Thank you, Matthew Klein! In the course of critiquing Robert Hall’s paper for Jackson Hole, he mentions and links to another half-century-old paper by James Tobin, Commercial Banks as Creators of “Money” (pdf), that I had forgotten about, and is even more precisely on point than the Tobin-Brainard piece I’ve been citing.
All the points I’ve been trying to make about the non-specialness of
banks are there. In particular, the discussion on pp. 412-413 of why the
mechanics of lending don’t matter — yes, commercial banks, unlike other
financial intermediaries, can make a loan simply by crediting the
borrower with new deposits, but there’s no guarantee that the funds stay
there — refutes, in one fell swoop, a lot of the nonsense one hears
about how said mechanics of bank lending change everything about the
role banks play in the economy. Read more...
Business term of the day - Term for August 25, 2013: «Capitalization-weighted (or "cap-weighted") index»
Source: Wikipedia
A capitalization-weighted (or "cap-weighted") index, also called a market-value-weighted index is a stock market index whose components are weighted according to the total market value of their outstanding shares. Every day an individual stock's price changes and thereby changes a stock index's value. The impact that individual stock's price change has on the index is proportional to the company's overall market value (the share price multiplied by the number of outstanding shares), in a capitalization-weighted index. In other types of indices, different ratios are used.
For example, the AMEX Composite Index (XAX) had more than 800 component stocks. The weighting of each stock constantly shifted with changes in the stock's price and the number of shares outstanding. The index fluctuates in line with the price move of the stocks.
Stock market indices are a type of economic index.
Mathematical formulas
Free-float weighting
A common version of capitalization weighting is the free-float weighting. With this method a float factor is assigned to each stock to account for the proportion of outstanding shares that are held by the general public, as opposed to "closely held" shares owned by the government, royalty, or company insiders (see float). For example, if for some stock 15% of shares are closely held, and the other 85% are publicly held, the float factor will be 0.85, by which the company's market capitalization will be multiplied before weighting its value against the rest of the index. In other words, the number of shares used for calculation is the number of shares "floating", rather than outstanding.
An index that is weighted in this manner is said to be "float-adjusted" or "float-weighted", in addition to being cap-weighted. For example, the S&P 500 is both cap-weighted and float-adjusted.
Traditionally, capitalization-weighted indices in the United States tended to have a full weighting, i.e., all outstanding shares were included; overseas, because partial government ownership of large companies was more common, so-called float-weighted indexing has been the norm for many non-U.S. indices. Recently, many of the U.S. indices, such as the S&P 500, have been changed to a float-adjusted weighting which makes their calculation more consistent with non-U.S. indices.
Other types of indices
An index may also be classified according to the method used to determine its price. In a price-weighted index such as the Dow Jones Industrial Average, the price of each component stock is the only consideration when determining the value of the index. Thus, price movement of even a single security will heavily influence the value of the index even though the dollar shift is less significant in a relatively high-value name. In a market-share weighted index, price is weighted relative to the number of shares, rather than their total value. In a fundamentally weighted index, stocks are weighted by fundamental factors like sales or book value.
A capitalization-weighted (or "cap-weighted") index, also called a market-value-weighted index is a stock market index whose components are weighted according to the total market value of their outstanding shares. Every day an individual stock's price changes and thereby changes a stock index's value. The impact that individual stock's price change has on the index is proportional to the company's overall market value (the share price multiplied by the number of outstanding shares), in a capitalization-weighted index. In other types of indices, different ratios are used.
For example, the AMEX Composite Index (XAX) had more than 800 component stocks. The weighting of each stock constantly shifted with changes in the stock's price and the number of shares outstanding. The index fluctuates in line with the price move of the stocks.
Stock market indices are a type of economic index.
Mathematical formulas
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| Enlarge |
Free-float weighting
A common version of capitalization weighting is the free-float weighting. With this method a float factor is assigned to each stock to account for the proportion of outstanding shares that are held by the general public, as opposed to "closely held" shares owned by the government, royalty, or company insiders (see float). For example, if for some stock 15% of shares are closely held, and the other 85% are publicly held, the float factor will be 0.85, by which the company's market capitalization will be multiplied before weighting its value against the rest of the index. In other words, the number of shares used for calculation is the number of shares "floating", rather than outstanding.
