Zenger, Todd – Beyond Competitive Advantage

Harvard Business Review Press, 2016 [Business] Grade 3

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In his corporate strategy book Beyond Competitive Advantage the University of Utah business professor Todd Zenger, specialized in so called organizational design, presents a framework for companies on how to create shareholder value. The thesis is that companies too often use faulty or outdated structures to guide them in this pursuit and they should instead formulate and follow something the author calls a Corporate Theory of Value Creation. Although I don’t fully agree with all the preconditions that Zenger sets up the solutions he proposes are still largely correct.

The book is structured in three parts and seven chapters. Part one spanning the first 100 pages introduces and describes the author’s Corporate Theory and why it is needed. The other parts and the remaining 80 pages are mainly concerned with how companies – with their Corporate Theory at hand – should through organizational design, strategic focus, asset allocation, investment choices, acquisitions and divestments etc. link together the assets of a company, in a broad sense, to create value. “The leader’s task in a dynamic design is to identify and select the proper sequence of programs, initiatives or structures.”

However, to take one step back, Zenger starts by claiming that companies are too stuck in an antiquated view of strategy as formulated by Michael Porter in his classic Competitive Advantage - hence, the name of this book. What we are moving beyond is not the need to have competitive advantages as such but an old formulation of what corporate strategy to use. Porter’s approach to strategy is that a company should position itself in a valuable market niche where it through some means can have a competitive advantage and then work to fortify its moats in this market segment.

Now, the purpose of a corporation is to create shareholder value and in Zenger’s view this positioning type of strategy framework is too static to be able to create the continuous growth in value that shareholders demand. Instead the company should take a more adaptive and fluid trial-and-error approach. But without a beacon to guide these trials they risk becoming a value destroying random walk. Enter the author’s Corporate Theory of Value Creation defined as “a logic that managers repeatedly use to identify from among a vast array of possible asset, activity, and resource combinations those complementary bundles that are likely to be value crating for the firm.”

The theory that must be unique for the specific company can for example relate to an advantage in solving a set of customer problems, in exploiting a set of assets, a privileged position in gaining synergies from M&A etc. The observant reader could object that this doesn’t sound much different from the means that Porter would list in gaining a competitive advantage and they would be correct in this. However, Zenger’s Corporate Theory must also give a view on future development, on synergies between corporate activities and an insight on which assets that fit the company and by all this function as a tool to take the company forward into the future. It is a type of fact-based belief on how the company can create value that over time will help the management prioritize.

I agree on the need of a beacon and the book is not bad but it is quite lightweight, a tad ivory tower academic and there is a lot I don’t agree with. First, I don’t think companies are at all as trapped in Porter’s models that Zenger portrays. Secondly, while I agree on the corporate purpose of creating shareholder value it is a fundamental mistake to equalize this with the current share price. Further, the author advocates a corporate design oscillating between centralization and decentralization to over time optimize the combination of efficiency and innovation. I think there is an obvious risk that a firm by this never gets the compounding momentum that is needed for large-scale success.

The author in my view gives the right prescription but I don’t fully agree with all of the analysis done beforehand.

Mats Larsson, November 4 2018

Porter, Michael E. - Competitive Strategy

Free Press, 1980 [Business] Grade 5

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A concept that Warren Buffett has popularized in the world of investing is circle of competence. It describes what industries and businesses the investor understands well enough to be able to make an informed investment decision. It may be easy to understand the notion but its realization surely is harder than it seems. An integral part is to grasp the inner workings of an industry and the competitive situation of the specific business. A book that has stood the test of time and that will give the reader some well-needed guidance on the subject is Competitive Strategy by Michael E. Porter.

Porter is a Professor of Harvard University and Head of the Institute of Strategy and Competitive Strategy. He has written several pioneering books and papers and is possibly most renowned for Competitive Strategy and Competitive Advantage written five years later. He is a thought-leader and his material is widely used in academia worldwide and by practitioners as managers, consultants and investors. Porter has throughout his career worked as a consultant to help businesses improve their skills in making strategic decisions. He has studied hundreds of businesses in his research while teaching at Harvard Business School and has used much of that experience to produce his groundbreaking writings.

Competitive Strategy is divided into three parts. In the first part covering chapters one to eight, Porter presents a framework for how to analyze an industry and its competitors. His famous five forces, the key concept of the book, act as a base for the analysis. Chapters one, two, seven and eight are essential reading for both the investor and the manager as they present a foundation for how to think about competitive advantages on various levels while chapters three to six are more tilted towards managers and management consultants by giving hands-on information on how to device strategies. The management’s task is to develop strategies to strengthen the competitive advantage while the investor’s job is to analyze if management is doing the right things. In other words, management builds the competitive advantage and investors measure it. The second part of the book covers strategies for different industry structures as for example fragmented industries with many competitors and no dominating leader as well as emerging industries lacking stable rules. In the last part, again more interesting for managers and consultants, Porter presents several important strategic decisions that firms need to take and applies the ideas and lessons earlier described. Appendix 2 is also useful as it presents a hands-on way on how to conduct an analysis.

Investors, arguing that it’s too difficult to use his material in practice, sometimes criticize Porter. Conducting the strategic analysis is an assignment that ranges from weeks to months depending on the investor’s prior knowledge and network and it includes a lot of footwork and reading. On the other hand, investing is a full-time job and who is to say that it should be easy? Furthermore, investors who apply the five forces get criticism from Porter for being too superficial when using the model. Reading the book is tough and applying the lessons from it is even tougher which drives investors to take shortcuts. Porter also stresses that change is vital while many use the five forces in a static way. One could argue that it's understanding whether the future of the business will be better or worse than the consensus view has it, that is the key question for investors as the rest should be built into the current share price.

My recommendation to the reader is to compile a couple of case studies of businesses while reading the book as this will lead to a better understanding of the framework. Before I read the book, I had heard that it was challenging - which was confirmed. I had also heard that it would be worth the effort, which I agree on as well. Fully grasping the ideas will potentially make the investor recognize the challenges of a business before the information is public which will lead to an important analytical edge.


Niklas Sävås, October 13, 2018

Lowe, Janet - Damn Right!

Wiley, 2000 [Business] Grade 4

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There are multiple books and papers written about the vice Chairman of Berkshire Hathaway, Charles T. Munger. When Damn Right! was published however there wasn’t much. And whereas a lot is written about Munger as an investor, in this biography we get to know him on a more personal level from his birth to his 70s around the year 2000. Munger and his family always wanted to remain out of the public eye, causing very little information to be available about Munger before Damn Right!. Thus, Munger’s family was not overly excited about this book from the start. Still, the author Janet Lowe told Munger that she was going to write about him with or without his consent and after a while he agreed to be cooperative. Lowe is an investment writer and author. She specializes in books about business leaders and has among others portrayed Benjamin Graham, Warren Buffett and Bill Gates.

Damn Right! describes how Munger was born in 1924 and grew up in Omaha. His family taught him the sound morals of Thomas Jefferson and Benjamin Franklin from an early age. His father was an Omaha judge and Munger followed in his father's footsteps by pursuing law. Early in his career he suffered from both distractive events as being forced into military service, as well as sad ones with a divorce and the tragic death of his son. It took him until his thirties to start accumulating his fortune which he built out of savings from his legal practice, invested into real estate projects. Having realized that debt is a vital ingredient to be successful in real estate investing together with it being a full-time job, he soon moved on to other interests. This involved starting an investment partnership and resigning from being a lawyer after having co-founded the law firm Munger, Tolles and Olsen - which is used by Berkshire to this day.

