74 theeconomist businessbooksquarterly january 12th 2013media.economist.com › sites › default...
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75 Ping Fu’s executive memoir
75 The networked world
76 A.G. La�ey plays to win
HAVE you ever met anyone who hasgrown rich just by saving? Probably
not. But you may well have met someonewho has grown rich looking after otherpeople’s savings. That dark secret lies at theheart of �Pound Foolish�, Helaine Olen’sexcellent book, a contemptuous exposé ofthe American personal�nance industry.
With icy logic, Ms Olen, a journalist,demonstrates that much of the advice given by moneymaking gurus on televisionor in print is either fatuous or based onridiculously optimistic assumptions aboutfuture investment returns. Take the ideathat saving the cost of a daily latte andinvesting the proceeds in the stockmarketwould make you rich. Saving $3 a day, or$1,100 a year, might be a sensible economymeasure but it won’t build a fortune.
Such faddish ideas are the �nancialequivalent of miracle diets. A belief ininstant riches lured millions into buyinginternet stocks in the late 1990s or overpriced houses in the middle of the past decade, when any personal�nance adviserworth his salt should have been advisingclients to run in the opposite direction. Butoptimism sells, and realism tends not to.
As well as bad advice, the gurus haveplenty of expensive products to �og�fromcourses that teach people how to become
better realestate investors to brandedgoods like a $49.99 canvas laptop bag or a$34.98 silver leather wallet. By the time clients have bought all the books, attendedthe courses and stocked up on the accessories, someone has de�nitely become rich,though probably not the saver.
Savers make all sorts of rookie mistakes�from following the stock tips toutedon television to paying through the nosefor complex �nancial products when simple lowcost alternatives (like indextracking funds) are available. And debtors aresimilarly foolish, running up big bills onhighcharging credit cards. Perhaps suchlessons could be rammed home by �nancialliteracy courses but Ms Olen is cynical,noting that many courses are sponsoredby �nancialservices companies, creatingan obvious con�ict of interest.
Indeed, this is one of the central problems of personal �nance�how to get advice to apathetic consumers. The unwillingness of consumers to pay for advice hasled to hardselling, highcharging salesmen taking over the industry. Britain hasjust reformed its payment system for �nancial advice and if Ms Olen’s book has afault, it is the lack of an international perspective o�ering such examples. The personal�nance pages of British newspapersare doughty champions of consumerrights. While she rightly attacks the highcost annuities sold to American consumers, she might have re�ected that the kindof lowcost annuities sold in Britain ensurethat retirees do not outlive their savings.
But Ms Olen is right to home in on thebiggest problem that personal�nance gurus neglect; people earning $20,000 a yearwill struggle to pay for the basics in life andwill simply not be able to save their way toa life of comfort, let alone riches. As MsOlen concludes, �We do not live in an economic environment that will permit masspersonal�nancial progress, no matterhow well meant the guidance or advice.�
Like Ms Olen, the latest book from JackSchwager, best known for his �Market Wizards� books based on interviews withtraders and fund managers, takes a potshotat TV stockmarket tipsters. A fouryearanalysis of the share recommendations byJim Cramer, star of CNBC’s �Mad Money�,shows that while the stocks rose on the dayhe mentioned them, they underperformed the market over longer periods.The experts polled by Louis Rukeyser on�Wall Street Week� (a programme on public television) proved to be almost perfectcontrarian indicators; they were most bull
Business books quarterly
Personal �nance
Ghastly gurus
The best advice is to keep your wallet closed
Pound Foolish: Exposing the Dark Sideof the Personal Finance Industry. ByHelaine Olen. Portfolio; 292 pages;$27.95 and £17.99
Market Sense and Nonsense: How theMarkets Really Work (and How TheyDon’t). By Jack Schwager. Wiley; 343pages; $40 and £26.99
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74 The Economist January 12th 2013
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The Economist January 12th 2013 Business books quarterly 75
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ish in December 1999, at the peak of thedotcom bubble.
