Management Theory

The span of control and the appropriate organization structure for a certain organization in a given time have long been focus staffing areas of management researchers and managers.

In the ancient time, when some powerful rulers and kings loved to totally hand on taking all decisions and micro-managing all actions, they found themselves either over burdened, burned out and faced the ultimate failure. Wise rulers selected capable and reliable officials and delegated authority for them to run  the country, of course with strings on them! One of the fundamental management principles is to delegate and work through other people. And another one, as important as the first, is to “delegate but not abdicate”!

In the west, management scholars study the small Greek City States. Of course, we also love to study the Roman Empire and we are particularly interested in the ways they organized their governments and the army.  Remember the different ranks of powerful Roman army and how well they were organized, trained and equipped. The Romans, the Egyptians and the Catholic Church all showcased the importance of setting up good organizations. Why ? It’s because good organizations helped them last for so long. In contrast, the Mongolians were good warriors and they could fight well and conquered but they failed to build an empire that could last several centuries.  They failed to govern wisely and they discriminated against conquered people,treating them as slaves and enemies, while the Romans got an effective system to reward captives and if they could contribute to their empire and  they could become a  full Roman citizen. Once the slave was free and became a
citizen, he or she enjoyed full right as the native born Romans. Hence, the Roman Empire lasted for so long. The key to management is to tap into the talents of individuals and motivate themselves to achieve organizational goals. The middle managers  and front line supervisors should be the facilitators not the blunders! And the top managers should lead sensibly and should set good examples, open to good suggestions, team inputs, thus enhancing overall corporate/team morale. Of course, they should be on time and on budgets.

All organizations begin to deteriorate  eventually if they fail to adapt to changing organizations and that their leaders fail to show good leadership.  The same findings are also true when we study the organizations of different countries in the world, including, the ancient or modern China.

Modern management theories seem to focus more on flat organizational structures and so-called autonomous units or project teams, praising these type of structures are more organic and more responsive to changes. Modern communication/information technologies may enable the managers to manage more people. However, there is a physical limit for any manager to effectively supervise subordinates. This is known as the  Theory of Span of Control.

Therefore, the middle level of managers are always necessary whereas the staff managers such as administration, human resources, controller and accountants, research and development, marketing people, all play important roles in running modern business. However, the middle managers  always become the easy victims of economic downturns such as the one we are facing. The staff and middle managers always the first batch to go when corporations start to trim their fats. I have to conclude by the Contingency Theory of Management that while the middle management is necessary and important, we have to consider the particular life cycle of business, product cycle, type of business, technology availability and so on to see how cost effective and efficient that an additional level of managers is created to achieve goals, Management by Objectives (MBO).

Also, to help production people, such as IT developers to better grasp the real demand of clients and ultimate users, it is recommended that they should spend time to work along with sales force so as to get the first hand market information from time to time. Certain job expansion or job rotation can help employees of different departments to understand each other better and enhance their job satisfaction and skill set.

The Best Investors Got burnt by Recent Global Market Turnmoil

The US legendary investor, Warren Buffet has recently admitted that the total value of his company’s investment portfolios have been reduced by more than 20% and since the portfolios are heavily weighted in financial sectors, the loss seems unavoidable when the global financial sectors have been hard hit recently. Even a prudent investor such as him has to face the music of US economic downturns. The US government has been forced to near the corner by the trouble of US banks and the two mortgage giants, Freddie Mae and Freddie Mac. These two corporations found themselves running short of funds, i.e. illiquid in financial jargon. Of course for the rich investors, they are relatively deep pocketed and if they can survive and last till next economic up cycle, they would be able to gain back all they lost. For big investors, it is quite difficult to sell all investments and maintain 100% cash!

Meanwhile, the second richest guy after Li Ka Shing in Hong Kong is Lee Siu Ki (李兆基). He has been nicknamed the Asian “Buffet” by Hong Kong investors.

Yesterday he made his comments again on the market (昨再次開腔). Due to recently fallen market (由於大市回) ，the value of his company’s investment portfolios (他旗下兆基財經的投資組合價值), from the peak of HK$200 billions (由高位的二千億元)，fallen down to HK$150 billions (回落 一千五百億元) ，reduced by 25% (縮水兩成五). Faced with the US financial turmoil 面對美國金融風暴, the two mortgage giants, Freddie Mae and Freddie Mac’s liquidity crisis added further downturn risks to the second half of 2008 (房利美及房貸美危機). Sit tight and fasten the seat belts, the worst have yet to come. Maintain high cash position and be prudent in spendings, so that when the markets got to the real bottom, we are going to catch the big fat fishes.