Munger ran a concentrated investment portfolio with huge success but also wild fluctuations. He frequently discussed his investment ideas with Warren Buffett who he later famously went into business with, taking the subordinate position as vice Chairman of Berkshire Hathaway. Munger is famously known for teaching Buffett that it pays off to pay up for quality. What is not so known but explained in the book is that he himself also learnt that lesson fairly late. The company that in this regard made the strongest impression on him and Buffett was See’s Candies, a high quality, premium chocolate company located in San Francisco which has been a home run for Berkshire.

Aside from getting to know some of his and Berkshire's investments in See’s Candies, The Buffalo Evening News and Salomon Brothers the reader is introduced to Munger’s moral compass, which is strongly influenced by Franklin - his biggest hero. Munger is of the view that honesty and hard work will take a person a long way. Morals aside, a trait he is famous for which isn’t as positive though, is his manners. People who don’t know him well may think he is arrogant and rude. One thing that defines Munger is that he didn’t set out to become superrich but rather financially independent enough to pursue interests within education, medicine and philanthropy and also his hobbies of architecture, travelling and fishing.

Although the book is filled with timeless quotes from both Munger and Buffett I still feel that some quotes are a bit misplaced where one subject is discussed and then followed by a quote or writing which is not really connected with the prior text disrupting the flow of the reading. However, this is more of a minor observation than a large negative. For me, a book about Munger could never be boring. I like Poor Charlie’s Almanack more, which is a book I often go back to, but I still rate Damn Right! highly and it’s a must for all Buffett & Munger fans. The part I enjoyed the most was to get more insight into Charlie Munger the person and not only his sharp quotes and wisdom, even if the book gives the reader plenty of that too.

The only thing I would ask for now is for someone to fill in the gaps of the last 20 years of the fascinating life of Charlie Munger.

Niklas Sävås, September 23, 2018

Ford, Henry - My Life and Work

Garden City, N.Y., Doubleday, Page & Co., 1922 [Business] Grade 4

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When considering the most successful and influential businessmen of the 20th century, Henry Ford certainly comes to mind. Many entrepreneurs and businessmen of later times have arguably been influenced by how Ford ran his business and how he created the world's most prosperous automobile company. In Ford's autobiography "My Life and Work" the reader gets thrown into the early beginnings of the Ford Motor Company and its evolution. Asked the question if it was tough to build his company Ford answered: “I cannot say it was hard work. No work with interest is ever hard.”

In chapters one to three Ford describes how he at an early age became interested in machines and how he started to work as a mechanic. During that time, he managed to build his first car and resigned from his job to start his first company and later on his legacy, the Ford Motor Company. Already from the outset he aimed to take the automobile from a luxury good to a public good. In chapters four and five Ford presents his efforts to produce the perfect car, called the T-model, which could be made so cheap that practically everyone with a decent salary could afford it. In chapter six until the end of the book the author drifts away from the Ford Motor Company to discuss his more general and ideological views on business and things in general. He presents his views on the rise of the machines, wages, profits, money, banking, charity, education among else. Always with passion and a very firm view on what is right and wrong.

It wouldn't be wrong to characterize Henry Ford as a "moat-creator". He believed in the low-cost model which is often described as the strongest type of moat or competitive advantage. By always increasing efficiency and constantly improving it's possible to keep competitors at bay. He had a similar view to Jeff Bezos’ in that all the time spent watching competitors is time lost on improving the own operations - and thereby opening up to competition. Many of the factors modern businesses pinpoint today as decentralization and constant improvement were methods employed by Ford. He tried to reduce the costs as much as possible in order to sell more cars and reduced prices constantly to increase the market for his cars. One example is how he paid back 50 dollars per car to the consumers one year as he thought the profit was too high. Talk about goodwill!

Some other characteristics of how Henry Ford ran his business give signs of a great corporate culture. Instead of using the word profit he says service. He believed that the function of the producer is to deliver as much value as possible to the consumer. He also used the word partners instead of employees. “It is not usual to speak of an employee as a partner, and yet what else is he?” On incentivizing his employees, he thought that high wages were key. Ford describes that it pays to create a situation where the employees are strapped from financial worries.

During the evolution of Ford Motor Company Henry Ford often got seething criticism publically for the choices he made as they were often against the general view of the market. As a true contrarian Ford had the view that everyone with a decent salary should be able to afford a car and worked tirelessly with this objective in mind. When the public opinion thought Ford was crazy with regards to the number of cars he was to produce he simply didn’t care. Another side of Ford was his ideological views. Some chapters, as for example one about money, are more a discussion about what Ford thinks is right without really getting to the point on how he wants things to be. Even if the book at parts is filled with too much ideology for my taste it's also packed with essential wisdom on business.

This is an important book for the investor who wants to understand the power of having a low-cost advantage built by a fanatic CEO. Hopefully the investor can benefit from improved pattern recognition by learning about the success story of Ford to find tomorrows Ford Motor Company, Wal-Mart or Amazon.


Niklas Sävås, September 8, 2018

Doerr, John - Measure What Matters

Portfolio Penguin, 2018 [Business] Grade 3

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What is the secret tool that has created Google’s success? It turns out to come from Intel. In Measure What Matters John Doerr, venture capitalist extraordinaire, presents the Objectives and Key Results model (OKR), where objectives define what an organization or sub-unit tries to achieve and key results detail how these objectives will be met. Hence, it is a type of execution tool that drives an organization and its employees to work in the same direction towards a joint goal. The aim of the book is simply for Doerr to present the model to a larger audience than the companies that he invests in and by this help an even larger crowd to become more industrious.

The book is partly self-biographical as Doerr looks back on the many companies he has funded. Approximately a third of the text describes the OKR-tool and the rest contains a large number of case studies and success stories from various (mostly) technology companies that with Doerr’s help have used the tool with great positive effect. It is certainly an impressing list of contributors to the book as for example Larry Page, Bill Gates, Sundar Pichai, Susan Wojcicki, Bono and loads of others contribute sections to the book. Further, Jim Collins, Sheryl Sandberg, Al Gore etc. add write-ups for the book’s cover so the author obviously has a vast network. The real hero of Doerr and of the book is however the late Andy Groove of Intel. Apart from being an early mentor to Doerr, Groove is also the intellectual father of the OKR-tool – event though much of the ideas were openly borrowed from Peter Drucker.

To work with OKRs means setting aggressive objectives - essentially goals - that are “significant, concrete, action oriented and (ideally) inspirational” and then deciding on 3 to 5 executable action items called key results that lead to the objective if fully met. These results should be specific, measurable, and verifiable and come with clear deadlines. Further, it should be crystal clear who the owner of each OKR is. The benefits of using the model, and also the structuring of the chapters in the book, are according to the author an organizational focus and commitment to the issues that really matter, a transparency and alignment to joint purposes that produces work satisfaction for employees plus a sense of community and team spirit, an accountability that brings power to the execution of initiatives (plus, by this, a flexibility to quickly change direction if so needed) and an ability to reach stretch targets by working towards them in smaller increments. The process is steered through a dynamic and continuous process of performance management the author calls CFR (Conversation, Feedback, Recognition). Doerr recommends a dual cycle with both annual and quarterly OKRs and further that the objectives are set both top-down and bottom-up. Also, one should work to connect teams through cross-functional OKRs. On the look of it, I think this is a great tool for organizational execution but also culture building.

