Which MBA? Subject matters: Marketing

The great Peter Drucker once said: "There is only one valid definition of business purpose: to create a customer." Central to understanding marketing is learning about the complex relationships between the customer and the organisation and the many actors engaged in between. Because understanding customers is pivotal to any organisation's success, marketing focuses on how to build closer and more natural relationships with them, understanding their motivations and behaviours. After all, without customers businesses founder and ultimately fail. 

Strategic marketing is built around the core concepts of customer centricism and customer value. This entails understanding what we mean by value from the customer's viewpoint: how we explore it, create it, deliver it and finally enhance and evaluate it. Subjects covered include the marketing concept; market orientation; segmentation, targeting and positioning; the marketing mix; relationship marketing; and marketing metrics. 

Because of the natural fluidity and immediacy of marketing, we are constantly building new areas of knowledge. For example, we continue to learn about customer relationships and customer-management processes—especially about how to create the perfect customer experience. Branding is also at the core of our skills and we dig into brand equity and customer-driven brand equity. 

Marketing as a philosophy and a concept must keep up to date with technological trends. As the media drives a brand's strategy the internet is becoming ever more important, particularly through social media—from both a consumer and a business-to-business perspective. Building on the ubiquity of social media, we now also work hard on the ways in which individuals build personal brands and personal marketing plans, something which students find really helpful when it comes to exploring career options.

Finance: Why and What in Finance?

The finance course examines the ways that individuals and companies raise and spend money—both how they do and how they should—so as to produce the highest expected value from investments in assets. 

An asset is an object into which an investment is made with the expectation of uncertain future cash flows. Assets can be "real" (for example, plant and equipment, new products and markets or companies) or "financial" (stocks and bonds). The study of investments in real assets falls under the rubric of corporate finance, while that of financial assets comes under capital markets. 

Corporate finance addresses how managers of companies make real investments, raise capital, control risks and return money to investors. Topics of study include cash flows, capital budgeting, capital structure and cost of capital, business valuation, mergers and acquisitions, risk management and payout policies. 

The course on capital markets examines how financial securities are priced by markets, and how to make decisions concerning investments in portfolios of different types of financial assets. Topics of study include the relation between risk and return, pricing of bonds, stocks and derivatives, term structure of interest rates, allocation of wealth among different types of securities, and institutional frictions that prevent the attainment of optimal prices. 

A few simple assumptions about investor behaviour underlie much of finance: that, all else being equal, investors prefer more wealth to less, less risk to more, and want their cash flows sooner rather than later. This leads to the idea of a discount rate, the notion that future cash flows are discounted in value to equate to the present, using a factor that reflects a risk-adjusted cost of capital relevant to the asset. 

These ideas combine to establish a key rule: we should invest in an asset only if it is expected to generate a return greater than its cost of capital, in other words, if it has positive expected value today ("positive net present value"). Since that judgment requires assessing an asset's intrinsic value, tools and methods to assess such value are central to finance. Intrinsic value, in turn, is determined by the sum of all expected future cash flows from the asset, discounted back to the present at its cost of capital. 

In its theories and practice, the core ideas in finance are founded on a set of logically cogent ideas. There are few disciplines in business schools where academic research and the real world come together as remarkably well as in finance. The ideas that underpin the field not only win Nobel prizes regularly, but they also form the basis upon which billions of dollars change hands every day. 

That said, there are many questions that finance still continues to grapple with. What causes recurrent financial crises? What is the role of "long tail" risks, and how can they be understood and analysed better? Why do we witness apparently predictable irrational investment decision-making by investors and managers? Why do markets and companies seem prone to herd behaviours? How can corporate governance and incentives be structured so as to produce value-creating outcomes for the long run as opposed to the short run? What is the right balance between free markets and regulation in enabling the best outcomes for society? 

Scholarship in finance continues to make exciting progress on all of these important questions. 

Chained but untamed: The world’s banking industry faces massive upheaval as post-crisis reforms start to bite. They may make it only a little safer but much less profitable, says Jonathan Rosenthal

THE NEAR-COLLAPSE of the world's banking system two-and-a-half years ago has prompted a fundamental reassessment of the industry. Perhaps the biggest casualty of the crisis has been the idea that financial markets are inherently self-correcting and best left to their own devices. After decades of deregulation in most rich countries, finance is entering a new age of reregulation. This special report will focus on these regulatory changes, which will be the main determinant of the banks' profitability over the next few years.