Whole Wheat Bread cannot enhance health but Sourdough-bread like Chinese Traditional bread (Bau) can

http://chealth.canoe.ca/channel_health_news_details.asp?news_id=25764&rss=67&rid=999999&news_channel_id=44&channel_id=44&rot=3

This shows  that the traditional way of making bread by sourdough through ages get the blessings of being in harmony with the Natural Way, 道. A lot of people cannot eat whole wheat or whole gains just because they have digestion problems. The old Chinese seniors used to preach that the Chinese bau is lot easy to digest than the sweet and greasy western buns and cakes.

Hobby and interest can reap gold

A famous Chinese proverb says that if we are sitting at the waterfront,  mouthwatering for the big fishes out there and do nothing,  we would be better off  to take a step back to build a fishing net to catch the fish instead. So, instead of spending time to go over the modern business concepts yourself, I wish I could outline  the most important ones to you.

Some years ago I have discussed with you the business model of Google and joked that  it would be perhaps the last successful business attempt for computer geeks to take advantage of  worldwide webs in review of the IT stock market meltdown at that time. For viable products such as the Blackberry of Research In Motion,one of the successful business ventures from Waterloo, it finally took off when the capital market revived.

In fact, various new ventures have since sprung up and kept growing to the point that these young entreprenuers have attracted seeds money from Angel investors and further developed their website from a hobby-like site to a viable business entity. The founders of My Space and Facebook are the cases worth studying.

Facebook is a social networking website that launched on February 4, 2004. The website is free to use and allows users to join one or more networks, such as a school, place of employment, or geographic region in order to easily connect with other people in the same network. The name of the website refers to the paper facebooks that depict members of a campus community that some American colleges and preparatory schools give to incoming students, faculty, and staff as a way to get to know other people on campus.

Mark Zuckerberg founded Facebook while still a student at Harvard University. Website membership was initially limited to only Harvard students, but was later expanded to include any university student, then later to high school students, and finally, to anyone aged 13 and over. Facebook has met with a certain amount of criticism and controversy in its short lifespan because of privacy concerns, the politics of its founders, and censorship issues.

The website has more than 64 million active users worldwide. From September 2006 to September 2007, the website’s ranking among all websites, in terms of traffic, increased from 60th to 7th, according to Alexa. It is also the most popular website for uploading photos, with 14 million uploaded daily.

All these guys started from a humble setting when they have nothing to lose but everything to gain. They realize that people need to socialize even more despite the aloof nature of modern life. The latest development of IT technology only serves to make the networking and socializing a wish come true. Now, in addition to the traditional mass media, such as store windows, bill boards, newspapers, brochures, flyers, TV, radios or phones, the new media of internet and cell phones have generated substantial advertising revenues now and would be more and more important, because of real time advertising and mass coverage.

Main thrusts of modern theories and research findings on human nature that have formed the cores of business, marketing and advertising:

(A) The product or service really meets the needs of human beings. According to the famous Maslow’s Heirachry of Needs, people usually have to fulfill their basic physiological needs of maintaining their survival, such as  food shelter and sex, etc.  A medium, say an ad or  a sales pinch arouses a need to become a want.

Then people will move up to  the higher levels of affiliation and self-esteem. (For example, I am from Harvard. I’m associated with IBM. I am an university graduate. I am a doctor when the medical profession is highly regarded and well paid in a society. Or, instead of associating with the main stream values, some groups form an alliance because of their minority and underdog backgrounds.) Then, sitting at the highest Heirachy is the self-actualization need. People usually try to move to a higher level after their lower-level needs have been  substantially satisfied.  However, a satisfied need  is no longer a motivator ( but remains as a good maintainer) and only the  non-satisfied needs are  still motivating. This theory gives us a broad framework of human behavior in addition to the findings of psychology. There are extremes, of course. For example, some people have stronger needs for basic needs, drinking and eating good food and sex and stay at that level,  while some people, e.g. artists sublimate their needs to the highest level of self-actualization even though they are poor and not famous.