An index that is weighted in this manner is said to be "float-adjusted" or "float-weighted", in addition to being cap-weighted. For example, the S&P 500 is both cap-weighted and float-adjusted.
Traditionally, capitalization-weighted indices in the United States tended to have a full weighting, i.e., all outstanding shares were included; overseas, because partial government ownership of large companies was more common, so-called float-weighted indexing has been the norm for many non-U.S. indices. Recently, many of the U.S. indices, such as the S&P 500, have been changed to a float-adjusted weighting which makes their calculation more consistent with non-U.S. indices.
Other types of indices
An index may also be classified according to the method used to determine its price. In a price-weighted index such as the Dow Jones Industrial Average, the price of each component stock is the only consideration when determining the value of the index. Thus, price movement of even a single security will heavily influence the value of the index even though the dollar shift is less significant in a relatively high-value name. In a market-share weighted index, price is weighted relative to the number of shares, rather than their total value. In a fundamentally weighted index, stocks are weighted by fundamental factors like sales or book value.
Steve Ballmer to retire from Microsoft: this week in the economy
Microsoft CEO to retire, market cheers: When Microsoft CEO Steven Ballmer announced Friday that he will retire within the next 12 months, or as soon as a replacement is found, Microsoft stock shot up as much as 9 percent. Wall Street has not been enamored with Microsoft since Mr. Ballmer succeeded founder Bill Gates
as CEO in 2000. The software company's value has fallen by more than
half in that time – from $601 billion to $270 billion. And while some of
that decline can be attributed to the popping of the dot-com bubble,
it's also true that Microsoft has fallen behind in key areas of
high-tech growth, including Internet search, smartphones, and social
media. Read more...
IMF's Lagarde urges caution over withdrawing stimulus
Christine Lagarde said stimulus policies were still needed in some regions, especially Europe and Japan.
With signs that the global economy is improving, there has been much debate about when supportive policies should be wound down.
But, in a speech in the US, Ms Lagarde said she did not suggest a "rush to the exit" as some economies remain fragile.
The US Federal Reserve has signalled it may slow down its huge monthly bond buying programme, a suggestion that has hit stock markets and currencies around the world.
But Ms Lagarde said stimulative measures had been successful and were still necessary in key economies.
Any withdrawal should be determined by the strength of individual economies, she said. Read more...
With signs that the global economy is improving, there has been much debate about when supportive policies should be wound down.
But, in a speech in the US, Ms Lagarde said she did not suggest a "rush to the exit" as some economies remain fragile.
The US Federal Reserve has signalled it may slow down its huge monthly bond buying programme, a suggestion that has hit stock markets and currencies around the world.
But Ms Lagarde said stimulative measures had been successful and were still necessary in key economies.
Any withdrawal should be determined by the strength of individual economies, she said. Read more...
Lessons on Management From A Shitshow Veteran
In the interest of learning more about life on the other side of a
shitshow, Eater sat down recently with someone who has worked in the New
York restaurant industry for 11 of the past 13 years. Our subject, who
asked to remain anonymous, has worked for Jeffrey Chodorow's China Grill group, SushiSamba, and the original iteration of Jeff Klein and Graydon Carter's Monkey Bar. He frequently held positions as assistant general manager and general manager.
With so much experience to discuss, the interview ran too long to print in its entirety, but here, now, are some of the juiciest bits on what it takes to manage both the little guys and the monster shitshows:
First of all, how did you get into your career in restaurant management? Read more...
With so much experience to discuss, the interview ran too long to print in its entirety, but here, now, are some of the juiciest bits on what it takes to manage both the little guys and the monster shitshows:
First of all, how did you get into your career in restaurant management? Read more...
When to spend, and when to save money
When is it time to let your children go and have more freedom and autonomy – or hold onto them and protect their safety?
When is it time to hold onto your money? When is it time to let go and spend some of it?
