Good vs Bad Strategies - Why so much Bad Strategy?

1         Good vs Bad Strategies

Strategies are developed to achieve Goals.  It is not known at the outset whether the goal is an achievable goal or just a pie in the sky wishful thinking.  Knowledge about the hallmarks of good and bad strategies would allow us to steer clear of bad strategies from the outset.  Strategy development is very context dependent but the general principles of good strategies still apply.  The corporate world in general is littered with companies that have pursued both good and bad strategies to further their businesses, and have led either to their success or demise.  The discussion on good strategies vs bad strategies will give some grounding for the formulation of workable good strategies.  The document is organized into three broad sections – Hallmarks of Bad Strategies, Underpinnings of Good Strategies, Strategic tools in use to analyse businesses.  The discussion on the Good vs Bad strategies and the Strategic tools have generously borrowed content from two books: “Good Strategy, Bad Strategy, The Difference and Why it matters” by Richard Rumelt and “Lords of Strategy” by Walter Kiechel.  I am not delivering any new content but just summarizing content from these books and summaries are sometimes useful as a quick guide.  I would recommend readers to go through these two books if they find the summaries interesting. 

Medicare Cost Data Analysis

Medicare Cost Data Analysis

1         Executive Summary

Data analysis was performed on the recently published Medicare Provider Utilization and Payment Data for (a) Physicians and Other suppliers and (b) Inpatient.  A lot of news articles have been written in the past about the huge variability in billed charges among regional hospitals and how some physicians are getting reimbursed millions of dollars by Medicare.  The current data analysis tries to shine a broader light on the data and provide the general public a narrative of what the published data tells us.   The data analyses will be expanded over time as time permits and based on comments from readers.   

• The data analysis found that at least 60 doctors have had Medicare reimbursements above $5 million in calendar year 2012.  The top doctor had $21 mil in Medicare reimbursements.  All of these reimbursements may have been legitimate but then it begs the question of how a single doctor can be so productive and efficient.  Are these the super-doctors that the medical field should emulate?  Are the taxpayers and retirees getting full value for their money at these levels of reimbursements? 
• Ophthalmology is the second highest doctor category in terms of Medicare reimbursements, after Internal Medicine.  It is even higher than Cardiology.  What are the common ophthalmological procedures done on retirees other than cataract operations?   If ophthalmological procedures are that expensive, then we are not hearing enough ads in the general society about preventive measures on eye health like the way we hear about healthy heart. 

Lords of Strategy book

I have to comment about this book as this has been one of the best books I have read in the past 4 years.  Here is the link to the amazon website for this book http://www.amazon.com/Lords-Strategy-Intellectual-History-Corporate/dp/1591397820/ref=sr_1_1?ie=UTF8&qid=1326330950&sr=8-1

very engrossing, goes thru the history of all the strategy tools developed since the 60s.  gives a good perspective on how all these tools got developed, stories of consulting war along the way.  All those frameworks taught in the MBA school suddenly become much more contextual - the 7Ss, growth share matrix, five forces.  It is an unbiased treatment I would say, trashes a lot of consulting cos and academics along the way.  All these consultants pushed all these frameworks as magic bullets to grow cos and the results are spotty.   The frameworks provide a way to understand what is happening in the competitive environment but that doesn't automatically provide a way to act to your advantage.  It all depends how the info from the framework can be used to a company's advantage and execution is always a problem.  I wish I had this book when I went to the MBA school, would have given me the context to understand all the strategy tools that were taught in the courses.  The book was only published in 2010, so impossible for me to have had this book then. 

Are the Rich obstructing Job creation?

There was an article a week back by Henry Blodget on a rich American destroying the Fiction that Rich people create the Jobs http://finance.yahoo.com/blogs/daily-ticker/finally-rich-american-destroys-fiction-rich-people-create-152949393.html  The Rich american he quotes is Nick Hanauer.  "Suggesting that "rich entrepreneurs and investors" create the jobs, therefore, Hanauer observes, is like suggesting that squirrels create evolution."  The whole article is based on a wrong premise.  Job creation has nothing to do with the rich, middle class or the poor.  Job creation happens when there is more exchange of goods and services between people (read economic growth) and when this higher activity of exchange needs more people to support the exchange.  The whole eco system surrounding an economy matters - it is not just entrepreneurs or the customers or the govt that is solely responsible for job creation.  Everything must work together to keep the economic machine (of goods and services exchange) running smoothly.

