Several loyal readers have suggested that I stay on topic — service innovation — and not revisit the Madoff tragedy. They are correct: it is best not to dilute the brand on this blog.
However… one quick link for those interested. I cannot imagine how frustrating it was for Harry Markopolos to KNOW that Madoff was running a huge Ponzi scheme for a decade and be unable to get the SEC interested, even after Barrons had run a skeptical article. Read his 2005 memo to the SEC:
Tragedy to Entrepreneur of the year
I had the great fortune to study entrepreneurship in a seminar led by Gerry Hills at UIC. Gerry has widespread interests: entrepreneurial marketing, opportunity recognition, and who became entrepreneurs. I remember being interested with studies that showed that e-ship was often semi-voluntary. Many people become entrepreneurs after they lose their jobs, go to jail and acquire criminal records, emigrate or suffer some other setback that makes “normal” employment difficult: entrepreneurship by necessity.
For an inspiring twist on this phenomenon, read about Inc’s Entrepreneur of the year:
http://www.inc.com/magazine/20081201/entrepreneur-of-the-year-what-alison-schuback-wants.html
The big story is not how Bernie Madoff with the money; Ponzi schemes are not that uncommon although the scale of this one is awesome. The BIG story in the Madoff affair is the role of fiduciaries.
At first B.M. fit model of the standard Ponzi flim-flam man who preys on friends, family and fellow members of his ethnic or religious background. What is unique in this case is the involvement of a number of unrelated “fiduciaries” who were supposed to perform due diligence for their clients. Somehow these sages didn’t notice or weren’t concerned about:
· Madoff companies managing the money; executing the trades, acting as custodian, and clearing trades (anyone remember Nick Leeson?);
· A no-name, one-man, accounting firm conducting the audits;
[You would have lost me here already. I was in Singapore during the Leeson affair and couldn’t understand how a major bank could permit one person to perform all roles]
· Amazingly (absurdly) consistent results;
· Madoff family members in all the key trading and compliance functions;
· Extreme secrecy;
· A 2001 Barrons article suggesting fraud; and
· A simple and easy-to-test options strategy that could not be replicated.
Yes, hindsight is 20/20, but re-read the points above…how could a sober, competent and sane compliance team OK Madoff??
That to me is the big story of the case: inept, or possibly corrupt fiduciaries performing the due diligence.
Possible explanations?
1. Perhaps the teams conducting due diligence were incompetent, stupid and/or under the influence of mind-altering substances. [Based on what I saw during my career in finance, I would not prematurely rule out this possibility.]
2. Perhaps the teams were greedy and unethical. There were rumors that B.M. was front-running trades from his market-making activity; the “fiduciaries” might have thought that this assured good future results. And the fact that B.M. did not ask for management fees meant they could rake in more fees…
3. “Pay for play.” This is an Illinois tradition — think Mayors Daley, Governors Blogojevich/Ryan/et.al., recent stories about Congressmen R. Emanuel and triple-J, or most any official elected to statewide office in Illinois..
4. Actually those are the only three I can come up with — does anyone else have some ideas what the banks and funds-of-funds might have been thinking? (or smoking?)
A recurring theme of postings on customer involvement methods is that traditional market research methods such as focus groups and brainstorming kill ideas and creativity; there is a need for better ideation techniques that truly engage users.
J. Scott Armstrong has suggested using Delphi techniques to access the wisdom of crowds without suffering from idea truncation common to group efforts. Some researchers have suggested online groups to loosen the group effect.
Another blog takes a look at the benefits and dangers of using online communities in new service development:
I would like to refer this community to an excellent blog on mass customization and co-creation:
http://mass-customization.blogs.com/mass_customization_open_i/
The Internet Changes Everything
The internet changes the song parody business. Through digital release of a song or video an entertainer can parody a song that is still on top of the charts…
Weird Al’s first release on iTunes sold 21,000 copies @ .99 each during its first week of release. The artist said that he was encouraged by the results and the opportunity for real-time parody, but was not pleased with iTune’s performance.
Read about it on his blog:
http://blog.myspace.com/index.cfm?fuseaction=blog.view&friendID=90827837&blogID=442836864
Wired magazine has an interesting article about how the internet has affected the career of Weird Al Yankovic. Weird Al is impacted by two trends from the internet:
as well as the fact that the few mass acts that exist seem to be self-parodies (e.g. Jessica Simpson, Brittany, Kevin F.).
Read it here:
http://www.wired.com/entertainment/theweb/magazine/16-10/ff_weirdal
A blogger suggests ways that Weird Al could use the Internet’s potential for crowdsourcing to stay ahead of trends: http://blog.ogilvypr.com/?p=452
Weird Al has embraced the new media, releasing his first parody on iTunes two weeks ago. Digital release allows him to parody a song while it is still topping the charts…
Every firm has an IP unit that is looking to protect and harvest the ideas generated within the organization.
Patent Trolls are infamous in software and other high tech areas.
Why then are users willing to collaborate with firms and allow them to have the IP?
In his discussion of Lead users and in several articles, Eric von Hippel has suggested that the most demanding users stand to benefit by supplier advances so much that they are willing to effectively grant them free IP.
A recent blog addresses this issue with breakfast cereal:
http://blog.openinnovation.net/2008/10/open-innovation-on-cheap.html
The issue is not quite as stark in the world of free and open source software (“FOSS”), as no one is reaping the tolls, although participants are again giving up potentially valuable IP.
The following article in Linux.com discusses von Hippel’s contribution to our understanding of FOSS:
http://www.linux.com/feature/149403
For a short time I was head of NSD at a software firm and was amazed at extensive customer contributions by secretive firms who otherwise carefully guarded their IP. Collaboration happens!
A business absolutely devoted to service will have only one worry about profits: They will be embarrassingly large. Henry Ford
An interesting article notes that Henry Ford knew that he was in the service business, but many goods-manufacturers today still do not recognize that they are competing on service.
ProfessorGary on Innovation and Marketing 