When reading the many case studies I’m quite struck by how very similar the Silicon Valley establishment thinks and sounds. With all their “amazing”, “10x”, “fail fast” and “we are going to be the next xyz”, the attitude of the Silicon Valley contributors to the book is virtually missionizing – it’s a bit like listening to 10 Jehovah’s witnesses, one after another, although, the holy trinity of this cult is rather wealth, productivity and creative destruction – all through the power of technological change. The contributors that stand out as molded in a somewhat differentiated form are the thoughtful Bill Gates and Bono that obviously comes from a totally different environment. In my view the balance of the book could have been shifted somewhat from case studies to a more collected presentation of the OKR and CFR models. With the current structure it is important that the reader doesn’t miss the so-called resource sections of the appendix as they give more meat to the models.

In sum, I like the tool more than the book.

Mats Larsson, August 29 2018

Belobaba, Peter et. al. (ed.) - The Global Airline Industry

John Wiley & Sons, 2016, [Business] Grade 4

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This is a highly ambitious and voluminous textbook introduction to the airline industry and to airline operations written by a total of 17 authors, mostly academics at the MIT Department of Aeronautics and Astronautics but also from other universities and a few industry practitioners. Much of the content was apparently originally developed for an MIT course, quite naturally, called the Airline Industry.

The coverage of the book is impressive and at first looks at airlines from a top-down managerial point of view, then goes in to more practical and operational details when surrounding airlines and finally covers a number of related subjects. Among the first types of topics are the industry history, the regulation of both airlines and airports, the economics of the airline market, pricing options and revenue management plus costs and productivity.

The second type of subjects includes fleet and route planning, flight crew management during both regular operations and when things don’t work out as planned, labor relations and security handling. The last type of subjects includes airports, air traffic control, industry related environmental issues and how IT effects the management of airlines. This is all obviously very comprehensive. The only topic I can think of that’s missing and that might have warranted a comment is the authors view on whether the traditional long haul hub-and-spoke network model could be rivalled by smaller fuel efficient, long range planes deployed in “long and skinny” point-to-point networks.

The sector has obviously changed a lot over the years for example with the emergence of low-cost airlines and the growth of new airlines originating in developing countries – both topics covered extensively in the book. The largest change is however the transition from a fully nationalized sector to a commercial industry. It is today almost chocking to read about how tightly regulated the industry has been both between the 1950’s up until the deregulation in the 1980’s, but in reality also up until now. Apparently, in some aspects the European Union has been a global forerunner in the deregulation of the sector which only goes to show how bad it has been.

For me as an investor chapters three through six were obviously the most useful covering the economics of both the industry and if an airline corporation. Commendable enough these chapters start off with a section on airline terminology, definitions and also acronyms such as RPK (Revenue Passenger Kilometer, i.e. one paying passenger transported one kilometer) or ASK (Available Seat Kilometer, i.e. one available seat flown on kilometer). In the end I think one must conclude that air transport is a commodity and in any commodity business the low cost providers will usually turn out to be winners.

Initially my worry was that with the authors predominantly being academics the text would be too detached from practical life but this is not at all so. They clearly have a very deep domain knowledge. This doesn’t mean that it’s 500 pages to breeze through. Reading it is rather hard work as it is full of detail in anything from regulatory agencies to airline schedule development. Also, a book containing material from this many authors never really addresses the reader in a fully coherent language.

This book works well as a university textbook and it would be an excellent choice if you as an outsider have been recently recruited as an airline CEO and need a crash course on what you are getting into. However, it is probably too heavy and full of operational aspects to really suit an investor looking to understand the industry economics.

Mats Larsson, July 14, 2018

Galloway, Scott - The Four

Portfolio/Penguin, 2017, [Business] Grade 4

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The US FAANG-stocks and Chinese BAT-stocks have driven the current growth focused stock market cycle almost from the start in 2009 and their popularity among investors doesn’t look to be fading just yet. Not all are enthralled though. Scott Galloway, a business professor at New York University and serial entrepreneur, plainly thinks that Facebook, Amazon, Apple and Google has become too big and powerful for the good of the economy. This is the story of the Four; their business models, how they became this dominant and the problems that follows from this.

In the introductory chapter Galloway lays out his thesis where a technology-optimistic society naively views big tech companies as inherently good and as a result the US government regulate the Four much more lightly than the companies they compete with, tech companies are allowed to pay very low taxes and investors supply capital to them almost for free. Big tech companies, in contrast to almost any other big company in other sectors, are seen as the good guys and given a free card to do as they please. Unfortunately, this and the ruthlessness and relentlessness of the companies has not only lead to arrogance and hubris from the side of tech companies with regards to their behavior but also to a market power that has grown so big that no one can effectively compete with them.

Then follows four chapters, each with more detail on all of the Four, or the four horsemen, as Galloway also calls them (he is a professor in marketing). The final section is five slightly unsorted chapters that slice the thesis of the book in a different way and among others go into detail on some of the sins of the companies; try to answer why their business models and products and services have such a tight grip of us as consumers; list the characteristics the companies share that have lead to their success; ask if there are other companies that could join their ranks and also a rather misplaced chapter giving students advice on how to succeed in their future work life.

I was given the book after listening to Galloway at a conference. I had actually previously refrained from buying it as its thesis, at least to some extent, plays too much on my confirmation biases. Now, I’m glad I read it. It is an easy, sometimes almost a bit lightweight, read that quickly puts the reader in the center of a very important discussion that will gain in prominence over the coming decade. The topic has clearly gained momentum during 2018. Still, Galloway isn’t accusing the companies. They are profit-maximizing entities and do what they should do, albeit with a bit too much brutal zest, and a large part of their dominance is obviously down to great products.

He’s instead partly dissatisfied with consumers but mainly with the US competition authorities that he thinks play by a pre-Internet playbook and don’t see that the monopoly power of each of these companies is similar to that of for example AT&T or Standard Oil when they were broken up in pieces. With reference to the classic Apple 1984 commercial, picturing Microsoft as the intrusive dictator, Apple and the others have simply taken the previous ruler’s place and done a much better job of controlling all our lives. Competition is broken. One oft commented issue with the book is that Galloway observes and analyzes a problem but he doesn’t present any solutions. However, in later presentations he comes to the conclusion that the Four should be broken up into twelve separate companies and that this should rejuvenate competition.

If you don’t come away terrified after reading The Four you might already be a Borg in the empire of the four horsemen.


Mats Larsson, June 25, 2018

Stigter, Marc & Cooper, Sir Cary - Boards That Dare

Bloomsbury Business, 2018, [Business] Grade 2

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The premise of this book is that most if not all corporate boards are stodgy and complacent and due to this either don’t see - or outright reject - the requests from sustainability focused institutional owners and the purchasing demand from likeminded customers. Business leaders are said to only focus on short-term profitability and CSR has degenerated to a green washing, box-ticking exercise. Hence, the directors risk leading their companies to their demise. This creates a need for a new bread of directors that fills the governance void and also a new model go guide them.

The authors are business consultants in Australia and the UK and Sir Cary Cooper is one of the UK’s leading academics in management studies. I very much question if the above really is the status of the boards they consult to or the views held by the 61 directors interviewed for the book. To me the thesis is an overly spectacular and speculative one that misrepresents the situation. Yes, there are bad boards and some are overly stodgy. Yes, some directors are bad. Still, most boards are in my view fairly decent and there is rarely a lack of focus on sustainability issues.

This book offers one set of chapters, number 2, 3 and 4, that are well balanced and grounded in reality, flanked by chapters 1 and 5 that are sweeping, cynically un-balanced, bordering on flawed as they, in my view, label the exceptions - the bad eggs - as the majority. The middle chapters argue for more active boards and a mix change in the time spent, from compliance towards business strategy, by doubling the hours spent on the directorship. Diversity is a key requirement in composing the board and IT-competence and CSR-competence should according to the authors be added to the boards.