When is it time to let go of an ailing loved one?
When is it time to hold onto one’s beliefs and patterns and routines? When is it time to let go of them in the face of the changes in your life? Read more...
When is it time to hold onto your money? When is it time to let go and spend some of it?
When is it time to let go of an ailing loved one?
When is it time to hold onto one’s beliefs and patterns and routines? When is it time to let go of them in the face of the changes in your life? Read more...
Business term of the day - Term for August 24, 2013: "Capability management"
Keywords: business capability, organizational capability
Source: Wikipedia
A relatively new topic outside defense, capability management is being
applied to align organizations to strategic intent and to accelerate
results.
Business capability defined
A business capability is WHAT a company needs to be able to do to
execute its business strategy (e.g., Enable ePayments, tailor solutions
at point of sale, demonstrate product concepts with customers, combine
elastic and non-elastic materials side by side, etc.).
Another way to think about capabilities is they are a collection or
container of people, process and technology that is addressable for a
specific purpose.[1]
Capability management is an approach that uses the organization's
customer value proposition to establish performance goals for
capabilities based on value contribution. It helps drive out
inefficiencies in capabilities that contribute low customer impact and
focus efficiencies in areas with high financial leverage; while
preserving or investing in capabilities for growth.
Capability management topics
Capability vs. process
A process is HOW the capability is executed. Much of the reengineering revolution or Business process reengineering focused on HOW to redesign business processes.
Business vs. organizational capability
An organization capability refers to the way systems and people in the organization work together to get things done.[2]
The way leaders foster shared mindset, orchestrate talent, encourage
speed of change, collaboration across boundaries, learn and hold each
other accountable – define the company's culture and leadership edge.
Capability vs. competency
Although often used interchangeably, "capability" and "competency" are quite different.[3]
makes a distinction between capabilities and competencies: individuals
have competencies while organizations have capabilities. Both
competencies and capabilities have technical and social elements.
| Individual | Organization | |
|---|---|---|
| Technical | Functional Competencies | Business Capabilities |
| Social | Leadership Competencies | Organizational Capabilities |
At the individual-technical intersection, employees in the firm bring
functional skills and competencies such as programming, cost
accounting, electrical engineering, etc. At the individual-social
intersection, leaders also have a set of competencies or skills such as
setting the strategic agenda, championing change and building
relationships. Moving to the intersection of organizational and
technical, are business capabilities. In short, they are the technical
things or what the firm must know how to do to execute strategy. For
example, a financial service firm must know how to manage risk and
design innovative products. Finally, we have organization capabilities
such a talent management, collaboration, and accountability. According
to Ulrich, they are the underlying DNA, culture, and personality of the
firm. They integrate all the other parts of the firm and bring it
together. When a group of leaders have mastered certain competencies,
organization capabilities become visible. For example, when a group of
leaders master "turning vision in to action" and "aligning the
organization," the organization a whole shows more "accountability."
History of capability modeling in business
Capability management's earlier ancestors include the value chain,
also known as value chain analysis, first described and popularized by
Michael Porter in his 1985 best-seller, Competitive Advantage: Creating
and Sustaining Superior Performance. In 1990, The core competencies of
the corporation defined core competency
as a cluster of extraordinary abilities or related 'excellences' that a
firm acquires from its founders, after consistent striving over the
years, and which cannot be easily imitated. Core competencies (also
called core capabilities) are what give a company one or more
competitive advantages in creating and delivering value to its customers
in its chosen field.
Lee Perry, Randall Stott and Norm Smallwood[4] added to the capabilities body of work the concepts of strategic options based on Customer Value Proposition and Business Focus[5] and Types of Work which characterized work as either:
- Unit of competitive advantage (UCA) – the work and capabilities that create distinctiveness for the business in the marketplace
- Value-added support work – the work and capabilities that facilitate the UCA
- Essential support work – the work that doesn't support UCA or facilitate it but must be done to operate the business
Building on earlier themes, the concept of dynamic capabilities
was introduced in 2000. The basic assumption of the dynamic
capabilities framework is that in fast changing markets, firms need to
respond quickly and innovatively.
