Fraud and shortcuts to success

Maybe I’m writing this too early given the case just surfaced. I’m talking about JP Morgan’s allegation that Javice Charlie fabricated customers in order to inflate the price that she could sell her startup, Frank. It’s ironic to some extent that the fintech startup was supposed to help students cut through opacity with the college financial aid system in the US.

It reminded me of Theranos of course, if you looked at Charlie Javice’s profile, everything suggests she was incredibly intelligent and could certainly be very successful on her on merits without committing fraud. But yes she seem to have taken the position not so different from Liz Holmes or Sam Bankman-Fried.

Why is the culture making us so desperate for success or to go down the slippery slope of misrepresentation? Why are our young people believing that the whole startup and venture space is about faking it till you make it? Is there nothing wrong with that? What should we look into fixing?

Cutlery on the go

I was going through a security check and the security officer saw that my bag had fork, spoon and chopsticks. They were from my portable dinning cutlery set. The officer was amused and asked me to remove it from my bag to check. He then realised it was more for sustainability and that I was not some homeless dude lumbering around.

Lots of disposable cutlery can be saved from bringing your own cutlery set around. That reduces material waste. But at the same time, what we eat matters too!

Cutting down on meats especially beef reduces significant amount of carbon emissions and also animal waste. The globalised world has more diversity in diets so that helps to disperse demand for different food products but the way food is produced had become a lot more industrialised and intense in those particular areas where crops and livestock are produced. This means more logistics, centralisation of profits and inequality.

If you were to make a choice to change your cutlery use or your diet, I’d prefer you think more about your diet.

Paying for work or process?

As a consultant, we work with businesses on different topics and we charge them based on how much work the project involves. Yet the only way to measure the amount of work was to estimate the time it would take us to complete the work. Of course, the price per unit time of someone more experienced (or higher up in position) is higher. But this inevitably seems as though we are charging people for the process rather than work.

Another way to really charge for the work is to find out how much the problem is costing the client, and charge an amount just below the cost of the problem. The client gains the difference. If it’s not a problem but more benefits flow to the client as a result of the work, it can also be valued based on the incremental value to the client. That’s just harder because the clients are unlikely to really reveal that.

As a result when we overvalue ourselves, the transaction never happens and it only seem to happen when we undervalue ourselves vis-a-vis the client’s own value of the work that we are doing. Along the way though, the client can sometimes try to give us more work. After all, the lump sum price have been decided on. Better to ask more questions and wring more value out of these guys. It’s a delicate balance to strike. But all I can say is that consulting is such a human business we can never escape having to manage these interactions and relationships.

They are all necessarily more valuable than the transactions; but it is after all the job, the work, and the payments that enable these relationship. So do you value the work more or the process to arrive at it?

Brainstorming for pain

As a consultant, we often need to understand the painpoints, challenges and problems of various parties in the conversation. That is how we can add value to work on the problems, identify the solutions, offer the right recommendations.

The challenge to sharing painpoints or problems is there will always be some kind of resistance. It is difficult for parties involved to openly confess they need help; and the problems they identify at first may not necessarily be the fundamental problem. They might also be afraid that the problems identified traces back to themselves or some mistakes they had made before.

So what can we do? Reminder of the objectives of the brainstorm and objectives of the team. Walk through with the team what is the process they have at present to get from their starting point to their objectives. And ask them about the difficulties or bottlenecks at each step along that process.

Hope this general framework for a start contributes to your brainstorming!

Vertical integration

Industrial organisation was a very important discipline of microeconomics for a period of time especially when it came to supporting or counteracting the trust-busters. And then even as economists were just beginning to peer a little more into industries and understand the workings of firms and the strategic thinking behind them, finance came into the picture and all sorts of crazy connections between business metrics and financial metrics became the science of understanding business, evaluating and valuing them.

Strategic value of firms remain relevant in terms of thinking about merger financial models but these perspectives of looking at incremental value and the ‘main case’ of business-as-usual sometimes misses the point of an acquisition or integration. Aside from financial assessment, the whole strategic decision to undertake a merger or acquisition requires not a business-as-usual view but one that involves a vision of the future. Not forecasting the future but taking active steps to create it.

During a time of massive decentralisation and increasing marketisation, with lots of competitors, we can expect that value can be created by spinning off individual business units but when there’s shortage of resources, intermediate goods and services, vertical integration is powerful. And across the sectors, there are bound to be some that is plagued with bottlenecks and resource problems that only vertical integration can solve – which is to say the strategic value cannot be ignored. In fact, that is very often the way to compete in these markets.

When thinking about firms and business dynamics, are we just focused on the financial metrics or do we want to develop a view on the evolution of competition?

Scaling up production

At the recent presentation I gave on ammonia as the new low-carbon maritime fuel, I was asked about the ability to scale production over the next couple of years. I think the time horizon we should be looking at is over the next 8 years up to 2030 and then 10 years after that, how things are likely going to change. We as consultants are often asked to look into our crystal balls and envision the future. We try our best to do it using data, looking at trends, making assumptions and all.