While much of this is good, it is also very much in vogue right now and doesn’t need much promotion as I see it. Also, of the same reason I don’t generally want to see lawyers and management consultants on boards, I don’t agree that CSR or IT-specialists should be there either. Narrow competences can be added on a consultancy basis. Although they might have specialties, directors in my view must be broad enough to have well grounded opinions on most issues. The authors’ objection to the above might be that sustainability encompasses everything in today’s world. However, if everything counts as sustainability issues then in reality nothing counts as sustainability issues.

The foundation of the authors’ view on sustainability is Michael Porter and Mark Kramer’s concept of Shared Value. Stigter and Coopter from this launch their own concept called Total Value and Care Governance. Boards that “can, know, want, are and dare” first cater to the employees, then to consumers and other stakeholders and finally to the society and the environment. By doing this they will be financially successful and consequently will also reward the shareholders. This “broadened fiduciary duty” is obviously a hugely popular notion today, implying that there are no tradeoffs in business. Optimize for all at the same time and paradise is waiting. There is no notion of how to manage compromises between conflicting goals.

Ironically, the model Stigter and Coopter present share many similarities with the shareholder value and balance scorecard models of the late 1990’s as it sees a sequential process from personnel and customers to financial results. The difference is that in the original models there was a method to allocate limited resources. Since the owners receive the present value of the future residuals after all other stakeholders have been satisfied, the owners have the incentive to balance and satisfy the interests of all stakeholders. By their pursuit to generate the highest return on capital over time societies’ resources are put to their most efficient use and this makes all of us better off.

Some passable corporate governance advice is mixed up with a light version of Porter and Kramer’s shared value concept. Adds very little.

Mats Larsson, May 27, 2018

Lev, Baruch & Gu, Feng - The End of Accounting

John Wiley & Sons, 2016, [Business] Grade 3

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There is something wrong with the accounting. It doesn’t appear to serve its purpose anymore. Baruch Lev and Feng Gu, two accounting professors at NY Stern and the University of Buffalo respectively, in a legible way explain why this is and what to do about it. This is not a book for those who want to understand the intricacies of today’s accounting, it’s a book that argues for a total overhaul of the way we practice accounting. The aim is to mobilize investors to lobby for a change towards a better accounting methodology.

In the main sections of the text the authors first try to convince the reader of their thesis that the usefulness of accounting numbers is in decline, then they give their main reasons for this and finally present a reform package in a section of the book that also contains a number of case studies from various industries.

So, what are the issues that Lev and Gu single out as indicators of a quality problem? They show how even having the gift of perfect foresight in forecasting quarterly EPS numbers has yielded gradually less outperformance since the 1990s. With a start in the late 1980s they show a declining correlation between historical sales, profits and book values and future ones rendering historic numbers less practical when making forecasts, with regards to what moves share prices new accounting data now contribute 5% of the movements compared to 10% two decades ago. This leads to higher estimate errors and increased estimate dispersion from analysts while the volatility of the underlying businesses has dropped. All this is, in the authors’ view, indications of the declining relevance of accounting numbers with regards to their key target group of analysts and investors. Although they present a convincing case this part of the book is a bit too agitating for my taste.

A large part of the explanation for the declining efficiency is that while the core principles of accounting haven’t changed for at least a century there has been a big shift in the structure of businesses. The center of gravity of the business world is gradually moving towards what’s called asset light companies. The thing is that even those companies have assets; they’re just not accounted for. In the 1970s the unaccounted intangible assets were estimated to equal half of the tangible ones on the balance sheet. Today, the ratio is the reverse. Thus, the number of non-accounting events that affect the value of a company has gone up. Further, the amount of subjective managerial decisions in deciding on values in the accounts has increased dramatically. Lev and Gu count estimate-related terms in financial reports (“expected”, “estimated” etc.) and show that they have increased 400% in just two decades and further that this change correlates well in time with the growing difficulty of using historic numbers to forecast future ones.

By decoding a vast amount of conference call Q&A transcripts from when companies report their quarterly earnings the authors try to reverse engineer what investors truly focus on. They conclude that companies should report 1) what the strategic resources of the company are that will help them get a sustainable competitive advantage, 2) how they invest in these resources, 3) what the risks are towards the resources value creating ability and what management is doing to mitigate them, 4) outline the strategies with regards to how the resources are deployed and 5) measuring and reporting the resulting value creation through a cash flow based economic profit measure that deducts the full cost of the capital used. This would create a relevant, industry- and company specific reporting. To not just add more things for companies to report they further suggest full semi-annual reports instead of quarterly and the abolishment of much of fair value accounting going back to cost based numbers to leave the valuation to investors.

After a, in my view, too sensationalist first half the authors actually present an unconventional and interesting solution on how to reform accounting.


Mats Larsson, April 22, 2018

BioTechPrimer/Burke, Emily - The Biotech Primer

BioTech Primer Inc., 2012, [Business] Grade 4

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If one takes a step back and looks at the evolution of biotechnology the last 3 - 4 decades, it has been a breathtaking journey of bringing impressive scientific discoveries to the areas of health care, agriculture and industry. This primer focuses mainly on biomedicine and the life science biotech industry. The BioTechPrimer Corporation offers training sessions in biotechnology, often to a non-scientist audience and is as such well suited to explain this perhaps somewhat unintelligible topic to a broader audience. The main author Emily Burke, Ph.D. who has a long career in the biotech industry, is the director of curriculum for the organization and teaches several of its courses. The text could have benefited from a more formal introduction of this main author. As it is now, Burke’s name is only shortly mentioned in a passage of the publisher’s acknowledgments.

Apart from the introductory chapter the book has two main parts. Chapters 2 – 5 plus chapter 7 gives an introductory course in human biology, at least the parts the size of molecules and cells. Then chapter 6 and 8 – 10 describes how a biologically cultivated drug functions and is developed into a commercial product. The text is well written, the storyline is logical and enlightening and there are numerous excellent explanatory illustrations (if only in black and white). Even though it is an introductory primer the text doesn’t back away from giving a fair amount of detail and dropping quite al lot of medical terms, instead of just describing topics in a general manner.

The industry standard definition of biotechnology is the use of cellular and bimolecular processes to solve problems and make useful products. A large part of those useful products are drugs to treat a vide range of life threatening diseases. In contrast to pharmaceutical drugs that are chemical - often man-made - small molecule compounds, the biotech equivalent called biologics is made in a cell or a living organism. Because of this the molecules in biologics are generally much larger. On the one hand this means that the drug cannot enter cells directly and has to deliver its effect outside the cell walls. On the other hand the larger complexity of the molecule allows for a much more tailored effect, better targeted at what is being treated.

One of the key breakthroughs in turning our knowledge of DNA into useful drugs was the 1970’s discovery of an enzyme in bacteria that could cut DNA strands at particular sequences plus another enzyme that had the ability to glue two loose DNA strands back into one. Through this so-called recombinant DNA technology it became possible to tailor DNA strands with specific purposes and specific traits and have them mass copied – in essence manufactured - in for example bacteria, or animal cells. Most of these DNA strands have large human sections as this allows them to be accepted by the body’s immune defense and thus deliver the targeted effect.

