On Radio 4 last night we had the pleasure of hearing from Chris Nicholson – http://www.linkedin.com/in/oraca . Chris is an equity analyst focusing on telecoms and media. His view is that banks should pay bonuses to encourage continued creativity and to ensure market efficiency. This is an extraordinary claim in light of recent events, here’s why.
Efficient markets are important. How efficient they have to be is open to debate. Banks have been spending a fortune on IT and on motivating staff over the last couple of decades and the result has been that the best can win more. The result has not been a better allocation of capital as Chris suggests.
Creativity is important. Motivating people to so creative that they package up junk mortgages and resell tranches as triple A rated securities to pension funds is certainly creative. unfortunately this has also been the cause of the demise of the finanical sector.
Chris also mentions the allocation of capital to risky enterprises. Well, Chris, you are very out of touch. There are almost no venture capital firms or VCTs investing in anything approaching early-stage and this has been the case for many years. 3i, the stalwart of early-stage investment did so well out of its leveraged late-stage deals (notably Go) that it leveraged its balance sheet and focused almost exclusively on leveraged deals!
Explain to me Chris how the creativity and efficiency of the markets has helped finance entrepreneurs in the UK over the last 20 years?
I have managed three companies over the last 10 years and in my last company I had to cut costs – we were losing money and I was brought in to turn-around the business. I refocused the business, changed the product offering and let 60% of the people go.One thing that I know is that if the leadership articulate the issues and the vision for resolving them then freezing salaries is not nearly as painful to the business as those insiders think.
High street banks must focus on their main tasks, UK consumer and corporate banking and if they won’t do it then find someone that will!
Back in 1992 David Gelernter wrote a wonderful book entitled “Mirrors Worlds”. Gelernter’s work influenced the Sun team and the creation of JavaSpaces (technology that I based my first start-up on).
In this book Gelernter talks about “plunge and squish”. Imagine you have a huge vat of data that from a distance appears homogeneous but upon close inspection is a massively heterogeneous, some structured, some unstructured. You wish to know what data in this vat has a strong relationship to something or other, a particular thought, question or subject that you have in mind for instance. How do you find this related data? Gelernter imagined a system that allowed you to plunge your “something” into the vat of data and see the related data attracted or squished towards your “something” allowing you then to extract that related data to find the answer to your question. This is all very theoretical but still important in that to find a solution to a problem it helps to imagine what your solution looks or feels like. Gelernter didn’t stop there but went on to create Scopeware which was the equivalent of Google Desktop however launched well before Google’s product. Scopeware then disappeared from view (purchased by some group and the technology integrated into their product set) being faced with the competition from Google’s and Microsoft’s products in this area.
Scopeware was a first step in the road-map to solving the problem of data mining in that data was pre-searched during computer downtime and the user then used keyword searches to search across all document types desired. This is a first generation solution with the pre-search facility clearly helping in speeding up the searches. A second generation solution to this problem has not yet, as far as I am aware, been launched but I believe it is now worth investigating. BTW if anyone feels that second gen solutions are here already then do let me know.
One area that I am interested in and have been brainstorming with a friend of mine is in the area of knowledge management. How sensible is it to spend time researching a topic when someone maybe only two-steps down the office has done this research and has done so from within a similar context to your own? It is only sensible if the person is not able to be found by you simply and rapidly. If an enterprise system could quickly and efficiently find the person within the enterprise with the some or all of the knowledge that you are seeking to find this would potentially be of significant value. The identification of the person is the key to finding the information. Sometimes simple answers to simple questions are the most tricky to solve.