Start with the additional capital that banks around the world will have to hold. Bigger capital cushions will make the system somewhat safer, but they may also reduce banks' profitability by as much as a third. In addition, they may push up borrowing costs and slow economic growth. Worse, higher capital requirements for banks may drive risk into the darker corners of financial markets where it may cause even greater harm.

Supervisors and regulators almost everywhere are still trying to find ways to deal with banks that have become too big or too interconnected to be allowed to fail. If anything, the crisis has exacerbated this problem. Some of those banks have become even bigger or more interconnected. And governments made good on the implicit guarantees offered to banks, encouraging them to take even bigger risks.

In America the rules to implement the Dodd-Frank act are beginning to take shape. Passed last year, the law runs to 2,319 pages, but it is little more than a statement of intent. Before it can take effect, 11 different agencies have to write the detailed regulations. These will redefine much of the industry in America and around the world, reversing decades of deregulation in finance in the world's biggest economy.

One key provision is the separation of investment banking from commercial banking, known as the Volcker rule. It will restore some elements of the Depression-era regulatory regime that was meant to ensure that commercial banks did not "speculate" with protected deposits by forbidding them from trading securities. Other regulations in America will set the fees that some of the world's biggest retail banks can charge when one of their customers swipes a debit card. These make no pretence to making banking safer, but reflect politicians' anger at banks and suspicions of those who run them.

Britain, for long the most enthusiastic champion of financial deregulation, is going further still, pondering whether banks' retail arms should be so tightly regulated that they become little more than public utilities. Mervyn King, the governor of the Bank of England, in a recent speech in New York wondered aloud whether the use of deposits to fund loans should be outlawed. In essence, he was questioning a basic building block of modern banking. In April a government-appointed commission said that Britain's banks should wall off their retail arms so they could be salvaged if the rest of the business were to collapse. It is also trying to devise resolution regimes and living wills to reduce the harm done when banks collapse, and it wants more competition in retail banking.

Britain is not alone in reacting strongly. Switzerland, which grew rich as its buccaneering international banks sailed the tides of capital flowing around the world, is now downsizing its global banking ambitions. It plans to impose such strict capital standards on its biggest banks that their investment-banking arms will be forced to shrink or leave the country.

The wave of new regulation comes as many banks are still struggling to regain their footing after the crisis. Across much of Europe, bad debts held by banks are impairing the balance-sheets of their governments. Ireland and Spain are trying to convince bondholders that they can and will repay their national debts, despite the losses incurred by their bankers. Doubts about those two countries' creditworthiness, as well as that of Greece and Portugal, are spreading across the continent's banks, raising borrowing costs and unsettling markets everywhere.

In America big banks are healthier, having largely rebuilt their balance sheets. Yet not all have recovered. The country's smaller regional and community banks include some 800 troubled institutions at risk of being seized by regulators if their capital ratios fall. In both America and Britain households are deeply indebted. For banks, growth in these markets, as across much of the rest of the rich world, is likely to be slow. In Japan banks are well into their second decade of a slow-motion crisis, while in China officials fret that banks are growing too quickly.

There is much that regulators around the world are doing well, yet many of their actions have been piecemeal. As a result, they tend to shuffle risk around from one country to the next instead of reducing it across the global financial system. In some ways they have exacerbated the dangers. Dodd-Frank, in its zeal to prevent any more taxpayer-funded bank bail-outs, has curbed the Federal Reserve's ability to provide cash to banks that are fundamentally sound but suffering a shortage of liquidity. That has made it harder for the central bank to act as a lender of last resort, a principle of central banking established almost 140 years ago by Walter Bagehot.

The unwelcome consequences of some of the other new rules now being introduced may be greater yet. For example, the European Commission's decision to regulate bankers' bonuses in a bid to limit risk-taking may have the perverse effect of driving up banks' costs and making their earnings more volatile.