Around the same time, Richard Lynch, John Diezemann and James Dowling
extended the concepts above in The Capable Company: Building the
capabilities that make strategy work.[6]
Key additions to the body of work were tools to translate strategic
shifts to new sets of capabilities required whether these were core
competencies or not. Building on the Types of Work ideas, the authors
added performance target setting based on the capability value
contribution. When compared to actual performance, the method outlined
an approach to identify capability gaps and priorities. They also laid
out a framework to continually align capabilities based on strategy
shifts and external changes through the project agenda. The first full
Capability Model was built by the authors in 2001 as the framework for
the demerger of Intercontinental Hotels Group (then known as Six
Continents) from the parent Six Continents PLC (formerly Bass & Co
Brewery).[7]
The model included thee levels of capabilities, value contribution,
performance targets, capability gaps, recommended actions and sourcing
decisions.
In 2004, the UK Ministry of Defence released its enterprise architecture framework, MODAF. This framework extended the existing DoDAF
specification by adding views for capability planning. These views were
standard ways to represent how the enterprise was expected to perform
over time, expressed in terms of capabilities.
Other important contributions include the concept of value maps for
detailing the customer proposition and more recently the profit
proposition to identify capabilities that will help create Blue Ocean Strategy.
Value Maps extend the work of real-time strategy and the capable
company by depicting a strategy canvas and providing an action framework
to capture markets. In the mid-2000s team at Microsoft, in concert with
Accelare, developed the Motion Methodology – a capability-based
framework.[8]
In 2008, Ric Merrifield, Jack Calhoun and Dennis Stevens, in the Next
Revolution in Productivity added the use of SOA and its role in
supporting capability delivery at breakthrough cost and speed.[9] Also introduced was the use of heats maps for capability analyses.
Capability management frameworks
A complete picture of the capabilities is the enterprise capability model.[10]
It is a blueprint for the business expressed in terms of the
capabilities necessary to execute strategy including delivery of
services. Capabilities are described in levels of abstraction; usually
three levels of details.
- Family of capabilities; often shown as chevrons
- Groups of capabilities; illustrated in the health care provider diagram
- Specific capabilities; the level of detail to assess capabilities
At the higher level, are the attributes of ownership, location, and
project road maps. The lower level is where the action is and where
performance targets are set, performance assessed and gaps noted. It is
at this level sourcing decisions are made or projects established to
close gaps. The framework includes strategic, core and enabling
capabilities.
- Strategic capabilities: capabilities in organizational planning, strategy, and investment
- Core capabilities: the inventory of business capabilities that are identified as delivering the products and services that an organization offers to its market.
- Enabling capabilities: the inventory of business capabilities that are required to support the but not sold or offered to the market
Strategic planning
Companies like Harvard Pilgrim Health Care[11] and Intercontinental Hotels Group[12]
have used capabilities to focus on where to take out costs and
outsource non strategic capabilities while improving service and adding
brands.
IT–business alignment
Microsoft is using capability models to enter into conversations with
clients to identify capability and process pain points to better align
IT solutions to the business.[1]
New growth platforms
Capabilities are also being used in new growth platform development.[13]
Platforms are a foundation that spawns multiple products and/or
services that, by themselves, are eventually the size of a business
unit.[14]
These innovations result from identifying new domains created at the
intersection of enablers or "unstoppable trends" and customer dynamics,
linked to an essential set of core capabilities called the platform
logic: those capabilities that are unique, valuable, and portable.
