Posts tagged: Element

Oct 23 2008

Fedspeak Highlights: Bernanke on Lehman, House Prices, More

In the question and answer period that followed Ben Bernanke’s speech today to the Economic Club of New York, the Federal Reserve chairman answered questions on why Lehman Brothers was allowed to fail, whether home prices are the root of the current problems and more. (Read the full transcript here.) Here are some highlights:

0fa4c_OB-CN098_bernan_D_20081015165038 Fedspeak Highlights: Bernanke on Lehman, House Prices, More
Bernanke speaks to the Economic Club. (Associated Press)

Lehman Failure

Lehman was not allowed to fail that in the sense there was some choice being made. There was no mechanism, there was no option, there was no set of rules, there was no funding to allow us to address that situation. The Federal Reserve’s ability to lend which was used in the Bear Stearns case, for example, requires that adequate collateral be posted so that we are not taking credit risk, we are lending against collateral. In this case that was impossible. There simply wasn’t enough collateral to support the lending. From the Treasury’s perspective, unlike the FDIC, deposit insurance fund, there were no funds, there was no option. We worked very hard over one of those famous weekends, with not only some potential acquirers of Lehman but we called together many of the leading CEOs of the private sector in New York to try to come to a solution. We didn’t find one, and therefore we were unable to do what we wanted very much to do, which was to prevent the failure of the company. Read more »

Aug 01 2008

Shrinking Surplus. Market Pricing.

The infamous trade surplus is falling, but rather than being driven by structural changes in trade, it is sky-high commodities prices that are having an impact, as AFP reports:

    “Soaring imports caused China’s trade surplus to shrink nearly 10 percent as rising global commodity prices stoked inflation in the domestic economy, official figures showed Wednesday.

    China’s trade surplus stood at 20.2 billion dollars in May, down 9.9 percent from 12 months ago, prompted mainly by a 40-percent spike in imports to 100.3 billion dollars, according to customs data.

    …China’s May exports rose by a more modest margin than imports, increasing by 28.1 percent from the same month a year ago to 120.5 billion dollars, according to the customs authorities.

    The Chinese government said last week the nation’s trade surplus is likely to shrink in 2008 for the first time in five years on weakening exports mainly due to the rising local currency and the US economic slowdown.
    In the first five months of 2008, China’s trade surplus hit 78 billion dollars, a decline of 8.6 percent from the same period a year ago, according to customs.

    In the five-month period, exports increased 22.9 percent to 545.1 billion dollars, while imports rose 30.4 percent to 467 billion dollars, customs said.”

Higher commodity prices, including for oil, have impacted in other areas too – as a result of government intervention on pricing. AFP notes:

    “China sharply raised domestic energy prices across the board …as authorities shifted policy in the face of complaints that price controls were causing turmoil on global oil markets.

    …The price controls in China, the world’s second largest oil consumer after the United States, have been blamed for distorting global markets, which have been in turmoil for months.

    Wholesale petrol and diesel prices were raised 1,000 yuan (145 dollars) per tonne while aviation kerosene was hiked 1,500 yuan a tonne, the National Development and Reform Commission said.

    Retail prices of diesel and petrol were hiked to 6,520 yuan and 6,980 yuan a tonne, increases of 18 percent and more than 16 percent respectively.

    The rises would mean an increase of 0.92 yuan and 0.8 yuan a litre (51 cents and 44 cents per US gallon) for diesel and petrol, state-run Xinhua news agency said.

    In a bid to appease those most affected by the price rise, the finance ministry Friday said it would allocate 19.8 billion yuan (2.9 billion dollars) in subsidies.

A Xinhua makes an interesting (for official Chinese media) point:

    “…when the energy price is subject to the market rule instead of the administrative price intervention, it would help ease the shortage of supply against demand and improve the efficiency of macro economic policies.

    Therefore, this price rise is a benefit viewed against the long-term prospective.

    …In the market economy theories, one of the cornerstones is to respect the role of price in the market, because it is born as the most sensitive and effective element to balance demand and supply. Its change would directly encourage or suspend demand, which would, in turn, improve or distort market structure.

    …Oil price rise might cause some immediate pressure or trouble, but a respect to the law of market economy would definitely promote smooth economic growth in the future.

More price reforms in the pipeline? My, how China has changed!

See news sources:

Aug 01 2008

Secondary Sources: America Growing, Wage-Price Spiral, GSEs

A roundup of economic news from around the Web.