This is a book on biology and on drug development and manufacturing. Only some of the business aspects of the biotech industry are covered and it is not a biotech-for-investors type of text. For example, the important industry trait of licensing the products to larger companies that have the marketing muscles is only cursorily mentioned. Still, for any serious investor it is obviously vital to understand the basics of the industries where investments are made. How to form joint ventures and negotiate licensing deals will have to be learnt elsewhere.

So far this is the best non-scientist primer on biotech that I’ve read. Highly recommended.

Mats Larsson, February 18, 2018

Millstein, Ira M. - The Activist Director

Columbia Business School Publishing, 2017, [Business] Grade 4

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In this text spanning more than 60 years, Ira Millstein portrays the huge changes that have occurred within the area of corporate governance. Millstein at the business law firm Weil, Gotshal & Manges was one of the early pioneers in establishing an area that we today take for granted. The direction of the field was no so certain in the 1950’s when Millstein set out to improve structures and by this came to challenge many imperial minded CEOs.

In the first chapter the author paints a bleak picture of today’s stock market. He then provides a solution in a board centric imperative. In chapters 3 through 9 noteworthy events during Millstein’s long career are presented. Most of these are disasters due to lack of board oversight and accountability and where the author was called in to clean up the mess. In the last formal chapter Millstein returns to deeper discuss the desired profile of a director. In this section the author adds a number of checklists for interviewing and choosing potential activist directors. These are immediately useful as they as a complement to more practical issues, focus on integrity, courage, intentions etc. Finally, a short written biography in an appendix binds together the previous events.

Even though Millstein’s story told clearly depicts the benefits of breaking the hegemony of the managerial capitalism without accountability to owners that long was the norm, Millstein is not pleased with the state of current owners. There are wolf packs of activist hedge funds and increasingly power is concentrated to index funds or relative performance funds that have few incentives to look to the long-term development of companies. Too many CEOs cave in to the demands of the myopic market and passive directors dare not protest. As long as the company earns money they don’t want to rock the boat.

The solution to this mess and the protection from the market is in Millstein’s mind a board centric cultural revolution. He advocates so-called activist directors who know the business and its finances in depth, who are fully engaged and can act as partners to the CEO in strengthening the long-term competitiveness of the company and by this benefit the shareholders over the long-term. At the same time the activist director must protect the shareholders’ money by preventing the CEO from venturing on foolish projects. More compliance issues should be delegated to committees to free up time for the board to discuss strategy.

Only part of the change can come from board practices. The other part must come from the institutional owners who too often have little experience in managing corporations and thus are ill equipped to search for new directors. During his career Millstein has worked to improve the communication between board directors and institutional investors and to help the latter to find their role as owners. With the increasing power of institutional owners comes a societal obligation to look beyond one’s own portfolios and work for the benefit of the business sector and the economy.

Most change is small and gradual but at times there are large, dramatic breakthroughs that over decades tips the balance from the CEO to the board and shareholders. The most attention-grabbing event described in the book is the board revolution in GE where Millstein was instrumental. A string of CEOs were running the company towards the abyss while keeping the board in the dark. It was seen as betrayal if independent directors discussed issues without executive managers present. In the end the board revolted to save the company, sacked CEOs and as one of the first firms wrote their own corporate governance guidelines.

It would surprise few if a text by a lawyer was winded and complex. The opposite is the case here. Perhaps the book is a bit two-pieced as part memoirs, part pamphlet on corporate governance, but if you want to understand how today’s practices developed and why they need to develop further Millstein’s book is perfect.

Mats Larsson, December 14, 2017

Dalio, Ray - Principles

Simon & Schuster, 2017, [Business] Grade 4

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One of history’s highest achieving hedge fund managers is coming of age and wants to share the insights he has made with the hope that these could be of use to others. Ray Dalio, the founder of the systematic macro hedge fund Bridgewater, the hedge fund that has created the highest amount of alpha measured in absolute cash ever, does this through publishing two books. In this first one he shares his life and work principles – his fundamental truths - and describes how he came to acquire them. In a forthcoming book Dalio will lay bare his views on economics and investments.

This 550 page black brick of a book has three sections. First a biographical part that gives an historical background to the specific intellectual events in Dalio’s life that taught him the lessons that shaped his principles and also as such gives an introduction to what they are. Then, one section where the author goes through the principles for how he has chosen to live his life and finally the lengthiest part where Dalio describes how he applies the same principles to the management of the organization Bridgewater – the latter a process that has generated many news articles through the years. The text is based on a large number of statements and then surrounding commentary writing describing the rational. This is hardly the ideal setup for a fluent text but the book is still easy to read. In a way the three sections are in different literary genres; memoirs, personal development and organizational management but for Dalio all are woven into a seamless whole.

Since the internal Bridgewater version of this book has been downloaded as a pdf in millions of copies through the years, many will potentially refrain from purchasing it. Still, the book and the pdf differ quite markedly. Obviously not when it comes to the core message, but the book is greatly expanded compared to the previous pdf. The biographical part has been added and the descriptive commentary around each principle likewise. All this gives additional insights but the numerous repetitions and explanations, in combination with a somewhat preaching style, is the main drawback of the book. I would almost recommend the reader to choose the angle that he is most interested in – personal development or organizational theory – and then read the biography plus the preferred section.

The description of the author and his principles in my view feels very honest and Dalio has a truly fascinating personality. He is consumed by the will to make sense of things. By uncovering truths he, and the organization he leads, evolve. Dalio is bordering on obsessed with attention to details, data gathering, reflection, learning and rationality. At the same time he is hugely inquisitive, innovative, creative and independent minded in his way of drilling down to the core of issues. Dalio’s attitude could be said to be the absolute opposite of the post-truth political debate or relativistic academic doctrines of today.

Dalio who is a former liberal Harvard student that practices yoga and dresses casually views both his own life journey and that of Bridgewater as a machine that in accordance to set output targets constantly must be adjusted in an trial-and-error-and-learning process – much like a automation system in manufacturing. The principles are the algorithms that go into the automation system. The author holds the cards close to his chest when it comes to his family life but to me it feels a bit mechanical to constantly be this analytical and rational about ones life – and this comes from someone that shares some of the personality traits. In my view, in Dalio’s reductionist worldview lies a need for control and a will to quell an unruly world with it’s psychologically biased people.

Ray Dalio invites everyone to share his principles but he is explicit about that they are not the best principles for the reader. Instead he urges us all to explore how to best live the life’s we have. We would be fools if we didn’t follow through on that.

Mats Larsson, November 26, 2017

Friedman, Yali - Pocket Biotech Industry Primer

Logos Press, 2008, [Business] Grade 4

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If you quickly need to gain a basic understanding of the biotech industry this is a very good place to start. Yali Friedman is the publisher of the Journal of Commercial Biotechnology, the head of data analytics at Scientific American and the founder of the site DrugPatentWatch.com. He should know what he is talking about.

To set the reader’s expectations right the book doesn’t aim to give deeper insights into investing in biotech stocks or to provide a multitude of detailed numbers on the market and its many segments from an economic perspective. The book aims to give a basic understanding of the basic functions of the biotech sector and in my view does a good job. Still, if you understand the sector it is then obviously a lot easier to invest successfully.

The author quite broadly defines biotech as “the application of molecular biology for useful purposes” and then on top of medical functions includes applications for farming, environmental remediation and industrial processes. Most of us still relate biotech to the development of drugs. Biotech pharmaceuticals are produced by living organisms like bacteria, yeast cells or animal cells and are often made up of longer molecular chains compared to the small molecule, chemically produced products of the traditional pharma industry. Then to be honest the two industries are gradually converging.