The bright spots

Banks in emerging markets face different and far more exciting challenges. They need to grow quickly enough to keep pace with economies racing ahead at breakneck speed and to reach the legions of potential customers in villages and slums who are hungry for banking. Rapid growth and the spread of computing and communications technologies have turned these markets into huge laboratories of innovation. This special report will argue that banks in countries such as India and Kenya have much to teach those in the rich world. These lessons could come in handy, for the torrent of reregulation in developed countries will soon be raising banks' costs, trimming their profits and forcing some of their customers to look for cheaper banking services.

Apple Brand Value at $153 Billion Overtakes Google for Top Spot

Apple Inc. (AAPL), maker of the iPhone, iPad and iMac, overtook search-engine giant Google Inc. (GOOG) to become the world's most valuable brand, WPP Plc said in a report today.

 

Apple's brand value climbed 84 percent in the past year to $153.3 billion, WPP's Millward Brown unit said. Google's brand lost 2 percent to $111.5 billion, ending four years a top the rankings, while International Business Machines Corp. (IBM) climbed 17 percent to be the No. 3, ahead of McDonald's Corp. (MCD)

 

New versions of the iPhone and iMac, and the introduction of the iPad tablet, helped Cupertino, California-based Apple almost double sales and profit for the latest quarter. Apple, which overtook Redmond, Washington-based Microsoft Corp. (MSFT), as the most-valuable technology company by market value in May 2010, boosted its share of the global phone market and is the leading seller of tablet computers.

 

"It's clear that every single Apple employee, from Steve Jobs and Tim Cook to the summer interns, see protecting and nurturing that brand as a top priority," Millward Brown Chief Executive Officer Eileen Campbell wrote in the report. "Tablet computing also drove value growth not just for Apple, but also for the providers who support yet another networked device."

 

Facebook Inc., operator of the world's largest social- networking site, had a 246 percent climb in brand value, the fastest, to become the No. 35 brand at $19.1 billion, according to the report. Baidu Inc., Google's Chinese rival, posted the second-fastest climb at 141 percent, to be the No. 29 brand at $22.6 billion.

 

Twelve of the top 100 global brands were from China, led by China Mobile Ltd. (941) at No. 9 and Industrial & Commercial Bank of China Ltd. at No. 11. Amazon.com Inc. (AMZN), which ranked 14th, overtook Wal-Mart Stores Inc. (WMT), which ranked 15th, to become the most-valuable retail brand.

Fail often, fail well: Companies have a great deal to learn from failure—provided they manage it successfully

BUSINESS writers have always worshipped at the altar of success. Tom Peters turned himself into a superstar with "In Search of Excellence". Stephen Covey has sold more than 15m copies of "The 7 Habits of Highly Effective People". Malcolm Gladwell cleverly subtitled his third book, "Outliers", "The Story of Success". This success-fetish makes the latest management fashion all the more remarkable. The April issue of the Harvard Business Review is devoted to failure, featuring among other contributors A.G. Lafley, a successful ex-boss of Procter & Gamble (P&G), proclaiming that "we learn much more from failure than we do from success." The current British edition of Wired magazine has "Fail! Fast. Then succeed. What European business needs to learn from Silicon Valley" on its cover. IDEO, a consultancy, has coined the slogan "Fail often in order to succeed sooner".

There are good reasons for the failure fashion. Success and failure are not polar opposites: you often need to endure the second to enjoy the first. Failure can indeed be a better teacher than success. It can also be a sign of creativity. The best way to avoid short-term failure is to keep churning out the same old products, though in the long term this may spell your doom. Businesses cannot invent the future—their own future—without taking risks.

Entrepreneurs have always understood this. Thomas Edison performed 9,000 experiments before coming up with a successful version of the light bulb. Students of entrepreneurship talk about the J-curve of returns: the failures come early and often and the successes take time. America has proved to be more entrepreneurial than Europe in large part because it has embraced a culture of "failing forward" as a common tech-industry phrase puts it: in Germany bankruptcy can end your business career whereas in Silicon Valley it is almost a badge of honour.

A more tolerant attitude to failure can also help companies to avoid destruction. When Alan Mulally became boss of an ailing Ford Motor Company in 2006 one of the first things he did was demand that his executives own up to their failures. He asked managers to colour-code their progress reports—ranging from green for good to red for trouble. At one early meeting he expressed astonishment at being confronted by a sea of green, even though the company had lost several billion dollars in the previous year. Ford's recovery began only when he got his managers to admit that things weren't entirely green.