  • Who Long Can Growth Last?: The Economist wonders how much longer the American economy can continue to grow. “The economy?s resilience, while remarkable, cannot be relied upon to last. Export growth is likely to soften, because America?s trading partners in the rich world are now struggling too. GDP growth in the euro area is grinding to a halt and Britain is teetering on the brink of recession. Japan?s economy may be flirting with one too. Spending by American firms and households is also likely to soften. If consumers relied heavily on tax rebates to keep their spending going in the second quarter, there will be less cash left over to shell out in the coming months. And the lifeline provided by home-equity loans is increasingly constricted, as damaged banks cut back on pre-arranged credit lines. Firms will be more circumspect about investing — even if they could secure funding for big projects — if spending at home and abroad is set to turn down? Despite these worries, the economy may still avoid a contraction in coming months, if only because American firms have run down their stocks so aggressively. GDP rose at an annualised rate of almost 4% in the second quarter, if the impact of reducing stocks is stripped out. If firms rebuild their inventories, or even stop slashing them, this will give GDP growth a big lift in the current quarter. Which means, the long-awaited American recession might still be some way off.”
  • Wage Spiral?: The New York Times takes a critical eye to fears of a wage-price spiral. “The Federal Reserve?s policy makers — its governors and the presidents of its regional banks — are convinced that wage pressures could emerge unexpectedly. That concern, and the idea that wage pressures could lead to yet higher prices and a rising inflation rate, showed up in half-a-dozen interviews with policy makers over the last week. The policy makers assume that rational human beings, faced with higher prices, eventually demand and get higher pay, despite their apparent lack of leverage. They have built that assumption into their economic models, but they differ sharply on how quickly the wage pressure could resurface, an issue they will once again debate at their next meeting, on Tuesday. ?The power to bargain for higher wages, a power that we assume was dismantled, may not be so feeble,? said Richard W. Fisher, president of the Federal Reserve Bank of Dallas, who is the most certain of all that a wage-price spiral is imminent. If the Fed anticipates a reawakening, organized labor itself certainly does not.?Real wages, adjusted for inflation, are falling, and there is no sign at all of any change in direction,? said Ronald Blackwell, chief economist for the A.F.L.-C.I.O.”
  • Fannie and Freddie: Robert Van Order explains why Frannie Mae and Freddie Mac exist. “The GSEs have several purposes. Much of the recent focus has been on subsidizing homeownership, but the really important function has been to provide ?liquidity? to the mortgage market, which basically means that they keep the market open even when times are tough, like now. Along with this they provide an element of standardization, which helps lenders and investors better understand what they are originating and buying. They can do this in part because their implicit guarantee allows them to raise money in bad times in the same way that deposit insurance allows banks to raise money even when they are in trouble.” EconLog’s Arnold Kling, who worked with Van Order at Freddie Mac, responds, “My problem with his sympathetic take is that Freddie Mac and Fannie Mae are not in a Great Depression Scenario. That is, we are not in a crisis emanating from the whole economy to the housing market to Freddie Mac and Fannie Mae. It is closer to the reverse. On the interpretation that is most generous to Freddie and Fannie, they are in a crisis emanating from the dynamics of the housing market and subprime lending. A less generous interpretation is that they were part of the problem.”
  • Compiled by Phil Izzo

     Secondary Sources: America Growing, Wage-Price Spiral, GSEs

     Secondary Sources: America Growing, Wage-Price Spiral, GSEs  Secondary Sources: America Growing, Wage-Price Spiral, GSEs  Secondary Sources: America Growing, Wage-Price Spiral, GSEs  Secondary Sources: America Growing, Wage-Price Spiral, GSEs

     Secondary Sources: America Growing, Wage-Price Spiral, GSEs

    Apr 15 2008

    Recruiting Today: What Are You Promising Top Job Candidates? - Tammy Erickson

    Even as the economy continues to show signsof softening in many sectors, competition for top talent remains intense. And, as I’ve discussed before, just as in consumer marketing, one of the keys to attracting talent is to offer elements of the employee experience that match the values and priorities of the individual being recruited.

    What are you promising – or if you’re in the job market, hearing – today?

    Here are some of the themes that I’ve heard recently. What would you add?

    Some organizations are reassuring key influencers (a.k.a., parents) that they will be a good experience for the loved one. The U.S. Army says: “You made them strong. We’ll make them Army strong.”

    Other organizations are providing key influencers out and out incentives to steer loved ones in their direction! SkyWest Airlines says: “. . . our employees and their parents have access to worldwide travel discounts on airfare, rental cars, hotels, all inclusive resorts and cruises. So, go ahead, tell your kids to apply . . . And have them give you the world for a change.”

    Some firms offer special amenities, most designed to make the new employees’ life more productive by making key tasks more convenient and/or enhancing personal health and fitness. Abbott Laboratories offers on-site fitness centers and a “sports and activities” program. Google provides free gourmet lunches and on-site massages.