Mr Schwager’s book starts o� withplenty of sound, basic advice�beware ofassuming that past high returns can bemaintained, for example�before expertlydemonstrating that a leveraged exchangetraded fund (a fund that promises to deliver an enhanced market return) is a dreadfulinvestment because of its structure, beingalmost bound to disappoint.
He then moves on to more sophisticated measures of risk, rightly pointing outthat �faulty risk measurement is worsethan no risk measurement at all, because itmay give investors an unwarranted senseof security.� As the book develops, beginners may start to struggle with mathematical concepts, such as Sortino and Calmarratios, that regularly get trotted out.
Oddly, this curate’s egg of a book thenveers o� in a di�erent direction�a lengthydescription and defence of the hedgefundindustry. Mr Schwager demonstrates thathedge funds are less risky than many mutual funds, but he does not really deal withthe central issue; that their fees are too highfor the returns they deliver. One suspectsthat Ms Olen would respond to his conclusion that �hedge funds are a desirable investment even for unsophisticated, lowernetworth individuals� with a loud, andwelldeserved, raspberry. 7
�THERE are three friends of winter: thepine tree [strength], the plum blos
som [courage], and bamboo [resilience],�Ping Fu was told as a child on the eve ofChina’s Cultural Revolution. �When youare like the three friends of winter, you takeeverything in your stride with grace.� MsFu has clung to these words ever since. Today she lives in North Carolina, and lastweek agreed to sell her company, Geomagic, to 3D Systems, one of the biggestproducers of 3D printers, where she willbecome chief strategy o�cer. The company she founded produces 3D imagingsoftware and has worked with Boeing,FisherPrice and NASA. It has made personalised prosthetic limbs and customisedinvisible teeth aligners. She has even usedthe technology to print her own shoes.
Yanked aged eight from her warm,highly educated Shanghai family by Chairman Mao’s Red Guards, Ms Fu wasdumped in a dank dormitory to look after
her baby sister. They lived on rations andfurtive acts of kindness. Gangraped andbeaten, Ms Fu survived by secretly readingbooks smuggled in by her Uncle W, between factory shifts and foraging for scrapswith which to make watery soup.
On Chairman Mao’s death in 1976 MsFu rushed to enroll at university. She wroteher dissertation on China’s onechild policy, recalling the lengths o�cials had takento enforce the rules�inspecting girls’ sanitary towels to check they were menstruating, eventually resorting to checking theiranatomy directly. Ms Fu’s research revealed infanticide on a shocking scale. Unknown to her, the thesis was sent to thepress, becoming headline news and, according to o�cials, bringing internationalshame on China. She �ed to America.
Ms Fu waitressed, learnt English, studied computer programming and took a jobat the National Centre for SupercomputingApplications (NCSA) where she worked onpredicting earthquakes and 3D imaging.She hired Marc Andreessen, now a software millionaire, and ran the team thatcreated Mosaic (later renamed Netscape),the �rst web browser to make the internetwidely accessible to nontechies.
Ms Fu describes her life as an embodiment of the American dream. When herboss at NCSA asked at a sta� meeting whohad the guts to start a business, she volunteered. Ms Fu’s 1997 newyear resolutionwas to create something of value.
Being a CEO has been Ms Fu’s biggestchallenge, she says. She o�ers no blueprinthere for building a business, but adds, perhaps a little too simplistically, that �theonly way to triumph in business and in lifeis to love what we do.� She advises readersto focus on personal or social progress,rather than simply clambering up the hierarchy. �In order to make it to the nextmountaintop we must �rst descend theone we are on,� she says. Ms Fu also trumpets retreat as the most important strategy,and tries to resolve con�icts before they escalate. She strives above all to �be likebamboo, bending from the prevailingwind, but never breaking�. 7
An executive memoir
The world is 3D
Bend, Not Break: A Life in Two Worlds. ByPing Fu. Portfolio; 276 pages; $27.95 and£12.99
IN 1964 Paul Baran, an engineer, proposedthe use of distributed networks for com
munication. Traditional networks depended on a central hub to pass information between points. If the hub wentdown, so did the system. Baran’s networkhad no centre. Instead it was composed oflots of nodes connecting to lots of othernodes, allowing for several routes throughwhat IT types call �redundancy�. The initial response was sceptical, but in time Baran’s architecture became the foundationof ARPAnet, the precursor to the internet.