Failure is also becoming more common. John Hagel, of Deloitte's Centre for the Edge (which advises bosses on technology), calculates that the average time a company spends in the S&P 500 index has declined from 75 years in 1937 to about 15 years today. Up to 90% of new businesses fail shortly after being founded. Venture-capital firms are lucky if 20% of their investments pay off. Pharmaceutical companies research hundreds of molecular groups before coming up with a marketable drug. Less than 2% of films account for 80% of box-office returns.

But simply "embracing" failure would be as silly as ignoring it. Companies need to learn how to manage it. Amy Edmondson of Harvard Business School argues that the first thing they must do is distinguish between productive and unproductive failures. There is nothing to be gained from tolerating defects on the production line or mistakes in the operating theatre.

This might sound like an obvious distinction. But it is one that some of the best minds in business have failed to make. James McNerney, a former boss of 3M, a manufacturer, damaged the company's innovation engine by trying to apply six-sigma principles (which are intended to reduce errors on production lines) to the entire company, including the research laboratories. It is only a matter of time before a boss, hypnotised by all the current talk of "rampant experimentation", makes the opposite mistake.

Companies must also recognise the virtues of failing small and failing fast. Peter Sims likens this to placing "Little Bets", in a new book of that title. Chris Rock, one of the world's most successful comedians, tries out his ideas in small venues, often bombing and always junking more material than he saves. Jeff Bezos, the boss of Amazon, compares his company's strategy to planting seeds, or "going down blind alleys". One of those blind alleys, letting small shops sell books on the company's website, now accounts for a third of its sales.

Damage limitation

Placing small bets is one of several ways that companies can limit the downside of failure. Mr Sims emphasises the importance of testing ideas on consumers using rough-and-ready prototypes: they will be more willing to give honest opinions on something that is clearly an early-stage mock-up than on something that looks like the finished product. Chris Zook, of Bain & Company, a consultancy, urges companies to keep potential failures close to their core business—perhaps by introducing existing products into new markets or new products into familiar markets. Rita Gunther McGrath of Columbia Business School suggests that companies should guard against "confirmation bias" by giving one team member the job of looking for flaws.

But there is no point in failing fast if you fail to learn from your mistakes. Companies are trying hard to get better at this. India's Tata group awards an annual prize for the best failed idea. Intuit, in software, and Eli Lilly, in pharmaceuticals, have both taken to holding "failure parties". P&G encourages employees to talk about their failures as well as their successes during performance reviews. But the higher up in the company, the bigger the egos and the greater the reluctance to admit to really big failings rather than minor ones. Bosses should remember how often failure paves the way for success: Henry Ford got nowhere with his first two attempts to start a car company, but that did not stop him.

Greece and the euro: Bailing out the bail-out

IT WAS a year ago that the European Union produced its big bazooka to quell the euro area's sovereign-debt crisis: a €750 billion fund to safeguard the single currency, following within days of the €110 billion bail-out of Greece. It did not work. Ireland has since been bailed out, and a rescue of Portugal is in the works. Greece looks closer than ever to defaulting, or at least to having its debt restructured.

After a year of muddling along, the EU seems more muddled than ever. The disarray was painfully apparent over the weekend. News of a secret meeting of selected European finance ministers (including Greece's man, George Papaconstantinou, pictured above) in Luxembourg on May 6th was promptly leaked.  Der Spiegel reported that Greece was considering leaving the euro zone; the briefing note for the German finance minister, Wolfgang Schäuble, made clear this would be economic suicide. It would greatly expand (perhaps double) Greece's debt burden, provoke capital flight, cause turmoil across Europe's banks and endanger the country's membership of the EU. Greece described the report as "borderline criminal".

Indeed, the idea of Greece giving up the euro has now generally been accepted as nonsense, but not before another upheaval in the markets (Greece was downgraded again by Standard & Poor's yesterday). The notion of Greece leaving the EU was "stupid", declared Jean-Claude Juncker, the prime minister of Luxembourg (who presides over the euro area's group of finance ministers), after hosting the meeting that his officials denied was taking place. Mr Juncker is, after all, the man who argued against transparency in decision-making, saying he was all for "secret, dark debates". He may think this is a sign of seriousness in economic policy, but this weekend he came across as incompetent.