(B)  Human Life Cycle in a given society

While it often observes work as the fulfillment of needs, the basic phases of career development throughout the life cycle  are rather similar irrespective of culture. People go through the phases of infancy, young childhood,  childhood and adolescence, adolescence, young adulthood, adulthood and middle age and finally middle and old age. Levinson (1978) has adapted the Erikson model of life’s stages to a person’s career. Six phases are suggested:
(1)  Ages 16-22 – Pulling up Roots;
(2) Ages 22-29 – Provisional Adulthood;
(3) Ages 29-32 – A Transitional Period;
(4) Ages 32-39 – Settling Down;
(5) Ages 39-43 – Potential Mid-life Crisis;
(6) Ages 43-50 – Re-establishing and Flowering.

Although the exact age group may vary from a society to another and so may the emphasis on each age group. Current research will throw light on the relative importance of a certain age group in a given time, as far as  a career is  concerned.

(C) Product Life Cycle – a product (service) goes over similar phases like a human life. It starts with from the infancy/start-up phase with nobody knows to another phase of rapid development of maturation and growth. Of course, many products got killed at this initial stage and fail to grow up for many reasons. Demand is usually low and cost is therefore high.  But, essentially, a bad product will fail ultimately if it cannot fulfill the needs of human beings. A good product will survive and grow to reap profit and fame. For how long? It all depends on the nature of products, competitive products, market positioning and branding. Good marketing strategies can substantially help a product to solidify its market leadership and share and differentiate the product from similar ones. Hence, the importance of advertising and branding over a longer haul.

However, every product will reach its maturity, decline and become outdated because of  changing  tastes, technological  breakthroughs,  competitive products and poor management. At mature  stage, a product such as Coke  sees  its profit margin going down, advertising spendings going up, eroding market shares. The company has to launch new products or expand market territories constantly to maintain their momentum. If a founder is not a good manager, he/she should give rein to more capable managers to head the company.

For many years, a lot of innovative products are rather “product-oriented”, that is the consumers have not much say as to what exactly the product should be.
For instance, before WW2  and some post war years, most products are designed to last for a life time to give the best value to consumers. However, of course, affluent western nations, USA in particular, have seen Fast Food Consumerism. Products life gets short and short.  Recent environmental concerns may create a curb on this Fast Food Consumerism and bring marketing back to the traditional focus on giving good value to customers, scalability/flexibility and environment-friendliness, etc.

(D) Economic Business Cycle – The economists, businessmen and even laymen knows that the economy goes through a cycle of up, peak , then down to a new trough and then another cycle.  It seems to be an undesirable evil of modern capitalism.  A wise businessman knows when to start up, expand and when to retrench. Otherwise, even a viable business will get wiped out.  In good time when there is a lot of money around and interest rates are relatively low, this is the best time to raise public money. From the perspectives of a government, the Federal Reserve Bank of USA or the Central Bank of Canada adopt various monetary policies  by changing interest rates and money supply to help fine-tune the economy.

(E) Good timing and Actions – Think once is good, think twice is prudent, think 3 times and you’ll let the chance to slip away. As far as, you are open to new  learning,  self- reflection and improvement, you can be entrepreneur. Of course, not everyone is born entrepreneur. Some just play around with their hobbies and bump into a business opportunity by chance.  If you enjoy only working in existing organizations, you can be an intra-preneur, a person of bringing about changes and reforms within an organization.

(F) Most new business start-ups begin with a very simple buy viable business concept and a niche product and based on this market niche, they grow and expand by integrating with customers’ feedbacks and by acquisition. Why acquisition? It’s to buy time and get a good product, management talents or a entry into a new business field or territory. It saves time and usually makes strategically sense. For example, to eliminate a very strong competitor. Miscrosoft acquired Netscape.  But, even large companies made a lot of mistakes acquiring another company. Instead of buying a viable product, they paid too much for a junk.

(G) Know your bottom line and come up with a game plan and a budget.

(H) Know the talents and shortcomings of yourself and your team and keep motivation at high level. With a good click, motivated people are very very powerful and the only challenge is to direct this energy to achieve a common goal!

(I) Protect your source codes and get the proper registration of web name and patents in due course.