Entrepreneurs play their part by thinking up new products or services that people may be interested in exchanging and those new products or services are necessary for the economy to grow.  The people involved in the exchange must have productive skills to make the exchange happen.  We all earn a certain amount of money based on the skills we possess and that money is used to exchange for products or services with other people.  If I need to afford to buy an iPhone, I must have provided sufficient skilled work in the economy to be able to afford the iPhone.  Ultimately the economic growth and job creating power of a nation comes down to the productivity of the people in the economy.  Productivity is measured in the amount of resources needed to create a certain product or service.  The Productivity increases as we learn to use lower amount of resources to create the same product or service - this raises the standard of living of a nation.  The reason I can't sell an iPhone to an average Bangladeshi is because that average person in Bangladesh is not productive enough to sell a service or product in exchange for an iPhone. 

Personal Savings rate of a Nation - How much is enough?

There was once again another op-ed in the New York times last week bemoaning the US's low savings rate and how other developed nations in Europe are saving a lot more.  The author pointed to a data that savings rates have recently fallen below 4 percent.  So I wondered where that info would have come and stumbled upon the data on the Bureau of economic analysis website (http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1, abbreviated data attached below).
http://www.nytimes.com/2011/11/25/opinion/why-we-spend-why-they-save.html

[Billions of dollars] Seasonally adjusted at annual rates
Bureau of Economic Analysis
Last Revised on: November 22, 2011 - Next Release Date December 22, 2011
Line		2011
		I	II	III
27	Disposable personal income	11,481	11,559	11,565
28	Less: Personal outlays	10,902	11,003	11,131
29	Personal consumption expenditures	10,572	10,676	10,799
30	Personal interest payments /3/	160	156	160
31	Personal current transfer payments	170	171	172
32	To government	97	97	98
33	To the rest of the world (net)	74	74	74
34	Equals: Personal saving	579	557	435
35	Personal saving as a percentage of disposable personal income	5.0%	4.8%	3.8%

 This is aggregate savings rate and doesn't tell us anything about the more important inter-generational savings rate.  Let's make a bullet list of why we need to save in general:

• To tide over any short-term job loss.  My rule of thumb would be 6 months of earnings.  You can't save for long-term unemployment - long-term unemployment is due to structural problems in the society and a savings rate boost won't cure it.
• To pay for a big expense in the future that can be forseen today - like kid's college education.  Again rule of thumb would be to have atleast 50% of each kid's college expense saved by the time they enter college.  
• To pay for the down-payment on a home - the 0% down-payment days are gone, but one can still get decent mortgage rates with a 10% down.  Again a savings goal could be to have the downpayment saved in say 5 years time.   
• To tide over some unexpected expenses that happen every now and then.  This could be for a hospital stay, a car repair, a home repair etc.  Rule of thumb would be like one month of pay.  You are not going to save for a Cancer care or a heart surgery - one has to have insurance coverage to pay most of those kind of high dollar expenses.   
• Save for Retirement - this is the biggie.  This topic is worth several blog articles.  One has to be reasonable on it - everybody can't retire at 55, can't retire in the Caribbean islands, can't expect a lavish lifestyle.  I see a lot of bank websites that show huge amounts of retirement money needed on their retirement calculators.   

We shouldn't expect retirees to save on the social security or the dividend checks they receive every month.  We can't expect every citizen to save and so the society needs to have safety nets to protect the basic necessities of the population that doesn't save.  People who can't save shouldn't expect to buy a home but keep renting.  There are different savings needs and so different savings rates needed for the different age groups.  There is no point bemoaning the low aggregate savings rate of a nation.  A net export nation can sustain a high savings rate but every nation can't be a net exporter (mathematically impossible).  A high aggregate savings rate in a balanced economy (that doesn't have huge trade surplus or deficit) points to large inefficiencies in exchange of goods and services.  A nation can have an aggregate savings rate close to zero and still be a vibrant society as long as there are different inter-generational savings.