Chess is strongly associated with strategy and mental superiority. Can basic players having friendly one-move-per-day games learn deeper lessons from the game, or does it just make them look smart?

People associate chess with geniuses like Gary Kasparov. His chess is certainly not my chess. I don't memorise openings,  I struggle to see even a few moves into the future, and I am often surprised by my opponent's next move.  Oddly enough, this makes chess for me much more like real-life than it would ever be for a grandmaster.

Here are three lessons a basic player can apply to chess and business.

Lesson 1: Time, Chess and Peter Drucker

Lesson 2:  Competition's moves

Lesson 3:  Investment

IT = Information Technology. 

For information to be useful, it needs to be understandable and be in the hands of the people who need it when they need it. Then information becomes influential. Information without influence is a waste of time and money. IT = Influencing Technology? 

Mastery of technology is important for a few reasons. Firstly, to a modern enterprise a lot of data is available, and this is an opportunity which will be exploited either by competitors, customers or suppliers. To translate data into information is the important skill. Part of this is linking data from various systems to create new insights; this requires technical skills and insights into system design. I am very strong at this, and this is a great way of adding value. I can use SQL, database tools and programming to make information from huge volumes of data much faster than most people. This means my ad-hoc querying skills are very strong. In a dynamic business, things happens which will leave existing reports well behind, and then my advantages become clear. 

Being able to drilldown is very useful, but where and when to do it? This is where my business intelligence comes into play. My broad cross-functional experience, and the strong networks I build with people, let me make connections and insights to inform me where and when I should start investigating. My first Dutch job description mentioned being "a spider in the web"; perhaps a little predatory, but you get the point about how well connected a Finance leader needs to be. 

However, all of this is merely about providing relevant facts, fast.

The technology aspects of IT mean we can move beyond facts. IT can help through modelling. Modelling means what-if decision making: opportunities and risks can be simulated. I like modelling. I build good but simple models which help with decision making. You can't build a simple, useful model if you can't conceptualise and abstact the business. Since models are limited by their assumptions, they can guide decision making, but not replace it. The only useful model is an influential model, and therefore it needs to be understood by its users.

So clearly, I believe IT is a waste of time without considering how it informs human decision making, not as a retrofit, but something to be considered upfront. It's not a matter of paying for a report-writing tool; that is a belief that you just need to throw more technology at the "users". This doesn't give you good IT. 

Information systems need to be consistent and understandable. They should usually be subordinated to expert judgement, and if you remember that, then you will avoid the  trap of false accuracy and detail. It is better for IT investments to support forward-looking decision making and not historical reporting. 

There is a lot of value in data mining. The information is out there, and will be used by someone. Look for trends and changes by correlating data.

Personally, I bring with me very good soft IT skills. That is, I am very strong at understanding how people use and misuse the tools, reports and data available to them, such as by misunderstanding master data definitions.

Of course, with my development and consulting background, I am a highly effective IT broker, that is, seeing where systems can be improved and making sure a good job is done.

I'm a good role model. I am a very strong personal organiser of electronic data. I am an advanced user of search tools, and of ad-hoc data technologies such as Excel and SQL tools.

I innovate and make myself and others more productive, by quickly designing tools and by automating repetitive processes.  

A WSJ article, "How to Tap IT's Hidden Potential" (March 10, 2008) was widely circulated and discussed.

I summarise the article into a few key points:

The problem "IT decisions are often made by the wrong people with insufficient input, and the resulting failures drive a wedge between senior managers and their IT colleagues." The reality today, though, is that CEOs can't ignore IT and expect to succeed. Technology has accelerated the pace of change in business, making it crucial for companies to detect, assess and respond to every opportunity and every threat as quickly and as effectively as possible. And that kind of agility can only be achieved by fully embracing the operational and strategic importance of IT The solution  Begin with IT literacy -- and commitment -- at the top. The impetus for effective IT management must come from the CEO and the board. There has to be a willingness on the part of the CEO and the other executives to know enough about IT to understand its functions and its value to the company, in the same way that they understand accounting, finance and marketing.  Create demand pull for IT solutions. Managers at all levels across the organization need to be convinced that innovations in IT-related areas such as knowledge management, business intelligence, information security, change management and process integration are essential to the success of the enterprise. Subject IT spending to the same decison making analysis as other investments. Understand the business case. Evaluate costs, risks and benefits of projects.

 

Quiz results

You should read this page only after taking the over-confidence test. 

If you want to do this in the recommended order, start here (to read about how the quiz works)

 You can jump straight to the quiz:

  http://tim-richardson.net/misc/estimation_quiz.html

Choose "read more" when you are ready.