Capability value contribution
Building of the earlier type of work logic, Accelare added a
distinction in assessment of the capabilities necessary to operative the
business by examining the financial impact as well as the customer
impact.[15]
-
-
-
- Figure 3: Capability value contribution to strategy
-
-
Some capabilities directly contribute to the customer value
proposition and have a high impact on company financials. These
"advantage capabilities" are shown in the upper right. Value
contribution is assured when performance is among the best in peer
organizations at acceptable cost. Keep them inside and protect the
intellectual property. Moving to the top left quadrant, strategic
support capabilities have high contribution in direct support of
advantage capabilities. Keep them close. Value contribution is assured
when performed above industry parity at competitive cost. Other
capabilities shown in the bottom right are essential. They may not be
visible to the customer but contribute to company's business focus and
have a big impact on the bottom line. Focus on efficiency improvement;
especially in high volume work. Value contribution is assured when
performed at industry parity performance below competitors' cost. Other
capabilities are "business necessity." Value contribution is assured
when performed at industry parity performance below competitors' cost.
They can be candidates for alternate sourcing.
Gap analysis and heat maps
A capability gap assessment can be portrayed in a heat map.
- A heat map is a visualization of which capabilities required attention.
- A heat index is calculated using effectiveness and efficiency scores and the gap between targeted and actual performance; high heat (red/orange) in the gap column suggests investment.
Capability value contribution helps stack rank investments, for
example advantage capabilities with high heat move to the top of the
agenda, followed by business essential capabilities with large
inefficiencies.
Variants and alternatives
- Value chain
- Strategy maps
- The MODAF StV-1 Provides a standard way to represent capability planning over time for an enterprise
Software tools
Microsoft PowerPoint can be used to display capability models.
Microsoft Excel allows modeling and capability gaps analysis.
BOSS[2]
is a cloud based toolset for defining, assessing, prioritizing,
capturing attributes, and automating the capability modeling effort. BOSS
also provides the ability to create visual displays of the analyses,
heat maps and tree maps. This is an excellent facilitation tool for
collaborating to the optimal path for addressing the most significant
problems the organization faces.[16]
WhatFirst[3]
is a web based solution for designing and managing the performance of a
capability-based business architecture. It allows the key stakeholders
of an organization to collaborate on business architecture through its
multi-user repository. Software includes capability modeling and
display, value mapping, capability attributes, performance assessment
and gap analyses.
See also
- Capability management in defense
- Capability approach in welfare economics
- Relationship to operating model
- Relationship to enterprise architecture
- Relationship to business architecture
References
- ^ Ric Merrifield, Jack Calhoun and Dennis Stevens The Next Revolution in Productivity, (Harvard Business Review, June, 2008)
- ^ Dave Ulrich and Norn Smallwood, How Leaders Build Value: Using People, Organization, and Other Intangibles to Get Bottom-Line Results (Jossey-Bass, 2006)
- ^ Dave Ulrich
- ^ Lee Perry, Randall Stott and Norm Smallwood Real Time Strategy (Wiley 1993)
- ^ Benjamin B. Tregoe and John W. Zimmerman Top Management Strategy (Simon & Schuster, 1980) Business Focus builds on the work of the "driving force" and "nine strategic areas" and how they suggest capabilities needed.
- ^ Richard Lynch, John Diezemann and James Dowling, The Capable Company: Building the capabilities that make strategy work (Wiley-Blackwell, 2003)
- ^ James Larson and Richard Lynch, Reinventing a Hotel Company (BPM Connections , October/November 2004)
- ^ Ric Merrifield, Rethink: What do you need to do today? (FT Press, 2009)
- ^ Ric Merrifield, Jack Calhoun and Dennis Stevens The Next Revolution in Productivity, (Harvard Business Review, June, 2008
- ^ Capability-Based Management (White Paper from Accelare, 2009)
- ^ Jack Calhoun, Richard Lynch and Jim Dowling, The Cost-Take-Out Challenge, (www.accelare.com).
- ^ James Larson and Richard Lynch, Reinventing a Hotel Company(October/November 2004 issue of BPM Connections)
- ^ Donald L. Laurie, Claude Sheer and Yves Doz, New Growth Platforms (Harvard Business Review, May 2006
- ^ Leander Kahney, Straight Dope on the IPod's Birth (Wired, 10.17.06) illustrates this concept well.
- ^ Jack Calhoun, Richard Lynch and Jim Dowling, The Cost-Take-Out Challenge, (Accelare, 2009).
- ^ Blazek, Pete. "President". Performance Consulting Group.
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