Crude oil price reaches all-time high

Crude price bounces back to previous high of close to $100 because of the  recent standoff  between the Venezeala  government  and major oil corporations over disputes of settling nationalized oil assets of these oil companies in the country. The US and British courts have recently given out the sentences of freezing the accounts of  Venezeala’s national oil company. Venezeala responded by  reducing exports of crude to US .

The demand from China and India will hopefully support higher oil prices over $90 amid cutting output from OPEC. The  continual devaluation of US$ is another reason for the fall. The prices of base metals, such as iron and steels, copper will have some support from fallout due to the continual long term demands of China and India. For example, China will have to import a lot of iron and steel to fix and extend her electricity network, construction of bridges and buildings and for her ships. OPEC countries have learned their experience of 1970’s when the oil prices peaked and plummeted to  lower than $20, because they did not agree amongst themselves to cut output. This time, each of OPEC country will be clever to conserve output and maintain high price even if here comes US recession.

Prudent Family Financial Planning

Here’s the summary of the latest economic situation confronting most Canadian families: The US economy is definitely entering into recession, although the US government is reluctant to admit it technically only after a period of no growth or negative growth for at least 6 months. Since the well being of Canadian  economy depends on our exports to the South of our border, Canadian individuals and families have to be careful in their hedge against this coming “snow storm”.

Unfortunately, a lot of individuals and families are seeing their income flat or declining while they have failed to be mindful in their financial planning in good times!  Latest research findings have discovered that an average Canadian family has overburdened by debt. I would always stress that it not how much you earn but how much you save.

In a nut shell, people have spent too much on easy credit when interest rates are low and job prospects seem good. They have failed to prepare for the rainy days. Spendings on consumer goods are spent and unlike owing assets like a home, or investing in upgrading knowledge and qualifications or investments that can produce future stream of income and carrying a lot of tax deductible benefits.

The report for the Vanier Institute of the Family describes a perfect storm of flat earnings, increased spending and plummeting savings. It comes as an economic slow-down in the U.S. spurs concern over a full-blown American recession and possible fallout north of the border.

“Canadians are juggling record debt loads averaging $80,000 per household and any future losses would push many families over a fiscal cliff.”

“If we do have a recession, we wouldn’t be as badly off as the U.S. But a lot of households couldn’t keep up.”

Total accumulated debt was 131 per cent of Canadian household income last year after income tax and transfers such as child benefits. That’s up from 91 per cent in 1990.

Many consumers borrowed cash at lower interest rates to buy more expensive homes as real estate prices steadily rise. But many Canadians, especially those earning net middle incomes of about $60,000 a year, have racked up credit-card debt that’s almost doubled since 1990 to $22,500 from $12,000 on average,

“They’ve continued spending with more debt and less savings.”

Most households socked away $1,000 in savings last year, compared to an average of $7,500 in 1990, says the report.

Consumer insolvencies and proposals to allow partial debt repayment topped 100,000 last year – compared to 90,000 in 2001 and 43,000 in 1990.

The bigger risk to household finances is the potential for weaker job prospects.

Tips:

1. If you got a job, work harder to keep it. If you are about to enter work force this  year, polish your resume and act early to launch your job application and prepare a bank of good references. Build up your PR with potential referees
2. Having a nest egg to cover three months of expenses is a good rule of thumb, although more is better.
3. Use credit cards wisely to earn points but pay promptly before deadline. Otherwise the interest charge is well over 18% and spoil your good credit standing. A good credit score is a must when you are borrowing money from banks.

Frozen and Blacked-out China

Although living in Canada we have got used to the chilly and cold winter and the nuisance of snow storm and the dangerous freezing rain, I am rather concerned about the suffering of people in China who suffered from extremely cold weather of snow storm and freezing rain. Highways are shut off and many cities, towns were completely isolated without food, electricity and clean water for almost 20 days.  In a nut shell, 14 provinces in the middle and NW and SW were frozen and black-out.

I am particularly interested in one of the released photo showing a family having dinner in candle light. This family is lucky and they have stocked up some food, perhaps for the New Year. Others are not that lucky. There are close to 10-15 million workers who have worked in the richer Southern provinces such as KwangTung Province that is located near Hong Kong. Closed to a quarter of million workers have to wait for a train to go back to their native villages at the Kwangchow (Canton, the capital city near Hong Kong.)  A close look at the dinner table top, see what I’ve found – a Chinese Chess grid. This is a good game and I love to play when I was young and I was pride when I could defeat my father and my brothers.