 

Since 2003 I motivated Philips to lead European industry to oppose punitive anti-dumping tariffs imposed on energy-saving Compact Fluorescent lamps made in China. 

I will summarise what I learned in case it is helpful for others. The European Commission has a "trade defence" regime which is necessarily compatible with WTO requirements, and many developing economies copy the European way-of-working.

• First, I will summarise the technical process,
  
• and then the European political decision making process.
• Finally, I will discuss the lobbying effort I conducted inside Philips, how we structured the project team and how we worked with competitors and NGOs. It is a case study of the modern role of Finance leadership.

This will be a long and complex article; if you are interested in my experience, contact me rather than wait for the article to be finished.

At the end of 2007, The McKinsey Quarterly had a rountable discussing "Building a competitive finance function ". 

This discussion was grounded and pragmatic.

I'll summarise the article, and then compare what we did in Philips; this will partly explain my role, experience and contribution.

 1. Contribution to value and growth: The foundation

As a starting point, Finance should: 

• Ensure a highly effective capital structure
• Setting expectations for investors and not surprising them
• Setting strech goals for revenue, profitability and cash that meet long term aspirations 

  My comments: the first two points are text book, derived from the CAPM which shows how capital structure (eg, the mix of debt and equity) can influence cash flows and valuation. The third point derives from the responsibility of Finance to reduce agency costs and the general fidicuary duty towards the owners; in other words, to make sure management is working hard enough to create value for shareholders. For point 2, see also this article where I discuss a presentation given to our finance group by an analyst.

2. Going to the next level

A spin-off, or divestment, is a classic example of the shortcomings of finance theory in the real world. Two parties come together to trade a unit of a company. How to value it? There are models (and models). They mainly come down to cash flows, and cash flows are projections based on assumptions. But there are some problems which make the assumptions, and negotiations, very unstable. The key problem is "information assymetry".

Career Advice and Tips: Professional and Personal Motivation

In memory of Ike Siddiqi, who passed away in 2007.

Ike was inspirational, particularly for those of us starting out. For a long time I've had this content on my website, but now I republish it after tidying it up. It is still refreshing and challenging to read. This content is copyright Ike Siddiqi 1997 and published with permission. 

---

Here are some miscellaneous thoughts - saying - truisms - or Ikeisms. You didn't ask for them, but you are going to get them anyway for FREE. Some are not necessarily original.

Many guide me in my business and everyday life. Some have guided you over the years. Most are simple - "To me very important".

• Define objectives clearly - All objectives MUST be associated with profitability
• Management does make a difference
• People really are important - They really are!
• Respect people’s valuable time, they will really respect you - Never promise something you can not deliver, you’ll only lose your face
• Remember your commitments to your colleagues, they will trust you the next time
• You get productivity through people - Not machines, Planes or Computers
• Set high standards and achieve them - for your people and for your self
• tim-richardson.net
• A sales/service organisation should be reminded frequently that it has been established to serve the customer, not to serve the company
• The customer is the most important person in the world - think that way - act like it - prove it, on a daily basis
• Operate as a "Hands on" value driven manager. Know your job and participate at the lowest possible level of activity
• Get in the field - with the customer - with the people. That's where the action is!
• Rule #1 - The customer is always right -- Rule #2 - If the customer is ever wrong, RE-READ THE RULE #1 again!
• Don't forget the KISS (Keep It Simple Stupid) principle. - It's more generally applicable to the majority of people
• M.B.W.A. - Management By Wandering Around - good for people - shows you're interested in them. You'll learn
• Discipline is the soul of an organisation. It makes small numbers formidable; Makes success available to the weak, and esteem to all
• Do it - fix it - try it. Don't plan it to death - take action
• The team - the spirit - believe in it - live with it - nurture it!
• Don't ever forget the power of a turned-on group - It's awesome
• Excellence and the pursuit of it should be a passion
• The whole world is about making things and selling things
• The only true edge in competition is service & relationship
• Fight for what you know and believe to be right - It's not always popular or easy but fight for it
• From my dad Get hell for doing something, but never get hell for doing nothing
• Be practical with your objectives, there is a very thin line between "Vision" and "hallucination"

 

Importers with substantial Chinese purchases must be careful about hedging the currency risk. Naive strategies can lead to losses, and also to hedges which are possibly not compliant with IFRS requirements. 

The CNY is not a convertible currency. Typically,  Chinese exporters invoice in USD. A European importer therefore sees a USD/Euro risk, and hedges accordingly. It is quite easy to meet the requirements for the hedges to have fair value changes kept on the balance sheet. 