    The degree of opportunity, challenge and responsibility offered continue to be important determinants for many applicants. Enterprise Rent-A-Car is known for offering new hires some of the most independent and entrepreneurial opportunities available. After a management training program that is like an “MBA crash course,” new hires get to run their own business. Deloitte & Touche, PricewaterhouseCoopers, and Ernst & Young are popular employers because, ironically, of the visibility and importance the accounting profession has assumed in the wake of the Enron era. Enron taught us that accountants are vital to the fortunes of a company – and that accounting provides employees with an opportunity to be in a position that’s responsible.

    In some cases, offering young employees a unique opportunity can have special appeal. DHL, which used to hire only experienced salespeople, offered nine recent college grads a shot at sales last year (and a comprehensive training program to support the move). The company, which is expanding the program this year, says the program not only attracted nine top candidates, but the new hires generated more revenue and more shipments per sale.

    Time-related policies – whether the job has flexible hours and locations – are big elements of most recruiting pitches. Even more importantly, some discretion around the use of one’s time can be a powerful incentive. Google has a policy of letting all employees devote one day a week to developing new ideas.

    The career path offered, including the speed of movement and, particularly, the degree of senior coaching and support available, can make a big impression on candidates weighing multiple offers. Abbott Laboratories offers an extended orientation that includes goals for the first, second, and third months on the job, as well as the promise of consistent dialogue with managers. PricewaterhouseCoopers lets employees decide when during their first 90 days they would sit down with their boss for a performance review.

    Opportunities for community service or other forms of giving back are increasingly popular. Some of my personal favorite recruiting promises are those that allow greater – more frequent and more intimate – access to senior executives. This latter theme is consistent with one of the findings from our research on collaborative cultures – the importance of executives who create a “gift culture” – a norm of informal mentoring, feedback, career advice, and frequent coaching. One major insurance company is offering new recruits the promise that, after 18 months, they will have an opportunity to spend a week in Nicaragua building houses with the CEO – a very clever way to combine two important themes in one great offer.

    What are you doing or hearing on the recruiting front today?

     Recruiting Today: What Are You Promising Top Job Candidates? - Tammy Erickson

     Recruiting Today: What Are You Promising Top Job Candidates? - Tammy Erickson  Recruiting Today: What Are You Promising Top Job Candidates? - Tammy Erickson

     Recruiting Today: What Are You Promising Top Job Candidates? - Tammy Erickson

    Apr 15 2008

    The Surprising Right Fit for Software Testing

    Published: April 14, 2008
    Author: Martha Lagace

    If there is one job that many software analysts and programmers cannot stand, it is testing software on the path to launch. The grinding concentration and repetitive nature of the tasks serve to drive many techies around the bend.

    Testing—due in no small part to the resistance it meets in some cubicles—is often treated as an afterthought at immature IT organizations, says HBS professor Robert Austin. Yet this attitude is unwise, because the sooner bugs are caught, the easier and cheaper they are to correct.

    But who is best suited to control and manage the tests? The surprising answer may be found in a group of people previously thought to have a crippling condition: autism spectrum disorder (ASD).

    In a new case coauthored by Austin, “Specialisterne: Sense & Details,” an innovative consultancy in Denmark has turned testing into its own specialty. While its 50 or so part-time consultants are considered best-in-class—they are paid industry-competitive wages, and customers include LEGO, Microsoft, and Oracle—75 percent of them live with what others might consider a handicap: They have Asperger syndrome or some form of ASD.

    Austin first learned about Specialisterne from Jonathan Wareham of ESADE Business School; the two cowrote the case with Javier Busquets, also of ESADE. As detailed in the case, these software consultants enjoy their work and are great at it. The testing process—checking and rechecking outcomes, documenting test plans, and maintaining follow-through—makes use of the high intelligence, precision-oriented skills, deep concentration, and patience that can be positive features sometimes accompanying ASD.

    “These are useful distinctions for CIOs when thinking about talent management.”

    Says Austin, “This case is about delivering IT services. IT managers typically find themselves with diverse talents. People in IT are idiosyncratically talented. This case is about putting talent where it is most effective.”

    Companies with in-house talent tend to focus on the more creative tasks of writing and installing software, and dreaming up innovative solutions to unique problems. Analysts and programmers may also underestimate their own capacity to make mistakes.

    Testing, for its part, calls for a whole different set of skills. Testers must pay strict attention to detail as they scrutinize the functionality of menus, navigation, and applications. Regression testing should be done well if software is not to revert to an earlier state. The kind of testing that takes place varies according to the needs of applications and end users. It may include but is not limited to component or unit testing, component integration testing, system testing, and system integration testing.