Two new books about how networksare changing the world use Baran’s designas a metaphor for the future. The state, �nancial institutions and universities allserve as hubs through which �ow bothpower and information. But the primacyof these large organisations is being threatened by people who are dreaming up newways of doing the same thing�education,research, funding, even governance�byorganising themselves through networks.
One example is Kickstarter, a crowdfunding site for creative projects. In 2011theamount of money raised through Kickstarter exceeded the annual budget of America’s National Endowment for the Arts. Ifindividuals can bypass government andthe market to �nance music videos and artprojects, surely the same can be done inother �elds. Marina Gorbis uses this premise to suggest a series of future scenariosin �The Nature of the Future�. Universitiesneed no longer have a monopoly on higher education if people were permitted tocreate bespoke programmes for smallgroups of students. Governance could bemodelled on the jury system with �participation determined by algorithm�. Patientswould share health details to create databases and selforganised groups wouldconduct informal clinical trials. Ms Gorbiscalls this process �socialstructing�.
Her predictions are rooted in currenttrends. Education is being unbundled fromuniversities through popular startups likeUdacity, a private organisation. Inexpensive doityourself DNA lab tests are available online. But Ms Gorbis uses the samesmall clutch of examples too often to suggest broader trends. And �ctional charac
The digital age
Reaching out
The Nature of the Future: Dispatches fromthe Socialstructed World. By Marina Gorbis.To be published in April by Simon & Schuster;256 pages; $26 and ebook £8.99
Future Perfect: The Case for Progress in aNetworked Age. By Steven Johnson. Riverhead; 233 pages; $26.95. Allen Lane; £20
76 Business books quarterly The Economist January 12th 2013
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BOSSES fail for many di�erent reasons.Some are just unlucky. Some are sunk
by their lack of ambition. As Alan La�eyand Roger Martin see it, settling for muddling along rather than going all out for victory means that a company �will inevitably fail to make the tough choices and thesigni�cant investments that would makewinning even a remote possibility.�
Many are brought down by making astrategic error, of which there are six common varieties. There is the DoItAll strategy, shorthand for failing to make realchoices about priorities. The Don Quixotestrategy unwisely attacks the company’s
strongest competitor �rst. The Waterloostrategy pursues war on too many fronts atonce. The SomethingForEveryone tries tocapture every sort of customer at once,rather than prioritising. The ProgrammeOfTheMonth eschews distinctiveness forwhatever strategy is currently fashionablein an industry. The DreamsThatNeverCome True strategy never translates ambitious mission statements into clear choicesabout which markets to compete in andhow to win in them.
Mr La�ey, who usually goes by his �rstinitials, A.G., did not fail. In his ten years atthe helm of Procter & Gamble (P&G), he revived the global consumergoods giant,roughly doubling its sales while increasingpro�t margins. He credits much of this toembedding a rigorous approach to business strategy in every part of P&G’s vastempire. In doing so, he drew on conversations with the leading academic thinkerson strategy, including the godfathers of the�eld, Peter Drucker and Michael Porter. Healso had a personal �brain trust� advisinghim as he designed and implemented hisstrategies. It included Clayton Christensen,an innovation expert at Harvard BusinessSchool, and a design guru, Tim Brown ofIDEO, a consultancy. Above all, he reliedon Roger Martin, initially a consultant atMonitor Group and latterly dean of theRotman School of Management at theUniversity of Toronto.