It is possible that the meeting caused such confusion that the ministers felt compelled to rule out one option that is being discussed more and more openly: restructuring Greek debt because of the country's inability to repay its loans, or even to balance its books, as austerity measures worsen the country's recession.

So for now, it is the EU's rescue plan that is being restructured. "We think that Greece does need a further adjustment programme", said Mr Juncker. The details will be worked out at a meeting of finance ministers next week. The country is in no state to start tapping back into markets next year, as envisaged in its current bail-out plan. So European countries are likely to extend more assistance to Greece.

The options include giving it more time to meet its deficit-reduction targets (its budget deficit was 10.5% of GDP last year, a long way off its 8.1% goal), softening the terms for its current bail-out (by again reducing the interest rate or again stretching out its repayment schedule), issuing new loans, or having the EU buy new Greek bond issues in future. Mr Papaconstantinou suggested this last option was under active discussion. Ireland hopes it, too, will benefit from the rethink on Greece.

Plainly, the crisis requires fresh thinking. But so far the EU remains doggedly on its year-old path. First, do what is necessary, but no more than that, to avert a financial collapse in euro-area member states. And second, play for time in the hope that troubled economies will start to grow out of their difficulties, or at least until Europe's banking sector strengthens sufficiently to cope with the losses on restructured government debt. Above all, push the problem beyond the political horizon of the euro area's main leaders: the 2012 presidential election in France, and the 2013 parliamentary election in Germany.

Forget the bazooka. Pass the pea-shooter.

Indra Nooyi, Sanjay Jha among highest paid CEOs in US: Report

PepsiCo's India-born chief Indra Nooyi and Motorola Mobility's Sanjay Jha are among the highest paid CEOs in the US, according to new estimates that say salaries and bonuses for chief executives running 350 major companies surged 11 per cent to USD 9.3 million in 2010.

Executives at the biggest US companies saw their pay jump sharply in 2010, as boards rewarded them for strong profit and share-price growth with bigger bonuses and stock grants, the Wall Street Journal said in its latest CEO Compensation survey.

According to the companies' proxy statements studied for the Journal by management consultancy Hay Group, the median value of salaries, bonuses and long-term incentive awards for CEOs of 350 major companies grew 11 per cent in 2010. This increase followed a year in which "pay for the top boss was flat at these companies".

In the 350-strong list, Nooyi is among the five CEOs of Indian-origin at the helm of major US corporations. Giving her company on the highest paid CEO list is OfficeMax CEO Ravi Saligram, Motorola's Jha and Quest Diagnostics' Surya Mohapatra. Citigroup's Vikram Pandit comes in last in the list since he earned no compensation in 2010, following his decision to take a $1 salary per year and no other compensation until Citi returns to "sustained profitability".

Apple boss Steve Jobs also came in at the rear of the list as he too did not take any compensation or salary for 2010.

Nooyi's total direct compensation in 2010 was USD 13.78 million, which included her salary of USD 1.3 million dollars, annual incentives of USD 3 million, stock option grants of USD 3.23 million and performance awards totalling USD 6.25 million. Nooyi's compensation however declined 0.2 per cent from 2009.

Saligram, who heads the office supplies giant, earned a total compensation of USD 12.03 million dollars in 2010 that included a salary of USD 1.21 lakh , stock option grants of USD 9.21 million and restricted stock grants of USD 2.26 million.

Jha's total direct compensation was USD 11.92 million. His 2010 salary was USD 9 lakh dollars and he earned annual incentives of USD 1 million and about USD 10 million in stock option and restricted stock grants.

Mohapatra, whose company is the leading provider of diagnostic testing and services, earned USD 10.39 million in total compensation that included a salary of USD 1.23 million and annual incentives of USD 1.2 million. His stock option, restricted stock grants and performance awards totalled about USD 8 million. Mohapatra's total compensation declined 3.7 per cent from 2009.

GMO Newsletter : Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever [1 Attachment]

As the title implies, Jeremy Grantham's 1Q 2011 Letter discusses the effects of our dwindling natural resources on the prices of commodities in the context of a rising world population.

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GMO Time to Wake Up - Days of Abundant Resources and Falling Prices Are Over Forever.PDF