How can we then enlist living organisms like bacteria to produce the products we desire? To answer Friedman takes a step back and describes the foundations of molecular biology, i.e. how the information in our genes produces proteins with different structural and functional characteristics. By manipulating this process and combining DNA from various sources we can get the organisms to work for us and create targeted compounds in a process very different from the industrialized trial-and-error process of traditional pharma companies.

After an introduction the book starts with a historical representation of the birth and upbringing of the still relatively young biotech industry. It gives a good understanding of the historical reasons for the sometimes slightly odd features of the sector. The author’s long experience with the biotech industry shines through. The above-mentioned following description of molecular biology is short and basic but equally excellent. The author follows up with a strong chapter on the long and tedious drug development process that so dominates the day-to-day activities of biotech companies.

Then the book runs out of steam in the last two chapters. The chapter on tools and techniques gives a helter-skelter description of various industry related topics. Many of them are important but there is no storyline to keep the reader interested. In the final chapter on the applications of biotechnology more than half of the text is devoted to industrial and agricultural uses. While this gives a good broad overview it probably isn’t what the reader would expect.

Still, it’s hard to complain. The Pocket Biotech Industry Primer packs a lot of knowledge into a short format. The 83 well written pages are quite possible to read in one sitting. Fairly complicated issues are explained in a simple – but not too simple – manner and with no over-usage of industry jargon.

Granted, this is only a first glimpse into the exciting biotech industry. For the investor who complements with insights into the economics and market conditions for various therapy areas plus an understanding of biotech companies’ business models this book is still a useful tool.

Mats Larsson, October 28, 2017

Jennings, Marianne M. - The Seven Signs of Ethical Collapse

St. Martin’s Press, 2006, [Business] Grade 3

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Successful investing in stocks is just as much about dodging the loser stocks as it is discovering and keeping the winning ones. The process of knowing what to avoid could focus on qualitative factors such as companies with high leverage, poor return on capital, weakening profit momentum, high valuation multiples or accounting ratios that indicate dodgy accounting. It could also focus on qualitative signs regarding the corporate culture. Marianne Jennings, at the time professor of business ethics at Arizona State University, has with the experience of corporate collapses during three stock market cycles written the latter type of manual. It’s not just a handbook in detecting companies approaching the abyss but the author also gives a number of suggestions for improving the culture, to be used by companies.

The structure of the book is simple. There is an introductory chapter and preface, there are two concluding chapters and in-between there is one chapter for each of the 7 signs that in the author’s view point to the risk of an ethical collapse in the company. Each of the 7 chapters starts with a discussion of the issue, a number of examples mostly centered on the corporate scandals of Enron, WorldCom etc. in the early 2000’s and then a comes number of suggested antidotes that are summed up in a list at the very end. Mild forms of one or two of these signs might not indicate an imminent disaster but extreme cultures and multiple warning signs should be taken notice of.

Which warning signs should we as investors or corporate executives be on the lookout for in Jenning’s opinion? The signs are: 1) “Pressure to Maintain Those Numbers” – an unhealthy and unreasonable obsession in meeting earnings numbers that in the end makes the temptation to make the numbers up too great, 2) “Fear and Silence” – a culture that offers no venues to air concerns or punishes those employees who try, 3) “Young ‘Uns and a Bigger-than-Life CEO” – iconic, idolized and charismatic CEOs surrounded by young and sycophantic executive managers, 4) “Weak Board” – a board comprising of inexperienced, incompetent or too-busy directors or directors with too many business or friendship ties with the management, 5) “Conflicts” – companies full of nepotism, mutual back-scratching and the extraction of benefits on the expense of shareholders, 6) “Innovation Like No Other” – differentiated, innovative and successful companies that over time come to embrace a view that they in their uniqueness stand above petty wordly obstacles like rules and 7) “Goodness in Some Areas Atones for Evil in Others” – CEOs that use shareholder’s money for public and self-glorifying philanthropy or engage in what’s called corporate social responsibility and by these good deeds permit themselves to lie and cheat in others.

Unfortunately, the structuring of the chapters could have been more stringent. Often the texts on suggested antidotes too much continue to describe and exemplify the proposed problem. The author’s writing is somewhat stilted and declamatory at the same time as the opinions and antidotes are in my view sound and fair. I also quite like that she spares no punches – for example, with regards to Jack Welch, the former CEO of GM: “Mr. Welch was often touted as the greatest manager of all times. Mr. Welch would perhaps be more accurately described as the greatest earnings manager of all time”.

I would further love to see the propagation of the virtues discussed by Jennings in business life – and even more pressing in the political life. The question is how to go from wishing to execution of that hope – the author gives no real hints. As a side note, the book is published 2006, today a decade later when corporate social responsibility has developed into an all-embracing religion, the author’s text regarding the seventh sign would be almost impossible for an academic to write.

Often it is reading the subjective, quantitative signs that separates the great investor from the ordinary one. Jennings offers one potential framework to interpret the signals of an approaching fall.

Mats Larsson, August 22, 2017

Cotton, David - The Smart Solution Book

FT Publishing, 2016, [Business] Grade 4

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Some books will hardly blow your mind but they can still broaden your professional toolbox and as such be very handy and practical. Independent on which line of business you are in you will have to solve problems and this book presents a number of tools for doing this. David Cotton is a former employee of Arthur Andersen and PwC turned freelance corporate trainer and author. The focus of many of the solutions Cotton discusses is to use the so-called wisdom of the crowd – or at least a small group – to generate the desired results or insights.

The book has a center part where each of the 68 problem solving techniques gets a short chapter. The tools are further divided into those that are more suitable for individuals and small groups, for larger groups and for groups engaged in business games. In reality though, many of the methods can be scaled up or down to work for groups of varying sizes so the division is hardly set in stone. Two introductory chapters and one closing chapter frame all these methodologies. In the introduction Cotton discusses which tools to use plus some problem solving essentials. The text on essentials I found to be perhaps the most rewarding part of the book as it looks to more overarching and general themes in problem solving such as the stages the process often contains and the problems that frequently occur. Then the closing chapter very briefly discusses how to share and implement the solutions that have been generated.

For each method Cotton starts the section with a description of the tool, when to use it and what is needed in terms of material. Then he presents a chronological checklist on how to practice it and finally brings forward the potential pitfalls in its usage. The recurring headlines make it very easy to get a grip of each tool but it also makes reading the book from start to finish a bit choppy. Each of the 68 tools is presented over 1 to 4 pages. Some are more elaborate but some are quite simple.

The author places a heavy emphasis on activities meant to foster free associations and to get everybody in a group to contribute their creativity – improved varieties of collective brainstorming. Often the methods are meant to get to the core of a problem or to bring forward details around it through harvesting the opinions of many and without letting dominating persons in the group biasing the solution generation process.

When there are so many tools to chose from it is easy to find a number of personal favorites. I appreciated some like Cartesian Logic (#7), GROW (#13), Osborn-Parnes’ Critical Problem Solving Process (#15), Deming’s PDSA Cycle (#21) and Challenging Assumptions (#29) that helps you structure the problem solving process; Reverse Brainstorming (#5), Appreciative Inquiry (#16), Who Else Has Solved This Problem (#31) and Retirement Speeches (#58) that allow you to change perspectives; and finally The Ripple Effect (#39), The Solution Effect Analysis (#43) and Action Learning (#49) which allow you to analyze the potential consequences of a proposed solution before it is implemented.

Still, the tools portrayed in The Smart Solution Book are in my view mainly targeting the internal or external person who is to lead exercises at corporate events. For me this is a bit too narrow to generate a top rating. For someone that is about to host such a session it could instead prove very useful. Indeed, simply finding one tool that solves the Gordian knot and delivers the business result required would obviously make the book a bargain.