As Mr La�ey’s �principal external strategy adviser�, Mr Martin was the only person with whom the boss really shared his�outofthebox strategic musings�, and�Playing to Win� is essentially their re�ections on how to do business strategy e�ectively, as seen through the lens of theirwork at P&G. This is a fascinating tale, featuring a cast of familiar brands, including
Pampers, Tide and Olay, each of whichwent through a transformation under MrLa�ey’s eye. He has written about this before, notably in �The GameChanger�, a2008 bestseller written with Ram Charan,but the extra detail in illustrating lessonslearnt makes this the better, meatier book.
A good strategy has �ve components,the authors argue, all designed to shortenthe odds of success by helping managersmake the right choices. The �rst two areclosely intertwined: �guring out whatwinning looks like and which markets toplay in when seeking that victory. For P&G,sometimes the goal became global domination, sometimes local; sometimes justone category of consumer for a brand,other times many. The next component is�guring out how to win�the company’sdistinctive strategy in any market it istrying to dominate. This in turn will beheavily in�uenced by the fourth and �fthcomponents: identifying, and playing to,the company’s unique strengths relative toits competitors, and identifying thosethings that need to be managed for thestrategy to succeed.
The mirror image of the �fth component is deciding what not to manage. Oneof Mr La�ey’s most important innovationswas a slimmeddown strategyreview process. This replaced needlessly sprawlingbureaucratic meetings with agendas thatfocused on the most important questions.One strength of the book comes from theexamples provided to illustrate each of the�ve prongs of strategy, none stronger thanthe book’s opening tale of how Oil of Olaywas transformed from a struggling skincare brand with a declining market re�ected in its nickname, �Oil of Old Lady�, intothe booming Olay range serving thefastestgrowing part of the market with itsproducts for �ghting the �seven signs ofageing�. A crucial part of this strategy wasto convince consumers who had onceshunned Olay to buy its new incarnationsat prices that were signi�cantly higherthan those charged by other massmarketcosmetic brands.
The book could have bene�ted frommore about Mr La�ey’s handful of strategies that did not deliver, for brands suchas Folgers co�ee, Pringles snacks, and pharmaceuticals. Rather than explore and learnfrom them, Mr La�ey prefers to bury thesefailures in an appendix.
Since Mr La�ey left P&G in 2009, thecompany has stumbled badly, and its newboss, Bob McDonald, is �ghting to keep hisjob. Meanwhile, Monitor, Mr Martin’s own�rm, got into �nancial di�culty and hasbeen sold at a discount to Deloitte. Whatdo these sorry tales say about strategy?Rather than explore whether their manystrategic successes somehow also sewedthe seeds of later problems, Messrs La�eyand Martin coyly note that �no strategylasts forever�. 7
Business strategy
Staying on top
Playing to Win: How Strategy Really Works.By A.G. La�ey and Roger Martin. HarvardBusiness Review Press; 272 pages; $27 and£17.99
ters do not mix well with real people at thebest of times, let alone in a book trying topersuade readers of a new movement.�The Nature of the Future� is deeply tintedwith the colours of technoUtopianism.
Steven Johnson takes quite a di�erentapproach in �Future Perfect�. Drawing onmany of the same examples, such as Kickstarter, Wikipedia and the Occupy movement, he makes an argument for a newpolitics based on �peerprogressive values�. In some areas, he says, the best solutions come from �open collaborative networks, not from private competition�.
Mr Johnson is a clever and subtle writer. He does not suggest that any problemcan be solved �by throwing Facebook atit�. Instead, in an age of shrinking government budgets and disillusionment withfree markets, creating platforms for peopleto solve things together may be the bestway to �ll any gaps. Patrons of expensiveart, such as opera, already supplementgovernment grants and boxo�ce takingswith private donations.
Technology has made it possible fordispersed, niche interests to become sustainable communities. This is a cheeringthought. But the vast majority of connectivity platforms, from Facebook to Kickstarter, are still controlled by a small centrethat can change the rules at whim. Ms Gorbis and Mr Johnson caution against thedangers of merely shifting control fromone central hub to new ones. But neitherauthor suggests how to get around this.�Peer progressives� and �socialstructers�think about ordering society in interestingways. But they are not yet a third waybetween the state and the market. 7