However, the risk is that often the purchasing contract with the Chinese party allows for USD price changes should the CNY/USD rate change. The current context is one where the CNY is expected to strengthen over time, and there exists the possibility of dramatic changes in exrate should the Chinese authorities be unable to contain revaluation pressures.

In this case, the European importer holding forward contracts in USD is vulnerable. If we assume a revaluation of the CNY matching simply a decline in the USD, so that the CNY/Euro rate remains unchanged, we can see a loss coming, a real cash out. For example, imagine in January 2007, the CNY/USD rate is 0.10 and the USD/Euro rate is 0.70. 

A product costs CNY 10, giving a price of USD1. The importer plans to buy 100 units in December 2007, and in January takes a forward contract to buy 100 USD for 70 Euro (I'll keep the forward rates the same as spot rates).  

At sometime during the year, the USD falls by 10% against both the Euro and the Yuan. The Chinese exporter takes advantage of the currency clause in the contact, and increases the USD price to compensate (let's say by 10%).

In December, the forward contact is executed. The forward contract is a loss of course, since the USD are purchased against an exchange rate which is now too expensive. Normally, this is of no concern, since the same exchange rate development makes the purchased items, also in USD, cheaper. The net effect is neutral. However, this time, the USD prices have increased by 10%. So the importer makes a loss on the hedging, and on the invoice price. 

Obviously, this is because the hedging contract did not hedge the real risk, which is Euro/CNY. For this reason, I question that these hedges can meet the requirements of accounting standards (eg IFRS 7). 

At this stage, hedging solutions for CNY risks need careful investigation: there are no simple solutions. 

In a (long) article , I explained why I wanted to change from IT into finance. I moved from IT jobs in Asia into a role as Financial Controller for the retail channel Western Europe of Philips Lighting. That's quite a senior role; in fact, it was a promotion, and I got to move to Europe at the same time (another ambition). How did I change careers, get a promotion and move to Europe at the same time?

Recently I attended an in-house professional development seminar. Most of the day was dedicated to harnessing our passion and improving our empathy.

A highlight was however a presentation by a Dutch analyst following Philips (PHG). He went over valuation models and techniques, which caused no surprise but lead to interesting discussions. The models are not sophisticated (no bad thing given the uncertainties in the assumptions) but it was pleasing to see different models applied for different divisions, recognising the strength of Philips Lighting's vertical integration and large capex base (and high margins).

I was greatly surprised by just how much marketing there is between institutional investors and analysts. Our presenter worked for a large bank, and part of his role is to advise clients (institutional investors) about stocks. Despite the theories of efficient markets, institutional investors are just busy people trying to keep on top of a lot of information, and face-time with analysts, and senior management, can really influence buying decisions. 

Another clear take-away is the harm and stickiness of a reputation for poor forecasting. For the past five years, Philips has been strong, but a reputation from earlier lingers. Our presenter showed us a slide he uses with clients, proving how reliable Philips has been recently. He said that this slide is frequently greeted with surprise. So even in this world of big money and professionalism, prejudice and frail memory play a role. 

I left the day with a very clear impression of how important it is to get simple messages across to analysts, business media and institutional investors. Thanks to my colleagues who organised this day.

Today I want to pay tribute to a small box in my desk drawer. It is a box of Red-Stripe staples. The staple is old. A small piece of cheap metal is simply bent into shape. It is almost a pure commodity. The makers of Red-Stripe staples, however, found a way to add an innovation. This is to me is like the miracle of a plant growing in the sahara. Adding value in such barren soil is almost inspiring.

A Red-Stripe staple has a small groove cut into the back of each staple, in the middle. A red stripe is painted on the front. If you want to remove the staple, you bend the paper so that the staple is bent at the red stripe. The staple snaps. It is by far the easiest way to remove a staple. Fantasic. I don't know where they are made, and no patent is claimed.   

I liked this article about the libraries of CEOs.

Explore the personal libraries of successful chief executives and discover what makes them think, not compete."

 

However, I don't think Churchill spent 6 years only reading after losing the 1944 general election. It was during this period that he did a lot of writing, in fact (such as has 6 volume history of the second world war).  I have decided that I must read the 7 Pillars of Wisdom; I hope it is out of copyright and therefore available from Project Gutenberg.

 

Every day we need to make estimates because we don't have a perfect understanding of the world. How long will that car take to get here?

So, how well do you estimate? Some people are over-confident.

I have made a test of over-confidence based on a famous study. It's a fun and possibly surprising way to spend five minutes. As Donald Rumsfeld said, we all know we have "known unknowns" and "unknown unknowns". This little quiz will investigate how you good you are at telling the difference. Follow this link to start the 10 question quiz. 

or read this wikipedia article to learn more: http://en.wikipedia.org/wiki/Overconfidence_effect