Mats Larsson, August 06, 2017

Bowden, William G. - The Board Book

W.W. Norton & Company, 2008, [Business] Grade 3

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In any area it is almost always a good idea to learn from those with great experience. The late William G. Bowen (1933 – 2016) was certainly a person with an abundant familiarity with boards. The former president of Princeton University and Andrew W. Mellon Foundation served on the boards of a number of Americas largest listed companies as well as being a trustee for numerous non-profit organizations. This book aims to shine some light on the topic of how a board functions. It provides many wise and common sense opinions from an experienced person who has also taken the time to contemplate about the finer details of how board work should be performed.

Still, Bowen hasn’t written a boardroom primer. Instead The Board Book is a text where the author picks up on and discusses a number of aspects of a director’s work as he sees them after a lifetime of experience. Further, when writing the book he collected the opinions of other directors in his large network and concludes that consequently it should be seen as a collective endeavor as well has his own work. Although Bowen says that he doesn’t want to be normative but pragmatic, he still clearly argues for his opinions, like for example that a former CEO shouldn’t stay on the board of the company he once led etc.

The 8 chapters of a combined 170 easily read pages start with a more philosophical introduction around the role and purpose of boards. Then the next 4 chapters, comprising more than half the book, center on the board’s work towards the CEO. The discussions target the board-CEO relationship and how it has changed, the evaluation and compensation of the CEO and finally CEO transitions and how the process of succession planning could be developed. The latter activity is according to the author the aspect of board work that perhaps shows the most potential for improvement. The next 2 chapters are on the composition of people on the board and then the mechanics of board work follow. The book is then summarized in a concluding chapter where Bowden returns to the themes he thinks most important including the relationship between the CEO and the board.

In the preface Bowen notes how autobiographical most his and other peoples’ opinions are with regards to governance. What has worked out for someone is generalized as a good solution overall. This is both a strength and a weakness of the text. The reader gets personal advice from a veteran director but at the same time the book has a subjective feel and it might not be especially all-inclusive. Another significant trait of The Board Book also comes with Bowden’s career. He served on a mix of public and non-public boards and throughout the book there is ample space dedicated to discussing them both and the differences between them. Personally, I would have liked to see less space devoted to the non-profit area but that is my own preference.

The discussion that the author presents is clearly American. And while one reflection is that the trends around how board work is developing are international and the opinions of what constitutes best practice in the US have clear parallels around the globe, it also continues to astound me how weak the position of the owners is in the US. While references are made to creating value for shareholders, Bowden’s thoughts concerning the board are generally rather decoupled from the owners. The board is not seen as the owners’ representatives with regards to the governance of the company but as an autonomous entity. There is no reference made at all to the general meeting in the text and institutional investors aren’t seen as fully proper owners, they are more like surrogate owners. Even though the opinion is rather typical among directors, many institutions hardly have stepped up as business owners and it is never the less problematic.

Read this as a personal, likable and thoughtful complement to a more comprehensive primer on the workings of boards.


Mats Larsson, August 2, 2017

Clayton, Mike - How To Manage a Great Project

Pearson, 2014, [Business] Grade 4

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This is what the title implies, a step-by-step guide on how to plan and execute a project. With flattening organizations and a quickly changing business environment more work is done in projects and the value of project management skills are increasing. The audience for the book is the prospective project manager.

Mike Clayton is a UK author and public speaker who spent the 1990’s as a project manager at Deloitte and since 2002 gives coaching seminars for project managers. His books cover subjects like negotiation, influence, risk management, personal effectiveness, time and stress management, professional development and project management. The thesis is that “when you have the right process and follow it diligently, you will put yourself in the best position to succeed.” Clayton is obviously motivated by teaching and the book does its job with excellence but I think the reader should do more than just read it from cover to cover to benefit the most. More on that later.

The content is a “how to” manual on managing the four stages of a project; defining it, planning it, delivering on the plan and closing the project. After a preceding introduction that discusses projects and their management in more general terms, the stages form the basis for the 8 chapters of the book. A worry with the focus on strict adherence to a set process is that the content might feel ridged. This is not the case. With a long practical experience the author designs tools like contingency planning, risk management, change mechanisms, scheduled go/no go decisions and reviews into the process to allow for the complexities of a live project. With the book’s heavy emphasis on planning the author also stresses the importance of structure in projects.

An introductory “how to” manual is hardly read for its intellectual stature and wit but for its practical use. With a long experience of leading projects and coaching of project managers Clayton has chiseled out what is really important for project management and he delivers a useful book. It is easily read as the language contains very little project jargon and there isn’t too much text on each page. While the focus is on process the author is very open with that the main task of the project manager often is to juggle the tasks of the process with the feelings and wishes of people. How To Manage a Great Project was published in 2014 and even if this was somewhat before today’s ridiculous hype around “agile” projects the book might still have commented on the concept.

Would I recommend the book? Yes, clearly. However, the plot of the book is chronological while in projects many processes run in parallel. At some places I felt that this simultaneousness could have been emphasized as the reader otherwise might question the order of the topics described. To put the contents of the book to its best use I would recommend the reader and soon-to-be project manager to re-write his own short version of it where he takes out the parts that is relevant to him and the type of project he is to lead, where he perhaps switches the order of topics so they feel natural to him and so on.

For the experienced project manager executing large scale projects involving large teams and multiple stakeholders there are other more in-depth texts on project management but as a start for anyone that is about to manage smaller projects this is an excellent introductory guide – especially if the reader takes control of the content and makes it his own.

Mats Larsson, July 15, 2017

Barnevik, Percy - On Leadership

Sanoma, 2013, [Business] Grade 3

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Percy Barnevik is one of the more iconic corporate CEOs in Swedish history. Already in the preface he declares that it is the effective execution of business strategies that differentiates the successful company from the less so. While management literature often focuses on high level strategies the more mundane topics of how to handle organization, delegation, incentives and motivation to facilitate the carrying through of those strategies attracts less interest. It is rarely a secret how to succeed in a line of business, those who still don’t manage it generally lose due to their execution.

Percy Barnevik on Leadership contains 200 short paragraphs of a half to one and a half pages each. The many topics are loosely sorted under 20 headlines and the subtitle of the book is 200 lessons from 50 years’ experience. The short paragraph format brings to memory the stories often told about Barnevik, on how he generally presented a huge amount of overhead slides in a flow much too fast for anyone to fully grasp the message conveyed in the pictures.

Given the stated focus on execution the section covering this topic over 10 paragraphs and 8 pages obviously attracts interest. The short version of the content is that Barnevik thinks that the road to corporate achievement is 90% execution and 10% strategy. And out of those latter 10% about half is tied to analysis and half to gut feeling. A company must decide on a sufficiently good strategy and as long as the execution is energetic, fast and efficient enough they have a good chance of succeeding. The ability to follow through and see things to the finish line often go hand in hand with a sense of urgency. Individuals who go the extra mile can make a huge impact on their organizations.

A very broad description of the strategy is needed. Then work with the right people and powerfully move in the approximately right direction. Adjust the direction along the way as needed. “The success of a strategy is dependent on the force and speed of the execution process; this is perhaps my most important piece of advice of all.” In following through the execution of a strategy, project management skills are a hugely important craft. Keep things simple, don’t complain about circumstances and don’t waste time on endless investigations to try to do the optimal – instead do the “nearly right thing” and to it quickly.

