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[post_title] => A Fixed or Growth Mindset? What it Means for Your Organisation
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[post_content] => There are now about two million people who are in work in Ireland. Of these, about half a million work in the public sector in areas such as administration, teaching and health. The rest are employed in the private sector.
Considering its centrality to our everyday prosperity, the private sector is oddly depicted in our culture. The big businessman is always the baddie. Just think: Mr Burns in The Simpsons, Michael Douglas’s Gordon Gekko in Wall Street, or Leonardo DiCaprio in The Wolf of Wall Street.
Source: www.axiomcommunications.com
On that basis, it’s good to see that a movie has just come out that portrays financiers in a more realistic light: as intelligent people who take risks to make money in a complex financial world in which there are winners, but, by extension, plenty of losers.
The Big Short, released on January 22 2016, is based on an adaptation of the adage of “buy low, sell high” among stock market traders. Going “short” simply reverses the sequence by aiming to “sell high, buy low”. To put it simply, you sell a stock that you don’t own and think is overvalued and undertake to close the transaction by buying it back later.
The protagonists of The Big Short, based on the book of the same name by Michael Lewis, realise in the mid-2000s that the US housing market is an accident waiting to happen and that it is a big candidate to be “shorted”.
It examines several different individuals who independently reached such a conclusion and who had the guts to back that insight with their own cash. As one Bloomberg View writer put it: “It isn’t a spoiler alert to say that the financial world collapses, the protagonists get rich and no one lives happily ever after.”
The most compelling story was that of Michael Burry. He was the founder of the Scion Capital hedge fund which he operated from 2000 to 2008. Mr Burry initially qualified as a medical doctor and left work as a neurologist to pursue his hobby and become a full-time investor. In 2001, Mr Burry’s first full year at the hedge fund, the S&P 500 index fell 11.88 per cent but Scion was up 55 per cent, according to Lewis.
The next year, the index fell again, by 22.1 per cent, and yet Scion was up again: 16 per cent.
In 2003, the stock market finally turned around and rose 28.69 per cent, but Mr Burry beat it again — his investments rose by 50 per cent. By the end of 2004, he was managing $600 million and, as Mr Lewis put it, was “turning money away”.
It was at this point that Mr Burry focused on the US housing market. As the market collapsed spectacularly and others lost lots of money, he was still in profit because he had correctly predicted what would happen.
He later said he shorted mortgages because he had to. “Every bit of logic had led me to this trade and I had to do it,” is how he put it. He has also pointed out that he did not benefit from taxpayer-funded bailouts as he liquidated his shorted positions by April 2008.
One thing is clear from all of this. Mr Burry is worth listening to, especially when it comes to issues relating to the financial markets. In a recent interview with New York magazine, he gave some hints about where the next big-short trading opportunities may come from. He said that he had hoped after the crash that the world would enter a new era of personal responsibility, but instead we “doubled down on blaming others and this is longterm tragic”.
On this basis, the Irish response might not impress Mr Burry. Our reaction to our own banking crisis has been to blame bankers for lending to us rather than to reflect on whether we were wise to borrow and to invest in overvalued property.
Instead of learning lessons, it would appear that we have simply sought out scapegoats to evade personal responsibility. Mr Burry’s comment that “if a lender offers me free money, I do not have to take it” is not one that sits easily in Irish public debate even if it is little more than a statement of the obvious.
The hedge fund manager is not happy either with the current state of global financial markets, which he believes are once again trying to stimulate growth through easy money. “It hasn’t worked, but it’s the only tool the Fed’s got,” he said.
Mr Burry is worried that the markets are using interest rates to “price-risk”, but that mechanism is broken as the interest rates of central banks have been kept for many years at close to zero.
Worse still, he thinks that by using low interest rates to fight the aftermath of one bubble going bust, central banks may just support the development of more bubbles. That’s the big risk today, but it’s also how the US housing market developed into a bubble a decade ago.
