How you run a business largely depends upon the type of business you have. A manufacturing-based business is quite different economically than say a hotel. No one would try to run Nike in the same way as Hyatt. They are fundamentally different businesses. And Hyatt isn't Ernst & Young.
How now government? Many insist it be managed "more like" a business. Unfortunately, one could make the argument that it is run like a business now--a manufacturing business modeled on the industrial revolution.
Large, centralized management structures
Fixed infrastructure
Unionized employees
Guaranteed pensions, benefits, wage increases, position protection
Pervasive and inflexible rules-based procedures
Low customer satisfaction scores
With each political season and, now economic crisis, the public rails against these markers while at the same time insisting the government continue to provide services. Are we schizophrenic as the politicians and media declare?
The hallmark of a manufacturing business is production. But what does government produce? With few exceptions, government doesn't produce.
It serves.
Maybe we're not crazy. Maybe our government is just in the wrong business. What would government look like if it were managed like a professional services business?
To be continued.
Wednesday, June 3, 2009
Tuesday, November 25, 2008
For Your Consideration: Man vs. Machine in the Recent Financial Crises
Stimulus--Require U.S. Banks to Turn Off The Automated Actions Function in Their Account "Relationship Management" Systems
Perhaps you have heard about "programmed trading" on Wall Street and understand that securities markets now use a "kill switch" to keep these automated trades from "automatically" running the market down to Zero.
Automated account management at your local bank has been implemented on a much larger scale over the past 15 years and, as we are now proposing, can have effects as disastrous as unabated "programmed trading."
All modern banks use computer systems with specific mathematical models to actively "manage" customer accounts. These models are programmed to automatically identify who is entitled to what from the bank. Want to use your credit card? The computers crunch your latest profile and notify the electronic payments system to "accept" or "decline". Thirty days late on your mortgage payment? The programmed system sets in motion a series of automated actions (auto-dialed calls, computer generated letters, account flags, Notice of Default, etc.) Anticipating the potential for a minor loss at the account level, the system reacts with force and haste--freeze the account! deny credit! escalate! Escalate! ESCALATE!
There is no oversight while this is happening--a bank administrator may see a summary activity report but does not have the authority to intervene. No one has authority to override, not in the least the minimum wage call center representative attached at the end of the computer leash.
This automation, of course, has allowed unprecedented scale to be achieved in consumer banking. What we are learning today, however, is that it enables unprecedented losses as well.
50 Million "flagged" accounts across multiple banks each with an identical system and an identical model (gratis Accenture, McKinsey et al). All running by the set of rules that are based on individual behaviors and have not anticipated a global financial crises.
Twenty years ago when such automation was not in place the unwinding of individual accounts would have taken months if not years, softening the financial blow for both the individual consumer and larger financial institutions. All could recover together more or less.
The Big Banks, just as their Wall Street counterparts of the 90s, seem incapable of flipping the "off" switch on programmed account actions. Barney Frank, "Are you listening?"
Readers?
Perhaps you have heard about "programmed trading" on Wall Street and understand that securities markets now use a "kill switch" to keep these automated trades from "automatically" running the market down to Zero.
Automated account management at your local bank has been implemented on a much larger scale over the past 15 years and, as we are now proposing, can have effects as disastrous as unabated "programmed trading."
All modern banks use computer systems with specific mathematical models to actively "manage" customer accounts. These models are programmed to automatically identify who is entitled to what from the bank. Want to use your credit card? The computers crunch your latest profile and notify the electronic payments system to "accept" or "decline". Thirty days late on your mortgage payment? The programmed system sets in motion a series of automated actions (auto-dialed calls, computer generated letters, account flags, Notice of Default, etc.) Anticipating the potential for a minor loss at the account level, the system reacts with force and haste--freeze the account! deny credit! escalate! Escalate! ESCALATE!
There is no oversight while this is happening--a bank administrator may see a summary activity report but does not have the authority to intervene. No one has authority to override, not in the least the minimum wage call center representative attached at the end of the computer leash.
This automation, of course, has allowed unprecedented scale to be achieved in consumer banking. What we are learning today, however, is that it enables unprecedented losses as well.
50 Million "flagged" accounts across multiple banks each with an identical system and an identical model (gratis Accenture, McKinsey et al). All running by the set of rules that are based on individual behaviors and have not anticipated a global financial crises.
Twenty years ago when such automation was not in place the unwinding of individual accounts would have taken months if not years, softening the financial blow for both the individual consumer and larger financial institutions. All could recover together more or less.
The Big Banks, just as their Wall Street counterparts of the 90s, seem incapable of flipping the "off" switch on programmed account actions. Barney Frank, "Are you listening?"
Readers?
For Your Consideration: American Automaker Bailout
Stimulus: U.S. government-issued Car Grant ($15,000)
Qualifying Recipients--U.S. citizen owner of car that is more than 10 years old, registered and running.
Program Limits--First 10 million cars
Primary Benefits
- Market-based "pull" versus bailout manufacturer "push"
- Moves stalled inventory (circulation)
- Economic stimulus for: automakers, auto dealers, localities
- Dramatic reduction in polluting emissions from older vehicles
- No blank check to weak industry management
- Not dependent on other systemic weakness: Credit Industry
Secondary Stimulus Program
- Tune and refit, emissions test, reclaimed vehicles for secondary market or scrap
Downside
- Readers?
Qualifying Recipients--U.S. citizen owner of car that is more than 10 years old, registered and running.
Program Limits--First 10 million cars
Primary Benefits
- Market-based "pull" versus bailout manufacturer "push"
- Moves stalled inventory (circulation)
- Economic stimulus for: automakers, auto dealers, localities
- Dramatic reduction in polluting emissions from older vehicles
- No blank check to weak industry management
- Not dependent on other systemic weakness: Credit Industry
Secondary Stimulus Program
- Tune and refit, emissions test, reclaimed vehicles for secondary market or scrap
Downside
- Readers?
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