Two other photos showed a frozen car on a hwy and another one showed a military vehicle crushing snow and ice (!!!) They are not prepared for snow and ice as there were no specialized vehicles, equipments and salts to defrost the icy roads.

We have a lot to learn from this emergency because we should be mentally prepared and sensitive to any emergency and technically prepared for any.

The accuracy of weather forecast of Chinese Meteorological Bureau for long period is said to be only 19% and the time for more accurate forecast is 2 hours. This is  really poor. In the old days for several thousand years, Chinese farmers and ordinary people rely on the Lunar Chinese Calendar, called Tungshing. This is actually a book with detailed forecasting account on the the four seasons and the weather of  raining and snow for a particular day, month and a year. The year of Pig is forecasted to be a year of  a lot of rain water and in winter meaning snow and ice.  Proficient scholars can forecast the regions that would suffer from floods, drought or snow storms!  Unscientific, a lot of people would outright reject the findings of this calendar and the theories of forecast underlining the lunar calendar, especially the communist bureaucrats who burned all old Chinese books and ban the studies. These findings and studies of weather were actually empirical statistics being collected over a vast period of 5000 years. And most importantly, it has a far more accurate forecasting ability than the current tools. By combining the old knowledge accumulated in the past with the modern knowledge and equipments and computers, mankind  will have a better chance to deal with future challenges. There were a lot of talented Chinese scholars, philosophers, scientists and  inventors in the past and what they thought, studied, discovered or proposed still affected the world today. For example, Chinese scholars have long proposed the importance of  people , living  in harmony with the nature, and the surroundings on the earth in the backdrop of revolving time.

Monday Market Meltdown

http://www.msnbc.msn.com/id/22839323/

One “PK” French rogue futures trader who allegedly cost French bank Societe Generale $7.14 billion was the person to blame for the reason why the whole financial world got burned and melt down on Monday 21st Jan.

The French bank Societe Generale found out the fraud and tried to cover the future contracts on that day so rapidly to control the damage, which  made the already highly alerted financial mkts all over the world to respond negatively leading to a total meltdown.  The US mkt was not to blamed on Monday, because the US stock exchanges were not open for business on a public holiday, although the housing slumps and  the so-called “Subprime Mortgage Crisis” has been roaming since mid-August last year. The Fed was forced to act quickly afterwards and held an emergency meeting  announcing immediately to cut the Federal Fund Rate by 0.75%. A normal meeting has been scheduled to take place end of Jan. The  impact of this guy was enormous because it stole the thunders of the Fed and if the cut could be implemented without this event, the whole world would be a lot better. This guy is said to reap no direct  financial benefis and whether he is just a pawn in a big scheme is  yet to find out.  I think he is addicted to the gambling nature of future trading like a gambler who does know when to quit, especially if he thinks he can outwit the market and get even with it.

US Economic Trends

http://www.msnbc.msn.com/id/25573386/from/id/21688234/

Right now Fed is in a very difficult position and lost sense to which way the US economy will be heading.  It can not tell very frankly that the chance of recession is looming and the enormous fallout due to financial mis-mangement of many corporations and investors, big and small, are yet to unfold.  The problems are compounded because of price inflation and USD devaluation.
Canada will be benefited by short-term weak USD, but over longer term, USD economic downturn will surely hurt Canada. So, We will be maintain high cash position till the next big mkt corrections would be over in the coming qtrs, ie, early 2008. Hopefully, the US election in late 2008 will see the prospects of some new changes in US political and economic directio

Forecasts

There are several bearing locations are particularly doomed in this year. The West side is pretty much the most life-threatening, property loss, unlucky places to go and live. Even travelling or even facing these directions of West is not lucky.  South California in the West of United States is a case in in this light.  If you see rich people and movie stars have to escape empty hands from their multi-million mansions, you might just can’t help sighing that the Natural Laws are treating the rich or the poor with equal blunders after all.  A doomed person in the doomed place at the doomed time will be wiped off.

Wild fires and storm waters are foretold by the Chinese Ancient Calendar, Ting Fire (丁火) is on top of Vast water (亥水). And the predictability is more accurate than the study of global warming and the weather forecasts.  Look, firefighters and troops are almost helpless to put off wild fires of such a vigorous and  vast scale.