Still, to execute and adjust along the way there has to be feedback and analysis. Things must be measured and followed up on. Barnevik is fond of ABC-analysis, uses straight forward tools like decision trees with subjective probabilities, SWOT analysis etc. and advices to prioritize and choose on the course of action with the 80/20-rule in mind – although he says it should perhaps be called the 90/10-rule. That’s it. The above is in a shortened form all what is being said under the key headline execution.

Yet, it isn’t all. Probably half of the paragraphs in this eclectic text under any of the other headlines are also related to the efficiency of the practical implementation of that particular subject and as such a part of the discussion on how to carry through what has been decided. Overall the bias of the topics is no doubt towards execution but they also cover almost anything and everything related to the business life of a CEO. However, not counting the paragraphs on personal efficiency and personal development, there are only one or two pages reflecting on Barnevik’s personal life. This is clearly not his memoirs – instead Barnevik is passing on the tricks of the CEO trade.

To a large extent Barnevik’s opinions are typical of a Scandinavian or European large company corporate executive. Although shortly put and sometimes a tad cliché, they are always well motivated and I largely agree with what is being said. The paragraphs are so brief that they barley scratch the surface of each individual topic. Still, in a relevant situation they can provoke thoughts that can help a leader. Personally I would have preferred a little more reflection by the author.

Mats Larsson, July 03, 2017

Levinson, Marc - The Box

Princeton University Press, 2016 (2nd ed), [Business] Grade 4

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If you haven’t spent much time thinking about shipping containers you should reconsider – they have revolutionized the world, as we know it. The “boxes” as they are called in the shipping industry are the building blocks of globalization. Economist Marc Levinson writes the autobiography of the box and by this vividly brings to life the phenomenon of containerization that is crucial for anything from e-commerce and just-in-time supply chains as well as trafficking and arms smuggling – very few containers are ever inspected.

The story of the box is to a large extent the story of US entrepreneur Malcom McLean. The trucking company owner McLean operating in a very regulated US 1950’s environment realizes that it is would be cheaper to load a number of truck trailers on a ship, transport them along the US east coast and have new trucks picking up the trailers for the last mile of transport. Further, if the frames and the wheels were to be removed, the square trailer bodies could be stacked on top of each other. In 1956 McLean’s containership Ideal-X makes its virgin journey between New Jersey and Huston carrying 58 boxes. What followed is a change that started out slow but over time gained momentum and turned into an avalanche. Along this journey no one had the overview to understand the full picture or really saw the secondary consequences. Plenty of mistakes were made but in the end economics won out. Sea freight shifted from loading, stuffing, unloading, reloading of thousands of loose items using general purpose ships and massive amounts of manpower to an automated seamless flow of anonymous steel boxes over trains, trucks and ships that all were purpose-built to handle same-size containers. Instead of being separate businesses, trains, trucks and ships are in the same business – transporting cargo.

As a result of the standardization and specialization freight costs today are a negligible part of most products' manufacturing cost, production chains have moved from being local to being global meshes where components from all over the world are shipped to a manufacturing site and the finished product again is sold anywhere in the world. Sourcing became global, competition did the same and while some companies adjusted others didn’t. With foresight enough to invest in large container ports, the containerization allowed East Asia with low labor costs to enter the global economy creating the largest wealth increase the world history has ever seen.

Shipping turned from a sleepy, locally regulated industry into a scale driven, high fixed cost, global commodity business where the lowest cost producer, in terms of the cost of transporting a box a certain distance, who can offer lower rates attracts more volumes, which in turn generates higher profits to invest further into larger ships that lowers the cost per box further. For each generation the ships grew larger and ports had to grow in parallel. To maximize the utilization of the giant vessels, unloading and loading is now so fast that the crew almost hasn’t time to leave the ship. And since ports have moved out of urban areas to giant transport hubs there wouldn’t be much to experience anyway. About 50% of all containers pass just 20 ports globally.

Levinson builds his story around McLean but skillfully blends earlier and later history into the narrative to explain how freight transport has changed. Further, the repercussions for adjacent businesses, waterfront neighborhoods, global trade and even the general industrial manufacturing process come to life. My only minor complaint is the length of the book. The second edition pocket certainly looks like a box in itself and while I don’t mind lengthy texts per se, some topics do get repeated here and there.

A prosaic metal box can be a disruptive technology. I gained a container load of knowledge from Levinson’s mighty tail. If you want to understand how the world works this is an important book to have read. It doesn’t hurt that it’s a good read as well.

Mats Larsson, June 28, 2017

Alvesson, Mats & Spicer, André - The Stupidity Paradox

Profile Books, 2016, [Business] Grade 4

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How is it possible that organizations filled with the best and brightest so often end up doing stupid things? Professors and organizational theorists Mats Alvesson’s and André Spicer’s explanation is that there are actually short-term benefits to stupidity both to organizations and to employees – although in the longer term the folly will often prove to be detrimental. Absolutely everyone that has been engaged in the inner life of large organizations will – with a sardonic smile – recognize numerous of situations from this book.

The key concept presented by the authors is what they call functional stupidity, by which they refer to the inability and unwillingness of organizations to let the staff utilize their cognitive and reflective capacity, apart from in relation to very narrow, technical and often repetitive tasks. But it also refers to the, presumably smart, employees’ willingness to self-stupidify. This results in a lack of reflection on the assumptions behind what is being done, in not asking why things are done to start with and not seeing the wider consequences of actions.

It might sound inconceivable that this inanity would be tolerated yet alone often encouraged by companies and public organizations and likewise sought after by the employees. Still, organizations benefit from employees’ stupidity since constant questioning creates doubt, uncertainty and conflict and by this is in the way of productivity. The authors even launch the concept of stupidity management as an organizational process of managing the balance between questioning and efficiency. In my meaning the expression probably gives an illusion of an explicit managerial control that doesn’t really exist. The employees benefit from their stupidity as they by not challenging social norms free up time and energy, they show loyalty and fit in. So stupidity comes with pros and cons. Still over time the process creates alienated and cynical staff with numbed cognitive abilities, it creates loads of non-productive work and worst case sets the company up for disaster.

The book has some structural issues. Although functional stupidity is described as also having positive aspects there is an apparent underlying axiom throughout the book that organizations that utilize the cognitive abilities of their staff will yield superior results. Still, with some exception it isn’t until the last chapter this is explicitly stated. The folly has gone too far and has to be combated! I think it would have been better to come clean with this up front. Similarly, the most comprehensive definition of the concept functional stupidity comes in the conclusion of the last chapter.

The start of the book is quite repetitive as the authors introduce the key thoughts in the preface, repeat them in the introduction and then again with a few examples throughout part one. Part two of the book, covering different types of stupidities, is more varied but also contains a fairly odd chapter on consumerism. The authors are clearly entitled to their opinions but the subject belongs to a different book and Naomi Klein has already written it. All in all there are 8,5 chapters of description and only 0,5 chapter of prescription – some more practical advice on what to do about the problem wouldn’t have hurt.

These issues are however easily forgiven. The authors are in my opinion dead right in their key insights and it isn’t often you bump in to new concepts that frames and explains a lot of what you intuitively know but additionally stimulates and provokes new thoughts. The book also has the extra attraction of making the reader feeling smart, of being one of those select few that have seen through the charade. Not least an intellectual snob like myself is easily seduced by this angle – I did buy the book. There are many texts on the biases of individuals or the madness of crowds in manias but fewer that explain the more mundane day-to-day irrationality of organizational processes.

This is an important and thought provoking book that deserves a wide audience among corporate managers and knowledge-workers alike.


Mats Larsson, May 23, 2017