In combating the economic decline after the internet bubble went bust in 2000, Mr Burry argues that the Fed kept US interest rates too low for too long.
He argues that we are building up “terrific stresses in the system” and any fault lines will harm the outlook.
The problem with this conclusion is that, despite our progress, Ireland remains one of the most heavily indebted countries in the world. We would face a heavy cost if they were to rise again.
Let us be grateful then that Mario Draghi, the head of the European Central Bank, doesn’t agree with Mr Burry and that eurozone interest rates are likely to remain low for several years to come.
Cormac Lucey is the Programme Director of the IMI Diploma in Business Finance.
Cormac is also a Financial Services Consultant and Contractor who has previously worked with PricewaterhouseCoopers, Rabobank Frankfurt and the Department of Justice.
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Source: www.clubsolutionsmagazine.com
Leadership teams can start the creation of high performance cultures by implementing the following 6 steps:
1. Establish a sense of urgency
They need to make it clear that the current culture needs to change, articulate the vision and business case, and describe the opportunity (as John P. Kotter states in his book The 8-Step Process for Leading Change) in a way that appeals to the hearts and minds of people.
2. Develop a set of strategic beliefs
These are the beliefs senior executives have about their organisation’s environment that enables shaping business strategy e.g. Dell believed that customers would, if the price was right, buy computers from a catalogue rather than go to computer stores as the conventional wisdom dictated they would. They created a $7 billion business.
3. Develop a set of values
Values enable the organisation to act on its strategic beliefs and implement their strategy the right way. Values shape the culture of an organisation, define its character and serve as a foundation in how people act and make decisions. Dell’s values supporting its strategy and strategic beliefs include: Delivering results that make a positive difference; leading with openness and optimism and winning with integrity.
4. Capitalise on quick wins
Capitalize on and honour your cultural strengths and act quickly on any critical behaviour changes required.
5. Challenge those norms that get on the way of high performance
Norms are informal guidelines about what is considered normal (what is correct or incorrect) behaviour in a particular situation. Peer pressure to conform to team norms is a powerful influencer on people’s behaviour, and it is often a major barrier affecting change. It is always easier to go along with the norm than trying to change it…. Common samples of negative norms in some organisations: Perception that it is ok to yell at people, ignore people’s opinions, etc.
6. Role model and recognise the desired behaviours
As Gandhi wonderfully put it “Be the change you want to see in the world”. This empowers action and helps embed the desired culture you are trying to create.
Behaviour is a function of its consequences. Behaviour that results in pleasant consequences is more likely to be repeated, and behaviour that results in unpleasant consequences is less likely to be repeated.
According to B. F. Skinner and reinforcement theory “future behavioural choices are affected by the consequences of earlier behaviours”. The argument is clear; if you want people to be brave and challenge the status quo, you shouldn’t make them feel awkward or like difficult employees when they do. Furthermore, if want people to contribute at meetings make sure you actively listen to them and act on their suggestions and ideas.
Caution:
On his famous article “On the folly of rewarding A while hoping for B” Steven Kerr argues that the way in which we reward and recognise people doesn’t always deliver the desired results. We all have being in situations where we are told to plan for long-term growth yet we are rewarded purely on quarterly earnings; we are asked to be a team player and are rewarded solely on our individual efforts; we are told that the way in which results are achieved is important and yet we promote people who achieve results the wrong / in a Machiavellian way.
A friend of mine was recently at a hospital and he complained to the ward manager about the doctor’s bad manners and rudeness. The answer he got was “do you want to be treated by the best heart doctor in the country or a not so good doctor but with a really nice bed manner?”.
My argument is why can’t we have both?
Pedro Angulo is the Programme Director of the IMI Diploma in Strategic HR Management starting on 16th November 2016.
Pedro is an Organisational Effectiveness Business Partner in AIB and Chairperson of the Irish EMCC (European Mentoring and Coaching Council).
He is a motivational speaker and regular presenter at HR, coaching, change and business conferences / events.
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