For ammonia, the demand is expected to more than double over the next 28 years. That’s still a fair amount of time, and as long as it grows by a rate of about 4% per annum, the supply will be able to meet demand in 2050. Not inconceivable though from historical trends on the production figures, it seems far fetched. But that is because ammonia has traditionally been demanded only as an industrial feedstock and for production of fertilisers. The people concerned about the competition with the existing agriculture or food industries have misplaced concerns because those are the guys who have been using grey ammonia and perfectly happy to continue to do so. The new demand is likely going to require green hydrogen; which means we are going to start growing new supply of this ammonia from scratch; no legacy issues of waiting for existing facilities to ramp up.

Then there are people pointing out the challenge of getting green electricity which seem short in supply to begin with. That is true to a certain extent; Singapore is having to import electricity from neighbouring countries, using actual physical transmission lines. But most of the time, this is caused by the fact that renewable resources may be scarce where the power demand centers are. If there are far flung locations rich with renewable resources, we can still capture these sites to produce green hydrogen as well as green ammonia, then ship them out.

So I’m actually pretty optimistic about trying to hit those demand and supply numbers over the long time frame that we are talking about. It might well surpass those numbers when the market really takes off. But the key is ensuring there’s clear price signals; and if there’s proper legitimate demand for green hydrogen, then someone will have to certify it and audit the production.

Making things measurable

One of the most powerful ways for people to influence others to do something about certain causes is just to measure it. The most successful example being the creation of GDP as a concept to measure the economy. Suddenly, it displaced the more traditional metrics of population or military might (which involved more quantities than just number of troops involved).

There are always issues with measurements created. They do not perfectly measure the underlying thing we’re trying to quantify for two reasons:

  • The measurement is inaccurate due to poor instruments used (proxies, poor surveyors etc)
  • The measurement does not reflect the actual underlying concept we are trying to quantify.

The first point can be improved over time. The measurement accuracy would not be perfect but over time, as long as the measurement required is well-defined, we would be able to capture the quantity or at least get really close to it.

The second point is trickier and it is going to always be imperfect. And herein lies the danger of trying to make things measureable. The Goodhart law features an important observation we ought to be constantly reminded of as we’re bombarded with figures like GDP growth, inflation etc. It doesn’t mean they are false! But the key is to be able to distinguish the measure from the underlying concept of what the measure is supposed to imply.

Sense of mission

People with a sense of mission in the workplace can be really hard to manage as it turns out. When you work on projects that have only tangential connection with their mission, they might not be motivated. When your projects are not aligned or even falls severely short of their sense of mission, they can cry foul and risk your business. They might have no interest in chasing the short term KPIs or pleasing you as a manager.

And with them, you might risk not getting the exact outcomes you or the organisation desired – especially when the organisation says one thing about their ideals and principles but is trying to do something else. So you might not want these idealists around.

But often, that is the only choice, and they are the only ones worth paying for. There are plenty of talents out there who are brilliant in what they have to do in the short run and deliver on KPIs but lack the sense of mission that the organisation badly needs. Organisations are like humans, and profits can be like good food, mistaken as the raison d’etre of living. People with a clear sense of mission helps put the organisations back on the right track.

Tracing culpability

My colleague alerted me to this recent judgment in Singapore of a man accused of drug trafficking. It made me think and wonder quite how we conceptualise, construct and then attribute culpability.

In many sense, our laws tries its best to identify evidence disinguishing intention from the outcome when it comes to crimes. This is why there is a difference between murder and manslaughter. So there is some kind of penalty both in terms of intent and outcome; and they compound.

Now the point is that intention is hard to tell; if a person fails to achieve an outcome, it is not always easy to be able to demonstrate his intentions. On the other hand, it can be hard to think that an outcome wasn’t driven by some kind of intent. And there is the intent that is long-developed and the one that emerges on the fly. They are all different.

So to what extent do we take responsibility? When we consume electricity from the grid, are we responsible for the emissions that were produced in generating the power? What if we tried to switch to green electricity but the solar panels aren’t generating so we are consuming from the grid? Who should be responsible of making sure supply chains are free of corruption and exploitation? Is the ability to shoulder responsibility based on financial capacity? Knowledge? Or other resources?

At the end of the day, if we managed to reduce our carbon footprint to zero as individuals and yet our fellow man continues to emit and eventually climate changes and affects all of us, are we being held culpable for a crime we didn’t commit and an outcome we did not intend?

Who are we to college admissions?

What is your positioning? What is your strategy in this application? I asked my intern who was applying to certain colleges. I’ve been called upon to put up a reference for this young colleague and I really wanted to help, as best as I can.

So me being the strategy consultant I am, asked those questions. It drew a blank. And of course, it was a little confusing for someone fresh out of A Levels to think of “strategies” around college applications. Or maybe not if you’ve so much help and advice from those who have gone before you. That, I feel, is exactly what those families with resources are able to equip their younger ones with.

Maybe I was wrong, that we need a strategy or positioning because the only positioning should be to be ourselves. It will take more excavation of ourselves and asking who exactly are we rather than artificially creating a persona we must fit into. In being able to “position” our application as much as possible as being true to ourselves, might be the most precious thing you can give to the college admissions office.