    Personal motivation

    Specialisterne’s founder, Thorkil Sonne, launched the company in 2004 following a high-level career in telecommunications IT. (Specialisterne is Danish for “the Specialists.”) Sonne was already deeply familiar with the challenges facing people with ASD: When his son was about three years old, the boy’s development of speech and social skills seemed delayed. The Sonnes reached out to pedagogues and psychologists in an attempt to understand what was happening. As Sonne says in the case, “When we were told that our son had autism spectrum disorder, a lifelong handicap with no cure or treatment, we knew that all our plans needed to change. We needed to accept that.”

    “The business model is tricky for a CEO.”

    ASD is not a single condition but rather a spectrum of neurodevelopmental impairments. It is part of the same family of impairments as classic autism and Asperger syndrome. While psychological and medical experts do not agree on its precise contours, nor on how common it is in the general population, they recognize that people affected by ASD typically experience difficulty with social relationships, with communicating verbally as well as reading gestures, and with using their imagination.

    Many ASD sufferers prefer routine to novelty, and exhibit steady focus and repetitive behavior patterns. If employed, they frequently face obstacles when workplaces don’t recognize their particular skills and needs. People with ASD may also have little preparation or capacity for the common social interactions required on a daily basis at work.

    As Sonne and his family adapted to life raising their son, the nature of Sonne’s career made him increasingly aware of the testing gap in IT. He saw an opportunity and need for entrepreneurship. This family background—and the potential for addressing an industry niche, along with his commitment to raising the profile of hidden talents of individuals with ASD—led him to found Specialisterne.

    Specialisterne now has two offices in Denmark, another under construction in Scotland, and branches being planned in Sweden and India. Its niche, according to the case, is testing when the cost of establishing automated testing is too expensive and complex. In March 2008 Sonne was honored with Denmark’s IT Award for outstanding contributions to IT development. In a statement read at the ceremony, the award was bestowed to Sonne of Specialisterne because “these highly gifted people require special support to get on in society—but via their particular logical skills and sense for precision, they can contribute massively.”

    A company like Specialisterne seems uniquely suited to the kind of consulting work that requires tremendous powers of concentration. Not all software testing lends itself to offshoring. Certainly, some testing may be automated, but other elements cannot when the work requires a lot of iteration and close proximity to the client, particularly during a time crunch.

    As the case states, “Sonne knew from experience that for some applications, especially financial and others that executed mission-critical functionality, co-location of testers and developers remained essential. Some testing, Sonne suspected, would not move offshore, even in the long run.”

    “These are useful distinctions for CIOs when thinking about talent management,” says Austin. “An IT organization needs all kinds of talent—skilled workers in security and databases, and architects for putting lots of complex things together.”

    Potential consultants for Specialisterne undergo a five-month training process that familiarizes them with the intricacies of LEGO Mindstorms technology. According to the case, “There was a natural fit between LEGO robot kits, called Mindstorms, the inclinations of ASD consultants, and the work they might do for Specialisterne.”

    A winning model

    The case also brings to the fore the potential of like-minded companies to build a business model around qualities in employees that at least in the past were considered handicaps.

    Given that human capital is the core of Specialisterne, with a heightened need for supervisors, could the company find itself needing to charge customers more than they could pay? How should it handle issues—one at the center of the case—when a client might want to cut costs by trying to negotiate lower fees for consultants than their skills merit?

    Adds Austin, “The business model is tricky for a CEO. No one wants to be perceived as taking advantage of someone with ASD. It is a fairness issue that most companies don’t have.”

    Although the company has emerged from Denmark, Austin adds, there is nothing uniquely Danish about it. “It could be anywhere.”

    So far the specialists, and the high quality of their work, are making a good impression on clients in need of focused testing. The specialists’ ability to catch critical flaws in software serves to highlight the value of testing—and their individual value as well, as professionals who play a crucial role in bringing about first-rate IT. cac26_tack-wk The Surprising Right Fit for Software Testing

    About the author

    Martha Lagace is the senior editor of HBS Working Knowledge.

    Apr 15 2008

    Run Charts

    Boeing B-47B StratojetAdding the element of time will help clarify your understanding of the causes of variation in your processes. A run chart is a line graph of data points organized in time sequence and centered on the median data value. The patterns in the run chart can help you find where to look for assignable causes of variation.

    What can it do for you?

    Histograms or frequency plots can show you the general distribution or variation among a collection of data points representing a process, but one histogram or one frequency plot can not show you trends or help pinpoint unusual events. Sometimes, a normal-looking distribution will hide trends or other unusual data. To spot those trends, the data must be considered in time order. Plotting data on a run chart can help you identify trends and relate them to the time they occurred. This will help you in your search for the special causes that may be adding variation to your process.

    Read more »

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