economic and business life as it could be.

To help develop and promote this approach to science in business, marketing and economics we held a one month intensive course on ABM and complex systems research, using NetLogo, at the University of Sydney Business School in July 2011 and we are currently developing new course options on CSM. Also, in late January 2012, we will be holding a high powered summer school and research workshop on CSM in business and biology.  Where will it be?  On Heron Island, in the Great Barrier Reef, in part because it is itself a wonderful example of a complex socio-economic and biological system.  Check the website: http://sydney.edu.au/business/research/complexity.

Ian Wilkinson
Honorary Professor of Marketing, University of Sydney
Visiting Professor of Entrepreneurship and Relationship Management, University of Southern Denmark
August 2011(forthcoming, maybe, in TheConversation.edu.au)

Prescient? Moi? On Not Predicting the Global Financial Crisis Again

The following essay began life in May 2007 and matured into a shorter, punchier one that I read out and was broadcast on August 2^nd 2007 on the Radio National Program “Perspective.” Certain rather significant events known as the GFC started to unfold not so long afterwards. There is the old adage that tells us that forecasts are very difficult to make, especially about the future. I obviously got some of the details wrong. But hey! Have things changed that much since? The recent Oscar wining film “An Inside Job” does not seem to think so and nor do I.  So what is it predicting today?

In is perhaps worth noting that I tried quite hard, back then, unsuccessfully, to get some version of the essay published in the Australian Financial Review.

Some years ago, a Professor of finance asserted to me that shareholder value is the only way to gauge the worth of a firm. I come from a marketing background where the sole purpose of a firm is creating value for consumers.  Obviously these two things are linked.  Do good for consumers, the firm prospers and so do shareholders through dividends out of profits.  All seems so simple.  But these days the world of business seems to have gone mad, with the brightest guys in the room producing Enron and HIH type catastrophes in the name of capitalism. Every country has its trail of financial fiascoes as major firms turn out to be hollow shells with inflated revenues, shriveled costs and ballooning egos and salaries. This is not just evidence of a few rogues getting their come uppance. There seems to me something more systematic and pernicious going on.

Each day we are told how such and such a firm lost or gained umpteen millions of its value, as revealed by some hourly, daily or weekly fluctuation in the price of its shares.  We are then offered deep and meaningful analysis and interpretation by the well opinionated financial and business analysts and commentators. They are so wise!  They are able to rationalize every blip and dip, even though the best minds in the world still struggle to find any discernable logic in the patterns of share price movements.  Research shows, in essence, that fluctuations in share prices and any indices derived from them are essentially random. Yes, they are not linked to real world business behaviour and performance.  They are produced from a gigantic casino called the financial market that operates in the real world but is not about the real world – it is about betting against each other and guessing and outguessing what others will do, not do and do do.

What is going on? When a firm seeks investment funds from the market it offers shares. When they earn profits they pay dividends to shareholders. But shares get bought and sold again and again.  Through this, firms can lose control to groups that buy up controlling shares of shares. In the 80s films like Wall Street depicted traders who looked for firms with real assets whose value exceeded the cost of buying a controlling share of shares.  They then buy the shares, gain control and sell off the real assets to presumably better uses.  This again seems okay, as it puts a lower bound on share prices that should reflect at least the real value of the firm’s assets.  But how assets are valued and how share prices vary are not linked to real value in use as they depend on accounting routines and speculation in share prices generally.

Who eventually picks up the pieces or suffers the losses if revenues don’t exceed costs?  Executives can bail out early, cash in stocks and move on.  The next lot of executives come in and tells us how bad the previous guys were and write down everything to more realistic values.  But then they repeat the cycle. Who loses?  In most cases and others it is the employees and shareholders left holding the eventually worthless shares and not able to claim their entitlements.  Bankruptcy acts as a clearing house. 

Shareholder value is okay if it is linked to the real value of the firm, in the form of dividends from real profits.  But, when second and third hand markets in shares dominate, the main money is made out of speculating on variations in the price of shares in these markets. Shareholder value seems to refer these days to the value of becoming a NON shareholder in a firm – that is selling your shares!  And most trading is not directly in shares at all, but in options and derivatives of the most obscure and rarefied kind. How bizarre is this! 

The existing economic system rewards this seemingly pathological behaviour and even celebrates it as the survival of the fittest. To be sure, the financial game is, currently, the game the winners (or a lot of them) play.  But is this the winning game? Are we creating a game, that will eventually collapse and damage us; like some of the civilizations described in Jared Diamond's wonderful book Collapse - cutting down the last tree (selling the last share) to have the last fire (sup the last café latte) before giving the whole thing over to the cockroaches?  Is it the modern day equivalent of Nero fiddling the books while Rome burns.

Addendum and Further Reading

It seems my concerns and consternation are not without company.  Since writing this piece and sharing it with others in business and academia around the world, I have discovered other kindred spirits.  Let me draw your attention to some of them, as they are a way for you to find out more about these issues.

First is Henry Mintzberg, one of the leading thinkers in management education who has long argued about the silliness of the way firms are valued in terms of shareholder value.  Visit his website (www.henrymintzberg.com) to find out more.  Then there is Michael Jensen, who, with Mecklin wrote some of the main articles on which financial theory is based. In a passionate address he gave at London Business School last year, which you can find on his website (www.people.hbs.edu/mjensen), he shows up the tyranny of measures of value and the way it encourages managers and financial types alike to cheat and lie to make the apparent reality look good (according to the numbers) and so to add “value” to their firms and their bonuses. Michael Jensen is an Emeritus Professor at Harvard – not a ninny to be scoffed at. According to a recent book by Daniel Yanklovich, Profit with Honour (Yale University Press 2006) Professor Jensen has become so personally disillusioned that he now refers to stock options as “managerial herion.”  Last, but by no means least, there is Nassim Taleb, who is a financial trader, and wrote the deep and deeply entertaining book Fooled by Randomness (2004, Random House second edition 2005).  He, of course, also has a website (www.fooledbyrandomness.com).  This book exposes all our human weakness and biases and draws on up to date research on the nature of man, mind and behaviour to show how we are fooled by the random ramblings of stock market prices and how we try to claim we understand it and are in charge of our destiny when we are not. 

Ian Wilkinson

Honorary Professor of Marketing, University of Sydney
Visiting Professor of Entrepreneurship and Relationship Management, University of Southern Denmark

April 2011